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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
An Information-Based Theory of Financial Intermediation
We advance a theory of how private information and heterogeneous screening ability across market participants shapes trade in decentralized asset markets. We solve for the equilibrium market structure and show that the investors who intermediate trade the most and interact with the largest set of counterparties must have the highest screening ability. That is, the primary intermediaries are those with superior information?screening experts. We provide empirical support for the model?s predictions using transaction-level micro data and information disclosure requirements. Finally, we study the ...
Briefing
Why Don't Low-Income Countries Adopt More Productive Technologies?
Researchers at UCLA, the Richmond Fed and Washington University in St. Louis have developed a theory of economic development in which complementarity in firms' technology-adoption decisions can substantially amplify the negative impacts of distortions in the economy and play an important role in explaining income differences across countries. By integrating theories that separately emphasize the roles of coordination failures and distortions, their unified framework shows that reducing distortions within "big push" regions could unleash massive economic growth.
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
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 ...
Journal Article
Price Dispersion When Stores Sell Multiple Goods
A notable feature of most markets is that firms are multiproduct, in the sense that they offer for sale more than one single type of good. In this paper, I discuss a recent paper, Kaplan et al. (2016), that explores both empirically and theoretically price dispersion in a multiproduct setting. I discuss, with some detail, their empirical strategy and main empirical findings: a big part of price dispersion for a good in an area comes from stores with the same overall price level pricing individual goods in persistently different ways. I then go over the simple model proposed by the authors ...
Working Paper
Private Information in Over-the-Counter Markets
We study trading in over-the-counter (OTC) markets where agents have heterogeneous and private valuations for assets. We develop a quantitative model in which assets are issued through a primary market and then traded in a secondary OTC market. Then we use data on the US municipal bond market to calibrate the model. We find that the effects of private information are large, reducing asset supply by 20%, trade volume by 80%, and aggregate welfare by 8%. Using the model, we identify two channels through which the information friction harms the economy. First, the distribution of the existing ...