Thesis advisor: Arthur Lewbel / This dissertation consists of three independent essays in applied microeconomics and econometrics. Essay 1 investigates the issue why individuals with health insurance use more health care. One obvious reason is that health care is cheaper for the insured. But additionally, having insurance can encourage unhealthy behavior via moral hazard. The effect of health insurance on medical utilization has been extensively studied; however, previous work has mostly ignored the effect of insurance on behavior and how that in turn affects medical utilization. This essay examines these distinct effects. The increased medical utilization due to reduced prices may help the insured maintain good health, while that due to increased unhealthy behavior does not, so distinguishing these two effects has important policy implications. A two-period dynamic forward-looking model is constructed to derive the structural causal relationships among the decision to buy insurance, health behaviors (drinking, smoking, and exercise), and medical utilization. The model shows how exogenous changes in insurance prices and past behaviors can identify the direct and indirect effects of insurance on medical utilization. An empirical analysis also distinguishes between intensive and extensive margins (e.g., changes in the number of drinkers vs. the amount of alcohol consumed) of the insurance effect, which turns out to be empirically important. Health insurance is found to encourage less healthy behavior, particularly heavy drinking, but this does not yield a short term perceptible increase in doctor or hospital visits. The effects of health insurance are primarily found at the intensive margin, e.g., health insurance may not cause a non-drinker to take up drinking, while it encourages a heavy drinker to drink even more. These results suggest that to counteract behavioral moral hazard, health insurance should be coupled with incentives that target individuals who currently engage in unhealthy behaviors, such as heavy drinkers. Essay 2 examines the effect of repeating kindergarten on the retained children's academic performance. Although most existing research concludes that grade retention generates no benefits for retainees' later academic performance, holding low achieving children back has been a popular practice for decades. Drawing on a recently collected nationally representative data set in the US, this paper estimates the causal effect of kindergarten retention on the retained children's later academic performance. Since children are observed being held back only when they enroll in schools that permit retention, this paper jointly models 1) the decision of entering a school allowing for kindergarten retention, 2) the decision of undergoing a retention treatment in kindergarten, and 3) children's academic performance in higher grades. The retention treatment is modeled as a binary choice with sample selection. The outcome equations are linear regressions including the kindergarten retention dummy as an endogenous regressor with a correlated random coefficient. A control function estimator is developed for estimating the resulting double-hurdle treatment model, which allows for unobserved heterogeneity in the retention effect. As a comparison, a nonparametric bias-corrected nearest neighbor matching estimator is also implemented. Holding children back in kindergarten is found to have positive but diminishing effects on their academic performance up to the third grade. Essay 3 proves the semiparametric identification of a binary choice model having an endogenous regressor without relying on outside instruments. A simple estimator and a test for endogeneity are provided based on this identification. These results are applied to analyze working age male's migration within the US, where labor income is potentially endogenous. Identification relies on the fact that the migration probability among workers is close to linear in age while labor income is nonlinear in age(when both are nonparametrically estimated). Using data from the PSID, this study finds that labor income is endogenous and that ignoring this endogeneity leads to downward bias in the estimated effect of labor income on the migration probability. / Thesis (PhD) — Boston College, 2009. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Due to the serious impact wind damage has on homes in the Gulf Coast region, policy makers, community developers, and homeowners are seeking ways to lessen impacts. One potential tool to increase properties’ resiliency in the event of a periodic and catastrophic event is wind mitigation, the process of adding features to a building, i.e. a house, to increase the strength of the structure amid a storm such as a hurricane. In this research, I evaluate the tiers of FORTIFIED homes as the mitigation strategies. I use Zillow ZTRAX and Institute of Business and Home Safety data to estimate how each level of FORTIFIED home designation affects property value. The results show FORTIFIED Gold designation on a new home has a 0%-8.4% increase on property value. I place my finding into a BCA of FORTIFIED designation to evaluate how this one benefit fits into the greater picture.

Essay I: Employment Security Agreements, which are elements of Swedish collective agreements, offer a unique opportunity to study very early job search counselling of displaced workers. These agreements provide individual job search assistance to workers who are dismissed due to redundancy, often as early as during the period of notice. Compared to traditional labor market policies, the assistance provided is earlier and more responsive to the needs of the individual worker. In this study, I investigate the effects of the individual counseling and job search assistance provided through the Employment Security Agreement for Swedish blue-collar workers on job finding and subsequent job quality. The empirical strategy is based on the rules of eligibility in a regression discontinuity framework. I estimate the effect for workers with short tenure, who are dismissed through mass-layoffs. My results do not suggest that the program has an effect on the probability of becoming unemployed, the duration of unemployment, or income. However, the results indicate that the program has a positive effect on the duration of the next job. Essay II: The well-known positive relationship between the unemployment benefit level and unemployment duration can be separated into two potential sources; a moral hazard effect, and a liquidity effect pertaining to the increased ability to smooth consumption. The latter is a socially optimal response due to credit and insurance market failures. These two effects are difficult to separate empirically, but the social optimality of an unemployment insurance policy can be evaluated by studying the effect of a non-distortionary lump-sum severance grant on unemployment durations. In this study, I evaluate the effects on unemployment duration and subsequent job quality of a lump-sum severance grant provided to displaced workers, by means of a Swedish collective agreement. I use a regression discontinuity design, based on the strict age requirement to be eligible for the grant. I find that the lump-sum grant has a positive effect on the probability of becoming unemployed and the length of the completed unemployment duration, but no effect on subsequent job quality. My analysis also indicates that spousal income is important for the consumption smoothing abilities of displaced workers, and that the grant may have a greater effect in times of more favorable labor market conditions. Essay III: Evidence from around the world suggest that individuals who are awarded disability benefits in some cases still have residual working capacity, while disability insurance systems typically involve strong disincentives for benefit recipients to work. Some countries have introduced policies to incentivize disability insurance recipients to use their residual working capacities on the labor market. One such policy is the continuous deduction program in Sweden, introduced in 2009. In this study, I investigate whether the financial incentives provided by this program induce disability insurance recipients to increase their labor supply or education level. Retroactively determined eligibility to the program with respect to time of benefit award provides a setting resembling a natural experiment, which could be used to estimate the effects of the program using a regression discontinuity design. However, a simultaneous regime change of disability insurance eligibility causes covariate differences between treated and controls, which I adjust for using a matching strategy. My results suggest that the financial incentives provided by the program have not had any effect on labor supply or educational attainment.