Wouter Dessein

Wouter Dessein

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

Research

You can also find my articles on my Google Scholar profile.

Working Papers

Test-Optional Admissions

American Economic Review (accepted), June 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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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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Dynamic Barriers to Entry

draft in preparation,
Wouter Dessein, Jin Li and Chang Sun

Many industries are dominated by large and very profitable firms. We provide a theory of dynamic entry barriers, where competing firms operate a fixed-cost technology but can only slowly build up a customer base. Entrepreneurs and new customers arrive each period. Entrepreneurs decide whether to found a firm and enter, whereas new customers are randomly matched to firms. Existing customers decide to stick with matched firms, and firms can increase customer retention by investing in product quality.
We show that: (1) There is an incumbency advantage. Earlier entrants are larger and more profitable; no more entry occurs after some time. Firms only upgrade product quality when they are sufficiently large; late entrants may never upgrade and are smaller/less profitable, even in the long-run. (2) Lower fixed costs reduce average product quality. (3) Long-run profitability is increasing in fixed costs and customer inertia, but decreasing in firm patience. (4) High fixed costs create an entry barrier paradox. When quality upgrading is not feasible, entrepreneurs always prefer markets with low fixed costs; with quality upgrading, early movers may prefer markets with high fixed costs.

Journal Articles