Oleg Baranov

 

Oleg Baranov

 

  • Revealed Preference and Activity Rules in Dynamic Auctions, (with Lawerence Ausubel), International Economics Review, 61(2): 471-502, 2020.
    Abstract: Activity rules—constraints that limit bidding in future rounds based on past bids—are intended to limit strategic bidding delays in high-stakes auctions. This article provides a general treatment of activity rules. Traditional point-based rules are effective for homogeneous goods and reasonably suited for substitute goods. However, they are simultaneously too strong and too weak for general environments; they allow parking, while sometimes preventing straightforward bidding. We prove that the activity rule operationalizing the generalized axiom of revealed preference (GARP) is essentially the unique rule that enforces the Law of Demand while enabling straightforward bidding and never producing “dead ends”.


Brian Cadena 

Brian Cadena

 

  • Investment over the Business Cycle: Insights from College Major Choice, (with Erica Blom and Benjamin J. Keys) , Journal of Labor Economics, forthcoming.
    Abstract: How does presonal exposure to economic contidions affect individual human capital investment choices? Focusing on bachelor’s degree recipients, we find that cohorts exposed to higher unemployment rates during typical schooling years select majors that earn higher wages, have better employment prospects, and lead to work in a related field. Conditional on expected earnings, recessions also encourage women to enter male-dominated fields, and students of both genders pursue more difficult majors. We conclude that economic environments change how students select majors, and we find evidence that students who respond to the business cycle enjoy earnings typical of their new majors.


Yongmin Chen 

Yongmin Chen

 

  • Experience Goods and Consumer Search, (with Zhuozheng Li and Tianle Zhang), American Economic Journals: Microeconomics, forthcoming
    Abstract:  We introduce a search model where products differ in variety and unobserved quality ('experience goods'), and firms can establish quality reputation. We show that the inability of consumers to observe quality before purchase significantly changes how search frictions affect market performance. In equilibrium, higher search costs hinder consumers' search for better-matched variety and increase price, but can boost firms' investment in product quality. Under plausible conditions, both consumer and total welfare initially increase in search cost, whereas both would monotonically decrease if quality were observable. We apply the analysis to online markets, where low search costs coexist with low-quality products.
  • Competitive Differential Pricing, (with Jianpei Li and Marius Schwartz), RAND Journal of Economics, forthcoming.
    Abstract: This paper analyzes welfare under differential versus uniform pricing across oligopoly markets that differ in costs of service. We establish general demand conditions for differential pricing by symmetric firms to increase consumer surplus, profit, and total welfare. The analysis reveals why competitive differential pricing is generally beneficial more than price discrimination but not always, including why profit may fall, unlike for monopoly. The presence of more competitors tends to enlarge consumersíshare of the gain from differential pricing, though profits often still rise. When firms have asymmetric costs, however, profit or consumer surplus can fall even with ësimpleílinear demands.


Jonathan Edward Hughes 

Jonathan Hughes

 

  • The Value of Rarity: Evidence from a Collectible Good, Journal of Industrial Economics, Forthcoming.
    Markets for art, coins and other collectibles, culinary delicacies and eco-tourism suggest consumers value the rarity of many goods. While empirical evidence supports higher prices for rare goods, isolating the value of rarity has proven difficult. I analyze prices for a collectible card game and show goods that are designated as rare trade at higher prices than functionally-equivalent substitutes. Importantly, I use novel features of this market to account for scarcity, observed and unobserved product characteristics and separately identify rarity effects. These results have important implications for markets ranging from luxury goods to conservation of endangered species.


Murat Iyigun 

Murat Iyigun

 

  • 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.
    Abstract: 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. 


Taylor Jaworski 

Taylor Jaworski

 

  • National Policy for Regional Development: Historical Evidence from Appalachian Highways, (with Carl Kitchens), Review of Economics & Statistics, 101(5), 2019.
    How effective are policies aimed at integrating isolated regions? We answer this question using the construction of a highway system in one of the poorest regions in the United States. With construction starting in 1965, the Appalachian Development Highway System (ADHS) ultimately consisted of over 2,500 high-grade road miles. Motivated by a model of inter-regional trade we estimate the elasticity of total income with respect to market access, which we then use to evaluate the overall impact of the ADHS. We find that removing the ADHS would have reduced the total income by $45.9 billion or, roughly, 1 percent. Ultimately, the population response to improvements in transportation infrastructure reduced the gains in income per capita, which were equal to $515 (1.4 percent) in the poorest counties. Today, the region's performance relative to the national average is similar to its position in the 1960s. Thus, despite substantial investment in transportation and some gains in income per capita the region continues to lag behind the rest of the country.


Daniel Kaffine

 

Daniel Kaffine

 

  • Emissions, Transmission, and the Environmental Value of Renewable Energy,(with Harrison Fell and Kevin Novan), American Economic Journal: Economic Policy, Accepted, 2020.
    Abstract: Growth in renewable electricity generation has spurred substantial private and public interest in increasing transmission capacity to export electricity from renewable-rich, demand-poor regions to urban demand centers. While the primary motives for these transmission investments are market-based (e.g., arbitraging regional electricity prices), they can also have large non-market impacts (e.g., altering the level and location of emissions). In this paper, we examine how transmission congestion alters the environmental benefits provided by renewable generation. Using hourly data from the Texas and Mid-Continent electricity markets, we find that relaxing transmission constraints between the wind-rich areas and the demand centers of the respective markets increases the non-market value of a MWh of wind by 31% for Texas and 13% for Mid-Continent markets, conservatively. Much of this increase in the non-market value arises from a redistribution in where emissions are avoided – which transmission is not constrained, wind offsets much more pollution from fossil fuel units located near highly populated demand centers.
  • Microclimate Effects of Wind Farms on Local Crop Yields, Journal of Environmental Economics and Management, 96: 159-173, 2019.
    Abstract: This paper considers a novel spillover effect of wind farms - microclimate impacts on neighboring crop yields. Using US county-level crop and wind capacity data, I examine the effects of wind energy development on crop yields, controlling for timeinvariant county characteristics and state-level annual shocks. I find robust evidence that counties with increased wind power development have also experienced increased corn yields, such that an additional 100 megawatts of wind capacity increases county yields by roughly 1%. Evidence of similar effects are found for soy and hay yields; however no evidence of an effect on wheat yields is found. At recent prices, this suggests a $5.45 per megawatt-hour local benefit associated with microclimate effects from wind power.


Wolfgang Keller 

Wolfgang Keller

 

  • Capital Markets in China and England, 18th and 19th Century: Evidence from Grain Prices, (with Carol H. Shiue and Xin Wang), American Economic Journal: Applied Economics; also NBER # 21349, CEPR # 10702, forthcoming.
    Abstract: Based on the most comprehensive grain prices available, we employ a storage model to estimate consistent interest rates and compare capital market development in Britain and China. Interest rates for Britain were lower than China’s on average by about three percentage points from 1770 to 1860. Regional capital market integration in the Yangzi Delta comes close to the British average at distances below 200 kilometers, but at larger distances interest rate correlations in Britain are twice those of the Delta, and three or more times as high as elsewhere in China. Overall, our results suggest capital market divergence at an early date.
  • Comments on Mandelman and Waddle’s “Intellectual property, tariffs, and international trade dynamics”, Journal of Monetary Economics; Volume 109 (January 2020), Pages 104-106.
    Abstract: In their paper, Federico Mandelman and Andrea Waddle are interested in the relation of trade and the protection of intellectual property rights (IPR) policies. This is against the backdrop of the so-called US-China Trade War, which is underpinned by claims of forced technology transfer from the US to China.1 In such a situation, might it be possible to use trade policy tools, specifically tariffs, to improve IPR protection? To address this question, in terms of positive economics the paper seeks a better understanding on how IPR enforcement and trade policies interact. Furthermore, the authors evaluate the effect of such policies on the welfare of agents in both countries. Mandelstam and Waddle tackle these issues in a dynamic, general equilibrium framework combing elements of (GhironiMelitz, 2005) and (Holmes et al., 2015). The authors argue that there might be room for cooperation between countries, as higher tariffs are found to be an effective deterrent for weak IPR protection just as weakening IPR enforcement may be a credible threat to prevent tariff increases.

Miles Kimball

 

Miles Spencer Kimball

 

  • Challenges in Constructing a Survey-Based Well-Being Index, (with Daniel Benjamin, Kristen Cooper, and Ori Heffetz), American Economic Review, 107(5): 81-85.
    Abstract: How should a survey-based measure of well-being be implemented? How could it be constructed in a systematic and politically neutral way? These questions should be approached by economists with the same level of care that has been taken in the theoretical and practical development of GDP. We focus on two essential requirements for implementation: formulating a list of different aspects of well-being that is theoretically valid and can be measured accurately via surveys, and choosing and interpreting the survey response scales. We discuss progress to date on these issues, remaining challenges, and some possible approaches to overcoming them.


Xiaodong Liu 

Xiaodong Liu

 

  • A Structural Model for the Coevolution of Networks and Behavior, (with Chih-Sheng Hsieh and Michael Kӧnig) The Review of Economics and Statistics, forthcoming.
    Abstract: This paper introduces a structural model for the coevolution of networks and behavior. We characterize the equilibrium of the underlying game and adopt the Bayesian Double Metropolis-Hastings algorithm to estimate the model. We further extend the model to incorporate unobserved heterogeneity and show that ignoring unobserved heterogeneity can lead to biased estimates in simulation experiments. We apply the model to study R&D investment and collaboration decisions in the chemical and pharmaceutical industry and find a positive knowledge spillover effect. Our model also provides a tractable framework for a long-run key player analysis.


Adam McCloskey

Adam McCloskey

 

 

  • Inference After Estimation of Breaks, (with Isaiah Andrews and Toru Kitagawa), Journal of Econometrics, forthcoming.
    Abstract:  In an important class of econometric problems, researchers select a target parameter by maximizing the Euclidean norm of a data-dependent vector. Examples that can be cast into this frame include threshold regression models with estimated thresholds and structural break models with estimated break dates. Estimation and inference procedures that ignore the randomness of the target parameter can be severely biased and misleading when this randomness is non-negligible. This paper studies conditional and unconditional inference in such settings, accounting for the data-dependent choice of target parameters. We detail the construction of quantile-unbiased estimators and confidence sets with correct coverage, and prove their asymptotic validity under data generating process such that the target parameter remains random in the limit. We also provide a novel sample splitting approach that improves on conventional split-sample inference.
  • Estimation and Inference with a (Nearly) Singular Jacobian, (with Sukjin Han), Quantitative Economics, 10: 1019-1068, 2019.
    Abstract: This paper develops extremum estimation and inference results for nonlinear models with very general forms of potential identification failure when the source of this identification failure is known. We examine models that may have a general deficient rank Jacobian in certain parts of the parameter space. When identification fails in one of these models, it becomes underidentified and the identification status of individual parameters is not generally straightforward to characterize. We provide a systematic reparameterization procedure that leads to a reparametrized model with straightforward identification status. Using this reparameterization, we determine the asymptotic behavior of standard extremum estimators and Wald statistics under a comprehensive class of parameter sequences characterizing the strength of identification of the model parameters, ranging from nonidentification to strong identification. Using the asymptotic results, we propose hypothesis testing methods that make use of a standard Wald statistic and data-dependent critical values, leading to tests with correct asymptotic size regardless of identification strength and good power properties. Importantly, this allows one to directly conduct uniform inference on low-dimensional functions of the model parameters, including one-dimensional subvectors. The paper illustrates these results in three examples: a sample selection model, a triangular threshold crossing model, and a collective model for household expenditures.


Sergey Nigai

 

Sergey Nigai

 

  • The Taxing Deed of Globalization (with Peter Egger and Nora Strecker), American Economic Review, 109(2), 353-90, 2019.
    Abstract: This paper examines the effects of globalization on the distribution of worker-specific labor taxes using a unique set of tax calculators. We find a differential effect of higher trade and factor mobility on relative tax burdens in 1980–1993 versus 1994–2007 in the OECD. Prior to 1994, greater openness meant that higher income earners were taxed progressively more. However, after 1994, we document a globalization-induced rise in the labor income tax burden of the middle class, while the top 1 percent of workers and employees faced a reduction in their tax burden of 0.59–1.45 percentage points.


Alessandro Peri

 

Alessandro Peri

  • Financial Development, Default Rates, and Credit Spreads, (with O. Rachedi), Economic Journal, 2019.
    Abstract: U.S. corporate default rates increased dramatically from an annual average of 0.32% between 1950 and 1984 up to 1.65% since 1985. Meanwhile credit spreads rose just by 6 basis points. We argue that financial development – intended as an exogenous reduction in the fixed cost of borrowing – accounts for this evidence. In a heterogeneous firm model financial development boosts both default rates and firms’ expected recovery rates. These two effects offset each other, muting the change in the credit spreads. The model explains 63% of the rise in default rates and predicts a 6 basis point drop in the credit spreads.


Scott Savage 

Scott Savage

 

  • Tariff Pass-Through and Welfare in the Tablet Computer Market, (with R. Scott Hiller), Journal of Industrial Economics, forthcoming.
    Abstract: 
    This paper estimates the short-run effects of tariffs on United States tablet computer prices and welfare. Market-level data are used to estimate a model of demand, supply and trade policy and to simulate equilibria prices and sales in scenarios with tariffs on Chinese production. A 25 percent tariff on firms assembling in China results in a tariff elasticity of consumer prices of 1.108, a 29.6 percent decline in profits for firms assembling in China, and a deadweight loss of 28.8 percent of total economic surplus. Firms assembling elsewhere benefit from the reduction in rival’s competitiveness by increasing their prices, market shares and profits. A long-run implication is that firms may be incented to shift production from “uncompetitive” facilities in China to lower-cost countries that are politically favored by the United States.


Carol Shiue 

Carol Shiue

 

  • Capital Markets in China and England in the 18th and 19th Centuries: Evidence from Grain Prices, (with Wolfgang Keller and Wang Xin) American Economic Journal: Applied Economics. (conditional acceptance).
    Abstract: Based on the most comprehensive grain prices available, we employ a storage model to estimate consistent interest rates and compare capital market development in Britain and China. Interest rates for Britain were lower than China’s on average by about three percentage points from 1770 to 1860. Regional capital market integration in the Yangzi Delta comes close to the British average at distances below 200 kilometers, but at larger distances interest rate correlations in Britain are twice those of the Delta, and three or more times as high as elsewhere in China. Overall, our results suggest capital market divergence at an early date.


Shuang Zhang 

Shuang Zhang

 

  • Land Reform and Sex Selection in China (with Douglas Almond and Hongbin Li), Journal of Political Economy127(2), 000-000, 2019.
    Abstract: Following the death of Mao in 1976, agrarian decision-making shifted from the collective to individual households, unleashing rapid growth in farm output and unprecedented reductions in poverty. In new data on reform timing in 914 counties, we find an immediate trend break in the fraction of male children following rural land reform. Among second births that followed a firstborn girl, sex ratios increased from 1.1 to 1.3 boys per girl in the four years following reform. Larger increases are found among families with more education and in counties with larger output gains due to reform. Proximately, increased sex selection was achieved in part through prenatal ultrasounds obtained in provincial capitals. The land reform estimate is robust to controlling for the county-level rollout of the One Child Policy. Overall, we estimate land reform accounted for roughly half of the increase in sex ratios in rural China from 1978-86, or about 1 million missing girls.
  • Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China (with Koichiro Ito), Journal of Political Economy, forthcoming.
    Abstract: We develop a framework to estimate willingness to pay (WTP) for clean air from defensive investment. Applying this framework to product-by-store level scanner data on air purifier sales in China, we provide among the first revealed preference estimates of WTP for clean air in developing countries. A spatial discontinuity in air pollution created by the Huai River heating policy enables us to analyze household responses to long-run exposure to pollution. Our model allows heterogeneity in preference parameters to investigate potential heterogeneity in WTP among households. We show that our estimates provide important policy implications for optimal environmental regulation.