Institutions and the Sectoral Organization of Production, January 2015
Fundamental Resource Curse, July 2010
Uncertainty and the Allocation of Resources (with Harris Dellas), October 2009
Finance and Competition (with Harris Dellas), Economic Journal, forthcoming
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
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 labor 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, 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
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.
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.
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.