Wouter Dessein

Wouter Dessein

Wouter Dessein is the Eli Ginzberg Professor of Finance and Economics at Columbia Business School.

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publications

Customer Capital and Dynamic Barriers to Entry

draft, July 2025
Wouter Dessein, Jin Li and Chang Sun

Many industries are dominated by large and very profitable firms. We develop a theory of firm dynamics, where competing firms operate a fixed-cost technology but due to customer inertia can only slowly build up a customer base. We show how the interaction between scale economies and customer inertia creates dynamic entry barriers and persistent performance differences. Our model also resolves the paradox of entry barriers: markets with higher fixed operating costs have higher long-run profits, but are unambiguously less attractive to enter, except when firms can also invest in product quality. In the latter case, early entrants can create persistent performance differences through upgrading and may want to enter high-cost markets.

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La Cordata: Loyalty in Political Tournaments.

Journal of the European Economic Association, R&R, August 2025
Wouter Dessein and Luis Garicano

We study the allocation of talent in tournaments between (political) teams. The winner-take-all nature of these contests implies that talented members may quit if the odds of winning diminish. A leader must choose between competent individuals who increase the chances of winning but may bolt at the first hint of bad news, and loyalists who have fewer outside options. The value of loyalty increases when outside options are more valuable, pre-election information (polls, primaries) is more predictive, or elections are more competitive. Monetary incentives do not negate the value of loyalty. We discuss organizational responses, such as ideological platforms and shorter campaigns, and show how leader loyalty can improve the talent-loyalty trade-off by enabling long-term relationships.

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Test-Optional Admissions

American Economic Review, September 2025
Wouter Dessein, Alex Frankel and Navin Kartik

Many U.S. colleges now use test-optional admissions. A frequent claim is that by not seeing standardized test scores, a college can admit a student body it prefers, say with more diversity. But how can observing less information improve decisions? This paper proposes that test-optional policies are a response to social pressure on admission decisions. We model a college that bears disutility when it makes admission decisions that “society” dislikes. Going test optional allows the college to reduce its “disagreement cost”. We analyze how missing scores are imputed and the consequences for the college, students, and society.

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Subordinates in Charge: Does Delegation Improve Bank Supervision?

Draft, December 2025
Wouter Dessein, Thomas Lambert and Wolf Wagner

We study a policy reform that delegated supervisory decision-making authority for a subset of bank branches to a lower hierarchy. Consistent with a model of information loss in supervisory communication, we find improved supervisory outcomes following the reform: Supervisory interventions indicate better detection of misconduct by banks as well as a better assessment of the severity of misconduct. The effects are more pronounced when (i) centralized decision-making deters access to local information, and (ii) uncertainty about the local environment is high, aligning with theoretical predictions. Our findings highlight decentralization benefits within a supervisory hierarchy.

Nimble Banks.

Draft, February 2026
Wouter Dessein, Balint Horvath, Wolf Wagner and Wei Zhai

We examine how organizational flexibility influences investment decisions. We develop a novel measure of decentralized decision-making based on observed differences in the pricing of loans across subsidiaries of a banking group. We find that decentralized banks earn economically meaningful higher spreads on loans to borrowers with comparable characteristics. We provide evidence that this can be explained by them better exploiting lending opportunities arising from high, and urgent, demand. They do so by being more flexible in terms of the industries and countries they lend to, and by reacting more quickly to changes in aggregate lending conditions. Overall, the results suggest that a decentralized organization yields material benefits by facilitating more flexible decision-making.

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