Published and Forthcoming Papers
- Transportation Capital and its Effects on the US Economy: A General Equilibrium Approach. with Clifford Winston. Journal of Macroeconomics Volume 69, September 2021, 103334.
Abstract: We analyze the effect of the US transportation system on economic activity by building a quantitative dynamic general equilibrium model with a taxpayer-funded transportation capital stock. We highlight stark differences between the positive welfare effects of additional infrastructure spending in the long run, and its potentially negative effects when we account for the large transition (time and delay) costs to build. We also quantify large differences between the effects of additional infrastructure spending and efficient transportation policies, such as congestion pricing and eliminating laws that artificially inflate input prices, concluding that taxpayer-funded transportation improvements that increase GDP significantly may produce smaller welfare gains than efficient policies that increase GDP modestly.
Related Media: "The Wrong Way to Pay for Infrastructure," an op ed in Barron's related to the paper's findings (link)
- Predicting and decomposing why representative-agent and heterogeneous-agent models sometimes diverge . Economic Modelling, Volume 101, August 2021, 105528.
Abstract: Heterogeneous agent (HA) and representative agent (RA) models often give very different answers to important economic questions, even when studying the same phenomenon with the otherwise identical assumptions. There are a variety of reasons why HA and RA models may differ. This paper provides a formula that can be used to decompose the different response functions of HA and RA models into six major “mechanical” categories. Because solving HA models is costly, researchers using this formula are better able to predict when an HA model is unlikely to improve upon an RA model, and defend their use of an RA model without first solving the HA model. Moreover, when two models do diverge, this paper provides a framework for understanding mechanically why they diverged.
- Wedges, Wages, and Productivity under the Affordable Care Act with Casey B. Mulligan. National Tax Journal, vol. 71 (1), pp. 75-120 (March 2018) (Winner of the Richard A. Musgrave Prive for Best Article Published in 2018)
Abstract: Our paper documents the large labor market wedges created by taxes, subsidies, and regulations included in the Affordable Care Act. The law changes terms of trade in both goods and factor markets for firms offering health insurance coverage. We use a multi-sector (intra-national) trade model to predict and quantify consequences of the Affordable Care Act for the patterns of output, labor usage, and employee compensation. We find that the law will significantly redistribute from high-wage workers to low-wage workers and to non-workers, reduce total factor productivity about one percent, reduce per-capita labor hours about three percent (especially among low-skill workers), reduce output per capita about two percent, and reduce employment less for sectors that ultimately pay employer penalties.
- Is the labor wedge due to rigid wages? Evidence from the self-employed. Journal of Macroeconomics 2018, vol. 55 184-198
Abstract: A central goal of labor economics is explaining cyclical variation in hours worked. Procyclical hours can always be explained in a market clearing model with a residual tax wedge, the ``labor wedge." Convincing progress has been made in reducing the cyclical volatility in the labor wedge and therefore explaining movements in hours worked by amplifying technology shocks with endogenously rigid wages Hall (2005), Shimer (2010), and rigid wages in general. This paper demonstrates that the cyclical component of labor hours for the self-employed, who are not vulnerable to such frictions, is of comparable cyclicality and volatility as the cyclical component of labor hours for wage and salary workers, even conditioning on wages, consumption, and occupation-industry composition. This finding suggests that explaining the labor hours of the self-employed presents a new test for amplification mechanisms.
Papers Under Submission
- Broken Instruments (with Benjamin Raymond (Revise and Resubmit at Quantiative Economics)
Abstract: Repeated use of the same instrumental variable by a literature can “collectively invalidate" an instrument. This paper examines two ways in which this can happen. First, when the same instrumental variable is used to instrument multiple distinct covariates, it is more likely to violate the exclusion restriction. Second, when a variable is documented to affect many outcomes that are likely to be highly or even mildly persistent, using lagged values of that variable as an instrument is likely to violate the exclusion condition. This paper produces a dataset of approximately 960 instrumental variables papers from 1995-2019 in highly-ranked economics general interest and field journals. We find six commonly-used instruments whose literatures, taken together, suggest they are likely to fail the strict exogeneity condition: (i) elevation and bodies of water (ii) sibling structure (iii) ethnicity/ethnolinguistic fractionalization (iv) religion (v) weather and (vi) immigrant enclaves. Taken together, these instruments have been used in 86 “top five" publications and 317 well-ranked field or general interest journals, with 189 total uses cataloged from 2011 onwards. We conduct Monte Carlo exercises and suggest methods to determine whether or not an IV regression’s point estimates are likely to be correct.
Working Papers
- Are Income Differences Driven By Talent Or Tastes? Implications For Redistributive Taxation (with Ian Fillmore) .
Abstract: How much of a role must differences in taste play in income inequality? Filtering out idiosyncratic hours and income shocks from the NLSY79, and focusing on highly-attached prime-age males, we establish two important facts: both the standard deviation of hours by age and the correlation of hours and earnings by age are high and non-declining. We argue that both of these facts are inconsistent with a model in which talent plays a primary role in determining income variation. Fitting a simple model of human capital accumulation inspired by Neal and Rosen 2005 in which workers are heterogeneous in (i) their ability to accumulate human capital (talent) (ii) their preferences over consumption vs. leisure (taste) and (iii) their initial human capital in order to estimate the joint distribution of taste and talent, we find that heterogeneneity in taste plays a large role: 68% of income variation at age 44 is due solely to taste, rather than talent or initial conditions. We find that the moments driving this result are a high standard deviation in ``permanent" labor hours and a positive correlation between labor hours and earnings which does not decline over the lifecycle. Finally, we show that exchanging the sources of income variation changes utilitarian optimal tax rates significantly, particularly when heterogeneity is due to differences in the marginal utility of consumption, rather than leisure.
- Incentives, Distortions, and Peers. with Yana Gallen, Steven Levitt, and John List.
Abstract: In this paper, we present the results of a natural field experiment in which workers operated telephones soliciting funds for a major charity in the US. We find that incentives increase targeted performance at the cost of other dimensions of a worker’s task. Incentivized workers were paid for the fraction of pledges—promises to donate at a later date—which they secured. Pledges were 50% higher for callers paid a commission relative to callers paid a flat rate. However actual donations (excluding outliers) were 17% lower when a donor was called by a caller paid a commission rather than a flat rate. Incentives also caused workers to break the rules of their employment in order to increase their pay. Commission-based pay caused rule-breaking to nearly double. Finally, in our experiment, workers with different types of compensation worked at the same time and could observe one another’s performance. We use the randomization-induced variation in worker performance to study whether incentives benefit firms via peer-effects. We find no evidence that productivity increases spill over onto peers, however, we find that rule-breaking generated by incentives does spill over onto peers.
- Using Participant Behavior to Measure the Value of Social Programs.
Abstract: Social programs frequently have two effects on labor supply: an income effect and a wage effect. Programs produce a wage effect by linking benefits or program premiums to income, generating an implicit marginal tax rate on labor. Programs produce an income effect through the actual cash or in-kind transfer they provide. Conditional on wage and nonwage income elasticities, labor market responses to program structure ( or the lack thereof) reveal the value of program participation to beneficiaries. I study a public policy change in Tennessee that disenrolled 12% of its Medicaid population, and use simple calculations to estimate a cash value to beneficiaries of $0.26 cents per dollar spent. Using this same policy change, I estimate a richer model that allows for heterogeneity in family structure, wages, property income, and preferences over healthcare types. This method yields a value of Medicaid of $0.35 per dollar of spending. I find a high variance in the implied distribution of Medicaid's value to beneficiaries, but this high variance can be almost fully explained by the large variation in Medicaid expenditures across recipients.
- How do Flows affect Prices? Evidence from an Experiment on the U.S. Stock Market. (Ongoing)
Abstract: Signed volume moves prices, but why? A number of views have been advanced to explain the effect of flows on prices, such as (sloped) supply and demand, slow-moving or constrained capital, and asymmetric information. However, identifying trades are not caused by anticipated future price changes is difficult. In this paper, I propose a novel method of identification: experimentation on the U.S. stock market. I conduct approximately $3.5 million in randomized trades on the universe of non-financial U.S. common stocks in the NYSE, NASDAQ, and AMEX, randomizing stock, time, and volume traded. I find significant effects on subsequent bid, ask, and trade prices as well as volume but find no evidence of a unit root, with most results converging in a matter of minutes. I also produce a dataset of more than 20,000 exogenous trades available to all users of the TAQ data.
