Publications

2011
Gabaix X. The Granular Origins of Aggregate Fluctuations. Econometrica. 2011;79 :733-772. PDF Online Appendix Data on the Granular Residual
Gabaix X, Makse H, Rozenfeld H, Rybski D. The Area and Population of Cities: New Insights from a Different Perspective on Cities. American Economic Review. 2011;101 (5) :2205-2225.Abstract

We build cities "from the bottom up" by clustering areas obtained from high-resolution data, and find that a beautiful Zipf's law for population and for areas, for cities about 12,000 inhabitants in the USA and 5,000 inhabitants in Great Britain.

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Gabaix X. Disasterization: A Tractable Way to Fix the Asset Pricing Properties of Macroeconomic Models. American Economic Review, Papers and Proceedings. 2011;101 (3) :406-409.Abstract

Take a production economy which has good business cycle properties:  to fix its asset pricing properties (e.g. to have a high and volatile returns to equities), add disaster risk in the right places, i.e. "disasterize" this economy.

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Gabaix X, Ibragimov R. Rank-1/2: A Simple Way to Improve the OLS Estimation of Tail Exponents. Journal of Business Economics and Statistics. 2011;29 (1) :24-39.Abstract

To estimate a Pareto exponent with an OLS regression, it's best to specify it with log(Rank-1/2)=a-b log(Size), and use the standard error s.e. (b)=b (2/n)^0.5, as OLS standard errors strongly biased.

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Edmans A, Gabaix X. The Effect of Risk on the CEO Market. Review of Financial Studies. 2011;24 (8) :2822-2863.Abstract

Risk aversion causes distortions in talent allocation--risky firms hire less talented CEOs.  Tractable market equilibrium allowing calibration of costs of corporate governance.

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Edmans A, Gabaix X. Tractability in Incentive Contracting. Review of Financial Studies. 2011;24 (9) :2865-2894.Abstract

Develops a framework that delivers tractable (i.e. closed-form) optimal contracts, with few restrictions on the utility function, or noise distribution.

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Edelman A, Gabaix X. A Primer on Tractable Incentive Contracts [Working Paper]. 2011.Abstract

Brief, non-technical summary of the framework for achieving tractable incentive contracts developed in "Tractability in Incentive Contracting" and used in "The Effect of Risk on the CEO Market and Dynamic CEO Compensation."

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2009
Agarwal S, Driscoll JC, Gabaix X, Laibson D. The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation. Brookings Papers on Economic Activity. 2009;2009 (2) :51-117.Abstract

The young and the old make the most mistakes, and people reach maximal performance at age 53.

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Gabaix X. Power Laws in Economics and Finance. Annual Review of Economics. 2009;1 :255-293.Abstract

Most "laws" in economics are power laws:  a survey of theory and empirics on power laws.

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Edmans A, Gabaix X. Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories. European Financial Management. 2009;15 (3) :486-496. PDF
Edmans A, Gabaix X, Landier A. A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium. Review of Financial Studies. 2009;22 :4881-4917.Abstract

A neoclassical model of both total salary and incentives quantitatively explains various apparently paradoxical features of the data, such as the negative empirical scaling of the Jensen-Murphy incentives with firm size and their seemingly low level.

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Gabaix X. Linearity-Generating Processes: A Modelling Tool Yielding Closed Forms for Asset Prices [Working Paper]. 2009.Abstract

The paper explains how, by "twisting" regular processes, simple closed forms for stocks and bonds obtain systematically. 

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Carr P, Gabaix X, Wu L. Linearity-Generating Processes, Unspanned Stochastic Volatility, and Interest-Rate Option Pricing [Working Paper]. 2009.Abstract

We present a tractable way to price options on any bond portfolios, including both caps and swaptions, using LG processes.

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2008
Gabaix X. Power Laws. In: The New Palgrave Dictionary of Economics, 2nd edition. ; 2008.Abstract

A short survey on power laws.

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Cheridito P, Gabaix X. Regularity Conditions to Ensure the Existence of Linearity-Generating Processes [Working Paper]. 2008. PDF
Gabaix X, Landier A. Why Has CEO Pay Increased So Much?. Quarterly Journal of Economics. 2008;123 (1) :49-100.Abstract

A tractable model of CEO pay.  An upshot:  the six-fold rise in CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large companies during that period.

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2007
Gabaix X, Krishnamurthy A, Vigneron O. Limits of Arbitrage: Theory and Evidence from the Mortgage-Backed Securities Market. Journal of Finance. 2007;62 (2) :557-595.Abstract

A "limits of arbitrage" model explains patterns of risk premia in MBS.

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2006
Gabaix X, Laibson D, Moloche G, Weinberg S. Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model. American Economic Review. 2006;96 (4) :1043-1068.Abstract

An experimental investigation of the following "directed cognition" boundedly rational algorithm:  "At each decision point, agents act as if their next set of search operations were their last opportunity for search."

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Gabaix X, Laibson D. Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets. Quarterly Journal of Economics. 2006;121 (2) :505-540.Abstract

If enough consumers are boundedly rational, firms will "shroud" some information about easy to forget dimensions (e.g., the cost of the ink cartridge) even in a competitive equilibrium.

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Gabaix X, Gopikrishnan P, Plerou V, Stanley HE. Institutional Investors and Stock Market Volatility. Quarterly Journal of Economics. 2006;121 (2) :461-504.Abstract

The trades of large institutional investors in illiquid markets explain many patterns in the extreme behavior of returns and trading volume.

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