arXiv subjects

G. Charles-Cadogan

Publications and source records attributed to G. Charles-Cadogan.

5 recordsLinked to original sources

arXiv2026

Bank Run Exposure in a Paycheck-to-Paycheck Economy with Loss-Averse Depositors

We develop a behavioural model of bank run exposure in a paycheck-to-paycheck economy with loss averse depositors. Income is received through demand deposits, and consumption ratcheting embeds reference dependence in a parsimonious asset-pricing framework. We show that sufficiently high subjective bad-state probabilities endogenously increase liquidity demand and generate equilibrium stress states supporting bank runs. These states define a Bank Run Exposure State Space and yield a martingale representation for exposure dynamics. A proof-of-concept empirical implementation using Call Report data constructs bank-level exposure proxies from funding and lending composition. A regression-weighted composite measure modestly improves fit relative to a retail-share benchmark, with stronger amplification among small banks and during the post-Silicon Valley Bank (SVB) collapse period. The framework highlights how behavioural liquidity demand alters equilibrium reserve holdings and can crowd out productive lending.

econ.TH↗

arXiv2026

Delegated Monitoring in Public-Private Sector Credit Programs: Underinvestment, Overinvestment, and the Design of Subsidized Lending

This paper studies public-private partnerships that delegate access-to-credit programs to private equity and venture-capital intermediaries. The public sector seeks to relax credit rationing and expand lending to socially valuable firms, while delegated monitors screen applicants, allocate subsidized loans, and bear agency costs. The paper develops a mechanism-design model showing that the same delegated intermediation structure can generate both Stiglitz-Weiss underinvestment and De Meza-Webb overinvestment distortions. When screening is imperfect, interest-rate sorting may exclude creditworthy target firms. When subsidies weaken monitoring and repayment incentives, high-risk firms may obtain excessive credit. The operative distortion is determined by monitoring curvature and subsidy intensity. The model further predicts that the feasible spread between loan contracts narrows as expected risk increases. A sequential extension incorporates credit scoring and Bayesian updating, showing that welfare loss from misclassification is minimized when monitoring resources are allocated according to the marginal effect of borrower characteristics on posterior risk classification. Because granular borrower-level data are unavailable, the empirical component provides descriptive state-year evidence from SBA SBIC reports (2018-2025) and a calibrated simulation illustrating that the model's comparative statics are empirically recoverable. The empirical analysis is presented as design validation rather than as a causal test.

econ.TH↗

arXiv2026

A Theory of Reference-Dependent Utility

This paper characterizes a class of twice continuously differentiable objective-probability preference representations exhibiting endogenous reference dependence under risk. Weak rank-dependent utility (WRDU) preserves objective probabilities, partitions outcomes at an endogenous reference point, and evaluates lotteries through a gainloss representation in which the reference point maximizes a penalized functional. The first-order condition yields a virtual loss-aversion index equal to the ratio of marginal utilities across the loss and gain domains, recovering both the utility-based index of Köbberling and Wakker (2005) and the slope ratio of Tversky and Kahneman (1992) as special cases. The main theorem shows that, within a class satisfying affine admissibility, loss-factorization, dispersion monotonicity, and attenuation, the derivative-ratio form is uniquely admissible. In this class, WRDU generates the modal Allais pattern on an admissible region and blocks the Rabin calibration implication through range-dependent attenuation. The result is conditional and does not claim uniqueness over all behavioral models of risky choice.

econ.TH↗

arXiv2026

Reference Dependence and the Structure of the WTA/WTP Gap

This paper studies the willingness-to-accept/willingness-to-pay (WTA-WTP) gap under objective probabilities. Preferences over finite lotteries satisfy completeness, transitivity, continuity, weak independence, reference partition, and range dependence. Weak independence requires von Neumann-Morgenstern independence only for mixtures that preserve the reference point and do not move outcomes across the induced gain-loss partition. The representation, weak rank-dependent utility (WRDU), evaluates gains and losses by separate subutilities anchored at the reference point and recombines them through a range-dependent Lagrangian penalty coefficient \r{ho} on the loss-side component. The reciprocal index ${λ= 1/ρ}$ reports the WTA-WTP loss-aversion convention. The main result characterizes a normalized admissible transaction class in which the WTA-WTP gap follows from the asymmetric buying and selling indifference equations. In this class, $λ > 1$ suppresses WTP and elevates WTA, while $ρ> 1$ corresponds to gain seeking or loss attenuation. A fixed reciprocal loss-aversion index has no internal mechanism that makes the wedge converge to zero as transaction scale changes; attenuation requires a transaction path on which $ρ> 1$ and $λ$ converge to their common neutral value one. The analysis gives a decision-theoretic account of the endowment-effect wedge based on weakened independence, reference anchoring, semi-affine subutility normalization, and range-dependent penalization. The result is distinct from the Rabin calibration implication and does not rely on constant-relative-risk-aversion utility or probability weighting.

econ.TH↗

arXiv2012

Active Portfolio Management, Positive Jensen-Jarrow Alpha, and Zero Sets of CAPM

We present conditions under which positive alpha exists in the realm of active portfolio management- in contrast to the controversial result in Jarrow (2010, pg. 20) which implicates delegated portfolio management by surmising that positive alphas are illusionary. Specifically, we show that the critical assumption used in Jarrow (2010, pg. 20), to derive the illusionary alpha result, is based on a zero set for CAPM with Lebesgue measure zero. So conclusions based on that assumption may well have probability measure zero of occurrence as well. Technically, the existence of [Tanaka] local time on a zero set for CAPM implies existence of positive alphas. In fact, we show that positive alpha exists under the same scenarios of "perpetual event swap" and "market systemic event" Jarrow (2010) used to formulate the illusionary positive alpha result. First, we prove that as long as asset price volatility is greater than zero, systemic events like market crash will occur in finite time almost surely. Thus creating an opportunity to hedge against that event. Second, we find that Jarrow's "false positive alpha" variable constitutes portfolio manager reward for trading strategy. For instance, we show that positive alpha exists if portfolio managers develop hedging strategies based on either (1) an exotic [barrier] option on the underlying asset - with barrier hitting time motivated by the "market systemic" event, or (2) a swaption strategy for the implied interest rate risk inherent in Jarrow's triumvirate of riskless rate of return, factor sensitivity exposure, and constant risk premium for a perpetual event swap.

q-fin.PM↗