Email: N dot Koreli at warwick dot ac dot uk
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Friday 4.00-5.30 P.M. by appointment (via email).
- Informational Economics
- Corporate Finance
Optimal strategic default and Investments (joint with Giulio Trigilia) (Job Market Paper)
Strategic default increases the expected recovery rate from bankruptcy, which is a costly event. When investors cannot commit upfront to bankrupt defaulting borrowers, recovery rates are essential in sustaining investment, and optimal financing contracts may generate incentives for borrowers to strategically default on their debts ex post. Where bankruptcy costs are high (at the extensive margin), strategic default is necessary for the marginal firm to be able to invest. Where costs are low (at the intensive margin), high profitability firms optimally choose financing terms that induce strategic default, even if this is anticipated by all parties and other feasible terms could prevent it. These firms are characterized by high probabil- ity of default and low expected losses given default. It follows that distinguishing between credit events is critical for estimating expected default costs.
Mediation in Competition
In this paper, I study the role of mediator in the common value first price auction when one of the bidders
have superior information. Given that mediator have power to commit to reporting policies to the bidders,
I show in which extent the mediator can solve the winner's course problem - minimization of the probability of buying good which price exceeds the value. I show that manupulation of first order beliefs of uninformed bidders is not sufficient to extract information from informed bidder. Only when the mediator can change the second order belief of the informed player it is possible to decrease degree of the winner's curse. I characterize the optimal strategy of the mediator and find the parameter regions where the mediator has a role in solution of winner's course problem.