Mark M. Westerfield
Published and Forthcoming Papers [BibTex]
We quantify the capital commitment problem of limited partners in private equity. Investors are willing to pay a significant premium to adjust quantity commitment but not to resolve timing uncertainty. Commitment risk premiums do not disappear even if investments are spread across multiple funds.
We survey the literature on the private equity partnership arrangement from the perspective of an outside investor (limited partner). We consider the particular institutional details of private equity, and we identify 27 open questions to help guide private equity research forward.
We study firms' internal resource allocation when a manager privately controls volatility and may extract private benefits. The optimal contract is implemented with a constant pricing schedule, and prices are not risk-adjusted. We apply the model to internal capital markets and transfer pricing.
We establish straightforward necessary and sufficient conditions for agents making inferior forecasts to survive and to affect prices in a general setting with minimal restrictions on endowments, beliefs, or utility functions.
We introduce a tractable dynamic monitoring technology into a continuous-time moral-hazard problem. Our results help explain empirical findings on the linkage between termination, performance, pay-performance sensitivity, and monitoring.
Investors in most assets are more likely to sell gains than losses, but mutual fund investors do the opposite. Using brokerage data and an experiment, we argue that cognitive dissonance can explain these results and the effects of delegation more generally.
We characterize VC firm resources using factor analysis, and we develop a methodology to distinguish motives for coinvestment. Coinvestment is not based on resource similarity; instead it serves to mix value-added resources with capital.
We present a simple model of illiquidity based on trading restrictions of uncertain duration. Uncertainty over trading opportunities is much more important than the simple inability to trade.
with Tobias Adrian
We present a dynamic contracting model with disagreement and learning. The interaction between incentive provision and learning creates an intertemporal source of “disagreement risk” that alters optimal risk sharing.
With an indefinite horizon, convex compensation (e.g. high-water marks and other "option-like" contracts) do not generate unbounded risk-taking. In a simple portfolio choice model, we show that risk neutral managers act as CRRA investors.
with Leonid Kogan, Stephen Ross, and Jiang Wang
Price impact and survival are two independent concepts; neither is sufficient for the other. In a simple GE economy, we demonstrate that irrational traders can survive and/or have price impact.
FIN 350, Business Finance.
Updated June 16, 2023.