Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2003. / Includes bibliographical references (leaves 74-75). / Chapter 1: This chapter looks at a dynamic panel data model with fixed effects. Estimating the model with GMM is consistent but suffers from small sample bias. We apply Helmert's transformation to the model, assume that error terms and nuisance parameters are homoskedastic and independent across observations and of one another, and utilize the GMM bias calculation of Newey & Smith (2001). This leads to a closed form expression for the GMM bias applied to AR(1) model. Chapter 2: This chapter develops specification tests for quantile regression under various data types. We consider what happens to the quantile regression estimator under local and global misspecification and design specification tests that handle a wide range of data types. We consider how to carry out such tests in practice and present Monte Carlo results to show the effectiveness of such tests. Chapter 3: Through a Taylor expansion, We compute the bias of a general GMM model where the weighting matrix A of the moment conditions g(z, β) is left unspecified, except for some general conditions. Our bias results are compared to those of Newey and West (2003). An important case of GMM estimation with a general weighting matrix A is when A is a function of a vector of parameters with fixed dimension. Arellano's IVE estimator is an example of this type of estimator--we consider the bias properties of Arellano's IVE estimator in the AR(1) setting and compare them to our results from Chapter 1. / by Ziad H. Nejmeldeen. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2005. / Includes bibliographical references. / This dissertation consists of three chapters that examine the importance of commercial banks in the financing decisions of corporations. The first chapter focuses on syndicated loans. The syndicated loan market is an increasingly important source of corporate finance, with over $1 trillion in new syndicated loans signed annually. The first chapter empirically explores the syndicated loan market with an emphasis on how information asymmetry and renegotiation considerations influence syndicate structure and the choice of participant lenders. There are two principal findings. First, when the borrower requires more intense investigation and monitoring effort by a financial institution, the lead arranger retains a larger portion of the loan, forms a more concentrated syndicate, and chooses participants that are closer to the borrower (both geographically and in terms of previous relationships). The evidence is consistent with moral hazard in a setting of information asymmetry. The lead arranger attempts to guarantee due diligence effort by increasing its risk exposure, and the lead arranger chooses lenders that minimize information asymmetry. Second, when the borrower is more likely to need to renegotiate the loan agreement, lead arrangers add participants with very small portions of the loan to the syndicate. Given that unanimity of lenders is needed to renegotiate major terms of the loan, adding participants with small portions of the loan reduces the renegotiation surplus expected by the borrower. The evidence suggests that lenders form syndicates to reduce inefficient behavior and strategic default by borrowers. The second chapter focuses on the use of bank lines of credit by corporations. Commercial bank lines of credit are used by more U.S. corporations than any other type of debt financing. Using novel data from annual 10-K SEC filings for a random sample of public firms, I analyze how corporate lines of credits are used by firms, how they are managed by banks, and which types of firms obtain lines of credit. The evidence suggests that lines of credit are the incremental source of debt financing for firms, and that banks carefully manage their use through covenants on profitability. Among firms that have lines of credit, a negative earnings shock leads to a restriction of the unused portion of the lines. Among all firms, only firms with high profitability are able to obtain lines of credit. The results suggest that lines of credit provide bank-managed flexibility for the firms that are able to obtain them, but only profitable firms are awarded this flexibility. In the third chapter, I examine the increasing prevalence of commercial banks in the corporate debt underwriting market. The relaxation of restrictions on commercial bank underwriting, culminated in the passage of the Financial Services Modernization Act of 1999, has initiated a major change in debt underwriting markets facing borrowing firms. For the first time since the 1920s, financial institutions are able to jointly produce private lending and underwriting services. Using fixed effects regressions on a panel of 4,553 debt issues by 509 firms from 1990 to 2003, I find that issuing firms receive a 10 to 15 percent reduction in underwriting fees, which is driven by commercial banks jointly offering lending and underwriting services. I show firms are no more locked in to financial relationships after deregulation than before, and that issuing firms add multiple lead managers to prevent a lending commercial bank underwriter from gaining too much power over the firm. While a number of papers analyze commercial bank entry, this work in this chapter is the first to use the effect of exogenous deregulation on within-firm variation over time to estimate key parameters. This methodological contribution is important; I show that cross section (or pooled) regressions produce biased and inconsistent estimates of the effect of commercial banks on yield spreads. The fixed effects strategy employed here calls into question the result in previous research that commercial banks obtain lower yield spreads for borrowing firms. / by Amir Sufi. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2008. / Includes bibliographical references. / This thesis is a collection of three essays on mechanism design. In Chapter 1, we consider a general Informed Principal Problem in the context of procurement. Both the potential suppliers and the buyer hold some private information: each supplier knows his cost of production, the buyer knows how much each supplier's product fits her technical requirements. We derive the optimal auction in this environment, and analyze the implementation problem with special emphasis on three aspects that are particularly relevant in real practice: privacy protection, dynamic consistency, and simplicity. We design a dynamic mechanism, the Modified English Auction, that implements the optimal auction outcome, is privacy preserving, dynamically consistent, and simple. Chapter 2 is a joint work with Joao Leao. How do mechanisms like hotwire.com work? What is their economic impact on the existing markets of hotel rooms, airplane tickets, and rental cars? We address these questions by investigating whether lotteries over the basic goods can be profitably used by any of the market participants. We consider lotteries in which the buyers win a prize for sure, but they do not know which one. Our main finding is that the perfect cartel always uses lotteries to maximize its profits. Moreover, under specific conditions, the entry of a lottery provider in a competitive market may bring the existing firms closer to the cartel solution. The introduction of lotteries has two effects. First, the firms can use them to price-discriminate their consumers. Second, the firms can use lotteries to cover a larger part of the market. Indeed, the consumers who find the basic goods too expensive may still want to buy cheaper lottery tickets. / (cont.) In Chapter 3 we initiate the formal analysis of the First Price-First Score Auction in a general context where the auctioneer is a seller and two bidders compete to buy one indivisible good. The auctioneer's preferences are assumed to directly depend on the identity of the buyer to whom the good is allocated. In this auction, the bidders submit monetary bids, and then the seller decides which bid to accept after comparing the bidders' scores. A particular class of auction we focus on have simple scoring functions: each bidder's score is given by the summation of his bid and a bidder-specific additional parameter. Our main goal is to obtain the specification of the problem that generates a closed-form analytical solutions for the bidding strategies. The task is complicated as there are at least two sources of asymmetries inherent to the problem that can quickly lead to intractable formulas. The main contribution of this work is to provide closed formulas for the inverse bidding functions. Our results generalize the comparison of bidding strategies in asymmetric first price auctions obtained by Maskin and Riley (2002). Even if the asymmetry between the bidders is exogenously introduced by the auctioneer, in equilibrium the disadvantaged bidder bids more aggressively. We are also able to determine the ranges of bids that can be submitted by the two bidders. They are actually different, and their extremes depend on the extra-bid parameter. / by Filippo Balestrieri. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012. / Cataloged from PDF version of thesis. / Includes bibliographical references. / This dissertation ties together three papers on mechanism design with boundedly rational agents. These papers explore theoretically whether, and to what extent, limitations on agents' ability to strategically misrepresent their preferences can help a mechanism designer achieve outcomes that she could not achieve with perfectly rational agents. The first chapter investigates whether local incentive constraints are sufficient to logically imply full incentive-compatibility, in a variety of mechanism design settings. This can be motivated by a boundedly rational model in which agents cannot contemplate all possible misrepresentations, but can consider those that are close to their true preferences. This chapter offers a unified approach that covers both continuous and discrete type spaces, showing that in many commonly studied cases, local incentive-compatibility (suitably defined) implies full incentive-compatibility. The second chapter advances the methodology of looking quantitatively at incentives for strategic behavior, motivated by the premise that agents will be truthful if the incentive to be strategic is small enough. This chapter defines a mechanism's susceptibility to manipulation as the maximum amount of expected utility any agent can ever gain from strategic misrepresntation. This measure of susceptibility is then applied to anonymous voting rules. One set of results estimates the susceptibility of specific voting rules; an important finding is that several voting systems previously identified as resistant to manipulation are actually more susceptible than simple plurality rule, by the measure proposed here. A second set of results gives asymptotic lower bounds on susceptibility for any possible voting rule, under various combinations of efficiency, regularity, and informational conditions. These results illustrate how one can quantitatively explore the tradeoffs between susceptibility and other properties of the voting rule. The third chapter carries the methodology of the second chapter to a market environment: unit-demand, private-value double auction markets. This chapter quantitatively studies the tradeoff between inefficiency and susceptibility to manipulation, among all possible mechanisms for such markets. The main result approximately locates the possibility frontier, pinning it down within a factor that is logarithmic in the size of the market. / by Gabriel D. Carroll. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2006. / Includes bibliographical references (p. 114-118). / This dissertation consists of three essays on the effects of intellectual property rights protection on market structure and social welfare in the Indian pharamaceutical industry. In contrast to pharmaceutical industries in the developed world, India had historically enforced a weak system of intellectual property rights protection that eliminated most legal barriers to entry in its pharmaceuticals markets. As a condition of its membership to the World Trade Organization, India became required to extend legal protection to all pharmaceutical products by 2005. The first essay analyzes the dramatic increase in the number of products released by domestic firms in India in the period leading up to the 2005 deadline. Speculation in the media linked this phenomenon to the imminent change in patent regime. The essay uses data on pharmaceutical products being sold in India in combination with data on drugs patented internationally to investigate the possibility that Indian firms launched products in the domestic industry as a strategic response to the anticipated change implied by the WTO. Results of the estimation do not provide conclusive evidence of strategic behavior by firms in markets where the patent enforcement could affect the future profitability of domestic firms. / (cont.) The results suggest that much of the increase in product launches was driven by the size of the market and the age of the drugs in question. However, without more information on counterfactual current and future profits, we cannot rule out strategic behaviour by domestic firms. The second essay develops a structural model of demand, supply and entry and relates the free entry setting of the industry during the sample period to two sets of welfare issues. The model incorporates firm heterogeneity and product differentiation and backs out demand and supply-side parameters for five key therapeutic categories in the industry. Results of the estimation show that demand varies significantly across the therapeutic categories and that firm heterogeneity is an important factor for both demand and entry costs. Counterfactual simulations of the effect of entry by foreign firms into selected drugs find no evidence of socially "excessive" entry; on the contrary, the simulations suggest large gains to consumers from the addition of more firms, which would overwhelm the losses to producers and thus increase social welfare. / (cont.) Simulations of the welfare effects of patent enforcement in India for four drugs that were under patent protection in the US at the time show losses of over $1 million on average for consumers in these markets and an average reduction in market size of approximately 35,000 patients. In comparison, the increase in profits of the global patent-holders for these drug are estimated to range between $0.08 million and $0.5 million. These gains are modest, particularly in comparison to the costs of global drug development that range between $200 million and $300 million. The third essay looks for empirical evidence of early-mover advantages for pioneering firms in pharmaceutical products markets in India. The first half of the paper employs fixed effects to control for unobserved heterogeneity. Estimates from this basic model suggest that an earlier entry translates into positive gains for firms, in terms of both higher prices and higher revenues. The second half of the paper tackles the sample selection issues arising from the fact that firms choose their own orders of entry. A firm's order of entry into a market is modelled as a continuous decision variable at the first-stage. The selection model then uses the residuals from this first-stage to correct the sample selection bias at the second-stage. / (cont.) The order of entry continues to have a strong effect on the price and revenue received by a firm, with earlier entrants retaining larger long-term advantages. In particular, after accounting for the endogeneity of entry, results suggest that the pure order-of-entry effect on revenue allows the first entrant into a market to earn more than two times the revenue of the fifth entrant and over six times the revenue of the tenth entrant. / by Antara Dutta. / 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 from student-submitted PDF version of thesis. / Includes bibliographical references (pages 183-189). / This thesis consists of three essays on dynamic games with incomplete information. In Chapter 1, I study reputation effects when individuals have persistent private information that matters for their opponents' payoffs. I examine a repeated game between a patient informed player and a sequence of myopic uninformed players. The informed player privately observes a persistent state, and is either a strategic type who can flexibly choose his actions or is one of the several commitment types that mechanically plays the same action in every period. Unlike the canonical models on reputation effects, the uninformed players' payoffs depend on the state. This interdependence of values introduces new challenges to reputation building, namely, the informed player could face a tradeo between establishing a reputation for commitment and signaling favorable information about the state. My results address the predictions on the informed player's payoff and behavior that apply across all Nash equilibria. When the stage game payoffs satisfy a monotone-supermodularity condition, I show that the informed long-run player can overcome the lack-of-commitment problem and secure a high payoff in every state and in every equilibrium. Under a condition on the distribution over states, he will play the same action in every period and maintain his reputation for commitment in every equilibrium. If the payoff structure is unrestricted and the probability of commitment types is small, then the informed player's return to reputation building can be low and can provide a strict incentive to abandon his reputation. In Chapter 2, I study the dynamics of an agent's reputation for competence when the labor market's information about his performance is disclosed by an intermediary who cannot commit. I show that this game admits a unique Markov Perfect Equilibrium (MPE). When the agent is patient, his effort is inverse U-shaped, while the rate of information disclosure is decreasing over time. I illustrate the inefficiencies of the unique MPE by comparing it with the equilibrium in the benchmark scenario where the market automatically observes all breakthroughs. I characterize a tractable subclass of non-Markov Equilibria and explain why allowing players to coordinate on payoff-irrelevant events can improve eciency on top of the unique MPE and the exogenous information benchmark. When the intermediary can commit, her optimal Markov disclosure policy has a deadline, after which no breakthrough will be disclosed. However, deadlines are not incentive compatible in the game without commitment, illustrating a time inconsistency problem faced by the intermediary. My model can be applied to professional service industries, such as law and consulting. My results provide an explanation to the observed wage and promotion patterns in Baker, Gibbs and Holmström (1994). In Chapter 3, I study repeated games in which a patient long-run player (e.g. a rm) wishes to win the trust of some myopic opponents (e.g. a sequence or a continuum of consumers) but has a strict incentive to betray them. Her benet from betrayal is persistent over time and is her private information. I examine the extent to which persistent private information can overcome this lack-of-commitment problem. My main result characterizes the set of payoffs a patient long-run player can attain in equilibrium. Interestingly, every type's highest equilibrium payoff only depends on her true benet from betrayal and the lowest possible benet in the support of her opponents' prior belief. When this lowest possible benet vanishes, every type can approximately attain her Stackelberg commitment payoff. My finding provides a strategic foundation for the (mixed) Stackelberg commitment types in the reputation models, both in terms of the highest attainable payoff and in terms of the commitment behaviors. Compared to the existing approaches that rely on the existence of crazy types that are either irrational or have drastically dierent preferences, there is common knowledge of rationality in my model, and moreover, players' ordinal preferences over stage game outcomes are common knowledge. / by Di Pei. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, September 2007. / "September 2006." / Includes bibliographical references. / This dissertation consists of three essays in empirical labor and health economics. The first chapter examines how the amount of time devoted to a leisure activity varies in response to temporary changes in the price of that activity. Specifically, I estimate the effect of changes in expected winnings in an online poker game on the probability that players quit playing. I find that expected winnings have a large negative effect on the probability that a player quits playing poker. A one dollar increase in expected winnings decreases the probability that a player quits playing altogether by 0.5 percentage points, compared to the mean of 1.1 percentage points. This corresponds to a price elasticity of demand for poker of -0.14. The second chapter develops and tests a model of how college students choose their field of study. The model combines features from learning and human capital models and captures several stylized facts from the empirical literature on choice of college major. I test the model's predictions using High School and Beyond data. I find three results that generally agree with the model's predictions. First, students with higher levels of ability choose majors with higher average earnings. Second, students who receive low grades in college are more likely to change their field of study. Third, students who switch majors in college subsequently earn less than students who do not change majors, but this difference is primarily due to major-switchers obtaining degrees in low-paying fields. The third chapter, coauthored with Abhijit Banerjee, Esther Duflo and Gilles Postel-Vinay, provides estimates of the long-term effects on height and health of a large income shock experienced in early childhood. / (cont.) Phylloxera, an insect that attacks the roots of grape vines, destroyed 40% of French vineyards between 1863 and 1890, causing major income losses among wine growing families. We exploit the regional variation in the timing of this shock to identify its effects. We find that, at age 20, those born in affected regions were about 1.8 millimeters shorter than others. This estimate implies that children of wine-growing families born when the vines were affected in their regions were 0.6 to 0.9 centimeters shorter than others by age 20. This is a significant effect since average heights grew by only 2 centimeters in the entire 19th century. / by Timothy M. Watts. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2016. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 128-136). / This thesis studies consumer behavior and strategic interactions between firms in markets that were actively designed by governments. In such settings, government intervention is frequent, firms are often constrained in their actions, and consumer behavior may depart from what is predicted by the standard set of assumptions. The chapters of this thesis study how the current set of regulations is affecting market outcomes in different settings and what can be done to improve them. Chapter 1 studies the Chilean pension system, where workers' mandatory contributions are administered by private companies. This market exhibits fee dispersion and low switching rates, which could be explained by firm differentiation or by switching costs. Using a novel combination of revealed preference inequalities and latent variable integration techniques, I find evidence of large switching costs, and that if these costs did not exist prices would fall to around one-half of currently observed levels. Chapter 2 is a pre-cursor to Chapter 1, studying what would be learned from estimating demand in this market using a more standard set of techniques. I find that ignoring switching costs, individual-level heterogeneity, and endogeneity will lead to implausible demand estimates. These results are the key motivation for the use of the more sophisticated methods used in Chapter 1. Finally, Chapter 3, written with Sarah Moshary, studies the privatization of liquor sales in Washington state. It focuses on a natural experiment induced by privatization, which creates exogenous variation in the number of elegible licensees in local liquor markets, generated by a licensure threshold requirement on store size: only stores larger than 10,000 square feet are allowed to sell liquor. We find that this regulation does not alter the total number of liquor outlets within each market. Instead, it shifts the composition of stores. Also, we find that in markets with an additional potential entrant the product mix is shifted towards cheaper products. This confirms concerns that competition in liquor markets leads to greater availability of cheap alcohol, and suggests that regulation has an effect in limiting the availability of those types of products. / by Gastón Illanes. / Switching Costs in Pension Plan Choice -- Choice in Privatized Social Security Markets -- Estimating the Effect of Potential Entry on Market Outcomes Using a Licensure. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2011. / Cataloged from PDF version of thesis. / Includes bibliographical references. / This dissertation analyzes different aspects of the actions of borrowing and repaying debts by governments in both domestic and international financial markets. In Chapter 1, which is co-authored with Guido Sandleris and Alejandro Van der Ghote, we use a unique dataset on sovereign bond issuances and syndicated bank loans to study the duration and determinants of the periods of exclusion from international credit markets that usually follow governments' defaults. Among other results, we find that countries either reaccess the markets in the first years after a default or have to wait much longer to do it, and that political stability significantly increases the chances of reaccessing the market. We present a political economy model of endogenous sovereign borrowing and market reaccess that matches these two features of the data. In Chapter 2, 1 study the relation between the domestic financial system's market structure, the allocation of government debt and the cost of credit for the government. The fact that governments are less likely to repudiate their debts when there are more domestic agents among their creditors creates an externality: when domestic investors demand government bonds, they reduce the probability of default and improve the situation of every other bondholder. The concentration of investment decisions in fewer financial institutions increases the degree of internalization of this effect, expands the demand for government bonds by domestic agents and reduces the cost of credit for the government. In Chapter 3, I propose a mechanism that can explain the observed positive correlation between public and private spreads, taking into account that domestic banks tend to be heavily exposed to sovereign debt. Firms have private information about the results of their projects, information that can be obtained by domestic banks, as long as they pay a verification cost, but not by foreign creditors. A sovereign default has a negative impact on domestic banks, reduces their verification capacity and increases the incentives for firms to declare themselves insolvent. Consequently, risks of sovereign and private defaults are positively correlated. / by Mauro Alessandro. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1996. / Includes bibliographical references (p. 175-182). / by Jonathan A. Parker. / Ph.D.