Publications

Medicare Part D enrollees face a complicated decision: they dynamically choose prescription drug consumption in each period given difficult-to-find prices and a nonlinear budget set. We use Part D claims data to estimate a flexible model of consumption that accounts for nonlinear prices, dynamic responses, and salience. We use reduced form price responses from a linear regression of consumption on coverage range prices to compare performance under several models of behavior. We find small price elasticities, substantial myopia, and that salient characteristics impact consumption beyond their effect on prices. A hyperbolic discounting model with salience fits the data best.

We investigate optimal rationing of resources and organizational slack when a principal procures from an agent with private information about fixed and variable costs. We study the problem in a two-period setting with persistent types and investigate how the optimal rationing and slack depend on whether production increases or decreases over time. We find that rationing in a dynamic model with persistent types is extra costly, since the types that are eliminated in period 1 might have been attractive in period 2. The cost of rationing increases with the variability of production. If production levels are increasing (decreasing), the principal will be cautious when eliminating types with low variable (fixed) costs in period 1, since these types are particularly profitable in period 2. When production is more stable over time, harsher rationing can be applied in period 1, followed by less harsh rationing, if any, in period 2.

Prodigy Finance, founded in 2007 by Cameron Stevens, Ryan Steele, and Miha Žerko, provides financing for international professional students. Using an innovative risk assessment model based on future earnings projections, Prodigy has successfully funded MBA students from top-ranked schools globally. The company transitioned from a crowdfunded model to institutional funding, partnering with Credit Suisse in 2014 to create the Higher Education Notes program. This growth led to significant capital infusion and possible expansion into new academic disciplines such as engineering, law, and public policy.

Prodigy faces crucial decisions as it considered expansion. One option is to diversify its product offerings beyond student loans, exploring personal and business loans, credit cards, and insurance products. These initiatives involve developing new financial products internally while leveraging partnerships for broader services. Additionally, Prodigy considered enhancing its presence in markets like China, requiring adaptations in marketing strategies and risk assessments. Another path involves leveraging its risk model to offer credit scoring services globally, potentially transitioning from a B2C to a B2B framework. Prodigy realized that the overarching concern that needed to be considered for all of these options and others was how the company would balance the mix of innovative financial products while maintaining its community-driven focus.      

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