Working Papers
Institutions and the Sectoral Organization
of Production, January 2016
Fundamental
Resource Curse, July 2010
Uncertainty and the Allocation of Resources (with Harris Dellas), October 2009
Knowledge, Technology Adoption and Financial Innovation, June 2005
Published Research
Discrimination in Hiring Based on
Potential and Realized Fertility: Evidence from a Large-Scale Field Experiment
(with Sascha O. Becker and Doris Weichselbaumer) Labor Economics forthcoming.
Finance and Competition (with Harris Dellas), Economic
Journal 124(575), 269-288.
A Closed-Form
Solution to a Model of Two-Sided, Partial Altruism Macroeconomic
Dynamics 16(2012), 230-239.
Altruism,
Labor Supply and Redistributive Neutrality Journal of Population Economics
24(2011), 1443-1469.
Youth Emancipation and Perceived Job Insecurity of
Parents and Children (with Sascha O. Becker, Samuel Bentolila
and Andrea Ichino) Journal of Population Economics 23 (2010), 1047–1071.
Income Insecurity
and Youth Emancipation: A Theoretical Approach (with Sascha O. Becker, Samuel Bentolila and Andrea Ichino) The B.E. Journal of Economic Analysis
& Policy 8 (2008,
Contributions), Article 19.
Inappropriate
Technology (with Krishna Kumar) Macroeconomic Dynamics 11 (2007),
487-518.
On the Equivalence of Quantitative Trade Restrictions and Tariffs
(with Harris Dellas and Klaus Neusser) Economic Letters 96 ( 2007), 331-336.
A Recursive Formulation for
Repeated Agency with History Dependence (with Christopher Phelan), Journal
of Economic Theory 91 (2000), 223-247.
Work in
Progress
Bounds on Democracy
A Wealth-Based Theory of
Property Rights
Institutions and the Sectoral Organization of
Production Paper
Do institutions, such as the Rule of Law, affect the way in which output
is generated? This paper provides evidence suggesting that countries with
better contract enforcement have disproportionately higher employment shares in
sectors that interact more with other input-providing sectors; further, such
countries also experience disproportionately higher sectoral value added in
those sectors. The data are consistent with institutions affecting the
productivity of technological use or adoption, thus acting as sectoral
productivity shifters. However, labor (mis)allocation
(and not direct productivity loss) is quantitatively the most important effect
of poor institutional quality in reducing sectoral value added. These effects
are statistically undetected once we rely on data aggregated across the
subsectors of manufacturing. Yet, when sectoral data are used, a one standard
deviation increment in the Rule of Law indicator results in an increase of the
overall value added in the manufacturing sector of 36%. Our findings support
the notion that sectoral transformation is grounded on good institutional
quality.
Keywords: Sectoral organization of output, employment shares,
institutions, contractual enforcement, input-output, complexity
JEL Codes: O43, P16
Fundamental Resource Curse Paper
Abstract: This
paper proposes a fundamental model of the resource curse problem. Outcomes,
such as the formation of coalitions -- groups of financiers who engage armies
to gain control of the resources -- as well as the size of the corresponding
armies, are derived endogenously from the economy's fundamentals. The model
predicts that inefficient outcomes -- in the form of either conflict or a
deterrence army solution -- will always occur as long as the value of natural
resources to capture is positive and the opportunity cost of time -- which
partly determines soldiers' wages -- is finite.
Keywords: Endogenous
political economy, conflict, deterrence, natural resource curse, inefficiency,
general equilibrium.
JEL Codes: H11, O11, P16
Discrimination in Hiring Based on Potential and Realized Fertility:
Evidence from a Large-Scale Field Experiment Paper
Abstract: Due to conventional gender norms, women are more likely to be in charge of childcare than men. From an employer‟s perspective, in their fertile age they are also at “risk” of pregnancy. Both factors potentially affect hiring practices of firms. We conduct a largescale
correspondence
test in Germany, Switzerland, and Austria, sending out approx. 9,000 job applications,
varying job candidate‟s personal
characteristics such as marital status and age of children. We find evidence
that, for part-time jobs, married women with older kids, who likely finished
their childbearing cycle and have more projectable childcare chores than women
with very young kids, are at a significant advantage vis-àvis
other groups of women. At the same time, married, but childless applicants, who
have a higher likelihood to become pregnant, are at a disadvantage compared to
single, but childless applicants to part-time jobs. Such effects are not
present for full-time jobs, presumably, because by applying to these in
contrast to part-time jobs, women signal that they have arranged for external
childcare.
Finance and Competition Paper
Abstract:
We investigate the role of financial constraints for product market
competition in a general equilibrium model, where firms may differ in terms of
own wealth and/or efficiency. We find that the amelioration of financial
constraints always increases
competition (it lowers the Lerner index of markups)
in financially dependent sectors even when other standard concentration indexes
indicate otherwise. Our analysis implies that disruptions in financial markets
–such as the recent financial crisis– may have adverse effects on competition
in product markets, a cost that has not been identified before.
Keywords: Financial
Development, Liberalization, Market Structure, Product Market Competition.
JEL Codes: L1, E2
Uncertainty and the Allocation of Resources Paper
Abstract: We
study the effects of uncertainty on the allocation of resources in the
standard, general equilibrium, two-sector,
two-factor model. The elasticity of substitution in production vs that in
consumption plays the key role in determining whether uncertainty attracts or
repels resources, while risk aversion is of lesser importance. The model
predicts that countries with greater production flexibility (better factor
substitution possibilities) will be able to pursue more risky activities than
less flexible economies.
Keywords: Uncertainty,
General Equilibrium, Two Factor-Sector Model, Flexibility.
JEL Codes: E2, D5, D8
On the Equivalence of Quantitative Trade Restrictions
and Tariffs Paper
Abstract: A major difficulty in the conduct of industrial policy is that governments rarely have advance knowledge of an infant industry’s long term potential. We argue that alternative commercial policy instruments may be associated with differences in the speed and the accuracy with which the government learns about industry type.
Keywords: Industrial Policy, Quantitative Trade Restrictions, Tariffs, Learning, Infant Industry.
JEL Classification: E32, E52.
Income Insecurity and Youth Emancipation: A Theoretical Approach Paper
Abstract: In
this paper, we propose a theoretical model to study the effect of income
insecurity of parents and offspring on the child’s residential choice. Parents
are partially altruistic toward their children and will provide financial help
to an independent child when her income is low relative to the parents’. We
find that children of more altruistic parents are more likely to become
independent. However,
first-order stochastic dominance (FOSD) shifts in the
distribution of the child’s future income (or her parents’) have ambiguous
effects on the child’s residential choice. Parental altruism is the very source
of ambiguity in the results. If parents are selfish or the joint income
distribution of parents and child places no mass on the region where transfers
are provided, a FOSD shift in the distribution of the child’s (parents’) future
income will reduce (raise) the child’s current income threshold for
independence.
Keywords:
Partial Altruism, Emancipation, Coresidence, Income Insecurity, Option value,
Stochastic Dominance.
JEL Classification: D1, D8, J1, J2.
Youth Emancipation and Perceived Job Insecurity
of Parents and Children Paper
Abstract: The age at which children leave the parental home differs considerably
across countries. In this paper we argue that lower job insecurity of parents
and higher job insecurity of children delay emancipation. We provide aggregate
evidence which supports this hypothesis for 12 European countries and which
helps account for the increase in coresidence in the 1990s. We also give
microeconometric evidence for
Keywords:
Emancipation, Job security, Option value.
JEL
Classification: J1, J2.
Knowledge,
Technology Adoption and Financial Innovation Paper
Abstract: Why are new financial instruments
created? This paper proposes the view that financial development arises as a
response to the contractual needs of emerging technologies. Exogenous
technological progress generates a demand for new financial instruments in
order to share risk or overcome private information, for example. A model of
the dynamics of technology adoption and the evolution of financial instruments
that support such adoption is presented. Early adoption may be required for
financial markets to learn the technology; once learned, financial innovation boosts
adoption further. Financial learning emerges as a source of technological
diffusion. The analysis identifies a causality link from technology to finance
which is nonetheless consistent with empirical findings of a positive effect of
current financial development on future growth.
Keywords: Financial
innovation, Technology adoption, Learning.
JEL Codes: G20, N20, O30.
A Closed-Form
Solution to a Model of Two-Sided, Partial Altruism Paper
Abstract: This paper
presents a closed-form characterization of the allocation of resources in an
overlapping generation's model of two-sided, partial altruism. Three
assumptions are made: (i) parents and children play Markov strategies, (ii)
utility takes the CRRA form, and (iii) the income of children is stochastic but
proportional to the saving of parents. In families where children are rich
relatively to their parents, saving rates -- measured as a function of the
family's total resources -- are higher compared to the case when children are
poor relative to their parents. Income redistribution from the old to the
young, therefore, leads to an increase in aggregate saving.
Keywords:
Closed form, Value function, Partial altruism, Markov strategies
JEL
Codes: C61, D13.
Inappropriate
Technology (with Krishna Kumar) Paper
[Presented at the 2002 Minnesota
Workshop in Macroeconomic Theory.]
Abstract: In this paper, we investigate
incentives, other than altruism, developed countries have in improving
developing country technologies. We propose a simple model of international
trade between two regions, in which individuals have preferences over an
inferior good and a luxury good. The poor region has a comparative advantage in
the production of the inferior good, and the rich in the luxury good. Even when
costly adaptation of the technology to the poor region's characteristics is
required -- which makes the technology inappropriate for local use -- there are
parameter configurations for which the rich region has an incentive to incur
this cost. It benefits from an improvement in its terms of trade; by raising
the efficiency of the productive process of the developing region, it can also
redirect its own productive resources toward the luxury good. Indeed, there are
cases where the rich region would prefer to improve the poor region's
technology for producing the inferior good rather than its own. We apply our
model to the Green Revolution and provide a quantitative assessment of its
welfare effects.
Keywords: Developing
country technology improvements, Dynamic trade models, Welfare analysis.
JEL Classification: O11, O33,
F11, F41
Altruism,
Labor Supply and Redistributive Neutrality Paper
Abstract: This paper presents a model of
familial altruism in which labor supply is chosen endogenously. The model is
used to address the predictions of Ricardian Equivalence, both theoretical and
empirical. It is argued that, to the extent that income variation in the data
comes mostly from wage and effort changes, the empirical tests of neutrality
are misspecified. Numerical estimates suggest that quantitatively important deviations
from neutrality may be at work.
Keywords: Ricardian
Equivalence, redistributive neutrality, altruism, endogenous labor supply,
private information.
JEL Classification: D19,
D64, D82, J22.
Altruism, Redistributive
Neutrality and Labor Supply (with extended appendices) Paper
Abstract: The psychology literature firmly
establishes that optimism is an attribute of mentally healthy
individuals. Data show, for example, that people systematically
overestimate future income. Optimism may be motivated by the human
tendency to derive utility from the anticipation of positive future
events. Anticipation utility is conceptually distinct from the
utility induced by actual events as they occur. Here, we model the
utility of a decision maker as the weighted sum of both
components. Because anticipation utility increases with the believed
probability of good outcomes, the utility-maximizing decision maker distorts
his beliefs away from rational expectations, even though he must then adopt
actions based on those distorted beliefs. Such rational optimism can
affect effort levels and other behavior with macroeconomic
consequences. Considering saving for retirement, we find that when
risk-aversion exceeds unity, the optimal believed return to saving exceeds the
true return, saving is lower than the amount chosen by a conventional
expected-utility maximizer, and both deviations increase in the weight assigned
to anticipation. These results are in line with two well-known
empirical facts: the low intertemporal elasticity of substitution and the
puzzling drop in consumption following anticipated retirement.
JEL Classification: D81, D83,
D84.
A
Recursive Formulation for Repeated Agency with History Dependence (with Christopher Phelan)
Journal of Economic
Theory 91, 223-247
(2000). JET
Abstract: We present general recursive
methods to handle environments where privately observed variables are linked
over time. We show that incentive compatible contracts are implemented
recursively with a threat keeping constraint in addition to the usual temporary
incentive compatibility and promise keeping conditions.
Keywords: Mechanism design,
Repeated agency.
JEL Classification: D30, D31,
D80, D82.