Economics Theses and Dissertations

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    An Empirical Analysis of the Determinants of Initial Occupational Choice by Male High School Graduates
    (1986) Cox, Donald Francis; Brechling, Frank; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, MD)
    This dissertation consisted of an empirical analysis of the determinants or initial occupational choice by male high school graduates. The approach used was based on the theory of random utility. According to this approach, the individual selects a particular outcome from a set of possible outcomes based on both observed and unobserved characteristics of the individual and the particular possible outcome. In this analysis, the occupational choice set contained three possible outcomes. These possibilities were civilian sector employment, military service and college enrollment. For empirical analysis, a sample of 1,748 male high school graduates was drawn from the National Longitudinal Survey of Youths (1979-1981). The empirical model consisted of a mixed discrete/continuous simultaneous 4 equation system. Three estimation strategies were used. The first was a sample two stage logit/ordinary least squares procedure. The second was a modified two stage logit/ordinary least squares procedure that corrected for self-selectivity bias. the third strategy consisted of a modified two stage logit/ordinary least squares procedure that corrected for both self-selectivity and choice-based sampling bias. The estimation results indicate that the decision to enlist is most sensitive to the net income of the individual's family and the predicted civilian sector wage. The military experience of the individual's father and the desire to acquire additional training are also important in this decision. In addition, the differences in the estimates across the three estimation procedures illustrate the importance of correcting for sample biases.
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    Essays in the Economics of Immigration
    (2023) Soriano, John Joseph Sanchez; Hellerstein, Judith K; Pope, Nolan G; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Chapter 1 sets the stage for Chapters 2 and 3, which involves the empirical analyses of the effects of two prominent immigration policies: Deferred Action for Childhood Arrivals (DACA) and the Immigration Reform and Control Act (IRCA). This chapter begins with a review of the history of modern US immigration policy and relevant empirical evidence regarding it. It then focuses on three special topics: immigration and labor markets, immigration and crime, and the effects of enforcement policy. These topics are chosen for their contextual relevance for DACA and IRCA, as well as for marriage. Chapter 2 examines the impact of Deferred Action on Childhood Arrivals (DACA) on the marriage outcomes of its recipients. DACA, an immigration policy introduced by President Barack Obama in 2012, provides temporary benefits to unauthorized immigrants who arrived in the US as children. By analyzing data from the American Community Survey (ACS), the study examines the effects of DACA eligibility on the probability of being married and the types of individuals DACA recipients marry. The findings suggest that DACA eligibility increased the likelihood of marriage by approximately 2 percentage points, with deportation relief being a key driver for women and work authorization playing a more prominent role for men. The analysis also reveals that DACA recipients are more inclined to marry US natives, emphasizing the desire for assimilation, and tend to choose spouses who are fluent in English, indicating the influence of DACA on language-related assimilation. Chapter 3 investigates the impact of the legalization provision of the Immigration Reform and Control Act of 1986 (IRCA) on marriage rates. The IRCA offered a pathway to citizenship for unauthorized immigrants. Using data on unauthorized immigrants that were legalized under the IRCA from the Legalized Population Survey (LPS) and a comparison group of US natives from the National Longitudinal Survey of Youth (NLSY79), the study implements an individual fixed effects strategy to estimate the changes in marriage rates as a result of the IRCA legalization. The findings reveal a statistically and economically significant increase in marriage rates for both men and women following IRCA legalization. Men experienced a 6.51 percentage point increase, while women saw an 8.29 percentage point increase. Unlike the effects observed in Chapter 2 for DACA, the permanent nature of the IRCA contributed to a stronger impact on marriage rates. The study explores potential mechanisms but finds inconclusive evidence regarding labor market outcomes and education as drivers of the marriage effect resulting from immigration liberalization.
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    On Terrorist Attacks and Estimation Methods
    (2023) Macario, Pablo; Prucha, Ingmar R; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    In my thesis I propose a theoretical model of terrorist attacks and anestimation strategy which I compare to existing methods in the literature. The modeling approach was designed with terrorism in mind, but can be applied to other discrete dynamic decision processes with a latent component and a random payoff variable that is measured when the agent exits a state of waiting. Chapter 1 briefly describes the structure of the thesis. Chapter 2 provides a literature review of empirical studies of terrorist attacks. The primary focus is the series hazard model that estimates the effect of policy interventions on the risk of terrorist attacks. Recent contributions include LaFree et al. (2009), Dugan (2011), Carson (2014) Argomaniz and Vidal-Diez (2015), and Carson (2017). A major limitation of the series hazard approach is that it is unable to evaluate the impact of a policy intervention on the outcomes of attacks (e.g., the number of fatalities) even if these are measured during each event. Chapter 3 introduces the sequence hazard model of a terrorist groupdeciding when to attack. The model links the outcome of terrorist attacks to the choice of when to attack by taking the amount of time elapsed since the last attack as an input into the planning of the next attack. The agent trades off the desire to improve their attack against the risk that their plans are sabotaged before they are able to carry them out. The sequence hazard model is dynamic because agents take into account the potential size of future attacks when deciding whether or not to attack today. As a consequence, the hazard implied by the sequence approach is non-proportional in time. This distinguishes the sequence hazard model from the proportional hazard assumed by the series (Cox) approach. The sequence model implies a data generating process for attack outcomes that takes into accountthe probability the agent attacks. Chapter 3 derives the implied mathematical expectation and variance of attack outcomes which allows researchers to extend the notion of deterrence to allow for the possibility that counterterrorist policies that reduce the frequency of attacks, but increase the expected severity of attacks that do take place. Two types of attack outcomes are considered, a mixed Poisson-beta model for the number of casualties and a mixed Bernoulli-beta model for attack success or failure. Chapter 4 presents a Monte Carlo study demonstrating the validity ofestimating the sequence hazard model by maximum likelihood. In contrast, when the underlying data are generated according to the simple behavioral model presented in Chapter 3, the series hazard fails to estimate the true effect of a policy intervention on the risk of attacks. Moreover, the standard tests fail to reject the null hypothesis that the data are generated according to a proportional model. The simulation implies that if planning time and uncertainty over attack outcomes are important elements in terrorist decision making, then methods of policy evaluation based on the assumption of proportionality may not be appropriate. In contrast, by modeling both the timing of attacks as well as their size, the sequence hazard offers a straightforward way of incorporating terrorist attack outcomes into the analysis of counterterrorism policy.
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    Essays on the Economics of Crime, Gender, and Health
    (2023) Ramirez Pierce, Elena; Goldberg, Jessica; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    In this dissertation I study the impacts of large government programs on crime and health outcomes. I also run an online experiment about the use of professional titles to elicit perceptions of experts cited in major news outlets and to test whether these perceptions vary across genders. In the first chapter, I examine the effects of large changes in cash availability on crime. South Africa has a large social safety net comprised of numerous cash transfer programs, called social grants, that are paid on a monthly basis. Prior to late 2018, these social grants were paid mostly in cash at grant disbursement locations called paypoints. Using a differences-in-differences (DiD) strategy, I analyze the effects of the temporary increase in cash availability on crime by comparing crimes on social grant payment dates in small geographical areas, police precincts, between areas with differing numbers of cash disbursement locations. The results suggest a small decrease in crime the day prior to social grant payments, and small increases the day of payments or the day after payments, depending on the empirical specification. These results are consistent with perpetrators potentially delaying their labor supply of crime until the widely publicized cash grant payment days, an anticipation effect, and increasing their labor supply of crime on or after payment days consistent with a loot effect, resulting from increased cash and purchased goods availability. Chapter two investigates whether there exists a credibility penalty for female experts compared to male experts when major news outlets forgo the use of professional titles, such as ``Dr." that serve as an information signal on the level of their training. Given the extensive literature on gender and racial bias in media reporting and professional and academic environments, the practice of abstaining from the use of professional titles may reinforce and even exacerbate these biases. In this co-authored analysis, we test for differential effects by conducting an online experiment that presented survey respondents with news articles holding constant content, but varying the gender and title of the cited experts and asked them to rate the expert's credibility. Our design enables between-subject and within-subject analysis. While we are able to detect a positive credibility effect of using professional titles, we are unable to distinguish a differential credibility impact across gender. Finally, in chapter three I estimate the effects of a large-scale national physician provision program in Brazil on birth outcomes. Given the risk to mothers of injury and disease associated with childbirth that may affect the health of the newborn, as well as the myriad of complications that may arise that could threaten the health of the fetus, increasing access to and quality of medical care may have substantial effects on birth outcomes. The Mais Medicos Program (PMM) focused on equalizing physicians per capita as well as generally increasing the number of physicians across the country. Beginning in late 2013 and an executive branch initiative, the program placed almost 20,000 physicians by 2016, predominantly from Cuba, throughout the country. Using vital statistics data of the universe of births in Brazil from 2006 to 2017, I estimate the effect of increasing the supply of primary care physicians on birth weight using both a differences-in-differences and an instrumental variables approach. I find that PMM resulted in higher average birth weight for children throughout Brazil. However, I find no improvement on the incidence of low birth weight or any weight effects for those living in rural parts of the country. Hence, these results imply PMM did not affect the most vulnerable pregnancies.
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    Three Essays About Economic and Behavioral Responses to Government Interventions
    (2023) Chatterjee, Mrinmoyee; Hellerstein, Judith K; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation studies three different policy interventions and the subsequent labor marketresponses across different times and contexts. In Chapter 1, I study changes in the relative wages for women in manufacturing between 1940 and 1950. World War II saw an unprecedented influx of women onto factory floors. While most previous literature focuses on the effects on female labor supply via geographical variation in military mobilization, Rose (2018) highlights the importance of production demand in driving female wartime employment. Using data on the wartime employment of women from Rose (2018), I revisit the framework in Acemoglu et al. (2004), and estimate the impact on relative wages for women, due to both state-wide and industry-wide changes in production demand during WWII. I find that wages increased for women in 1950 compared to 1940 in Durable Manufacturing by 35.4-35.9% in the industry with the largest change in the relative demand for women during WWII, whereas impacts of state-level changes in demand are not significant. Impacts on wages in Non-Durable Manufacturing are statistically insignificant. The relative wage gains are highest for women with 12 or more years of education, suggesting that the increased demand during WWII allowed some women a “foot in the door” into prized manufacturing jobs. My work helps to reconcile the prior literature connecting WWII to gains in employment for women, and recent work highlighting the importance of the War Production Effort in increasing female employment, by showing how changes in the relative industrial demand for women during World War II significantly increased relative wages for women. In addition, by focusing my analysis on Manufacturing industries, (which saw the largest changes in wartime demand), I consider finer industry variation nationally than any previous work in this context. In Chapter 2, (co-authored with Dheeraj Chaudhary), we test if the intra-state deregulation of banks between 1970–2000 had any impacts on fertility rates. U.S. states deregulated their banking sectors in a staggered fashion between 1960-1999, increasing efficiency through competition between banks and boosting economic growth within a state. We find that deregulated states saw a decrease of approximately 4–6% in their average fertility rates (in both state-level as well as individual-level data) using a classic difference-in-differences strategy leveraging the staggered timing of deregulation across states. In updating our results with recent econometric literature to account for differences in treatment timing, we find that our results are robust for the sample of observations before 1989 but not for later years. Women aged 20-44 saw a decrease of approximately 2-3% on average fertility rates post-deregulation (in both state-level and individual-level data) between 1970 and 1988. We test different possible mechanisms and find that a likely mechanism could be the increased opportunity costs of having children in a growing job market for women, especially in non-white and poorer households. In my third and final chapter, (co-authored with Nolan Pope), we look at the academic impacts of a recent large-scale AC installation program in Chicago Public Schools. Since growing evidence demonstrates that heat impairs student learning, a potential policy solution is clearly investing in air-conditioning. Making use of the timing of roll-out of AC across schools, in a $135 million AC installation program undertaken by Chicago Public Schools between 2013–2017, we analyze the effects on student outcomes. We find no evidence AC installation improved students’ end-of-year test scores or grade retention, and find marginal improvements in attendance. These results indicate that improvements in test scores (or other student outcomes) with AC installation could be region-dependent with the impacts of heat on learning, and considering the returns can help school districts better optimize their often limited budgets when striving to improve student performance.
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    Essays on Information Frictions and Macroeconomic Uncertainty
    (2023) Hong, Zu Yao; Stevens, Luminita; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation studies the role of information frictions and uncertainty in the macroeconomy. The three chapters expand a basic environment with information frictions to feature (i) variable information quality, (ii) tail risk, and (iii) social learning. The first chapter introduces information quality in a real business cycle model with costly information. Using data from the Survey of Professional Forecasters, I document that forecast errors are larger during downturns, even though agents acquire more information. I then augment a rational inattention model with variable information quality. Information quality depends on both data abundance and search intensity in the demand for information. Unlike rational inattention models, in which there is perfect supply of information, I allow for time-varying data abundance, or information supply. Procyclical supply of information generates pro-cyclical information quality, which in turn rationalizes the puzzling evidence that information acquisition and uncertainty both increase in downturns. A Bayesian estimation of the model for the U.S. economy shows that information quality accounts for sizable fluctuations in uncertainty and aggregate output. The model also generates: (i) systematic biases, if agents do not take into account fluctuations in information quality, (ii) variation in information processing costs, which produces dispersion in downturns, and (iii) production externalities, as firms do not internalize that more activity generates data abundance, which reduces uncertainty. The second chapter (co-authored with Yeow Hwee Chua) studies expectations formation in a Bayesian learning framework when the environment features tail risk. First, in the presence of tail risk, second moment shocks lead to more pessimistic forecasts compared with the forecasts generated in an environment that has zero probability of tail risk events. Second, individuals overreact to first moment shocks compared to the environment without tail risk, as they reassess the probability of finding themselves in a disaster state. Third, the magnitude of the overreaction depends on the level of uncertainty. We document these theoretical predictions for the U.S. economy over the 1978 to 2016 period, using data on expectations, uncertainty, sentiment, and tail risk. The theoretical framework predicts that not accounting for tail risk would lead the econometrician to conclude expectations are biased even though agents are in fact fully Bayesian. The third chapter studies uncertainty contagion across countries in a model of endogenous information acquisition with social learning. Motivated by evidence that macroeconomic uncertainty tends to comove across countries, this chapter builds a two-country model of rationally inattentive decision-making in which each country learns about national and international conditions independently and from each other. When fundamental uncertainty exogenously rises in one country, economic agents in that country allocate more attention to local conditions and less attention to international conditions. Global uncertainty rises as a result, and agents in the other country endogenously reallocate more attention to global conditions. This results in an increase in uncertainty about idiosyncratic conditions in the other country, even though there has been no change in fundamental uncertainty in that country. The model also predicts higher uncertainty contagion during crises.
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    Essays on Labor Markets and Inflation
    (2023) Olivares, Edward; Haltiwanger, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation presents research on several topics in economics. Chapter 1 and Chapter 2 explore the implications of geographic labor mobility in the context of the US labor market. These chapters share a common motivation based on statistics presented herein describing the geographic dimension of job switching behavior; primarily that a surprisingly high share of job-to-job flows within the US take place across metropolitan areas. Chapter 1 explores the microeconomic implications of this for workers through the lens of non-local outside options. In labor markets with frictions, outside options are a key determinant of workers' wages and firms' rents. When outside options improve, workers can benefit by switching jobs, but even those that remain in the same job can realize gains through leveraging their improved bargaining position to renegotiate wages. In this chapter, I study the geographic dimension of workers' outside options and effects on labor mobility and wages for job stayers. I show that a large share of job-to-job flows are across metropolitan areas (MSAs), which suggests that the non-local dimension of labor market opportunities may be substantial. To obtain causal estimates of the effect of non-local outside options on wages and geographic labor mobility, I construct measures of exposure to changes in labor market conditions in other markets, and use a shift-share instrumental variable strategy to identify exogenous variation in non-local labor demand. I find that increases in labor demand in an MSA's network of labor markets are associated with increased job-to-job outflows with an elasticity of about .30, and higher wage growth for job stayers with an elasticity of .11. The effect of non-local shocks on job switching and wage growth is 30-50 % of similar estimates of the effect of local labor demand shocks. Labor mobility is much more responsive to demand from MSAs with the strongest historic labor flows, which account for about 70% of the total mobility effect. I find similar mobility responses across education levels, but the effect of non-local outside options on wage growth is concentrated on workers without a 4-year college degree and in industries with lower average education levels. Chapter 2 turns to the macroeconomic implications of geographic labor mobility in determining long-run labor market outcomes. Using U.S. data, I show that job-to-job flows across metro areas are about 40% of all metro area job-to-job flows, and that there is substantial heterogeneity across metro areas in the rate of incoming and outgoing job-to-job flows. I introduce a general equilibrium model of spatial on-the-job search that provides a framework for studying the effects of labor markets' heterogeneous geographic positions on long-run outcomes. In the model, labor demand is endogenous and wage bargaining allows me to explore the implications of worker's labor mobility on employer market power. I calibrate a simple version of the model and find that relative to an economy with no mobility, there is a moderate increase in average wages and a fall in unemployment. Changes in firm rents due to workers' stronger bargaining position account for about half of the increase in average wages. In Chapter 3, I present coauthored work studying methods for the measurement of inflation using large, micro-level retail sales data sources. In particular, this chapter explores alternative methods for adjusting price indices for quality change at scale. These methods can be applied to large-scale item-level transactions data that includes information on prices, quantities, and item attributes. The hedonic methods can take into account the changing valuations of both observable and unobservable characteristics in the presence of product turnover. This chapter also considers demand-based approaches that take into account changing product quality from product turnover and changing appeal of continuing products. This chapter provides evidence of substantial quality-adjustment in prices for a wide range of goods, including both high-tech consumer products and food products.
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    Microeconomic Model Analyses
    (2023) Ellis, Keaton Hyuckmin Kweon; Ozbay, Erkut; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    The first chapter, joint with Dr. Shachar Kariv and Professor Erkut Ozbay, compares thepredictive performance of a standard economic model to a variety of machine learning models by presenting nearly 1,000 subjects with a consumer decision problem – the selection of a bundle of contingent commodities from a budget set. Our dataset allows us to compare predictions at the individual level and relate them to the consistency of individual decisions with revealed preference axioms. Using dual measures of completeness and restrictiveness from Fudenberg et al. (2022a,b), we show that the economic model outperforms all machine learning models, with a wider margin as choices align more with an underlying preference ordering. The second chapter, joint with Professor Emel Filiz-Ozbay and Erkut Ozbay, empirically investigates the consideration and choice functions behaviors of individuals under uncertainty. Our design elicits these functions by repeating the decisions repeatedly questioning subjects in a rich lottery domain and, hence, allows subjects to reveal their stochastic or deterministic consideration and choice. Since most subjects act stochastically in both consideration and choice decisions, we focus on testing well-known axioms defined for such behavior. Our analysis includes individual-level testing of the logit model (Brady and Rehbeck (2016)), and the axioms of monotonic attention (Cattaneo et al. (2020)), and attention overload (Cattaneo et al. (2021)) for the consideration data. For the choice data, we test properties including the independence of irrelevant alternatives (Luce (1959)), regularity (Block et al. (1959)) and consistency with the attribute rule (Gul et al. (2014)). The third chapter, joint with Dr. Shachar Kariv and Professor Erkut Ozbay, extends work frmo the first chapter. We make use of rich individual-level data sets from three budgetary choice environments. The environments provide a strong test of both the intra-economic model comparisons, as well as a comparison between economic models and machine learning models. Overall, we find that the extension from two goods to three goods does not greatly reduce completeness, but does greatly increase the restrictiveness. Both standard and behavioral economic models see larger increases in restrictiveness compared to machine learning models, and a lower drop in completeness when moving from two goods to three goods. Surprisingly, there is no additional drop in completeness when moving from choice under risk to choice under ambiguity in this environment; the completeness and restrictiveness scores of all models are nearly identical across the two domains, and the minor differences that are present favor models under ambiguity. We interpret these results as favorable for standard economic models in rich choice environments: absent external factors, economic models with one parameter detailing risk preferences are sufficient to capture individual-level behavior of choice under risk and choice under ambiguity. Additionally, these models are more restrictive than machine learning models; along with the high completeness, this result indicates that the assumptions of EUT and SEU capture the regularities in choice under risk and ambiguity.
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    Essays in Labor Economics
    (2023) Gonzalez Prieto, Nathalie; Abraham, Katharine G; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation has as a unifying theme the analysis of labor markets. It includes three papers that analyze labor markets from three different perspectives: the role of firms in workers’ careers, the effect of public policies on firms’ decisions, and the aggregate labor market effects of individual migration choices. These diverse perspectives show the complexity of labor markets and highlight some ways in which labor markets affect workers, firms and communities.In the first essay, the objects of study are the career outcomes of workers. More specifically, using Chilean employer-employee data, we provide evidence of the divergent trajectories of workers’ careers based on the type of firms they work at. We focus on earnings, periods of employment, and the number of jobs held over the five years after a job transition. Our findings indicate that there is an earnings penalty of 6.7% for joining a startup vs. an established firm. Workers who join a startup have a lower probability of being employed and hold fewer jobs over the five years we follow them. The second chapter focuses on evaluating the effectiveness of a public policy implemented at the beginning of the COVID-19 pandemic, a time when mandated quarantines prevented firms from operating, to maintain existing job relationships by providing liquidity in the form of payments to furloughed workers. We leverage a discontinuity in the eligibility for the policy and are able to identify a positive effect on the likelihood of job survival for workers with short tenure. Heterogeneity analysis indicates that the effect was larger in sectors more affected by the pandemic and for more vulnerable workers. Finally, the third chapter looks at the aggregate labor market effects of experiencing a labor demand shock in a Commuting Zone (CZ) in the US. The main goal of that chapter is to better understand why local labor markets in the US experience a persistent decline in labor force participation following a recession. Using uniquely granular data from the Consumer Credit Panel (CCP), we show that there is a differential migration response to local demand shocks based on the age of individuals. In particular, we find that younger adults increase their in-migration to CZs experiencing a positive labor demand shock. Additionally, while the in-migration response of the retirement-age population also is positive, it is muted and their out-migration response to a positive shock is positive, effectively delivering a negative net migration response to a positive labor demand shock for this age group. The combination of these results indicates that following a positive labor demand shock, local labor markets in the US experience a persistent re-composition of their age structure that leaves them with a higher proportion of young people. On the flip side these results point to the fact that labor markets experiencing a negative demand shock being left with a higher proportion of retirement-age people as the product of the age differentiated migration.
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    Essays on Speculation, Joint Bidding, and Dynamic Entry in Auctions
    (2023) Deng, Shanglyu; Ausubel, Lawrence; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation consists of three essays on auction design. In Chapter 1, I provide an introduction for the following chapters. In Chapter 2, I examine speculation in procurement auctions, where speculators may have the incentive to acquire items from multiple sellers prior to the auction in order to increase their market power and reduce competition during the auction. I show that the profitability of the speculation scheme hinges on the auction format: Speculation always generates a positive expected profit in second-price auctions but could be unprofitable in first-price auctions. This comparison in profitability is driven by different competition patterns in the two auction mechanisms. In terms of welfare, speculation causes private value destruction and harms efficiency. Sellers benefit from the acquisition offer made by the speculator. Therefore, speculation comes at the expense of the auctioneer. In Chapter 3, I consider a procurement setting where suppliers may be functionally complementary, meaning they need to collaborate to complete a complex project. I compare two methods for incorporating complementary firms into procurement auctions: allowing them to bid jointly or using combinatorial auctions, such as the VCG auction, to coordinate their collaboration. The joint bidding approach leads to a double marginalization problem, as the prime contractor must elicit private cost information from subcontractors, and then submit a bid on behalf of the group. Consequently, the joint bidding approach often underperforms the VCG auction in several aspects, including efficiency, procurement price, and support for small businesses. Chapter 4 presents both theoretical and empirical analyses for recurring auctions. Auctions for durable assets, such as land, house, or artwork, are commonly recurring, as the seller often holds a subsequent auction after a previous attempt fails. Theoretical results show that recurring auctions outperform single-round auctions in terms of efficiency and revenue when potential buyers face costly entry. This occurs because recurring auctions allow potential buyers with different values to enter at different times, which generates savings in entry costs and increases the overall probability of sale. Additionally, optimal reserve price sequences are derived for recurring auctions based on whether the seller aims to maximize efficiency or revenue. In the empirical analysis, the theory is applied to home foreclosure auctions in China, where foreclosed homes are auctioned up to three times in a row. The study identifies the structural parameters in a recurring auction model and compares the observed recurring auctions to counterfactual single-round auctions. The results are in line with theoretical predictions, showing a significant improvement in efficiency and revenue for recurring auctions over single-round auctions. Using the optimal reserve price sequences derived from our model can further enhance the performance of recurring auctions in practice.
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    Essays in Gender and Development
    (2023) SIVARAM, ANUSUYA; Goldberg, Jessica; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation consists of three essays at the intersection of gender and economics in developing countries. In chapter 1, I study the economic implications of a particular cultural practice: cousin, or consanguineous, marriage. One sixth of all marriages in Egypt are between first cousins, but there are important differences in the characteristics of individuals who select into such relationships relative to those who marry non-relatives. To measure the causal impact of the practice on socioeconomic outcomes abstracting from selection, I instrument for the probability of marrying a cousin using exogenous variation in family structure, and use weak instrument robust methods to estimate parameters and evaluate statistical significance. I find that individuals who marry a cousin because of exogenous attributes of their natal family structure are further in age from their spouse, predominantly driven by older men marrying cousins. I also find that women married to cousins receive higher levels of marital transfers that give them bargaining power within their marriages, likely as compensation for their spouse's attributes. This contrasts to patterns for those who select into cousin marriage; those individuals are younger at the time of marriage, match with partners closer to their own ages, and have no differences in the level of marital transfers exchanged. The contrast between OLS and IV results suggests that selection into cousin marriage may be motivated by anticipation of not matching on the wider marriage market, credit constraints, or the desire to consolidate property within the extended family. In chapter 2, I present baseline statistics from an experiment which examines the impact of random job offers on women's experiences of intimate partner violence in Bangladesh. This paper build on a larger study which aims to increase women's labor force participation and use of mobile money services. I collect supplementary data on women's experiences of intimate partner violence, men and women's agreement with conservative social norms, and second order beliefs regarding their community's sanction of intimate partner violence. I validate survey measures of intimate partner violence with a list randomization elicitation. I also present results from two incentivized decisionmaking activities conducted at baseline. I specify the outcomes I plan to test once endline data is available, as well as the econometric specifications I will use. Finally, I present power calculations using baseline data to determine the smallest effect sizes I can detect. Finally, in chapter 3, I study the impact of an exogenous negative shock to labor demand for female migrants within Bangladesh. I use a difference in differences strategy and compare outcomes between districts that have a history of sending migrants with those that do not, before and after the shock. I find that migrants respond to the initial shock and return to their households rather than remain unemployed in Dhaka, and that at least some of these women marry. I see no decrease in the level of investment in children's human capital, which suggests households do not revise their perceptions regarding the returns to education, and have access to other tools to smooth consumption. Finally, I see no changes in the daily agricultural wage rate for women in the years after the shock. I lack data on several important margins of adjustment which would allow us to discern the mechanisms behind the effects.
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    Essays on Aspects of Education and Anti-corruption Policies in China
    (2023) Fang, Ming; Abraham, Katharine; Hellerstein, Judith; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation comprises three chapters that examine the outcomes of government policies pertaining to education and anti-corruption measures in contemporary China. The study investigates the impacts of these policies on diverse domains such as the marriage market, innovation activities in higher education, and citizens' political attitude towards the government. \underline{Chapter 1: The Effects of China's College Expansion on the Marriage Market (with Sai Luo)} Education policies can have crucial effects on the marriage market. In this chapter, we study the impacts of China's college expansion on the marriage market, with a special focus on its effects on the marriage outcomes of college-educated women and men. The empirical analysis is undergirded by a model featuring educational investment, marriage matching, and reductions in search frictions associated with the expansion. We estimate the effects of the expansion on marriage outcomes by exploiting geographic and birth-cohort variation in exposure to the expansion. Our analysis shows that, consistently with the predictions of the model, the expansion increased the marriage probability of college graduates. The expansion also increased the probability of college-college matches relative to the counterfactual of random matching and reduced the marriage age gap. Our findings highlight the important role of higher education institutions in shaping the marriage market. \underline{Chapter 2: (Mis)use of Power in the Ivory Tower: Evidence from Deans in Chinese Universities} \underline{(With Yuyu Chen and Xuan Wang)} In a hierarchical academic system, power can distort the allocation of research resources and output ownership. We study the role of power in intellectual property acquisition. Using biographical information of deans in elite universities in China, we find that the deanship increases their patent applications by 14\%. Further analysis suggests that the deanship effect is driven by misuse of power rather than ability or research resources. We provide causal evidence by showing that an anti-corruption campaign, which increases the cost of misusing power, contains the deanship effect. Finally, we find that misusing power distorts resource allocation. \underline{Chapter 3: Anti-Corruption and Political Trust: Evidence from China (with Weizheng Lai)} How can anti-corruption campaigns influence political trust in government? We investigate this question through the lens of China's recent anti-corruption campaign, launched in 2013, which has unprecedentedly disclosed many corruption investigations to the public. By analyzing a large individual panel dataset, we show that on average, the campaign has significantly reduced political trust, particularly among groups less informed about corruption before the campaign. We document strong heterogeneity in trust changes, possibly driven by a pro- and anti-government cleavage, as captured by previous unpleasant experiences with the government, pro-government indoctrination, and Confucian norms. Our results fit in a model where polarization is rationalized by differences in priors about the government. We also rule out several alternative explanations for our findings.
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    Essays on Firm Dynamics and Macroeconomics
    (2023) Kim, Seula; Haltiwanger, John; Shea, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation describes a broad set of topics in firm dynamics and macroeconomics, including young firm dynamics, business dynamism, firm innovation, technological advance, and economic growth in the U.S. economy. In Chapter 1, I study how workers’ uncertain job prospects affect young firms’ pay and employment growth, and quantify macroeconomic implications. Building a heterogeneous-firm directed search model in which workers gradually learn about permanent firm productivity types, I find that the learning process creates endogenous wage differentials for young firms. In the model, a high performing young firm must pay a higher wage than that of high performing old firms, while a low performing young firm offers a lower wage than that of low performing old firms, to attract workers. This is because workers are unsure whether the young firm’s performance reflects its fundamental type or a temporary shock given the lack of track records. I find that these wage differentials affect both hiring and retention margins of young firms and can dampen the growth of high-potential young firms. Furthermore, the model indicates that higher uncertainty about young firms results in bigger wage differentials and thus hampers overall young firm activity and aggregate productivity. Using employee-employer linked data from the U.S. Census Bureau and regression specifications guided by the model, I provide empirical support for the novel predictions of the model. Chapter 2 studies the effect of competition on firm innovation by developing a discrete-time endogenous growth model where multi-product firms do two types of innovation subject to friction in technology spillovers. Firms improve their existing products through internal innovation while entering others’ product markets through external innovation. We introduce a novel friction, which we label as imperfect technology spillovers, which refer to frictions in learning others’ technology in the process of external innovation. In contrast to existing models, this friction allows incumbent firms to defend themselves from competitors by building technological barriers through internal innovation. Using firm-level data from the U.S. Census Bureau integrated with firm-level patent data, we find regression results consistent with the model predictions. Our counterfactual analysis shows that rising competition by foreign firms leads domestic incumbent firms to undertake (i) more (less) internal innovation for the products in which they have (do not have) a technological advantage, and (ii) less external innovation. This compositional change in firm innovation affects overall innovation in the aggregate economy in different directions depending on the costs of external innovation. Specifically, the shift in innovation composition in response to rising competition decreases overall innovation in the U.S., but would increase overall innovation in an economy with high external innovation costs. Lastly, Chapter 3 examines how increasing knowledge complexity and the accompanying rise in innovation cost affect firm innovation patterns and business dynamism in the U.S. economy. Using detailed firm-level data from S&P’s Compustat and the U.S. Census Bureau, integrated with the U.S. patent database (USPTO PatentViews), we document the increasing trend in knowledge complexity in firm innovation activities. Specifically, the inventor team size, the number of technology types (technology subclasses), and the degree of interdependence across different technology subclasses associated with firms’ patent portfolio have been increasing over time. Furthermore, we find the increasing trend of knowledge complexity is associated with the declining trend of business dynamism, such as firm entry, the share of young firms, and young firms’ activity in job creation and reallocation. We offer a simple endogenous growth model in which different R&D inputs are interdependent (complementary) to each other and firms are required to use different types of inputs to generate a given amount of innovation. This increases more complexity in firm innovation process and makes small, young firms with less knowledge base more difficult to conduct innovation as before. This can impede firm entry and dampen the growth of small and young firms.
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    Essays on Macroeconomics
    (2023) Oue, Kai Chung; Aruoba, Borağan; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation focuses on two topics in macroeconomics. The first two chapters study the interaction between family and inequality. The first chapter develops a framework for evaluating optimal income tax progressivity with endogenous marriage formation. The second chapter studies how migration frictions interact with parental locational and human capital investment decisions in the context of China. The third chapter revisits the role of strategic complementarity in pricing on monetary non-neutrality. Chapter 1: The income distribution in the United States has undergone significant transformation over the last four decades. Accompanying the rise in inequality are an increase in positive assortative mating and a steady decline in marriages, especially amongst non-college educated individuals. The literature studying optimal redistribution typically ignores the marital margins, both in terms of who gets married and who marries whom, although they have important welfare consequences. This paper revisits the optimal design of taxation policies using a life-cycle consumption-savings model augmented with an endogenous marriage market. Through the lens of the model, the optimal income tax features high degree of progressivity for both single and married households combined with large marriage bonuses. Chapter 2: The hukou system is a unique institutional feature in China that restricts internal mobility mainly by blocking access of migrants to public services and programs. In this chapter, I propose that these institutional mobility restrictions play a role in enabling intergenerational transmission of income and economic status, in particular by suppressing human capital investment, both in terms of time and money, by parents on the lower end of the income distribution. Another argument that follows from my hypothesis is that migration frictions can generate a dynamic welfare cost through lower skill formation, in addition to the static losses that are emphasized in the literature. I build a two-region overlapping-generations model with household heterogeneity to show how migration decisions interact with parental human capital investment decisions to exert downward pressure on intergenerational mobility. A counterfactual analysis in which migration frictions are reduced suggests that removal of some \textit{hukou} restrictions can increase the total human capital stock in the economy by 4%, increase aggregate output by 7%, and reduce the intergenerational rank-rank elasticity by at 7 percentage points. Chapter 3: This chapter proposes a parsimonious framework for real rigidities, in the form of strategic complementarities, that can generate real and nominal dynamics and match key features of the data across several literatures. Existing menu-cost models featuring strategic complementarities require unrealistically volatile shocks to idiosyncratic productivity to be consistent with pricing moments. We develop a simple menu-cost model with strategic complementarities along with idiosyncratic productivity and demand shocks that are disciplined by the data. This approach allows us to overcome previous criticism from analysis of models that employ only an idiosyncratic productivity shock and calibrate solely using data from the price-adjustment literature. Despite its simplicity, the model can generate sizable monetary non-neutrality along with the magnitude of cost pass-through documented in previous studies, while also remaining consistent with micro pricing and markup evidence.
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    Essays on Information and Gender
    (2023) Osun, Elif Bike; Ozbay, Erkut Y.; Filiz-Ozbay, Emel; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Chapter 1 studies the effect of different feedback structures on belief updating in an ego-relevant task using a controlled experiment. Across treatments, subjects receive feedback through a signal with either a noise component, a comparison component, or both. The first two signals are commonly used in the literature, while I develop the latter to systematically analyze the effect of noise and comparison components on belief updating. I find that the signal structure is an important determinant of how subjects update their beliefs. This is driven by men and women exhibiting different biases depending on whether the signal is noisy or comparative. Men underweight bad news when the signal has a noise component and women underweight good news when the signal has a comparison component. These findings have implications for policies aiming to reduce the well-established gender gap in self-confidence through feedback provision. In Chapter 2, I experimentally investigate whether there is a gender difference in advice giving in a gender-neutral task with varying difficulty in which the incentives of the sender and the receiver are perfectly aligned. I find that women are more reluctant to give advice compared to men for difficult questions. The gender difference in advice giving cannot be explained by gender differences in performance. Self-confidence explains some of the gender gap, but not all. The gender gap disappears if advice becomes enforceable. I discuss possible underlying mechanisms that are consistent with the findings. Voluntary disclosure literature suggests that in evidence games, where the informed sender chooses which pieces of evidence to disclose to the uninformed receiver who determines his payoff, commitment has no value, as there is a theoretical equivalence of the optimal mechanism and the game equilibrium outcomes. In Chapter 3, Erkut Ozbay and I experimentally investigate whether the optimal mechanism and the game equilibrium outcomes coincide in a simple evidence game. Contrary to the theoretical equivalence, our results indicate that outcomes diverge and that commitment has value. We also theoretically show that our experimental results are explained by accounting for lying averse agents.
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    LIVE and FIVE Estimation of Simultaneous Equations Models with Higher-Order Spatial and Social Interactions
    (2022) Chen, Jiankun; Prucha, Ingmar; Sweeting, Andrew; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    The first part of the dissertation introduces a new class of limited and full information GMM estimators for simultaneous equation systems (SEM) with network interdependence modeled by Cliff-Ord type spatial lags (Cliff and Ord (1973, 1981)). We consider the same model specification as that in Drukker, Egger, and Prucha (2022) and allow for higher order spatial lags in the dependent variables, the exogenous variables and the disturbances. The network is defined in terms of a measure of proximity and can accommodate a wide class of dependence structures that may appear in both micro and macro economic settings. We show that the scores of the log-likelihood function can be viewed as a weighted sum of linear and quadratic components that motivate valid moment conditions. One contribution of this dissertation is showing that the linear moments can be written to permit instrumental variable (IV) interpretation, extending on the existing results in the context of classical SEMs. Towards constructing the linear moments, the instruments exploit the nonlinear structure of the parameters implied by the reduced form model, while those utilized by the existing 2SLS- and 3SLS-type estimators do not. From this perspective, the new estimation methodology incorporates the ideas underlying the LIVE and the FIVE estimators in Brundy and Jorgenson (1971) for classical SEMs, as well as the IV estimators using optimal instruments for spatial autoregressive (SAR) models. In addition to the linear IV estimators, we also consider one-step GMM estimators that utilize both the linear and quadratic moments implied by the scores. Our new LIVE and FIVE estimators for the network SEMs remain computationally feasible even in large sample and are robust against heteroskedasticity of unknown form. Monte Carlo simulations show that the new estimators in general outperform the existing 2SLS- and 3SLS-type estimators for this class of models when the instruments are weak. In the second part of the dissertation, we estimate the consumer demand for gasoline in the market of Vancouver, Canada. We employ a demand system with a spatial network component, utilizing the model and the estimation methods considered in the first part. Demand elasticity for gasoline at aggregate level are well documented in the literature, while estimates at station level are relatively scarce. We estimate the station-level demand elasticities as well as (spatial) elasticity of substitution under a variety of network structures based on different proximity measures. We collected station-level data on retail prices, sales volume, station characteristics of the 151 stations, as well as the characteristics of local markets, for September 2019 as well as March 2020. To deal with the endogeneity of prices, existing works typically exploit variations in the characteristics of each station’s direct competitors. We argue that in a geographically continuous market, this strategy may not be sufficient. In spirit of Fan (2013), our instruments also exploit the variations in the characteristics of the competitors of each station’s competitors (indirect competitors). We find that the own-price demand elasticity is between −12 and −4 while the cross-station price elasticity is in general between 0.6 − 6, depending on the construction of the network matrices that governs the degree of competition. We also report the impact measures that provides interpretations on the estimated coefficients of the exogenous variables in the context of spatial network models. We find that the availability of service station in general have contributed positively on the sales volume at a station. In general, a station located within a neighborhood of more drivers face stronger demand.
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    ESSAYS ON FIRM DYNAMICS AND MERGERS AND ACQUISITIONS
    (2022) Chiu, Liang-Chieh; Haltiwanger, John; Stevens, Luminita; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation studies the impact of horizontal mergers on firm dynamics, innovation, and aggregate economic growth. In Chapter 1, I investigate how firms’ incentives to pursue in-house innovation versus acquisitions shape aggregate innovation and growth. I develop a tractable growth model with heterogeneous firms in which incumbent productivity evolves through engaging in endogenous innovation or through search and matching with innovative acquisition targets. The key innovation on the modeling side is the simultaneous inclusion of both R&D and M&A activities to capture potential spillovers from one activity to the other. With the model parameterized to match a set of facts on the U.S. M&A activity as well as moments of the R&D-to-sales ratio, the long-run growth rate and the entry rate of new entrants, I show that M&A activity accounts for 11.6% of U.S. long-run productivity growth during the period between 1979 to 2000. To explore the implications of M&A for aggregate innovation and aggregate economic outcomes, I perform a counterfactual analysis using the calibrated model to trace the effects of a looser merger policy on firm-level innovation, selection into the M&A market and aggregate growth. I find that a looser merger policy incentivizes small firms to innovate more while reducing the R&D investments of large firms. Overall, the quantitative analysis suggests a beneficial impact of M&A on aggregate growth and welfare. Chapter 2 examines how merger policy affects M&A activity across the firm size distribution. I study firm responses to a specific merger policy change implemented in the United States in the year 2001: the change increased the transaction threshold for required pre-merger notifications pursuant to the Hart-Scott-Rodino Act. I construct a difference-in-difference research design to study the change in the number of horizontal mergers pre- and post-amendment, in comparison to non-horizontal mergers for each size group. I find that the increase in the exemption threshold stimulates merger activity among always-exempt competitors. The results contrast those of Wollmann (2019), who found significant increases in newly-exempt horizontal mergers. I trace the difference to the misclassification of merger size and measurement issues in transaction values in the original study. The impact of the HSR amendment on always-exempt horizontal mergers can be interpreted as an entry effect or a spillover effect of deterrence. As found in chapter one, a relaxed merger policy endogenously lowers the entry threshold, and thus more small firms comprise the firm size distribution. This may lead to more small transactions following the amendment in the long run. Another potential effect is the spillover effect of antitrust enforcement. Mergers that were slightly below the original transaction threshold ran the risk of being investigated, so the parties may have been discouraged from merging under the original policy.
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    ESSAYS ON INTERNATIONAL FINANCE AND DEVELOPMENT
    (2022) Paranagua de Vasconcelos Teixeira, Marcelo; De Leo, Pierre; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Motivated by exposure to different financing programs from the International Finance Corporation (IFC), in this dissertation I explore three relevant topics from the perspective of a Development Finance Institution (DFI), focusing on outcomes that spam across the development of local capital markets, attraction of foreign direct investment, poverty reduction and firm growth in developing economies.The first chapter studies the pioneering role of DFIs in issuing local currency bonds in several developing economies’ domestic capital markets, investigating the potential effects on capital markets development and attraction of foreign direct investment flows. Results on bonds markets show an increase on number of listings of both public and domestic corporate bonds following a pioneer issuance, while also pointing to an increase in the number of domestic corporate bond issuers. The analysis of effects on the equity markets of local exchanges shows an increase in the number of domestic companies with listed equities following the pioneer issuances, and an even stronger increase in the number of foreign companies with listed equities in the domestic exchange, suggesting that the potential signaling effect from the pioneer local currency bond issuances is stronger for international agents than for domestic agents. Lastly, the analysis of the effects on the attraction of FDI shows that FDI net inflows decrease after such pioneer issuances, which suggests that FDI and capital markets development would be substitutes. However, when I disaggregate sample countries by different stages of market development, as proxied by countries’ income level, I find that the decrease in FDI is mostly seen in low and lower-income countries, while in upper-middle countries FDI inflows and capital market development would be less of a substitute, pointing to a transition from substitutability to complementarity as capital markets and institutions become more mature. The second chapter analyzes – through an innovative structural simulation modeling approach that links investments in one or more industries to the World Bank Group (WBG) twin goals of ending extreme poverty and improving shared prosperity – the expected impacts that private investment strategies could have in the Philippines, focusing on impacts on poverty and inequality, while also including standard macroeconomic effects like economic growth and employment. A key factor in this model is the presence of both formal and informal markets, which captures the high and persistent job informality observed in the data. While FDI inflows drive the growth of formal activity in the economy and creates higher paying direct jobs, the indirect and induced effects are weakened by the high presence of informal firms in the supply chain, which are less productive and pay smaller wages. By comparing FDI investments into manufacturing, agriculture, services, and tourism, results show that a “trickle-down” growth approach based on the continuation of the status quo does not deliver the poverty and shared prosperity targets of the WBG twin goals. While poverty declines due to additional investment, considerably higher investments would be needed to reach the 3 percent WBG (global) poverty target. Moreover, inequality increases over time and no substantial progress is observed in terms of shared prosperity in any of the investment-driven scenarios. Finally, the third chapter estimates the relationship between working capital and firm growth for a large sample of companies across developing economies, underlying the rationale and expected impact of providing working capital financing in these countries. The paper presents a measure of excess working capital – the difference in the level of working capital for a firm relative to the median of its relevant peers by sector and economic context – and finds evidence of a non-linear relationship between excess working capital with firm growth. Companies with relatively lower levels of working capital but closer to industry and economic environment norms would benefit the most in terms of sales growth, followed by firms with the lowest levels of working capital. Companies with working capital levels above the norm benefit the least from additional working capital. These facts constitute evidence of the existence of a notional optimal level of working capital, conditional to industry and economic context, consistent with existing literature, mostly focused on developed countries. Additional results show that the marginal impact of increasing working capital on growth is larger for firms in more developed countries. Along these lines, these findings can serve as a basis to explain (partially, at least) firm performance during the COVID-19 crisis and going forward, as well as being an input to improving the allocation of working capital financing in the recovery and beyond.
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    ESSAYS ON INTERNATIONAL TRADE AND THE ENVIRONMENT
    (2022) Lim, Heehyun Rosa; Limão, Nuno; Lee, Eunhee; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation examines the relationship between international trade and environmental outcomes. In particular, I study the impact of international trade on airborne pollutants, including the change in emissions and concentration as well as their welfare consequences. In the first chapter, I suggest the intermediate import channel as a new perspective to understand the linkage between international trade and air pollutant emissions. I first review the existing literature's understanding of the impact of trade on emissions. The review shows that the literature mostly focuses on the increased market access but overlooks the increased access to imported inputs. Using the data on the US manufacturing industries, I then document a few stylized facts that are suggestive of the linkage between intermediate imports, input usage, and emissions. I show that in the US, the import penetration among inputs used has increased while the energy intensity of US manufacturing has declined, the latter of which explains a third of the within-industry reduction in $NO_x$ emission intensity. To analyze the channels by which trade in intermediate inputs affects emission intensity, I build a model of heterogeneous firms, intermediate trade, and inputs with different emission profiles. By focusing primarily on the emissions linked with input usage, my model examines the effect of improved access to foreign intermediates on firms' input choices and emission outcomes. The model shows that with lower intermediate import costs, firms become less energy-intensive by either increasing their intermediate intensity, using energy-saving technology, or both. Moreover, the general equilibrium force, as well as amplification through the input-output linkage, bring a further decrease in emission intensity in all firms. The model also presents the selection and reallocation effect which further amplifies the within-firm improvements. In the second chapter, I run empirical and quantitative analyses to test the theoretical model from the first chapter against the US manufacturing data. In the empirical analysis, I estimate the model prediction, which states that industry-level emission intensity can be expressed in the producer price index when the cost of energy and market access are controlled,using the industry-level panel data between 1998 and 2014. By using the import price of intermediates as an instrumental variable for the producer price index, I find evidence that a lower producer price, driven by a lower intermediate import price, leads to lower $NO_x$ emission intensity. The reduced-form evidence supports the model mechanism that states that a lower import price of intermediates decreases emission intensity. I then calibrate the model to 1998 aggregate US manufacturing and quantify the change in emission intensity driven by the change in intermediate import cost. The quantification shows that the fall in intermediate import cost between 1998 and 2014 explains about 8-10\% of the observed technique effect in $NO_x$ emissions. 68\% of the decrease comes from the within-firm changes via firms' substituting away from energy inputs, global sourcing, and adopting energy-saving technology, which highlights the importance of taking within-firm channels into account to understand the effects of trade policies on emissions. The third chapter (co-authored) re-examines the welfare gains from international trade by incorporating the transboundary nature of air pollutants.\footnote{This chapter is from a joint work with Eunhee Lee.} We run country-level panel regressions and find that concentration is correlated with transboundary pollution, constructed as the weighted sum of other countries' emissions. We then build a general equilibrium model of international trade and environmental externality from local pollutants of transboundary nature, in which the concentration of a country is affected by both its own and other countries' emissions. The model shows that the change in welfare can be decomposed into the change in real income and the change in air pollutant concentration, the latter of which can further be decomposed into that driven by own emissions and by other countries' emissions. We use this model to quantify the welfare implications of two trade shocks -- China shock and the EU 2004 enlargement. The results show multiple channels that shape heterogeneous welfare consequences across countries. First, liberalizing countries experience an increase in emissions due to an increase in production. Second, the emissions of other countries move in either direction, depending on the effects of pollution relocation and increased production due to cheaper inputs. Third, the levels of concentration increase in liberalized countries and some other countries due to the increase in own emissions or transboundary pollution, or both. We run additional counterfactual exercises with stricter environmental regulations imposed on liberalized countries and show that there can be welfare gains in many countries by lowering emissions and transboundary pollution, suggesting the potential effects of combining trade and environmental policies.
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    ESSAYS ON RATIONAL INATTENTION IN INDIVIDUAL AND STRATEGIC DECISION MAKING
    (2022) Domotor, Erika; Ozbay, Erkut; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Chapter 1 revisits the model of adverse selection under asymmetric information with the power of the rational inattention framework. I depart from the setup of Akerlof (1970) by revising its extreme information asymmetry assumption. Instead of assuming that the Seller is fully informed and the Buyer is fully uninformed, I consider a setting in which both parties areable to gather information, but at a cost. As a result, both the Seller and the Buyer become partially informed, and the information asymmetry is the consequence of the asymmetry in their incentives and unit information costs. This enhanced framework provides new insights into the implications of incomplete information for market outcomes, efficiency and welfare. When information asymmetries occur endogenously, they do not lead to market collapse, but they do create market inefficiencies. The Buyer is better off and the Seller is worse off compared to the efficient symmetric information benchmark. In Chapter 2, I propose a model that explains the evolution of overconfidence as being a result of the constrained utility-maximizing problem of a decision maker who is rationally inattentive to information, but at the same time biased towards more optimistic subjective beliefs.Empirical studies have shown that individuals with initially fewer skills have more confidence, but as their skill level increases, their overconfidence decreases. The phenomenon is well-known as the Dunning-Kruger effect in the psychology literature. I explain this effect by the simultaneous choice of subjective and objective information. In my model a non-materialistic utility component induces overly optimistic subjective beliefs, which are constrained by the cost of information distortion. The setup is tractable in a range of economic problems. Chapter 3 utilizes the Model of Overconfidence from Chapter 2 in an application which explains the excess entry and high drop out rate of entrepreneurs. In this setting I show that in the presence of overconfidence individuals enter businesses with lower than necessary skill levels to succeed. At the same time, they drop out due to underperforming even when their skill levels would be adequate to stay in, were they not overconfident. The gap between skill thresholds for entry and drop out results in the high failure rate of businesses.