Incentives to Identify: Racial Identity in the Age of Affirmative Action, (with Brian Duncan), Review of Economics and Statistics, 97(3):710-13, July 2015.
We link data on racial self-identification with changes in state-level affirmative action policies to ask whether racial self-identification responds to economic incentives. We find that after a state bans affirmative action, multiracial individuals who face an incentive to identify under affirmative action are about 30 percent less likely to identify with their minority groups. In contrast, multiracial individuals who face a disincentive to identify under affirmative action are roughly 20 percent more likely to identify with their minority groups once affirmative action policies are banned.
Ethnic Attrition and the Observed health of Later Generation Mexican Americans, (with Brian Duncan and Stephen J. Trejo), American Economic Review Papers and Proceedings, forthcoming, May 2016.
Numerous studies find that U.S.-born Hispanics differ significantly from non-Hispanic whites on important measures of human capital, including health. Nevertheless, almost all studies rely on subjective measures of identify immigrants U.S.-born descendants. this can lead to bias due to "ethnic attrition," which occurs whenever a U.S.-born descendant of a Hispanic immigrant fails to self-identify as Hispanic. In this paper, we show that Mexican American ethnic attritors are generally more likely to display health outcomes closer to those of non-Hispanic whites. This suggests that conventional estimates of Mexican American health are likely to be biased away from suggesting patterns of assimilation and convergence with non-Hispanic whites.
A Practical Guide to the combinatorial Clock Auction, (with Lawrence Ausubel), The Economic Journal, forthcoming.
The Combinatorial Clock Auction (CCA) is an important recent innovation in auction design that has been utilised for many spectrum auctions worldwide. While the theoretical foundations of the CCA are described in a growing literature, many of the practical implementation choices are omitted. In this paper, we review and discuss the most critical practical decisions for a regulator implementing the CCA. Topics include: implementation of reserve prices; accommodation of technological choice; activity rules; price incrementing policy; incorporation of competition policy objectives; and bidding language and pricing rule. We illustrate our discussion with examples from recent CCA spectrum auctions.
Corporate Cash Holdings and Credit Line Usage, (with Nathalie Moyen), International Economic Review, forthcoming.
We investigate the factors driving the unprecedented rise in corporate liquidities since the 1970s. We find that an economy wide reduction in the cost of holding liquidities and an increase in risk best explain the rise in cash holdings and the widespread use of credit lines. The structural estimation results shed light on two widely-acknowledged motives for holding cash. The precautionary motive and the liquidity motive translate risk exposure into cash holdings. Our results however do not suggest that firms have become more prudent over time. It is higher liquidity needs that has forced firms to hold more cash and use more credit lines.
Corruption and Socially Optimal Entry, (with Rabah Amir), Journal of Public Economics, 123: 30-41, 2015.
The paper investigates the effects of corruption in the entry-certifying process on market structure and social welfare for a Cournot industry with linear demand and costs. To gain entry, a firm must pay a bribe-maximizing official a fixed percentage of anticipated profit, in addition to the usual set-up cost. This would lead to a monopoly, but only in markets without pre-existing or shadow-economy firms. A benevolent social planner may preempt the harmful effects of corruption by either manipulating the number of pre-existing firms in the market, or by setting up two independent (corrupt) licensing authorities. A socially optimal number of firms in the market may be reached by choosing the right number of pre-existing firms or by having exactly two licensing authorities. These mechanisms may be seen as restoring second-best efficiency in settings characterized by two major sources of distortion: Imperfect competition and corruption. We also show in an extension that the basic insights carry over in a qualitative sense to a model with quadratic costs and first best entry regulation.
Human Capital and the Lifetime Costs of Impatience, (with Benjamin Keys), American Economic Journal: Economic Policy, 7(3), pp. 126-153, August 2015.
In this paper, we examine the role of impatience in the formation of human capital - arguably the most important investment decision individuals make during their lifetimes. We pay particular attention to a set of investment behaviors that cannot be explained solely by variation in exponential discount rates. Using data from the NLSY and a straightforward measure of impatience, we find that impatient people systematically acquire lower levels of multiple measures of human capital and that a substantial fraction of these differences arise from dynamically inconsistent behavior, such as starting an educational program but failing to complete it. The cumulative investment differences result in the impatient earning 18 percent less and expressing significantly more regret as this cohort reaches middle age.
Immigrants Equilibrate Local Labor Markets: Evidence from the Great Recession, (with Brian K. Kovak), American Economic Journal: Applied Economics ,8(1), pp. 257-290, January 2016.
This paper demonstrates that low-skilled Mexican-born immigrants' location choices in the U.S. respond strongly to changes in local labor demand, and that this geographic elasticity helps equalize spatial dierences in labor market outcomes for low-skilled native workers, who are much less responsive. We leverage the substantial geographic variation in employment
losses that occurred during Great Recession, and our results conrm the standard nding that high-skilled populations are quite geographically responsive to employment opportunities while low-skilled populations are much less so. However, low-skilled immigrants, especially those from Mexico, respond even more strongly than high-skilled native-born workers. Moreover, we show that natives living in metro areas with a substantial Mexican-born population are insulated from the eects of local labor demand shocks compared to those in places with few Mexicans. The reallocation of the Mexican-born workforce reduced the incidence of local demand shocks on low-skilled natives' employment outcomes by more than 50 percent.
Customs, (with Alejandro Graziano and Christian Volpe Martincus), Journal of International Economics, vol. 96(1), September 2015.
All international trade transactions are processed by custom agencies and such processing takes time. Despite the fact that time is a key trade barrier, the time it takes for shipments to clear customs and how customs' processing times affect firms' exports. In so doing, we use unique dataset that consists of the universe of Uruguay's export transactions over the period 2002-2011 and includes precise information on the actual time it took for each of these transactions to go through customs. We account for potential endogeneity of these processing times by exploiting the conditional random allocation of shipments to different verification channels associated with the use of risk-based control procedures. Results suggest that delays have a significant negative impact on firms' exports along several dimensions. Effects are more promounced on sales to newer buyers.
Differential Pricing When Costs Differ: A Welfare Analysis, (with M. Schwartz), RAND Journal of Economics, forthcoming
This paper analyzes the welfare effects of monopoly differential pricing in the important but largely neglected case where marginal costs of service differ across consumer groups. Compared to uniform pricing, cost-based differential pricing generally raises total welfare. Although total output may fall or even its allocation across consumer groups may worsen, under a minor demand curvature condition at least one of these changes must be beneficial and dominate if the other is not. Aggregate consumer welfare also rises (under a mildly tighter condition). The source of consumer gains is not cost savings from output reallocation, which flow to the firm. Rather, to induce output reallocation the firm must vary its prices, thereby creating price dispersion without an upward bias in the average price. This improves consumer welfare even in cases where output falls. We contrast these results with those in the extensive literature on third-degree price discrimination and, furthermore, provide sufficient conditions for beneficial differential pricing when both demand elasticities and costs differ.
Prices, Profits, and Preference Dependence, (with Michael Riordan), Journal of Industrial Economics, forthcoming.
This paper develops a new approach to discrete choice demand for multiproduct industries, using copulas to separate the marginal distribution of consumer values for each product from their dependence relationship. The comparative statics of demand strength and preference diversity, both properties of the marginal distribution, are remarkably similar across market structures, revealing unifying principles of industry conduct and performance. Preference dependence, disentangled from preference diversity as a distinct indicator of product differentiation, is a key determinant of how prices differ between multiproduct industries and single-product monopoly. Sufficient conditions are found under which multiproduct monopoly or symmetric single-product oligopoly prices are above or below the single-product monopoly price.
Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies, (with Stephen Holland, Christopher Knittel and Nathan Parker), The Review of Economics and Statistics, forthcoming.
Instead of efficiently pricing greenhouse gases, policy makers have favored measures that implicitly or explicitly subsidize low carbon fuels. We simulate a transportation-sector cap & trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). Our simulations confirm that the alternatives to CAT are quite costly–2.5 to 4 times more expensive. We provide evidence that the persistence of these alternatives in spite of their higher costs lies in the political economy of carbon policy. The alternatives to CAT exhibit a feature that make them amenable to adoption–a right skewed distribution of gains and losses where many counties have small losses, but a smaller share of counties gain considerably–as much as $6,800 per capita, per year. We correlate our estimates of gains from CAT and the RFS with Congressional voting on the Waxman-Markey cap & trade bill, H.R. 2454. Because Waxman-Markey (WM) would weaken the RFS, House members likely viewed the two policies as competitors. Conditional on a district's CAT gains, increases in a district's RFS gains are associated with decreases in the likelihood of voting for WM. Furthermore, we show that campaign contributions are correlated with a district's gains under each policy and that these contributions are correlated with a Member's vote on WM.
Changing the Rules Midway: the Impact of Granting Alimony Right on Existing and Newly-Formed Partnerships, (with Pierre-Andre Chiappori, Jeanne Lafortune and Yoram Weiss), The Economic Journal, forthcoming.
The paper analyzes the effect of a reform granting alimony rights to cohabiting couples in Canada, exploiting the fact that each province extended these rights in different years and required different cohabitation length. A theoretical analysis, based on a collective household model with a matching framework, predicts that changes in alimony laws would affect existing couples and couples-to-be differently. For existing couples, legislative changes aimed at favoring (wo)men do benefit them, especially if the match quality is low. However, for couples not yet formed, they generate offsetting intra-household transfers (in our model, of leisure) and lower intra-marital allocations for the spouses who are the intended beneficiary. Our empirical analysis confirms these predictions. Among cohabiting couples united long enough before the reform, obtaining the right to petition for alimony led women to lower their labor force participation. These results, however, do not hold --and, in some cases, are reversed -- for newly formed cohabiting couples.
Screening Incentives and Privacy Protection in Financial Markets: A Theoretical and Empirical Analysis, (with Liad Wagman), RAND Journal of Economics, forthcoming
In 1999, Congress enacted the Gramm-Leach-Bliley Act, allowing a variety of financial institutions to sell, trade, share, or give out nonpublic personal information about their customers unless their customers direct that such information not be disclosed. We study a model in which firms offer financial products to individuals, such as loans, post prices for their products, and screen consumers who apply to purchase them. Any information obtained in the screening process may be traded to another firm selling related products. We show that firms' ability to sell consumer information can lead to lower prices, higher screening intensities, higher rejection rates of applicants, and increased social welfare. By exploiting variations in the adoption of local financial-privacy ordinances in five California Bay Area counties, we are able to provide simple estimates of the effects of stricter financial-privacy laws on the denial rates of applications for home-purchase loans and loan refinancing during 2001-2004. Consistent with the model's predictions, we show that denial rates for both purchase loans and loan refinancing decreased in counties where opt-in privacy ordinances were adopted. Moreover, we find that during the financial crisis of 2007-2008, estimated foreclosure rates were higher in counties where the privacy ordinance was adopted.
Endogenous Network Production Functions with Selectivity, (with William Horace and Eleonora Patacchini), Journal of Econometrics,190, 222-232.
We consider a production function model that transforms worker inputs into outputs through peer effect networks. The distinguishing features of this production model are that the network is formal and observable through worker scheduling, and selection into the network is done by a manager. We discuss identification and suggest a variety of estimation techniques. In particular, we tackle endogeneity issues arising from selection into groups and exposure to common group factors by employing a polychotomous Heckman-type selection correction. We illustrate our method using data from the Syracuse University Men's Basketball team, where at any point in time the coach selects a lineup and the players interact strategically to win games.
Financial Prices and Information Acquisition in Large Cournot Markets, (with Myungkyu Shim), Journal of Economic Theory, 158(B), July 2015.
In the context of large Cournot market with dispersedly informed firms, we show that while output decisions are stratefic substitutes, private information acquisition decisions can be strategic complements. The reversal of incentives operates through the informational role played by the price of a financial asset whose payoff depends on firms' output decisions. Our results rely on a novel mechanism whereby, holding fixed the private information of financial traders, when firms become more privately informed the financial asset price becomes less informative.
Market Structure and Broadband Internet Quality, (with G. Molnar), Journal of Industrial Economics, forthcoming.
This paper investigates the effects of the number of firms and their product-type on broadband Internet quality. We estimate a model that relates the actual speeds delivered in census block groups to the number of wireline and wireless Internet service providers (ISPs), cost and demand conditions, and correction terms for the endogeneity of market structure. Model estimates show four main findings. Wireline speeds are often higher in markets with two or more wireline ISPs than with a single wireline ISP. Excluding the correction terms from the analysis understates this effect. Increases in wireline speeds are larger in the upstream direction, and there is no relationship between wireline speeds and the number of wireless ISPs.