Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2009. / Includes bibliographical references. / This dissertation is a collection of three essays on public and private borrowing on international capital markets, with a focus on optimal policy for the government and international financial institutions. Chapter 1 focuses on sovereign debt and default. Recent sovereign default episodes have been associated with substantial output costs, and the sovereign should take into account that any default decision may exacerbate such costs. I construct a two-period model where sovereign debt is held by both foreign creditors and domestic residents. Default on foreign lenders benefits domestic consumption, but default on domestic residents generates an output cost that increases with the extent of the default. I present two sets of optimal policy results. Firstly, I characterize the optimal default decision and show that full repudiation of debt is not optimal when domestic output costs are sufficiently high. A corollary is that the sovereign can issue debt even in the absence of reputational mechanisms. Secondly, I show that it is optimal for the government to render the domestic economy vulnerable to the adverse effects of default, in order to raise funds cheaply from abroad. Economic fragility is an optimal response to the lack of commitment of the sovereign. Chapter 2 extends the results to an infinite horizon specification. If the default decision does not lead to reduced capital market access in the future, the results from the two-period model remain valid in the infinite horizon. / (cont.) I expand the framework to incorporate persistent productivity shocks. For this case, an adverse productivity shock leads to a reduction in the feasible set of debt levels today. I show that optimal borrowing may now be increasing, rather than decreasing, in the productivity shock. Finally, I examine whether the government chooses to issue debt in the long run. If the government is allowed to save abroad and simultaneously issue government debt, then it is optimal for the government to have a positive gross debt position even in the long run, irrespective of the discount factor. The results of chapter 1 are therefore operative in the infinite horizon. Chapter 3 concentrates on private rather than public borrowing. This chapter characterizes optimal IMF policy in an environment with moral hazard followed by adverse selection. In my framework, government actions to improve domestic productivity are not always effective, and the government learns of the success of its actions before foreign investors. Without the IMF, it is not possible for foreign investors to discern the quality of the domestic production sector. There only exists a pooling equilibrium ex post, which leads to low government effort ex ante. Optimal IMF intervention is the solution to a mechanism design problem in the presence of imperfectly informed competitive markets. Optimal IMF policy is structured so as to reveal the government's private information to foreign investors in a separating equilibrium. Government effort ex ante is high. / (cont.) Countries with weak fundamentals ex post accept IMF transfers and face high interest rates on private capital markets. Countries with strong fundamentals make contributions to the IMF and receive low interest rates from foreign investors. / by Suman S. Basu. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2018. / This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections. / Cataloged student-submitted from PDF version of thesis. / Includes bibliographical references. / This thesis consists of three essays that contribute to statistical methods in econometrics. Chapter 1 develops new theory of integrable empirical processes and applies it to outlier robustness analysis. A frequent concern in empirical research is to ensure that a handful of outlying observations have not driven the key empirical findings. This chapter constructs a formal statistical test of outlier robustness and provides its theoretical foundation. The key is to observe that statistics related to outlier robustness analyses are represented as L-statistics--integrals of empirical quantile functions with respect to sample selection measures-and to consider these elements in appropriate normed spaces. We characterize the asymptotic distribution of L-statistics and prove the validity of nonparametric bootstrap. An empirical application shows the utility of the proposed test. Chapter 2 establishes the theory of weak identification in semiparametric models and provides an efficiency concept for weakly identified parameters. We first formulate the defining feature of weak identification as weak regularity, the asymptotic dependence of a parameter on the model score. While this feature deems consistent and equivariant estimation of a weakly regular parameter impossible, we show that there exists an underlying parameter that is regular and fully characterizes the weakly regular parameter. Using the minimal sufficient underlying regular parameter, we define weak efficiency for a weakly regular parameter through local asymptotic Rao-Blackwellization. Simulation shows that efficiency of popular estimators in linear IV models can be improved under heteroskedasticity. Chapter 3 provides a method to account for estimation error in financial risk control. As accuracy of estimated risk is subject to estimation error, risk control based on estimated risk may fail to control the true, unobservable risk. We show that risk measures that give bounds to the probabilities of bad events can be effectively controlled by the Bonferroni inequality when the distributions of their estimators are known or estimable. We call such risk measures tail risk measures and show that they subsume Value-at-Risk and expected shortfall. An empirical application to portfolio risk management shows that a multiplier of 1.3 to 1.9 can control the true risk probability of expected shortfall at 10%. / by Tetsuya Kaji. / Ph. D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2016. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 163-167). / This thesis explores the determinants of international migration of low-skilled workers, in particular, from Nepal to Malaysia and the Persian Gulf countries. The first chapter explores how potential migrants trade the risks (of mortality) with (financial) rewards of migrating abroad. The second chapter investigates how potential migrants learn about mortality rates abroad from the incidents of migrant deaths. The third chapter investigates how various 'push' and 'pull' shocks affect international migration when a low-cost low-return destination like India is also available for the migrants. Do potential migrants have accurate information about the risks and returns of migrating abroad? And, given the information they have, what is their revealed willingness to trade risks for higher earnings? To answer these questions, the first chapter sets up and analyzes a randomized field experiment among 3,319 potential work migrants from Nepal to Malaysia and the Persian Gulf countries. The experiment provides them with information on wages and mortality incidences in their choice destination and tracks their migration decision three months later. I find that potential migrants severely overestimate their mortality rate abroad, and that information on mortality incidences lowers this expectation. Potential migrants without prior foreign migration experience also overestimate their earnings potential abroad, and information on earnings lowers this expectation. Using exogenous variation in expectations for the inexperienced potential migrants generated by the experiment, I estimate migration elasticities of 0.7 in expected earnings and 0.5 in expected mortality. The experiment allows me to calculate the trade-off the inexperienced potential migrants make between earnings and mortality risk, and hence their value of a statistical life (VSL). The estimates range from $0.28 million to $0.54 million ($0.97m - $1.85m in PPP), which is a reasonable range for a poor population. At this revealed willingness to trade earnings for mortality risk, misinformation lowers migration. In the second chapter, I study how potential work migrants infer mortality rates from incidents of migrant deaths. Using administrative databases on deaths and outflows of work-migrants from Nepal to Malaysia and the Persian Gulf countries, I investigate how death of a migrant from a district affects subsequent migration from the district. After controlling for confounds using district-month, destination-month and district-destination fixed effects, I find two key features of the migration response. First, migrant death lowers migration from the district in the subsequent 12 months. There is limited substitution across destinations as well as spillovers to neighboring districts. Second, the migration response to a migrant death is stronger when there are more migrant deaths in the recent past. This indicates that the potential migrants over-weight recent deaths in forming their beliefs on mortality rates abroad. I then convert the migration response to change in perceived mortality rate abroad using the earnings elasticity of migration and the value of statistical life from the first chapter. I find that one migrant death increases the perceived mortality rate by 6.7 per thousand for a two-year migration episode. This response is too large to be explained by a model of rational Bayesian learning. Models of learning fallacy, such as belief in the law of 'small' numbers, in conjunction with other heuristic decision making rules, can explain high response to death as well as large observed overestimation of mortality rate. In the third chapter, I study migration choices in the presence of liquidity constraints and varying costs of migration. I present a simple theoretical framework that analyzes migration response to both push and pull factors in such settings. This framework implies that a shock to the push factors in the origin leads to differential observed response to migration to various destinations, as they affect different parts of the wealth distribution. I test the implications of this framework in context of international migration from Nepal using a panel of 452 villages observed at three points in the 2000s. I use rainfall shocks and deaths due to conflict as 'push' shocks and growth in manufacturing and construction in destination countries as the 'pull' shocks. I find that a rainfall shock that increases household income by US$ 100 increases migration to India by 54 percent but has no effect on migration elsewhere. Increase in conflict, which reduces consumption and amenity of the wealthier more, increases migration abroad, particularly from the urban areas. Increase in demand from the destination countries, particularly the Gulf countries and Malaysia has strong effects on migration to those destinations. These findings are consistent with the theoretical framework, and suggest presence of large liquidity constraints. Increase in income can boost migration to India whereas a reduction in cost of migration might increase profitable migration elsewhere. The responsiveness to 'pull' shocks suggests that households are willing to take advantage of these opportunities. / by Maheshwor Shrestha. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2006. / Includes bibliographical references. / This thesis examines three questions of causality relevant to public finance and labor economics: the effect of racial segregation on city characteristics, the effect of divorce on women's economic outcomes, and the effect of abortion legalization on completed fertility. Chapter one examines the effect of segregation on cities. There is a strikingly negative city-level correlation between residential racial segregation and population outcomes -- particularly for black residents -- but it is widely recognized that this correlation may not be causal. This chapter provides a novel test of the causal relationship between segregation and population outcomes by exploiting the arrangements of railroad tracks in the 19th century to isolate plausibly exogenous variation in a city's susceptibility to segregation. I show that, conditional on miles of railroad track laid, the extent to which track configurations physically subdivided cities strongly predicts the level of segregation that ensued after the Great Migration of African-Americans to northern and western cities in the 20th century. Prior to the Great Migration, however, track configurations were uncorrelated with racial concentration, income, education and population, indicating that reverse causality is unlikely. / (cont.) Instrumental variables estimates find that segregation leads to negative characteristics for blacks and high-skilled whites, but positive characteristics for low-skilled whites. Segregation could generate these effects either by affecting human capital acquisition of residents of different races and skill groups ('production') or by inducing sorting of race and skill groups into different cities ('selection'). I develop a model to distinguish between production and selection effects. The findings are most consistent with the view that more segregated cities produce better outcomes for low-skilled whites and that more segregated cities are in less demand among both blacks and whites, implying that Americans on average value integration. Chapter two, coauthored with Guy Michaels, examines the effect of divorce on women's economic outcomes. Having a female firstborn child significantly increases the probability that a woman's first marriage breaks up. We exploit this exogenous variation to measure the effect of marital breakup on women's economic outcomes. We find evidence that divorce has little effect on a woman's average household income, but significantly increases the probability that her household will be in the lowest income quartile. / (cont.) While women partially offset the loss of spousal earnings with child support, welfare, combining households, and substantially increasing their labor supply, divorce significantly increases the odds of household poverty on net. Chapter three, coauthored with Jonathan Gruber and Phillip B. Levine, examines the effect of abortion legalization on completed fertility. Previous research has convincingly shown that abortion legalization in the early 1970s led to a significant drop in fertility at that time. But this decline may have either represented a delay in births from a point where they were "unintended" to a point where they were "intended," or they may have represented a permanent reduction in fertility. We combine data from the 1970 U.S. Census and microdata from 1968 to 1999 Vital Statistics records to calculate lifetime fertility of women in the 1930s through 1960s birth cohorts. We examine whether those women who were born in early legalizing states and who passed through the early 1970s in their peak childbearing years had differential lifetime fertility patterns compared to women born in other states and in different birth cohorts. / (cont.) We consider the impact of abortion legalization on both the number of children ever born as well as the distribution of number of children ever born. Our results indicate that much of the reduction in fertility at the time abortion was legalized was permanent in that women did not have more subsequent births as a result. We also find that this result is largely attributable to an increase in the number of women who remained childless throughout their fertile years. / by Elizabeth Oltmans Anant. / Ph.D.

Thesis: S.M., Massachusetts Institute of Technology, Department of Economics, 2016. / "June 2016." Cataloged from PDF version of thesis. / Includes bibliographical references (pages 53-56). / A growing literature has documented evidence that consumers in health insurance markets are inertial, or behave as though they face substantial switching costs in choosing a health insurance plan. I investigate whether the private firms that provide prescription drug insurance through Medicare Part D exploit this inertia when setting prices. I first document descriptive evidence consistent with insurers initially setting low prices in order to "invest" in future demand before later raising prices to "harvest" inertial consumers. I then apply a two-step estimation approach following Bajari, Benkard and Levin (2007) to explore the implications of these invest and harvest incentives for equilibrium pricing, finding that on net, demand inertia reduces equilibrium prices (i.e. the invest incentive dominates the harvest incentive). Finally, I evaluate welfare consequences of policies that could be used to constrain insurers' ability to conduct such "invest-then-harvest" pricing patterns. I find, for example, that a policy change to cap premium increases would improve consumer welfare by both lowering average premiums and smoothing prices over time. / by Yufei Wu. / S.M.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2009. / This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections. / Includes bibliographical references (p. 141-147). / This thesis consists of three essays that examine the impact of tax policy on firms' decisions to invest in productive capital. The first chapter uses newly-collected data on transaction prices of used construction machinery to examine the impact and incidence of recent tax incentives for investment. Theory predicts that incentives applying only to new investment should drive a wedge equal to the value of the incentives between the prices of new machines and equally productive used machines. The estimated effect of recent "bonus depreciation" incentives on the size of this wedge is close to zero. The total supply of machines, however, is highly price elastic. Together, these results suggest that the effectiveness of tax incentives that succeeded in stimulating investment demand would not be blunted by inelastic supply, but that the most recent set of tax incentives did little to stimulate investment demand. The second chapter documents the prevalence of losses among US corporations in recent years and examines their implications for the effectiveness of tax incentives for investment. Results suggest that asymmetries in the corporate tax code made recent bonus depreciation tax incentives about 5% less effective than they otherwise would have been. Recent declines in the ratio of cash flows to assets made bonus depreciation as much as 24% less effective than it otherwise would have been. Thus, recent losses can explain only part of the observed ineffectiveness of bonus depreciation. / (cont.) The final chapter estimates the response of dividend payouts to a 2003 dividend tax cut using a new control group of unaffected firms. Dividend payouts by real estate investment trusts rose sharply following the tax cut, even though REIT dividends did not benefit from the cut. It appears that the surge in aggregate dividend payouts subsequent to the tax cut was driven primarily by an increase in corporate earnings. Evidence from the tax cut thus provides little support for the claim that dividend taxation creates large distortions to firm investment decisions or large efficiency costs. / by Jesse Edgerton. / Ph.D.

Thesis (M.S.)--Massachusetts Institute of Technology, Dept. of Economics, 1986. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. / Bibliography: leaves 47-49. / by J. Kevin Berner. / M.S.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1998. / Includes bibliographical references. / by Robert Samuel Marquez. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1994. / Includes bibliographical references. / by Daniel Philip Kessler. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2013. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 163-168). / This thesis studies problems of belief and information formation of agents, and its effect on incentive provision in problems of experimental and mechanism design. Chapter 1 is based on joint work with Arun Chandrasekhar and Horacio Larreguy. In this chapter we present the results of an experiment we conducted in rural Karnataka, India, to get evidence on how agents learn from each other's actions in the context of a social network. Theory has mostly focused on two leading models of social learning on networks: Bayesian updating and local averaging (DeGroot rules of thumb) which can yield greatly divergent behavior; individuals employing local averaging rules of thumb often double-count information and, in our context, may not exhibit convergent behavior in the long run. We study experiments in which seven individuals are placed into a network, each with full knowledge of its structure. The participants attempt to learn the underlying (binary) state of the world. Individuals receive independent, identically distributed signals about the state in the first period only; thereafter, individuals make guesses about the underlying state of the world and these guesses are transmitted to their neighbors at the beginning of the following round. We consider various environments including incomplete information Bayesian models and provide evidence that individuals are best described by DeGroot models wherein they either take simple majority of opinions in their neighborhood Chapter 2 is based on joint work with Arun Chandrasekhar, and studies how researchers should design payment schemes when making experiments on repeated games, such as the game studied in Chapter 1. It is common for researchers studying repeated and dynamic games in a lab experiment to pay participants for all rounds or a randomly chosen round. We argue that these payment schemes typically implement different set of subgame perfect equilibria (SPE) outcomes than the target game. Specifically, paying a participant for a randomly chosen round (or for all rounds with even small amounts of curvature) makes the game such that early rounds matter more to the agent, by lowering discounted future payments. In addition, we characterize the mechanics of the problems induced by these payment methods. We are able to measure the extent and shape of the distortions. We also establish that a simple payment scheme, paying participants for the last (randomly occurring) round, implements the game. The result holds for any dynamic game with time separable utility and discounting. A partial converse holds: any payment scheme implementing the SPE should generically be history and time independent and only depend on the contemporaneous decision. Chapter 3 studies a different but related problem, in which agents now have imperfect information not about some state of nature, but rather about the behavior of other players, and how this affects policy making when the planner does not know what agents expects her to do. Specifically, I study the problem of a government with low credibility, who decides to make a reform to remove ex-post time inconsistent incentives due to lack of commitment. The government has to take a policy action, but has the ability to commit to limiting its discretionary power. If the public believed the reform solved this time inconsistency problem, the policy maker could achieve complete discretion. However, if the public does not believe the reform to be successful some discretion must be sacrificed in order to induce public trust. With repeated interactions, the policy maker can build reputation about her reformed incentives. However, equilibrium reputation dynamics are extremely sensitive to assumptions about the publics beliefs, particularly after unexpected events. To overcome this limitation, I study the optimal robust policy that implements public trust for all beliefs that are consistent with common knowledge of rationality. I focus on robustness to all extensive-form rationalizable beliefs and provide a characterization. I show that the robust policy exhibits both partial and permanent reputation building along its path, as well as endogenous transitory reputation losses. In addition, I demonstrate that almost surely the policy maker eventually convinces the public she does not face a time consistency problem and she is able to do this with an exponential arrival rate. This implies that as we consider more patient policy makers, the payoff of robust policies converge to the complete information benchmark. I finally explore how further restrictions on beliefs alter optimal policy and accelerate reputation building. / by Juan P. Xandri Antuña. / Ph.D.