Essays on Market Frictions and Securitization

This dissertation provides a novel theory of securitization based on intermediaries minimizing the moral hazard that insiders can misuse assets held on-balance sheet. The model predicts how intermediaries finance different assets. Under deposit funding, the moral hazard is greatest for low-risk assets that yield sizable returns in bad states of nature; under securitization, it is greatest for high-risk assets that require high guarantees and large reserves. Intermediaries thus securitize low-risk assets. In an extension, I identify a novel channel through which government bailouts exacerbate the moral hazard and reduce total investment irrespective of the funding mode. This adverse effect is stronger under deposit funding, implying that intermediaries finance more risky assets off-balance sheet. The dissertation discusses the implications of different forms of guarantees. With explicit guarantees, banks securitize assets with either low information-intensity or low risk. By contrast, with implicit guarantees, banks only securitize assets with high information-intensity and low risk. Two extensions to the benchmark static and dynamic models are discussed. First, an extension to the static model studies the optimality of tranching versus securitization with guarantees. Tranching eliminates agency costs but worsens adverse selection, while securitization with guarantees does the opposite. When the quality of underlying assets in a certain security market is sufficiently heterogeneous, and when the highest quality assets are perceived to be sufficiently safe, securitization with guarantees dominates tranching. Second, in an extension to the dynamic setting, the moral hazard of misusing assets held on-balance sheet naturally gives rise to the moral hazard of weak ex-post monitoring in securitization. The use of guarantees reduces the dependence of banks' ex-post payoffs on monitoring efforts, thereby weakening monitoring incentives. The incentive to monitor under securitization with implicit guarantees is the weakest among all funding modes, as implicit guarantees allow banks to renege on their monitoring promises without being declared bankrupt and punished.

EXPLICIT WRITTEN CORRECTIVE FEEDBACK AND LANGUAGE APTITUDE IN SLA: IMPLICATIONS FOR IMPROVEMENT OF LINGUISTIC ACCURACY

Most second language researchers agree that there is a role for corrective feedback in second language writing classes. However, many unanswered questions remain concerning which linguistic features to target and the type and amount of feedback to offer. This study examined two new pieces of writing by 151 learners of English as a Second Language (ESL), in order to investigate the effect of direct and metalinguistic written feedback on errors with the simple past tense, the present perfect tense, dropped pronouns, and pronominal duplication. This inquiry also considered the extent to which learner differences in language-analytic ability (LAA), as measured by the LLAMA F, mediated the effects of these two types of explicit written corrective feedback. Learners in the feedback groups were provided with corrective feedback on two essays, after which learners in all three groups completed two additional writing tasks to determine whether or not the provision of corrective feedback led to greater gains in accuracy compared to no feedback. Both treatment groups, direct and metalinguistic, performed better than the comparison group on new pieces of writing immediately following the treatment sessions, yet direct feedback was more durable than metalinguistic feedback for one structure, the simple past tense. Participants with greater LAA proved more likely to achieve gains in the direct feedback group than in the metalinguistic group, whereas learners with lower LAA benefited more from metalinguistic feedback. Overall, the findings of the present study confirm the results of prior studies that have found a positive role for written corrective feedback in instructed second language acquisition.