Working Papers

Limited Liability and Firm Dynamics

This paper examines the effects of limited liability, one of the most common insurance instruments entrepreneurs use worldwide, on output, firm size, and technology adoption. I show that despite higher financing costs, limited liability firms are larger than their unlimited counterparts, and their productivity is higher and more volatile. I propose a theory where limited liability is endogenously chosen by relatively rich entrepreneurs to insure themselves against losses, leading to the adoption of more profitable and riskier technologies, and larger firms. Computing general equilibrium effects, I show that limited liability produces output gains of 3.2%.

Firm Heterogeneity, Financial Frictions, and Misallocation

Firms have inherent and permanent characteristics that drive their performance until several years after establishment, constituting projects with different expected returns. If lenders cannot distinguish between types of firms (different potential returns), how do they allocate credit among them? Does this allocation translate into misallocation and output losses? In an optimal contract setting, I show that if investors cannot observe firms' productivity, the optimal financing contract will generate inefficient capital allocation: high (low) productivity firms will receive more (less) funding than optimal, leading to inefficient firm size and output losses. I empirically corroborate this prediction using firm-level data. Then, I evaluate the model quantitatively and find that asymmetric information on firms' productivity can generate output losses of almost 9.7% compared to a frictionless benchmark.

Work in progress

Financial Constraints and the Pool Talent of the Firm

(with Francisco Parro)

Entrepreneurship as an Outside Option

(with Lucas Finamor, Pablo Garriga and Rafael Vilarouca)

The Allocation of Inventors and Patenting Activity

(with Diego Mayorga and Rodimiro Rodrigo)