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This dissertation explores the process of economic development of Italy which between the late 1940s and the early 1970s moved from being a war-ravaged agricultural country to the seventh most industrialized power of the world. Chapter 1 investigates the extent to which the Marshall Plan affected the Italian economic recovery from WWII and its subsequent industrial production expansion. Chapter 2 assesses the long-run effects of management and technology transfer on firm performance. Chapter 3 studies the series of Italian reforms that promoted university STEM education among a group of high-school students, who were trained in STEM, but historically denied access to scientific university studies.
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The first chapter is co-authored with Kevin Hoan Nguyen. Changes in the technology format of popular music distribution are nothing new. Vinyl records and cassette tapes disappeared in the 1990s, CDs faded out in the 2000s, and digital downloads began their decline in the 2010s to make way for streaming subscriptions and on-demand radio. We use data from Billboard's Hot 100, a weekly ranking of the most popular songs in the United States, to investigate the impact of technology format changes on the popularity characteristics of these songs. We find that the transition from CD to digital impacts popularity characteristics significantly. The digital technology format reduces the cost of releasing a single, which allows established artists to crowd out the Hot 100 by virtue of their reputation. Faster feedback mechanisms lead to the emergence of "one-week wonders" -- i.e., songs charting on the Hot 100 for only a week before disappearing. Once a song manages to survive the initial vetting process, the digital format facilitates discovery and allows the song to remain popular for longer than previously possible. The second chapter is co-authored with Kevin Hoan Nguyen. We investigate the effect of the Australian Youth Participation in Education and Training Reform, an unusual policy implemented from 2003 to 2010. The reform introduced a new phase of compulsory participation, where students must either stay in school, take approved vocational courses, attend an apprenticeship, work full-time, or any combination of the above. We find that almost half of the students -- who would have left school early absent the compulsory participation phase -- undertake training, employment, or other courses, suggesting that the policy induces a different set of compliers compared to traditional compulsory schooling laws. Although there is considerable heterogeneity in the effects on education attainment by socio-economic status and gender, the reform raises the total years of schooling by 0.14 years and the high school attainment level by 5.8 percent. The reform significantly raises wages and income for the treated cohorts. The third chapter is co-authored with Petra Moser. Policy changes in 1996 and 2012 retroactively placed thousands of foreign compositions, such as Sergei Prokofiev's Peter and the Wolf, under copyright in the United States. Critics argue that long-lived copyright terms limit access to important compositions for all but the most affluent U.S. orchestras, but there is little systematic evidence. This paper examines repertoire data for U.S. symphonies between 1842 and 2012 to investigate the impact of copyright on the diffusion of classical music. We find that copyright is a key determinant of the types of music that U.S. orchestras play, and that copyright disproportionately impacts orchestras that are more budget-constrained. Repertoire data also indicate that a lack of copyright protection helped popularize Russian music in the United States.
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This dissertation explores various issues in finance and macroeconomics. The first two chapters deal with the workings of the prime brokerage and repo markets, with a special emphasis on the relationship between broker-dealers and hedge funds through collateral re-use in particular. The last chapter, co-authored with Daniel Garcia-Macia, deals with the impact of energy transitions on economic growth with a focus on the Industrial Revolution in the United Kingdom and has potential implications for the energy transitions in general. In the first chapter, I analyze the relationship between prime brokers and hedge funds. Prime brokers and hedge funds form relationships in a matching market. In particular, the research questions are: What are the determinants of these matches? How did they change after the financial crisis? I estimate a matching model in which part of the profits of prime brokers and hedge funds depends on variables that are defined at the level of the entire portfolio of clients that a prime broker serves. I show that prime brokers and their client hedge funds choose to have trading relationships with each other in a manner that reflects the benefits of specialization. Moreover, prime brokers preferred risky clients before the crisis, while they were averse to risky clients after the crisis. Identification follows from pairwise matching stability. I analyze the potential underlying economic mechanisms, mainly the cost advantages to a prime broker of collateral re-use between hedge fund clients. This is known as internalization. I estimate that the value of internalization for major prime brokers, such as Goldman Sachs, is around \$100-200 million annually. In the second chapter, I offer a theory by which dealer banks obtain funding liquidity by serving as intermediaries between hedge funds and cash investors in the markets for repurchase (repo) agreements. The model explains how the demand by dealer banks for funding liquidity determines repo haircuts and repo pricing. A dealer bank obtains liquidity to the extent of the spread between the haircut on its repos with cash investors and the haircut on its reverse repos with hedge funds. Dealer banks optimally choose the extent to which they use this funding mechanism over alternatives such as cash holdings and fire sales of illiquid assets. Rehypothecation and over-collateralization might expose hedge funds to the bankruptcy risk of dealer banks. The model pins down repo haircuts and interest rates jointly. Haircut spreads are low and hedge funds are not exposed to the bankruptcy risk of dealers when liquidity is abundant. When liquidity is relatively scarce, haircut spreads are high and hedge funds are exposed to the bankruptcy risk of dealers. The model highlights the volume of lending by cash investors and dealer balance sheets as key determinants of haircut spreads. The model yields further testable implications consistent with the data. In the last chapter, co-authored with Daniel Garcia-Macia, we study the impact of energy transitions on economic growth. We focus on the United Kingdom during the Industrial Revolution which has switched from wood as the main energy source to coal. The research questions we ask are: Why did the Industrial Revolution happen in England and at that time, but not somewhere else and around a different time? By using an endogenous growth model of directed technical change and natural resources, we provide an explanation of the Industrial Revolution as a transition from wood to coal as the main source of energy. We calibrate the model to historical data on energy uses and growth in England. Switching to the wood and coal stocks of France, the model matches the income gap between the two countries in 1600 and slightly overpredicts the gap in their 1600-1900 growth rates.
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This dissertation contains three essays on macroeconomics and optimal redistributive schemes. The first chapter studies two channels through which exchange rate policy affects the real economy. First, if nominal wages do not decrease during a recession, a nominal devaluation of the currency -- as opposed to a fixed exchange rate -- reduces unemployment by lowering wages in real terms. However, if not all wages are equally rigid, sectoral labor markets respond differently under different exchange rate regimes, and redistributive effects arise. Second, nominal devaluations can have an effect on the real value of nominal asset positions. The desirability of a nominal devaluation is analyzed in the context of a quantitative small open economy model. The model features heterogeneous workers and sectoral labor markets that differ in the degree of nominal rigidities. Using data from Argentina, I estimate the model to match aggregate and worker-level moments regarding labor market choices. The model predicts that fixed exchange rate regimes reduce employment and welfare during a recession. A devaluation that does not affect the real value of workers' nominal positions improves the overall well-being of workers, but entails a redistribution of welfare across certain groups of workers. Revaluation effects can be strong enough to overcome the labor market gain of a nominal devaluation. The second chapter is co-authored with Diego Perez. When setting prices firms use idiosyncratic information about the demand for their products as well as public information about the aggregate macroeconomic state. This chapter provides an empirical assessment of the relationship between the availability of public information about inflation and price setting. We exploit an event in which agents lost access to information about the inflation rate: the manipulation of inflation statistics that occurred in Argentina starting in 2007. Our difference-in-difference analysis reveals that this policy had associated an increase in the coefficient of variation of prices of 13% with respect to its mean. This effect is analyzed in the context of a quantitative general equilibrium model in which firms use information about the inflation rate to set prices. Consistent with empirical evidence, we find that monetary policy becomes more effective with less precise information about inflation. Not reporting accurate measures of the CPI entails significant welfare losses, especially in economies with volatile monetary policies. The final chapter is co-authored with Ricardo Perez-Truglia. In it we study the role of fairness concerns in the demand for redistribution through workfare. In the first part of the paper, we present new evidence from a survey experiment. We show that individuals are more generous towards poor people whom they perceive to be diligent workers relative to poor people whom they perceive to be non-diligent, a social preference that we label sympathy for the diligent. This preference is much stronger than preferences regarding other characteristics of the poor, such as race, nationality, and disability. More important, we show that subjects with higher sympathy for the diligent have a stronger preference for workfare programs. In the second part of the paper, we incorporate our empirical findings into a model of income redistribution. We consider the case of a benevolent government with fairness concerns that prioritizes the well-being of individuals who exert the most effort. We characterize the optimal conditions under which the government introduces work requirements. Even if wasteful, work requirements can be optimal, because they allow for a better distinction between individuals who exert great effort and individuals who do not. However, if the government lacks commitment power, the availability of screening through work requirements leads to a lower equilibrium effort and, possibly, a Pareto-dominated allocation.
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This thesis consists of three essays in microeconomic theory and the economics of networks. Chapter 1 establishes a model in which agents first form risk-sharing pairs, and then repeatedly share income risks under limited commitment. Agents of different occupations differ in income autocorrelations, i.e. how their current incomes correlate with past ones. I show that agents with high autocorrelation are hard to share risks with. With endogenous matching, two equilibrium outcomes can occur: either 1) agents match positive assortatively, or 2) agents from different occupations do match together, but in order to sustain such matches, agents share risks unevenly favoring the relatively less autocorrelated. Either equilibrium features substantial inequality across occupations and low total welfare, compared to what would happen if a social planner could impose an optimal matching to agents. The interplay between matching and risk sharing can change our views on policies. For instance, uniform increases in everyone's low income levels (minimal wages) may hurt some agents. Increases in occupation-specific common income shocks could improve overall risk sharing and reduce inequality. My results are also robust to forms of heterogeneity other than income autocorrelations, such as heterogeneous opportunities to rematch or migrate. This model is among the first attempts to consider both partnership formation and subsequent interactions. I highlight the point that how a pair of agents interact (share risks in this case) does not only depend on the two of them, but also on their potential links to others, and how others interact. Such a framework has important policy implications because a policy can change how agents interact as well as whom they interact with. Without considering these effects, out policy evaluations could be inadequate. Chapter 2 (coauthored with Matt Jackson) is an online experiment to justify homophily, the tendency of people to interact with others that are similar to themselves, by the ease of coordination among agents with a similar cultural background. In particular, we examine whether people are better at predicting how others with similar cultural backgrounds will behave, compared to others with different cultural backgrounds. We also explore whether this translates into better coordination. The more than a thousand participants in our experiment mainly reside in two countries: India and the United States. Participants are paired to act in a simple coordination environment with multiple coordination outcomes. Participants from India are much more likely than participants from the U.S. to choose actions that lead to very unequal payoffs across the two subjects. We also find that, although participants residing in different countries tend to choose different actions, they do not seem to adjust their actions according to their opponents' place of residence. One explanation for this pattern is that participants have no idea about what their opponents would do when the opponents are from a different cultural background from them, and wrongly believe that their opponents will behave similarly to themselves. This explanation is consistent with the data when we explicitly elicit participants' beliefs about the opponents' behaviors. In sum, due to the accuracy of predicting each others' behaviors, interactions between people who share a similar cultural background leads to a larger likelihood of coordination, and a higher payoff on average. Chapter 3 (coauthored with Matt Jackson and Hugo Sonnenschein) models negotiations that determine not only an agreement's price, but also its content, which typically has many aspects. We model such negotiations and provide conditions under which negotiation leads to efficient outcomes, even in the face of substantial asymmetric information regarding the value of each aspect. With sufficient information about the overall potential surplus, if the set of offers that agents can make when negotiating is sufficiently rich, then negotiation leads the agents to efficient agreements in all equilibria. Furthermore, the same negotiation game works regardless of the statistical structure of information - in this sense, no omniscient "planner" or "mechanism designer" is required. The theory and examples explore the anatomy of negotiation and may shed light on why many situations with significant asymmetric information exhibit little inefficiency. This chapter is within my research agenda of better understanding the social costs of asymmetric information without an omniscient and empowered "mechanism designer". Such a designer plays a key role in the mechanism design literature, but frequently is absent in applications. This chapter asks the question that whether two agents come about on their own, negotiating in "free-forms", can achieve (near) efficiency. Another paper of mine, "Intermediated Implementation", (with Anqi Li) is along the same line of research. There we ask the question whether a social planner can implement target allocations through market intermediaries (e.g., firms in the labor market) with simple policies such as per unit fee, labor income tax, or quota system.
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This dissertation explores how the nexus between the government and the private sector can generate misallocation of resources in the economy, and how government tools used to reduce this problem can impact the private sector. In the first chapter joint with Felipe González we notice that political transitions are associated with significant economic changes, but little is known about how firms fare across regimes. We study Chile's transition to democracy and show that firms in the dictator's network make critical investments in physical capital before the transition takes place. These investments are made possible by government banks during the dictatorship and allow them to improve their market position in the new regime. Our results show how market distortions can be transferred across regimes and suggest limited changes in the distribution of economic power after a democratization. The second chapter joint with Emanuele Colonnelli investigates the impact of anti-corruption audits on the private sector. In particular, we study whether firms are affected by the disclosure of information about corporate misconduct. We focus on a natural experiment given by a large Brazilian anti-corruption audit program, and we estimate both a difference-in-difference and an event study model that rely on the random timing of the audits for identification. Exploiting a special feature of the auditors' instruction manual, we are able to manually construct a dataset on more than 20,000 corruption cases. This dataset is then linked to matched employer-employee data, to the universe of federal procurement contracts and government loans, as well as to in-court prosecutions. We first show that government anti-corruption audits have significant real effects on the local economy. We then find that corrupt firms suffer a drop in employment and total wages after the information about their misconduct is revealed to the public. Concurrently, the probability that the corrupt firm fires the managers or CEO increases, leading to a restructuring at the top of the organization. We conclude by discussing the channels and mechanisms at play, and the potential policy implications. Finally in the third chapter joint with Emanuele Colonnelli and Edoardo Teso, we ask how the political career of politicians affects their labor market returns. We collect data on the labor market history of Brazilian local candidates, leveraging close elections to obtain exogenous variation in political power. We find no evidence of a return to office in the labor market outside of politics. On the contrary, we show that losers obtain substantial gains following their unsuccessful race, which come in the form of better employment opportunities in the public sector. These benefits exist only for unelected candidates aligned with the mayor in power, are increasing in a candidate's electoral performance, and are strictly tied to the fortunes of a candidate's party. These findings are consistent with an insurance mechanism in which parties and coalitions reward candidates for their electoral efforts in the negative state in which they fail to be elected. We provide evidence suggesting that this system creates incentives to increase the size of public sector employment and leads to misallocation of skills in the public sector.
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This dissertation consists of three essays in theoretical and behavioral economics. They all concern decision-making in complex environments. The first chapter is entitled Obviously Strategy-Proof Mechanisms. It is generally held that some strategy-proof mechanisms are easy for non-experts to understand, and others are difficult to understand. However, this distinction is not captured by standard game theory. In this chapter, I define obviously dominant strategies. Whether a strategy is obviously dominant depends (just) on the extensive game form. I characterize this definition in two ways: Obviously dominant strategies are exactly those strategies that a cognitively limited agent can recognize as dominant. Obviously strategy-proof (OSP) mechanisms are those that can be run by a social planner with only partial commitment power. For an environment with one-dimensional types and transfers, I characterize the OSP mechanisms and the OSP-implementable allocation rules. I test and corroborate the theory with a laboratory experiment. The second chapter is entitled Context Effects as Explained by Foraging Theory, and is coauthored with Neil Yu. This chapter reconciles two seemingly competing explanations of context-dependent choice, one invoking psychological mechanisms, and the other Bayesian learning. We prove that standard context effects are features of the optimal solution to a general dynamic stochastic resource- acquisition problem. The model has two key ingredients: inter-temporal substitution and learning about the environment. Interpreted as a description of animal foraging behavior, it explains why context effects might be adaptive in nature. Interpreted as a description of consumer choice problems, it suggests that context effects might result from rational inference. A simple experiment shows that the latter interpretation sometimes holds. The third chapter is entitled Thickness and Information in Dynamic Matching Markets, and is coauthored with Mohammad Akbarpour and Shayan Oveis Gharan. We introduce a simple model of dynamic matching in networked markets, where agents arrive and depart stochastically, and the composition of the trade network depends endogenously on the matching algorithm. We show that if the planner can identify agents who are about to depart, then waiting to thicken the market is highly valuable, and if the planner cannot identify such agents, then matching agents greedily is close to optimal. We characterize the optimal waiting time (in a restricted class of mechanisms) as a function of waiting costs and network sparsity. The planner's decision problem in our model involves a combinatorially complex state space. However, we show that simple local algorithms that choose the right time to match agents, but do not exploit the global network structure, can perform close to complex optimal algorithms. Finally, we consider a setting where agents have private information about their departure times, and design a continuous-time dynamic mechanism to elicit this information.
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The first chapter of this dissertation asks the impact of foreign trade on working conditions in developing countries. There is a long-standing debate over the impact of global trade on workers and firms in developing countries. In this chapter, I investigate the causal effect of firm exporting on working conditions and firm performance in Myanmar. This analysis draws on a new survey I conducted on Myanmar manufacturing firms from 2013 to 2015. I use the rapid opening of Myanmar to foreign trade after 2011 alongside identification strategies that exploit product, geographic and industry variations to obtain causal estimates of the impact of trade. I find that exporting has large positive impacts on working conditions in terms of improved fire safety, health-care, union recognition, and wages. Empirical results also indicate that exporting increases firm sales, employment, and management practice scores, and the likelihood of receiving a labor audit, which is typically required by foreign buyers, providing potential explanations for the positive impact of exporting on working conditions. The second chapter, coauthored with Laura Boudreau and Ryo Makioka, investigates the effects of a large accident occurred in developing country firms on their potential trade partners in developed countries. Specifically, we use the 2013 collapse of the Rana Plaza building in Bangladesh, which housed several exporting garment factories, to test for effects on stock prices, sales, costs, and profits of retail and apparel firms in developed countries. We measure CSR activity as participation in voluntary industry agreements established after the collapse to improve working conditions in the Bangladeshi apparel sector. Using an event study with stock prices, we find that firms' stock prices respond heterogeneously to association with the collapse by the media. Firms that experienced the most negative responses in stock prices in the first few days after the collapse agreed to participate in a CSR initiative, at which point their stock prices recovered; their quarterly performance was not significantly affected. Other firms that were initially less affected, but delayed forming a coalition, experienced a decline in their sales and profits in the quarter of the collapse. Our findings support a mechanism in which firms that are punished by stakeholders for the revelation of poor social standards in their supply chains may find that the benefits of CSR outweigh the costs. The third chapter asks whether an increase of foreign firms in developing countries facilitates workers' skill acquisition in firms. An increasing number of foreign firms have been invited to developing countries in the hope of benefiting the host countries' human capital formation. However, foreign entrants may reduce incumbent firms' monopsony power and incentive of training their workers. For evaluating the impact of foreign firm entries on incumbent firms' decisions to train workers, I use a rapid opening of Myanmar to trade and foreign direct investment, which attracted a large number of foreign investments, especially in the garment industry since 2012. Using yearly plant-level panel survey data from the garment industry from 2013 to 2015, I estimated the effects of an increase in the number of firms within 100 meters-neighborhoods of incumbent plants on changes in firm-sponsored training of workers, wage, turnover rates and employment. The results suggest that a foreign firm entry increases turnover rates and reduces the training intensity of incumbent firms.
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This dissertation analyzes the interaction between financial crises and firms' innovation, its macroeconomic consequences and the implications for economic policy. The first chapter, "The Financing of Ideas and the Great Deviation", studies the macroeconomic impact of financial shocks through their negative effect on intangible capital investment, using a panel dataset of Spanish manufacturing firms. The second chapter, "How Destructive is Innovation?", is co-authored with Chang-Tai Hsieh and Peter J. Klenow. It quantifies the contribution of different innovation channels to aggregate economic growth, matching a growth model to statistical moments on establishment dynamics in the U.S. The final chapter, "Macroprudential Policy with Liquidity Panics", is co-authored with Alonso Villacorta. It shows how financial panics can appear endogenously due to precautionary cash accumulation by firms, and how this changes the optimal macroprudential policy.
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This dissertation consists of three distinct chapters exploring the topics of homelessness, poverty, and economic policy. In the first chapter, I quantify behavioral responses to homeless program generosity to study the tradeoffs inherent in expanding homeless assistance. I utilize a new, national dataset on sheltered and unsheltered homeless populations and exploit differential distribution of federal homeless assistance grants across communities. An outdated formula sets each region's funding eligibility, inadvertently generating exogenous variation in homeless assistance. Program providers use the resulting marginal funds to add beds in both individual and family programs. Homeless individuals and families, however, have very different characteristics and behavioral patterns. I find that greater individual program generosity reduces unsheltered homelessness without drawing others into the local homeless population. A permanent $100,000 annual increase in homeless assistance decreases the size of the unsheltered population by 35 individuals, and all of the individuals who utilize marginal beds would otherwise be unsheltered. The effects of family program expansions are quite different. More generous funding helps house otherwise unsheltered families while also drawing in a larger homeless family population (73 additional people in families for every $100,000). I show that this increase is primarily driven by homeless families migrating to communities with greater funding. These results illuminate the policy responsiveness of homeless populations and shed light on the efficacy of homeless assistance funding. In the second chapter, joint with B. Douglas Bernheim and Andrey Fradkin, I study the welfare economics of default options in the context of retirement savings. Default contribution rates for 401(k) pension plans powerfully influence choices, and potential causes include opt-out costs, pro-crastination, inattention, and psychological anchoring. Using realistically parameterized models, we show how the optimal default, the magnitude of the welfare effects, and the degree of normative ambiguity depend on the behavioral model, the scope of the choice domain deemed welfare-relevant, the use of penalties for passive choice, and other 401(k) plan features. While results are theory-specific, our analysis provides reasonably robust justifications for setting the default either at the highest contribution rate matched by the employer or -- contrary to common wisdom -- at zero. The final chapter explores the economic history of the "orphan trains." By the middle of the nineteenth century, one out of every one hundred residents of New York City was a homeless child. iv Meanwhile, the American frontier was growing rapidly, in need of manpower and inexpensive labor. In 1853, Charles Loring Brace founded the Children's Aid Society to collect New York's homeless children and re-locate them to rural families. The trains which brought these children to their new homes became known as "orphan trains." I conduct a pilot study to undertake the first quantitative analysis of the orphan train program using a small, random sample of Children's Aid Society records. I study family selection into the program, exploring which groups disproportionately participated in this reallocation of children. Then, I ask which factors predict the breakdown and dissolution of the ensuing informal adoptions. I find that child age and existing family structure are the strongest predictors of child-family match failure. I conclude by arguing that the orphan trains provide a fascinating setting and novel identification strategies for research in family economics and economic history, outlining the next steps in the agenda.
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International migration and international trade are two major components of the current globalization process. Their impact on the global economy has been studied extensively. This dissertation explores how international migration and trade influence global innovative activities. In particular, I study the trade flow and migration of skilled workers from developing countries to the U.S., and how such flows affect the U.S. as well as the source countries. In the first chapter, I study the migration of science and engineering (S& E) workers from non-OECD (i.e., developing) countries to the US. In particular, I evaluate the impact of such brain drain on both the US and the source countries using a multi-country endogenous growth model. The proposed framework introduces and quantifies a "frontier growth effect" of skilled migration: migrants from developing countries create more frontier knowledge in the U.S., and the non-rivalrous knowledge diffuses to all countries. In particular, each source country is able to adopt technology invented by migrants from other countries, a previously ignored externality of skilled migration. I quantify the model by matching both micro and macro moments, and then consider counterfactuals wherein U.S. immigration policy changes. My results suggest that a policy -- which doubles the number of immigrants from every non-OECD country -- would boost U.S. productivity growth by 0.1 percentage point per year, and improve average welfare in the U.S. by 3.3%. Such a policy can also benefit the source countries because of the "frontier growth effect". Taking India as an example source country, I find that the same policy would lead to faster long-run growth and a 0.9% increase in average welfare in India. This welfare gain in India is largely the result of additional non-Indian migrants, indicating the significance of the previously overlooked externality. The second chapter is co-authored with Kaiji Gong. We analyze the impact of rising Chinese import competition on innovative activities in the U.S. We adopt a similar identification strategy as in Autor et al. (2013), whereby we use Compustat firm-level data and industry- level trade data to exploit cross-industry variation in exposure to import competition. We find that U.S. firms on average reduce R& D investment when faced with more import com- petition from China. The negative effect is driven by smaller firms and highly leveraged firms. When we weight the firms by their initial sizes, the average impact of import com- petition became insignificant. Our findings cannot fully be explained by a simple story of negative demand shock. Further empirical exploration is needed to identify the channels through which import competition affects firm's R& D investment.
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This dissertation studies the implications of search frictions and pricing mechanisms for house prices. Many economists believe that US house prices fluctuate over time between booms and busts, and are volatile relative to fundamentals, such as rents or income in a local housing market. This excess volatility is a puzzle relative to conventional models of house prices in the literature. My dissertation aims to explain this puzzle. To explain the high volatility of house prices I substitute hypothesis of the Nash bargaining price determination, prevailing in the literature, with the auction price determination. With Nash bargaining a seller bargains with a buyer one-to-one. In practice, especially so in booms, a seller deals with multiple buyers simultaneously and sells to the highest bidder. A natural way to model this is to use an auction model. When house prices are determined in an auction instead of Nash bargaining, house prices fluctuate more, which helps explain the volatility of house prices and fluctuations between booms and busts. The dissertation consists of two related essays on the microstructure of the housing markets. The first essay explores the consequences of the pricing mechanisms for the quantitative behavior of the house prices over time in an equilibrium search model of a local housing market. The second essay asks whether the equilibrium allocations of these search models are constrained efficient. The first essay shows that the type of the pricing mechanism crucially affects the volatility of the house prices in response to the shocks to a local housing market. Specifically, if the house prices are determined in auctions rather than by one-to-one negotiation a la Nash bargaining, then the house prices are four to fifteen time more volatile if shocks to the housing market affect the participation of buyers, for example, shock to the inflow of buyers or rents. If the shocks affect the discount factor or the expectation of the housing services, then it is the opposite, that is the house prices are more volatile in the Nash bargaining model than in the auction model. Many economists agree that the housing boom-bust episode 2000-2007 was fueled by the inflow of the buyers due to the decrease in the mortgage lending standards. For these types of shocks, the auction model produces highly volatile house price growth, high enough to match the observed volatility in the local housing markets in the US. The intuition for higher volatility in the auctions as compared to the Nash bargaining comes from the differences in the outside options of the seller in the two models. The seller in the Nash bargaining model negotiates with only one buyer per period, while the seller in the auction model can meet several buyers at the same time. Thus, in the auction model the outside option of the seller is to wait till tomorrow to potentially meet several buyers, while in the Nash bargaining model the seller can enjoy a company of only one buyer. In the hot market there are many interested buyers on the market which is capitalized in the option value to sell. Because of the sensitivity of the option value to sell to the current state of the market, the house prices fluctuate more. The second essay asks whether the dynamic equilibrium model of the random search with auctions, proposed in the first essay, produces a socially efficient allocation, constrained by search frictions. The main result is that the equilibrium random search model with an auction produces an inefficient allocation. The inefficiency in the random search model comes from the monopoly power of the seller in the auction model. Buyers are visiting sellers without observing the ex-post terms of trade, and, after the meeting has occurred, the seller becomes a local monopolist, because the buyer has to incur search and waiting costs to meet another seller. The distortion can be corrected by allowing the sellers to advertise and commit to the trading mechanisms by posting the reservation price for the auction and commit to this price. Having observed these prices, the buyers then direct their search to the seller with the most attractive terms or with least competition. This alleviates the externality present in the random search model. The paper extends this result from the static setting, analyzed in the literature, to the dynamic setting.
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The first chapter estimates the dynamic effects of credit availability on consumer borrowing and spending decisions using unique longitudinal data on consumer income, spending, balance sheets, and untapped credit, and a test-tube exogenous shock to credit availability. I design and implement a randomized trial at a European retail bank where I deliberately vary the credit lines of 54,522 pre- existing customers. I obtain four empirical results: (1) credit availability has a large and significant effect on spending and the use of credit; (2) this effect is not confined to a small set of credit constrained consumers; (3) increases in spending are concentrated in durables and services (e.g., health, education), made in the wake of positive income shocks; (4) credit line utilization displays mean-reverting dynamics, i.e. strict credit constraints are transitory. In the second chapter, I use the findings provide novel tests of competing models of intertemporal behavior. The findings rule out a simple permanent income model, a range of myopic models (e.g., rule-of-thumb, impatient), models where forward looking agents face a binding credit constraint and the baseline buffer-stock model. On the contrary, findings indicate that the primary affects of credit shocks is on consumers whom are not strictly constrained, through a portfolio problem. I then builds a partial equilibrium incomplete markets model with illiquid durables, and uses the endogenous ex- post heterogeneity to deliver many aspects of the magnitude, heterogeneity, composition and the dynamics of the marginal propensity to consume out of liquidity quantitatively. The third chapter, joint work with Jim Andreoni, Blake Barton, Doug Bernheim and Jeffrey Naecker, studies how people think about fairness in settings with uncertainty: one view holds that fairness requires equality of opportunity; another holds that it requires equality of outcomes. We conduct a laboratory experiment designed to determine which perspective people adopt, and under what conditions. We find that most people view fairness from an ex ante perspective when making decisions ex ante, and from an ex post perspective when making decisions ex post. As a result, they exhibit the hallmark of time-inconsistency: after making an initial plan that is fully state-contingent, they revise it upon learning that certain states will not occur. These patterns are robust and persist even when people are aware of their proclivities. We argue that these patterns are best explained by a theory of nominal fairness.
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This dissertation explores a number of issues in the economics of education and health care. The first chapter, co-authored with Bassam Kadry, M.D., Joseph Orsini, Igor Popov, and Christopher Press, M.D., starts by noting that a large body of literature argues that a large fraction of the increasing health care costs in the United States is due to the increasing prevalence of obesity. Yet most of these studies focus only on the degree to which obesity is correlated with the number of procedures an individual undergoes. If obesity also increases the cost of a procedure, the previous estimates understate the medical cost of obesity. We illustrate this point in the context of hip replacement surgery. We find that obesity does increase the cost of surgery and that ignoring this margin underestimates the cost of obesity by approximately 5%. This suggests that potential savings from obesity reduction programs are larger than previously thought. In the second chapter, I use the fact that multiple elementary schools feed into the same middle school to demonstrate that the positive impact that teachers have on their own students spills over to affect their students' future peers. Although this indirect effect on any particular individual is small, a teacher impacts many more students indirectly than directly, so the indirect value is a sizable portion of a teacher's total value; I find that ignoring teachers' indirect effects underestimates their value by roughly 35%. Because the spillovers also affect teacher value added estimates, I develop a method of moments estimator of teacher value added that accounts for the spillovers and show that accounting for the spillovers does not have a large impact on the ranking of teachers in New York City. I conclude by showing that the spillovers occur within groups of students who share the same race and gender, which highlights the crucial importance that the social network plays in disseminating the effect. Finally, the third chapter, co-authored with Michael Dinerstein, attempts to shed some light on how incentivizing teachers to increase their students' test score affects the way teachers behave, since this is an extremely important input to many education policy decisions. Exploiting a dramatic change in the way teachers in New York City were granted tenure, we provide evidence that incentivizing teacher value added leads to small but statistically significant increases in the teachers value added scores. This increase, however, comes at a cost: the test score gains these teachers cause in their students fade-out more rapidly than similar gains caused by non-incentivized teachers, which suggests a change in the way incentivized teachers direct their attention. Yet, at this point, both of these effects appear small relative to the potential changes this policy could have on the teachers entering and exiting the profession.
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This dissertation examines a few empirical questions industrial organization and economics of innovation. Chapter 1 studies mobile app industry. More specifically, success breeds success in many mass market industries, as well known products gain further consumer acceptance because of their visibility. However, new products must struggle to gain consumer's scarce attention and initiate that virtuous cycle. The newest mass market industry, mobile apps, has these features. Success among apps is highly concentrated, in part because the "top apps lists" recommend apps based on past success as measured by downloads. Consequently, in order to introduce themselves to users, new app developers attempt to gain a position on the top app lists by "buying downloads, " i.e., paying a user to download the app onto her device. We build a model to rationalize this rational, that accommodates the impact of buying downloads on top list ranking, and optimal investment in buying downloads. We leverage a private dataset of one platform for buying downloads and identify the return on this investment, as a test for the assumption of the model. $100 invested will improve the ranking by 2.2%. We provide some informal tests of the two empirical prediction of the model: (1) there are two humps in the diffusion pattern of the app, and (2) early-day ranking is less persistent than later-day ranking. We estimate an empirical analog of the model to show the relative importance of buying downloads and rich heterogeneity in the market. We use these estimates to evaluate the efficiency of top-ranking list as a revealing system by counterfactual. This chapter is coauthored with Tim Bresnahan and Pai-Ling Yin. Chapter 2 provides a model that uses preference heterogeneity to rationalize the cross-sectional and intertemporal variation in a firm's horizontal product differentiation strategies. Product-line dynamics arise from shocks to preference heterogeneity. For example, in the potato chip category I study, consumer concerns over fat levels in foods created two desirable alternatives (low fat and zero fat) for each flavor. On the supply side, firms learn about these changing tastes and adapt product lines accordingly. For tractability, the heterogeneity in preference is captured by the nesting parameter in an aggregate nested logit demand model. I find greater preference heterogeneity for chips in smaller packages and for markets with more demographic diversity. The dominant firm in the market bases its decisions primarily on its past experience in the market, with the latest preference shocks representing only 30% of the influence in product-line decisions. Gross margins are increased by 5% if firms have perfect information about preference heterogeneity. Costs for product line maintenance constitute about 2% of total revenue. Sunk costs incurred when expanding the product line are estimated to be four times the per-product fixed cost, thereby limiting the flexibility of product-line adjustment. The probability of line length adjustment grows from 70% to 90% under a smooth cost structure. Chapter 3 exploits a differential increase in copyright under the UK Copyright Act of 1814 - in favor of books by dead authors - to examine the influence of longer copyrights on price. Difference-in-differences analyses, which compare changes in the price of books by dead and living authors, indicate a substantial increase in price in response to an extension in copyright length. By comparison, placebo regressions for books by dead authors that did not benefit from the extension indicate no differential increase. Historical evidence suggests that longer copyrights increase price by improving publishers' ability to practice intertemporal price discrimination. This chapter is coauthored with Petra Moser and Megan MacGarvie.
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This dissertation studies the formation of free trade agreements (FTAs) as well as the effects FTAs have on international trade. The first essay examines the "dynamic time-path question" raised by Bhagwati (1993), whether preferential trade agreements help or hurt the attainment of global free trade in the long run. Earlier works done on this topic take a stance on a trade model and ask whether global free trade is a unique pairwise stable network. I build upon this approach and, instead of taking a stance on a specific trade model, argue that all trade models employed in these earlier works fall into the same class of model, which is characterized by three simple properties. Under these properties, it can be shown that all pairwise stable networks are networks with complete components of unique sizes, and the size of each component is bounded above by a function of the next largest component. In particular, under these three properties, global free trade is always pairwise stable. Being able to characterize the set of all pairwise stable networks, a natural question to ask is, starting from some network configuration, which pairwise stable network is more likely to arise. The second essay develops a method to calculate the probability of reaching each pairwise stable network given any value function that is symmetric for all players. I then demonstrate the approach by applying it to two network formation games and compare the results with existing analyses. The third essay is empirical in nature. It explores how exporters with different characteristics respond differently to a unilateral reduction in trade cost in the foreign country. In doing so, the paper develops a two-tier product space (industry and product) that allows for a richer prediction of the trade pattern. Using a novel data set on Thai exporters' responses to Vietnam's tariff reductions in 2001--2008, I find that while all exporters respond to foreign tariff reduction on the intensive margin, they respond differently on the extensive margin. While large firms tend to introduce products within the industry they already have presence in, small firms tend to start exporting products in new industries. This suggests that the cost curve is concave in the product dimension, but is convex in the industry dimension.
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This dissertation explores the functioning of the non-group health insurance market under various regulatory regimes. The first chapter estimates the relationship between health status and product choice in this market prior to the Affordable Care Act (ACA). I use insurers' decisions of whether to approve or reject applications for health insurance to identify this relationship. These decisions are based upon a comprehensive health history that the consumer must disclose to the insurer upon applying. I assume that the insurer uses this health history, as well as the financial characteristics of the product that was applied for, to estimate the expected cost of insuring the consumer, approving whenever this cost exceeds the product's premium. This assumption allows me to estimate how insurers' forecasts of applicants' costs differ depending on the type of product chosen in a discrete choice framework. I estimate that demanders of high deductible coverage are much costlier to insure than others. Additional analysis reveals that these consumers are likely to be impoverished, suggesting that cash constraints and/or price sensitivity may explain their preference for minimal coverage. The second chapter is co-authored with Pietro Tebaldi, and estimates the impact of age-based pricing restrictions in the post-reform market. The ACA fixes the ratio between health insurance premiums charged to consumers of different ages, which generates a relationship between the fraction of relatively old consumers in a geographic market and the prices faced by young consumers in that market. We show that this relationship is present in the prices faced by consumers on the ACA exchanges, but was not present in the pre-ACA market. We take this as evidence that the relationship between price and population age observed in the ACA data is indeed attributable to this regulation. We then use this variation, combined with a model of insurer price-setting, to back out the age-specific prices that would prevail if the regulation of interest were eliminated. We estimate that this regulation substantially raises premiums for younger buyers while reducing them for older buyers, and therefore alters the allocation of coverage to consumers of different ages. Because the value of the subsidies that the federal government provides is directly tied to premiums, this regulation has also had a substantial impact on the federal budget, decreasing subsidy outlays by approximately $2.3 billion. The final chapter is co-authored with Michael Dickstein, Mark Duggan, and Pieto Tebaldi, and explores another aspect of the ACA's pricing restrictions. Individual states have discretion in how they define coverage regions, within which insurers must charge the same premium to buyers of the same age, family structure, and smoking status. We exploit variation in these definitions to investigate whether the size of the coverage region affects outcomes in the ACA marketplaces. We find large consequences for small and rural markets. When states combine small counties with neighboring urban areas into a single region, the included rural markets see .6 to .8 more active insurers, on average, and savings in annual premiums of between $200 and $300.
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This thesis consists of two essays that exploit algorithmic techniques to solve two matching market design problems. The first essay introduces a simple benchmark model of dynamic matching in networked markets, where agents arrive and depart stochastically and the network of acceptable transactions among agents forms a random graph. The main insight of our analysis is that waiting to thicken the market can be substantially more important than increasing the speed of transactions. We also show that naive local algorithms that maintain market thickness by choosing the right time to match agents, but do not exploit global network structure, can perform very close to optimal algorithms. Finally, our analysis asserts that having information about agents' departure times is highly valuable. To elicit agents' departure times when it is private, we design an incentive-compatible continuous-time dynamic mechanism without transfers. The second essay extends the scope of random allocation mechanisms, in which the mechanism first identifies a feasible "expected allocation" and then implements it by randomizing over nearby feasible integer allocations. Previous literature had shown that the cases in which this is possible are sharply limited. We show that if some of the feasibility constraints can be treated as goals rather than hard constraints then, subject to weak conditions that we identify, any expected allocation that satisfies all the constraints and goals can be implemented by randomizing among nearby integer allocations that satisfy all the hard constraints exactly and the goals at least approximately. We show that by adding ex post utility goals to random serial dictatorship, we can construct a strategy-proof mechanism with the same ex ante utility that is nearly ex post fair.
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This dissertation studies inference in network-formation models with game-theoretic foundations. These are discrete-choice models in which the binary outcome represents whether or not a pair of nodes forms a link. Strategic interactions result from "network externalities, " meaning that the surplus that a node pair enjoys from forming a link may depend on the existence of other links in the network. Estimation of strategic models faces two core difficulties. The first is that network externalities can generate link "autocorrelation, " since an ego's decision to form a link with an alter may depend on the alter's other link-formation decisions and vice versa. Moreover, we typically observe only a few networks in the data and often only a single network. Hence, it is nontrivial to obtain a central limit theorem in the strategic context. The development of a sampling theory for large networks remains an open problem and is a central theme of this dissertation. The second core difficulty is incompleteness due to multiple equilibria. For a fixed vector of node primitives there may be multiple networks consistent with the equilibrium restrictions imposed by the model. If the econometrician is unwilling to take a stance on the mechanism by which nodes coordinate on a particular equilibrium, then the model likelihood depends on an infinite-dimensional nuisance parameter, and the model may only be partially identified. The first chapter of this dissertation analyzes strategic models of network formation with incomplete information. We show that in a setting without unobserved heterogeneity, by conditioning on commonly known attributes, we can eliminate autocorrelation among links. Moreover, we show that equilibrium beliefs can be estimated directly from the data under the restriction that the observed equilibrium is symmetric. Then the structural parameters can be estimated using a simple two-step estimator that augments commonly used "dyadic regression" models with an additional nonparametric first step to account for network externalities. The second chapter studies models with complete information, allowing for unobserved heterogeneity. This chapter considers models that obey a weak "component externalities" restriction on network externalities. We derive conditions under which certain node-level functions of the network constitute alpha-mixing random fields, objects for which central limit theorems exist. In particular, homophily plays an important role in reducing autocorrelation. Our results enable the estimation of certain network moments that are useful for inference. The third chapter studies models with complete information under a stronger "local externalities" restriction on network externalities. Whereas a central limit theorem under component externalities requires a "subcritical" network comprised of a large number of small components, we show that a class of models obeying local externalities can generate sparse networks with giant components, properties consistent with real-world social networks. Further, we develop conditions under which certain network statistics, converge to their expectations as the size of the network goes to infinity. A key requirement is that nodes are homophilous with respect to a set of attributes and that the degree of homophily increases with the size of the network at a particular rate. That is, nodes are increasingly selective about their partners the larger the pool of available partners. The rate at which selectivity increases in part determines the "realism" of global properties of large networks and the possibility of a law of large numbers. We derive rates that are compatible with both objectives. We also develop moment inequalities for inference that are "sharp" in the sense that they fully exhaust the empirical implications of the equilibrium restrictions.
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This dissertation examines a few empirical questions in public economics, labor economics and corporate finance. Chapter 1 studies the negative externality from the uninsured drivers on the insured in terms of insurance premium. When the uninsured drivers are determined at fault in an accident, they could ultimately declare bankruptcy due to limited liability and thus refuse payment of damage. The damaged incurred by them will then have to be paid by the insurance companies to the insured driver. An empirical analysis of this negative externality channel face two major challenges, one is the measurement error in the local uninsured drivers rate, and the other is a host of endogeneity concerns. Most prominent of the endogeneity concerns is the reverse causality, that fewer people buy insurance as insurance premium are high for other reasons. Using a novel panel data set and a staggered policy change that introduces exogenous variation in the rate of uninsured drivers at the county level in California, we find that uninsured drivers lead to higher insurance premia: a 1 percentage point increase in the rate of uninsured drivers raises premia by roughly 1\%. We calculate the monetary fine on the uninsured that would fully internalize the externality and conclude that actual fines in most US states are inefficiently low. This chapter is coauthored with my classmate Constantine Yannelis. Chapter 2 studies whether credit constraints affect demand for higher education in the United States. And it uses staggered bank branching deregulation across states in the United States to examine the impact of the resulting increase in the supply of credit on college enrollment from the 70s to early 90s. Our research design produces estimates that are not confounded by wealth effects due to changes in income or housing value. We find that lifting branching restrictions raises college enrollment by about 2.6 percentage points (4.9\%). Our results rule out alternative interpretations to the credit constraints channel. The effects are statistically significant for low and middle income families, while insignificant and close to zero in magnitude for upper income families as well as bankrupt families who would have been unaffected by the increased access to private credit. We find similar effects for two-year college completion as well as four-year college completion. We also show that household educational borrowing increased as a result of lifting branching restrictions. Our results provide novel evidence that credit constraints play an important role in determining household college enrollment decisions in the United States. This chapter is also coauthored with my classmate Constantine Yannelis. Chapter 3 identify the causal effect of managerial ownership on firm performance exploiting the 2003 Dividend Tax Cut in a quasi-natural experiment, which increased the net-of-tax effective managerial ownership. Consistent with predictions from agency theory, we find a significant and hump-shaped improvement in firm performance measured by Tobin's Q with respect to the level of managerial ownership due to the tax cut. Further, the relation between managerial ownership and firm performance relies on the level of moral hazard inside the firm proxied by investment intensity and asset tangibility as well as the strength of other co-existing channels of corporate governance. In particular, only firms with weak internal corporate governance proxied by G-Index or E-Index are significantly affected in a hump-shaped manner by the tax cut. The increase in performance is more pronounced for firms with weak alternative governance mechanisms such as institutional blockholders and firm leverage. These findings strengthen our interpretation that the improvement in firm performance is due to increased managerial incentive. Our results are robust to examination of pre-trend and placebo tests, accounting measures of firm performance as well as other considerations. This chapter is coauthored with my classmate Xing Li. Chapter 4 examines the effect of increased creditor governance well before the state of bankruptcy on corporate innovation by exploiting the state of debt contract covenant violation and the institutional feature that creditors obtain increased control right of the firm. Consistent with the view that increased creditor monitoring has disciplining effect on the managers, we find no significant change in the R\& D spending, significant but modest decrease in the total patent counts two years forward as well as significant and large positive impact on the citation counts of the patents. Our results demonstrate that increased creditor governance is overall beneficial to firm innovation.
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