Nicholas Woolley
Economist
"Optimism under uncertainty in venture capital"
We model uncertainty in the venture capital sector through an investor’s fear of model misspecification, as in Hansen and Sargent (2008) using an endogenous growth model to capture the focus of venture capital on technology investment. We then alter the uncertainty aversion framework slightly to allow for uncertainty- loving, or optimistic, behavior. We find that market imperfections central to the endogenous growth model allow for perturbations to be welfare increasing. Furthermore, such perturbations also increase the investor’s realized utility, which we interpret as meaning it is optimal for the investor to have non-rational preferences.
“From debt to equity: did policy makers get it right?”
This paper addresses the impact of investment contracts in venture capital on the wider economy. Specifically, we address the shift from debt to equity contracts in the technology sector in the late 1970s by building debt and equity contracts into the endogenous growth model of Rivera-Batiz and Romer (1994). We find that the shift in contract can explain the increase in level of technology investment in the early 1980s, as more capital becomes available due to the sharing of windfall from positive technological shocks. This windfall, in turn, magnifies the positive externality from technological innovation, and allows it to propagate over the business cycle. We conclude that the shift from debt to equity was a positive change, and would recommend against efforts to increase the use of debt contracts in the technology sector.
“Venture capital in a credit crunch: a structural analysis”
This paper serves to explain cyclical-level changes in venture capital investment levels in a credit crunch. We use a net worth multiplier of Bernanke (1983) to model credit restrictions and the endogenous growth model of Romer (1990) to model the focus of venture capital on technology investment. We find the increased investment from a technological discovery will amplify oscillations in the investment level, causing a far greater disturbance than the shock would suggest without endogenous growth. Furthermore, the model helps explain the differences in reaction of the venture capital sector to the economic downturns of 2001 and 2008.
“The real cost of rent: how the costs of higher education contribute to inequality" (with Mark Stater)
This paper addresses troubling trends in higher education, focusing on the the budgetary restrictions on higher education institutions and heterogeneous student skills. We model the way in which the balance between reputation and the need for tuition payments creates a vulnerability for lower-endowment institutions. This leads to a potential arms race in which institutions increasingly spend money to improve their perceived standing. The model is simulated to replicate a series of stylized facts associated with higher education trends.
"Theoretical framework for uncertainty in economic growth: a non-linear robust control approach"
This paper serves creates a theoretical foundation for empirical links between uncertainty and economic growth. The Hansen-Sargent (2008) robust control framework for modeling economic uncertainty is applied around critical points in an endogenous growth model to show how uncertainty can lead to behaviour that would push an economy from one structural regime to another.
"Income inequality, student debt, and new business formation"
This paper explores theoretical and empirical links between student debt and entrepreneurship. We establish an empirical link between student debt, and new business formation based on demographic and geographic breakdown of student debt holders and entrepreneurship data obtained by the US Census Bureau. We then develop a theoretical model to use this relationship to develop an explanation of income inequality in which students from lower-wealth backgrounds achieve lower lifetime income than students from wealthier backgrounds.