Soft reboot : the making of Hard Reset

textDirector, Writer and MFA Candidate Deepak Chetty will discuss his history as a filmmaker from an early age up until present day as well as the entire process of conceptualizing, creating, producing and finishing Hard Reset. Hard Reset, a science fiction thriller is the first short film out of UT3D and the first graduate thesis film shot natively in stereoscopic 3D in North America.Radio-Television-Fil

Interest Rates and Backward-Bending Investment

This paper studies the effect of interest rates on investment in an environment where firms make irreversible investments and learn over time. In this setting, changes in the interest rate affect both the cost of capital and the cost of delaying investment. These two forces combine to generate an aggregate investment demand curve that is always a backward-bending function of the interest rate. At low rates, increasing the interest rate stimulates investment by raising the cost of delay. Existing evidence supports the hypothesis that firms change the time at which they invest in response to changes in interest rates. The model also generates a rich set of additional predictions that can be tested empirically.

Why do Unemployment Benefits Raise Unemployment Durations? Moral Hazard vs. Liquidity

It is well known that unemployment benefits raise unemployment durations. This result has traditionally been interpreted as a substitution effect caused by a distortion in the price of leisure relative to consumption, leading to moral hazard. This paper questions this interpretation by showing that unemployment benefits can also affect durations through an income effect for agents with limited liquidity. The empirical relevance of liquidity constraints and income effects is evaluated in two ways. First, I divide households into groups that are likely to be constrained and unconstrained based on proxies such as asset holdings. I find that increases in unemployment benefits have small effects on durations in the unconstrained groups but large effects in the constrained groups. Second, I find that lump-sum severance payments granted at the time of job loss significantly increase durations among constrained households. These results suggest that unemployment benefits raise durations primarily because of an income effect induced by liquidity constraints rather than moral hazard from distorted incentives.

A General Formula for the Optimal Level of Social Insurance

In an influential paper, Baily (1978) showed that the optimal level of unemployment insurance (UI) in a stylized static model depends on only three parameters: risk aversion, the consumption-smoothing benefit of UI, and the elasticity of unemployment durations with respect to the benefit rate. This paper examines the key economic assumptions under which these parameters determine the optimal level of social insurance. A Baily-type expression, with an adjustment for precautionary saving motives, holds in a very general class of dynamic models subject to weak regularity conditions. For example, the simple reduced-form formula derived here applies with arbitrary borrowing constraints, endogenous insurance markets, and search and leisure benefits of unemployment. A counterintuitive aspect of this result is that the optimal benefit rate appears not to depend on (1) any benefit of UI besides consumption-smoothing or (2) the relative magnitudes of income and substitution effects in the link between UI benefits and durations. However, these parameters enter implicitly in the optimal benefit calculation, and estimating them can be useful in testing whether the values of the primary inputs are consistent with observed behavior.

Consumption Smoothing and the Welfare Consequences of Social Insurance in Developing Economies

Studies of risk in developing economies have focused on consumption fluctuations as a measure of the value of insurance. A common view in the literature is that the welfare costs of risk and benefits of social insurance are small if income shocks do not cause large consumption fluctuations. We present a simple model showing that this conclusion is incorrect if the consumption path is smooth because individuals are highly risk averse. Empirical studies find that many households in developing countries rely on inefficient methods to smooth consumption, suggesting that they are indeed quite risk averse. Hence, social safety nets may be valuable in low-income economies even when consumption is not very sensitive to shocks.

Consumption Commitments and Risk Preferences

Many households devote a large fraction of their budgets to "consumption commitments" -- goods that involve transaction costs and are infrequently adjusted. This paper characterizes risk preferences in an expected utility model with commitments. We show that commitments affect risk preferences in two ways: (1) they amplify risk aversion with respect to moderate-stake shocks and (2) they create a motive to take large-payoff gambles. The model thus helps resolve two basic puzzles in expected utility theory: the discrepancy between moderate-stake and large-stake risk aversion and lottery playing by insurance buyers. We discuss applications of the model such as the optimal design of social insurance and tax policies, added worker effects in labor supply, and portfolio choice. Using event studies of unemployment shocks, we document evidence consistent with the consumption adjustment patterns implied by the model.