Futoshi Narita
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1) Hidden Actions, Risk-Taking, and Uncertainty Shocks (Job Market Paper) |
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| This paper explores a new mechanism through which increased uncertainty lowers aggregate output. In this mechanism, increased uncertainty causes endogenous active destruction of production units because of agency problems. This is in contrast with inactive waiting predicted in the real options theory. To demonstrate the mechanism, I develop a continuous-time dynamic matching model between principals and agents with long-term optimal contracts. In the model, a principal and an agent form a team to run risky projects and adjust their level of risk-taking. Because the agent can divert project payoffs, this agency relationship becomes hard to maintain when higher uncertainty increases the variance of the risky projects and generates more fluctuations in project outcomes. Therefore, teams close to termination break up instantaneously when uncertainty increases, causing an immediate reduction in aggregate output since it takes time to set up new teams. In addition, the average level of risk-taking declines among remaining teams because teams with a history of low output take less risk in response to the exogenous increase in project riskiness, in order to reduce the probability of costly separation. This further reduces aggregate output because low-risk projects have low average returns. | ||
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2) A Direct Approach to Measuring the Degree of Partial Insurance to Income Risk (2010) joint with Machiko Narita |
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| We propose a simple approach to measuring the percentage of household's income risk that is insured and the magnitude of the welfare cost arising from the lack of full insurance. Using a synthetic panel data set of income and consumption from the Consumer Expenditure Survey (CEX) for the period of 1980-2006, we investigate how efficiently U.S. households insure cohort-specific income risk. There are three main findings in our measurement with a standard CRRA utility function. First, on average, U.S. households insured 37% of their cohort-level income risk, and the welfare cost of uninsured risk was 1.8% of their annual expenditure on nondurables and services. Second, households who faced a higher risk tended to insure a larger portion of their risk. This observation is consistent with a prediction from the models of risk-sharing under limited enforcement. Third, stockholders and business owners hedged a larger portion of their risk, but faced higher income risk, ending up with higher welfare costs than other households. | ||
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3) Resource Reallocation and Zombie Lending in Japan's 1990s (2010) joint with Hyeog Ug Kwon and Machiko Narita |
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| We investigate the efficiency of resource reallocation in Japan during the 1990s, a decade of economic recession, by measuring aggregate productivity growth (APG) using a plant-level data set of manufacturers from 1981-2000. We find that resource reallocation contributed negatively to APG, mainly due to inefficient labor reallocation. A possible reason for the inefficient labor reallocation is misdirected (or zombie) bank lending to failing plants. To quantify its impact, we develop a model with plant-level heterogeneity, calibrate it based on the results of plant-level productivity estimation, and conduct a counterfactual exercise, in which there is no zombie lending. We find that, without zombie lending, aggregate productivity would have grown by 1.6% more during the 1990s, mostly due to more efficient labor reallocation. | ||