(IT Support) (IT Support) Tue, 12 Dec 2017 13:01:04 EST Department of Economics, University of Toronto en-ca 720 Research U of T: Economics: Working Papers Working Papers U of T: Economics: Working Papers Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China by Tasso Adamopoulos, Loren Brandt, Jessica Leight, Diego Restuccia, Mon, 13 Nov 2017 00:00:00 EST We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture. The Effects of Land Markets on Resource Allocation and Agricultural Productivity by Chaoran Chen, Diego Restuccia, Raul Santaeulalia-Llopis, Sat, 11 Nov 2017 00:00:00 EST We assess the role of land markets on factor misallocation in Ethiopia--where land is owned by the state--by exploiting policy-driven variation in land rentals across time and space arising from a recent land certification reform. Our main finding from detailed micro data is that land rentals significantly reduce misallocation and increase agricultural productivity. These effects are nonlinear across farms--impacting more those farms farther away from their efficient operational scale. The effect of land rentals on productivity is 70 percent larger when controlling for non-market rentals--those with a pre-harvest rental rate of zero. Land rentals significantly increase the adoption of new technologies, especially fertilizer use. Relative Prices and Sectoral Productivity by Margarida Duarte, Diego Restuccia, Mon, 23 Oct 2017 00:00:00 EDT The relative price of services rises with development. A standard interpretation of this fact is that productivity differences across countries are larger in manufacturing than in services. The service sector comprises heterogeneous categories. We document that many disaggregated service categories--such as transportation, communication, and finance--feature a negative income elasticity of relative prices, whereas the relative price of aggregate services is mostly driven by large expenditure categories in housing, health, and education that feature a positive income elasticity of relative prices. We also document a substantial reallocation of expenditures in services from categories with positive income elasticities (traditional services) to categories with negative elasticities (non-traditional services) as income raises. Using an otherwise standard multi-sector development accounting framework extended to include an input-output structure, we find that the cross-country income elasticity of sectoral productivity is large in non-traditional services (1.14), smaller in manufacturing (1.06) and much smaller in traditional services (0.67). We also find that heterogeneity in services has a substantial impact on aggregate productivity and that the input-output structure is important in this assessment. Improving the fit of structural models of congestion by Jonathan D. Hall, Mon, 16 Oct 2017 00:00:00 EDT We need structural models of traffic congestion to answer a wide variety of questions, but the standard models fail to match the data on travel times across the day. I establish the nature and magnitude of the problem, and show its source lies in how we model agent preferences, not in the specifics of the congestion technology. The poor fit of the models suggests that we are abstracting away from features with a first-order impact on model predictions, which limits our ability to use these models to evaluate counterfactuals quantitatively and---when agents are heterogeneous---qualitatively as well. I explore several ways of improving the fit of these models, concluding with recommendations for tractable and intuitive ways of doing so. Rectangular latent Markov models for time-specific clustering by Gordon Anderson, Alessio Farcomeni, Grazia Pittau, Roberto Zelli, Fri, 22 Sep 2017 00:00:00 EDT A latent Markov model admitting variation in the number of latent states at each time period is introduced. The model facilitates subjects switching latent states at each time period according to an inhomogeneous first-order Markov process, wherein transition matrices are generally rectangular. As a consequence, latent groups can merge, split, or be re-arranged. An application analyzing the progress of well-being of nations, as measured by the three dimensions of the Human Development Index over the last 25 years illustrates the approach. Meetings and Mechanisms by Xiaoming Cai, Pieter Gautier, Ronald Wolthoff, Wed, 30 Aug 2017 00:00:00 EDT We analyze a market in which sellers compete for heterogeneous buyers by posting mechanisms. A general meeting technology governs how buyers and sellers meet. We introduce a one-to-one transformation of this meeting technology that helps to clarify and extend many of the existing results in the literature, which has focused on two special cases: urn-ball and bilateral meetings. We show that the optimal mechanism for sellers is to post auctions combined with a reserve price equal to their own valuation and an appropriate fee (or subsidy) which is paid by (or to) all buyers meeting the seller. Even when there are externalities in the meeting process, the equilibrium is efficient. Finally, we analyze the sorting patterns between heterogeneous buyers and sellers and show under which conditions high-value sellers attract more high-value buyers in expectation. More Unequal Yet More Alike: The Changing Anatomy of Constituent Canadian Income Distributions in the 21st Century. by Gordon Anderson, Jasmin Thomas, Tue, 1 Aug 2017 00:00:00 EDT The Canadian income distribution is a mixture of many very different constituent income distributions, Aboriginal–non-Aboriginal, Male–Female, Urban–Rural. In part, the extent to which they differ reflects the Inequity of Life Chances across those various constituencies, which has long been one focus of the Canadian political agenda. A core component of the equal opportunity imperative is that, conditional on circumstance and effort, each and all should have the same opportunity for income. Assuming innate efforts and abilities are commonly distributed across those constituencies, measuring the extent of "inequality of opportunity" is a matter of measuring the manner and extent to which constituent income distributions are unequal. This task is somewhat obfuscated by the counterintuitive fact (illuminated by a subgroup decomposition of the Gini coefficient) that a collection of distributions can simultaneously become more (less) equal and more (less) polarized. Thus, it is possible that constituencies can at once become less equal and yet, at the same time, have more in common. Here, in a study of the evolution of Income distributions of Aboriginal–Non-Aboriginal, Male–Female and Urban–Rural constituencies in Canada, three new tools are introduced for measuring the degree of segmentation and polarization in a collection of constituencies and the extent of ambiguity in an Income Wellbeing ordering of those constituencies. The study reveals increasing inequality coincident with diminishing segmentation and polarization in the first decade of the 21st century indicating some small advancement of the Equal Opportunity agenda. Vulnerability and Clientelism by Gustavo Bobonis, Paul Gertler, Marco Gonzalez-Navarro, Simeon Nichter, Tue, 11 Jul 2017 00:00:00 EDT Political clientelism is often deemed to undermine democratic accountability and representation. This study argues that economic vulnerability causes citizens to participate in clientelism. We test this hypothesis with a randomized control trial that reduced household vulnerability through a development intervention: constructing residential water cisterns in drought-prone areas of Northeast Brazil. This exogenous reduction in vulnerability significantly decreased requests for private benefits from local politicians, especially by citizens likely to be involved in clientelist relationships. We also link program beneficiaries to granular voting outcomes, and show that this reduction in vulnerability decreased votes for incumbent mayors, who typically have more resources to engage in clientelism. Our evidence points to a persistent reduction in clientelism, given that findings are observed not only during an election campaign, but also a full year later. Is Uber a substitute or complement for public transit? by Jonathan D. Hall, Craig Palsson, Joseph Price, Tue, 4 Jul 2017 00:00:00 EDT How Uber affects public transit ridership is a relevant policy question facing cities worldwide. Theoretically, Uber's effect on transit is ambiguous: while Uber is an alternative mode of travel, it can also increase the reach and flexibility of transit's fixed-route, fixed-schedule service. We use a difference-in-differences design to measure the effect of Uber on public transit ridership. The design exploits variation across U.S. metropolitan areas in both the intensity of Uber penetration (as measured using data from Google Trends) and the timing of Uber entry. We find that Uber is a complement for the average transit agency. This average effect masks considerable heterogeneity, with Uber being more of a complement in larger cities and for smaller transit agencies. Comparing the effect across modes, we find that Uber's impact on bus ridership follows the same pattern as for total ridership, though for rail ridership, it is a complement for larger agencies. Technology Adoption, Capital Deepening, and International Productivity Differences by Chaoran Chen, Mon, 5 Jun 2017 00:00:00 EDT Cross-country differences in capital intensity are larger in agriculture than in the non-agricultural sector. I build a two-sector model featuring technology adoption in agriculture. As the economy develops, farmers gradually adopt modern capital-intensive technologies to replace traditional labor-intensive technologies, as is observed in the U.S. historical data. Using this model, I find that technology adoption is key to explaining lower agricultural capital intensity and labor productivity in poor countries. By allowing for technology adoption, my model can explain 1.56-fold more in rich-poor agricultural productivity differences. I further show that land misallocation impedes technology adoption and magnifies productivity differences. Discriminatory Information Disclosure by Hao Li, Xianwen Shi, Mon, 29 May 2017 00:00:00 EDT A seller designs a mechanism to sell a single object to a potential buyer whose private type is his incomplete information about his valuation. The seller can disclose additional information to the buyer about his valuation without observing its realization. In both discrete-type and continuous-type settings, we show that discriminatory disclosure - releasing different amounts of additional information to different buyer types - dominates full disclosure in terms of seller revenue. An implication is that the orthogonal decomposition technique, while an important tool in dynamic mechanism design, is generally invalid when information disclosure is part of the design. Revealed Price Preference: Theory and Stochastic Testing by Rahul Deb, Yuichi Kitamura, John Quah, Joerg Stoye, Wed, 17 May 2017 00:00:00 EDT We develop a model of demand where consumers trade-off the utility of consumption against the disutility of expenditure. This model is appropriate whenever a consumer's demand over a strict subset of all available goods is being analyzed. Data sets consistent with this model are characterized by the absence of revealed preference cycles over prices. The model is readily generalized to the random utility setting, for which we develop nonparametric statistical tests. Our application on national household consumption data provides support for the model. The Causes and Costs of Misallocation by Diego Restuccia, Richard Rogerson, Wed, 10 May 2017 00:00:00 EDT Why do living standards differ so much across countries? A consensus in the development literature is that differences in productivity are a dominant source of these differences. But what accounts for productivity differences across countries? One explanation is that frontier technologies and best practice methods are slow to diffuse to low income countries. The recent literature on misallocation offers a distinct but complementary explanation: low income countries are not as effective in allocating their factors of production to their most efficient use. We provide our perspective on three key questions. First, how important is misallocation? Second, what are the causes of misallocation? And third, beyond the direct cost of lower contemporaneous output, are there additional costs associated with misallocation? A summary of our answers is as follows. Misallocation appears to be a substantial channel in accounting for productivity differences across countries, but the measured magnitude of the effects depends on the approach and context. Researchers have not yet found a dominant source of misallocation; instead, many specific factors seem to contribute a small part of the overall effect. Beyond the static cost of misallocation, we believe that the dynamic effects of misallocation on productivity growth are significant and deserve much more attention going forward. Empirical Models of Firms and Industries by Victor Aguirregabiria, Margaret Slade, Tue, 25 Apr 2017 00:00:00 EDT We review important developments in Empirical Industrial Organization (IO) over the last three decades. The paper is organized around six topics: collusion, demand, productivity, industry dynamics, interfirm contracts, and auctions. We present models that are workhorses in empirical IO, and describe applications. For each topic, we discuss at least one empirical application using Canadian data. Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity by Jose-Maria Da-Rocha, Marina Mendes Tavares, Diego Restuccia, Sat, 8 Apr 2017 00:00:00 EDT What accounts for differences in output per capita and total factor productivity (TFP) across countries? Empirical evidence points to resource misallocation across heterogeneous production units as an important factor. We study resource misallocation in a model where establishment-level productivity is endogenous and responds to the same policy distortions that create misallocation. In this framework, policy distortions not only misallocate resources across a given set of productive units (static effect), but also create disincentives for productivity improvement (dynamic effect) thereby affecting the productivity distribution and further contributing to lower aggregate output and productivity. The dynamic effect is substantial quantitatively. Reducing the dispersion in revenue productivity in the model by 25 percentage points to the level of the U.S. benchmark implies an increase in aggregate output and TFP by a factor of 2.9-fold. Improved resource allocation accounts for 42 percent of the gain, whereas the change in the productivity distribution accounts for the remaining 58 percent. Evaluating Strategic Forecasters by Rahul Deb, Mallesh Pai, Maher Said, Mon, 20 Feb 2017 00:00:00 EST Motivated by the question of how one should evaluate professional election forecasters, we study a novel dynamic mechanism design problem without transfers. A principal who wishes to hire only high quality forecasters is faced with an agent of unknown quality. The agent privately observes signals about a publicly observable future event, and may strategically misrepresent information to inflate the principal's perception of his quality. We show that the optimal deterministic mechanism is simple and easy to implement in practice: it evaluates a single, optimally timed prediction. We study the generality of this result and its robustness to randomization and noncommitment. Occupational Choice and Matching in the Labor Market by Eric Mak, Aloysius Siow, Fri, 3 Feb 2017 00:00:00 EST Integrating Roy with Becker, this paper studies occupational choice and matching in the labor market. Our model generates occupation earnings distributions which are right skewed, have firm fixed effects, and large changes in aggregate earnings inequality without significant changes in within firm inequality. The estimated model fits the earnings distribution both across and within firms in Brazil in 1999. It shows that the recent decrease in aggregate Brazilian earnings inequality is largely due to the increase in her educational attainment over the same years. A simulation of skilled biased technical change in the model also qualitatively fit the recent changes in earnings inequality in the United States. Complex-Task Biased Technological Change and the Labor Market by Colin Caines, Florian Hoffmann, Gueorgui Kambourov, Sat, 28 Jan 2017 00:00:00 EST In this paper we study the relationship between task complexity and the occupational wage- and employment structure. Complex tasks are defined as those requiring higher-order skills, such as the ability to abstract, solve problems, make decisions, or communicate effectively. We measure the task complexity of an occupation by performing Principal Component Analysis on a broad set of occupational descriptors in the Occupational Information Network (O*NET) data. We establish four main empirical facts for the U.S. over the 1980-2005 time period that are robust to the inclusion of a detailed set of controls, subsamples, and levels of aggregation: (1) There is a positive relationship across occupations between task complexity and wages and wage growth; (2) Conditional on task complexity, routine-intensity of an occupation is not a significant predictor of wage growth and wage levels; (3) Labor has reallocated from less complex to more complex occupations over time; (4) Within groups of occupations with similar task complexity labor has reallocated to non-routine occupations over time. We then formulate a model of Complex-Task Biased Technological Change with heterogeneous skills and show analytically that it can rationalize these facts. We conclude that workers in non-routine occupations with low ability of solving complex tasks are not shielded from the labor market effects of automatization. Land Misallocation and Productivity by Diego Restuccia, Raul Santaeulalia-Llopis, Wed, 25 Jan 2017 00:00:00 EST Using detailed household-level data from Malawi on physical quantities of outputs and inputs in agricultural production, we measure total factor productivity (TFP) for farms controlling for land quality, rain, and other transitory shocks. We find that operated land size and capital are essentially unrelated to farm TFP implying substantial factor misallocation. The aggregate agricultural output gain from a reallocation of factors to their efficient use among existing farmers is a factor of 3.6-fold. We directly link factor misallocation to severely restricted land markets as the vast majority of land is allocated by village chiefs and not marketed. In particular, the output gain from reallocation are 2.6 times larger for farms with no marketed land than for farms that only operate marketed land. Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China by Tasso Adamopoulos, Loren Brandt, Jessica Leight, Diego Restuccia, Tue, 3 Jan 2017 00:00:00 EST We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture.