Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2006. / Includes bibliographical references (leaves 78-80). / The first chapter presents a model of legal interpretation in a hierarchical court. Using a two-level court in which judges have spatial preferences over doctrine, the model examines how appeals, panels, and other structural features of the court affect the incentives of judges and promote uniform interpretation of the laws. The threat of appeal has a moderating influence on judges in the lower court. When the cost of appeal is low, this effect will be stronger, but the lower court will also have less influence on the final decision. Hence, under many conditions, overall uniformity will be maximized at an intermediate cost of review. Factors that may increase the predictability of rulings on the higher court, such as panel size, may weaken the incentives toward moderation on the lower court. The second chapter analyzes judicial decision making in three-judge appellate panels. When judges are ideological but have a preference for consensus, there will be negotiation among the three judges in an effort to reach agreement. This paper constructs a model of judicial negotiation, where judges have preferences on an ideological spectrum and disutility from disagreement. / (cont.) The parameters of the negotiation model and the judges' ideological inclinations are then estimated on a data set of sex discrimination cases using maximum likelihood estimation. The results find strong evidence that judges' votes are influenced by their panel colleagues, but that this influence mostly takes the form of outvoted judges joining the majority. However, judges in the minority appear to have a small but significant effect on case outcomes. The third chapter examines the impact of liability law on firms' investments in product safety when such investments take the form of fixed costs and liability does not apply equally to competing products. Using a model with one innovative good and one competitively supplied good, the paper finds that asymmetric liability deters safety innovation when the administration of the tort system is inefficient. When inefficiencies in the tort system are small, however, incentives to develop safer products may be stronger under asymmetric liability. / by Joshua B. Fischman. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2007. / Includes bibliographical references. / This dissertation is composed of three chapters. The first demonstrates that natural gas violates many of the simplifying assumptions frequently used in modeling its behavior. Careful analysis of futures contracts written on gas suggests that gas prices are seasonal while returns are non-Gaussian and evidence stochastic volatility. In addition, examination of options prices indicates the intermittent presence of jumps. We find that models which disregard these properties struggle to recover options prices with any precision. Thus, we propose an alternative nonparametric approach to gas options pricing that captures these salient features while also shedding light on the nature of risk aversion embedded in gas markets. The second chapter offers a parametric approach to pricing derivatives written on natural gas futures designed to overcome the shortcomings of existing parametric schemes. First, it proposes a model of the underlying futures prices that admits stochastic volatility. Second, it makes use of a state-of-the-art Bayesian particle filtering technique to estimate the underlying process parameters along with a simulation-based technique for option pricing. While it trades off some performance relative to nonparametric approaches, such as the kernel scheme employed in the first chapter, the strategy employed is very general and allows for the pricing of more complex derivatives. The final chapter presents new estimates and approaches to estimating the home bias puzzle. It uses micro-level data to calculate households' foreign equity exposure as a function of wealth. We find simple estimates have significant errors-in-variables problems and we construct an estimator using grouping to account for this issue. Our estimates still imply low aggregate investment in foreign equity. / (cont) Finally, we disaggregate the investment decision by incorporating two step decisions that allow households to forgo participating in the market. As a result of the decoupling, we find foreign equity levels closer to that of standard portfolio theories. / by Erik Charles Ruben. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2005. / "February 2005." / Includes bibliographical references (p. 246-256). / In the first chapter I investigate whether firms' physical investments react to the speculative over-pricing of their securities. I introduce investment considerations in an infinite horizon continuous time model with short sale constraints and heterogeneous beliefs along the lines of Scheinkman and Xiong (2003) and obtain closed form solutions for all quantities involved. I show that market based q and investment are increased, even though such investment is not warranted on the basis of long run value maximization. I use a simple episode to test the hypothesis that investment reacts to over-pricing. With publicly available data on short sales during the 1920's, I examine both the price reaction and the investment behavior of a number of companies that were introduced into the "loan crowd" during the first half of 1926. In line with Jones and Lamont (2002), I interpret this as evidence of overpricing due to speculation. I find that investment by these companies follows both the increase and the decline in "q" before and after the introduction, suggesting that companies in this sample reacted to security over-pricing. In the next chapter of the thesis (co-authored with E. Farhi) we study optimal consumption and portfolio choice in a framework where investors save for early retirement. We assume that agents can adjust their labor supply only through an irreversible choice of their retirement time. We obtain closed form solutions and analyze the joint behavior of retirement time, portfolio choice, and consumption. In the final chapter of the thesis (co-authored with R. Caballero) we turn attention to hedging of sudden stops. We observe that even well managed emerging market economies are exposed to significant external risk, the bulk of which is financial. We focus on the optimal financial policy of such an economy under different imperfections and degrees of crowding out in its hedging opportunities. / by Stavros Panageas. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1993. / Includes bibliographical references. / by Hilary A. Sigman. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2005. / "June 2005." / Includes bibliographical references. / This thesis is a collection of three empirical essays on economic development and finance. Chapter 1 examines how politicians influence the lending decisions of government owned- banks, particularly whether government resources are used to achieve electoral goals. Theories of electoral competition predict how politicians may allocate resources to win elections: distributing more resources prior to election years, and targeting these resources towards "close" races. I find strong evidence of manipulation in agricultural lending by government banks. More credit is lent just prior to election years. Moreover, this spike is most pronounced in districts in which the previous election was close. I document that these distortions are costly: repayment rates vary with the electoral cycle, while output does not. Chapter 2 tests theories of public and private ownership of banks. In 1980, the government of India nationalized some private banks while leaving similar banks in private hands. Using a regression discontinuity design, I find that government owned banks grew less quickly and lent more to agriculture. These differences manifest themselves in outcomes across credit markets in India as well. Villages whose banks were nationalized received a substantial increase in agricultural and total credit, at lower interest rates, than villages whose banks were not. Strikingly, the additional credit had no effect on real agricultural outcomes, and may have hurt employment in trade and services. Chapter 3 investigates the economics of manumission, a process whereby a slave purchases her own freedom. Using newly collected data from Louisiana, I first paint a qualitative and quantitative portrait of manumission. / (cont.) I then answer the question of whether slaves purchasing their freedom paid above market prices. Legal changes following the Louisiana Purchase allow me to conclude that manumission laws were quite important in determining the terms at which manumission agreements were struck: when slaves lost the right to sue for self-purchase at market price, there was a precipitous drop in the number of manumissions, while prices paid increased. / by Shawn Cole. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2009. / Includes bibliographical references (p. 153-158). / This thesis consists of three independent essays that examine the role of incentives for innovation in organizations. Chapter 2 studies the provision of incentives when workers explore new work methods in parallel. In such a setting under-exploration may result as workers attempt to free-ride on the new ideas of co-workers. Optimal incentives for routine activities take the form of standard pay-for-performance where only individual success determines compensation while optimal incentives for parallel innovation tolerates early failure and provides workers with long-term group incentives for joint success. Using data from a controlled laboratory experiment I show that this link between incentives and innovation is causal. Innovation success and performance is highest under a group incentive scheme that rewards long-term joint success. In Chapter 3 which is co-authored with Gustavo Manso, I provide evidence that the combination of tolerance for early failure and reward for long-term success is effective in motivating innovation. Subjects under such an incentive scheme explore more, get closer to discovering the optimal business strategy, and produce higher average revenues than subjects under fixed-wage and standard pay-for-performance incentive schemes. I also show that the threat of termination can undermine incentives for innovation, while golden parachutes can alleviate these innovation-reducing effects. Finally, in Chapter 4, I investigate the choice of organizations to conduct interim performance evaluations. / (cont.) When ability does not influence workers marginal benefit of effort, the choice between giving workers feedback or not depends on the shape of the cost of effort function. However, when effort and ability are complementary, feedback policies have several competing effects. They inform workers about their relative position in the tournament as well as their relative productivity. In addition, performance appraisals create signal-jamming incentives to exert effort prior to performance evaluation. / by Florian Peter Ederer. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012. / Cataloged from PDF version of thesis. / Includes bibliographical references. / This thesis examines various aspects of environmental economics. The first chapter estimates how individuals' beliefs about climate change are affected by local weather fluctuations. Climate change is a one-time uncertain event with no opportunities for learning; the belief updating process may not be fully Bayesian. Using unique survey data on beliefs about the occurrence of the effects of global warming, I estimate how individuals use local temperature fluctuations in forming these beliefs. I test for the presence of several well-known psychological heuristics and find strong evidence for representativeness, some evidence for availability and no evidence for associativeness. I find that very short-run temperature fluctuations (1 day - 2 weeks) have no effect on beliefs about the occurrence of global warming, but that longer-run fluctuations (1 month - 1 year) are significant predictors of beliefs. Only respondents with a conservative political ideology are affected by temperature abnormalities. In the second chapter, I examine the economic impacts of natural disasters by estimating the effect of hurricanes on US counties' economies 0-10 years after landfall. Overall, I find no substantial changes in a county's population, earnings, or the employment rate. The largest empirical effect of a hurricane is observed in large increases in government transfer payments to individuals, such as unemployment insurance. The estimated magnitude of the extra transfer payments is large. While per capita disaster aid averages $356 per hurricane in current dollars, I estimate that in the eleven years following a hurricane an affected county receives additional non-disaster government transfers of $67 per capita per year. Private insurance-related transfers over the same time period average only $2.4 per capita per year. The fiscal costs of natural disasters are thus much larger than the cost of disaster aid alone. Because of the deadweight loss of taxation and moral hazard concerns, the benefits of policies that reduce disaster vulnerability, such as climate change mitigation and removal of insurance subsidies, are larger than previously thought. Finally, the substantial increase in non-disaster transfers suggests that the lack of changes in other economic indicators may be in part due to various social safety nets. In the third chapter, I estimate the extent of adverse selection in area yield insurance. Despite a long-run decrease in developed countries' vulnerability to weather shocks, agriculture worldwide remains susceptible to weather fluctuations. If climate change increases the frequency and intensity of extreme weather events, as it is predicted to do, food prices will likely become more volatile. A well-functioning insurance market is key to keeping the agricultural sector stable. I discuss the institutional and empirical features of the US crop insurance market. I outline the ways in which market designers have attempted to minimize adverse selection and moral hazard, as well as the remaining ways in which the market remains vulnerable to these. I then test for a particular form of adverse selection: whether public information (last year's average yield in the county) that is not explicitly priced by crop insurance companies predicts takeup of area yield insurance plans. I find no evidence that the recent yield influences takeup. I then perform another reduced-form test, using end-of-growing season yields as predictors of insurance takeup at the beginning of the growing season, and find that area yield insurance takeup is higher when average yields are higher. This suggests that the net selection into area yield plans favors providers, not buyers of insurance. In some specifications, the total demand for crop insurance is affected by current and past yields as well, potentially due to changes in the desirability of other plans. / by Tatyana Deryugina. / Ph.D.

Thesis (Ph.D.)--Massachusetts Institute of Technology, Dept. of Economics, 2002. / Includes bibliographical references. / This dissertation consists of three empirical essays related to information and investment. The first essay asks whether investments in advertising bias the information consumers receive about advertisers' products. Using ratings from two U.S. wine publications, only one of which accepts advertising, I find that advertisers earn differentially higher ratings than non-advertisers and that these higher ratings appear to arise through selective retastings of advertisers' wines before ratings are published. However, the small fraction of wines tasted more than once limits this bias and suggests that reputational considerations may induce publications largely to insulate reviewers from advertisers. The second essay asks whether investments in research by mutual fund families increase the returns of their actively managed funds. Using detailed expense data from 1996-1999, I find evidence that funds recover a fraction of their management fees and brokerage commissions through higher before-expense returns, but that these results are driven by positive relationships between expenses and returns in 1999. I then find more robust positive relationships between aggregate measures of research spending within the family and fund-level returns. Finally, I find that pairwise correlations of fund returns are significantly higher, on average, when both funds belong to the same family, and that these higher correlations are not simply the result of management team overlap. The final essay (joint with Eric Zitzewitz) asks whether the recent rise and fall of U.S. financial markets had real economic consequences in online auctions for fine wine. / (cont.) Using data from 63 auctions covering the 30 months from July 1999 through December 2001, we document a strong positive relationship between the number of bottles sold within an auction and fluctuations of the S&P 500 index during that auction. While average prices tend to decline as the number of bottles sold increases, we also present evidence that price changes of the rarest and most famous wines are positively correlated with stock market returns. Overall, our results imply that investors may respond more quickly to short-run changes in stock market wealth than existing theoretical and empirical work has suggested. / by Jonathan Michael Reuter. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2016. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 203-213). / This thesis develops empirical methodologies to investigate the effect of globalization on welfare and inequality both between- and within-countries. The first essay proposes a Roy-like model where workers are heterogeneous ill terms of their comparative and absolute advantage. We show that the schedules of comparative and absolute advantage (i) determine changes in the average and the variance of the log-wage distribution, and (ii) are nonparamnetrically identified from the cross-regional variation in the sectoral responses of employment and wages to observable sector-level demand shifters. Applying these results, we find that the rise in world commodity prices accounts for 5-10% of the fall in Brazilian wage inequality between 1991 and 2010. The second essay develops a methodology to construct nonparametric counterfactual predictions, free of functional-form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions for the nionparainetric identification of this system. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate tile feasibility of our approach. The third essay investigates the connection between the recent rise in services trade and changes in labor market outcomes in different countries. We develop a theoretical framework where trade in services arises from the spatial unbundling of workers' task output. Transmission costs endogenously determine the magnitude of between-sector task trade both within a country ("outsourcing") and between countries ("offshoring"). We show that, while differentials in sectoral task prices decrease in response to outsourcing, they increase in response to offshoring. The heterogeneity in the composition of workers' task endowments controls responses in between- and within-sector wage inequality across countries. / by Rodrigo Rodrigues Adão. / 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 (pages 147-154). / This thesis includes three papers exploring urban traffic congestion and the interplay between urban commuting and economic activity in developing countries. The first paper studies the impact of peak-hour road congestion pricing on commuter welfare, using a field experiment and GPS-based data collection in Bangalore, India. Commuters value time spent commuting highly and are moderately flexible to change departure time. However, welfare gains from optimal congestion pricing are predicted to be low, due primarily to a small road traffic externality. The second paper studies the impact of a high occupancy vehicle (HOV) policy in Jakarta, Indonesia, on road traffic congestion measured using data from Google Maps. The lifting of the "3-in-1" policy led to large increases in traffic congestion throughout the city. The third paper uses cell phone transaction data in Colombo, Sri Lanka and Dhaka, Bangladesh, to construct and validate detailed urban commuting flows, and to then infer urban locations with high labor productivity. / by Gabriel E. Kreindler. / Ph. D.