Current Research Projects
Competition when consumers value firm scope
Nathan H. Miller, University of California, Berkeley
Previously titled "Explaining bank scope: A role for depositor heterogeneity?"
[April 2008 draft, under review]
I model multimarket competition when consumers value firm scope across markets. Such competition is surprisingly common – consumers in many industries prefer firms that operate in more geographic and/or product markets. I show that these preferences permit firms of differing scopes to coexist in equilibrium. Within markets, firms of greater scope have higher prices and market shares. I turn to the commercial banking industry for the empirical implementation. Structural estimation of the model firmly supports the assumptions on consumer preferences, and empirical predictions specific to the model hold in the data. The results suggest that theoretical model is empirically relevant.
Strategic leniency and cartel enforcement
Nathan H. Miller, University of California, Berkeley
Winner of the 2007 Competition Policy Associates (COMPASS) Prize
[November 2007 draft, under review]
The cornerstone of cartel enforcement in the United States and elsewhere is a commitment to the lenient prosecution of early confessors. A burgeoning game-theoretical literature is ambiguous regarding the impacts of leniency. I develop a theoretical model of cartel behavior that provides testable implications and moment conditions, and apply the model to the complete set of indictments and information reports issued by the DOJ over a twenty year span. Reduced-form statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities. Direct estimation of the model, via the method of moments, yields a 48 percent lower cartel formation rate and a 62 percent higher cartel detection rate due to leniency. The results have implications for market efficiency and criminal enforcement.
Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information
Allen N. Berger, Board of Governors of the Federal Reserve System
Marco A. Espinosa-Vega, International Monetary Fund
W. Scott Frame, Federal Reserve Bank of Atlanta
Nathan H. Miller, University of California, Berkeley
[April 2007 draft, under review]
An important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers hold ex ante private information. There is no clear empirical evidence regarding the central implication of this literature – that a reduction in asymmetric information reduces the incidence of collateral. We exploit exogenous variation in lender information related to the adoption of an information technology that reduces ex ante private information, and compare collateral outcomes before and after adoption. Our results are consistent with this central implication of the private-information models, and support the empirical importance of this theory.
Refereed Publications
Firm risk, asymmetric information, and loan maturities
Allen N. Berger, Board of Governors of the Federal Reserve System
Marco A. Espinosa-Vega, International Monetary Fund
W. Scott Frame, Federal Reserve Bank of Atlanta
Nathan H. Miller, University of California, Berkeley
We test the implications of Flannery's (1986) and Diamond's (1991) models concerning the effects of risk and asymmetric information in determining debt maturity, and we examine the overall importance of informational asymmetries in debt maturity choices. We employ data on over 6,000 commercial loans from 53 large U.S. banks. Our results for low-risk firms are consistent with the predictions of both theoretical models, but our findings for high-risk firms conflict with the predictions of Diamond's model and with much of the empirical literature. Our findings also suggest a strong quantitative role for asymmetric information in explaining debt maturity.
Allen N. Berger, Marco A. Espinosa-Vega, W. Scott Frame, and Nathan H. Miller. "Firm risk, asymmetric information, and loan maturities" Journal of Finance 60.6 (2005): 2895-2923.
Does functional form follow organizational form? Evidence from the lending practices of large and small banks
Allen N. Berger, Board of Governors of the Federal Reserve System
Nathan H. Miller, University of California, Berkeley
Mitchell A. Petersen, Northwestern University and NBER
Raghuram G. Rajan, University of Chicago and NBER
Jeremy C. Stein, Harvard University and NBER
Theories based on incomplete contracting suggest that small organizations have a comparative advantage in activities that make extensive use of "soft" information. We provide evidence consistent with small banks being better able to collect and act on soft information than large banks. In particular, large banks are less willing to lend to informationally "difficult" credits, such as firms with no financial records. Moreover, after controlling for the endogeneity of bank-firm matching, we find that large banks lend at a greater distance, interact more impersonally with their borrowers, have shorter and less exclusive relationships, and do not alleviate credit constraints as effectively.
Allen N. Berger, Nathan H. Miller, Mitchell A. Petersen, Raghuram G.
Rajan, and Jeremy C. Stein. "Does functional form follow organizational
form? Evidence from the lending practices of large and small banks" Journal of Financial Economics 76.2 (2005): 237-269.
Credit scoring and the availability, price, and risk of small business credit
Allen N. Berger, Board of Governors of the Federal Reserve SystemW. Scott Frame, Federal Reserve Bank of Atlanta
Nathan H. Miller, University of California, Berkeley
We find that small business credit scoring (SBCS) is associated with expanded quantities, higher average prices, and greater average risk levels for small business credits under $100,000, after controlling for bank size and other differences across banks. We also find that: (1) bank-specific and industry learning curves are important; (2) SBCS effects differ for banks that adhere to "rules" versus "discretion" in using the technology; and (3) SBCS effects differ for larger credits. The data do not support two alternative explanations of the main results under which the findings primarily represent statistical artifacts, rather than significant changes in lending behavior.
Allen N. Berger, W. Scott Frame, and Nathan H. Miller. "Credit scoring and the availability, price, and risk of small business credit" Journal of Money, Banking, and Credit 37.2 (2005): 191-222.