Diversified firms often trade at a discount with respect to their focused counterparts. The literature has tried to explain the apparent misallocation of resources with lobbying activities or power struggles. We show that diversification can destroy value even when resources are efficiently...

This article develops a model in which an intermediary uses a supply chain finance (SCF) program to fund suppliers. The SCF program pools liquidity from suppliers and meanwhile provides immediate payment to suppliers with pressing liquidity needs. We show that the intermediary optimally selects...

The Dasgupta-Heal-Solow-Stiglitz model of capital accumulation and resource depletion poses the following sustainability problem: is it feasible to sustain indefinitely a level of consumption that is bounded away from zero? We provide a complete technological characterization of the...

We develop a simple model of managing a system subject to pollution damage under risk of an abrupt and random jump in the damage coefficient. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results, that imply prudent behavior due to...

We show that the standard Value Function Iteration (VFI) algorithm has difficulties approximating models with jump discontinuities in policy functions. We find that VFI fails to accurately identify the location and size of jump discontinuities while other methods - such as the Endogenous Grid...

We analyze optimal compensation schedules for the directors of two plants belonging to the same owner and producing the same good but serving geographically differentiated markets. Since the outcome of each director depends on his own effort and on a random variable representing market...

We propose a new method for solving high-dimensional dynamic programming problems and recursive competitive equilibria with a large (but finite) number of heterogeneous agents using deep learning. The "curse of dimensionality" is avoided due to four complementary techniques: (1) exploiting...

This paper develops a dynamic programming method when the one-stage deviation principle in the sense of mechanism design literature doesn’t hold. The commonly used dynamic programming method is valid only if the one-stage deviation principle in the sense of mechanism design literature is...

The literature on public goods has shown that efficient outcomes are impossible if participation constraints have to be respected. This paper addresses the question whether they should be imposed. It asks under what conditions efficiency considerations justify that individuals are forced to pay...