Microeconomics & International Trade Seminars

Winter 2018

January 19
Sergii Meleshchuk
"Price Discrimination in International Trade: Empirical Evidence and Theory"
Host: Alan Spearot
This paper investigates empirically and theoretically second-degree price discrimination in business-to-business transactions. I use highly detailed transaction-level Colombian imports data to document the presence of quantity discounts. To rationalize this fact, I develop a tractable theoretical framework that embeds nonlinear pricing (second-degree price discrimination) into a standard international trade model and characterize optimal policies. I show that welfare losses from second-degree price discrimination can be quite substantial. Furthermore, optimal tariffs are higher when firms use non-linear prices as compared to standard models. Finally, if the policymaker sets tariffs that are optimal under linear pricing, but firms use second-degree price discrimination, this will lead to significant welfare losses.

January 22
Golvine de Rochambeau
"Monitoring and Intrinsic Motivation: Evidence from Liberia's Trucking Firms"
Host: Alan Spearot
Severe information asymmetries are thought to make contracting particularly difficult within (and across) firms in developing countries. Standard principal-agent theory predicts that a new monitoring technology provided at zero cost should be widely adopted and unambiguously raise workers’ effort. I test this classical prediction using a field experiment with trucking companies in Liberia. While monitoring technologies increase agents’ extrinsic incentives to provide effort, they also do not allow worker to show that he or she does not need these incentives to work hard, which can crowd out effort. Overall, this paper demonstrates that, while new monitoring technologies can dramatically raise some workers’ productivity in settings where employment contracts are difficult to enforce, their use may lower the productivity of some workers – those who are intrinsically motivated to work hard.

January 23
Monica Moriacco
"Market Power in Input Markets: Theory and Evidence from French Manufacturing"
Host: Alan Spearot
This paper documents the market power of large buyers in foreign input markets, and evaluates its effect on the aggregate economy. I develop an empirical methodology to consistently estimate buyer power at the firm level, and apply it using longitudinal data on trade and production of French manufacturing firms from 1996-2007. My results show that the buyer power of large French importers is substantial, concentrated in key sectors, and it correlates with the size and productivity of the firm. I then incorporate heterogeneous buyer power in a general equilibrium model, and show that it induces large distortionary effects on the aggregate economy, worth about 3% of gross manufacturing output in France. In spite of such output distortions, total real income could potentially increase, due to transfers of rents from the foreign to the domestic economy. My analysis suggests that policies that spur import market integration can play a role in stimulating aggregate production.

January 29
Yuhei Miyauchi
"Matching & Agglomeration: Theory and Evidence from Japanese Firm-to-Firm Trade"
Host: Alan Spearot
Why are economic activities geographically concentrated? In this paper, I argue that increasing returns in firm-to-firm matching is an important source of agglomeration. I open by providing reduced-form evidence of increasing returns in matching using a panel of firm-to-firm trade data covering over a million Japanese firms. Using unexpected supplier bankruptcies as an instrument, I show that the new supplier matching rate upon a supplier loss increases in locations and industries when there are more alternative suppliers, while this rate remains stable in the presence of other buyers looking for a match. Based on these findings, I develop a new structural trade model with dynamic firm-to-firm matching in input trade across space. In this economy, the presence of more suppliers increases input buyers' aggregate sales by improving the supplier matching rates and hence reducing production cost; this, in turn, attracts more suppliers to sell in the location. I calibrate the model to match the reduced-form estimates, and I show that this type of circular causation explains 7% and 16% of spatial inequality of the firm density and the real wages in Japan, respectively. Lastly, I analyze policies to promote economically lagged areas, and I find that (1) subsidies for input suppliers to sell in the target areas are much more effective than subsidies to produce in these areas in improving the welfare of these areas, and (2) improving transportation infrastructure initially decreases and then increases the welfare of the target areas.

January 30
Shoumitro Chaterjee
"Market Power and Spatial Competition in Rural India"
Host: Alan Spearot
In this paper, I argue that market power of intermediaries plays an important role in contributing to low incomes of farmers in India. I study the role of spatial competition between intermediaries in determining the prices that farmers receive in India by focusing on a law that restricts farmers to selling their goods to intermediaries in their own state. I show that the discontinuities in market power generated by the law translate into discontinuities in prices. Increasing spatial competition by one standard deviation causes prices received by farmers to increase by 6.4%. To shed light on spatial and aggregate implications, I propose and estimate a quantitative spatial model of bargaining and trade. Using this structural model, I estimate that the removal of the interstate trade restriction in India would increase competition between intermediaries substantially, thereby increasing the prices farmers receive and their output. Estimates suggest that average farmer prices and output would increase by at least 11% and 7% respectively. The value of the national crop output would therefore increase by at least 18%.

February 6
Lin Tian
"Division of Labor and Extent of Market: Theory and Evidence from Brazil"
Host: Alan Spearot
Firms are more productive in larger cities. This paper investigates a potential explanation that was first proposed by Adam Smith: Larger cities facilitate greater division of labor within firms. Using a dataset of Brazilian firms, I first document that division of labor is indeed robustly correlated with city size, controlling for firm size. I propose a theoretical model in which this relationship is generated by both a selection effect—firms endogenously sort across space—and a treatment effect—larger cities increase division of labor for all firms, by reducing the costs associated with greater division of labor. The model embeds a theory of firms' choice of the optimal division of labor in a spatial equilibrium model. Structural estimates derived from the model show that division of labor accounts for 16% of productivity advantage of larger cities in Brazil, half of which is due to firm sorting and the other half to the treatment effect of city size. The theory also generates a set of auxiliary predictions of firms' responses to a reduction in the cost of division of labor. Exploiting a quasi-experiment that changes the cost of division of labor within cities—the gradual roll-out of broadband internet infrastructure—I find causal empirical support for these predictions, which helps to validate the model. Finally, the quasi-experiment also provides validation for the structural estimation. The estimated model predicts changes in the average division of labor within different cities in response to the new broadband internet infrastructure, which I find are similar to the actual changes.

February 22
David Atkin, MIT
"How do we Choose our Identity? A Revealed Preference Approach using Food Consumption"
Host: Alan Spearot
Are identities fungible? How do people come to identify with specific groups? This paper proposes a revealed preference approach, using food consumption to uncover identity choices. We focus on ethnic and religious identities in India. We first show that consumption of identity goods (e.g. beef and pork) responds systematically to forces suggested by social identity research -- group status and group salience, with the latter proxied by Hindu-Muslim violence. Moreover, consistent with economic theory revealed identity choices respond to the cost of identifying with a group. We propose and estimate an appropriately modified demand system. Using these estimates, we quantify how the endogeneity of identity modified the effects of shocks following the 1991 economic reforms in India. While conflict and status have been at the focus of social identity research in recent decades, our results indicate that prices play a dominant role.  

March 1
Damon Clark, UC Irvine
How Much Does High School Pay? Evidence from Britain” 
Host: George Bulman
Would additional schooling improve the later-life outcomes of high school students at risk of dropping out? In this paper I exploit British compulsory schooling changes to estimate this return - comparing labor market outcomes of students who left high school at the earliest opportunity with students born a few days later who, because of a change in the compulsory schooling laws, were required to attend school for an extra year. I report estimates for a wide range of labor market outcomes.To interpret these estimates I draw on an in-depth survey of some of the affected students.

March 15
Matilde Bombardini, UBC
Host: Alan Spearot


Fall 2017

Thursday 1:403:00 p.m.
499 Engineering II

September 28
Natalie Cox, Princeton/SIEPR
"Pricing and Selection in the Student Loan Market: Evidence from Borrower Refinancing Decisions"
Host: George Bulman
Advances in data-driven underwriting have both efficiency and equity implications. In the $1.3 trillion student loan market, private lenders offer a growing distribution of risk-based interest rates, while the federal loan program sets a uniform price. I measure changes in consumer surplus that occur as low-risk types refinance out of the government pool into the private market. I use a dataset from an online refinancer to estimate a structural model that relates borrowers’ repayment choices to interest rates. I estimate refinancing increases low-risk surplus by $1,302, and show substantial distortionary costs (32% of the average transfer) under a pooled, uniform interest rate. To maintain access to the current uniform rate, the government must subsidize high-risk borrowers $1,507 on average.

October 19
Karthik Muralidharan, UC San Diego
“Disrupting Education? Experimental Evidence on Technology-Aided Instruction in India"
Host: Jon Robinson
We present experimental evidence on the impact of a personalized technology-aided after-school instruction program on learning outcomes. Our setting is middle-school grades in urban India, where a lottery provided winning students with a voucher to cover program costs. We find that lottery winners scored 0.36σ higher in math and 0.22σ higher in Hindi relative to lottery losers after just 4.5-months of access to the program. IV estimates suggest that attending the program for 90 days would increase math and Hindi test scores by 0.59σ and 0.36σ respectively. We find similar absolute test score gains for all students, but the relative gain was much greater for academically-weaker students because their rate of learning in the control group was close to zero. We show that the program was able to effectively cater to the very wide variation in student learning levels within a single grade by precisely targeting instruction to the level of student preparation. The program was cost effective, both in terms of productivity per dollar and unit of time. Our results suggest that well-designed technology-aided instruction programs can sharply improve productivity in delivering education.

October 24
Gustavo Bobonis, Toronto
"Vulnerability and Clientelism"
Host: Justin Marion
Political clientelism is often deemed to undermine democratic accountability and representation. This study argues that economic vulnerability causes citizens to participate in clientelism. We test this hypothesis with a randomized control trial that reduced household vulnerability through a development intervention: constructing residential water cisterns in drought-prone areas of Northeast Brazil.  This exogenous reduction in vulnerability significantly decreased requests for private benefits from local politicians, especially by citizens likely to be involved in clientelist relationships. We also link program beneficiaries to granular voting outcomes, and show that this reduction in vulnerability decreased votes for incumbent mayors, who typically have more resources to engage in clientelism. Our evidence points to a persistent reduction in clientelism, given that findings are observed not only during an election campaign, but also a full year later.

October 26
Laura Giuliano, UC Merced
"Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior"
Host: Justin Marion
We analyze how quits responded to arbitrary differences in own and peer wages at a large U.S. retailer. Regression-discontinuity (RD) estimates imply large causal effects of own wages on quits. However, this own-wage response could reflect comparisons either to market wages or to the wages of peers within the store. RD estimates based on peer wages show similarly large effects, and imply that the own-wage quit response mostly reflects peer comparisons. The peer-wage response cannot be explained by rational updating about own future wage growth, and it is driven by cases where the peers are paid more than the worker—suggesting that workers are concerned about fairness. After accounting for peer effects, quits appear fairly insensitive to wages—consistent with significant labor-market frictions.

November 9
Federico Echenique, Cal Tech
"On Multiple Discount Rates"
Host: Natalia Lazzati
We study the problem of resolving conflicting discount rates via a social choice approach. We introduce several axioms in this context, seeking to capture the tension between allowing for intergenerational comparisons of utility, and imposing intergenerational fairness. Depending on which axioms are judged appropriate, we are led to one of several conclusions: utilitarian, maxmin, or a multi-utilitarian approach, whereby a utility stream is judged by the worst in a set of utilitarian weighting schemes across discount rates.

November 16
Gordon Dahl, UC San Diego
"Intergenerational Spillovers in Disability Insurance"
Host: George Bulman
Does participation in a social program by parents have spillovers on their children's use of public assistance, future labor market outcomes, and human capital investments? From a policy perspective, what a child learns from his or her parents about employment relative to government support could matter for the financial stability of a variety of social insurance and safety net programs. While intergenerational concerns have figured prominently in policy debates for decades, the evidence base is scarce due to nonrandom participation and data limitations. In this paper we exploit a 1993 policy reform in the Netherlands which tightened disability insurance (DI) criteria for existing claimants, and use rich panel data to link parents to children's long-run outcomes. The key to our regression discontinuity design is that the reform applied to younger cohorts, while older cohorts were exempted from the new rules. We find that children of parents who were pushed out of DI or had their benefits reduced are 11 percent less likely to participate in DI themselves and earn two percent more in the labor market as adults. There is no effect on children's participation in other government safety net programs. As a result, intergenerational spillovers caused both reduced government transfers and increased tax revenue, resulting in 5,900 euros in cumulative child spillovers per treated parent by 2014. We find intriguing evidence that children anticipate a future with less reliance on DI, with treated children investing in an extra .12 years of schooling on average. Our findings have important implications for the evaluation of the costs and benefits of this and other policy reforms: ignoring parent-to-child spillovers underestimates the cost savings of the Dutch DI reform in the long run by almost 30 percent in present discounted value terms.

November 30
Ben Hansen, U of Oregon
"Drug Trafficking Under Parital Prohibition: Evidence from Recreational Marijuana"
Host: Jeremy West
Marijuana is partially prohibited: though banned federally, it will soon be available to 21% of U.S. adults under state statutes. A chief concern among policy makers is marijuana trafficking from states with legal markets elsewhere. We measure trafficking with a natural experiment. Oregon opened a recreational market on October 1, 2015, next to Washington’s existing market. Using administrative data with the universe of recreational market sales, we find Washington retailers along the Oregon border experienced a 41% decline in sales following Oregon's market opening. In counties that are the closest crossing point for the majority of neighboring counties, the estimated decrease grows to 58%, and is the largest for the biggest transactions.  

December 7
Matthew Freedman, UC Irvine
"Is Your Lawyer a Lemon? Incentives and Selection in the Public Provision of Criminal Defense"
Host: Justin Marion
Governments in the U.S. must offer free legal services to low-income people accused of crimes. These services are frequently provided by assigned counsel, who handle cases for indigent defendants on a contract basis. Court-assigned attorneys generally garner worse case outcomes than privately retained attorneys. Using detailed court records from one large jurisdiction in Texas, we find that the disparities in outcomes are primarily attributable to case characteristics and within-attorney differences across cases in which they are assigned versus retained. The selection of low-quality lawyers into assigned counsel and endogenous matching in the private market contribute less to the disparities.