ESSAYS ON THE ECONOMICS OF GOVERNMENT REGULATION

Abstract

Government regulations play an increasingly important role in shaping economic activities across the world. This dissertation consists of three chapters that explore the efficacy and efficiency of government regulations in the context of developing economies. The first chapter studies the welfare impact of price ceiling on the new house market in Shanghai. The second chapter studies the optimal design of the recurring auctions and its applications in the home foreclosure auction market. The third chapter studies the optimal design of the presale policy in the residential housing market in China. Chapter 1. Under Control? Price Ceiling, Queuing, and Misallocation: Evidence from the Housing Market in China The first chapter develops a model to study the equilibrium effects of price control policies. The framework considers the option for consumers to wait and re-enter the market if items are not immediately allocated due to excess demand. While waiting is commonly associated with the price ceilings, the cost of waiting has received limited attention in prior research. In this chapter, I focus on the housing market in Shanghai, where a price ceiling has been imposed on new houses since 2017, while the existing houses are not regulated. Using a structural model, I estimate household demand, housing supply, and waiting costs. The price ceiling on new houses resulted in a social welfare loss of 13 billion USD from 2018 to 2020. Consumer surplus increased by 1.3 billion USD, as most of the gains from lower prices of new houses were offset by waiting costs and misallocation. Counterfactual analyses suggest that distributing a discount voucher to buyers rather than imposing a price ceiling could significantly reduce the welfare loss and achieve more equitable outcomes. Chapter 2. Recurring Auctions with Costly Entry: Theory and Evidence, (with Shanglyu Deng) Recurring auctions are ubiquitous for selling durable assets like artworks and homes, with follow-up auctions held for unsold items. The second chapter investigates such auctions theoretically and empirically. Theoretical analysis demonstrates that recurring auctions outperform single-round auctions when buyers face entry costs, enhancing efficiency and revenue due to sorted entry of potential buyers. Optimal reserve price sequences are characterized. Empirical findings from home foreclosure auctions in China reveal significant annual gains in efficiency (3.40 billion USD, 16.60%) and revenue (2.97 billion USD, 15.92%) using recurring auctions compared to single-round auctions. Implementing optimal reserve prices can further improve efficiency (3.35%) and revenue (3.06%). Chapter 3. Haste or Waste? The Role of Presale in Residential Housing (with Ziyang Chen, Maggie Hu, and Ginger Jin) The third chapter provides the first theory and evidence on the role of presale policies in the residential housing market. This chapter starts with constructing a novel dataset of unfinished projects, presale policies, and land auction outcomes across 270 major cities in China. 2,330 unfinished residential projects are identified from 2010 to 2017 on a citizen complaint website run by the central government. We find that both presale criterion and postsale supervision of construction costs relate to a lower probability of unfinished projects. But only presale criterion relates negatively to the pace of new housing development, measured by developers' multitasking and land auction outcomes. A back-of-the-envelope calculation suggests that the average bundle of presale policies is inferior to the Pareto frontier in our sampled cities. Tightening the regulation on postsale supervision by 2 standard deviations may lead to a 58% reduction in the occurrence of unfinished projects while keeping the pace of new housing development unchanged.