support@economics.utoronto.ca (IT Support) support@economics.utoronto.ca (IT Support) Mon, 5 May 2025 13:05:27 EDT Department of Economics, University of Toronto en-ca 720 Research https://www.economics.utoronto.ca/index.php/index/research/workingPapers Working Papers http://www.dev.economics.utoronto.ca/templates/images/rss_deptlogo.jpg https://www.economics.utoronto.ca/index.php/index/research/workingPapers http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/799 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/799 Tue, 15 Apr 2025 00:00:00 EDT Existing work on imperfect competition typically focuses on either the labor market or the product market in isolation. In contrast, we analyze imperfect competition in both markets jointly, showing theoretically and empirically that focusing on one market in isolation may result in a limited or misleading picture of the degree and impacts of market power. Our empirical setting is the US construction industry. We develop, identify and estimate a model where construction firms imperfectly compete with one another for workers in the labor market and for projects in both the private market and the government market, where government projects are procured through auctions. Our analyses combine the universe of business and worker tax records with newly collected records from government procurement auctions. We use the estimated model to quantify the markdown of wages and the markup of prices, to show that the impacts of an increase in market power in one market are attenuated by the existence of market power in the other market, and to quantify the rents, rent-sharing, and incidence of procurements in the US construction industry. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/798 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/798 Thu, 20 Mar 2025 00:00:00 EDT We exploit substantial variation in land-market institutions across Indian states and detailed household-level panel data to assess the effect of land-market distortions on agricultural productivity. We develop a model of heterogeneous farms and distorted land markets, featuring (a) state-level barriers to land-market participation and (b) idiosyncratic (farm-level) distortions to farm size. We use the framework to separately identify and estimate the two sources of land-market distortions in each state using farm data on productivity, land endowment, land-market participation, and operational farm size. We find substantial differences across states in land-rental barriers with large negative effects on agricultural productivity. An efficient reallocation of land in India increases agricultural productivity by 65 percent and by more than 100 percent in some states, with more than 50% of these effects attributed to state-level rental barriers. Distortions associated with land-market participation contribute substantially to agricultural productivity differences across Indian states. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/797 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/797 Sat, 1 Mar 2025 00:00:00 EST Conventional wisdom suggests the planet’s current population is roughly twice what it should be for sustainability purposes and, due to prevailing high fertility rates (the number of live births per adult female) it continues to grow. Transition to a stable sustainable population level requires lowering the fertility rate for an extended period of time, followed by a return to a rate which will stabilize the sustainable level. However, by changing its age distribution which in turn changes the configuration of its population’s needs and the ability to service those needs, switching to a persistently low fertility rate presents an economy with some short run challenges. Here, to elucidate what those challenges could be, an overlapping generations model of the life cycle age distribution is developed and the time profiles of fertility rates over the last 60 years of over 200 nations are examined to see what the prospects for, and problems associated with, achieving a stable sustainable population could be. The good news is that fertility rates are on the right trajectory, the bad news is it will be a long time coming and the path is beset with short run fiscal policy challenges. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/796 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/796 Tue, 28 Jan 2025 00:00:00 EST We estimate causal effects of a pandemic-era wage subsidy in Canada on job losses and business closures. Our estimates use administrative microdata and a regression discontinuity strategy to estimate the effects of marginal changes in the wage subsidy rate. The estimated net wage elasticity of employment was 0.05 to 0.22, implying a small employment effect of the program and an estimated fiscal cost per job saved of more than $185,000 per year. Subsidy payments caused a small but persistent reduction in business closure rates during subsequent waves of the pandemic, and increased earnings of existing employees. In all, our results suggest the subsidies did little to preserve job matches, but played a greater role in the overall social insurance response to the pandemic. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/794 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/794 Wed, 22 Jan 2025 00:00:00 EST The opioid epidemic is often associated with economic hardship. We identify their causal relationship by estimating the effect of mass layoffs on opioid use and abuse in Denmark. This paper has three main contributions. First, we find the clearest evidence that economic conditions affect opioid use: individuals increase consumption by 65%, with evidence of abuse. Second, we disentangle indirect effects: spouses consume 40% more opioids. Third, we connect opioid demand (as we study) to the more prominent literature on supply, finding evidence that effects of layoffs are stronger in areas that have a large underlying supply of opioids. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/793 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/793 Thu, 16 Jan 2025 00:00:00 EST We study when and how randomization can help improve the seller's revenue in the sequential screening setting. In a model with discrete ex ante types and a continuum of ex post valuations, the standard approach based on solving a relaxed problem that keeps only local downward incentive compatibility constraints often fails. Under a strengthening of first-order stochastic dominance ordering on the valuation distribution functions of ex ante types, we introduce and solve a modified relaxed problem by retaining all local incentive compatibility constraints, provide necessary and sufficient conditions for optimal mechanisms to be stochastic, and characterize optimal stochastic contracts. Our analysis mostly focuses on the case of three ex ante types, but our methodology of solving the modified problem, as well as the necessary and sufficient conditions for randomization to be optimal, can be extended to any finite number of ex ante types. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/792 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/792 Thu, 16 Jan 2025 00:00:00 EST A seller of an indivisible good designs a selling mechanism for a buyer whose private information (his type) is the distribution of his value for the good. A selling mechanism includes both a menu of sequential pricing, and a menu of information disclosure about the realized value that the buyer is allowed to learn privately. In a model of two types with an increasing likelihood ratio, we show that under some regularity conditions the disclosure policy in an optimal mechanism has a nested interval structure: the high type is allowed to learn whether his value is greater than the seller's cost, while the low type is allowed to learn whether his value is in an interval above the cost. The interval of the low type may exclude values at the top of the distribution to reduce the information rent of the high type. Information discrimination is in general necessary in an optimal mechanism. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/791 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/791 Thu, 16 Jan 2025 00:00:00 EST We propose a dynamic persuasion model of product adoption, where an impatient, long-lived sender commits to a dynamic disclosure policy to persuade a sequence of short-lived receivers to adopt a new product. The sender privately observes a sequence of signals, one per period, about the product quality, and therefore the sequence of her posteriors forms a discrete-time martingale. The disclosure policy specifies ex ante how the sender's information will be revealed to the receivers in each period. We introduce a new concept called ``Blackwell-preserving kernels'' and show that if the sender's belief martingale possesses these kernels, the family of optimal strategies for the sender takes an interval form; namely, in every period, the set of martingale realizations in which adoption occurs is an interval. Utilizing this, we prove that if the sender is sufficiently impatient, then under a random walk martingale, the optimal policy is fully transparent up to the moment of adoption; namely, the sender reveals all the information she privately holds in every period. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/790 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/790 Thu, 16 Jan 2025 00:00:00 EST We study the welfare effects of price discrimination in a duopoly market with both captive and contested consumers. Using a unified information design approach, we characterize the best and worst market segmentations for producer surplus, consumer surplus, and social surplus. The firm-optimal segmentation, which divides the market into two nested segments, consistently harms consumers compared to uniform pricing. The consumer-optimal segmentation, which divides the market into a symmetric segment and a nested segment, sometimes leads to a Pareto improvement. Social surplus, if monotone in firm profit, is often maximized either by the firm-optimal or consumer-optimal segmentation. http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/789 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/789 Mon, 13 Jan 2025 00:00:00 EST In the leading model of bounded rationality in games, each player best-responds to their belief that the other players reason to some finite level. This paper investigates a novel behavior that could reveal if the player’s belief lies outside the iterative reasoning model. This encompasses a situation where a player believes that their opponent can reason to a higher level than they do. We propose an identification strategy for such behavior, and evaluate it experimentally.