A Slab in the Face: Building Quality and Neighborhood Effects

The quality of newly constructed single-family houses is usually homogeneous in and heterogeneous between neighborhoods. Such quality-clustering will be caused by the variation of natural amenities throughout a suburban area. Clustering will be enforced if the quality of neighboring buildings increases the value of newly constructed ones. To disentangle the natural amenity eect and the neighborhood eect, we use data from Berlin and exploit that the endogenous eect was weakened during the socialist period. Our results show that the exogenous variation caused by buildings constructed during this period still causes lower quality new buildings in the East of the city.housing supply, housing externality, natural experiment

New monetarist economics: methods

This essay articulates the principles and practices of New Monetarism, the authors' label for a recent body of work on money, banking, payments, and asset markets. They first discuss methodological issues distinguishing their approach from others: New Monetarism has something in common with Old Monetarism, but there are also important differences; it has little in common with Keynesianism. They describe the principles of these schools and contrast them with their approach. To show how it works in practice, they build a benchmark New Monetarist model and use it to study several issues, including the cost of inflation, liquidity, and asset trading. They also develop a new model of banking.Monetary policy

Dynamic Pricing and Inventory Management: Theory and Applications

We develop the models and methods to study the impact of some emerging trends in technology, marketplace, and society upon the pricing and inventory policy of a firm. We focus on the situation where the firm is in a dynamic, uncertain, and (possibly) competitive market environment. The market trends of particular interest to us are: (a) social networks, (b) sustainability concerns, and (c) customer behaviors. The two main running questions this dissertation aims to address are: (a) How these emerging market trends would influence the operations decisions and profitability of a firm; and (b) What pricing and inventory strategies a firm could use to leverage these trends. We also develop an effective comparative statics analysis method to address these two questions under different market trends. Overall, our results suggest that the current market trends of social networks, sustainability concerns, and customer behaviors have significant and interesting impact upon the operations policy of a firm, and that the firm could adopt some innovative pricing and inventory strategies to exploit these trends and substantially improve its profit. Our main findings are: (a) Network externalities (the monopoly setting). We find that network externalities prompt a firm to face the tradeoff between generating current profits and inducing future demands when making the price and inventory decisions, so that it should increase the base-stock level, and to decrease [increase] the sales price when the network size is small [large]. Our extensive numerical experiments also demonstrate the effectiveness of the heuristic policies that leverage network externalities by balancing generating current profits and inducing demands in the near future. (Chapter 2.) (b) Network externalities (the dynamic competition setting). In a competitive market with network externalities, the competing firms face the tradeoff between generating current profits and winning future market shares (i.e., the exploitation-induction tradeoff). We characterize the pure strategy Markov perfect equilibrium in both the simultaneous competition and the promotion-first competition. We show that, to balance the exploitation-induction tradeoff, the competing firms should increase promotional efforts, offer price discounts, and improve service levels. The exploitation-induction tradeoff could be a new driving force for the fat-cat effect (i.e., the equilibrium promotional efforts are higher under the promotion-first competition than those under the simultaneous competition). (Chapter 3.) (d) Trade-in remanufacturing. We show that, with the adoption of the very commonly used trade-in remanufacturing program, the firm may enjoy a higher profit with strategic customers than with myopic customers. Moreover, trade-in remanufacturing creates a tension between firm profitability and environmental sustainability with strategic customers, but benefits both the firm and the environment with myopic customers. We also find that, with either strategic or myopic customers, the socially optimal outcome can be achieved by using a simple linear subsidy and tax scheme. The commonly used government policy to subsidize for remanufacturing alone, however, does not induce the social optimum in general. (Chapter 4.) (d) Scarcity effect of inventory. We show that the scarcity effect drives both optimal prices and order-up-to levels down, whereas increased operational flexibilities (e.g., the inventory disposal and inventory withholding opportunities) mitigate the demand loss caused by high excess inventory and increase the optimal order-up-to levels and sales prices. Our extensive numerical studies also demonstrate that dynamic pricing leads to a much more significant profit improvement with the scarcity effect of inventory than without. (Chapter 5.) (e) Comparative statics analysis method. We develop a comparative statics method to study a general joint pricing and inventory management model with multiple demand segments, multiple suppliers, and stochastically evolving market conditions. Our new method makes componentwise comparisons between the focal decision variables under different parameter values, so it is capable of performing comparative statics analysis in a model where part of the decision variables are non-monotone, and it is well scalable. Hence, our new method is promising for comparative statics analysis in other operations management models. (Chapter 6.

Essays in Macroeconomics

abstract: This dissertation consists of two parts. The first part is about understanding the mechanism behind female labor supply movement over economic development. Female labor force participation follows a U-shape pattern over per capita GDP cross nationally as well as within some countries. This paper questions if this pattern can be explained through sectoral, uneven technological movements both at market and at home. For that I develop a general equilibrium model with married couples and home production. I defined multiple sectors both at home and in the market. And by feeding the model with uneven technological growth, I observe how participation rate moves over development. My results indicate that a decrease in labor supply is mainly due to structural transformation. Meaning, a higher technology in a large sector causes prices to go up in that sector relative to other. Hence, labor allocated to this sector will decrease. Assuming this sector has a big market share, it will decrease the labor supply. Also, I found that the increase in female labor supply is mostly because of movement from home to market as a result of a higher technological growth in the market. The second part is about developing a methodology to verify and compute the existence of recursive equilibrium in dynamic economies with capital accumulation and elastic labor supply. The method I develop stems from the multi-step monotone mapping methodology which is based on monotone operators and solving a fixed point problem at each step. The methodology is not only useful for verifying and computing the recursive competitive equilibrium, but also useful for obtaining intra- and inter-temporal comparative dynamics. I provide robust intra-temporal comparative statics about how consumption and leisure decisions change in response to changes in capital stock and inverse marginal utility of consumption. I also provide inter-temporal equilibrium comparative dynamics about how recursive equilibrium consumption and investment respond to changes in discount factor and production externality. Different from intra-temporal comparative statics, these are not robust as they only apply to a subclass of equilibrium where investment level is monotone.Dissertation/ThesisDoctoral Dissertation Economics 201

Essays in macroeconomics

This thesis provides three essays in macroeconomics. The first chapter analyzes trends in fertility and time allocation. Falling fertility rates have often been linked to rising female wages. However, over the last 30 years the US total fertility rate has been stable while female wages have continued to grow. Over the same period, women's hours spent on housework have declined, but men's have increased. A model with a shrinking gender wage gap is proposed capturing these trends. While rising relative wages increase women's labour supply, they also lead to a reallocation of home production from women to men, and a higher use of labour-saving inputs. Both are important in understanding why fertility did not decline further. The second chapter presents a life-cycle model with heterogeneous households and incomplete financial markets to study the implications of a reform that eliminates capital taxation. In the economy individuals differ in terms of their gender and marital status, and decision making within the couple is modelled as a contract under limited commitment. When capital taxes are set to zero, there is a strong increase in wealth accumulation that originates in dual earner households. Moreover, the policy change has important implications for the division of resources within the family and for households' insurance possibilities. The third chapter is motivated by the dramatic reshuffling in relative positions between East Asian and Latin American economies. It studies the dynamic response of a two- sector, manufacturing and agriculture, economy in the presence of import tariffs and export subsidies on manufacturing goods, similar to those that characterized government policy in these countries. It is shown that the response to these policies depends on the level of productivity in the agricultural sector. Quantitative work, however, finds that differences in agricultural productivities themselves are key in explaining the differential growth experiences

Groupthink: Collective Delusions in Organizations and Markets

I develop a model of (individually rational) collective reality denial in groups, organizations and markets. Whether participants' tendencies toward wishful thinking reinforce or dampen each other is shown to hinge on a simple and novel mechanism. When an agent can expect to benefit from other's delusions, this makes him more of a realist; when he is more likely to suffer losses from them this pushes him toward denial, which becomes contagious. This general "Mutually Assured Delusion" principle can give rise to multiple social cognitions of reality, irrespective of any strategic payoff interactions or private signals. It also implies that in hierachical organizations realism or denial will trickle down, causing subordinates to take their mindsets and beliefs from the leaders. Contagious "exuberance" can also seize asset markets, leading to evidence-resistant investment frenzies and subsequent deep crashes. In addition to collective illusions of control, the model accounts for the mirror case of fatalism and collective resignation. The welfare analysis differentiates valuable group morale from harmful groupthink and identifies a fundamental tension in organizations' attitudes toward free speech and dissent.

Essays in Consumption Inequality and the Allocation of Household Resources

This thesis consists of three self-contained papers in household economics. Each uses an empirically tractable life-cycle model of consumption and family labor supply to study aspects of economic behavior of households, such as the allocation of expenditure among household members or the allocation of spousal time across paid and non-paid activities. Emphasis is put on modelling intra-household interactions. The opening chapter examines how married people’s allocation of time responds to wages and the gender wage gap. It develops a life-cycle collective model for spouses who allocate time across market work, home production, and leisure. The model features lack of commitment to lifetime marriage and the gender wage gap affects intra-family bargaining power. Results from the PSID suggest that the narrowing gender wage gap since 1980 improved women’s bargaining power in the family resulting in a shift of household work from women to their husbands. The model is used to assess, counter factually, the implications of gender wage equality for family time allocations. The second chapter studies how individual and aggregate consumption in the family respond to idiosyncratic wage shocks using a collective life-cycle model that features public and private consumption, endogenous family labor supply, asset accumulation, correlated wage shocks, and lack of spousal commitment to lifetime marriage. Preliminary results from the PSID suggest strong labor and consumption response to wage shocks and that hours and consumption are substitute goods at the intensive margin of labor supply. Wages have an economically significant effect on intra-family bargaining powers. The last chapter studies theoretically the transmission of income shocks into consumption across households that exhibit unobserved preference heterogeneity. Heterogeneity is nonparametric and non separable from household preferences. I show how any moment of the distribution of consumption and labor supply elasticities can be identified with readily available household panel data. Identification does not rely on any specific parametrization of household preferences or their distribution

Cost Allocation: Methods, Principles, Applications

This book provides a theoretical framework for systematically evaluating the "pros" and "cons" of various methods. It also includes a series of case studies in cost allocation to give a sense of the real problems encountered in implementation. Among the examples treated are telecommunications pricing, multipurpose reservoir charges, and airport landing fees. Finally several articles address the broader fairness issues inherent in the pricing of public services. The history of the notion of the "just price" from medieval to modern times is discussed, together with observations on what principles seem to guide decisions in telecommunications rate cases in the United States. The connections between cost allocation, efficiency, and entry in the telecommunications market are also examined in two different contexts: the U.S. and France. The overall aim of the book is to provide theoretical foundations for using specific methods, to examine the distributional and fairness issues involved in cost allocation, and to give a sense of the practical problems encountered in implementation. The book will appeal to practitioners interested in what allocation methods are available, and to theorists concerned with their axiomatic foundations