The Department of Economics is excited to welcome Daniel Chen as its latest faculty member and affiliate of the Bendheim Center for Finance. 

Chen, who completed his Ph.D. at the Stanford Graduate School of Business in 2023, is an economic theorist with broad interests in finance and microeconomics. To date, much of his research has gravitated toward issues of market structure—in particular, “modern market structure phenomena that have grown in prevalence over the past decade or so, for which economic theory is lagging behind the needs of policymakers.”

New theories of market structure

Take for example a recent project that builds a new theoretical framework to study a range of regulatory issues affecting digital platforms like Facebook, X, YouTube, LinkedIn, and others. 

“It’s now a major open policy question as to how we should regulate these platforms,” Chen said. “Existing tools of competition analysis are based on more traditional markets. It is difficult to apply these tools to platforms which have a number of unique features that complicate things.”

To start, regulators traditionally rely on prices to gauge market efficiency. But platforms often give away their services for free and generate profits by relying instead on unprecedented amounts of consumer data. Second, the market platforms are competing in, which Chen calls “the market for attention”—is multisided in that platforms do more than simply sell a product. Platforms fulfill multiple productive roles: First, they provide users with quality services. Second, they sell user attention to advertisers. Because platforms’ incentives to fulfill these roles are interconnected, policymakers must juggle the impact of their policies on both sides of the market simultaneously. 

“We don’t want policymakers to be shooting from the hip,” Chen said. “They need new models, tailored for these platforms,  where the many complicated tradeoffs can be formally considered, weighed against each other, and quantified.”

Another project of Chen’s studies the market structure phenomenon of “market fragmentation” which he says has become a prominent issue in financial markets over the past fifteen years or so. 

“In the U.S., there are now over twelve exchanges that trade many of the same assets,” Chen said. “This has been a concern for regulators who are worried that fragmenting liquidity across different trading venues may be harmful for allocative efficiency.”

In a paper coauthored with Darrell Duffie at Stanford, Chen shows that, contrary to the conventional wisdom, a fragmented market can be more efficient than a centralized market where all trade is consolidated on a single venue. 

Looking out for inspiration

Chen, who also happens to be a member of Princeton’s Class of 2017, says that his approach to research has grown out of his experience conducting independent work as an undergraduate. 

Chen worked with Professor Hank Farber on his Junior Independent Work and was advised by Professor Motohiro Yogo on his Senior Thesis. 

“As a theorist it was incredibly valuable to work with Hank and Moto, who are empirical researchers,” Chen said.

“They were amazing mentors on many levels, but they taught me the value of looking to the real world for stylized facts to help inform the theory. Not all theory has to be done that way, but it was a really valuable lesson for disciplining my research and a great starting point to go looking for new ideas.”

Chen said the value of “looking out to the real world”  for inspiration was further enforced by his mentors in graduate school at Stanford, including Bob Wilson and Darell Duffie, and has had a lasting impact on his research.

Back at Princeton

Though Chen is just beginning his journey as a member of Princeton’s faculty, this is his second year back on campus since graduating from Princeton in 2017. Last year, he completed the Pyewacket Fellowship at Princeton BCF.

“In short, it feels great to be back,” he says. “It feels familiar, but also new and fresh because I get to experience the university from the other side as a faculty member.”

“Since you asked, there are a few strange aspects of being back,” Chen said when reflecting on his first year back on campus. “During the school year I would drive up Washington on my way to work, and I’d get this feeling of déjà vu when I’d see students rushing across the street to get to class. For a second there I would think: Should I be getting to class, too?”