Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2005. / Includes bibliographical references. / This thesis is a collection of three essays in international trade. Chapter 1 explains how firm heterogeneity and market structure can distort the geography of international trade. By considering only the intensive margin of trade, Krugman (1980) predicts that a higher elasticity of substitution between goods magnifies the impact of trade barriers on trade flows. In this chapter, I introduce firm heterogeneity in a simple model of international trade. I prove that the extensive margin, the number of exporters, and intensive margin, the exports per firm, are affected by the elasticity of substitution in exact opposite directions. In sectors with a low elasticity of substitution, the extensive margin is highly sensitive to trade barriers, compared to the intensive margin, and the reverse holds true in sectors with a high elasticity. The extensive margin always dominates, and the predictions of the Krugman model with representative firms are overturned: the impact of trade barriers on trade flows is dampened by the elasticity of substitution, and not magnified. To test the predictions of the model, I estimate gravity equations at the sectoral level. The estimated elasticities of trade flows with respect to trade barriers are systematically distorted by the degree of firm heterogeneity and by market structure. / (cont.) These distortions are consistent with the predictions of the model with heterogeneous firms, and reject those of the model with representative firms. Chapter 2 demonstrates the importance of liquidity constraints in international trade. If firms must pay some entry cost in order to access foreign markets, and if they face liquidity constraints to finance these costs, only those firms that have sufficient liquidity are able to export. A set of firms could profitably export, but they are prevented from doing so because they lack sufficient liquidity. More productive firms that generate large liquidity from their domestic sales, and wealthier firms that inherit a large amount of liquidity, are more likely to export. This model predicts that the scarcer the available liquidity and the more unequal the distribution of liquidity among firms, the lower are total exports. I also offer a potential explanation for the apparent lack of sensitivity of exports to exchange rate fluctuations. When the exchange rate appreciates, existing exporters lose competitiveness abroad, and are forced to reduce their exports. At the same time, the value of domestic assets owned by potential exporters increases. Some liquidity constrained firms start exporting. This dampens the negative competitiveness impact of a currency appreciation. Under some circumstances, it may actually reverse it altogether and increase aggregate exports. / (cont.) This model provides some argument for competitive revaluations. In chapter 3, I build a dynamic model of trade with heterogeneous firms which extends the work of Melitz (2003). As countries open up to trade, they will experience a productivity overshooting. Aggregate productivity increases in the long run, but it increases even more so in the short run. When trade opens up, there are too many firms, inherited from the autarky era. The most productive foreign firms enter the domestic market. Competition is fierce. The least productive firms that are no more profitable are forced to stop production. Not only do the most productive firms increase their size because they export, but the least productive firms stop producing altogether. Aggregate productivity soars. As time goes by, firms start to exit because of age. Competition softens. Some less productive firms resume production. This pulls down aggregate productivity. The slower the exit of firms, the larger this overshooting phenomenon. This model also predicts that the price compression that accompanies trade opening may be dampened in the long run. It also predicts that inequalities should increase at the time when a country opens up to trade, and then gradually recede in the long run. / by Thomas Chaney. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1997. / Includes bibliographical references (p. 122-126). / by Giovanni Dell'Ariccia. / Ph.D.

Thesis (Ph.D.)--Massachusetts Institute of Technology, Dept. of Economics, 1984. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. / Vita. / Bibliography: leaves 275-281. / by Robert Alan Feldman. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2005. / Includes bibliographical references. / In these papers I examine efficient financial contracting when incentive problems play a significant role. In the first chapter (joint with Z. Fluck and S. Myers) we focus on the venture capital industry. We build a two-stage model capturing moral hazard, effort provision, and hold-up problems between entrepreneurs and investors. Across multiple financing scenarios we solve numerically for optimal decision policies and NPV, finding significant value losses from first-best. A commitment to competitive syndicate financing increases effort and NPV and benefits all parties. However, syndicate financing raises potential information problems, and the fixed-fraction participation rule of Admati-Pfleiderer (1994) fails with endogenous effort. We find that debt financing is often less efficient than equity financing, for while it improves effort incentives it worsens hold-up and debt overhang problems in later-stage financing. In the next chapter I turn to the collateralized debt obligation or "CDO" market. CDOs are closed-end, actively-managed, highly leveraged bond funds whose managers typically receive subordinated compensation packages. I develop a model of manager trading behavior and quantify under-investment and asset substitution problems, calibrating to market parameters. / (cont.) Compared to prior studies, I find similar value losses to senior investors and significantly higher increases in debt default risk and spread costs. However, for even extremely conservative effort assumptions, the ex-ante benefit of greater effort incentives outweighs risk-shifting costs, rationalizing observed contracts. I also analyze the ability of various payout policies and trading covenants to curtail risk-shifting. Excess interest diversions, contingent trading limits, and coverage test "haircuts" of lower-priced assets are effective measures and increase allowable leverage and equity returns. In the final chapter I examine the empirical relationship between CDO trading, manager compensation, and fund performance from 2001-2004. Using a large panel data set, I find a statistically significant relationship between trades which add volatility to the portfolio and the level of subordinated manager compensation. Worse deal performance increases risk-shifting behavior so long as subordinate investors are still in-the-money. Tendencies to group trades and the effect of managerial reputation are also considered. / by Kedran R. Garrison. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2011. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 140-150). / This dissertation consists of three essays on the relation between investors' trading horizon and stock prices. The first chapter explores the theoretical relation between the horizon of traders and the negative externality generated by their activity on the information revealed by stock prices. The last two chapters focus on the empirical relation between institutional investors trading frequency and stock prices behaviour. The first chapter examines how short term trading impacts the aggregation of information in financial markets. I develop a model where short-term traders, in an attempt to learn about the average beliefs of future market participants, make the price relatively more noisy. This typically introduces a negative informational externality on long-term investors. I show that (i) as the horizon of the informed traders decreases, the price becomes relatively less precise; (ii) an inflow of informed traders in the market can decrease the informativeness of the price when the traders have a relatively short horizon or the market is expected to be thin in the future; (iii) finally, as rational informed short-term traders have access to an extra source of information about the future price, they end up creating more noise and a decrease in the informativeness of the price might result. Thus, paradoxically, more informed trading could lead to a less informative price. Among scholars, practitioners and policy makers, investor short-termism and high frequency trading have been associated with excess volatility in financial markets and with a disconnect between asset prices and fundamentals. Motivated by this observation, in Chapter 2 I construct a novel measure of the intrinsic frequency of trading for each of the large US institutional investors (13-F institutions) using Thomson-Reuters Institutional Holdings quarterly data for the period 1980-2005. This measure controls for the market and portfolio characteristics and identifies an investor-specific fixed effect in the frequency of trading. I then study how the composition of these fixed effects impacts stock price behavior through their forecasting role in explaining the return and the return on equity (cash flow of a company) in the short run as well as the long run. I show that (i) the securities in which investors exhibit higher intrinsic trading frequency exhibit higher volatility, but (ii) this volatility is mainly driven by the cashflow component of the security prices. Further, (iii) the prices of the securities held by investors with a higher intrinsic trading frequency do not forecast the long-run return as opposed to the securities held by investors with a lower intrinsic trading frequency. As such, the prices mainly respond to the long-run return on equity. Overall, the results challenge the view that higher frequency of trading-a commonly used proxy for investor short-termnism-causes a disconnect between asset prices and fundamentals. Finally, in Chapter 3 (co-auhtored with Fernando Duarte) we show a novel relation between the institutional investors' intrinsic trading frequency-a commonly used proxy for the investors's investment horizon- and the cross-section of stock returns. We show that the 20$ of stocks with the lowest trading frequency earn mean returns that are 6 percentage points per year higher than the 20% of stocks that have the highest trading frequency. The magnitude and predictability of these returns persist or even increase when risk-adjusted by common indicators of systematic risks such as the Fama-French, liquidity or momentum factors. Our results show that the characteristics of stockholders affect expected returns of the very securities they hold, supporting the view that heterogeneity among investors is an important dimension of asset prices. / by Sahar Parsa. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2006. / Includes bibliographical references. / This thesis is a collection of three essays on international trade and economic growth. Chapter 1 analyzes the dynamic gains from trade in a Hecksher-Ohlin economy with endogenous factor accumulation. In a framework where heterogeneous workers make educational decisions in the presence of complete markets, I first show how convergence of factor rewards induces divergence of factor abundance and levels of income. When heterogeneous workers invest in schooling, higher type agents earn a surplus from their investment. By affecting educational decisions, trade influences the international distribution of this surplus. The latter effect tends to benefit richer countries disproportionately, leading to divergence of welfare when markets are opened to trade. The shift of investments to initially rich countries also leads to a global increase of the average skill premium despite a decrease of the price of skill intensive goods. I next examine whether the factor content of trade indeed does affect domestic education decisions. To establish a causal relation, I instrument for the factors embodied in actual imports by the geographic component of trade. The constructed measures of geographical proximity to skilled and unskilled labor have significant effects on domestic educational decisions. / (cont.) Countries that tend to be close to international supply of skilled labor have lower levels of advanced education, while the reverse is true for countries that are close to labor abundant nations. A one standard deviation difference in geographic proximity to skilled labor is associated with a difference' of about 2/3 of a year of average higher education. Chapter 2 examines why movements of relative costs brought about by exchange rate fluctuations are passed on to customers only slowly, and never to a full extent. We first develop a perfectly competitive economy featuring heterogeneity of both good qualities and of consumer valuations. In equilibrium, high valuation consumers and high quality firms are matched. The relative scarcity of different qualities leads to pricing-to-market and markups that are determined by the local toughness of competition. Our production setup features trade in intermediate goods, local assembly that is subject to decreasing returns and fixed costs of market entry. In every export market, firm entry and size decisions are determined by how local prices compare to the cost of production at home. We next analyze how changes in the real exchange rate are transmitted internationally. / (cont.) In the short run, the set of firms active in the export sector is fixed, but each firm accommodates changes in the exchange rate by adjusting the quantity of its exports. Due to this response of export volume to the relative cost of production, market toughness counteracts exchange rate movements, leading to partial pass-through in the short run. Due to the presence of fixed costs of market access, in the long run also the set of firms that are actively exporting reacts to movements of the real exchange rate, with two associated consequences. Firstly, pass-through is larger than in the short run because long run export volume responds to relative costs due to changes in both the average firm size and in the number of firms. Secondly, the response of the market entry decision to changes in the relative cost of production affects only low quality firms, which fetch a relatively low price for their output. Exchange rate movements thus change the composition of actively exporting firms, with the consequence that aggregate price indexes overstate the actual extent of pass-through in the long run. Chapter 3 further examines the seminal work of Acemoglu et al. (2001) on the effects of settler mortality on colonization policies during early imperialism. / (cont.) The authors build a strong case for the importance of institutions as the primary force of economic development. However, because their empirical analysis is limited to former colonies, they cannot directly distinguish their theory from the rivaling view that a country's disease environment has direct effects on economic prosperity and institutions. In this paper, using either additional historical sources or a model of the geographic determinants of disease, I first construct two measures of mortality rates including up to 36 countries that have not been colonized. I then show that mortality did affect institutional development in former colonies but not in the rest of the sample. This can only be rationalized in the context of the colonial origins theory of Acemoglu et al. Turning to disentanlge the relation between institutions and income, I sometimes find that disease environment influences income also directly and correspondingly, that institutions are somewhat less important for prosperity in my specifications than when working with a sample composed of only former colonies. Incorporating these findings, I estimate that institutions are the major determinant of long run prosperity and can explain about 50% of the observed variation of current income levels, while the direct effects of disease environment can account for about 15%. / by Raphael Anton Maximilian Peter Gabriel Auer. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2008. / Includes bibliographical references. / Many ethnically diverse countries have policies that encourage integration across ethnic groups. This dissertation investigates the impact and welfare implications of a residential desegregation policy in Singapore, the ethnic housing quotas. I employ both reduced form and structural form methods. In Chapter 1, I use regression discontinuity analysis to estimate the impact of the quota on prices, quantity and quality of units sold. Because an individual's decision on where to locate affects ethnic distributions in aggregate, these externalities suggest that any decentralized equilibrium may not be optimal. To find the first best, just using housing prices is not sufficient because prices do not internalize the externalities. We need to know the shapes of household's preferences. In chapter 2, I use a structural demand estimation framework to estimate taste for living with own ethnic group neighbors. Finally, using these preference estimates, I simulate the first best equilibrium and compare it to the existing equilibrium with quotas.I find that all quotas have significant negative impact on the proportion of units sold at the quota cutoffs. Malay-constrained units are 5% cheaper perhaps because the units sold are also of lower quality. The impact on the price and quality of Chinese- and Indian-constrained units are opposite. Chinese-constrained units are 7% more expensive even though the units sold are of significantly worse quality. Indian-constrained units are 2% cheaper even though the units sold are of a higher quality. / (cont.) Using the structural estimation framework in Chapter 2, I find that all groups have strong preferences to live with at least some other members of their ethnic group. However, the shapes of preferences differ significantly across groups. The majority (the Chinese) exhibit preferences that are inverted U-shaped so that after a neighborhood reaches 43% Chinese, they would rather add a new neighbor from the other group. I find similar evidence for the Indians but not for the Malays. My simulations show that the first best has fewer Chinese- and Indian-segregated neighborhoods but more Malay-segregated neighborhoods compared to the existing equilibrium with the quotas. Comparing data from 3 segregated towns before the quota, I find that after 10 years since the introduction of the quota, the decentralized equilibrium had moved the Malay and Indian proportions significantly closer to first best. / by Maisy Wong. / Ph.D.

Thesis (Ph.D.) Massachusetts Institute of Technology. Dept. of Economics, 1949. / Vita. / Bibliography: leaves 441-447. / by George Pratt Shultz. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2015. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 94-97). / This thesis is a collection of three chapters in empirical development economics. The first chapter investigates the impact of the dramatic growth of the fresh-cut flower industry in Colombia on different forms of violence. My empirical strategy exploits variation in the geo-climatic suitability for flowers to understand how export shocks affect violence at the municipality level. I show that flower shocks lead to a differential reduction in unorganized violent crime (homicide rates) in the suitable municipalities, but not to any changes in participation in guerrilla warfare. In contrast, increases in the coffee price are associated with a decrease in civil conflict (as in Dube and Vargas, 2013) but, as I find in this paper, an increase in homicide. I propose a household model where households both participate in and indirectly consume criminal activities (organized and unorganized) and women have different preferences than men, which can explain these asymmetric results. The second chapter studies the relationship between the arrival of employment opportunities in the fresh-cut flower industry and investments in human capital in Colombia. I study how schooling completion and grade enrollment respond to local employment shocks. I show that blooming periods for the flower industry are associated with a differential increase in the probability that a student will graduate from secondary schooling. I do not find evidence of an asymmetrical impact by gender. My results remain robust to different forms of shock aggregation, and accounting for differential trends by municipality characteristics. The third and final chapter uses the fresh-cut flower industry to understand the impact that the access to the export jobs had on the lives of Colombian women. My goal is to understand how flower shocks affect the timing of fertility and marriage decisions for women exposed to them during their adolescence. I find that girls exposed to the flower shocks are more likely to have initiated sexual activity, to be pregnant and married at younger ages. The results remain robust to different forms of shock aggregation, differential trends by municipality characteristics, accounting for migration, and geographically restricting the sample to the departments that concentrate flower production. / by Sara Hernández. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1996. / Includes bibliographical references (p. 283-292). / by Pierre-Olivier Gourinchas. / Ph.D.