Search Results
Working Paper
Unemployment Insurance when the Wealth Distribution Matters
This paper analyzes the welfare effects of unemployment insurance in a life-cycle model, focusing on partial vs. general equilibrium effects. We study an OLG economy with learning-by-doing human capital accumulation. Agents can be employed or unemployed. While unemployed agents costly search for new jobs. We calibrate the model to the U.S. economy, and find that replacement ratio and potential duration are close to the current one. But, in contrast with the previous literature, we find that the optimal policies under general and partial equilibrium are almost the same. Through a series of ...
Journal Article
Inefficiency in a Simple Model of Production and Bilateral Trade
We study a simple model of over-the-counter trade with production. We characterize the equilibrium, and we show that the equilibrium is always inefficient, independent of how the trade surplus is split among trade participants. We argue that this is due to a double hold-up problem that it is at the core of models used to study trade in over-the-counter markets. Finally, we show an example, which we interpret as a limiting case of the general model where the inefficiency vanishes.
Briefing
Information and Core-Periphery Structure in Over-the-Counter Markets
An over-the-counter (OTC) market is a market where investors trade any kind of asset without a central exchange. OTC markets can be quite large. For example, the OTC market for credit default swaps (CDS) exhibit a quarterly trade volume of over $2 trillion. A prevalent feature of most OTC markets — and in particular for the CDS OTC market — is that the trading network of market participants exhibit a core-periphery structure.
Briefing
Diverging Trends in Market Concentration
Researchers at the University of Chicago and the Richmond Fed uncover a paradoxical trend of rising national market concentration and falling local concentration across major economic sectors. Top firms — often thought to displace local businesses — are found to instead accelerate this divergence by enhancing (rather than stifling) local competition upon entry. This challenges prevailing narratives that top firms wield the market power to negatively impact consumer welfare by geographically expanding.
Working Paper
On the distribution of college dropouts: household wealth and uninsurable idiosyncratic risk
This paper presents a dynamic model of the decision to pursue a college education in which students face uncertainty about their future income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. After students matriculate and start taking exams, they reevaluate their expectations about succeeding in college and may find it optimal to drop out and join the workforce without completing an undergraduate degree. The model shows that, in accordance with the data, poorer students are less likely to graduate and are more apt to drop out earlier than are ...
Working Paper
Sectoral Development Multipliers
How should industrial policies be directed to reduce distortions and foster economic development? We study this question in a multi-sector model with technology adoption, where the production of goods and modern technologies features rich network structures. We provide simple formulas for the sectoral policy multipliers, and provide insights regarding the power of alternative policy instruments. We devise a simple procedure to estimate the model parameters and the distribution of technologies across sectors, which we apply to Indian data. We find that technology adoption greatly amplifies the ...
Briefing
Are Markets Becoming Less Competitive?
National markets in many U.S. industries seem to be increasingly dominated by large companies. Some policymakers have argued that this growing market concentration is a sign of weakening competition, but concentration by itself does not necessarily translate into market power. It may be too soon to reach a decisive conclusion about whether market power, not simply market concentration, is on the rise.
Working Paper
Large and Small Sellers: A Theory of Equilibrium Price Dispersion with Sequential Search
The paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers. Buyers search sequentially for sellers but do not meet every seller with the same probability. Specifically, a fraction of the buyers' meetings lead to one particular large seller, while the remaining meetings lead to one of a continuum of small sellers. In this environment, the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller. The large seller would like to price the small sellers out of the ...
Journal Article
The Dropout Option in a Simple Model of College Education
We present a simple dynamic model of education where students are uncertain about their ability to accumulate human capital in college. While enrolled in college, students are faced with exams that motivate them to update their beliefs. The process of belief-updating implies that some students will optimally choose to drop out. The model that we build is highly tractable and allows for close-form solutions for many objects of interest, so that calibrating the model is a straightforward exercise. We use a calibrated version of the model to gauge the importance of the dropout option in shaping ...
Working Paper
Relative price dispersion: evidence and theory
REVISED: 8/1/18: We use a large data set on retail pricing to document that a sizable portion of the cross-sectional variation in the price at which the same good trades in the same period and in the same market is due to the fact that stores that are, on average, equally expensive set persistently different prices for the same good. We refer to this phenomenon as relative price dispersion. We argue that relative price dispersion stems from sellers? attempts to discriminate between high-valuation buyers who need to make all of their purchases in the same store and low-valuation buyers who are ...