In my dissertation, I study how individuals respond to changes in their options and constraints as a result of government policies and their local environments. I focus on issues in maternal and child well-being, as well as family structure and behavior, and draw implications for addressing the needs of disadvantaged populations in the United States. I use quasi-experimental empirical strategies with large and varied data sets to provide credible causal estimates. I believe that the results from my research can shed some light on the causes and consequences of disadvantage in the United States, contribute to cost-benefit analyses of some of the largest social welfare programs, and help inform decisions about public spending. The focus on maternal and early childhood well-being is motivated by increasing support for the notion that fetal and infant health are predictive of individuals' later-life outcomes (Almond and Currie, 2011a,b). This evidence highlights the potential value in programs and policies aimed at pregnant women and new mothers. Indeed, successful programs that improve the welfare of disadvantaged women during pregnancy and post-partum may play an important role in ameliorating inequalities at birth, and thereby potentially mitigating the intergenerational transmission of low socio-economic status. In the first essay, titled "The Effects of Maternity Leave on Children's Birth and Infant Health Outcomes in the United States" (published in the Journal of Health Economics, March 2011), I provide the first quasi-experimental analysis of the effects of the unpaid maternity leave provisions of the 1993 Family and Medical Leave Act (FMLA) on children's birth and infant health outcomes in the United States. My identification strategy uses variation in pre-FMLA maternity leave policies across states and variation in which firms are covered by FMLA provisions. Using Vital Statistics data and difference-in-difference-in-difference methodology, I find that maternity leave led to small increases in birth weight, decreases in the likelihood of a premature birth, and substantial decreases in infant mortality for children of college-educated and married mothers. The fact that I only find positive impacts on the health of children of college-educated and married women, while children of less-advantaged women experience no health benefits, suggests that unpaid parental leave policies may exacerbate disparities in child health as they only benefit the parents who can afford to use them. In the second essay, "Engaging Absent Fathers: Lessons from Paternity Establishment Programs," I examine behavior among parents who have children out-of-wedlock. Single-mother households are disproportionately disadvantaged, and children raised in two-parent households fare better along numerous measures of well-being. These facts motivate the implementation of policies that encourage father involvement among unmarried parents. I conduct the first comprehensive causal analysis of one of the largest U.S. policies that aims to engage unmarried fathers with their families, In-Hospital Voluntary Paternity Establishment (IHVPE), and place my findings in the context of a conceptual framework rooted in family economics theory (Edlund, 2011; Browning, Chiappori, and Weiss, forthcoming). The program significantly reduces the costs of formal paternity estabishment, which is the only available legal contract that assigns partial parental rights and obligations to unmarried fathers. Using data from a multitude of sources and variation in the timing of IHVPE initiation across states, I show that IHVPE achieves its stated goal of substantially increasing paternity establishment rates. However, I show that IHVPE also affects another margin of parental behavior. I find a \emph{negative} effect on parental marriage -- specifically, for each additional paternity established as a result of IHVPE, there are 0.13 fewer parental marriages occurring post-childbirth. Accounting for the decline in parental marriage, I find that the net effects on some measures of father involvement are negative, while overall child well-being is largely unaffected. Why might paternity establishment serve as a substitute to marriage for some parents? To explain this finding, I offer a simple conceptual framework, in which parents trade-off their utility from access to children with their match quality. Paternity establishment offers an "intermediate" parental relationship option between the "extremes" of no formal relationship and marriage. When the cost of establishing paternity is lowered, parents who would have previously maintained no formal relationship and parents who would have previously been married are more likely to choose the intermediate contract. If fathers are more involved with their children when they have greater parental rights (Weiss and Willis, 1985; Edlund, 2011), then the net effect on father involvement is ambiguous, and can be negative if the increase in involvement among switchers out of no relationship is lower than the decrease in involvement among switchers out of marriage. My results suggest that the trade-off between access to children and match quality is empirically relevant for parents who have children out-of-wedlock, and policies based on the notion that more father involvement is essential to child and family well-being must account for the parents' agency in choosing their partners. A paternity establishment program that intends to engage absent fathers and increase father involvement can actually have the opposite effects by discouraging some parents from marriage and reducing the support provided by otherwise married fathers. Finally, in the third essay, titled "WIC in Your Neighborhood: New Evidence on the Impacts of Geographic Access to Clinics" (accepted at the Journal of Public Economics), I examine how geographic proximity to Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) clinics affects food benefit take-up, pregnancy behaviors, and birth outcomes. WIC is the major U.S. program with a goal of enhancing the health and nutrition of low-income pregnant women and children. Rigorous evaluation of the program is necessary both for policy-making purposes and for providing new estimates of the determinants of fetal and infant health. Although there are several studies that examine the relationship between WIC and birth outcomes (e.g. Bitler and Currie, 2005; Joyce et al., 2005; Joyce et al., 2008; Figlio et al., 2009; Hoynes et al., 2011), much less attention has been paid to the determinants of WIC benefit take-up. Moreover, consensus on the effectiveness of WIC has not been reached: the existing literature suffers from problems due to omitted variables bias, lack of data on important variables such as benefit take-up and breastfeeding, and other econometric and measurement issues. I employ a novel empirical approach on data from birth and administrative records over 2005-2009 that uses within-zip-code variation in WIC clinic presence together with maternal fixed effects, and accounts for the potential endogeneity of mobility, gestational-age bias, and measurement error in gestation. I find that access to WIC increases food benefit take-up, pregnancy weight gain, birth weight, and the probability of breastfeeding initiation at the time of hospital discharge. The estimated effects are strongest for mothers with a high school education or less, who are most likely eligible for WIC services.

This dissertation consists of three chapters that address health issues in developing countries. The first two chapters study Ghana's social health insurance program, the National Health Insurance Scheme. Many developing countries have recently instituted social health insurance schemes (SHIs) to ease financial barriers to utilization of healthcare services and help mitigate the effects of adverse health shocks. Although these SHIs offer generous terms and benefits, enrollment remains low especially among the poorest households who are the intended primary beneficiaries. The first two chapters are based on randomized field interventions implemented in the Wa West district of the Upper West Region of Ghana to (a) understand the reasons for low enrollment in SHIs; (b) estimate the effects of insurance coverage on utilization of healthcare services, financial protection and health outcomes, and c) learn about how resource-constrained households allocate health resources among its members. The interventions were increased convenience of signing for insurance, an education intervention that provided information about the insurance program, and a subsidy intervention that included varying levels of subsidies for insurance premiums. The first chapter deals with objectives (a) and (b). The results show that inadequate information about the insurance program, and insurance premium and fees affect enrollment. The results also show that the demand for insurance is price elastic in the sense that small subsidies generate substantial enrollment effects. Insurance coverage leads to increased utilization of healthcare services, reduced out-of-pocket payments among individuals with prior positive expenses and ,moderate improvement in health outcomes. The results suggest strong complementarities between providing information and providing subsidies in utilization and health outcomes, an indication of the importance of the combined interventions for achieving changes in health-seeking behavior and outcomes. The second chapter focuses on objective (c): intra-household allocation of health resources among resource-constrained households. The analysis in this chapter is based on households who were assigned to receive subsidies only and the pure control group. Two types of vouchers were issued to households who did not receive full subsidies: one that allowed households to decide how to allocate subsidy among its members and one in which they had no control over the allocation. This chapter compares within household enrollment patterns across these two vouchers. The results suggest that households prioritize children in the presence of resource constraints. Among children, households who were allowed to determine allocation of subsidy amounts enroll 11.7 percentage or 18% more boys than girls. The results suggest that these patterns of allocation cannot be explained by baseline health conditions or expected health. The chater presents supporting evidence that differential labor market participation is a likely explanation for the differential allocation by gender among children: among children aged 7-17 years, labor market participation is 3.6 percentage points higher for boys than girls. The third and final chapter is coauthored with Ayaga A. Bawah and James F. Phillips. The chapter seeks to explore how the quasi-experimental introduction of reproductive and family planning services affects the fertility behavior of different socio-economic groups in a rural African setting. We combine a quasi-experimental introduction of reproductive and family planning services in the Kassena-Nankana districts in the Upper East Region of Ghana with longitudinal data from the Navrongo Health and Demographic Surveillance System to quantify the differential fertility effects of the interventions by socio-economic status (as measured by woman's education status, her husband's education status and wealth). We track the fertility behavior and outcomes of more than 24,000 women in their reproductive age (15-49) over a period of eighteen years. Our results show that before the interventions educated women did not have significantly fewer children, but desired lower family sizes and were more likely to use modern contraceptives. However, husband's education was associated with lower fertility especially when their wives were also educated. Wealth was associated with higher fertility, reflecting a higher child survival rate in wealthy families. Moreover, controlling for wealth does not affect the effect of education on fertility. We find that the reproductive health interventions affected both educated and uneducated women but the effect on educated women was stronger, leading to the emergence of an education-fertility differential 16 years after the introduction of the interventions. Our results suggest that in settings where men dominate reproductive decision-making, their education status may have a stronger effect on fertility than the educational attainment of women.

This dissertation consists of three essays on health economics. The first chapter evaluates the impacts of and behavioral responses to cost-sharing in population-based public cancer screening using Korea's National Cancer Screening Program (NCSP), which provides free stomach and breast cancer screenings to those below the insurance contribution cutoff. Free cancer screening substantially increases the cancer screening take up rate, yielding more cancer detections. Nevertheless, the program was unsuccessful along other key dimensions. First, the initial increase in cancer detections was quickly crowded out by the decrease in cancer detections through other channels, such as private screening and diagnostic testing. Second, those who were induced to take up cancer screening by the cash incentive (compliers) were relatively healthy. These compliers' baseline cancer prevalence is as high as those who take up screening regardless of the availability of free cancer screening (always takers). Those who do not undergo screening regardless of the availability of free cancer screening (never takers) had the highest cancer mortalities, and thus stood to benefit the most from the screening they did not receive. Taken together, free public cancer screening has a limited impact on cancer- and all-cause mortalities. This analysis demonstrates that even when take up is significantly responsive, population based cancer screening can be ineffective due to the behavioral responses to cancer screening such as crowd out and self-selection. More broadly, my study suggests that the impact of health programs, even when they display large participation responses, crucially depend upon the potential behavioral responses of the agents involved. The second chapter provides empirical evidence on the impacts of government reimbursement of long-term care. We apply a regression discontinuity design using administrative data from South Korea to estimate the impact of subsidies for formal home and institutional care on informal care use and medical expenditures. These subsidies lead to increases in formal long-term care utilization, even accounting for crowd out of private spending. Our main finding is that the benefits of home and facility care are heterogeneous across physical function level and therefore setting policy accordingly has the potential to dramatically reduce medical expenses. We also find that formal long-term care is not a strong substitute for informal long-term care at the extensive margin. Specifically, among individuals who are partially dependent for some activities of daily living (ADLs), we find that increased use of formal home care has no impact on the use of informal care at the extensive margin or on medical expenses. Among individuals who are partially dependent for several ADLs, we find that increased use of institutional care leads to reductions in informal care and medical expenses. From a policy perspective, these results suggest that publicly financed long-term care may have limited impact among the more able, and that home care may be both more cost effective and beneficial than institutional care for the least able. The third chapter provides empirical evidence on both outcomes and potential mechanisms resulting from information obtained from health screening. We apply a regression discontinuity design using administrative data from South Korea to estimate the impact of different classifications of overall health that vary discontinuously with blood sugar level. We find that "disease suspected" classification leads to increase clinic visit for the secondary examinations and future screening take-ups, and decrease of outpatient days and medical expenditure, however few impacts on health outcomes such as future blood sugar level and mortality. We also find that the responsiveness to the classifications among the highest income quintiles is lower than among the other quintiles, consistent with more educated individuals incorporating information directly from the blood sugar measure itself.

This thesis addresses three topics in Macroeconomics and International Finance. Chapter 1 studies welfare implications of international financial integration in the presence of bank funding risks. Unregulated issuance of safe short-term liabilities by financial intermediaries leads to excessive reliance on this form of financing, which increases losses associated with financial crises. First, I show that integration increases the severity of potential financial crises in the countries that receive capital inflows. As a result, integration may reduce welfare for these countries. Second, I show that if macroprudential regulation of the banking sector is chosen by each country in an uncoordinated way, the outcome can be Pareto inefficient so that there is a role for global coordination of such policies. This effect arises because the macroprudential regulation that limits the overissuance of safe liabilities changes the international interest rate. The regulation may have an additional benefit from manipulating the interest rate. Third, the desire to manipulate the interest rate when regulating the local banking sector creates incentives to use two regulatory tools: macroprudential regulation of the banking sector and capital controls. Chapter 2, written jointly with Emi Nakamura and Jon Steinsson, quantifies the importance of long-run risks---persistent shocks to growth rates and uncertainty---in a panel of long-term aggregate consumption data for developed countries. We identify sizable and highly persistent world growth-rate shocks as well as less persistent country-specific growth rate shocks. The world growth-rate shocks capture the productivity speed-up and slow-down many countries experienced in the second half of the 20th century. We also identify large and persistent world shocks to uncertainty. Our world uncertainty process captures the large but uneven rise and fall of volatility that occurred over the course of the 20th century. We find that negative shocks to growth rates are correlated with shocks that increase uncertainty. Our estimates based on macroeconomic data alone line up well with earlier calibrations of the long-run risks model designed to match asset pricing data. We document how these dynamics, combined with Epstein-Zin-Weil preferences, help explain a number of asset pricing puzzles. Chapter 3, written jointly with Neil R. Mehrotra, investigates the relationship between sector-specific shocks, shifts in the Beveridge curve, and changes in the natural rate of unemployment. We document a significant correlation between shifts in the US Beveridge curve in postwar data and periods of elevated sectoral shocks relying on a factor analysis of sectoral employment to derive our sectoral shock index. We provide conditions under which sector-specific shocks in a multisector model augmented with labor market search generate outward shifts in the Beveridge curve and raise the natural rate of unemployment. Consistent with empirical evidence, our model also generates cyclical movements in aggregate matching function efficiency and mismatch across sectors. We calibrate a two-sector version of our model and demonstrate that a negative shock to construction employment calibrated to match employment shares can fully account for the outward shift in the Beveridge curve. We augment our standard multisector model with financial frictions to demonstrate that financial shocks or a binding zero lower bound can act like sectoral productivity shocks, generating a shift in the Beveridge curve that may be counteracted by expansionary monetary policy.

The performance of firms is central to growth in developing economies. A burgeoning literature within development economics seeks to understand the behavior of firms in developing countries and the constraints to their performance. This dissertation explores two types of constraints - infrastructure-related constraints and trade-related constraints - faced by manufacturing firms in developing countries. Despite the widely acknowledged importance of infrastructure for economic growth, there has been relatively little research on how infrastructure affects the decisions of firms. Electricity, in particular, is commonly cited by firms in developing countries as a major obstacle to their performance. In the first two chapters, I analyze the responses of firms to two types of electricity constraints, namely electricity prices and electricity shortages. Chapter 1 provides evidence on how electricity prices affect a firm's industry choice and productivity growth using data on Indian manufacturing firms. I construct an instrument for electricity price as the interaction between the price of coal paid by power utilities, which is arguably exogenous to firm characteristics, and the initial share of thermal generation in a state's total electricity generation capacity. I find that, in response to an exogenous increase in electricity price, firms reduce their electricity consumption and switch to industries with less electricity-intensive production processes. I also find that firm output, machine intensity and labor productivity decline with an increase in electricity price. In addition to these level effects, I show that firm output and productivity growth rates are negatively affected by high electricity prices. These results suggest that electricity constraints faced by firms may limit a country's growth by leading firms to operate in industries with fewer productivity-enhancing opportunities. Chapter 2 examines the impact of electricity shortages on firm investment. I identify this impact by studying an electricity rationing program that took place in Ghana in 1998, which placed significant constraints on the electricity available to firms. Using data on Ghanaian manufacturing firms, I find a significant decline in investment in plant and machinery during the electricity rationing period. The decline in investment is more pronounced for firms in electricity-intensive sectors. I explore alternative explanations for the reduction in investment during the electricity rationing period, including a contraction in firm credit access and economy-wide shocks unrelated to electricity constraints, and find no evidence in support of either explanation. The results, therefore, suggest that the reduction in investment during the electricity rationing period was due to the constraints on the availability of electricity. These findings highlight the potentially negative impact of the inadequate provision of electricity that frequently plagues developing countries. These electricity constraints can hinder growth in these countries by curbing investment by firms. In Chapter 3, I turn to the investigation of the effect of a trade-related constraint. Until recently, most of the literature on firms engaged in international trade had largely focused on exporting, with little work on the role of imports in the behavior and performance of firms. Using data on Indonesian manufacturing firms, Chapter 3 analyzes the effect of a reduction in tariffs on imported inputs on the exporting activity of firms. I argue that a tariff reduction program in Indonesia, which generated exogenous variation in the tariffs imposed on imports of goods used by firms, had a positive effect on the exported share of output of firms. I explore the mechanisms underlying this positive effect and find that an increase in the use of imported inputs, facilitated by the reduction in input tariffs, generated an increase in the exported share of output of firms. I also find that this positive effect is stronger for firms in industries with a greater scope for quality differentiation and high skill intensity. These results suggest that input tariff liberalization, by increasing access to higher-quality inputs from abroad, allows firms to produce higher-quality products for export markets.

Chapter 1 of my dissertation focuses on the effectiveness of fiscal policy in stabilizing the business cycle. Both government purchases and transfers figure prominently in the use of fiscal policy for counteracting recessions. However, existing representative agent models including the neoclassical and New Keynesian benchmark rule out transfers by assumption. This paper provides a role for transfers by building a borrower-lender model with equilibrium credit spreads and monopolistic competition. The model demonstrates that a broad class of deficit-financed government expenditures can be expressed in terms of purchases and transfers. With flexible prices and in the absence of wealth effects on labor supply, transfers and purchases have no effect on aggregate output and employment. Under sticky prices and no wealth effects, fiscal policy is redundant to monetary policy. Alternatively, in the presence of wealth effects, multipliers for both purchases and transfers will depend on the behavior of credit spreads, but purchases deliver a higher output multiplier to transfers under reasonable calibrations due to its larger wealth effect on labor supply. When the zero lower bound is binding, both purchases and transfers are effective in counteracting a recession, but the size of the transfer multiplier relative to the purchases multiplier is increasing in the debt-elasticity of the credit spread. The second chapter of my dissertation examines the relationship between shifts in the Beveridge curve, sector-specific shocks and monetary policy. In this joint work with Dmitriy Sergeyev, we document a significant correlation between shifts in the US Beveridge curve in postwar data and periods of elevated sectoral shocks. We provide conditions under which sector-specific shocks in a multisector model augmented with labor market search frictions generate outward shifts in the Beveridge curve and raise the natural rate of unemployment. Consistent with empirical evidence, our model also generates cyclical movements in aggregate matching function efficiency and mismatch across sectors. We calibrate a two-sector version of our model and demonstrate that a negative shock to construction employment calibrated to match employment shares can fully account for the outward shift in the Beveridge curve experienced in the Great Recession (2007-2009). The final chapter of my dissertation considers the decline in labor market turnover experienced in the US in the Great Recession, and its link to the housing crisis. In this joint work with Dmitriy Sergeyev, we analyze the behavior of job flows to test the hypothesis that the housing crisis has impaired firm formation and firm expansion by diminishing the value of real estate collateral used by firms to secure loans. We exploit state-level variation in job flows and housing prices to show that a decline in housing prices diminishes job creation and lagged job destruction. Moreover, we document differences across firm size and age categories, with middle-sized firms (20-99 employees) and new and young firms (firms less than 5 years of age) most sensitive to a decline in house prices. We propose a quantitative model of firm dynamics with collateral constraints, calibrating the model to match the distribution of employment and job flows by firm size and age. Financial shocks in our firm dynamics model depresses job creation and job destruction and replicates the empirical pattern of the sensitivity of job flows across firm age and size categories.

This dissertation examines social and private returns to higher education, which have important implications for development and public finance. Despite their importance, reliable empirical evidence on the returns to higher education is scarce due to the endogeneity in higher education at individual and aggregate levels. This dissertation exploits quasi-experiments to explore the causal effect of higher education on various outcomes. The first chapter, "Does Human Capital Spillover Beyond Plant Boundaries?: Evidence from Korea" explores a social return to human capital by examining the magnitude of human capital externalities on plant productivity. Human capital externalities exist if plants in a region with a high level of human capital can produce more--given similar inputs--than plants in a region with less human capital. This is difficult to ascertain because human capital levels are endogenous. To address this issue, this paper exploits an educational reform which exogenously increased cross-region differences in the supply of college graduates starting in the mid 1980s.Using annually collected plant level data, I explore the effect of changes in human capital levels induced by this reform on plant productivity. My results suggest that externalities are limited. I find a correlation between the level of human capital and plant productivity which is similar to that observed in the U.S. However, after using an instrumental variable, the effect of the overall level of human capital on productivity decreases and becomes statistically insignificant. The second chapter "The Impact of College Education on Labor Market and Non-pecuniary Outcomes"(with Hyelim Son) exploits an education reform in Korea which discretely increased freshmen enrollment in 1981--to examine the private returns produced by college education. Due to the compulsory school entrance law in Korea, the cohorts that were born after 1962 were more likely to enter college in 1981 or after. Thus, the cohorts born after 1962, had a higher chance of having college education than the cohorts born before. We exploit this idea and adopt a regression discontinuity design to compare the fraction of individuals with some college education and the average wage for cohorts born close to 1962. Our result suggests that college education has a positive effect on labor market outcomes. In addition, we find that college education affects saving, smoking and transfer behavior. The third and final chapter of my dissertation, "The Effect of Higher Education on the Careers of Workers", examines the effect of college education on individuals' subsequent careers. As documented by recent literature, college graduation plays a direct role in revealing an individual's ability to labor market. Thus, the ability of college graduates is more directly observed than the ability of high school graduates in the labor market. I examine whether this difference in ability revelation between college and high school graduates has an implication on their career after hey enter the job market. I build a model that yields testable implications regarding the effect of college education on ability revealing activity, given the role of college education in ability revelation. Using the NLSY79 data, I empirically confirm the prediction of the model. In particular, I find that high ability high school graduates more actively engage in ability revealing activities than high ability college graduates. Overall, the results coincide with the predictions of the model, implying that the difference in ability revelation has a large implication on understanding different careers of high school and college graduates.

A growing number of studies in macroeconomics and finance have attempted to utilize large panel data sets. Large panel data sets contain rich information on the dynamics of many cross-sectional units over long time periods. These data sets often consist of numerous series in different categories that reflect the multifaceted aspects of an economy. In other circumstances, data sets are constructed from a large number of series at a highly disaggregated level within the same category so that they can reveal dynamics in greater detail. Numerous studies have proven the usefulness of large panel data sets in improving forecast performance, distinguishing common shocks from idiosyncratic shocks, and uncovering the discrepancies in dynamics between aggregate series and disaggregated series. To gain the most from large panel data sets, econometric models should allow all the key characteristics of these rich data sets without distortion. Among the pervasive and important characteristics of large panels are dynamics, heterogeneity, and cross-sectional dependence. While there has been a great deal of research on each of these three features, the consequences of jointly incorporating them into a single model have not been extensively studied in the existing literature. Chapter 1 of this dissertation considers dynamic heterogeneous panels with cross-sectional dependence (DHP+CSD) that allow for all three key characteristics at the same time. Cross-sectional dependence is modeled through the use of a common factor structure in the error terms. We propose an estimator for the DHP+CSD model and develop an asymptotic theory under a large N and large T setup. The estimator relies on an iterative principal component method to cope with the challenges in estimation arising from the greater generality of the DHP+CSD model. The proposed estimator is shown to be consistent under non-stringent conditions and performs well in finite samples. Furthermore, the overall performance of the estimator is satisfactory even if no factor structure is present. Consequently, the DHP+CSD approach facilitates prudent estimation without requiring an additional procedure of pre-testing cross-sectional dependence. The econometric tool developed in Chapter 1 can be particularly useful in analyzing possible discrepancies in persistence between an aggregate series and its underlying disaggregated series. It is well-known that an aggregate series can exhibit drastically different dynamics from its underlying processes. Early literature focuses on the role of heterogeneity in the dynamics of disaggregated series, whereas recent studies note that the dynamics of common factors also play an important role. Therefore, it is essential to use a model that incorporates dynamics, heterogeneity, and cross-sectional dependence (that arises from common factors) for analyzing the dynamics of disaggregated series. We apply the DHP+CSD estimator to investigate the dynamics of disaggregated data sets in two important empirical contexts: the purchasing power parity (PPP) hypothesis and the intrinsic persistence of inflation. Most studies have relied on models that utilized dynamics and heterogeneity without considering common factors. Given the important role of common factor dynamics, revisiting the issue of aggregation with the DHP+CSD model in these empirical contexts can meaningfully extend the existing studies. Chapter 2 of this dissertation investigates the dynamics of sectoral real exchange rates in the context of the PPP hypothesis. It is widely known that aggregate exchange rates exhibit a considerable degree of persistence, serving as evidence against the PPP hypothesis. Recent studies, however, report that persistence estimates are markedly lower if exchange rate dynamics are examined at the disaggregated level. Given the focus on the dynamics of disaggregated series, a persistence analysis of sectoral exchange rates perfectly fits into the DHP+CSD framework. Consistent with recent studies, our estimation results show that the persistence of sectoral exchange rates is indeed lower than that of aggregate exchange rates. In addition, the persistence estimates from the DHP+CSD model are substantially lower than the estimates from those models that ignored the dynamics of common factors. This suggests that the estimates of the latter models might be vulnerable to distortions caused by ignoring some key features of the given large panel data set. We also document the difference in responses with respect to common shocks and idiosyncratic shocks. This analysis is possible primarily because the DHP+CSD model can distinguish the two types of shocks. On average, common shocks appear to have approximately 50% more persistent effects on the economy than idiosyncratic shocks. Chapter 3 aims to assess the persistence of inflation at the disaggregated level. Persistence is widely accepted as one of the key characteristics of inflation. Similar to the recent PPP literature, however, numerous studies have also found considerably lower persistence at the disaggregated level. Since many empirical studies often disregard the possible dynamics of common factors, there is room for refining the existing analysis by adopting the DHP+CSD model. Given the estimated dynamics of sectoral inflation, we also attempt to measure the degree of intrinsic persistence at the disaggregated level. Intrinsic persistence is a useful concept for identifying the structural sources of inflation persistence; a low intrinsic persistence implies that most of the inflation persistence is inherited from the real marginal costs. Because low intrinsic persistence also implies less inertia, it is associated with forward-looking behavior in price-setting. In contrast to the substantial degrees of estimated intrinsic persistence in the literature, we find that price-setting is markedly forward-looking at the disaggregated level; in approximately half of all sectors in the U.S. economy, price-setting is close to purely forward-looking. In measuring intrinsic persistence through the DHP+CSD model, we establish a relationship between the DHP+CSD model and the sectoral New Keynesian Phillips Curves. Recovering the structural parameters of intrinsic persistence from the reduced-form DHP+CSD estimates serves as an alternative framework of structural analysis for inflation dynamics. In conclusion, this dissertation develops a useful econometric method for analyzing large panel data sets and illustrates its practical value by applying it to two important empirical contexts: the PPP hypothesis and the intrinsic persistence of inflation. With the DHP+CSD model, we can analyze the dynamics of disaggregated series more precisely and shed new light on the discrepancies in persistence between an aggregate series and its underlying disaggregated series. We also illustrate that the developed model has potential as a reduced-form representation of structural models for further structural analysis. All things considered, it is hoped that this dissertation provides a useful econometric framework for large panel data analysis.

This dissertation consists of three essays on market design and auction theory. In the first chapter, we develop a model of decentralized college admissions in which students' preferences for colleges are uncertain, and colleges must incur costs when their enrollments exceed their capacities. Colleges' admission decisions then become a tool for strategic yield management, because the enrollment at a college depends on not only students' uncertain preferences but also other colleges' admission decisions. We find that colleges' equilibrium admission decisions exhibit "strategic targeting''---colleges may forgo admitting (even good) students likely sought after by the others and may admit (not as good) students likely overlooked by the others. Randomization in admissions may also emerge. The resulting assignment fails to be efficient (among students, among colleges and among all parties including colleges and students) and leads to justified envy among students. When the colleges consider multiple dimensions of students merits, their evaluations are unlikely to be perfectly correlated. In such a case, colleges may avoid head-on competition by distorting their evaluation to place excessive weight on less correlated dimensions, such as extra curricular activities and non-academic aspects of students' application portfolios. Restricting the number of applications or allowing for wait-listing might alleviate colleges' yield management problem, but the resulting assignments are still inefficient and admit justified envy. Centralized matching via Gale and Shapley's Deferred Acceptance algorithm eliminates colleges' yield management problem and justified envy among students and attains efficiency. It also attains the outcome that is jointly optimal among colleges, but some colleges may be worse off relative to decentralized matching. The second chapter studies a keyword auction model where bidders have constrained budgets. In the absence of budget constraints, Edelman, Ostrovsky, and Schwarz (2007) and Varian (2007) analyze "locally envy-free equilibrium'' or "symmetric Nash equilibrium'' bidding strategies in generalized second-price (GSP) auctions. However, bidders often have to set their daily budgets when they participate in an auction; once a bidder's payment reaches his budget, he drops out of the auction. This raises an important strategic issue that has been overlooked in the previous literature: Bidders may change their bids to inflict higher prices on their competitors because under GSP, the per-click price paid by a bidder is the next highest bid. We provide budget thresholds under which equilibria analyzed in Edelman, Ostrovsky, and Schwarz (2007) and Varian (2007) are sustained as "equilibria with budget constraints'' in our setting. We then consider a simple environment with one position and two bidders and show that a search engine's revenue with budget constraints may be larger than its revenue without budget constraints. In the third chapter, we study the procurement of an innovation in which firms exert effort and create innovations, where the quality of innovation is stochastic. Both the effort level and the quality of innovation are unverifiable, and the procurer cannot extract up-front payment from the firms. Given the uncertainty of quality realization, there is a trade-off regarding the number of participating firms in the procurement process: If many firms participate in the process, they may be discouraged from expending their initial investment because each of them has a small chance of winning (we call this incentive effect). At the same time, as the number of participants increases, the procurer has a growing chance of getting a higher quality because of the randomness of the quality realization (sampling effect). Therefore, the procurer faces a nontrivial problem of how many firms to invite in the procurement process. We consider two prominent contest mechanisms, a first-price auction and a fixed-prize tournament. We show that if the randomness is large enough, it is optimal for the buyer to invite as many firms as possible in both mechanisms, and the fixed-prize tournament outperforms the first-price auction. In the limit at which the randomness vanishes, inviting only two firms is optimal in both mechanisms, and the first-price auction outperforms the fixed-prize tournament. Under the first-price auction, we show that any equilibrium converges to an equilibrium as the randomness diminishes and provide a characterization of the limit equilibrium. We also provide a constructive example of a mixed-strategy equilibrium with two firms when the randomness is moderate.

This dissertation studies corporate cash holdings in Korea, with its own business groups("chaebols"), and the impact of Asian financial crisis in 1997-1998. The first essay examines the effects of cash on performance from 1994 to 2006. It first shows that cash-rich firms are more likely to survive and the exit rate of chaebol firms with large cash holdings during the crisis is much smaller. Moreover, large cash holdings in non-chaebol firms increase profitability compared to industry rivals after the crisis when external capital becomes more costly. Efficiently allocated internal cash holdings in chaebols, rather than affiliates' own cash, are related to better performance in pre-crisis period. My results suggest that business group affiliation is a key to explain the effect of cash on market performance, and that the precautionary motive plays a central role. The second essay studies the determinants of cash in Korean listed firms from 1993 to 2006. I find that the amount of cash in business groups is significantly smaller than that in stand-alones. Chaebol firms with financial subsidiaries, which can provide alternative financial resources, can reduce cash holdings. I also find that diversification contributes to lower the level of cash in chaebols. Both sources became more important after the crisis.The results also suggest that the smaller amount of cash in business groups is driven by a smaller need for precautionary cash.