This dissertation presents three chapters addressing issues pertaining to consumers, firms, and financial institutions in the developing world. The first chapter, co-authored with Juan Ma and Tarun Khanna, evaluates the effect of voluntary information disclosure in incentivizing firms to deliver high quality in the absence of regulation. We present evidence from two field experiments in China’s infant milk powder industry, which is undergoing a serious consumer trust crisis after several safety scandals. Contrary to common beliefs, our results suggest that providing certain positive quality-related information has a significantly negative impact on consumers’ purchase decisions and impression of the industry. We explain our findings via the existence of a “reminder effect,” where information disclosure triggers recall of and diverts attention to health and safety risks related to certain products. In the second chapter, I study the impact of firms’ industrial diversification on their innovation outcomes in China, which has recently been an important topic due to various government initiatives. By exploiting a policy launched by the Chinese government since 2011, I estimate the impact of related and unrelated diversification on corporate innovations measured by the number of patents received after 2012. Overall, I find opposite results for production-oriented and service-oriented firms, with related diversification more effective for the former and unrelated diversification more effective for the latter. One explanation, which is supported by subsequent analysis, is related to the different degrees of transferability of the technology and knowledge required for innovations. In the third chapter, I examine the complementarity of formal and informal finance represented respectively by banks and bidding ROSCAs (Rotating Savings and Credit Associations) in India, a critical source of credit for many impoverished individuals, households, and small businesses. Different from some traditional views, my results suggest that formal financial institutions can benefit the informal ones instead of replacing them. Using auction data from ROSCAs and operational data from banks in Andhra Pradesh, India from 1998 to 2000, I find that the emergence of formal finance, measured by nearby bank openings, increases ROSCA participation, reduces the cost of capital for ROSCA participants, and lowers the amount of ROSCA default. / Economics

I analyze how various types of structural change including labor market reform, trade liberalization, product market reform and technological progress affect labor markets in closed and open economies. In order to do this, I propose a model of labor markets which captures frictions and pecuniary externalities as well as different types of labor market reform in a very general way. Embedding this framework into general equilibrium models with imperfect competition in product markets and endogenous entry I find that the strength of pecuniary externalities in labor markets is absolutely crucial: In closed economies sufficiently strong pecuniary externalities in labor markets require “supply-side approaches” to labor market reform to raise aggregate employment, while “demand-side approaches” are required otherwise. Product market deregulation and technological progress raise aggregate employment in closed economies only if pecuniary externalities in labor markets are sufficiently strong. Similar results hold in open economies although terms-of-trade-effects may slightly change the picture depending on their strength. Further, distributional conflicts both within and across countries may arise from those effects, but they can be avoided by means of multilateral coordination. Trade liberalization increases aggregate employment only if pecuniary externalities in labor markets are sufficiently strong. Firm heterogeneity amplifies both gains and losses from trade liberalization. Sufficiently strong pecuniary externalities in labor markets also make positive international spill-overs of unilateral structural change more likely. I present my results in terms of threshold-rules for the strength of pecuniary externalities in labor markets and I provide careful analyses of what determines the size of the threshold for each question I address: Generally, the strengths of product-variety-effects and of a mark-ups-channel working through product markets as well as the importance of the extensive margin of production play a central role, but both the importance of network production structures and of international trade matter, too. / Economics

Policy often differs from the recommendations of theoretical optimal tax models in substantial and enduring ways. Such differences are sometimes surely because policy is suboptimal; however they may also be driven by alternative objectives which shape policy in practice, but which do not appear in the benchmark theoretical model. This dissertation considers three cases of such alternative objectives. The first chapter supposes that work subsidies like the Earned Income Tax Credit may be justified by corrective considerations, rather than the usual redistributive rationale for income taxation, if people are present biased and some benefits from work are delayed. The second chapter explores the role of income taxes in directing talented individuals into professions which are beneficial for the rest of society, such as teaching or medical research, and away from professions with negative externalities. The third paper considers the common concern that "sin taxes" on harmful goods—such as cigarettes or soda—are regressive, by incorporating redistributive concerns into a model of optimal corrective commodity taxation. / Business Economics

Chapter 1 examines the impact of interethnic exposure on national integration in a multiethnic state. It uses variation arising from a mandatory program in Nigeria that randomly posted university graduates to different states of the country for a year of national service. I administer a survey to a cohort of university alumni seven years after their participation and compare participants who served in a state where they are the ethnic majority to those exposed to a state where they are not the majority. The results indicate two concurrent effects: interethnic exposure creates a stronger connection to the country while also reinforcing participants' connection to their ethnic group. In Chapter 2, using data from Nigeria, I provide descriptive evidence on how the prevalence of spousal violence varies with status differences (as reflected in age, education and income) and ethnic and religious differences among couples. I document that women who are older, more educated or earn more money than their spouses experience more violence consistent with the backlash hypothesis in sociology. I also show that marriages with partners of the same religion have less violence consistent with socialization theories but this effect is not significant for ethnically endogamous marriages. Lastly, I explore potential reasons for the coexistence of domestic violence and indicators of women’s empowerment in households. Chapter 3 is part of a broader project that studies the impact of technology on service delivery and corruption. We examine the decisions of firms to adopt electronic tax filing (e-filing) in Tajikistan. E-filing allows taxpayers to submit their tax declarations online thereby reducing travel time to the tax office and direct interactions with tax officials. Using a randomized experiment, we find that e-filing training coupled with logistical help with registration (but not training alone) is highly successful at promoting e-filing adoption. Further, we find suggestive evidence that firms that report prior extortion from tax officials are more likely to adopt whereas those with greater likelihood of evading taxes are less likely to adopt. / Public Policy

Chapter 1 provides descriptive evidence of the large variation in spatial clustering across retail industries, and develops a game-theoretic structural model which can explain this phenomenon. The model is estimated and used to consider how zoning regulations affect retail industries differently. I find that zoning can be as much as twelve times more costly to consumers, in terms of additional travel costs, for industries in which there are low gains to search. Chapter 2 investigates the estimation of models of dynamic discrete-choice games of incomplete information, formulating the maximum-likelihood estimation exercise as a constrained optimization problem which can be solved using state-of-the-art constrained optimization solvers. Monte Carlo experiments are conducted to investigate the numerical performance and finite-sample properties of the constrained optimization approach for computing the maximum-likelihood estimator, the two-step pseudo maximum-likelihood estimator and the nested pseudo-likelihood estimator. Chapter 3 studies the manipulability of stable matching mechanisms and shows that manipulability comparisons are equivalent to preference comparisons: for any agent, a mechanism is more manipulable than another if and only if this agent prefers the latter to the former. It is also shown that generalized median stable matchings exist in many-to-many matching markets when contracts are strong substitutes and satisfy the law of aggregate demand. / Economics

This thesis combines three essays in applied microeconomics. The first essay studies hospital responses to price changes and the introduction of DRG reimbursements; using a large administrative data set on all inpatient hospital admissions in Germany from 2005 to 2013, we find that hospitals respond stronger to financial incentives in areas of higher medical discretion. The second essay studies the effect of two UK compulsory schooling law changes; deriving an optimal pooled regression outcome and pooling data across 50 surveys, I show that the two reforms had no measurable impact on a large set of job market outcomes. The third essay studies the benefit of observing more customer data on optimizations of a large online retailer; predicting optimal product display ranks based on smaller data sets than the actually observed data, we estimate the effect of less data on click and order conversion rates. / Economics

This dissertation examines the social and economic processes that generate innovation and distribute its rewards in society, in the context of the United States over the past twenty years. Chapters 1 and 4 investigate the two-way relationship between innovation and inequality. Chapters 2 and 3 study two recent and important trends in the US innovation system: the rise of teamwork and the activities of patent trolls. Using detailed product-level data in the retail sector in the United States, Chapter 1 shows that product innovations disproportionately benefited high-income households due to increasing inequality and the endogenous response of supply to market size. From 2004 to 2013, annualized quality-adjusted inflation was 0.65 percentage points lower for high-income households, relative to low-income households. Using national and local changes in market size driven by demographic trends plausibly exogenous to supply factors, this chapter provides causal evidence that a shock to the relative demand for goods (1) affects the direction of product innovations, and (2) leads to a decrease in the relative price of the good for which demand became relatively larger (i.e. the long-term supply curve is downward sloping). A calibration shows that this effect is sufficiently strong to explain most of the observed difference in quality-adjusted inflation rates across the income distribution. Chapter 2 demonstrates the importance of team-specific capital in the typical inventor's career. Using administrative tax and patent data for the population of US patent inventors from 1996 to 2012 and the premature deaths of 4,714 inventors, an inventor's premature death is found to cause a large and long-lasting decline in their co-inventor's earnings and citation-weighted patents (-4% and - 15% after 8 years, respectively). Firm disruption, network effects and top-down spillovers are ruled out as primary drivers of this result. Consistent with the team-specific capital interpretation, the effect is larger for more closely-knit teams and primarily applies to co-invention activities. Chapter 3 investigates the patent acquisition behavior of non-practicing entities (NPEs), also-known as patent trolls. Unlike regular firms, NPEs purchase and assert patents that were granted by a specific set of examiners at the United States Patent Office (USPTO), who tend to allow incremental patents with vaguely-worded claims. The methodology introduced in this chapter leverages the random assignment of patent applications to examiners and provides a novel way of inferring the nature of a patent from prosecution data. A cost-benefit calibration suggests that investments in improving the quality of the examination process at the USPTO would have large social returns. Using administrative records on the population of individuals who applied for or were granted a patent between 1996 and 2014, Chapter 4 characterizes the lives of more than 1.2 million inventors in the United States. Children of low-income parents are much less likely to become inventors than their higher-income counterparts and decompositions indicate that this income-innovation gap can largely be accounted for by differences in human capital acquisition while children are growing up. The importance of exposure effects during childhood is established by showing that growing up in an area with a high innovation rate in a particular technology class is associated with a much higher probability of becoming an inventor specifically in that technology class. Taken together, these descriptive findings shed light on which types of policy tools are likely to be most effective in sparking innovation. In particular, they suggest that “extensive margin” policies drawing more talented individuals from low-income families into innovation have great potential. / Business Economics

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We are concerned here with the problem of measuring consumer surplus from ordinary demand functions, in those situations where changes in the budget lead to variations in utility that are not monotonic. We will show that many of the problems that arise for nonmonotonic paths either do not exist, or are insignificant when consumer surplus is measured for monotonic paths. The first problem considered is the integrability question: the conditions which guarantee that the demand functions can be integrated to yield the generating utility function. The problem of obtaining a valid surplus measure that is consistent with consumer preferences is considered. In most practical applications of welfare analysis, use is made of the Marshallian surplus, on the grounds that it varies only slightly along alternate paths, and along any particular path, will provide a good approximation to the Hicksian variations. While this is true for monotonic paths, we show that it is not so for paths that lead to nonmonotonic utility changes. Such approximations are not necessary, as the equivalent variation can be calculated directly from ordinary demand functions. When preferences are quasihomothetic, expansion paths are linear, which allows us to calculate the integrating factor, and hence the indirect utility function. In the more general case, compensated changes in income are considered for the budget path, which gives us the expenditure function corresponding to the final utility level. This approach involves solving a differential equation. Closed form solutions as well as the method of numerical integration are considered. As an example of paths that lead to nonmonotonic changes in utility, we consider the effects of a move to time differentiated electricity rates on the welfare of the consumer. (Abstract shortened by UMI.)