Applied Economics Essays

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This dissertation uses mathematical economic models and advanced statistical and econometric tools to study knowledge markets, external validity, and institutional changes. In Chapter 1, I focus on knowledge markets exploring how network relationships between knowledge consumers impact the equilibrium number of opinion leaders. Both a theoretical model and empirical analysis show that there’ll be more opinion leaders in a knowledge market if the most active knowledge consumers occupy more central positions in a social network connecting consumers. This is the first work to formally quantify opinion leaders, knowledge markets, and consumer attention. While the existing literature emphasizes the role of opinion providers’ network positions on the making of opinion leaders, this work shows that the network positions of active consumers also matter because active consumers serve as a propaganda machine. In Chapter 2, Professor Sebastian Galiani and I provide a formal, general exploration of the question of external validity and propose a simple and generally applicable method for evaluating the external validity of randomized controlled trials. This is important. Once researchers have conducted an internally valid analysis, that analysis yields an established set of findings for the specific case in question. As for the future usefulness of that result, what matters is its degree of external validity. In Chapter 3, I theoretically argue that people weigh specialization gains against trade costs when they decide whether to specialize and trade or self-produce all goods by themselves, and thus more people participate in trade under better institutions. I show that the better the institution of an economy’s trade partner, the more prosperous the economy is, thanks to expanded trade. Moreover, when more people trade, more people would like to fight for a better institution and may induce institutional improvement. Better initial institutions or lower trade costs facilitate institutional improvements; but with very high initial institutional quality, people may lose their incentive to protest. I also provide historical evidence consistent with the theory.