Master of Arts / Department of Economics / Dennis L. Weisman / The primary purpose of this report is to address the potential benefits and drawbacks of competitive electricity generation. A number of countries have introduced various forms of competition into the electric utility industry. The most notable attempt in the United States and the focus of this report took place in California in the late 1990s. This report is divided into two parts. The first covers the history of the electricity industry by reviewing influential policies, cost of service regulation, and concluding with incentive regulation. The second part discusses the potential benefits and drawbacks of a competitive generation sector, through the lens of the California experiment. Government policies have dramatically changed in the last twenty years. Many of these changes were aimed towards increasing competition within the generation sector and have made a competitive generation sector possible. Whether these policies are correct has been the focus of much debate. A competitive generation sector could potentially operate more efficiently than under traditional regulatory regimes. Whether this potential will be realized is in question. This report assesses this question by looking at the events that took place in California. The competitive wholesale markets in California functioned properly for nearly two years before the events of the "California Electricity Crisis" took place. This showed that a competitive wholesale market is possible once certain criteria are met; most importantly adequate competition to reduce a firm's potential to exercise market power. The "Crisis" in California showed what can happen if these criteria are not satisfied. Nevertheless, there is still much optimism about the potential benefits of competitive electricity markets.

By social influence I understand the change in an individual’s thoughts, feelings, attitudes or behaviors that results from interactions with another individual or group. Political, commercial and public health campaigns rely at least partly on influence. Without influence, we have a hard time explaining voter turnout, fads or contagious health behaviors. In my research I focus on pro-social behavior and the de-decentralized provision of public goods, and I ask when and why people are influenced by others as well as when and why people attempt to influence others to “do the right thing”. These questions help us understand human motivation in social contexts, and thus may also help us design policies that can nudge behavior towards more socially desirable, welfare enhancing outcomes. Despite the importance of influence, its study is scattered across disciplines. In my research, I seek to bridge the disciplinary gap through a three-pronged approach. First, I incorporate concepts found in psychology into a decision-theoretic framework. Second, I experimentally test for hypotheses that are derived from this formalization. Third, I use game theory to derive novel conclusions about how aggregate behavior changes when these concepts are incorporated and propose policy recommendations. My dissertation follows parts of this procedure and points to next steps for two psychology concepts: social identity adoption and social expectations. In chapter 1, I write down a unifying model of social identity adoption that integrates different strands in the economics and psychology literature. I provide evidence for the main predictions of this model with a large scale field experiment on charitable giving in Mexico. In chapter 2, joint with Michael Hiscox, we write down a model from which we derive conditions for distinguishing between a social expectations and an altruism explanation to pro-social influence. Results from a laboratory experiment show that most pro-social influence is due to social expectations. In chapter 3, I integrate this social expectations model into a sequential decision setting. I use this to derive a novel model of pluralistic ignorance, and argue that this model explains why uninformed individuals can be leaders in a way past models could not. / Political Economy and Government

Competition in US health insurance markets is low and has declined in recent years. Insufficient competition is often assumed to increase plan premiums or decrease benefit quality, but the latter has been difficult to establish empirically. Moreover, why health insurance competition is so low is poorly understood. As recent health insurance expansions rely on private insurers to provide coverage, understanding why health insurance competition is low and how this affects consumers is important for policy. Paper 1 tests for a relationship between insurer competition and health plan benefit generosity. I examine the impact of a regulatory change that led to the cancellation of 40% of the private plans participating in the Medicare program. I isolate the causal effect of cancellation using variation induced by insurers who removed all plans nationally. Insurers in markets affected by cancellation responded by reducing benefit generosity. In the average market, out-of-pocket costs for a representative beneficiary increased by about $130 per year. Tests of possible mechanisms suggest that insurers primarily responded to changes in competition, rather than the policy's direct costs or anticipated changes in enrollees' health risks. In the least competitive markets, out-of-pocket costs increased by more than $200 a year, while in markets with the most substitutes for cancelled plans, benefit generosity barely changed. These findings have crucial implications for markets such as health insurance exchanges, as they suggest health plan quality is degraded when competition is insufficient. Paper 2 explores why health insurance markets are so concentrated. This paper tests how insurer and provider market power affects insurer exit using a policy change in Medicare Advantage. Under the policy, a group of indemnity insurers were forced to form provider networks de novo. Insurers cancelled two-thirds of the affected plans following passage of this mandate. Comparison across markets where insurers selectively withdrew plans suggests that greater provider market power led to increased exit while greater insurer market power protected against it. Insurers in markets at the top decile of physician and hospital concentration were respectively 17 and 15% more likely to exit than those in the bottom decile, while insurers in the top decile of insurer market share were 68% less likely to exit than those in the bottom decile. Additionally, insurer bargaining power is found to be most protective in the most concentrated hospital markets. Findings suggest that policies to foster insurer market participation must consider both insurer and provider market structure. Paper 3 examines trends in Medicare Advantage enrollment. Medicare Advantage enrollment grew to its highest point in program history in 2014, despite five years of payment cuts and declining plan availability. This paper investigates whether recent enrollment growth can be expected to continue by examining trends in 65-year-olds' Medicare Advantage enrollment. As 65-year-olds are choosing among supplemental Medicare options for the first time, they may be more responsive to market conditions than other beneficiaries. Findings show that 65-year-olds' enrollment patterns differ from older cohorts, in that they increased between 2006-2009 and then leveled off between 2009-2011. Among a range of market and plan characteristics, changes in Medicare Advantage plan premiums and benefit generosity most plausibly explain slowing enrollment growth. The data also suggest that, absent the recession, enrollment might have further declined. / Health Policy

This dissertation studies agricultural technology adoption, child labor and development. Although adoption of fertilizers has been high in South Asia, farmers may fail to use it efficiently. Besides higher costs incurred by households engaged in agriculture, inefficient use of fertilizers may also have negative consequences for the environment. The first chapter of this dissertation uses a field experiment in Bangladesh to study whether providing farmers access to a simple rule-of-thumb tool (leaf color chart) to manage the timing of fertilizer applications can improve efficiency of fertilizer use and lead to productivity gains. The second chapter explores whether characteristics of agricultural trainers, who introduced the leaf color charts to the farmers in the treatment group, play an important role in the adoption and use of leaf color charts by farmers. The final chapter of this dissertation studies the impact of a large public workfare program targeting rural households in India on children. In particular, we study the impact of time use by the youngest and oldest children in a household as adult time use changes in response to new work opportunities. / Public Policy

Many markets exhibit substantial heterogeneity -- e.g.~in ability, in preferences, in products, in strategies. Allowing for this (sometimes multi-dimensional) heterogeneity can change both the theoretical predictions of models and the results of empirical analyses. This dissertation consists of three essays on markets and games with different forms of heterogeneity. The first chapter introduces preference heterogeneity and multi-dimensional skill heterogeneity into the analysis of labor markets. In matching markets, agents have heterogeneous preferences over potential partners, so welfare depends on which agents are matched to each other in equilibrium. Taxes in matching markets can generate inefficiency by changing who is matched to whom, even if the number of workers at each firm is unaffected. This ``allocative distortion'' is not evident in traditional models of income taxation that do not allow for workers to have multi-dimensional preference and productivity heterogeneity. For markets in which workers refuse to match without a positive wage, higher taxes decrease match efficiency. However, in more balanced matching markets where transfers may flow in either direction, such as the student--college market, lowering taxes may decrease match efficiency because an agent can transfer enough to ``buy'' an inefficient partner (only to be ``bought back'' when taxes are lowered further). Simulations show that, in matching markets, traditional deadweight loss estimates based on the change in taxable income can be substantially biased in either direction. The second chapter builds on the merger analysis literature that recognizes the importance of product heterogeneity. Both merger simulations and the more recent ``first-order'' approach to merger analysis recognize that because product heterogeneity can vary, market concentration is not always a good measure of the competitiveness of the market. We derive approximations of the expected changes in prices and welfare generated by a merger, using information local to the pre-merger equilibrium. We extend the pricing pressure approach of recent work to allow for non-Bertrand conduct, adjusting the diversion ratio and incorporating the change in anticipated accommodation. To convert pricing pressures into quantitative estimates of price changes, we multiply them by the merger pass-through matrix. Pass-through rates can vary by industry and the same pricing pressure can lead to very different price changes, depending on the pass-through rates. Weighting the price changes by quantities gives the change in consumer surplus. The third chapter uses data on thousands of players who play a game over a hundred times to do a with-in player analysis of play and allow for heterogeneity in the mixed strategies that players use. We use of data from a Facebook application where users play a simultaneous move, zero-sum game -- rock-paper-scissors -- with varying information to provide empirical insights into whether play is consistent with extant theories. We report three major insights. First, we observe that many employ strategies consistent with Nash, at least some of the time. Second, players predictably respond to incentives in the game. For example, out of equilibrium, players strategically use information on previous play of their opponents, and they are more strategic when the payoffs for such actions increase. Third, experience matters: players with more experience use information on their opponents more efficiently than less experienced players, and are more likely to win as a result. We also explore the degree to which the deviations from Nash predictions are consistent with various non-equilibrium models. We find that both a level-k framework and a quantal response model have explanatory power: whereas one group of people employ strategies that are close to $k_1$, there is also a set of people who use strategies that resemble quantal response. / Economics

This dissertation addresses the central issue of understanding how frictions to information flow distort the ability for prices to incorporate new information. In chapter 1, “Forgotten Portfolios”, I illustrate how the ability of a stock’s price to impound information can rely on the portfolios of its owners. I show that, in the presence of limited attention, investors rationally allocate their attention towards processing information that has a greater impact on their wealth. Chapter 2, “The Social Elite” (based on joint work with Alexander Chernyakov), examines how casual social interactions impact asset prices. Social networks play a vital role in the diffusion of information. I focus on fund managers and corporate officers of publicly traded firms and present evidence of information transfer at exclusive social gatherings. I find that when executives attend social gatherings their stock prices' subsequent behavior directionally predicts upcoming earnings surprises. I show that fund managers who attend events that corporate officers from a particular firm also attend are more likely to purchase stock in that firm. I explore potential reasons for this tendency and find that fund managers demonstrably outperform when they decide to trade these socially-connected stocks. Further, socially-connected stocks that fund managers do not purchase subsequently underperform. In chapter 3, “Mean Reversion”, I propose a mechanism whereby learning from news jointly explains the patterns of short horizon momentum and long horizon reversals observed in equity prices. The model's key departure from rationality is its assumption that investors underestimate the relative precision of news. Under mild assumptions, investors will exhibit a rational but perverse tendency to increase their belief in other private signals, regardless of whether or not the private signal is true. / Economics

Many of the world's rural poor make a living from agriculture. Consequently, the productivity of agriculture and non-agricultural employment opportunities are important determinants of rural poverty and the subject matter of the three essays in this dissertation. The first chapter in this dissertation estimates the long-term causal effect of inheriting land in rural India. Using quasi-experimental methods, I find that inheriting land greatly influences occupational trajectories and can suppress consumption to an extent that may overwhelm its direct benefit. The second chapter uses a field experiment to understand whether barriers to information influence agricultural productivity. We find that the introduction of a mobile phone-based agricultural information service greatly influences reported sources of information, input adoption decisions and agricultural productivity. The final chapter studies the effect of the external provision of agricultural information on social interactions and agricultural outcomes in village India. Using a field experiment, I find that the introduction of a mobile phone-based agricultural extension service influences the structure and content of social interactions with peers both within and outside the original study population. Respondents receiving valuable agricultural information are more likely to interact with their peers and share information from the service. These changes in social interactions also influence the agricultural outcomes of peers. These results suggest that technological innovations may increase the returns to in-person exchange of information and, in so doing, influence agricultural outcomes. / Public Policy

This dissertation contains essays that explore the incentives, mechanisms and strategies of platforms in concentrated internet markets. The first essay studies how two-sided platforms compete and set dynamic prices. In the daily deals industry, an expected increase in competition for seller participation prompted a cross-side response by the dominant platform, Groupon, to lower prices on deal coupons sold to attract platform users. I use a dynamic model of competing daily deals platforms to investigate why we observe a larger downward price response in markets where platforms have similar shares of users. Simulations show a sharp increase in value of an additional user as cross-side competition intensifies for profits from being the future platform leader. The second essay---coauthored with Benjamin G. Edelman---examines how competition is mediated by search intermediaries, looking at the design of search engines' own services and the effects on users' choices. We evaluate a natural experiment, and find that Google's prominent placement of its Flight Search service increased clicks on paid advertising listings while decreasing the clicks on organic search listings by a similar quantity. Empirical results and a controlled experiment links the mechanism to users' heterogeneous methods of search. The third essay---coauthored with Michael Egesdal and Che-Lin Su---develops empirical tools for estimating dynamic discrete-choice games. We formulate the maximum-likelihood estimator as a constrained optimization problem to be solved using state-of-the-art constrained optimization solvers. Monte Carlo results show that the constrained optimization approach has improved convergence properties over other popular computational methods. / Economics

The economic study of incentives in firms has traditionally focused on one type of incentive—pecuniary—and one causal mechanism—the direct effect of incentives on effort. This dissertation uses three randomized field experiments to explore non-traditional incentives, and non-traditional incentive effects, in the setting of health care delivery. The first experiment (jointly authored with Nava Ashraf and Oriana Bandiera) addresses an under-appreciated phenomenon: incentives affect not only the effort of agents on the job, but also the selection of agents into the job. We collaborate with the Government of Zambia to experimentally vary the salience of career incentives in a newly created health worker position when recruiting agents nationally. We find that making career incentives salient at the recruitment stage attracts health workers who are more effective at delivering health services, with administrative data showing an improvement in institutional deliveries, child health visits, and immunization rates in the treatment areas. While career incentives attract agents who differ on observables (e.g., they have higher skills and career ambitions), 91% of the performance gap is due to unobservables. The results highlight the importance of incentive design at the recruitment stage for attracting high performers who cannot be identified on observables alone. The second and third experiments examine the use of non-pecuniary incentives in health care. The second experiment (jointly authored with Nava Ashraf and Oriana Bandiera) studies non-monetary awards. Awards may affect behavior through several mechanisms: by conferring employer recognition, by enhancing social visibility, and by facilitating social comparison. In a nationwide health worker training program in Zambia, we design a field experiment to unbundle these mechanisms. We find that employer recognition and social visibility increase performance, while social comparison reduces it, especially for low-ability trainees. These effects appear when treatments are announced and persist through training. The findings are consistent with a model of optimal expectations in which low-ability individuals exert low effort in order to avoid unfavorable information about their relative ability. The results highlight the importance of anticipating the distributional consequences of incentives in settings in which the performance of each worker affects social welfare. The third experiment turns from extrinsic incentives (such as career opportunities and non-monetary awards) to "intrinsic incentives"—that is, incentives that make work more intrinsically rewarding. In the context of a rural health worker program in India, I develop and test a novel, mobile phone-based self-tracking app designed to increase agents' intrinsic returns to effort. At nine months of follow-up, the self-tracking app leads to a 27% increase in performance as measured by the main job task (home visits). Moreover, the app is most effective when it leverages pre-existing intrinsic motivation: it produces a 46% increase in performance in the top tercile of intrinsically motivated workers, but no improvement in the bottom tercile. Evidence from survey and performance data indicates that the treatment effect is mediated primarily by making effort more intrinsically rewarding, and not by other mechanisms such as providing implicit extrinsic incentives. The results suggest the potential for wider use of intrinsic incentives that may increase performance at low cost, when agents are intrinsically motivated. / Health Policy

This dissertation seeks to identify causes and consequences of some of the most complex social phenomena, such as civil conflict and climate change. In the first essay I draw on existing theories of labor coercion (Acemoglu & Wolitzky, 2011, Dippel, Greif and Trefler, 2015) to examine how poor labor market institutions, as those present in places where cocaine production takes place in Colombia, prevent low-income farmers to grasp the returns of positive productivity shocks generated by good weather, and instead, witness increasing coca-profiting group confrontations in high productivity areas. I employed an Instrumental Variables approach together with Fixed Effects estimators to calculate the effect of exogenous variation in productivity on the dynamics of the conflict, to find that citizens security improves in high-productivity period and worsens in low-yield months. The second essay is a research project with Alberto Abadie, Maurice Kugler and Juan Vargas, where we examine the causal effect of Plan Colombia, the largest US aid package ever received by a country in the western hemisphere, on citizens security (measured by civilians and military killings) and illegal crop acreages in Colombia. To infer the causal effect of the policy on the illegal crop and violence outcomes, we rely on GMM estimators and high-frequency variations in violence. We show that the marginal effect of spraying of one acre of coca reduces the cultivated area by about 11 percent of an acre. Since aerial spraying may shift coca crops to neighboring municipalities, this results should be interpreted as a local effect. In addition, since the same coca fields are often sprayed multiple times, this figure constitutes a lower bound of the mean eradicating effect of aerial spraying. Our results also suggest that guerrilla-led violence increases both in the short and the long term. We interpret this result as evidence that the guerrilla tries to hold on violently to the control of an asset that is of first order importance for their survival. In the third essay I seek to understand household adaptation and labor market impacts of extreme weather events in developing countries. This project focuses its attention on labor supply in the developing world – the primary source of household income throughout the world. Also, household allocation of adult and child labor in response to precipitation represents an avenue for exploring potential adaptations that may minimize or worsen the welfare effects from extreme weather events. My econometric results provide evidence of reductions in labor income mainly through an increase in adult unemployment. Individuals try to smooth the loss of labor income by restorting to “forced entrepreneurhip” or self-employment and by sending youth to work. The worst estimate of the loss in real wages per hour is 8% in the rainy season, but this coefficient is most likely an under-estimation of the effect of floods on real wages per hour, as individuals may have been adapting to ENSO and the unavailability of labor market data from the most affected municipalities during the floods of 2010. Finally, estimates of the causal effects of floods are non-linear. While an additional 95th percentile flood raises the probability of unemployment by 0.0026 percentage points, the effect doubles with one additional 99th percentile flood. / Public Policy