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.

Essays on Matching Markets and Their Equilibria

Matching theory and matching markets are a core component of modern economic theory and market design. This dissertation presents three original contributions to this area. The first essay constructs a matching mechanism in an incomplete information matching market in which the positive assortative match is the unique efficient and unique stable match. The mechanism asks each agent in the matching market to reveal her privately known type. Through its novel payment rule, truthful revelation forms an ex post Nash equilibrium in this setting. This mechanism works in one-, two- and many-sided matching markets, thus offering the first mechanism to unify these matching markets under a single mechanism design framework. The second essay confronts a problem of matching in an environment in which no efficient and incentive compatible matching mechanism exists due to matching externalities. I develop a two-stage matching game in which a contracting stage facilitates subsequent conditionally efficient and incentive compatible Vickrey auction stage. Infinite repetition of this two-stage matching game enforces the contract in every period. This mechanism produces inequitably distributed social improvement: parties to the contract receive all of the gains and then some. The final essay demonstrates the existence of prices which stably and efficiently partition a single set of agents into firms and workers, and match those two sets to each other. This pricing system extends Kelso and Crawford's general equilibrium results in a labor market matching model and links one- and two-sided matching markets as well.

Design and Pilot Study for an Efficient High-Throughput Automated Computer-Vision Guided Intelligent De-Calyxing Machine for Post-Harvest Strawberry Processing

Strawberries harvested for processing as frozen fruits are currently de-calyxed manually in the field. This process requires the removal of the stem cap with green leaves (i.e. the calyx) and incurs many disadvantages when performed by hand. Not only does it necessitate the need to maintain cutting tool sanitation, but it also increases labor time and exposure of the de-capped strawberries before in-plant processing. This leads to labor inefficiency and decreased harvest yield. By moving the calyx removal process from the fields to the processing plants, this new practice would reduce field labor and improve management and logistics, while increasing annual yield. As labor prices continue to increase, the strawberry industry has shown great interest in the development and implementation of an automated calyx removal system. In response, this dissertation describes the design, operation, and performance of a full-scale automatic vision-guided intelligent de-calyxing (AVID) prototype machine. The AVID machine utilizes commercially available equipment to produce a relatively low cost automated de-calyxing system that can be retrofitted into existing food processing facilities. This dissertation is broken up into five sections. The first two sections include a machine overview and a 12-week processing plant pilot study. Results of the pilot study indicate the AVID machine is able to de-calyx grade-1-with-cap conical strawberries at roughly 66 percent output weight yield at a throughput of 10,000 pounds per hour. The remaining three sections describe in detail the three main components of the machine: a strawberry loading and orientation conveyor, a machine vision system for calyx identification, and a synchronized multi-waterjet knife calyx removal system. In short, the loading system utilizes rotational energy to orient conical strawberries. The machine vision system determines cut locations through RGB real-time feature extraction. The high-speed multi-waterjet knife system uses direct drive actuation to locate 30,000 psi cutting streams to precise coordinates for calyx removal. Based on the observations and studies performed within this dissertation, the AVID machine is seen to be a viable option for automated high-throughput strawberry calyx removal. A summary of future tasks and further improvements is discussed at the end.