Published and Forthcoming Papers

"The Dynamics of Inequality", with Jean-Michel Lasry, Pierre-Louis Lions, and Ben Moll, Econometrica, Vol. 84(6), 2016, 2071-2111. Online Appendix

"Executive Compensation: A Modern Primer", with Alex Edmans (2016), Journal of Economic Literature, Vol. 54(4), 2016, 1232-1287.
    Survey paper of traditional and modern theories of executive compensation, bringing them together under a unifying framework that can be taught to PhD students.

"The Impact of Competition on Prices with Numerous Firms", with David Laibson, Deyuan Li, Hongyi Li, Sidney Resnick, Casper de Vries, Journal of Economic Theory, Vol. 165, 2016, p. 1-24.
    How the prices respond, or not, to the intensity of competition, particularly when consumers are confused.

"Rare Disasters and Exchange Rates", with Emmanuel Farhi, Quarterly Journal of Economics, 2016, vol. 131(1), p. 1-52. Online Appendix.
    A rare disasters model accounts for many puzzling features of the joint fluctuations in exchange rates, interest rates, options, and stock markets.

"Power Laws in Economics: An Introduction",Journal of Economic Perspectives, vol. 30(1), p. 185-206, 2016.
    An elementary piece, with many pictures.

"Executive Compensation: A Survey of Theory and Evidence", with Alex Edmans, and Dirk Jenter, (2017), Handbook of the Economics of Corporate Governance, Chapter 9, 383-539 (edited by Hermalin/Weisbach)

"International Liquidity and Exchange Rate Dynamics", with Matteo Maggiori, Quarterly Journal of Economics, 2015, vol. 130(3), p. 1369-1420. Online Appendix Slides.
    A theory of exchange rates based on capital flows in imperfect financial markets.

"A Sparsity-Based Model of Bounded Rationality", Quarterly Journal of Economics, 2014, vol. 129(4), p.1661-1710. Online Appendix.
    I propose a tractable behavioral "max" operator, the sparse max. It yields a behavioral version of basic consumer theory (e.g., Marshallian demand, Slustky matrix, nominal illusion) and equilibrium theory (e.g., Arrow-Debreu, Edgeworth boxes).

"The Great Diversification and Its Undoing," with Vasco Carvalho, American Economic Review, 2013, vol. 103(5), p. 1697-1727. Online Appendix.
    We propose an account of the movement of GDP volatility in the past 50 years, including the great moderation and its undoing.

"Dynamic CEO Compensation", (formerly, Dynamic Incentive Accounts) with Alex Edmans, Tomasz Sadzik and Yuliy Sannikov (2012), Journal of Finance, vol. 67(5), p. 1603-1647. Online Appendix.
    Dynamic model of CEO pay featuring manipulation and private saving. Proposes a reform of CEO compensation to address problems that led to the financial crisis.

"Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance", Quarterly Journal of Economics, 2012, vol. 127(2), p. 645-700. Online Appendix. Précis of Results on Linearity-Generating Processes
    Ten puzzling features of the macro-finance data are natural outcomes of a model where investors have time-varying perceptions of the risk of economic disaster.

"The Granular Origins of Aggregate Fluctuations," Econometrica, 2011 vol. 79, p.733-772.Online Appendix, Data on the granular residual
    When the distribution of firm sizes is fat-tailed, the central limit theorem breaks down, and idiosyncratic shocks to large firms explain a non-trivial fraction of aggregate fluctuations.

"Disasterization: A Tractable Way to Fix the Asset Pricing Properties of Macroeconomic Models", American Economic Review, Papers and Proceedings, vol. 101(3), 2011, p. 406-409.
    Take a production economy which has good business cycle properties: to fix its asset pricing properties (e.g. to have a high and volatile returns to equities), add disaster risk in the right places, i.e. "disasterize" this economy.

"Tractability in Incentive Contracting" (web appendix), with Alex Edmans (2011), Review of Financial Studies, vol. 24(9), 2865-2894.
    Develops a framework that delivers tractable (i.e. closed-form) optimal contracts, with few restrictions on the utility function, or noise distribution.

"The Effect of Risk on the CEO Market," with Alex Edmans (2011), Review of Financial Studies, vol. 24(8), p. 2822-2863.
    Risk aversion causes distortions in talent allocation - risky firms hire less talented CEOs. Tractable market equilibrium allowing calibration of costs of corporate governance.

"The Area and Population of Cities: New Insights from a Different Perspective on Cities," with Hernan Rozenfeld, Diego Rybski, and Hernan Makse, American Economic Review, 2011, vol. 101(5), p. 2205-2225.
    We build cities ''from the bottom up'' by clustering areas obtained from high-resolution data, and find that a beautiful Zipf's law for population and for areas, for cities above 12,000 inhabitants in the USA and 5,000 inhabitants in Great Britain.

"Rank-1/2: A Simple Way to Improve the OLS Estimation of Tail Exponents", with Rustam Ibragimov, Journal of Business Economics and Statistics, vol. 29(1), 2011, p. 24-39. Online Appendix.
    To estimate a Pareto exponent with an OLS regression, it's best to specify it with log(Rank-1/2)=a-b log(Size), and use the standard error s.e. (b)=b (2/n)^0.5, as OLS standard errors strongly biased..

"A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium" (web appendix, data on scaled wealth-performance sensitivity,slides), with Alex Edmans and Augustin Landier, Review of Financial Studies, vol. 22, 2009, p. 4881-4917.
    A neoclassical model of both total salary and incentives quantitatively explains various apparently paradoxical features of the data, such as the negative empirical scaling of the Jensen-Murphy incentives with firm size and their seemingly low level.

"The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation", with Sumit Agarwal, John C. Driscoll, and David Laibson (2009), Brookings Papers on Economic Activity, vol. 2009, issue 2, p. 51-117. Online Appendix.
    The young and the old make the most mistakes, and people reach maximal performance at age 53.

"Power Laws in Economics and Finance", (2009), Annual Review of Economics, 1, p. 255-93.
    Most "laws" in economics are power laws: a survey of theory and empirics on power laws.

"Power Laws", (2008), Entry for The New Palgrave Dictionary of Economics, 2nd Edition.
    A short survey on power laws.

"Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories", with Alex Edmans (2009), European Financial Management, 15(3), p. 486-496.

"Why Has CEO Pay Increased So Much?", with Augustin Landier,  Quarterly Journal of Economics, vol. 123(1), 2008, p. 49-100, Online Appendix.
    A tractable model of CEO pay. An upshot: the six-fold rise in CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large companies during that period.

"Limits of Arbitrage: Theory and Evidence from the Mortgage-Backed Securities Market", with Arvind Krishnamurthy and Olivier Vigneron, Journal of Finance, vol. 62(2), April 2007, p. 557-595, Online Appendix.
    A "limits of arbitrage" model explains patterns of risk premia in MBS.

"Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model (Formerly, The Allocation of Attention: Theory and Evidence)", with David Laibson, Guillermo Moloche and Stephen Weinberg, American Economic Review, vol. 96 (4), September 2006, p. 1043-1068, Online Appendix.
    An experimental investigation of the following "Directed cognition" boundedly rational algorithm: "At each decision point, agents act as if their next set of search operations were their last opportunity for search."

"Institutional Investors and Stock Market Volatility", with Parameswaran Gopikrishnan, Vasiliki Plerou and H. Eugene Stanley, Quarterly Journal of Economics, 121 (2), May 2006, p. 461-504.
    The trades of large institutional investors in illiquid markets explain many patterns in the extreme behavior of returns and trading volume.

"Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets", with David Laibson, Quarterly Journal of Economics, 121 (2), May 2006, p. 505-540.
    If enough consumers are boundedly rational, firms will "shroud" some information about easy to forget dimensions (e.g., the cost of the ink cartridge), even in a competitive equilibrium.

"The Evolution of City Size Distributions", with Yannis Ioannides, Handbook of Regional and Urban Economics, volume 4, Chapter 53, V. Henderson and J-F. Thisse eds, 2004, North-Holland, p.2341-2378.
    A survey of the literature on Zipf's law and Gibrat's law for cities.

"A Theory of Power Law Distributions in Financial Market Fluctuations", with Parameswaran Gopikrishnan, Vasiliki Plerou and H. Eugene Stanley (2003), Nature, vol. 423, p. 267-70.
    A theory in which the trades of large funds explain the power law fluctuations of returns, volumes, number of trades, and the link between them.

"The 6D Bias and the Equity Premium Puzzle", with David Laibson, NBER Macroeconomics Annual, 2002, vol. 16, pp. 257-312.
    A model of limited attention, in which investors update their information every D periods.

"Zipf's Law for Cities: An Explanation", Xavier Gabaix, Quarterly Journal of Economics, 114 (3), August 1999, p.739-67.
    Zipf's law says the size of city number N is proportional to 1/N. Why does this hold empirically? Suppose that cities follow Gibrat's law, with a vanishingly small friction. Then, their steady state distribution is Zipf, with an exponent of 1.

Working Papers

"Behavioral Inattention" (2017), a chapter prepared for the Handbook of Behavioral Economics (edited by Douglas Bernheim, Stefano DellaVigna and David Laibson).

"Optimal Taxation with Behavioral Agents", with Emmanuel Farhi (2017). Online Appendix
    We present a behavioral version of the three pillars of optimal taxation theory: Ramsey, Pigou, Mirrlees. Under some conditions, the optimal tax system is simple, i.e. all tax rates are equal.

"A Behavioral New Keynesian Model" (2017). Online Appendix

"Myopia and Discounting" , with David Laibson (2017).

"Behavioral Macroeconomics Via Sparse Dynamic Programming" (2016). Online Appendix

"Crash Risk in Currency Markets," with Emmanuel Farhi, Samuel Fraiberger, Romain Ranciere, and Adrien Verdelhan (2015). Online Appendix.
    We measure the importance of crash risk in currencies via new analytical results and options data.

"Game Theory with Sparsity-Based Bounded Rationality" (2013).
    I formulate the concept of sparsely boundedly rational Nash equilibrium, and show how it naturally explains deviations from traditional Nash equilibrium in prototypical games.

"CEO Pay and Firm Size: an Update after the Crisis", with Augustin Landier and Julien Sauvagnat, forthcoming, Economic Journal, Special issue on executive compensation.
    An update of "Why has CEO pay increased so much" after the crisis; the theory holds well.

"Linearity-Generating Processes: A Modelling Tool Yielding Closed Forms for Asset Prices", (2009), Online Appendix.
    The paper explains how, by "twisting" regular processes, simple closed forms for stocks and bonds obtain systematically.

"Linearity-Generating Processes, Unspanned Stochastic Volatility, and Interest-Rate Option Pricing", (2009), with Peter Carr and Liuren Wu
    We present a tractable way to price options on on any bond portfolios, including both caps and swaptions, using LG processes.

"A Primer on Tractable Incentive Contracts", with Alex Edmans (2011)
    Brief, non-technical summary of the framework for achieving tractable incentive contracts developed in Tractability in Incentive Contracting and used in The Effect of Risk on the CEO Market and Dynamic CEO Compensation.

"Learning in the Credit Card Market", with Sumit Agarwal, John C. Driscoll, and David Laibson (2013).
    Like rational agents, consumers learn, but like myopic agents, consumers respond to recent events more than events that occurred just a few months ago.

"Regularity Conditions to Ensure the Existence of Linearity-Generating Processes", with Patrick Cheridito (2008).

"Bounded Rationality and Directed Cognition", with David Laibson (2005), Online Appendix.
    We propose a simple boundedly rational model.



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