We develop and estimate an equilibrium model of ability tracking in which schools decide how to allocate students into ability tracks and choose track-specific teacher effort; parents choose effort in response. The model is estimated using Early Childhood Longitudinal Study data. Our model suggests that a counterfactual ban on tracking would benefit low-ability students but hurt high-ability students. Ignoring effort adjustments would significantly overstate the impacts. We then illustrate the trade-offs involved when considering policies that affect schools’ tracking decisions. Setting proficiency standards to maximize average achievement would lead schools to redistribute their inputs from low- to high-ability students.

We study health-care provider agency and optimal payments, considering an expensive medication for dialysis patients. Using Medicare claims data we estimate a structural model of treatment decisions, in which providers differ in their altruism and marginal costs, and this heterogeneity is unobservable to the government. In a novel application of nonlinear pricing methods, we empirically characterize the optimal contracts in this environment. The optimal contracts eliminate medically excessive dosages and reduce expenditures, resulting in approximately $300 million in annual gains from better contracting. This approach could be applied to a broad class of problems in health-care payment policy. (JEL D64, D86, H51, I11, I13, J33, L21)

We develop and estimate a model of student study time choices on a social network. The model is designed to exploit unique data in the Berea Panel Study. Study time data allow us to quantify an intuitive mechanism for academic social interactions: own study time may depend on friend study time in a heterogeneous manner. Social network data allow us to embed study time and resulting academic achievement in an estimable equilibrium framework. We develop a specification test that exploits the equilibrium nature of social interactions and use it to show that novel study propensity measures mitigate econometric endogeneity concerns.