Knowledge that Transforms

This paper studies housing markets where a subset of houses in a restricted area is available exclusively to a subset of “eligible” buyers. An empirical part shows that houses on Stanford campus (available only to faculty) trade at substantial discounts to comparable houses off campus. The theoretical part describes an assignment model with heterogeneous houses and buyers which predicts such discounts if the matchup of quality and buyer pools is sufficiently different inside versus outside the restricted area. The restriction can distort allocations by making eligible buyers choose either higher or lower qualities than ineligible buyers with the same characteristics.

Comprehensive data on consumption expenditures have historically not been collected in US longitudinal household surveys. The Panel Study of Income Dynamics (PSID) expanded its expenditure data collection in 1999 and 2005. We examine these new expenditure data, highlighting several unique features of the PSID data. We then compare the PSID expenditure data with those in the Consumer Expenditure Survey (CE). We document that the PSID data cover nearly the entire scope of the CE data, and the mean statistics of total expenditures compare favorably between the two surveys. However, significant differences remain for certain expenditure categories.

We propose a model of cycles of conflict and distrust. Overlapping generations of agents from two groups sequentially play coordination games under incomplete information about whether the other side consists of bad types who always take bad actions. Good actions may be misperceived as bad and information about past actions is limited. Conflict spirals start as a result of misperceptions but also contain the seeds of their own dissolution: Bayesian agents eventually conclude that the spiral likely started by mistake, and is thus uninformative of the opposing group's type. The agents then experiment with a good action, restarting the cycle.

We augment a standard monetary dynamic general equilibrium model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate over time. We refer to this measure of volatility as risk. We find that fluctuations in risk are the most important shock driving the business cycle.

We show that relaxing the assumption of CES preferences in monopolistic competition has surprising implications when trade is restricted. Integrated and segmented markets behave differently, the latter typically exhibiting reciprocal dumping. Globalization and lower trade costs have different effects. The former reduces spending on all existing varieties, the latter switches spending from home to imported varieties; when demands are less convex than CES, globalization raises whereas lower trade costs reduce firm output. Finally, calibrating gains from trade is harder. Many more parameters are needed, while import demand elasticities typically overestimate the true elasticities, and so underestimate the gains from trade.

This paper exploits a sharp reduction in patient cost sharing at age 70 in Japan, using a regression discontinuity design to examine its effect on utilization, health, and financial risk arising from out-of-pocket expenditures. Due to the national policy, cost sharing is 60–80 percent lower at age 70 than at age 69. I find that both outpatient and inpatient care are price sensitive among the elderly. While I find little impact on mortality and other health outcomes, the results show that reduced cost sharing is associated with lower out-of-pocket expenditures, especially at the right tail of the distribution.

We consider a growth model in which intergenerational transfers are made via stocks of private and public capital. Private capital is the outcome of individuals' private savings while decisions regarding public capital are made collectively. We hypothesize that private saving choices evolve through individual selection while public saving decisions are the result of group selection. The main result of the paper is that the equilibrium rate of return to private capital is at least 2–3 percent more than the rate of return to public capital. In other words, social choices involving intertemporal trade-offs exhibit much more patience than individual choices do.

Commercial health insurers in California use provider capitation payments to different extents. These are similar to arrangements introduced by the recent health reforms to give physicians incentives to control costs. In a previous paper we showed that patients whose insurers used capitation incentives traveled further to access lower-priced, similar-quality hospitals than other same-severity patients. This paper predicts the implied effects of a move to widespread capitation. We show that, if the introduction of capitation prompted low-capitation insurers to act like high-capitation insurers, this would generate a 4-5 percent cost saving with some reduction in patient convenience but no reduction in quality.

We study the Markov equilibria of a model of free riding in which n infinitely lived agents choose between private consumption and irreversible contributions to a durable public good. We show that the set of equilibrium steady states converges to a unique point as depreciation converges to zero. For any level of depreciation, moreover, the highest steady state converges to the efficient level as agents become increasingly patient. These results are in contrast to the case with reversible investments, where a continuum of inefficient equilibrium steady states exists for any level of depreciation, discount factor, and size of population.