Anastasia V. Kartasheva

Assistant Professor of Insurance and Risk Management

Department of Business and Public Policy

The Wharton School, University of Pennsylvania




Information economics, corporate finance, financial institutions, risk management and insurance, industrial organization




1.   Design of Investment Promotion Policies

      International Journal of Industrial Organization 30 (2012) 127-136


Over the last twenty years, developing countries have experienced the massive shift of financing and the operation of infrastructure from the public to private sector. The paper analyzes how the government agency should structure the investment promotion policy. I develop a sequential contracting model between the government, investors and infrastructure providers and derive several properties of the optimal policy. I characterize how the optimal policy depends on the revenue generation preferences of the government and the profitability of infrastructure projects in the country.


2.   Information Effect of Entry into Credit Ratings Market: The Case of Insurers’ Ratings

      with Neil A. Doherty and Richard D. Phillips

      Journal of Financial Economics (forthcoming)


The paper derives the optimal rating system of a monopoly credit rating agency (CRA) and analyzes the effect of competition on the information content of ratings. We show that a monopolistic CRA pools sellers into multiple rating classes and has partial market coverage. This provides an opportunity for market entry. The entrant designs a rating scale distinct from that of the incumbent. It targets higher-than-average companies in each rating grade of the incumbent's rating scale and employs more stringent rating standards. We use Standard and Poor's entry into the market for insurance ratings previously covered by a monopolist, A.M. Best, to empirically test the impact of entry on the information content of ratings.


3.   Insurer’s Insolvency Prediction Using Random Forest Classification

      with Mikhail Traskin

      Journal of Risk and Insurance, revise and resubmit


This paper uses a modification of the Random Forest classification algorithm to predict insolvency of insurers. RF orders companies according to their propensity to default. We show that RF methodology delivers higher quality of prediction compared to other existing methods. In addition, RF classification can be used to gather further insights about the fragile companies. It ranks the explanatory variables in the order of their ability to predict insolvency. Also it is used to describe the relationship between the propensity to default and the individual characteristics of an insurer. We show that many of these relationships are highly non-linear.




4.   Precision of Ratings

      with Bilge Yilmaz


We analyze how the incentives of a credit rating agency to produce accurate ratings depend on the aggregate value of liquidity, the extent of information asymmetries between issuers and investors and the presence of differentially informed investors. We build a rational model where the credit rating agency can choose a general information structure. We show that the precision of ratings is lower when the aggregate value of liquidity is high, the winner’s curse problem is more severe and a share of high quality assets is lower. These results provide an explanation for low accuracy of ABS ratings before the recent financial crisis. We apply the model to evaluate the recent Dodd-Frank act proposals for the reform of the CRAs.


5.   Real Effects of Rating Standards for Catastrophic Risks

      with Sojung Carol Park


The paper analyzes the effect of more stringent rating standards on the behavior of firms. In the aftermath of hurricane Katrina in 2005, the major rating agencies have increased the amount of capital that an insurer selling coverage for catastrophic events needs to hold to maintain its current rating. In this paper we demonstrate, theoretically and empirically, that new standards have a heterogeneous effect on the credit quality of insurers. The insurers' choice of capital and targeted rating obtains as a tradeoff between the benefits of higher rating due to the ability to sell insurance at higher price and the cost of raising capital. Thus the decision to maintain the rating depends on the elasticity of demand with respect to credit quality. While insurers facing higher elasticity of demand and lower cost of capital improve their credit quality, the others find the standard too costly, accept the downgrade and become more risky.


6.    Transparency of Information Exchange in Dynamic Common Agency


The paper analyzes how the transparency of information exchange affects the equilibrium distribution of allocations in dynamic common agency games. I establish the equivalence between transparent and non-transparent information exchange. The result implies that in the environment with no restrictions on the set of feasible contracts, disclosure of information exchange between the principal and the agent has no effect on market outcome.


7.    The Value of Ex-Ante Agreements


This paper analyzes the value of ex-ante agreements that can be renegotiated at later stages. I consider a sequential common agency game between two firms contracting with a common supplier under asymmetric information about supplier quality. The first firm signs an ex-ante agreement that specifies the contract that will be executed in the future, after the supplier trades with the other firm. I show that the ex-ante agreement can increase efficiency. The reason is the status quo contract reduces the uncertainty at the renegotiation stage and decreases the information costs.


8.    Sequential Common Agency: The Revelation Principle


The paper extends the Revelation Principle to sequential common agency games under asymmetric information. Each period a principal contracts with a common agent. An implemented allocation is observed by other principals. Under private communication between a principal and the agent, the Revelation Principle applies, but optimal contracts are stochastic. However, the dimension of the support of an equilibrium contract does not exceed the number of types that achieve this stage with a positive probability. Under public communication, the reporting strategy of agent is stochastic, but the true type is reported with a positive probability. The results hold when the agent’s type is not persistent, or the outcome of the contract is observed with noise.




9.    Rating Standards and Market Competition

      with Alon Eizenberg and Philipp Schmidt-Dengler


While high credit rating standards may help improve the quality of insurance companies, they may also create barriers to entry and other market frictions. This paper utilizes a dynamic structural framework as well as proprietary data from the insurance market to assess the interplay between rating standards and market competition. This framework allows us to examine the impact of various changes in the regulatory environment on market entry, performance and measures of risk.


10.   Demand for Multiple Ratings

        with Alon Eizenberg


It is common for a company to be followed by several CRAs. We use the data on the insurers’ financial strength ratings to analyze the informational content of ratings. We employ structural estimation techniques to analyze the determinants of the demand for ratings and to analyze the effect of competition on the quality of information.




11.  “Recent Theoretical Work on Capital Markets Imperfections and Financing Arrangements,”

       with Antonio Estache. World Bank Policy Report, 2003.

12.  “Aid-Driven Distortions in the Efficiency and Distributional Outcomes of Infrastructure Reform,”

       with Antonio Estache. World Bank Policy Report, 2001.

13.  “Contract Renegotiations on Concessions in Latin America and Caribbean Region: An Economic Analysis and Empirical Implications,”

       with Joe Luis Guasch and Lucia Quesada. World Bank Policy Report, 2000.