Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012. / Cataloged from PDF version of thesis. / Includes bibliographical references. / This dissertation consists of three chapters on topics in applied microeconomics. In the first chapter. I investigate whether voters are more likely to support additional spending on local public services when they perceive current service quality to be high. My empirical strategy exploits discontinuities in the Texas school ratings formula that create quasi-random variation in perceptions about school quality. I find that receiving an "exemplary" versus a "recognized" rating increases support for a school district's bond measures by about 10 percentage points. Voters respond to the level of a district's rating. not just to whether the district has improved or slipped. I develop and implement a test for whether these patterns of voter behavior lead to efficient outcomes; however, the results are inconclusive. The second chapter. written jointly with Liran Einav, Amy Finkelstein, and Mark Cullen. investigates whether individuals exhibit forward looking behavior in their response to the nonlinear pricing common in health insurance contracts. Our empirical strategy exploits the fact that employees who join an employer-provided health insurance plan later in the calendar year face the same initial price of medical care but a higher expected end-of-year price than employees who join the same plan earlier in the year. Our results reject the null of completely myopic behavior; medical utilization appears to respond to the future price, with a statistically significant elasticity of medical utilization with respect to the future price of -0.4 to -0.6. To try to quantify the extent of forward looking behavior., we develop a stylized dynamic model of individual behavior and calibrate it using our estimated behavioral response and additional data from the RAND Health Insurance Experiment. Our calibration suggests that the elasticity estimate may be substantially smaller than the one implied by fully forward-looking behavior, yet it is sufficiently high to have an economically significant effect on the response of annual medical utilization to a non-linear health insurance contract. Overall. our results point to the empirical importance of accounting for dynamic incentives in analyses of the impact of health insurance on medical utilization. In the third chapter. I exploit a discontinuity in federal financial aid rules at age 24 to estimate the effect of financial aid on college enrollment. school choice. and persistence and degree completion rates. Undergraduate students who are not married and do not have children are classified as "dependent" or "independent" for purposes of federal financial aid based on whether they have turned 24 as of January 1 of the "award year." Independent students qualify for additional grant aid and are eligible to take out much larger federal loans. Using data from the National Postsecondary Student Aid Study and the Beginning Postsecondary Students Longitudinal Study. I show that average grant aid per student increases by about $1.100. or 55%. at age 24. while 12% of students take advantage of the higher federal loan limits. Estimates of the effects of additional aid on enrollment, persistence. and degree completion are inconclusive; while not statistically significant. they do not allow me to rule out sizable effects. I do find evidence of an increase in enrollment at for-profit colleges. concentrated among students whose parents are not college graduates. / by Aviva Ronit Aron-Dine. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2008. / Includes bibliographical references. / This thesis is a collection of three essays on education and health in developing countries. Chapter 1 shows that increasing perceived returns to education strengthens incentives for schooling when agents underestimate the actual returns. I conducted a field experiment in Madagascar to study alternative ways to provide additional information about the returns to education. I randomly assigned schools to the role model intervention, the statistics intervention, or a combination of both. I find that providing statistics reduced the large gap between perceived returns and the statistics provided. As a result, it improved average test scores and student attendance. For those whose initial perceived returns were below the statistics, test scores improved by 0.37 standard deviations. Seeing a role model of poor background has a larger impact on poor children's test scores than seeing someone of rich background. The key implication of my results is that households lack information, but are able to process new information and change their decisions in a sophisticated manner. Chapter 2, joint work with Gerard Lassibille, evaluates several interventions in Madagascar that sought to promote top-down and local monitoring of the school to improve education quality. Randomly selected school districts and sub districts received operational tools to facilitate their supervision tasks. Randomly selected schools in these treated districts were reinforced with teacher tools and parent-teacher meetings centered around a school report card. We find little impact of targeting district and sub-district administrators. / (cont.) Meanwhile, the intervention implemented at the school level improved some of the teachers' behaviors and student attendance. Student test scores also improved by 0.1 standard deviations after two years. These results suggest that beneficiary monitoring is more effective than mediated control in the hands of government bureaucrats in this context. Chapter 3 studies informal payments to doctors and nurses for inpatient health care in Vietnam. Exploiting within-hospital variation, I find that acute patients, despite having a presumably higher benefit of treatment, are 8 percentage points less likely to pay bribes, and pay less, than non-acute patients. One plausible interpretation is that doctors might face existing incentives against neglecting acute cases. I find that the differential payment by acute status is larger in central locations (expected to be well-monitored) and at facilities that receive more audit visits. Overall, these findings may be a sign of bureaucrats responding to incentives, even in a highly corruptible environment. / b y Trang V. Nguyen. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2015. / Chapter 2 co-authored with Michael Greenstone and Alexandre Mas. Cataloged from PDF version of thesis. / Includes bibliographical references (pages 99-105). / This thesis consists of three chapters on banking and local credit markets. The first chapter studies the relationship between bank-specific capital and credit access in a new setting: bank branch closings in markets where the branch network is dense. Existing regulation in the U.S. is targeted toward areas with few branches where closings inhibit physical access to the branch network. I show that, even in crowded markets, closings can have large effects on local credit supply. To generate plausibly exogenous variation in the incidence of closings, I use Census tract level data paired with a novel identification strategy that exploits within-county variation in exposure to post-merger consolidation. This instrument identifies the effect of closings that occur in close proximity to other branches. I find that closings have a prolonged negative impact on credit supply to local small businesses, but only a temporary effect on local mortgage lending. The number of new small business loans is 13% lower for several years, and this decline persists even after the entry of new banks. The decline in lending is highly localized, dissipating 8 miles out, and is concentrated in low-income and high-minority neighborhoods. These results show closings have large effects on local credit supply when lending is information-intensive and lender-specific relationships are difficult to replace. The second chapter (co-authored with Michael Greenstone and Alexandre Mas) estimates the effect of the reduction in credit supply that followed the 2008 financial crisis on the real economy. We predict county lending shocks using variation in pre-crisis bank market shares and estimated bank supply-shifts. Counties with negative predicted shocks experienced declines in small business loan originations, indicating that it is costly for these businesses to find new lenders. Using confidential microdata from the Longitudinal Business Database, we find that the 2007-2009 lending shocks accounted for statistically significant, but economically small, declines in both small firm and overall employment. Predicted lending shocks affected lending but not employment from 1997-2007. The third chapter uses a cash demand framework to model household credit decisions when there are both fixed and marginal costs associated with borrowing. In standard models of credit demand, the price associated with a loan is simply the interest rate. In reality, however, loan contracts encompass many dimensions that contribute to the effective price a household pays to borrow. Understanding how these other factors influence households' credit decisions is important for evaluating the impact of policy on household credit demand. I show, using data from Thailand, that the cash demand model matches many observed patterns of household behavior while providing a framework for understanding how tradeoffs between different costs drive borrowing decisions. / by Hoai-Luu Q. Nguyen. / Chapter 1. Chapter 2. Chapter 3. Do bank branches still matter? : the effect of closings on local economic outcomes -- Do credit market shocks affect the real economy? : quasi-experimental evidence from the great recession and 'normal' economic times -- credit is cash : a model of household borrowing. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2001. / Includes bibliographical references (p. 79-82). / This dissertation consists of three chapters exploring the role of incomplete information and learning in elections. The first chapter examines the dynamics of voter learning about candidate ability in repeated elections. The dynamic process of belief revision gives rise to incentives that vary strongly over a politician's career. In particular, candidates become entrenched over time, so, even though they exert little effort, the voter cannot commit to throw incumbents out of office. I embed the basic model in a common agency framework to study seniority norms in legislative organization. The model organizes many of the stylized facts about the U.S. Congress, including the incumbency advantage, the dynamics of effort allocation over a career, the importance of constituency service, and seniority norms in committee assignments. In chapter 2, I study a simple model of campaign finance with possibly asymmetric candidates. Each candidate has the option of promising favors to interest groups in exchange for the funds they need to reveal information to the voters. When the incumbent has a sufficiently large ex-ante advantage, the challenger will be unable to raise funds at all. / (cont.) In this case, incumbent spending is unambiguously too high from the perspective of voter welfare. In fact, if the value of a good candidate is high relative to the value of favors a winner can promise, it will be socially optimal to simultaneously restrict spending by the incumbent and encourage spending by the challenger. In chapter 3, (joint with Aaron Hantman) we propose a simple model of rational learning in elections. A linear approximation to the model is used to justify a version of the Gelman-King (1990) estimator of the incumbency advantage. Restricting the model to elections for which the linear approximation should be valid produce different estimates for the incumbency advantage than those found by either Gelman and King or more traditional studies bases on the "slurge". / by Scott Ashworth. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1994. / Includes bibliographical references. / by Gustavo Enrique Cañonero. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2013. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 139-145). / The primary goal of this thesis is to gain a deeper understanding of how institutional structure responds and evolves in equilibrium, particularly in the idiosyncratic and dynamic settings of developing economies. I use methods from market design to study these questions. The first chapter characterizes the equilibrium response of informal insurance relationships to changes in the formal sector, when risk-averse agents may choose what risk to bear in addition to how to share a given risk. The second chapter studies informal insurance relationships in a setting with one-sided moral hazard, and shows how the tradeoff between incentive and insurance provision shapes the composition and nature of informal relationships. The third chapter focuses on a more general setting, where the standard price mechanism fails or is not available, and provides an explanation for why the stable mechanism used in its place works well in practice, despite appearing to be easily manipulable. In the first chapter, I develop a theory of endogenous matching between heterogeneously risk-averse individuals who, once matched, choose both the riskiness of the income stream they face (ex ante risk management) as well as how to share that risk (ex post risk management). I find a clean condition on the fundamentals of the model for unique positive-assortative and negative-assortative matching in risk attitudes. From this, I derive an intuitive falsifiability condition, discuss support for the theory in existing empirical work, and propose an experimental design to test the theory. Finally, I demonstrate the policy importance of understanding informal insurance as the risk-sharing achieved within the equilibrium network of partnerships, rather than within a single, isolated partnership. A hypothetical policy which red c aggregate risk is a strict Pareto improvement if the matching is unchanged, but can be se n to h the most risk-averse individuals and to exacerbate inequality when the endogenous network response is taken into account: the least risk-averse individuals abandon their "oles as informal insurers in favor of entrepreneurial partnerships. This results in an increase in the risk borne by the most risk-averse agents, who must now match with each other on low-return investments. The aim of my second chapter is to understand the impact of optimal provision of both risk and incentives on the choice of contracting partners. I study a risky setting where heterogeneously risk-averse employers and employees must match to be productive. They face a standard one-sided moral hazard problem: mean output increases in the noncontractible input of the employee. Better insurance comes at the cost of weaker incentives, and this tradeoff differs across partnerships of different risk compositions. I show that this heterogeneous tradeoff determines the equilibrium matching pattern, and focus on environments in which assortative matching is the unique equilibrium. This endogenous matching framework enables a concrete and rigorous analysis of the interaction between formal and informal insurance. In particular, I show that the introduction of formal insurance crowds out informal insurance, and may leave those individuals acting as informal insurers in the status quo strictly worse off. My third chapter is motivated by the observation that mechanisms which implement stable matchings often work well in practice, even in environments where individuals could gain by using simple strategies to game the mechanism. Why might individuals refrain from strategic manipulation, even when the complexity cost of manipulation is low? I study a two-sided, one-to-one matching problem with no side transfers, where utility is interdependent in the following intuitive sense: an individual's utility from a match depends not only on her preference ranking of her assigned partner, but also on that partner's ranking of her. I show that, in a world of complete information and linear interdependence, a unique stable matching emerges, and is attained by a modified Gale-Shapley deferred acceptance algorithm. As a result, a stable rule supports truthtelling as an equilibrium strategy. Hence, these results offer a new intuition for why stable matching mechanisms seem to work well in practice, despite their theoretic manipulability: individuals may value being liked. / by Xiao Yu Wang. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1997. / Includes bibliographical references (leaves 125-132). / by Renee Johanna S. Ruivivar. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2011. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 145-150). / In this thesis, I explore issues related to energy and environmental markets. In the first chapter, I examine the benefits of complementary bidding mechanisms used in electricity auctions. I develop a model of complex bidding and estimate its structural parameters in the context of the Spanish electricity market. I then perform a counterfactual analysis in which the original mechanism is compared to one in which complex bids are not allowed. I find that, while firms do exercise market power through complex bids, the positive coordination benefits of complex bidding dominate. In the second chapter, I explore the impacts of cap-and-trade in the Spanish electricity market, quantifying the rate at which firms internalized the costs of the emissions as well as the rate at which they passed it through. I find evidence that supports a full internalization rate at the firm-level, which results in a partial pass-through due to both demand and supply factors. Finally, in chapter 3, in joint work with Meredith Fowlie and Stephen Ryan, we explore the long run dynamic implications of subjecting an imperfectly competitive industry to market-based pollution regulation. Using two decades of panel data on the US Portland cement industry, we estimate a fully dynamic model of firms' strategic entry, exit, production, and investment decisions. We then use the model to simulate counterfactual outcomes under three general classes of allocation regimes: auctioning, grandfathering, and contingent updating. We find that the imposition of a carbon trading program would lead to large social losses at low to medium carbon prices. / by Mar Reguant Ridó. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2010. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 209-220). / This dissertation consists of four chapters analyzing the effects of heterogeneous and asymmetric information in macroeconomic and financial settings, with an emphasis on short-run fluctuations. Within these chapters, I study the implications these informational frictions may have for the behavior of firms and financial institutions over the business cycle and during crises episodes. The first chapter examines how collateral constraints on firm-level investment introduce a powerful two-way feedback between the financial market and the real economy. On one hand, real economic activity forms the basis for asset dividends. On the other hand, asset prices affect collateral value, which in turn determines the ability of firms to invest. In this chapter I show how this two-way feedback can generate significant expectations-driven fluctuations in asset prices and macroeconomic outcomes when information is dispersed. In particular, I study the implications of this two-way feedback within a micro-founded business-cycle economy in which agents are imperfectly, and heterogeneously, informed about the underlying economic fundamentals. I then show how tighter collateral constraints mitigate the impact of productivity shocks on equilibrium output and asset prices, but amplify the impact of "noise", by which I mean common errors in expectations. Noise can thus be an important source of asset-price volatility and business-cycle fluctuations when collateral constraints are tight. The second chapter is based on joint work with George-Marios Angeletos. In this chapter we investigate a real-business-cycle economy that features dispersed information about underlying aggregate productivity shocks, taste shocks, and-potentially-shocks to monopoly power. We show how the dispersion of information can (i) contribute to significant inertia in the response of macroeconomic outcomes to such shocks; (ii) induce a negative short-run response of employment to productivity shocks; (iii) imply that productivity shocks explain only a small fraction of high-frequency fluctuations; (iv) contribute to significant noise in the business cycle; (v) formalize a certain type of demand shocks within an RBC economy; and (vi) generate cyclical variation in observed Solow residuals and labor wedges. Importantly, none of these properties requires significant uncertainty about the underlying fundamentals: they rest on the heterogeneity of information and the strength of trade linkages in the economy, not the level of uncertainty. Finally, none of these properties are symptoms of inefficiency: apart from undoing monopoly distortions or providing the agents with more information, no policy intervention can improve upon the equilibrium allocations. The third chapter is also based on joint work with George-Marios Angeletos. This chapter investigates how incomplete information affects the response of prices to nominal shocks. Our baseline model is a variant of the Calvo model in which firms observe the underlying nominal shocks with noise. In this model, the response of prices is pinned down by three parameters: the precision of available information about the nominal shock; the frequency of price adjustment; and the degree of strategic complementarity in pricing decisions. This result synthesizes the broader lessons of the pertinent literature. However, this synthesis provides only a partial view of the role of incomplete information: once one allows for more general information structures than those used in previous work, one cannot quantify the degree of price inertia without additional information about the dynamics of higher-order beliefs, or of the agents' forecasts of inflation. We highlight this with three extensions of our baseline model, all of which break the tight connection between the precision of information and higher-order beliefs featured in previous work. Finally, the fourth chapter studies how predatory trading affects the ability of banks and large trading institutions to raise capital in times of temporary financial distress in an environment in which traders are asymmetrically informed about each others' balance sheets. Predatory trading is a strategy in which a trader can profit by trading against another trader's position, driving an otherwise solvent but distressed trader into insolvency. The predator, however, must be sufficiently informed of the distressed trader's balance sheet in order to exploit this position. I find that when a distressed trader is more informed than other traders about his own balances, searching for extra capital from lenders can become a signal of financial need, thereby opening the door for predatory trading and possible insolvency. Thus, a trader who would otherwise seek to recapitalize is reluctant to search for extra capital in the presence of potential predators. Predatory trading may therefore make it exceedingly difficult for banks and financial institutions to raise credit in times of temporary financial distress. / by Jennifer La'O. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2011. / Cataloged from PDF version of thesis. / Includes bibliographical references. / This dissertation consists of three essays. The first chapter is an empirical investigation of social change, looking at the Prohibition Era in the U.S. It explores how the implementation of policies affects the evolution of beliefs about their effects, giving rise to a feedback between preferences and policy choices. Using city-level data on law enforcement and crime, it estimates a structural model where crime outcomes are the result of Prohibition enforcement, and lead to changes in public opinion about Alcohol-related policies. Enforcement depends on moral views and beliefs, but only beliefs are shaped by the outcomes of past policies. The model can account for the variation in public opinion changes, and for the heterogeneous responses of enforcement and violence across cities. Its estimates are used to perform a series of counterfactual exercises. The second chapter is a theoretical investigation of entrenchment and encroachment of rulers. It studies the strategic interaction between competition and ratchet effect incentives in a coalition-formation game of incomplete information. Rulers require the support of a subset of politically powerful groups to remain in power. These have private information about their cost of providing political support. A ruler can attempt to exploit the competitive nature of the coalition formation game to induce revelation. Its ability to do so determines the extent of entrenchment and encroachment. By restricting attention to Markov Perfect Bayesian equilibria, the model shows that limited learning is possible, and that learning dynamics are shaped by an informational commitment problem arising when rulers are "too optimistic". In joint work with James Robinson, the final chapter is a comparative empirical study of the impact of Frontier availability on long-run development across the Americas. It calls into question the notion of American exceptionalism due to its Westward Frontier, first proposed by Frederick J. Turner. Almost every country in the Americas had a substantial Frontier, but its allocation varied due to differences in the quality of political institutions around the mid-19* century, making the effect of the Frontier conditional on political institutions at the time of Frontier expansion. The empirical evidence is consistent with this "conditional Turner thesis". / by Camilo Garcia-Jimeno. / Ph.D.