Massachusetts Institute of Technology. Dept. of Economics. Thesis. 1970. Ph.D. / Includes bibliographies. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2016. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 185-191). / The thesis consists of three essays on how macroeconomic policy can be an important determinant of risk premium and how variations in risk premium may affect macroeconomic policy. Unconventional monetary policy represents a main example of how the transmission of macroeconomic policy is mediated by movements in risk premium. In the first essay, I examine how unconventional monetary policy affects asset prices by reallocating risk in the economy. I consider an environment with heterogeneity in risk tolerance and limited asset market participation. Risk-tolerant investors take leveraged positions, exposing the economy to balance sheet recessions. Limited asset market participation implies the balance sheet of the central bank is non-neutral. Unconventional monetary policy reduces the risk premium and endogenous volatility. During balance sheet recessions, asset purchases boost investment and growth. In contrast, during normal times, the expectation of future interventions reduces growth. Leveraged institutions respond to the policy by reducing risk-taking relatively more than risk-averse investors. As risk concentration falls, the probability of negative tail-events is reduced, enhancing financial stability. An important determinant of entrepreneurial activity in developing countries is the amount of risk the entrepreneur must bear. The second essay, joint with Robert M. Townsend, analyzes the risk-taking behavior of entrepreneurs. Using data from a survey conducted in villages in Thailand, we document substantial heterogeneity in entrepreneurial activity. The fraction of net worth invested by entrepreneurs in risky activities decreases over the life cycle. Consumption-to-wealth ratio is U-shaped, being high for young and old entrepreneurs. We propose a model that captures both the life cycle patterns and limited idiosyncratic insurance observed in the Thai data. An expansion in idiosyncratic insurance will reduce the idiosyncratic risk premium, increasing the proportion of wealth invested in risky activities and aggregate output. However, as the return on the project falls, entrepreneurs accumulate less wealth, reducing their welfare in the long-run. The third essay studies the optimal response of fiscal policy to a risk premium shock when a country is in a currency union. In the context of an open economy New Keynesian model, I show that the government should not deviate from the optimal provision of public goods at an attempt to stabilize the economy. A consumption tax is used to lean against the wind and reduce the real interest rate in the presence of a positive risk premium shock. A VAT tax allows the government to independently influence the terms of trade. Optimal fiscal policy has the property of being revenue-generating. Therefore, there is not necessarily a trade off between stabilization policy and fiscal consolidation. / by Dejanir Henrique Silva. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2001. / "June 2001." / Includes bibliographical references (p. 112-120). / This thesis is a collection of essays on organizational economics and finance-related topics. Firms and individuals who sell opinions may bias their reports for either behavioral or strategic reasons. Chapter 1 proposes a new methodology for measuring these biases, particularly whether opinion producers under or over emphasize their private information, i.e. whether they herd or exaggerate their differences with the consensus. Applying the methodology to I/B/E/S analysts reveals that they do not herd as is often assumed, but rather they exaggerate their differences with the consensus by an average factor of about 2.4. Analysts also overweight their prior-period private information and thus under-update based on last period's forecast error; this under-updating helps explain the apparently conflicting over and under-reaction results of DeBondt and Thaler (1990) and Abarbanell and Bernhard (1992). A useful by-product of the methodology is a measure of the incremental information content of an analyst's forecasts. Using this measure reveals that analysts differ greatly in performance: the information content of the future forecasts of the top 10 percent of analysts is roughly six times that of the bottom 40 percent. / (cont.) Chapter 2 examines whether career concerns can create an incentive for opinion-producing agents to exaggerate. We find that they can, the reason being that high-ability agents have opinions that are more different from the consensus on average and potential clients will learn more quickly about how different an agent's opinions are from the consensus on average that about whether or not they are exaggerating. The model predicts that agents should exaggerate more when they are under-rated by their clients, when the realizations of the variables they are forecasting are expected to be especially noisy, and when they expect to make fewer future forecasts. We find that these predictions are consistent with the empirical data on equity analyst's earnings forecasts. In models by Fershtman and Judd (1987) and Sklivas (1987), firms competing in quantities benefit strategically from commiting to managerial incentives that are biased toward revenue maximization. Little empirical evidence has been produced in support of these models, and their assumption that incentive contracts are observable has been criticized as unrealistic. Chapter 3 proposes an alternative model in which firms competing in strategic substitutes commit to using less precise profit measures, which biases the optimal unobservable contract towards revenue maximization. This model performs better empirically. Firms that compete in strategic substitutes choose less precise profit measures across six different measures, and firms with less precise profit measures in turn have stock returns and thus managerial incentives that are driven ... / by Eric W. Zitzewitz. / Measuring herding and exaggeration by equity analysts -- Opinion-producing agents: career concerns and exaggeration -- A strategic rationale for imperfect profit measures. / Ph.D.

Thesis (S.M.)--Massachusetts Institute of Technology, Dept. of Economics, 2011. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 52-53). / Firms in the hard disk drive industry are continually engaging in R & D and improving the quality of their products. We explore various determinants of the product innovation incentives for firms concerned with both their static and expected future profitability. We estimate the observed innovation outcomes as a function of market condition variables which have significant impact on innovation decisions. In addition, we estimate logit utilities that describe the marginal willingness to pay for quality improvements. One aspect of utility is that the willingness to pay for faster access time to data may be initially low but increases over time. The firms' decisions to introduce faster access time are partly motivated by dynamic considerations. / by Xiaohua Sherry Wu. / S.M.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2008. / Page 151 blank. / Includes bibliographical references. / Chapter 1 examines whether immigrants gain a comparative advantage relative to natives in highly protected labor markets. This may be the case if immigrants, being new to the country, are less aware of employment protection regulations and less likely to claim their rights. I test this hypothesis drawing on evidence for the EU and on two natural experiments for Spain and Italy. The results suggest that stricter Employment Protection Legislation (EPL) does indeed benefit immigrants relative to natives. Stricter EPL is found to reduce employment and reduce hiring and firing rates for natives. By contrast, it has no effect on most immigrants and may even increase employment rates for those who have been in the country for a longer period. Chapter 2 is the product of joint work with Marcello Esteviio (IMF) and looks at the effect of the 35-hour workweek in France on wages, employment, dual job holdings and happiness. It explores the different timing of implementation of the shorter workweek in large and small firms to measure its causal effect. The results suggest that the reduction in hours did not succeed in increasing employment and generated a series of behavioural responses that are likely to have reduced welfare, as workers and firms tried to avoid the rigidities created by the reform. This suggests that the French government should increase the flexibility of workers and firms in setting hours of work. Chapter 3 is the product of joint work with Olivier Blanchard (MIT) and Francesco Giavazzi (UniversitA Commerciale Luigi Bocconi). Two main forces lie behind the large U.S. current account deficits: an increase in U.S. demand for foreign goods and an increase in foreign demand for U.S. assets. / (cont.) Both have contributed to steadily increasing current account deficits since the mid-1990s, accompanied by a real dollar appreciation until late 2001 and a real depreciation since. We develop a simple model of exchange rate and current account determination based on imperfect substitutability in goods and asset markets and use it to interpret the past and explore alternative future scenarios. We conclude that substantially more depreciation is to come against the yen, the renminbi, and the euro. / by Filipa Sá. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2017. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 120-123). / This dissertation consists of three essays in the economics of education. The first chapter uses Boston charter school admissions lotteries to estimate the effects of charter enrollment on special needs students' classification and achievement. Charter schools remove special needs classifications and move special education students into more inclusive classrooms at a rate over two times higher than traditional public schools. Despite this reduction in special needs services, charters increase special needs students' test scores, likelihood of meeting a high school graduation requirement, and likelihood of earning a state merit scholarship. Charters benefit even the most disadvantaged special needs students: those with the lowest test scores and those who receive the most services at the time of lottery. Non-experimental evidence suggests that the classification removal explains at most 26 percent of the achievement gains for special needs students and has no detrimental effect. The results show that special needs students can achieve gains without the traditional set of special needs services in the charter environment. The second chapter, coauthored with Sarah Cohodes and Chris Walters, studies whether schools that boost student outcomes can replicate their success at new campuses. We analyze a policy reform that allowed effective charter schools in Boston to replicate their school models at new locations. Estimates based on randomized admission lotteries show that replicate charter schools generate large achievement gains on par with those produced by their parent campuses. The average effectiveness of Boston's charter middle school sector increased after the reform despite a doubling of charter market share. The third chapter uses experimental evidence in two Boston charter schools to estimate the effect of a math and English Language Arts tablet educational program. I find that the personalized learning technology can substantially increase test scores, narrowing the math black-white achievement gap by up to 22% if implemented well. Correct implementation of technology matters: one study site had low technology usage and had noisy, null results. Students of varying ability experience similar effects suggesting that the targeting of student's learning gaps promotes gains. This paper demonstrates the ability of technology to enhance student learning if students spend enough time with the educational technology. More work is needed to identify optimal amount of time for learning programs and the relative effectiveness of different education technology. / by Elizabeth M. Setren. / 1. Special Education and English Language Learners in Boston Charter Schools: Impact and Classification -- 2. Can Successful Schools Replicate? Scaling Up Boston's Charter School Sector -- 3. Race to the Tablet? The Impact of Personalized Table Educational Programs. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 135-144). / State and local governments in the United States make up more than half of total government consumption and investment and almost 90 percent of total government employment. Despite these facts, the debates surrounding fiscal policy during business cycles have usually been limited to the actions of the federal government. This is in large part due to two reasons. First, there are 50 state governments and more than 60,000 local governments, making coordinated responses very difficult. Second, because state and local governments are bound by balanced budget rules, their hands are tied, to some degree, in their ability to enact countercyclical spending policies. However, their dramatic expenditure and employment cuts in the recent recession have made it increasingly clear how much their actions affect the economy as a whole and have motivated new research surrounding their budget mechanisms and the broader impacts of their fiscal policy. This dissertation consists of three chapters, each seeking to illuminate a specific issue within this area of research. In the first chapter, I examine how the impact of federal intergovernmental grants on local economies may be mediated by public sector unions. In the second chapter, I explore the impact of revenue structure on city government revenue and expenditure fluctuations. Finally, the third chapter (co-authored with Gabriel Chodorow- Reich, Zachary Liscow, and William Woolston) estimates the fiscal multiplier associated with federal transfers to state governments in the recent recession. / by Laura Feiveson. / Ph.D.

Thesis (Ph.D.)--Massachusetts Institute of Technology, Dept. of Economics, 2002. / Includes bibliographical references (p. 120-124). / This dissertation consists of three essays on the local regulation of housing supply and its influence on house price volatility. I begin by describing the local supply-side dynamics of housing price and stock in each of 47 U.S. metropolitan area housing markets using a unique, market-level panel dataset. The data are analyzed with a conditional vector-autoregression, which characterizes the dynamic responses of price and stock to an increase in housing demand caused by a shift in employment. These response time-paths are used to create measures of short-, medium- and long-run supply elasticities. Both the time-paths and the implied elasticities vary widely. I use several area characteristics to explain the variation in the supply elasticity measures across metropolitan areas. The results suggest that governments with a greater incentive to regulate housing have a slower house-price response. This directly contradicts the predictions of the existing land-use literature. In order to explain the result, William C. Wheaton and I formalize a general equilibrium theory of a housing market whose local governments determine house price by regulating their supplies of land. The regulatory decisions are made by current residents who already own housing, but the impact of these decisions on prices is determined by new entrants who must purchase housing. The choice of how much to regulate is shown to vary by town size, existing town density, and the amount of open land currently available for development. This is broadly consistent with the results of recent empirical research. / (cont.) I also find that the predictions of this theory are directly borne out in data on land-use restrictions across much of Massachusetts. Two types of residential land-use regulation are considered: regulation that restricts the share of land on which housing can be built, and regulation that restricts housing density on a given plot of land. I find evidence suggesting that the two types of regulation may enter the optimization problem of Massachusetts towns very differently, and that towns may regulate new housing more strictly than they did old housing. / by Bengte Evenson. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2010. / Page 173 blank. Cataloged from PDF version of thesis. / Includes bibliographical references. / This thesis is a collection of three independent essays on the causes and consequences of local elections in non-democratic regimes. The first essay examines the political consequences of local elections on the first democratic election after the fall of an autocratic regime. My theoretical analysis highlights that officials that were appointed by upper levels of government have a stronger incentive to continue to use local patronage networks to signal their alignment to upper levels of government, in order to protect their jobs. Therefore, if the previous dictator's party has a substantial probability of winning the election, appointed leaders will promote their electoral chances, which could become an impediment for the process of democratic consolidation. In contrast, elected local officials have a weaker incentive to signal their political leanings since their continuity in their positions does not depend on changes in upper levels of government. I provide evidence from the first democratic election in Indonesia after the fall of Suharto that corroborates the implications of the model. The second essay evaluates the economic and social impact of the introduction of local elections rural China during the last three decades. Our empirical findings highlight that elections led to a substantial reduction in income and income growth, decreased within village inequality and relaxed the enforcement of unpopular policies. These effects seem to be driven by a redistribution of assets from firms to households. We provide a simple model to illustrate how these findings can theoretically be a consequence of the shift in the accountability of local leaders, from the central government towards villagers. The third essay investigates the determinants of the existence of local elections in nondemocratic regimes. I develop a theoretical framework to explore the trade-offs for a dictator in the decision to allow local elections. The model highlights that, if the dictator values the competence of local politicians and voters have intermediate costs of military intervention, the dictator prefers local elections over an appointment system. In this scenario, elections aggregate voters' private information on competence efficiently and the ex-post alignment of voters' and dictator's preferences is maximized. / by Mónica Martínez Bravo. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2014. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 194-206). / The first chapter consists of my job-market paper. The foreclosure rate of sub-prime mortgages increased markedly across 2003-2007 borrower cohorts-sub-prime mortgages originated in 2006- 2007 were roughly three times more likely to default within three years of origination than mortgages originated in 2003-2004. Many have argued that this surge in sub-prime defaults represents a deterioration in sub-prime lending standards over time. I quantify the importance of an alternative hypothesis: later cohorts defaulted at higher rates in large part because house price declines left them more likely to have negative equity. Using loan-level data, I find that changing borrower and loan characteristics explain approximately 30% of the difference in cohort default rates, with almost of all of the remaining heterogeneity across cohorts attributable to the price cycle. To account for the endogeneity of prices, I employ a nonlinear instrumental-variables approach that instruments for house price changes with long-run regional variation in house-price cyclicality. Control function results confirm that the relationship between price declines and defaults is causal and explains the majority of the disparity in cohort performance. I conclude that if 2006 borrowers had faced the same prices the average 2003 borrower did, their annual default rate would have dropped from 12% to 5.6%. The second chapter is joint with David Autor and Parag Pathak. Externalities from the attributes and actions of neighborhood residents onto the value of surrounding properties and neighborhoods are central to the theory of urban economics and the development of efficient housing policy. This paper measures the capitalization of housing market externalities into residential housing values by studying the sudden and largely unanticipated 1995 elimination of stringent rent controls in Cambridge, Massachusetts, which had previously muted landlords' incentives to invest in their properties and altered the assignment of residents to locations. Pooling administrative data on the universe of assessed values and transacted prices of all Cambridge residential properties between 1988 and 2005, we find that rent decontrol genrated substantial, robust price appreciation at decontrolled units and nearby never-controlled units, accounting for an estimated 30 percent of the $7.8 billion in Cambridge residential property appreciation during this period. The majority of this contribution is due to induced appreciation of never-controlled properties, while residential investments can explain only a small fraction of the total. The third chapter is joint with Denis Chetverikov and Bradley Larsen. We present a methodology for estimating the distributional effects of an endogenous treatment that varies at the group level when there are group-level unobservables, a quantile extension of Hausman and Taylor (1981). Standard quantile regression techniques are inconsistent in this setting, even if the treatment is exogenous. Using the Bahadur representation of quantile estimators, we derive weak conditions on the growth of the number of observations per group that are sufficient for consistency and asymptotic normality. Simulations confirm the superiority of this grouped instrumental variables quantile regression estimator to standard quantile regression. An empirical application finds that low-wage earners in the U.S. from 1990-2007 were significantly more affected by increased Chinese import competition than high-wage earners. We also illustrate the usefulness of the estimation approach with additional empirical examples from urban economics, labor, regulation, and empirical auctions. Chapter 1 Keywords: Mortgage Finance, Sub-prime Lending, Foreclosure Crisis, Negative Equity Chapter. 2 Keywords: Urban Economics, Residential Externalities, Rent Control, Price Regulations. Chapter 3 Keywords: Quantile Regression, Instrumental Variables, Panel Data, Wage Inequality, Import Competition. Chapter 1 JEL Classification: GOl, G21, R31, R38. Chapter 2 JEL Classification: D61, H23, R23, R31, R32, R38 Chapter 3 JEL. Classification: C21, C31, C33, C36, J30. / by Christopher John Palmer. / Ph. D.