Entrepreneur's Overconfidence, Private Benefits and the Market Performance of the Firm

Many firms around the world are managed and partially owned by entrepreneurs. These entrepreneurs hold under diversified portfolios and, therefore, bear idiosyncratic risk in addition to systematic risk. To compensate the additional risk borne, they extract private benefits. In this paper, we analyse how an entrepreneur's overconfidence affects the market performance of the firm, through the channel of private benefits. We show that two dimensions of overconfidence, namely overestimation of future cash-flows and underestimation of idiosyncratic risk (called miscalibration), have opposite effects on the private benefits extracted by the entrepreneur. As a consequence, firms managed and partially owned by overconfident entrepreneurs can deliver overperformance or underperformance, depending on the prevalence of overestimation or miscalibration of the beliefs of the entrepreneur.

Three essays on short-term macroeconomics : business fluctuations, large devaluations and inflation dynamics

Résumé: At least since the Great Depression, explaining why there are business fluctuations has been one of the biggest challenges that the science of economics has had to face. The hope is that if we could better understand recessions, then we could also be more successful in overcoming them. This dissertation consists of three papers that are part of the general endeavor of economists to understand these fluctuations. The first paper discusses, for a particular model, whether a result related to fluctuations would still hold if time were modeled as continuous rather than discrete. The two other papers focus on price stickiness. The second paper discusses why, after a large devaluation, prices of non-tradables may change by only a small amount in comparison to the magnitude of the devaluation. The third paper examines price adjustment in a model in which information is imperfect and it is costly to change prices.