Wouter Dessein

Wouter Dessein

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

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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.

draft, February 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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