Velkommen til åpent seminar onsdag 4. september med Maria Chaderina fra University of Vienna.
Title: Predator-Prey Dynamics and Employment Cycles on Wall Street
Much of the activity in sectors of financial services such as sales and trading or the hedge-fund industry is zero-sum in nature. Along with providing transactional and diversification services, participants in this industry also prey upon each other. High-ability traders (predators) capture surplus at the expense of less able and experienced traders (prey). We show that in a dynamic model of such an industry, multiple equilibria emerge due to participation externalities. In the model, traders are randomly matched each period. The presence of more low-ability traders protects others from predation by high-ability traders, leading to equilibrium at a high level of employment.
Shocks to aggregate profits may trigger exit by those of the lowest ability, which in turn exposes those of intermediate ability to greater risk of predation and motivating their exit. This leads to a collapse in employment. Depending on parameter values, the industry may remain stuck at the low employment level. In other cases it may, once profits recover, begin rapid growth towards the high employment level until this growth is interrupted by another bad shock. Thus, our relatively simple model generates boom-bust cycles reminiscent of Wall Street employment.
Seminaret finner sted i Ellen & Axel Lunds hus H-125, onsdag 4. september kl 11:30-12:30.