October 20, 2015
Dear Recruiting Chair:
We are pleased to provide below the curriculum vitae and dissertation abstracts of the Penn
Economics Ph.D. students who seek employment in this year's job market. Also find in the
below table a summary indicating fields of interest and advisors' names.
Full dissertation abstracts and research papers will be supplied directly from the candidates
as they apply for positions. Each candidate is also responsible for having confidential letters
of recommendation sent upon request.
We encourage you to contact the faculty members who are most familiar with the students’
work (each vita contains a list of faculty references). Also, please feel free to contact either
of the placement officers.
If you or a member of your institution will be in the Philadelphia area and would like to meet
with some of our students, Kelly Quinn, our Graduate Group Coordinator, would be pleased
to arrange such interviews. She can be reached by phone 215-898-5691 or email at
kquinn@econ.upenn.edu.
If we can help in any way regarding the placement of this year's University of Pennsylvania
students, please call or e-mail us.
Sincerely,
Iourii Manovskii
Graduate Placement Officer
manovski@econ.upenn.edu
(215) 898-6880
IM-AP/kaq
Andrew Postlewaite
Graduate Placement Officer
apostlew@econ.upenn.edu
(215) 898-7350
UNIVERSITY OF PENNSYLVANIA
Department of Economics
3718 Locust Walk
Philadelphia, PA 19104-6297
Placement Officers:
Iourii Manovskii
Associate Professor of Economics
manovski@econ.upenn.edu
215-898-6880
Placement Coordinator
Kelly A. Quinn
Direct Line: 215-898-5691
Main Department: 215-898-7701
Fax: 215-573-2057
Andrew Postlewaite
Harry P. Kamen Professor of Economics
apostlew@econ.upenn.edu
215-898-7350
SUMMARY LISTING OF DOCTORAL STUDENTS SEEKING EMPLOYMENT, 2015/2016
Candidate Name
Murat Celik
celik@sas.upenn.edu
(215) 285-7848
Research Interest
Macroeconomics,
Economic Growth
Hongseok Choi
aitch.choi@gmail.com
+82 10 5115 2037
Selman Erol
erols@sas.upenn.edu
(215) 667-5036
Rong Hai
ronghai@uchicago.edu
(267)254-8866
Asset Pricing, Portfolio
Choice, Behavioral
Finance (Ambiguity)
Network Formation,
Economic Theory
Ju Hu
Juhu1@sas.upenn.edu
(267) 909-1250
Junwen (Caroline) Liu
junwenl@sas.upenn.edu
(215) 688-1211
Microeconomic Theory,
Game Theory, Dynamic
Games
Labor Economics, Public
Economics, Education,
Consumer Finance
Ekim Muyan
muyan@sas.upenn.edu
(267) 994-6081
Political Economics,
Development Economics,
Public Economics
Daniel Neuhann
neuhann@sas.upenn.edu
(646) 238-3915
Macroeconomics,
Financial Economics,
Financial Institutions
Francisco Silva
fsilva@sas.upenn.edu
(215) 421-4450
Vesa-Heikki Soini
soini@sas.upenn.edu
(267) 252-4408
Applied Microeconomic
Theory, Public Economics,
Law and Economics
Macroeconomics,
Financial Economics,
Labor Economics
Health Economics, Public
Economics, Labor
Economics, Household
Finance
Job Market Paper
Does the Cream Always
Rise to the Top? The
Misallocation of Talent
in Innovation
Learning under
Ambiguous Reversion
Faculty Advisor, Email
Ufuk Akcigit
uakcigit@uchicago.edu
Jeremy Greenwood
Network Hazard and
Bailouts
Rakesh Vohra
rvohra@sas.upenn.edu
A Dynamic Model of
Health, Education and
Wealth with Credit
Constraints and Rational
Addiction (with James J.
Heckman)
Biased Learning and
Permanent Reputation
Kenneth Wolpin
Kenneth.I.Wolpin@rice.edu
The Effects of Tuition
and Student Loan
Policies on College
Outcomes and Lifetime
Earnings
Public Investment and
Preference Aggregation
under Alternative
Decentralization
Institutions
Macroeconomic Effects
of Secondary Market
Trading
Hanming Fang
hanming.fang@econ.upenn.edu
The Optimal Design of a
Criminal Justice System
Andrew Postlewaite
apostlew@econ.upenn.edu
Academic Specialization
and Misallocation of
Skills in the Labor
Guillermo Ordonez
ordonez@econ.upenn.edu
Domenico Cuoco
cuoco@wharton.upenn.edu
George Mailath
gmailath@econ.upenn.edu
Antonio Merlo
amerlo@rice.edu
Harold Cole
coleh@sas.upenn.edu
Yu Wang
wangyu5@sas.upenn.edu
(215) 919-1358
Labor, Public, Political
Economy, Education
Chunzan Wu
chunzan@sas.upenn.edu
(530) 219-7231
Macroeconomics, Public
Finance, Labor Economics,
Computational Economics
YinYin Yu
yinyiny@sas.upenn.edu
(410) 979-6345
Education, Industrial
Organizations, Applied
Microeconomics
Market
The Impact of Student
Debt on the Education,
Career, and Marriage
Choices of Female
Lawyers
More Unequal Income
but Less Progressive
Taxation: Economics or
Politics?
The Intended and
Unintended
Consequences of
Regulating For-Profit
Colleges: A Model of
Enrollment and
Retention
Holger Sieg
holgers@econ.upenn.edu
Dirk Krueger
dkrueger@econ.upenn.edu
Hanming Fang
hanming.fang@econ.upenn.edu
MURAT A CELIK
https://economics.sas.upenn.edu/graduate-program/candidates/murat-celik
celik@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
MANOVSKI@ ECON. UPENN.EDU
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
APOSTLEW@ECON.UPENN.EDU
KQUINN @ ECON. UPENN.EDU
215-898-6880
215-898-7350
215-898-5691
Office Contact Information
3718 Locust Walk, 160 McNeil Building
Philadelphia, PA, 19104
Phone: +1 (215) 285-7848
Personal Information: September 26, 1987, Male, Turkish, F-1 Visa.
Undergraduate Studies:
Bachelor of Arts, Economics (Minor in Mathematics), Sabanci University, Valedictorian, 2010
Graduate Studies:
University of Pennsylvania, 2010 to present
Thesis Title: “Essays on Building Growth from Ideas”
Expected Completion Date: June 2016
Thesis Committee and References:
Professor Ufuk Akcigit (advisor)
Department of Economics
University of Chicago
1126 E 59th Street
Chicago, IL, 60637
+1 (773) 702-0433
uakcigit@uchicago.edu
Professor Daron Acemoglu
Department of Economics
Massachusetts Institute of Technology
77 Massachusetts Avenue
Building E18, Room 269D
Cambridge, MA, 02142
+1 (617) 253-1927
daron@mit.edu
Professor Jeremy Greenwood (advisor)
Department of Economics
University of Pennsylvania
3718 Locust Walk, 160 McNeil Building
Philadelphia, PA, 19104
+1 (215) 898-1505
recommendations@jeremygreenwood.net
Teaching and Research Fields:
Macroeconomics, Economic Growth
Teaching Experience:
Spring, 2014
Fall, 2013
Spring, 2012-2013
Fall, 2012
Fall, 2012
Fall, 2011
Money and Banking, Teaching Assistant for Prof. Harold Cole
Introduction to Microeconomics, Instructor
Graduate Macroeconomic Theory II, Recitation Instructor for Prof. Harold
Cole and Prof. Jeremy Greenwood
Economics of Family, Teaching Assistant for Prof. Jeremy Greenwood
Decision Making, Teaching Assistant for Prof. Anqi Li
Intermediate Macroeconomics, Recitation Instructor for Prof. Jesus
Fernandez-Villaverde
Professional Activities:
Presentations:
Macroeconomics Across Time and Space (Federal Reserve Bank of Philadelphia
and NBER) (scheduled - 2015)
Globalisation and Economic Policy (U of Nottingham) (2015)
Annual Meeting of the Society for Economic Dynamics (2014)
Bilkent University Macroeconomics Jamboree (2014)
Koc University Winter Workshop (2013)
Sabanci University Seminar (2013)
University of Pennsylvania Macro Club (2013, 2014, 2015)
Referee for:
International Economic Review, Review of Economic Dynamics
Honors, Fellowships and Awards:
2015-2016
SAS Dissertation Completion Fellowship (University of Pennsylvania)
2014-2015
Maloof Family Dissertation Fellowship in Economics
2010-2015
Lawrence R. Klein Fellowship
2010-2011
Pew Presidential Fellow
2010
Sakip Sabanci Award (Sabanci University Valedictorian)
Publications in Journals:
“Buy, Keep, or Sell: Economic Growth and the Market For Ideas” (with Ufuk Akcigit and Jeremy
Greenwood, Econometrica, forthcoming)
This paper develops an operational concept of technological propinquity between new ideas which are
the seeds of economic growth, and the firms which transform these ideas into consumer products and
processes. The empirical analysis, conducted by combining firm balance sheet data of U.S. public firms
with patent grant and sale micro data from the United States Patent and Trademark Office, reveals three
new stylized facts: (1) Patents that are (technologically) closer to the innovating firm contribute more to
its market value. (2) Patents that are more distant are more likely to be sold to other firms. (3) When a
patent is transferred between two firms, it is closer to the buyer firm than the seller firm on average. An
endogenous growth model is developed in accordance with these facts, where each period firms invest in
researching and developing new ideas. An idea increases a firm's productivity. By how much depends on
the technological propinquity between an idea and the firm's line of business. Ideas can be bought and
sold on a market for patents. A firm can sell an idea that is not relevant to its business or buy one if it
fails to innovate. The developed model is matched up via indirect inference with the obtained stylized
facts about the market for patents in the United States. The calibrated model is then used to gauge how
efficiency in the patent market affects economic growth.
Research Papers:
“Does the Cream Always Rise to the Top? The Misallocation of Talent in Innovation” (Job Market
Paper)
The misallocation of talent between routine production versus innovation activities is found to have a
first-order impact on the welfare and growth prospects of an economy. Surname level empirical analysis
employing micro-data on patents and inventors in the United States between 1975-2008 combined with
census data from 1930 reveals new stylized facts: (1) People with from richer backgrounds have a higher
probability of becoming an inventor. (2) People from more educated backgrounds become more prolific
inventors. Motivated by this discrepancy, a heterogeneous agents model with production and innovation
sectors is developed, where individuals can become inventors even if they are of mediocre talent by
excessive spending on credentialing. This is individually rational but socially inefficient. The model is
calibrated to match the new stylized facts and data moments from the U.S. economy, and is then used to
measure the magnitude of the misallocation of talent in innovation. A thought experiment in which the
credentialing spending channel is shut down reveals that the aggregate growth rate of the economy can
be increased by 10% of its value through a reduction of misallocation. Optimal progressive bequest taxes
that alleviate the misallocation are calculated. This serves to increase social welfare by 6.20% in
consumption equivalent terms.
“Young, Restless, and Creative: Openness to Disruption and Creative Innovations” (with Daron
Acemoglu and Ufuk Akcigit, Submitted)
Openness to new, unconventional and disruptive ideas is argued to have a first-order impact on creative
innovations that break new ground in terms of knowledge creation. A motivating model focusing on the
choice between incremental and radical innovation is developed. This choice has implications for how
managers of different ages and human capital are sorted across firms that differ in terms of openness to
disruption. Empirical analysis presents firm-level, patent-level and cross-country evidence consistent
with the predictions of the model. Creativity of innovations as embodied in U.S. patents is measured
using different metrics such as the average number of citations per patent, the fraction of superstar
inventors, the likelihood of being at the tail of the citation distribution and generality in terms of the
technology classes of citing patents. Based on the idea that only companies or societies open to
disruption will allow the young to rise up within the hierarchy, the main proxy chosen for this
unobserved characteristic is manager age. Using the manager age proxy at the firm, patent and country
levels, we present robust evidence that once the effect of the sorting of young managers to firms that are
more open to disruption is factored in, the (causal) impact of manager age on creative innovations is
small. Hence, it is concluded that the firms (and countries) which hire younger managers are more
creative because of their unobserved openness to disruption characteristic, as opposed to the direct effect
of hiring young managers instead of older ones.
“Patents as Collateral and Directed Technological Change” (Research in progress with Ufuk
Akcigit, Olga Itenberg and Guillermo Ordonez)
In recent years, and in spite of their intangible nature, patents have been increasingly used as collateral.
We show that this financial innovation has disproportionately drawn firm entry into more crowded
innovative industries, those where patents are easier to trade. We study the effects of the use of patents
as collateral in a multi-sector endogenous growth framework with expanding input varieties, where the
intermediate sectors differ in market size. Our model predicts that the use of patents as collateral directs
future technological progress towards sectors with more patenting firms, which are not necessarily the
most productive sectors. Even though the use of patents as collateral relaxes financial frictions, they also
have the potential to direct technological innovation inefficiently, which we explore quantitatively.
Languages: English (fluent), German (advanced), Turkish (native).
Computational Skills: Matlab, Fortran, C++, Stata.
Dissertation Abstract
Murat A. Celik – University of Pennsylvania, Department of Economics
In my dissertation, I study the interplay between innovation and economic growth with an emphasis on the
misallocation of ideas and talent. The first chapter analyzes the link between the misallocation of talent and
innovation, asking the question whether the talented people in the society are given the chance to create new
innovations that enhance social welfare. The second chapter focuses on the allocation of the innovations
themselves, considering the optimal allocation of ideas across firms, and how it can be achieved via a market for
ideas. The last chapter investigates why some organizations and societies are more prolific than others in
coming up with radical, path-breaking innovations, and marshals evidence showing that the cause might be the
“openness to disruption” in their culture. Taken together, I document an array of new empirical facts from
micro-data on innovation, propose new ways to better understand the link between innovation and economic
growth, and offer government policies that can help in increasing long-run growth and social welfare.
Chapter 1: Does the Cream Always Rise to the Top? The Misallocation of Talent and Innovation (Job Market
Paper)
The misallocation of talent between routine production versus innovation activities in the United States is
investigated, and found to have a first-order impact on the welfare and growth prospects of the economy.
Empirical analysis combines micro data on patents granted in the United States and their inventors from 19752008 with U.S. census data from 1930 by using surnames as a linking proxy. The analysis reveals two new
stylized facts: (1) People from richer backgrounds have a higher probability of becoming an inventor; but this is
not the case for those from more educated backgrounds. (2) People from more educated backgrounds become
much more prolific inventors; but those from richer backgrounds exhibit no such aptitude.
Motivated by this discrepancy, a new model which can accommodate the observed correlation patterns is
developed. Firms undertake routine production using unskilled labor, and generate productivity-improving
innovations (featuring positive intertemporal spillovers between firms) via research and development
conducted by hired inventors. The households are heterogeneous in wealth, education, and unobserved innate
ability that is persistent across generations. Parents invest in the education of their offspring and leave
bequests. The training necessary to become inventors is scarce; hence individuals compete against each other in
a tournament setting to receive it. Factors that improve inventor productivity such as innate ability and
education increase the probability of receiving this training; but so does private credentialing spending which is
unproductive by itself. Thus, individuals who inherit generous bequests can become inventors even if they are of
mediocre talent through excessive spending on credentialing, preventing more talented individuals from poorer
backgrounds from becoming one. This is individually rational but socially inefficient; reducing the quality of the
inventor pool used in generating productivity-improving innovations that drive economic growth.
The model is calibrated to match the new stylized facts and data moments from the U.S. economy where an
exercise in indirect inference pins down the influence of the new credentialing spending channel by replicating
the two regressions from the empirical analysis using model-generated data. The calibrated model is then used
to measure the economic importance of the misallocation of talent in innovation. A thought experiment in
which the credentialing spending channel is shut down reveals that the aggregate growth rate of the economy
can be increased by 10% of its value by assigning more talented and better educated individuals as inventors,
while improving welfare by 5.96%. Seeking to alleviate the effects of misallocation in a decentralized economy,
optimal progressive bequest taxes are calculated, which are found to increase social welfare by 6.20% in
consumption equivalent terms.
Chapter 2: Buy, Keep or Sell: Economic Growth and the Market for Ideas (with Ufuk Akcigit and Jeremy
Greenwood) – Econometrica, forthcoming
This paper develops an operational concept of technological propinquity between new ideas which are the
seeds of economic growth, and the firms which transform these ideas into consumer products and processes.
The empirical analysis, conducted by combining firm balance sheet data of U.S. public firms with patent grant
and sale micro data from the United States Patent and Trademark Office, reveals three new stylized facts: (1)
Patents that are (technologically) closer to the innovating firm contribute more to its market value. (2) Patents
that are more distant are more likely to be sold to other firms. (3) When a patent is transferred between two
firms, it is closer to the buyer firm than the seller firm on average. An endogenous growth model is developed in
accordance with these facts, where each period firms invest in researching and developing new ideas. An idea
increases a firm's productivity. By how much depends on the technological propinquity between an idea and the
firm's line of business. Ideas can be bought and sold on a market for patents. A firm can sell an idea that is not
relevant to its business or buy one if it fails to innovate. The developed model is matched up via indirect
inference with the obtained stylized facts about the market for patents in the United States. The calibrated
model is then used to gauge how efficiency in the patent market affects economic growth.
Chapter 3: Young, Restless and Creative: Openness to Disruption and Creative Innovations (with Daron
Acemoglu and Ufuk Akcigit) – Submitted
Openness to new, unconventional and disruptive ideas is argued to have a first-order impact on creative
innovations that break new ground in terms of knowledge creation. A motivating model focusing on the choice
between incremental and radical innovation is developed. This choice has implications for how managers of
different ages and human capital are sorted across firms that differ in terms of openness to disruption. Empirical
analysis presents firm-level, patent-level and cross-country evidence consistent with the predictions of the
model. Creativity of innovations as embodied in U.S. patents is measured using different metrics such as the
average number of citations per patent, the fraction of superstar inventors, the likelihood of being at the tail of
the citation distribution and generality in terms of the technology classes of citing patents. Based on the idea
that only companies or societies open to disruption will allow the young to rise up within the hierarchy, the main
proxy chosen for this unobserved characteristic is manager age. Using the manager age proxy at the firm, patent
and country levels, we present robust evidence that once the effect of the sorting of young managers to firms
that are more open to disruption is factored in, the (causal) impact of manager age on creative innovations is
small. Hence, it is concluded that the firms (and countries) which hire younger managers are more creative
because of their unobserved openness to disruption characteristic, as opposed to the direct effect of hiring
young managers instead of older ones.
HONGSEOK CHOI
aitch.choi@gmail.com
+82 10 5115 2037
https://economics.sas.upenn.edu/graduate-program/candidates/hongseok-choi
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN@ECON.UPENN.EDU
(215) 898-6880
(215) 898-7350
(215) 898-5691
Office Contact Information
432 Danjae Building
Republic of Korea Air Force Academy
635 Danjae-ro, Sangdang-gu
Cheongju, 28187, Republic of Korea
+82 43 290 6516
Personal Information
Citizen of the Republic of Korea
Undergraduate Studies
B.Sc. in Physics and B.A. in Economics, Seoul National University, Summa cum Laude, 2002-2006
Graduate Studies
Ph.D. in Economics, University of Pennsylvania, 2006-2012
Dissertation Title: “Essays on Learning under Ambiguity”
Dissertation Committee and References
Professor Domenico Cuoco
Department of Finance
University of Pennsylvania
3620 Locust Walk
Philadelphia, PA 19104
cuoco@wharton.upenn.edu
(215) 898-8290
Professor Philipp Karl Illeditsch
Department of Finance
University of Pennsylvania
3620 Locust Walk
Philadelphia, PA 19104
pille@wharton.upenn.edu
(215) 898-3477
Professor Dirk Krueger
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA 19104
dkrueger@econ.upenn.edu
(215) 573-1424
Professor Andrew Postlewaite
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA 19104
apostlew@econ.upenn.edu
(215) 898-7350
Teaching and Research Fields
Primary Fields: Asset Pricing, Portfolio Choice, Behavioral Finance (Ambiguity)
Secondary Field: Microeconomic Theory
Research Experience and Other Employment
Feb. 2013 to Nov. 2015 Assistant Professor of Economics, Republic of Korea Air Force Academy1
Summer 2008
Research Assistant for Professor Larry Selden at Columbia Business School
Teaching Experience
Republic of Korea Air Force Academy, 2013-2015
Introduction to Economics (Spring 2013 to Spring 2015)
Microeconomics (Fall 2013 and Fall 2015)
Macroeconomics (Spring 2013 and Spring 2014)
Game Theory (Spring 2014 and Spring 2015)
Public Economics (Fall 2014 and Fall 2015)
University of Pennsylvania, 2007-2010
Spring 2010 Statistics for Economists, Recitation Instructor for Professor XunTang
Fall 2009
Statistics for Economists, R.I. for Professor Suleyman Ozmucur
Spring 2009 Introduction to Econometrics, R.I. for Professor Kyungchul (Kevin) Song
Fall 2008
Introduction to Microeconomics, R.I. for Professor Uriel Spiegel
Spring 2008 International Economics, Teaching Assistant for Professor Wilfred Ethier
Fall 2007
Introduction to Economics for Business, R.I. for Professor Rebecca Stein and
Professor Gwen Eudey
Presentations
2014
2015
Seoul National University
Korea University Finance Department, 11th Annual Conference of the Asia-Pacific
Association of Derivatives, Korea University Mathematics Department, Korea
Institute of Finance, Yonsei University
Honors and Scholarships
2003-2006
Scholarship, Korea Foundation for Advanced Studies
2000
Bronze Medal, Republic of Korea National Physics Olympiad
Programming Languages
Mathematica, MATLAB, Fortran
1
As part of compulsory military service (September 2012 to November 2015, 39 months).
Job Market Paper
“Learning under Ambiguous Reversion”
The question of whether returns and growth rates are predictable is yet to be resolved. This paper
considers learning under such ambiguous circumstances, or, more specifically, when mean reversion in
the state variables is plausible but not certain. The basic idea is that the agent as a result entertains
multiple theories close to those of mean reversion and uses only sufficiently plausible ones in predicting
the outcomes of the immediate future. A novel measure of market uncertainty is identified and its
dynamics explicitly characterized up to a system of differential equations that generalizes the KalmanBucy filter in the presence of model uncertainty. Asset pricing applications show that (i) learning under
ambiguity induces a declining trend in the equity premium, (ii) an improvement in the quality of public
information can increase the equity premium, and (iii) the component premium for bearing ambiguity
exhibits hysteresis with respect to and furthermore can comove negatively with the conditional variance
of returns, thereby obfuscating the relationship of the latter with the total equity premium.
Research Paper in Progress
“Ambiguous Returns, Learning, and Portfolio Choice”
This paper considers the portfolio choice of a log investor who learns under model uncertainty.
Specifically, the investor entertains a “neighborhood” of her benchmark theory that expected returns are
mean-reverting and uses the candidate theories that are sufficiently plausible vis-à-vis observed returns,
in predicting future returns. After calibrating the model to U.S. stock market data (Barberis, 2000), I
numerically compute the optimal Markov policy and observe that ignoring learning under ambiguity can
result in a significant underestimation of hedging demand. Most notably, even with a moderate degree of
ambiguity (1% point in annual terms) in the equity premium, the unconfident log investor sells short an
amount of the risky asset worth half of her wealth when the point estimate of the equity premium is zero.
I also observe that the hedging demand reflects the agent’s desire to eliminate the effect of
misspecification on continuation utility, and that the related model of learning under ambiguity by Miao
(2009) is a limiting case of the present model.
Learning under Ambiguity and Its Financial Implications:
When Mean-Reversion in the Latent Variables Is Plausible but Not Certain
Hongseok Choi
University of Pennsylvania
Learning under Ambiguous Reversion (Job Market Paper) In the more realistic class of
economic models, agents only partially observe the economy—variables of interest such as growth
rates are noisy observations of some “state variables.” In these models, how agents estimate the
state of the economy, what the risk involved in the estimation is, and how the estimate and the
estimation risk evolve over time, are central questions leading to distinct economic implications.
However, these models are still demanding too much knowledge and confidence from agents.
Consider, for example, the growth of dividends. While some authors find it unpredictable (Cochrane,
2008), others reject the null hypothesis of random walk (Binsbergen and Koijen, 2010); and
accordingly, expected dividend growth rates have been assumed at some instances to be constant
and at others to be time-varying following an AR(1), a regime-switching, or some other process. This
divergence of opinion among their modelers notwithstanding, agents in economic models behave as
if they knew the governing dynamics of the economy.
In this context, this paper relaxes the assumption of incomplete information a step further to
model uncertainty and investigates how agents estimate the generating process of the state of the
economy, what the ambiguity involved in the estimation is, how the estimate and the estimation
ambiguity evolve over time, and ultimately, how this learning under ambiguity affects asset returns.
A key aspect of this work is that it incorporates an intuitive and familiar way to learn under
ambiguity into an axiomatically founded framework of preferences, recursive multiple-priors utility
(Chen and Epstein, 2002). As its name suggests, recursive multiple-priors utility differs from the
traditional recursive utility in that in the recursive representation, the expectation against a unique
one-step-ahead conditional is replaced by the minimum of expectations over a set of one-step-head
conditionals. The size of the last set, in particular, is interpreted to represent that of the conditional
ambiguity associated with one-step-ahead uncertainties. Importantly, the theory of recursive multiplepriors utility is silent as to where the one-step-ahead conditionals come from, just as Savage’s is
regarding the unique prior, and it is thus up to the modeler to specify them. In this paper, then, I
propose that they come from multiple a priori theories and successive hypothesis tests.
The main result of the paper is an explicit characterization of the dynamics of learning up to a
system of differential equations that generalizes the classical filtering equations of a conditionally
Gaussian process in the presence of ambiguity (the Kalman-Bucy filter refers to the filtering equations
of an ordinary Gaussian process, which is trivially conditionally Gaussian). The new filter tracks,
among others, the evolution of conditional ambiguity; and these endogenous dynamics of conditional
ambiguity are the novelty of this paper.
There are various ways to model decision makers under ambiguity, and one of the most popular
is Gilboa and Schmeidler’s (1989) multiple-priors utility; recursive multiple-priors utility refers to
its dynamic version. Multiple-priors models, static or dynamic, have been successful in explaining
puzzling phenomena in financial markets such as stock market nonparticipation, excess volatility,
and excess equity premium. Most applications of recursive multiple-priors utility, however, have
disregarded learning and specified the time variation, or a lack thereof, in ambiguity exogenously.
The one paper in the existing literature, to the best of my knowledge, that derives time variation
in the set of one-step-ahead conditionals from a model of learning is Epstein and Schneider (2007). In
that paper, too, the predictive set is constructed by a statistical test over multiple theories. The main
differences are twofold. First, whereas Epstein and Schneider consider memoryless data-generating
1
mechanisms, I consider those with serial dependence. The latter consideration clearly complements
the former; for example, with the present model, we can study the effects of learning under ambiguity
when growth rates are (ambiguously) predictable. Second, whereas Epstein and Schneider set their
model in discrete time, I set mine in continuous time; and continuous-time modeling is known
to facilitate analysis with its analytical tractability. But I also note that the continuous-time
counterpart of Epstein and Schneider’s portfolio choice example results in no learning because the
likelihood function degenerates to infinity everywhere; and consequently, their discrete-time finding
that learning resolves ambiguity does not immediately carry over to continuous time.
To investigate its asset pricing implications, I apply the model of learning to simple Lucas
economies populated by log agents. In these economies, agents suspect that dividend growth rates
are predictable, containing a persistent component, but perceive a degree of ambiguity in the law of
motion for the component. The resulting equilibrium equity premium consists of the risk premium,
namely the conditional variance of growth rates, and an ambiguity premium proportional to the
conditional ambiguity in the expected growth rate.
The first observation we can make from the decomposition of the equity premium is that
the relationship between the equity premium and the conditional variance of returns is unclear.
Motivated by standard asset pricing models such as the I-CAPM of Merton (1973), numerous
empirical papers have investigated the relationship between the two, but the findings are mixed.
In the present model, the equity premium is given by the conditional variance of returns plus the
ambiguity premium, and the latter (market ambiguity) exhibits hysteresis with respect to, and
furthermore can comove negatively with, the former (market risk).
In the long run, the equity premium exhibits a downward trend. This is because the ambiguity
premium does: it is a reward for bearing ambiguity in the expected growth rate, and the ambiguity
is to exhibit a downward trend, because the component ambiguity in the time-invariant factors of
the data-generating mechanism turns out to resolve completely as time goes to infinity. The equity
premium has indeed been observed to have declined over the postwar period, and part of it could
be due to learning and the accompanying resolution of ambiguity.
I also demonstrate that an improvement in the quality of public information can increase the
asymptotic level of the equity premium. In a Bayesian framework, Veronesi (2000) made a similar
observation that higher precision of signals tends to increase the risk premium. What distinguishes
the present observation from Veronesi’s is that his result relies on agents’ being sufficiently risk-averse,
more so than log agents; in his model, lower precision of signals decreases the equity premium because
the agents’ hedging demand tones down the covariation between returns and consumption growth.
In contrast, the present paper shows that the equity premium can exhibit such counterintuitive
behavior even under unit risk aversion, which is conventionally associated with myopia.
Ambiguous Returns, Learning, and Portfolio Choice This paper applies the model of
learning developed in the foregoing paper to the portfolio choice problem of a log investor. Specifically,
the investor entertains a “neighborhood” of her benchmark theory that expected returns are meanreverting and uses the candidate theories that are sufficiently plausible vis-à-vis observed returns, in
predicting future returns. After calibrating the model to U.S. stock market data (Barberis, 2000), I
numerically compute the optimal Markov policy and observe that ignoring learning under ambiguity
can result in a significant underestimation of hedging demand. Most notably, even with a moderate
degree of ambiguity (1% point in annual terms) in the equity premium, the unconfident log investor
sells short an amount of the risky asset worth half of her wealth when the point estimate of the equity
premium is zero. I also observe that the hedging demand reflects the agent’s desire to eliminate
the effect of misspecification on continuation utility, and that the related model of learning under
ambiguity by Miao (2009) is a limiting case of the present model.
2
SELMAN EROL
http://erols.me/
erols@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN@ECON.UPENN.EDU
+1-215-898-6880
+1-215-898-7350
+1-215-898-5691
Office Contact Information
3718 Locust Walk, 160 McNeil Building
Philadelphia, PA, 19104
+1-215-667-5036
Undergraduate Studies:
B.Sc., Mathematics, Bilkent University, 2007
Masters Level Work:
M.A., Economics, Bilkent University, 2009
Graduate Studies:
University of Pennsylvania
Thesis Title: “Network Formation and Its Impact on Systemic Risk”
Expected Completion Date: June 2016
Thesis Committee and References:
Professor Rakesh Vohra (Advisor)
3718 Locust Walk, 451 McNeil Building
Philadelphia, PA, 19104
rvohra@seas.upenn.edu +1-215-898-6777
Professor Andrew Postlewaite
3718 Locust Walk, 458 McNeil Building
Philadelphia, PA, 19104
apostlew@econ.upenn.edu +1-215-898-7350
Professor Guillermo Ordonez
3718 Locust Walk, 428 McNeil Bldg.
Philadelphia, PA, 19104
ordonez@econ.upenn.edu +1-215-898-1875
Professor Camilo Garcia-Jimeno
3718 Locust Walk, 528 McNeil Bldg.
Philadelphia, PA, 19104
gcamilo@sas.upenn.edu +1-215-898-8206
Professor Steven Matthews (Teaching reference)
3718 Locust Walk, 521 McNeil Building
Philadelphia, PA, 19104
stevenma@econ.upenn.edu +1-215-898-7749
Teaching and Research Fields:
Network Formation, Economic Theory
Teaching Experience:
University of Pennsylvania, Economics Department
Spring, 2015
212, Game Theory, T.A. for Prof. Yuichi Yamamoto
Spring, 2014
212, Game Theory, T.A. for Prof. Yuichi Yamamoto
Fall, 2013
212, Game Theory, T.A. for Prof. Steven Matthews
Fall, 2013
234, Law and Economics, T.A. for Prof. Camilo Garcia-Jimeno
Summer, 2012 897, (Graduate) Summer Math Camp, Instructor
Spring, 2012
702, (Graduate) Macroeconomic Theory, T.A. for Prof. Dirk Krueger, Prof. Jesus
Fernandez-Villaverde
Fall, 2011
681, (Graduate) Microeconomic Theory, T.A., for Prof. Mallesh M. Pai
Spring, 2011
702, (Graduate) Macroeconomic Theory, T.A. for Prof. Dirk Krueger
Fall, 2010
102, Intermediate Macroeconomics, T.A. for Prof. Jesus Fernandez-Villaverde
Bilkent University, Economics Department and Mathematics Department
(Graduate) Microeconomics, T.A. for Prof. Tarik Kara
(Graduate) Math Review Course, T.A. for Prof. H. Cagri Saglam
Math for Econ T.A. for Prof. H. Cagri Saglam
Discrete Math (R.I.), Calculus (R.I.), Advanced Calculus (R.I.)
The Scientific and Academic Research Council of Turkey
Instructor of Geometry, Instructor of Discrete Mathematics
Research Experience and Other Employment:
Fall, 2014
Fall, 2010
University of Pennsylvania, R.A. for Prof. Rakesh Vohra
“Growth Through Heterogeneous Innovations”, N.B.E.R. Working Paper #16443,
R.A. for Prof. Ufuk Akcigit and Prof. William R. Kerr
Professional Activities
Service
May, 2015
2014, 2015
Organizing committee: Networks and Systemic Risk Workshop, The Warren
Center, University of Pennsylvania
Referee: SAGT 2014, Games and Economic Behavior
Selected presentations
Dec, 2015
(Scheduled) Philadelphia FED
Nov, 2015
(Scheduled) Carnegie-Mellon University, Tepper School of Business, Seminar
Oct, 2015
Pennsylvania State University, Midwest Economics Theory Meetings
Aug, 2015
11th World Congress of the Econometric Society, Montreal
Aug, 2015
3rd Summer School of the Econometric Society, University of Tokyo
July, 2015
Conference on Economic Design, Society for Economic Design, Bilgi University
May, 2015
Information Transmission in Networks Conference, NSF, Harvard University
Dec, 2014
NYCE, Microsoft Research, New York (Poster)
Awards:
2010
Lawrence Robbins Prize (best first year performance in Economics Ph.D. program,
University of Pennsylvania, shared with Zehao Hu)
2003
Silver Medal, 44th International Math Olympiads, Japan
Publications:
“Negative Certainty Independence without Betweenness”, Economics Letters, 2013 (with David
Dillenberger)
“Existence, Optimality and Dynamics of Equilibria with Endogenous Time Preference”, Journal of
Mathematical Economics, 2011 (with Cuong LeVan and Cagri Saglam)
Research Papers:
“Network Hazard and Bailouts” (Job Market Paper)
I introduce a model of contagion with endogenous network formation and strategic default, in which a government
intervenes to stop contagion. The anticipation of government bailouts introduces a novel channel for moral hazard
via its effect on network architecture. In the absence of bailouts, the network formed consists of small clusters that
are sparsely connected. When bailouts are anticipated, firms in my model do not make riskier individual choices.
Instead, they form networks that are more interconnected, exhibiting a core-periphery structure (wherein many
firms are connected to a smaller number of central firms). Interconnectedness within the periphery increases
spillovers. Core firms serve as a buffer when solvent and an amplifier when insolvent. Thus, in my model, ex-post
time-consistent intervention by the government improves ex-ante welfare but it increases systemic risk and
volatility through its effect on network formation. This paper can be seen as a first attempt at introducing a theory
of mechanism design with endogenous network externalities.
“Network Formation and Systemic Risk” (with Rakesh Vohra)
This paper introduces a model of endogenous network formation and systemic risk in OTC markets. A link is a
trading opportunity that yields benefits only if the counterparty does not subsequently default. After links are
formed, they are subjected to exogenous shocks that are either good or bad. Bad shocks reduce returns from links
and incentivize default. Good shocks the reverse. Defaults triggered by bad shocks might propagate via links. The
model yields three insights. First, higher probability of good shocks generates higher probability of system wide
default. Increased interconnectedness in the network offsets the effect of better fundamentals. Second, the network
formed critically depends on the correlation of shocks to the system. As a consequence, an outside observer who is
mistaken only about the correlation structure of shocks, upon observing a highly interconnected network, will
underestimate the probability of system wide default. Third, when the risk of contagion is high, the networks
formed in the model are utilitarian efficient.
“A Network Theory of Civil Liberties and Social Structure” (with Camilo Garcia-Jimeno)
An important dimension of civil liberties is related to the state’s ability to exercise coercion -detentions, searches,
seizures, torture- to collect information regarding individuals. Because the density and depth of social ties shape
how information is distributed across society, the extent of civil liberties can determine both how coercion is
exercised and the social structure itself. We propose a model in which individuals are better informed about
socially closer individuals, whom they care more about. A government agent searches for a threat by arresting
individuals and demanding information about members of the threat employing coercion. We characterize the
optimal search protocol, which features targeting for longest “paths” of social acquaintance. We then endogenize
the network structure to study how the social fabric is affected by the extent of civil liberties via the search
protocol. Under low civil liberties, society is segregated and peripheral individuals are targeted. For intermediate
civil liberties, society gradually becomes integrated and central nodes are targeted. Nevertheless, the relation
between civil liberties and social integration exhibits discontinuities. We also illustrate how the framework can be
used to explore questions of organizational design such as corruption fighting.
“Dominant Strategy Implementation for Interdependent Ordinal Preferences” (with Talat
Senocak)
“A Simple Proof of Mueller-Satterthwaite Theorem”, mimeo. at Bilkent University (with Ali Adali,
Semih Koray, Nizameddin Ordulu)
Last updated: November 11, 2015
Selman Erol (University of Pennsylvania)
Dissertation Abstract
“Network Formation and Its Impact on Systemic Risk”
1
In the aftermath of the financial crisis of 2008, many policy makers and researchers pointed to the
interconnectedness of the financial system as one of the fundamental contributors to systemic risk. The
argument is that the linkages between financial institutions served as an amplification mechanism: shocks to
smaller parts of the system propagate through the system and result in broad damage to the financial system.
In my dissertation, I explore the formation of networks when agents take into account systemic risk.
The dissertation consists of three complementary papers on this topic. The first paper titled “Network
Formation and Systemic Risk”, joint with Professor Rakesh Vohra. We set out the framework and construct
a model of endogenous network formation and systemic risk. We find that fundamentally ‘safer’ economies
with higher probability of getting good shocks generate higher interconnectedness, which leads to higher
systemic risk. This provides network foundations for “the volatility paradox” arguing that better fundamentals
lead to worse outcomes due to excessive risk taking. Second, the network formed crucially depends on the
correlation of shocks to the system. As a consequence, an observer, such as a regulator, facing an
interconnected network who is mistaken about the correlation structure of shocks will underestimate the
probability of system wide failure. This result relates to the “dominoes vs. popcorn” discussion by Edward
Lazear. He comments that a fundamental mistake in addressing the crisis was to think that it was “dominoes”
so that saving one firm would save many others in the line. He continues to argue that it was “popcorn in a
pan”: all firms were exposed to same correlated risks and saving one would not save many others. We
complement his discussion by arguing that the same mistake might have been the reason behind why sufficient
regulatory precaution was not taken prior to the crisis. The third result is that the networks formed in the model
are utilitarian efficient because the risk of contagion is high. This causes firms to minimize contagion by
forming dense but isolated clusters that serve as firebreaks. This finding is suggestive that, the worse the
contagion, the more the market takes care of it.
In the second paper, titled “Network Hazard and Bailouts”, which is my job market paper, I ask how the
anticipation of ex-post government bailouts affects network formation. I deploy a significant generalization of
the model in the first paper and allow for time-consistent government transfers. I find that the presence of
government bailouts introduces a novel channel for moral hazard via its effect on network architecture, which
I call “network hazard”. In the absence of bailouts, firms form sparsely connected small clusters in order to
eliminate second-order counterparty risk: expected losses due to defaulting counterparties that default because
of their own defaulting counterparties. Bailouts, however, eliminate second-order counterparty risk already.
Accordingly, when bailouts are anticipated, the networks formed become more interconnected, and exhibit a
core-periphery structure (many firms connected to a smaller number of central firms, which is observed in
practice). Interconnectedness within the periphery leads to higher extent of contagion with respect to the
networks formed in the absence of intervention. Moreover, solvent core firms serve as a buffer against
contagion by increasing the resilience of the many peripheral firms that are connected to the core. However,
insolvent core firms serve as an amplifier of contagion since they make peripheral firms less resilient. This
implies that in my model, ex-post time-consistent intervention by the government, while ex-ante welfare
improving, increases systemic risk and volatility, solely through its effect on the network. A remark is that
firms, in my model, do not make riskier individual choices regarding neither their choice of investment risk,
nor the number of their counterparties they have. In this sense, network hazard is a genuine form of moral
hazard solely through the formation of the detailed network. On another note, the model can also be viewed as
a first attempt towards developing a theory of mechanism design with endogenously formed network
externalities which might be useful in various other scenarios such as provision of local public goods.
In the final paper, titled “Regulation of Systemic Risk under Network Formation”, I consider the role of
liquidity and capital requirements to alleviate network hazard and systemic risk. In the model, financial firms
set up credit lines with each other in order to meet their funding needs on demand. Accordingly, higher liquidity
requirements induce firms to form higher interconnectedness in order to be able to find deposits as needed. At
Selman Erol (University of Pennsylvania)
Dissertation Abstract
“Network Formation and Its Impact on Systemic Risk”
2
a tipping point of liquidity requirements, the network discontinuously jumps in its interconnectedness, which
contributes discontinuously to systemic risk. On the other hand, the reaction to capital requirements is smooth.
Capital requirements indirectly work as an upper bound in the interconnectedness firms would form. This way,
interconnectedness can be effectively reduced to a desired level via capital requirements. Yet capital
requirements cannot be used to induce higher interconnectedness. Thusly, in times of credit freeze, capital
requirements may not help promote circulation of credit. A conjunction of both liquidity and capital
requirements is more effective in promoting desired circulation while reducing systemic risk.
The work in this dissertation suggests that endogenous network architecture is an essential component of the
study of financial markets. In particular, network hazard is a genuine form of moral hazard that will be
overlooked unless network formation is taken into account, while it has implications about systemic risk.
Moreover, this work illustrates how the reaction of networked financial markets to both fundamentals of the
economy and to the policy can be non-trivial, featuring non-monotonicity and discontinuity.
Keywords: network formation, contagion, counterparty risk, systemic risk, bailouts, network hazard, moral
hazard, regulation, capital requirements, reserve requirements, phase transition, mechanism design
RONG HAI
https://sites.google.com/site/ronghaiecon/
ronghai@uchicago.edu
UNIVERSITY OF PENNSYLVANIA
MANOVSKI@ECON.UPENN.EDU
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
APOSTLEW@ECON.UPENN.EDU
KQUINN@ECON.UPENN.EDU
Office Contact Information
5740 S. Woodlawn Avenue, Room 172
Chicago, IL, 60637
Mobile: (+1) 267-254-8866
Personal Information: Sex: Female
215-898-6880
215-898-7350
215-898-5691
Home Contact Information
5514 S. Blackstone Ave., Apt H
Chicago, IL, 60637
Citizenship: China
US Visa Status: H1B.
Academic Position:
Postdoctoral Scholar, 05/2013-Present
Becker Friedman Institute for Research in Economics and The Center for the Economics of Human
Development, University of Chicago
Research Fields:
Health Economics, Public Finance, Labor Economics, Household Finance
Education:
Ph.D., Economics, University of Pennsylvania, 2013
M.A., Economics, Peking University, 2007
B.A., Economics, Fudan University, 2004
References:
Professor James J. Heckman
Department of Economics
University of Chicago
Professor Dirk Krueger
Department of Economics
University of Pennsylvania
1126 East 59th Street Chicago, Illinois 60637
(773) 702-0634
jheckman@uchicago.edu
3718 Locust Walk, Philadelphia, PA 19104
(215) 573-1424
dkrueger@econ.upenn.edu
Professor Andrew Postlewaite
Professor Petra Todd
Department of Economics
University of Pennsylvania
Department of Economics
University of Pennsylvania
3718 Locust Walk, Philadelphia, PA 19104
(215) 898-7350
apostlew@econ.upenn.edu
Professor Kenneth Wolpin
Department of Economics
Rice University
P.O. Box 1892, Houston, TX
(713) 348-2522
Kenneth.I.Wolpin@rice.edu
3718 Locust Walk, Philadelphia, PA 19104
(215) 898-4084
ptodd@econ.upenn.edu
Teaching Fields:
Econometrics, Public Finance, Health Economics, Labor Economics
Teaching Experience:
Summer 2010
Econometrics, Instructor
Spring 2012
Public Finance, Teaching Assistant for Dr. Francesca Acacia
Fall 2011
Introductory Economics for Business Students, Recitation Instructor for Dr. Uriel
Spiegel
Spring 2011
International Finance, Teaching Assistant for Prof. Wilfred Ethier
Fall 2010
Labor Economics, Teaching Assistant for Prof. Kenneth Burdett
Fall 2009-10
Advanced Microeconometrics, Teaching Assistant for Prof. Petra Todd
Spring 2009-10
Time Series Analysis (Ph.D.), Recitation Instructor for Prof. Francis Diebold
Fall 2008
Statistics for Economists, Review Session Instructor for Prof. Aureo de Paula, and
Dr. Suleyman Ozmucur
Referee:
Journal of Political Economy; Review of Economic Studies; International Economic Review; European
Economic Review; LABOUR: Review of Labour Economics and Industrial Relations
Presentations:
2015
2014
2013
2012
University of Chicago Economics; University of Chicago Harris; University of
Miami Economics; University of Miami Finance; Chinese University of Hong
Kong; Florida International University; Peking University; Annual Conference of
the Royal Economic Society (x2); Fourth SOLE/EALE World Meeting; 11th
World Congress of Econometric Society (x2); National Tax Association's Annual
Meeting
University of Cornell; University of Miami; Annual Health Econometrics
Workshop at UToronto; Cowles Summer Conference: Structural Microeconomics
at Yale; Conference on the Affordable Care Act and the Labor Market at Chicago
Fed; Fifth Biennial Meeting of the American Society of Health Economists at USC;
Launch Event of the Center for the Economics of Human Development; Southern
Economic Association Annual Meeting
Ohio State University; Syracuse University; University of Chicago; University of
South Florida; North American Summer Meetings of the Econometric Society;
Southern Economic Association Annual Meeting
Federal Reserve Bank of Chicago; University of Pennsylvania
Other Professional Activities:
2015
NBER Summer Institute Labor Studies, Health Economics, Health Care, Aging;
NBER Summer Institute Macro Public Finance (2014-2015); NBER Summer
Institute Economic Fluctuations and Growth Working Group on Aggregate
Implications of Microeconomic Consumption Behavior
2014
Fifth Biennial Meeting of the American Society of Health Economists
(Discussant); Southern Economic Association Annual Meeting (Discussant);
Southern Economic Association Annual Meeting (Session Chair); NBER Summer
Institute Macro Public Finance
2009-2012
Coordinator at Graduate Student Housing Community Services at University of
Pennsylvania
2009-2010
Co-organizer of Econometrics Lunch at University of Pennsylvania
Research Experience and Other Employment:
Summer 2012
Federal Reserve Bank of Chicago, Summer Fellow
Winter 2008
The World Bank, Office of VP for Chief Economist, Short Term Consultant
Honors, Scholarships, and Fellowships:
2012
CSWEP Dissertation Fellowship, Federal Reserve Bank of Chicago
2007 - 12
International Economic Review Fellowship, University of Pennsylvania
2011 - 12
Xinmei Zhang Fellowship, University of Pennsylvania
20010
Price Theory Summer Camp, University of Chicago Booth School of Business
2009 - 10
Judith Rodin Fellowship, University of Pennsylvania
Research Papers:
“A Dynamic Model of Health, Education and Wealth with Credit Constraints and Rational Addiction”,
with James J. Heckman (University of Chicago) (Job Market Paper)
This paper develops and structurally estimates a life-cycle model where health, education, and wealth are
endogenous accumulated processes depending on the history of an individual's optimal behaviors, on
parental factors, and on cognitive and noncognitive abilities. The model investigates many different
pathways between education, health, and wealth by introducing endogenous health capital production and
addictive preferences of unhealthy behavior in the presence of credit constraints. Using data from National
Longitudinal Survey of Youth 97, we estimate the model using a two-step estimation procedure based on
factor analysis and simulated method of moments. The estimated model decomposes the causal effects of
education on health into the direct benefits of improving health production efficiency and the indirect
benefits of reducing unhealthy behavior and raising earnings. We show that rational addiction has important
quantitative implication on predicted patterns of unhealthy behavior by socioeconomic status and over the
life-cycle. We find sizable impacts of both health and parental transfers on individuals' college decisions. We
find that relaxing credit constraints improves education while its effects on healthy behavior and health
evolves nonlinearly over the life cycle. Finally, we show that both cognitive and noncognitive factors are
important determinants of health, education, and wealth.
“The Determinants of Rising Inequality in Health Insurance and Wages”, July 2015
Under Review
Over the last 30 years in the U.S., less educated workers have experienced a sharp decline in health
insurance coverage rate and stagnant wage growth. In contrast, more educated workers’ health insurance
coverage rate has stayed relatively stable and their wages have rapidly grown. This paper investigates the
determinants of the increase in inequality in health insurance coverage and wages by estimating an
overlapping generations equilibrium model of labor and health insurance markets’ demand and supply. The
estimated model is used to quantify the effects of changes in aggregate factors (including rising cost of
medical care services, Medicaid eligibility expansion, skill-biased technological changes in the labor market,
and changes in the labor force composition) on the inequality of health insurance coverage and wages. I find
that the interaction between the rising cost of medical services and labor market technological change is the
most important determinant of the widening gap of health insurance coverage.
“On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods”, with Dirk
Krueger (University of Pennsylvania) and Andrew Postlewaite (University of Pennsylvania), Jan 2015
We propose a new category of consumption goods, memorable goods, that generate a flow of utility after
consumption. We analyze an otherwise standard consumption model that distinguishes memorable goods
from other nondurable goods. Consumers optimally choose lumpy consumption of memorable goods. We
empirically document differences between levels and volatilities of memorable and other goods
expenditures. Memorable goods expenditures are about twice durable goods expenditures and half the
volatility. The welfare cost of consumption fluctuations driven by income shocks is overstated if memorable
goods are not accounted for and estimates of excess sensitivity of consumption might be due to memorable
goods.
Income Inequality, Tax Policy, and Economic Growth, with Siddhartha Biswas (UNC) and Indraneel
Chakraborty (University of Miami), July 2015
Under Review
We investigate how reduction of income inequality through tax policy affects economic growth. Taxation at
different points of the income distribution has heterogeneous impacts on households’ incentives to invest,
work, and consume. Using U.S. state-level data and micro-level household tax returns over the last three
decades, we find that reduction of income inequality between low and median income households improves
economic growth. However, reduction of income inequality through taxation between median and high
income households reduces economic growth. These economic growth effects are attributable both to
supply-side factors (changes in small business activity and labor supply) and to consumption demand.
“The Impact of an Early Career Recession on Health and Health-Related Behaviors”, with Naijia
Guo (Chines University of Hong Kong), June 2015
Under Review
Using National Longitudinal Survey of Youth 1997, we estimate the long-term impact of an early career
recession on various health outcomes and health-related behaviors. The early career recession is measured by
the state-specific unemployment rate in the year of labor market entry. Using an instrumental variable
approach, we address the potential selection issues on the timing of labor market entry. We find that first, an
early career recession has an adverse impact on health status, depression, smoking, heavy drinking, illicit
drug use, exercise, and fruit intake; and second, these adverse effects are especially pronounced among loweducated individuals.
Research Papers in Progress:
“Equality of Educational Opportunity in China”, with James J. Heckman (University of Chicago), Sha Tao
(Beijing Normal University), and Yike Wang (University of Chicago)
Using a new and nationally representative large sample of children in China aged six to fifteen, we study
socioeconomic determinants of children's cognitive and noncognitive ability development. Building upon the
recent development on factor analysis and interactive fixed effect model, we estimate the causal effects of
various school inputs and family inputs (as well as their interactions) on children's human capital
development. Our estimator is consistent and allows for flexible correlations between individual level
unobservables and observed inputs. Using estimated human capital production function, we then decompose
the inequality of children's skill development into variations in the family inputs and school inputs.
“Real Effects of Financial (Dis)integration: A Spatial Equilibrium Analysis of Europe”, with Indraneel
Chakraborty (University of Miami), Hans Holter (University of Oslo), and Serhiy Stepanchuk (Ecole
Polytechnique Federale de Lausanne).
Using data from 15 Euro area economies, we quantify the real effects of supply side frictions in bank lending
due to financial separation of European countries since the crisis. We develop a spatial equilibrium model
with heterogeneous countries. Banks allocate capital endogenously across countries, which in turn
determines firms' cost of capital and nations' wealth. Costs of financial segmentation include reduction in
access to capital for firms and resulting output reduction; and reduction in households' wages and
consumption. We show that financial segmentation can explain between a quarter and a third of the
reduction in firm output since the crisis. We also estimate the benefits of further financial integration to the
European economy.
Programming Skills:
Extensive experience with C++ (including OpenMP & MPI), Fortran, Matlab, SAS, Stata, R, Latex
Completed Research Papers
Rong Hai
A Dynamic Model of Health, Education and Wealth with Credit Constraints and
Rational Addiction, with James J. Heckman (UChicago)
This paper develops and structurally estimates a life-cycle model where health,
education, and wealth are endogenous accumulated processes depending on the history of
an individual's optimal behaviors, on parental factors, and on cognitive and noncognitive
abilities. The model investigates many different pathways between education, health, and
wealth by introducing endogenous health capital production and addictive preferences of
unhealthy behavior in the presence of credit constraints. Using data from National
Longitudinal Survey of Youth 97, we estimate the model using a two-step estimation
procedure based on factor analysis and simulated method of moments. The estimated
model decomposes the causal effects of education on health into the direct benefits of
improving health production efficiency and the indirect benefits of reducing unhealthy
behavior and raising earnings. We show that rational addiction has important quantitative
implication on predicted patterns of unhealthy behavior by socioeconomic status and over
the life-cycle. We find sizable impacts of both health and parental transfers on
individuals' college decisions. We find that relaxing credit constraints improves education
while its effects on healthy behavior and health evolves nonlinearly over the life cycle.
Finally, we show that both cognitive and noncognitive factors are important determinants
of health, education, and wealth.
The Determinants of Rising Inequality in Health Insurance and Wages, July 2015
Under Review
Over the last 30 years in the U.S., less educated workers have experienced a sharp decline
in health insurance coverage rate and stagnant wage growth. In contrast, more educated
workers’ health insurance coverage rate has stayed relatively stable and their wages have
rapidly grown. This paper investigates the determinants of the increase in inequality in
health insurance coverage and wages by estimating an overlapping generations
equilibrium model of labor and health insurance markets’ demand and supply. The
estimated model is used to quantify the effects of changes in aggregate factors (including
rising cost of medical care services, Medicaid eligibility expansion, skill-biased
technological changes in the labor market, and changes in the labor force composition) on
the inequality of health insurance coverage and wages. I find that the interaction between
the rising cost of medical services and labor market technological change is the most
important determinant of the widening gap of health insurance coverage.
On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable
Goods, with Dirk Krueger (UPenn) and Andrew Postlewaite (UPenn), Jan 2015
We propose a new category of consumption goods, memorable goods, that generate a
flow of utility after consumption. We analyze an otherwise standard consumption model
that distinguishes memorable goods from other nondurable goods. Consumers optimally
choose lumpy consumption of memorable goods. We empirically document differences
between levels and volatilities of memorable and other goods expenditures. Memorable
goods expenditures are about twice durable goods expenditures and half the volatility.
The welfare cost of consumption fluctuations driven by income shocks is overstated if
memorable goods are not accounted for and estimates of excess sensitivity of
consumption might be due to memorable goods.
Income Inequality, Tax Policy, and Economic Growth, with Siddhartha Biswas (UNC)
and Indraneel Chakraborty (UMiami), July 2015
Under Review
We investigate how reduction of income inequality through tax policy affects economic
growth. Taxation at different points of the income distribution has heterogeneous impacts
on households’ incentives to invest, work, and consume. Using U.S. state-level data and
micro-level household tax returns over the last three decades, we find that reduction of
income inequality between low and median income households improves economic
growth. However, reduction of income inequality through taxation between median and
high income households reduces economic growth. These economic growth effects are
attributable both to supply-side factors (changes in small business activity and labor
supply) and to consumption demand.
The Impact of an Early Career Recession on Health and Health-Related Behaviors,
with Naijia Guo (CUHK), June 2015
Under Review
Using National Longitudinal Survey of Youth 1997, we estimate the long-term impact of
an early career recession on various health outcomes and health-related behaviors. The
early career recession is measured by the state-specific unemployment rate in the year of
labor market entry. Using an instrumental variable approach, we address the potential
selection issues on the timing of labor market entry. We find that first, an early career
recession has an adverse impact on health status, depression, smoking, heavy drinking,
illicit drug use, exercise, and fruit intake; and second, these adverse effects are especially
pronounced among low-educated individuals.
Working in Progress
Equality of Educational Opportunity in China, with James J. Heckman (UChicago), Sha
Tao (BNU), and Yike Wang (UChicago)
Using a new and nationally representative large sample of children in China aged six to
fifteen, we study socioeconomic determinants of children's cognitive and noncognitive
ability development. Building upon the recent development on factor analysis and
interactive fixed effect model, we estimate the causal effects of various school inputs and
family inputs (as well as their interactions) on children's human capital development. Our
estimator is consistent and allows for flexible correlations between individual level
unobservables and observed inputs. Using estimated human capital production function,
we then decompose the inequality of children's skill development into variations in the
family inputs and school inputs.
Real Effects of Financial (Dis)integration: A Spatial Equilibrium Analysis of Europe,
with Indraneel Chakraborty (UMiami), Hans Holter (Oslo), and Serhiy Stepanchuk
(EPFL).
Using data from 15 Euro area economies, we quantify the real effects of supply side
frictions in bank lending due to financial separation of European countries since the
crisis. We develop a spatial equilibrium model with heterogeneous countries. Banks
allocate capital endogenously across countries, which in turn determines firms' cost of
capital and nations' wealth. Costs of financial segmentation include reduction in access to
capital for firms and resulting output reduction; and reduction in households' wages and
consumption. We show that financial segmentation can explain between a quarter and a
third of the reduction in firm output since the crisis. We also estimate the benefits of
further financial integration to the European economy.
JU HU
<https://economics.sas.upenn.edu/graduate-program/candidates/ju-hu>
<juhu1@sas.upenn.edu>
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN @ ECON.UPENN.EDU
Office Contact Information
328 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Cell Phone: 267-909-1250
Personal Information:
Citizenship: China
Date of Birth: April 02, 1985
Gender: Male
Undergraduate Studies:
B.A., Finance, Fudan University, Shanghai, China, 2007
Masters Level Work:
M.A., Finance, Fudan University, Shanghai, China, 2010
Graduate Studies:
University of Pennsylvania, 2010 to present
Thesis Title: “Essays on Reputations and Dynamic Games”
Expected Completion Date: May 2016
Thesis Committee and References:
Professor George J. Mailath (Advisor)
432 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
gmailath@econ.upenn.edu
215-898-7908
Professor Yuichi Yamamoto
457 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
yyam@sas.upenn.edu
215-898-8761
Teaching and Research Fields:
Microeconomic Theory, Game Theory
Professor Rakesh V. Vohra
451 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
rvohra@seas.upenn.edu
215-898-6777
215-898-6880
215-898-7350
215-898-5691
Teaching Experience:
Fall, 2011
Fall, 2012
Spring, 2012, 2013
Spring, 2015
Summer, 2012, 2013,
2014
Econ 701 Microeconomic Theory I (graduate level), University of
Pennsylvania, Teaching Assistant for Prof. Andrew Postlewaite and
Steven Matthews
Econ 701 Microeconomic Theory I (graduate level), University of
Pennsylvania, Teaching Assistant for Prof. Andrew Postlewaite and
Mallesh Pai
Econ 212 Game Theory, University of Pennsylvania, Teaching Assistant
for Prof. Tymofiy Mylovanov
Econ 212 Game Theory, University of Pennsylvania, Teaching Assistant
for Prof. Yuichi Yamamoto
Econ 897 Math Camp (Session II), University of Pennsylvania, Instructor
Professional Activities:
Presentations:
2012-2015
Penn Micro Theory Lunch Club, University of Pennsylvania
2015
Micro Theory Seminar, University of Pennsylvania
Referee Activities:
Theoretic Economics, International Economic Review
Other:
2013-2014
Co-organizer, University of Pennsylvania Micro Theory Lunch Club
Honors, Scholarships, and Fellowships:
2011-2013
Xinmei Zhang Fellowship, School of Arts and Science, University of
Pennsylvania
2013-2014
Sidney Weintraub Memorial Fellowship, University of Pennsylvania
Publications:
“Reputation in the Presence of Noisy Exogenous Learning”, Journal of Economic Theory, 2014, Volume
153, 64-73.
Research Paper:
“Biased Learning and Permanent Reputation” (Job Market Paper)
Abstract: This paper studies reputation effects between a long-lived seller and different short-lived
buyers where the short-lived buyers do not know how long the seller has been in business. Departing
from standard assumptions in repeated games, this paper assumes that buyers enter the market at random
times and only observe a coarse public signal upon entry. The signal measures the difference between
the number of good and bad outcomes in a biased way: a good outcome is more likely to increase the
signal than a bad outcome to decrease it. The seller has a short-run incentive to exert low effort, but
makes high profits if it were possible to commit to high effort.
First, we show if the bias is large, in the complete information game, always exerting low effort is the
unique equilibrium. We then introduce incomplete information. There are two types of the seller. One is
a commitment type who always exerts high effort and the other is a normal type who behaves
strategically to maximize long-run payoff. If there is small but positive chance that the seller is a
commitment type, in any equilibrium, the normal seller must exert high effort at some signals to build up
his reputation. Moreover, the seller builds up his reputation only to milk it. In any equilibrium, once the
seller builds up reputation through reaching a high enough signal, the seller then exploits by exerting
low effort. Because all buyers only have limited information, they are unable to distinguish the two types
of the seller no matter how long the game has been played. Consequently, the incentives of building
reputation never disappear in the long-run.
“Reputation in the Presence of Noisy Exogenous Learning”
Abstract: This paper studies the reputation effect in which a long-lived player faces a sequence of
uninformed short-lived players and the uninformed players receive informative but noisy exogenous
signals about the type of the long-lived player. We provide an explicit lower bound on all Nash
equilibria payoffs of the long-lived player. The lower bound shows when the exogenous signals are
sufficiently noisy and the long-lived player is patient, he can be assured of a payoff strictly higher than
his minmax payoff.
Research Papers in Progress
“Social Learning and Market Experimentation” (Manuscript in preparation)
Abstract: This paper studies optimal dynamic monopoly pricing when a monopolist sells a product with
unknown quality to a sequence of short-lived buyers who have private information about the quality.
Because past prices and buyers’ purchase behavior convey information about private signals, they jointly
determine the public belief about the quality of the monopolist’s product. The monopolist’s is essentially
doing experimentation in the market because every price charged generates not only current period profit
but also additional information about the quality. We focus on information structures with a continuum
of signals. Under a mild regularity condition on information structures, we show in equilibrium, the
optimal price is an increasing function of the public beliefs. In addition, we fully characterize
information cascade sets in terms of information structure. We find the standard characterization in
terms of boundedness of information structure in the social learning literature no longer holds in the
presence of a monopoly. In fact, whether herding occurs or not depends more on the values of the
conditional densities of the signals at the lowest signal.
Reputations in Dynamic Games
Ju Hu
October 14, 2015
In the paper “Biased Learning and Permanent Reputation”, I study reputation
effects between a long-lived seller and different short-lived buyers where the short-lived
buyers do not know how long the seller has been in business. Departing from standard
assumptions in repeated games, this paper assumes that buyers enter the market at
random times and only observe a coarse public signal upon entry. In particular, they
do not know when the game started. The signal measures the difference between the
number of good and bad outcomes in a biased way: a good outcome is more likely
to increase the signal than a bad outcome to decrease it. This information setting
models online rating systems such as eBay feedback score and the bias reflects the
fact recently found in the empirical literature that satisfied buyers are more likely
to give a positive feedback than unsatisfied buyers are to give a negative feedback.
The long-lived seller faces a moral hazard problem: he has a short-term incentive to
exert low effort, but makes higher profits if it were possible to commit to high effort.
Buyers are unsure of the characteristics of the seller. There are two types of the seller.
One is a commitment type who always exerts high effort. The other is a normal type
who behaves strategically to maximize long-run payoff.
This information structure has two conflicting effects on reputations. On one
hand, buyers only have very coarse information about the past and face a complicated
inference problem about the type of the seller since they do not know how long the
seller has been in business. This discourages the seller’s reputation building because
his ability to manipulate buyers’ beliefs through past behavior is limited. On the
other hand, because bad outcomes are less likely to change the public signal, the
seller has a larger incentive to milk his reputation which encourages him to build
reputation first.
1
In the absence of commitment type, as a benchmark, I show that high effort can
not be supported as equilibrium outcome. In particular, in the unique equilibrium,
the seller always exerts low effort. In contrast, if buyers’ prior belief about the
commitment type is small but positive, in every equilibrium, the normal seller must
exert high effort at some signals. The normal seller builds up his reputation by
imitating the commitment type and exerting high effort in order to increase the
chance of getting a higher signal. Moreover, I show that the seller is not willing to do
so at all signals. In fact, the seller builds up his reputation only to milk it. In every
equilibrium, once the seller builds up reputation through reaching a high enough
signal, the uninformed buyers are convinced that they are facing the commitment
type with large probability. The normal seller then exploits by exerting low effort.
As a result of low effort, the public signal gradually decreases with larger probability.
Once it becomes small, the seller again has incentive to build it up. Because all
buyers only have limited information about the past, they are unable to distinguish
the commitment and normal sellers no matter how long the game has been played.
Consequently, the incentives of building reputation never disappear in the long-run.
In another paper, “Reputation in the Presence of Noisy Exogenous Learning”,
I explores reputation effects in which a long-lived player faces a sequence of uninformed short-lived players and the uninformed players receive informative but noisy
exogenous signals about the type of the long-lived player. Because informative exogenous signals will eventually reveal the true type of the long-lived player to the
short-lived players, typically there is no guarantee that the short-lived players play
a best response to a commitment action in all but finitely many periods even if this
commitment action is always played, as is the case in the standard reputation model.
Nonetheless, this paper characterizes the reputation effects by providing an explicit
lower bound on all Nash equilibria payoffs of the long-lived player. The lower bound
is characterized by prior belief over types, discount factor and most importantly the
speed of exogenous learning. Because of exogenous learning, in general this lower
bound is lower than that in the standard reputation models without exogenous signals, and these two bounds coincide if the signals are completely uninformative. In
particular, this lower bounds shows when the exogenous signals are sufficiently noisy,
hence slow speed of learning, and the long-lived player is patient, he can be assured
of a payoff strictly higher than his minmax payoff.
2
JUNWEN CAROLINE LIU
https://economics.sas.upenn.edu/graduate-program/candidates/junwen-caroline-liu
junwenl@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN
@ ECON.UPENN.EDU
215-898-6880
215-898-7350
215-898-5691
Office Contact Information
Department of Economics
University of Pennsylvania
160 McNeil Building
Philadelphia, PA 19104
Cell: (+1)215-688-1211
Undergraduate Studies:
BSc in Economics and Finance (First Class Honors)
Hong Kong University of Science and Technology, 2010
Graduate Studies:
University of Pennsylvania, 2010-Present
Thesis Title: “Essays in Empirical Microeconomics”
Expected Completion Date: May 2016
Thesis Committee and References:
Professor Hanming Fang (Advisor)
University of Pennsylvania
Department of Economics
Philadelphia, PA 19104
215-898-7767
hanming.fang@econ.upenn.edu
Professor Kenneth I. Wolpin
Rice University
Department of Economics
Houston, TX
713-348-2522
kenneth.i.wolpin@rice.edu
Professor Petra E. Todd
University of Pennsylvania
Department of Economics
Philadelphia, PA 19104
215-898-4084
ptodd@econ.upenn.edu
Teaching and Research Fields:
Research Fields: Labor Economics, Public Economics, Education, Consumer Finance
Teaching Fields: Labor Economics, Public Economics, International Economics
Teaching Experience (University of Pennsylvania):
Spring, 2015
Intermediate Microeconomics, Teaching Assistant for Prof. Kenneth Burdett
Fall, 2014
International Economics, Teaching Assistant for Prof. Cecilia Fieler
Spring, 2014
International Economics, Instructor
Spring, 2012/13 International Economics, Teaching Assistant for Prof. Iourii Manovskii
Summer, 2012
Introduction to Macroeconomics, Instructor
Fall, 2011
Introduction to Economics for Business, Teaching Assistant for Prof. Uriel Spiegel
Research Experience and Other Employment:
2012-2014
Research Assistant for Prof. Hanming Fang, University of Pennsylvania
 Project on the elderly: Summarized the risks facing the elderly by surveying extensively various
strands of literature. Collected information from multiple data sources for the OECD countries and
analyzed the data using advanced econometric techniques, assisted in the writing of a Handbook
chapter.
 Project on the Chinese labor market: Analyzed a large administrative data set from a Chinese employment website with 1 million observations for each of the 38 variables. Identified interesting data
patterns and assisted in developing quantitative models to capture key data features.
Research Papers:
“The Effects of Tuition and Student Loan Policies on College Outcomes and Lifetime Earnings”
(Job Market Paper)
To increase college access and reduce the burden of student loan debt, the US government has recently
developed several new tuition and student loan policies. These include the newly proposed free community
college plan and the recently enacted Pay As You Earn plan that makes student loan repayments contingent
on earnings. In this paper, I develop and estimate a dynamic life-cycle model of the decisions individuals
make with regard to schooling, work, savings and student loan borrowing. The model is estimated with
micro-level US data and is used to evaluate the effects of these educational policies on education outcomes,
lifetime earnings and welfare. My results show that the free community college plan benefits individuals
from lower-income families the most, increasing their community college enrollment rate by 17 percentage
points from 41 percent to 58 percent. However, it reduces the population proportion of individuals who
achieve a bachelor's degree by 9 percent. The Pay As You Earn plan reduces labor supply in college, lowers
the time it takes to complete a bachelor's degree, and enables individuals to attend higher-quality colleges.
The overall education level is improved with the percent of individuals holding a bachelor's degree
increasing from 31 to 33 percent. I also evaluate the effects of a hypothetical loan forgiveness plan for
college dropouts, which is found to increase college enrollment but reduce college completion. Of the three
policies, the Pay As You Earn plan achieves the highest welfare gain and reduces lifetime earnings
inequality.
“Student Loan Debt and Risk-Return Trade-Off in Occupation Choices” (Work In Progress)
The total outstanding student loan debt almost quadrupled between 2004 and 2015. This rapid growth in
student loan debt has raised concerns about the effects of student loan debt on individuals' post-graduation
labor market outcomes. In this paper, I study how student loan debt affects the risk-return trade-off in the
occupation choices after college. Using data on a recent US cohort, I document that college graduates with
student loan debt on average have lower post-graduation wage levels and wage dispersion. I capture the riskreturn aspect of occupations by categorizing jobs into performance-pay and non-performance-pay jobs. The
data show that individuals with student loan debt are less likely to choose performance-pay jobs. Motivated
by these data patterns, I build a dynamic life-cycle model in which college graduates make occupation and
savings decisions and occupations differ in wage returns and risk levels. Simulation results show that higher
student loan debt levels make individuals more risk averse and push them toward choosing the less risky and
lower-paying occupation while they repay the debt. As individuals accumulate occupation-specific human
capital, it becomes more costly to move away from the lower-paying occupation even after their student loan
debt is repaid, which leads to a lower wage level later in life.
Skills
Computation: Fortran, Latex, Matlab, Microsoft Office, Stata; Language: Chinese (native), English (fluent)
Junwen Caroline Liu
University of Pennsylvania
The Effects of Tuition and Student Loan Policies on College Outcomes and Lifetime Earnings
How can the government increase college access and reduce the student loan debt burden? This
question has become a major focus of U.S. educational policy. To tackle the problem, the Obama
administration has developed many initiatives. For example, in his 2015 State of the Union Address,
President Obama proposed a free community college plan that would make two years of community
college education free for all students. To improve federal student loan offerings, the government has
implemented a new repayment plan called Pay As You Earn (PAYE) in 2012.
These policies are expected to be costly, and the outcomes are not immediately available for
assessment. However, it is possible to evaluate the effects of these policies ex ante using a behavioral
model. In this paper, I develop and estimate a dynamic life-cycle model of the decisions that
individuals make with regard to college choice, years of schooling, work, savings and student loan
borrowing. I use the estimated model to answer two questions. First, how effective are the new
tuition and student loan policies in improving education outcomes and lifetime earnings? Second,
what are the fiscal costs of the policies and are they welfare-improving after accounting for fiscal
costs?
A number of distinct factors motivated these recent higher education policy initiatives. First,
despite existing need-based student grant and loan programs, there remains a wide college attainment
gap with respect to family income levels. Second, students from lower-income families are more
likely to attend colleges with a quality level that is below what their SAT score qualifies them for.
Third, the time it takes to complete a bachelor's degree has risen over time. Fourth, the majority of
students rely on student loan debt to finance their college education. The debt burden for many
students is high and it has potential repercussions for savings and labor market decisions.
To evaluate the new tuition and student loan reforms in a way that captures these considerations, I
incorporate three novel features into my model. First, the colleges considered in the model are of
different qualities.1 Specifically, I allow for five types of colleges: community colleges and four
types of four-year colleges varying by college quality. Having different college quality levels
captures the trade-off between college quality and cost. Second, my model incorporates both student
loan debt and standard savings decisions. Third, my model endogenizes labor supply decisions while
in college, which affects loan and savings choices and also possibly influences college completion.
Individuals are heterogeneous in family income, SAT scores and unobserved heterogeneity. They
are risk averse and face uncertainty over both schooling accumulation and labor income. These risks
imply that the student loan debt repayment structure potentially affects their schooling and
subsequent labor supply decisions.
I estimate the model using data from the National Longitudinal Survey of Youth 1997 (NLSY97)
and the Integrated Postsecondary Education Data System (IPEDS). The NLSY97 follows a nationally
representative sample of individuals who were born between 1980 and 1984 in the US. They have
been interviewed on an annual basis since 1997. The data set contains rich information on college
choices, employment, asset and student loan debt, which allows identification of model parameters.
IPEDS includes a range of information on colleges in the US, such as institutional characteristics,
1
Following a similar approach as Black and Smith (2005), I construct the quality index using average SAT score
and average faculty salary. I categorize four-year colleges into four quality levels based on the index.
admission and test scores, and student charges. I employ this information to calculate the net cost of
attendance for each college enrollee and to construct a college quality index.
Estimation is carried out using the Simulated Method of Moments. Key data moments are matched
along various dimensions, including enrollment patterns, college outcomes, the labor supply and
average wages series, and student loan debt level. Using the estimated model, three policy
experiments are conducted. First, the impact of the proposed free community college plan is
examined. Second, the newly implemented Pay As You Earn repayment plan is considered. Lastly, a
hypothetical loan forgiveness program for college dropouts is assessed. This plan is motivated by the
low college completion rate, and the sizable student loan debt college dropouts have on average upon
exiting college.
Under the free community college plan, I find that the community college enrollment increases
significantly for individuals from lower-income families. Among individuals with family income
below the median, community college enrollment rate increases by 17.30 percentage points from
40.00% to 57.30%. The associate degree completion rate also rises considerably. The fraction of
individuals in the population with an associate degree increases from 9.20% to 16.35%. However, it
reduces the population proportion of individuals who achieve a bachelor's degree by 9.00 percent
from 31.10% to 28.30%. There is a decrease in earnings inequality among lower-earning individuals.
The Pay As You Earn plan increases the rate of enrollment in both the community and four-year
colleges primarily for individuals from lower-income families. The plan also enables students to
attend higher quality colleges. For students whose family income is lower than the median, the
fraction of students enrolled in the top two college quality levels goes up by 2.40%, from 41.30% to
42.30%. Under this plan, the average years worked by four-year college graduation falls by 5.60%,
from 2.33 years to 2.20 years. The time it takes to receive a bachelor’s degree declines slightly. The
overall education level in the population improves as the fraction of individuals who have a
bachelor’s degree increasing from 31.10% to 32.78%. There is a reduction in earnings inequality in
the upper half of the distribution.
The loan forgiveness plan for college dropouts increases college enrollment but discourages
students from completing the degree. The fraction of individuals who earn an associate degree falls
by 28.30%, from 9.20% to 6.60%, while the fraction who earn a bachelor's degree falls by 8.68%,
from 31.10% to 28.40%. The reduction in the number of individuals who hold a college degree
reduces average lifetime earnings.
In terms of fiscal costs, the Pay As You Earn plan costs the least while the loan forgiveness plan is
the most expensive. All three polices are welfare improving for a utilitarian government that
maintains a neutral budget.2 The Pay As you Earn plan leads to the highest welfare gain, and the free
community college plan ranks second. Of the three policies, the Pay As You Earn plan produces the
largest improvement in the quality of the college attended and in the four-year college completion
rate. The free community college plan is the most effective in terms of improving college outcomes
for lower-income students. The two policies are complementary.
2
To make welfare comparisons, I adjust the labor tax rate to maintain a neutral government budget by re-solving
the model and simulating it under the new tax rate. Note that the effects of all polices on college outcomes and
lifetime earnings presented here derive from simulations that do not impose the cost of the policy on individuals.
These results are qualitatively and largely quantitatively unaffected when the costs are imposed through tax changes.
EKIM CEM MUYAN
https://economics.sas.upenn.edu/graduate-program/candidates/ekim-cem-muyan
muyan@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN @ ECON.UPENN.EDU
215-898-6880
215-898-7350
215-898-5691
Office Contact Information
Department of Economics
3718 Locust Walk Rm 160
Philadelphia, PA 19104
Phone: +1 (267) 994-6081
Citizenship: Turkish
Undergraduate Studies: BA, Economics with a minor in Mathematics, Sabanci University,
Dean’s Highest Honors, Istanbul, Turkey, 2008
Masters Level Work:
Laurea Magistralis, Economics, Università di Bologna, Summa Cum Laude,
Bologna, Italy, 2010
Graduate Studies:
University of Pennsylvania, 2010 to present
Thesis Title: “Essays in Political Economics”
Expected Completion Date: June 2016
Thesis Committee and References:
Professor Antonio Merlo
Rice University
Department of Economics
6100 Main Street
Houston, TX 77005
+1 (713) 348-3699
amerlo@rice.edu
Professor Kenneth I. Wolpin
Rice University
Department of Economics
6100 Main Street
Houston, TX 77005
+1 (713) 348-2522
kenneth.i.wolpin@rice.edu
Professor Camilo Garcia-Jimeno
University of Pennsylvania
Department of Economics
3718 Locust Walk
Philadelphia, PA 19104
+1 (215) 898-8206
gcamilo@sas.upenn.edu
Research Fields:
Political Economics, Development Economics, Public Economics
Teaching Experience:
Fall 14
Mathematics for Economist (Graduate), Rice University, Instructor
Spring 12/14
Political Economics, University of Pennsylvania, T.A.
for Professor Antonio Merlo
Fall 12/13
Honors Game Theory, University of Pennsylvania, T.A.
for Professor Andrew Postlewaite
Summer 13
Statistics for Economists, University of Pennsylvania, Instructor
Fall 13
Public Economics (Graduate), University of Pennsylvania, T.A.
for Professor Andrew Postlewaite
Fall 11/12
Game Theory, University of Pennsylvania, T.A.
for Professor Steve Matthews
Fall 09
Econometrics (Masters), University of Bologna, T.A.
for Andrea Ichino
Research Experience and Other Employment:
2009
University of Bologna, Research Assistant for Professor Andrea Ichino
Other Professional Activities:
2014
Teaching Mentor, Economics Department, University of Pennsylvania
Honors, Scholarships, and Fellowships:
2010-2015
University Fellowship, University of Pennsylvania
2009-2010
Fellow of Collegio Superiore, University of Bologna
2005-2008
Sakip Sabanci Full Scholarship, Sabanci University
Research Papers:
“Public Investment and Preference Aggregation under Alternative Decentralization Institutions”
(Job Market Paper)
Decentralization institutions differ from each other in terms of the degree of power they grant to local authorities in
decision-making. Successfully designing decentralization institutions depends on understanding the local and
central authorities' preferences over the types of public investments and how alternative decentralization
institutions aggregate them. Focusing on these key components, I build and estimate a dynamic committee
decision-making model to study how public investment choices vary with the degree of power granted to local
governments. I characterize alternative decentralization institutions as voting mechanisms the committee can
employ. I implement my model using a novel dataset from a unique institution in Colombia. I find that the local
governments are more likely to invest on targeted transfers than is the central government. Counterfactual
exercises show that a complete decentralized system would significantly increase the number and size of the
targeted transfer spending.
“How many votes does a dollar buy: Campaign Spending and Strategy in the U.S. Congressional
Elections” (with Devin J. Reilly)
A central yet unresolved question in political economy is the degree to which money affects election outcomes. We
argue that answering this question requires one to take the productivity of different campaign strategies into
account. To this end, we construct a model of political campaigns in which candidates allocate their budgets
between positive and negative campaigning. This allows us to estimate the marginal productivities of such
spending through the equilibrium of a political campaign game. Elections vary according to politician and districtspecific characteristics, as well as the unobservable (to the econometrician) measure of voter types. We structurally
estimate our model using a wide array of data, including the Wisconsin Political Advertisement project, FEC
campaign finance records, election results, and politician characteristics. Our estimates show that campaign
spending overall is not particularly effective at increasing votes -- a 10% increase in the average Democratic
candidate's budget, corresponding to about a $230,000 increase, would raise his or her expected vote share by 0.4
percentage points. This finding is consistent with the previous literature.
Research Papers in Progress:
“The Network Economics of Foreign Aid” (with Camilo Garcia-Jimeno)
In this paper we study a novel aspect of the strategic nature of foreign aid. Although it has been suggested that aid
is used as a tool to influence policy, we argue that the underlying ties between recipient countries lead to influence
spillovers. We argue that these spillovers are of first order importance from the point of view of donor countries,
which implies that bilateral aid flows cannot be treated in isolation. Thus, we develop and estimate a network
model of foreign aid where donor countries provide aid to recipient countries to influence their polices. Recipient
countries are linked to each other in a way that a unit of influence over a recipient also indirectly influences its
neighbors. Both direct and indirect influence considerations shape donor’s aid incentives. Because donors compete
for policy influence with each other, our model predicts that the strategic nature (strategic complementarity versus
substitutability) of the competition game between donors is endogenous and depends on the relative policy
positions of donors and recipients. We implement our model with data we construct from UN votes and
international aid flows. We estimate the best response dynamics of the model and analyze the entrance of China to
the foreign aid market.
“Why do PACs donate: Ideology or Favors” (with Devin J. Reilly)
Political Action Committees (PACs) donate large sums of money to political campaigns. In 2000, around 25% of
the candidate expenditures was financed by around 3,000 active PACs. We investigate the motivations behind
these donations. A PAC has two potential motivations to donate to a campaign. The first is that, by contributing,
the PAC may increase its probability to receive favors or have candidate access ("favor benefit"). The second is, if
the PAC is ideologically similar to a candidate, it may contribute simply to help the candidate win ("inherent
benefit"), independent of any specific "favors" the candidate may provide conditional on contributing. We build a
model of campaign contributions where these donations affect the probability a candidate wins and the "favors" the
PAC may receive, but not the ideological similarity between a single PAC and candidate. Thus, this model
captures both potential motivations for political contributions. We use estimates from Muyan and Reilly (2015) to
approximate the marginal impact of a PAC contribution to the probability of winning. We argue that the
identification of the model parameters is possible due to the variations in donations a candidate receives from all
PACs and variations in donations of a single PAC to candidates. With data from the 2000, 2004 and 2008
Congressional elections, as well as detailed PAC and candidate characteristics, we implement our model using
energy PACs grouped into various ideological camps.
RESEARCH STATEMENT
Ekim Cem Muyan
https://tinyurl.com/ekimcmuyan
muyan@sas.upenn.edu
My research spans the intersection of political institutions and economics, with a particular focus on
development. The questions I ask go in both directions of this relationship: how do political institutions
impact economic outcomes and how do economic relationships shape political institutions? During my
time as a graduate student at the University of Pennsylvania, I initiated projects that answered questions in
both directions. The goal of my research agenda is to provide theoretical and empirical insights that shape
and guide policy debates governing institutional design and development, and to understand the effects of
institutions in rigorous quantitative detail. In what follows, first, I briefly summarize the three projects I
am currently working on. My job market paper project is in the first direction: how do political institutions
shape economic outcomes? The other two, which amount to a total of three papers, are about the impact
of economic relations on political outcomes. For each of these projects, I discuss future avenues of research.
Finally, I end with two other projects, currently in their initial stages, that I hope to develop further in the
first years as an assistant professor.
In my job market paper, titled Public Investment and Preference Aggregation Under Alternative Decentralization Institutions, I take the heterogeneity of decentralization institutions around the globe seriously and
ask how the degree of power granted to local governments impacts public investments. This is distinct from
the previous empirical and theoretical literature that viewed decentralization as a binary process. Answering this question is a challenging task that requires several layers of analysis. First, I build a model that
can flexibly represent different degrees of decentralization. To do this, I treat and model decentralization
institutions as voting mechanisms that aggregate the preferences of local and central governments. A voting
mechanism can be mapped into a particular decentralization institution depending on the weight assigned
to the preferences of each layer of government. The model, therefore, establishes a systematic method to analyze the effects of decentralization institutions on public investment choices. Second, I provide an empirical
method to identify and estimate the preferences of different layers of government exploiting a unique institution in Colombia. My model, together with empirically uncovering the preferences of different layers of
government, enables me to predict the outcome of any possible decentralization attempt in Colombia. I find
that the local governments are more (less) prone to invest on targeted transfers (public goods) compared to
the central government. This leads to a striking result in my counterfactuals that complete decentralization
would significantly increase the number and size of the targeted transfer projects and decrease the number
and size of the public goods projects. The share of expenditure that is directed toward public goods would
decrease by about 16 percentage points. The next step in this line of research is to investigate the reasons
behind the divergence of the preferences between the local and central governments. The framework that
studies local elite capture and political agency problems at local and central levels is a promising start toward
this direction.
In another paper I am working on with Camilo Garcia-Jimeno at the University of Pennsylvania, titled
The Network Economics of Foreign Aid, we study the strategic nature of foreign aid. Although it has been
suggested in the literature that aid is used as a tool to influence policy, we argue that the underlying ties
between recipient countries lead to influence spillovers. We argue that these spillovers are of first order
importance from the point of view of donor countries, which implies that bilateral aid flows cannot be
treated in isolation. Thus, we develop and estimate a network model of foreign aid where donor countries
provide aid to recipient countries to influence their polices. Recipient countries are linked to each other in a
way that a unit of influence over a recipient also indirectly influences its neighbors. Both direct and indirect
RESEARCH STATEMENT
Ekim Cem Muyan
https://tinyurl.com/ekimcmuyan
muyan@sas.upenn.edu
influence considerations shape donor’s aid incentives. Because donors compete for policy influence with
each other, our model predicts that the strategic nature (strategic complementarity versus substitutability)
of the competition game between donors is endogenous and depends on the relative policy positions of
donors and recipients. Moreover, the recipient countries that are strategically placed in the recipient network
(the geopolitically important countries) receive more aid than countries that could benefit from it more. We
implement our model with data we construct from UN votes and international aid flows. We estimate the
best response dynamics of the model and analyze the entrance of China to the foreign aid market. Currently,
this paper is at its empirical implementation stage and we expect it to be ready in a couple of months. The
future avenue in this research is to ask the following simple but very important question: do countries with
geopolitical importance substitute aid for building state capacity? If this channel is important, it could be
possible that aid actually hurts some countries in the long run, instead of helping them.
Another working project, with Devin J. Reilly at the University of Pennsylvania, is on the influence
of campaign contributions on elections and the motivations of Political Action Committees (PACs) in contributing to political campaigns. We have collected a very large dataset that contains campaign strategies of
each congressional candidate, their characteristics as well as dyadic records of campaign contributions and
detailed PAC characteristics for the period 2000-2008. This project thus far produced one working paper
and another paper is still in progress. The first paper, titled How Many Votes Does a Dollar Buy: Campaign
Spending and Strategy in the U.S. Congressional Elections, investigates a central yet unresolved question in political economy: how does money influence election outcomes? To do this, we develop a model of strategic
campaigning where the candidates allocate their budgets between negative and positive campaigning. We
then estimate this model and find that a 10% increase in the average Democratic candidate’s budget would
raise her expected vote share by about 0.97%. In the other paper, titled Why Do PACs Donate: Ideology or
Favors, we investigate the motivation behind PAC donations to congressional candidates. The main channel
of identification is the fact that the favors depend on the magnitude of contributions whereas the ideological
proximity does not. As we recover the impact of contributions on the probability of winning in the previous
paper, our methodology outlines a novel way to identify these motivations. This paper is in the empirical
implementation phase and I expect the working paper to be out in about a year.
In the future, I would like to build on my agenda to understand the connection between political
institutions and economic development. A particular interest is to analyze when good policies are not good
politics. Voters often reward bad policies more than the good ones. This is especially true in developing
economies where broad public programs with proven development records find little electoral support from
the voters. Hence, these countries fail to provide basic public goods and services. I have developed a
framework where I can identify and estimate voter responsiveness to alternative development policies using
the set of Randomized Control Trials (RCTs) in a country. I have begun to collect village level local election
results in India. The next step is to collect village level RCT data, which is proprietary, and requires a
long bureaucratic process. More information about this project is available upon request. Another project
I am working on is about how governments in developing countries use public procurements for their
entrenchment. I have collected primary data on all public procurements in Turkey in the years 2002-2010 as
well as inter-company network data to initialize this project.
DANIEL NEUHANN
https://economics.sas.upenn.edu/graduate-program/candidates/daniel-neuhann
neuhann@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
MANOVSKI@ ECON.UPENN.EDU
215-898-6880
APOSTLEW@ECON.UPENN.EDU
215-898-7350
@ ECON.UPENN.EDU
215-898-5691
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
KQUINN
Office Contact Information
3718 Locust Walk, 160 McNeil Building
Philadelphia, PA 19104
C: +1 (646) 238 - 3915
Citizenship: Germany
Undergraduate Studies:
B.Sc., Economics, Humboldt-Universität zu Berlin, 2009
Graduate Studies:
University of Pennsylvania, 2010 to present
Thesis Title: “Essays on the Macroeconomics of Financial Markets”
Expected Completion Date: June 2016
Thesis Committee and References:
Professor Harold L. Cole
Department of Economics
University of Pennsylvania
Philadelphia, PA 19104
Phone: +1 (215) 898-7788
Email: colehl@sas.upenn.edu
Professor Guillermo Ordonez
Department of Economics
University of Pennsylvania
Philadelphia, PA 19104
Phone: +1 (215) 898-1875
Email: ordonez@econ.upenn.edu
Professor Itay Goldstein
Finance Department - The Wharton School
University of Pennsylvania
Philadelphia, PA 19104
Phone: +1 (215) 746 - 0499
Email: itayg@wharton.upenn.edu
Professor Dirk Krueger
Department of Economics
University of Pennsylvania
Philadelphia, PA 19104
Phone: +1 (215) 573-1424
Email: dkrueger@econ.upenn.edu
Pre-Ph.D. Graduate Studies:
M.Sc., Economics, Tilburg University, 2010
Teaching and Research Fields:
Primary fields: Macroeconomics, Financial Economics
Secondary fields: Applied Microeconomic Theory, Financial Institutions, Banking
Teaching Experience at University of Pennsylvania:
Fall 2011
Introduction to Macroeconomics, Recitation Instructor for Prof. Luca Bossi
Spring 2012
Introduction to Macroeconomics, Recitation Instructor for Prof. Luca Bossi
Fall 2012
Intermediate Microeconomics, Lecturer
Spring 2013
Intermediate Microeconomics, Recitation Instructor for Prof. Tymofiy Mylovanov
Summer 2013 Intermediate Microeconomics, Lecturer
Fall 2013
Public Finance, Teaching Assistant to Prof. Hanming Fang
Spring 2014
Macroeconomic Modeling, Teaching Assistant to Prof. Dirk Krueger
Research Experience and Other Employment:
July 2014-May National Bureau of Economic Research, Research Assistant
2015
July 2011-May University of Pennsylvania, Research Assistant to Prof. Iourii Manovskii (2011),
2013
Research Assistant to Prof. Harold L. Cole (2012-2013), Research Assistant to Prof.
John Yiran Zhu (2012)
July 2012Bonn University (Institute for Macroeconomics and Econometrics, Visiting
August 2012 Researcher
August 2009 - Humboldt-Universität zu Berlin
December
2009
Professional Activities:
Presentations
Jackson Hole Finance Conference, Wharton Finance, Penn Money Macro, Penn Macro Club,
Philadelphia Fed (scheduled)
Refereeing
Journal of Monetary Economics, International Economic Review
Honors, Scholarships, and Fellowships:
2015
Robert Summers Dissertation Fellowship in Economics (University of Pennsylvania)
2015
Lamfalussy Research Fellowship of the European Central Bank
2014
President Gutmann Leadership Award (University of Pennsylvania)
Research Papers:
“Macroeconomic Effects of Secondary Market Trading” (Job Market Paper)
Starting around 1990, financial intermediaries in the United States increasingly began to sell, rather than
hold to maturity, many of the loans that they provided to households and firms. This paper presents a
theory in which the endogenous growth of such secondary market trading generates a macroeconomic
credit cycle. Growing secondary markets initially boost credit volumes but gradually lead credit to flow to
excessively risky investments. Aggregate risk exposure builds as asset quality falls. Ultimately, a negative
shock leads to a simultaneous collapse of secondary markets and credit volumes -- as in the financial
crisis of 2008. Booms are triggered by periods of low interest rates, and longer booms lead to sharper
crises. Saving gluts and expansionary monetary policy thus lead to financial fragility over time. Procyclical regulation of secondary market traders, such as asset managers or hedge funds, can improve
welfare even when such traders are not levered.
“Debt Crises: For Whom the Bell Tolls” (with Harold L. Cole and Guillermo Ordonez)
What a country has done in the past, and what other countries are doing in the present can feedback for
good or for ill. We develop a simple model that can address hysteresis and contagion in sovereign debt
markets. When a country’s fundamentals change, those changes affect information acquisition about that
country and also affect the allocation of investment funds worldwide, inducing changes in the dynamics of
sovereign spreads in seemingly unrelated countries.
“Are Universal Banks Better Intermediaries?” (with Farzad Saidi)
Revise and Resubmit, Journal of Financial Economics
Are banks of wide scope better intermediaries? Using the variation in bank scope generated by the
stepwise repeal of the Glass-Steagall Act in the U.S. and the sub- sequent rise of universal banking, we
provide evidence that economies of scope in concurrent lending and underwriting improve the access to
finance for risky ventures of publicly traded companies. Exploiting a bank-level deregulatory shock, as
well as detailed data on bank-firm interactions, we identify increases in sales-growth, stock- return, and
option-implied volatilities for universal-bank-financed firms. These firms also exhibit lasting increases of
3 to 4% in total factor productivity, 6 to 7% in capital expenditure, and 5 to 9% in market capitalization.
Our findings suggest that the facilitation of cross-selling of loans and non-loan products may have led to
an increase in the supply of credit for firms making risky, productivity-increasing investments.
“Does Bank Scope Improve Monitoring Incentives in Syndicated Lending?” (with Farzad Saidi)
We propose a model to study the provision of monitoring incentives in loan syndicates when banks differ
in scope. Because bank scope increases a bank’s total exposure to firm performance beyond its loan share,
banks of wide scope have incentives to monitor the firm even when they receive small loan shares. As
such, they are more likely to be chosen as lead arrangers, yet receive comparatively small lead shares. We
confirm these predictions empirically by exploiting the repeal of the Glass-Steagall Act. Our findings
suggest that the observed increases in syndicated- loan volumes and simultaneous decreases in lead shares
over the last two decades are not associated with losses in monitoring efficiency.
Daniel Neuhann1
Dissertation Abstract
I study the macroeconomics of financial markets, with a particular focus on financial institutions and settings with asymmetric information. I do so using theoretical and empirical tools.
During my Ph.D., my research has focused on evaluating the macroeconomic consequences of two
large structural changes in the U.S. financial system: the growing prevalence of securitization and
secondary markets for financial assets, and the rise of universal banking after the repeal of the
Glass-Steagall Act. I have also studied the international contagion of sovereign debt crises.
In my job market paper, “Macroeconomic Effects of Secondary Market Trading,” I study the
aggregate implications of a major structural change in the U.S. financial system over the last 25
years. From 1990 onwards, financial intermediaries in the U.S. increasingly began to sell, rather
than hold to maturity, many of the loans that they originated. This development is significant in
that intermediaries had held the majority of their loans on balance sheet for most of the postwar
period. I present a theory in which the endogenous emergence of such secondary market trading generates a macroeconomic credit cycle in line with the build-up to the 2008 financial crisis.
Growing secondary markets initially boost credit volumes but gradually lead credit to flow to excessively risky investments. Aggregate risk exposure builds as asset quality falls. Ultimately, a
negative shock leads to a simultaneous collapse of secondary markets and credit volumes as in
the financial crisis of 2008. In the theory, booms are triggered by periods of low interest rates, and
longer booms lead to sharper crises. In the U.S., a dramatic inflow of capital from abroad and
expansionary monetary policy combined to reduce interest rates in the early 2000s. My model
therefore provides an argument for why secondary markets grow so sharply from then on, and
how this grow led to a credit boom that ended in crisis. I then use the model to study policy. I find
that pro-cyclical regulation of secondary market traders, such as asset managers or hedge funds,
can improve welfare even when such traders are not levered. Moreover, capital requirements on
bankers may lead asset quality to fall than in their absence.
The second chapter of my dissertation is “Debt Crises: For Whom the Bell Tolls,” co-authored
with Harold Cole and Guillermo Ordoñez. We provide a new approach to understanding the contagion of sovereign debt crises across countries. We do so in a model in which investors can
privately acquire information about a country’s fundamentals, such as its growth prospects or political willingness to default. We show that small shocks to a country’s fundamentals can trigger
information acquisition and lead to increased bond price volatility. We then show that increased
volatility in one country may trigger information acquisition in other countries. The reason is that
risk-averse investors are strongly averse to holding overvalued bonds in multiple countries at
once, and are thus willing to pay more for the privilege of knowing the true fundamentals. Small
shocks in a single country can therefore trigger increased volatility in other countries and generate
contagious debt crises. Because information acquisition is socially inefficient, switching to such
“informed” equilibria generates welfare losses. We argue that this mechanism is of relevance for
the recent Eurozone crisis.
1
Department of Economics, University of Pennsylvania. neuhann@sas.upenn.edu
1
The last two chapters of my dissertation are co-authored with Farzad Saidi and analyze the
impact of the repeal of the Glass-Steagall Act on the performance of bank-dependent firms. The
repeal gave rise to universal banks, which are large financial institutions that offer both commercial
and investment banking services under one roof. As a result, banks and firms were able to form
lending relationships across a wider variety of financial products. In “Are Universal Banks Better Intermediaries?,” we provide empirical evidence that universal-bank financed firms exhibited
lasting increases of 3 to 4% in total factor productivity (TFP), 6 to 7% in investment, and 5 to 9% in
market capitalization, a proxy of firm value, after the repeal of Glass-Steagall. Universal banking
also leads to increases of up to 14% in a benchmark measure of firm-level risk, namely the volatility of firm sales. This this risk is not reflected in higher default rates, however. We thus contribute
to the macroeconomic literature that studies the run-up of idiosyncratic firm-level risk over the
last thirty years. This paper is currently being revised for resubmission to the Journal of Financial
Economics.
In “Does Bank Scope Improve Monitoring Incentives in Syndicated Lending?,” we explore
the mechanism by which bank scope matters for the performance of bank-dependent firms. We
provide a model to argue that universal banks may be particularly efficient at monitoring firms because there are economies of scope across multiple financial products. To evaluate this hypothesis
empirically, we study the market for syndicated loans, in which multiple banks jointly lend to a
single firm. Syndicates typically feature a single lead arranger tasked with monitoring the firm.
These lead arrangers tend to retain a large share of the loan to ensure that they have incentives
to actually monitor the firm. Our hypothesis is that universal banks are more likely to be lead
arrangers, and that they require lower loan shares to maintain monitoring incentives. We confirm
both predictions empirically. In contrast to the existing literature, our findings suggest that the
observed increases in syndicated-loan volumes and simultaneous decreases in lead shares over
the last two decades are not necessarily associated with losses in monitoring efficiency. By emphasizing scope over size, these two papers on universal banking therefore present evidence of
firm-level benefits of universal banking.
2
FRANCISCO SILVA
https://economics.sas.upenn.edu/graduate-program/candidates/francisco-silva
fsilva@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN @ ECON.UPENN.EDU
215-898-6880
215-898-7350
215-898-5691
Office Contact Information
Department of Economics
160 McNeil Building, 3718 Locust Walk
Philadelphia, PA 19104
Cell Phone: +1 2154214450
Undergraduate Studies:
Bsc (Licenciatura), Economics, University of Porto, 2008
Masters’ Level Work:
Msc, Economics, Catholic University of Portugal, 2010
Graduate Studies:
University of Pennsylvania, 2010 to present
Thesis Title: “Essays in Applied Microeconomic Theory”
Expected Completion Date: May 2016
Thesis Committee and References:
Professor Andrew Postlewaite (Advisor)
Department of Economics, 3718 Locust Walk
Philadelphia, PA 19104
215-898-7350, apostlew@econ.upenn.edu
Professor Steven Matthews
Department of Economics, 3718 Locust Walk
Philadelphia, PA 19104
215-898-7749, stevenma@econ.upenn.edu
Professor Rakesh Vohra
Department of Economics, 3718 Locust Walk
Philadelphia, PA 19104
215-898-6777, rvohra@seas.upenn.edu
Teaching and Research Fields:
Primary fields: Applied Microeconomic Theory, Public Economics, Law and Economics
Secondary fields: Behavioral Economics
Teaching Experience:
Fall, 2013-2014
Summer, 2013-2014
Spring, 2012-2013
and Fall, 2001
Fall, 2002
Introduction to Micro and Macro Economics and its applications, UPenn,
Head Recitation Instructor for Professor Gizem Saka
Economic Analysis of the Public Sector (MPA course), UPenn, Teaching
Assistant for Professor David Crawford
Introduction to Macroeconomics, UPenn, Recitation Instructor for Professor
Luca Bossi
Introduction to Micro and Macro Economics and its applications, UPenn,
Recitation Instructor for Professor Gizem Saka
Summer, 2002
Spring, 2009-2010
Fall, 2008-2009
Intermediate Microeconomics, UPenn, Instructor
Intermediate Microeconomics, Catholic University of Portugal, Teaching
Assistant for Professor Fernando Branco
Intermediate Microeconomics, Catholic University of Portugal, Teaching
Assistant for Professor Fernando Machado
Research Experience and Other Employment:
2009-2010
Catholic University of Portugal, Research Assistant for Professors Leonor
Modesto and Teresa Lloyd Braga
2009
Ministry of Economics and Innovation (Portugal), Economics Studies Office,
Research Intern
Honors, Scholarships, and Fellowships:
2014
Edward Mansfield Prize for best performance of a recitation instructor in
Intro Economics, Honorable Mention, UPenn
2010-2015
University Fellowship, UPenn
Research Papers
“The Optimal Design of a Criminal Justice System” (Job Market Paper)
I consider the problem a social planner faces in constructing a criminal justice system which addresses
two needs: to protect the innocent and to punish the guilty. I characterize the socially optimal criminal
justice system under various assumptions with respect to the social planner's ability to commit. In the
optimal system, before a criminal investigation is initiated, all members of the community are given the
opportunity to confess to having committed the crime in exchange for a smaller than socially optimal
punishment which is independent of any future evidence that might be discovered. Agents who choose
not to confess might be punished once the investigation is completed if the evidence gathered is
sufficiently incriminatory. In this paper's framework, leniency for confessing agents is efficient not
because it saves resources or reduces risk, but because there are informational externalities to each
confession. When an agent credibly confesses to be guilty he indirectly provides the social planner
additional information about the other agents: the fact that they are likely to be innocent.
“Inducing Overconfidence” (R&R at Economic Inquiry)
In this paper, I show how the intervention of others (parents, bosses or coworkers) may generate
overconfidence. I compare two explanations. The first is that people take their success at face value and
disregard the influence that outside help may have. Even though this assumption may sometimes be
reasonable, I argue that it is not when such help is received systematically as is the case, for example, of
parenting. Hence, I provide a more novel explanation for induced overconfidence that is based on the
idea that receiving help makes the information gathered less precise. Overconfident people, who tend to
receive more help, will remain overconfident as the future information they will gather has very little
precision. On the contrary, underconfident people, who tend to receive less help, will learn their true
ability faster. Using data on teenagers and young adults I compare these two alternative explanations.
“Should the government provide public goods if it cannot commit?” (R&R at Journal of Public
Economic Theory)
I compare two different systems of provision of discrete public goods: a centralized system, ruled by a
benevolent dictator who has no commitment power; and an anarchic system, based on voluntary
contributions, where there is no ruler. If the public good is binary, then the public good provision
problem is merely an informational one. In this environment, I show that the anarchic system can always
replicate any outcome of the centralized system. However, as one increases the number of alternatives
available, the classical free riding problem described in Samuelson (1954) emerges. As the classical free
riding problem becomes more important relative to the informational free riding problem, the centralized
system becomes the preferred system of the two.
“Euthanasia: the fear of becoming a burden”
It has been widely documented in the medical literature that terminal patients often choose to end their
lives out of the fear of becoming a burden to their family. But the real size of the burden, in particular its
emotional component, is only known by the patient's family. I analyze the impact of legalizing
euthanasia on the ability of the family to communicate with the patient through a cheap talk model. I
argue that, if euthanasia is legalized, either the patient makes his decision (of whether or not to commit
suicide) uninformed of the size of the burden; or chooses what his family would have chosen if it had the
power, and not necessarily what he would have preferred. I also consider the role of the physician and
argue that, if the physician anticipates the family's influence in the patient's decision, providing
incentives for the physician's interests to be aligned with the patient's might not be on the patient's best
interest.
Languages:
Portuguese (native), English (fluent), Spanish (intermediate), French (basic)
Dissertation Abstract
Essays in Applied Microeconomic Theory
Francisco Silva
My dissertation is composed of four papers. Paper 1, my job market paper, studies the design of efficient
criminal justice systems using some of the techniques of mechanism design. Paper 2 proposes a new explanation
for the phenomenon of overconfidence. Paper 3 re-examines the question of whether the government should
provide public goods while assuming it cannot commit. Paper 4 investigates the consequences of the legalization
of euthanasia in the communication between patient, patient's family and physician using a cheap talk model.
"The Optimal Design of a Criminal Justice System" (Job Market Paper)
In this paper, I investigate the desirable properties of a criminal justice system. I approach this problem by
analyzing a simple scenario that I believe illustrates the main challenge a criminal justice system faces. Consider
a community of N agents and a principal. Imagine that the suspicion that a crime has been committed arises and
it is the principal's responsibility to select punishments to be inflicted upon the agents. Think of the principal as a
sort of social planner or benevolent decision maker who wants the best for the community. In a perfect world, she
would like to punish only agents who are guilty of committing the crime. Of course, the problem is that the
principal does not know who is guilty and who is innocent. And, knowing that the principal is interested in
punishing those agents that are guilty makes them reluctant to announce their guilt. I study the principal's problem
of creating a mechanism that, to the extent that is possible, punishes those who are guilty while protecting the
rights of the innocent.
There are two particular ways to solve this problem - two systems - which are important for my analysis. The
first is what I call a "trial system". In a trial system, if the principal suspects the crime has been committed she
initiates a police investigation aimed at obtaining evidence. Based on the evidence, the principal forms beliefs
about the guilt of each agent and chooses punishments accordingly. Only agents whose evidence strongly indicates
guilt are punished - agents are punished if they are found to be guilty beyond "reasonable doubt".
The second system is what I call a "confession inducing system" (CIS). A CIS has two stages. In the first
stage, before the investigation begins, all agents are given the opportunity to confess the crime, in exchange for a
punishment independent of any evidence which might be gathered in the future. In the second stage, if necessary,
the principal conducts a police investigation, and, based on the information gathered, chooses the punishments, if
any, to apply to agents who chose not to confess in the first stage. It essentially is a trial system preceded by a
confession stage. An example of these type of systems is “self-reporting” in environmental law where firms which
infringe environmental regulations are able to contact the corresponding law enforcement authority and self-report
this infringement in exchange for a reduced punishment.
The main result of the paper is that, no matter what the principal’s commitment power may be, it is possible
to construct a CIS that is preferred to any other system. The appeal of the optimal CIS is that it explores the
Dissertation Abstract
Essays in Applied Microeconomic Theory
Francisco Silva
correlation between the agents' innocence in that, when an agent credibly confesses to be guilty, he is also
indirectly informing the principal that everyone else is likely to be innocent.
"Inducing Overconfidence" (R&R at Economic Inquiry)
In this paper, I show how the intervention of others (parents, bosses or coworkers) may generate
overconfidence. I compare two explanations. The first is that people take their success at face value and disregard
the influence that outside help may have. Even though this assumption may sometimes be reasonable, I argue that
it is not when such help is received systematically as is the case, for example, of parenting. Hence, I provide a
more novel explanation for induced overconfidence that is based on the idea that receiving help makes the
information gathered less precise. Overconfident people, who tend to receive more help, will remain overconfident
as the future information they will gather has very little precision. On the contrary, underconfident people, who
tend to receive less help, will learn their true ability faster. Using data on teenagers and young adults I compare
these two alternative explanations.
"Should the government provide public goods if it cannot commit?"
I compare two different systems of provision of discrete public goods: a centralized system, ruled by a
benevolent dictator who has no commitment power; and an anarchic system, based on voluntary contributions,
where there is no ruler. If the public good is binary, then the public good provision problem is merely an
informational one. In this environment, I show that the anarchic system can always replicate any outcome of the
centralized system. However, as one increases the number of alternatives available, the classical free riding
problem described in Samuelson (1954) emerges. As the classical free riding problem becomes more important
relative to the informational free riding problem, the centralized system becomes the preferred system of the two.
"Euthanasia: the fear of becoming a burden"
It has been widely documented in the medical literature that terminal patients often choose to end their lives
out of the fear of becoming a burden to their family. But the real size of the burden, in particular its emotional
component, is only known by the patient's family. I analyze the impact of legalizing euthanasia on the ability of
the family to communicate with the patient through a cheap talk model. I argue that, if euthanasia is legalized,
either the patient makes his decision (of whether or not to commit suicide) uninformed of the size of the burden;
or chooses what his family would have chosen if it had the power, and not necessarily what he would have
preferred. I also consider the role of the physician and argue that, if the physician anticipates the family's influence
in the patient's decision, providing incentives for the physician's interests to be aligned with the patient's might
not be on the patient's best interest.
VESA-HEIKKI SOINI
http://economics.sas.upenn.edu/graduate-program/candidates/vesa-heikki-soini
soini@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN
Office Contact Information
417 McNeil Building, 3718 Locust Walk
Philadelphia, PA 19143
Cell phone number: 267-252-4408
@ ECON.UPENN.EDU
215-898-6880
215-898-7350
215-898-5691
Home Contact Information
1315 S Chadwick St
Philadelphia, PA 19146
Home phone number: 267-252-4408
Personal Information: Male, Citizen of Finland
Undergraduate Studies:
B.Sc & M.Sc, Economics, Helsinki School of Economics, 2006
Masters Level Work:
M.Phil, Economics, University of Oxford, 2008
Graduate Studies:
University of Pennsylvania, 2010 to present
Thesis Title: “Academic Specialization and Misallocation of Skills in the Labor Market”
Expected Completion Date: May 2016
Thesis Committee and References:
Professor Guillermo Ordonez (Primary Advisor)
Room 428 McNeil Building, 3718 Locust Walk
215-898-1875 ordonez@econ.upenn.edu
Professor Harold Cole
Room 436 McNeil Building, 3718 Locust Walk
215-898-7788 colehl@econ.upenn.edu
Professor Dirk Krueger
Room 428 McNeil Building, 3718 Locust Walk
215-573-1424 dkrueger@econ.upenn.edu
Teaching and Research Fields:
Primary field: Macroeconomics
Secondary fields: Financial Economics, Labor Economics
Teaching Experience:
Spring, 2015
Money Credit and Banking, University of Pennsylvania, teaching assistant for Prof. Harold
Cole
Spring, 2014
Intermediate Macroeconomics, University of Pennsylvania, teaching assistant for Prof. Ufuk
Akcigit
Fall, 2013
Introduction to Microeconomics, University of Pennsylvania, grader for Prof. Rebecca Stein
Summer, 2013
Introduction to Macroeconomics, University of Pennsylvania, instructor
Spring, 2013
Macro Modelling, University of Pennsylvania, teaching assistant for Prof. Guillermo
Ordonez
Spring, 2013
Law and Economics, University of Pennsylvania, teaching assistant for Prof. Camilo GarciaJimeno
Fall, 2012
Introduction to Economics, Wharton Business School, recitation instructor for Prof. Gizem
Saka
Spring, 2012
Fall, 2011
Intermediate Macroeconomics, University of Pennsylvania, teaching assistant for Prof. Ufuk
Akcigit
Introduction to Economics, Wharton Business School, recitation instructor for Prof. Uri
Spiegel
Research Experience and Other Employment:
2007-2008
Said Business School, University of Oxford, Research Assistant for Prof. Tarun Ramadorai
2006-2007
Nokia Corporation, Financial Analyst
2006
Nokia Networks, Business Analyst
2005-2006
Nokia Networks, Business Analyst Trainee
Professional Activities,
2012-2015
Penn Macro Workshop Seminar
2014
Reading Group In Liquidity and Financial Crisis, Wharton Business School
Honors, Scholarships, and Fellowships:
2010-2011
Barbara and Edward Netter “Thanks to Scandinavia” Scholarship
2010
Yrjo Jahnsson Foundation Scholarship
2008
Otto A. Malmin Lahjoitusrahasto
2007
Yrjo Jahnsson Foundation Scholarship
Research Papers:
“Academic Specialization and Misallocation of Skills in the Labor Market” (Job Market Paper)
This paper studies academic specialization and misallocation of skills in the labor market. I combine a
discrete choice model with a general equilibrium macro model to study occupations where occupation-specific
human capital is obtained through university education and people incur considerable upfront costs to work in a
particular occupation. The model embeds a market failure: risk-averse individuals face an incomplete markets
problem because they are not able to buy insurance against adverse occupation-specific shocks. I compare production efficiency and utilitarian welfare in competitive equilibrium to the outcomes of two social planning problems:
(i) output maximization problem (ii) “constrained efficient” planning problem. To get quantitative estimates of the
importance of academic specialization, I calibrate the model using data on petroleum, chemical and mechanical engineers. The output loss caused by the lack of insurance depends on model parameters and can potentially be very
large.
“Team Formation and Learning about Worker-Specific Productivities”
The objective of this paper is to study matching of workers into teams within a firm when learning about workerspecific productivity is important. The paper introduces a new Bayesian conjugate prior approach where
individuals' contributions are normally distributed but only joint production is observed. This framework can be
applied to any problem where a sum of random variables is observed. In this paper, the framework is used to study
whether expected continuation values affected by learning are supermodular in expected productivity (prior means)
and variances of expected productivity (prior variances).
“The Existence of a Unique Solution to the Bellman Equation for Unbounded Return Functions”
“Estimating the Gravity Model with Differentiated and Homogeneous Goods – Evidence for the Home-Market
Effect?” (Master's Thesis)
“The Effect of the Euro on Intra-European Trade” (Undergraduate Thesis)
Languages:
Finnish (native), English, Swedish
Research Statement
Vesa Soini
My research interests lie in macroeconomics with secondary interests in financial and labor economics. My job market paper combines an occupational choice model with a general equilibrium macro model and studies the effect of
alternative labor allocations on output and utilitarian welfare. The focus is on occupations where occupation-specific
human capital is obtained through university education and people incur considerable upfront costs to be able to
work in a particular occupation. Such occupations include many technical, medical and legal occupations, for example. The model embeds a market failure: risk-averse individuals face an incomplete markets problem because they
are not able to purchase insurance against adverse occupation-specific shocks.
One ambition of my paper is to develop a tractable model for studying general equilibrium wage movements of these
occupations. In my model, initial endowments depend on occupational choices. A social planner is able to manipulate
initial endowments by choosing alternative allocations which affects both output and wage inequality in the economy.
I solve for two planner’s problems: (i) the output maximizing problem (ii) the ‘constrained efficient’ problem. In the
latter problem, the planner recognizes that changing allocations will affect ‘pecuniary externalities’, i.e. externalities
transferred through general equilibrium wages. Because markets are incomplete, movements in general equilibrium
wages will have a welfare effect. The constrained planner effectively seeks to mitigate inequality across occupations
even though he cannot eliminate inequality within occupations.
The main ambition of my job market paper is to quantitatively study the output loss caused by the market failure in
occupational choices. For this purpose I develop a dynamic version of the model and solve it numerically. I calibrate
the model using data on petroleum, chemical and mechanical engineers. The results show that the output loss caused
by the market failure can be very large (baseline estimate is 3.7% of output) although the exact magnitude depends
on parameter values.
The paper assumes that individuals have heterogeneous productivity in each occupation. I assume that each worker’s
idiosyncratic productivity for each occupation is drawn from a Fréchet distribution. Therefore, the model embeds
the idea that labor is not perfectly substitutable. If more and more workers are needed in a particular occupation,
it becomes necessary to attract people who are less talented in that occupation. If these people were more talented
in other occupations, there is a loss of total efficiency units of labor. In fact, total labor units are maximized when
there is some amount of people going to each occupation based on people’s inherent comparative advantages.
I start by studying a one-period version of the model. I derive closed-form solutions for labor allocations, output,
utilitarian welfare and optimal taxes for competitive equilibrium and two social planning problems: (i) the output
maximization problem (ii) the ‘constrained efficient’ problem. The first of these planning problems yields maximal
output by definition but assumes that the planner can transfer income between workers after occupation-specific
shocks are realized. The second social planning problem does not allow such transfers. Since the model suffers from
an incomplete markets problem, the first welfare theorem does not apply. This means that pecuniary externalities do
not offset each other in competitive equilibrium and the outcome is not Pareto efficient. Occupation-specific taxes
or education quotas can in theory be used to improve labor allocation in the economy.
1
In my model, workers internalize the mean but not the variance of wages. At the same time, the output losses depend
on both the means and variances of wages. To maximize output, the planner wants to allocate more people to more
risky occupations. On the contrary, the constrained efficient allocation requires that less people are allocated to more
risky occupations. The reason for this is that less people in those occupations increases general equilibrium wages.
This increase compensates for the additional risk of the occupation and therefore the expected utilities across various
occupations becomes closer to each other. However, there is still wage inequality within occupations because people
are paid according to their idiosyncratic productivity.
The output losses depend on certain parameter values. If the elasticity of substitution between occupation goods
is low, the wage risk becomes less severe since general equilibrium prices increase when output is decreased. This
mechanism keeps occupation revenues and also wages relatively stable. The capital share of an occupation increases
output losses, as a high capital share amplifies wage movements. Finally, the wage risk depends on the variance of
the underlying Bernoulli distribution.
In the dynamic version of the model, the state of each occupation changes over time. The main purpose of this
section is to get an estimate of the magnitude of potential output losses. The uncertainty is modeled as occupationspecific business cycles where the productivity realizations depend on the hidden state of each occupation. Workers
learn about the hidden states over time but the hidden states change according to a Markov process. I calibrate the
model using data on petroleum, chemical and mechanical engineers. The output loss caused by the lack of insurance
is estimated to be about 3.7% of the GDP. However, this is just an aggregate result. Depending on the chosen
occupation there will be winners and losers.
An important dynamic result is that the competitive equilibrium features too much variation in occupational choices
over time compared to the planner’s outcome. Therefore the model exhibits ‘dynamic misallocation’. If uncertainty
is more severe in a downturn, risk-aversion makes individuals ‘over-react’ to perceived changes of the occupation’s
state. As a consequence, some people whose comparative advantage lies in another occupation will choose an occupation where they are less productive which reduces total efficiency units of labor. The output maximizing planner
takes such possibilities into account in his solution.
My job market paper raises several new research questions. For one, the stationarity of the model helps with computations but is somewhat unrealistic. In reality new occupations are born and old occupations die over time. The model
could be modified to account for this by choosing a Bayesian process in which new occupations are more uncertain
than the established ones but as workers learn about the new occupations over time, the uncertainty disappears. This
modification of the model seems appropriate for modeling many interesting occupations in the economy. Secondly,
while the utilitarian welfare criteria used in the model is a constrained efficient allocation, the modeling of occupational choice creates a subtle special feature to the general equilibrium theory. When individuals choose a particular
occupation, they choose not to go to any other occupations. This implies that they will ‘throw away’ their labor
endowments for those other occupations. One research question would be to try to find all Pareto efficient allocations
after the idiosyncratic productivity realizations are drawn but before the occupation-specific TFP shocks are realized.
In my third year paper, the objective was to study matching of workers into teams within a firm when learning about
worker-specific productivity is important. The main novelty in that paper is the Bayesian learning process. That
is, I develop a Bayesian conjugate prior approach where individuals’ outputs are normally distributed but only joint
production is observed, and the firm owner can choose the fraction of the task performed by each worker. I show
in this paper that the posterior is always a bi-variate Normal. Such a learning process implies that if tasks among
workers are equally distributed, the firm owner only learns about the average productivity of the team rather than
worker-specific productivity. As shown in the paper, when tasks are equally distributed, the posterior covariance will
2
be negative. This implies that if only one worker performs the task in the next period, Bayesian updating can also be
applied to other workers even if they did not work on the task. If on the other hand, more of the task is assigned to
one worker, the learning process approaches the standard Normal-Normal conjugate process. This implies that the
firm owner might find it optimal to first assign the tasks equally but later on give more responsibility to one worker,
since the speed of learning will be increased after the previous period’s updating. In principle, this framework can
be applied to any problem where a sum of random variables is observed. In my third year paper, a simplified version
of the framework was applied to study whether expected continuation values affected by learning are supermodular
with respect to expected productivity and the variance of expected productivity.
3
YU WANG
https://economics.sas.upenn.edu/graduate-program/candidates/yu-wang
wangyu5@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON. UPENN. EDU
APOSTLEW@ ECON. UPENN.EDU
KQUINN @ ECON.UPENN.EDU
215-573-2057
215-898-7350
215-898-5691
Office Contact Information
160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
215-919-1358
Personal Information: August 10, 1987, Female, Chinese Citizen, F-1 Visa
Undergraduate Studies:
B.A. in Finance, Peking University, 2005-2009
Graduate Studies:
University of Pennsylvania, 2009 to present
Thesis Title: “The Impact of Student Debt on the Education, Career, and Marriage Choices of
Female Lawyers”
Expected Completion Date: May 2016
Thesis Committee and References:
Professor Holger Sieg (Main Advisor)
Department of Economics
3718 Locust Walk, RM 459
Philadelphia, PA 19104
215-898-7194
holgers@econ.upenn.edu
Professor Kenneth Wolpin
Rice University
Department of Economics-MS 22
P.O. Box 1892
Houston, TX
713-348-2522
Kenneth.I.Wolpin@rice.edu
Professor Hanming Fang
Department of Economics
3718 Locust Walk, RM 429
Philadelphia, PA 19104
215-898-7767
hanming.fang@econ.upenn.edu
Teaching and Research Fields:
Labor, Public, Political Economy, Education
Teaching Experience:
Fall 2010
Econometrics (Ph.D. 1st year course) Teaching Assistant for Prof. Kevin Song
Spring 2011
Statistics for Economists, Teaching Assistant for Prof. Aureo De Paula
Fall 2011
Econometrics (Ph.D. 1st year course), Teaching Assistant for Prof. Frank
Schorfheide and Prof. Xu Cheng
Spring 2012
Econometrics, Teaching Assistant for Prof. Xu Cheng
Fall 2012
Fall 2012
Spring 2013
Summer 2013
Fall 2013
Spring 2014
Urban Fiscal Policies, Teaching Assistant for Prof. Holger Sieg
Development Economics, Teaching Assistant for Prof. Flavio Cunha
Labor Economics, Instructor
Econometrics, Instructor
Econometrics (Ph.D. 2nd year course), Teaching Assistant for Prof. Petra Todd
Econometrics, Teaching Assistant for Prof. Frank Schorfheide
Research Experience:
Fall 2014
Research Assistant for Prof. Gilles Duranton
Professional Activities:
Presentation:
Spring 2012
U Penn Empirical Micro Lunch
Summer 2014 The North American Summer Meeting of the Econometric Society
Spring 2015
U Penn Empirical Micro Lunch
Summer 2015 EconCon
Fall 2015
U Penn Empirical Micro Workshop
Referee:
International Economic Review (x3)
Other:
2011-2012
Organizer, University of Pennsylvania Empirical Micro Lunch Club
Honors, Scholarships, and Fellowships:
2014
GPASA and SAS Travel Grant, University of Pennsylvania
2005-2009
Benz Scholarship, Peking University
2006-2007
Zhongji Group Scholarship, Peking University
2006-2007
Dean’s List, Hong Kong University of Science and Technology
Job Market Paper:
“The Impact of Student Debt on the Education, Career, and Marriage Choices of Female Lawyers”
Abstract: Obtaining a J.D. is one of the most expensive possible investments in human capital. As a
consequence, law students quite often take on substantial amounts of debt to finance their graduate
education. There has been much concern in the legal profession and among policy makers that this debt
burden distorts career choices.
The purpose of this paper is to study the impact of student debt on the education, career, and marriage
choices of female lawyers. The empirical analysis is based on a novel, nationally representative,
longitudinal dataset. In contrast to the previous literature that has largely focused on males and finds
debt has only small effects, these new data suggest that debt has large and significant negative effects on
female career and marriage outcomes. Specifically, women with more debt stay longer in private sector
jobs, postpone marriage, marry men with lower earnings, and delay childbearing.
To explore the likely causes of these negative debt effects, I develop and estimate a dynamic model of
education, labor, and marriage markets. My model accounts for a variety of special features of the labor
markets for lawyers, such as the large differences between public and private sector jobs, the
considerable uncertainty faced by lawyers regarding promotion to partner, and the need for updating
beliefs about potential for success in private law firms.
My findings suggest that a large part of the debt effect on schooling and career choices comes from the
diminished marriage prospects associated with the debt burden. I then focus on policies that aim to
reduce the debt burden while also encouraging female lawyers to pursue careers in the public sector. My
policy experiments show that subsidizing student debt repayment earlier in the career is more effective
than doing so later.
Publications:
“The Impact of Unions on Municipal Elections and Urban Fiscal Policies”, with Holger Sieg. Journal
of Monetary Economics, 2013, 60(5), 554-567
Abstract: The efficient decentralized provision of public goods requires that special interest groups,
such as municipal unions, do not exercise undue influence on the outcome of municipal elections and
local fiscal policies. We develop a new political economy model in which a union can endorse one of the
candidates in a local election. A politician that prefers an inefficiently large public sector can, therefore,
win an election if the union can provide sufficiently strong support during the campaign. We have
assembled a unique data set that is based on union endorsements that are published in leading local
newspapers. Our empirical analysis focuses on municipal elections in the 150 largest cities in the U.S.
between 1990 and 2012. We find that challengers strongly benefit from endorsements in competitive
elections. Challengers that receive union endorsements and successfully defeat an incumbent also tend to
adopt more union friendly fiscal policies.
Research Papers in Progress:
“Paved with Good Intentions? The Unintended General Equilibrium Effect of Loan Repayment
Assistance Programs on Tuition”
Abstract: This paper studies the general equilibrium effects of loan repayment assistance programs on
tuition. A prevalent concern is that loan repayment assistance programs have fueled the recent rise in
tuition well beyond inflation. Law schools compete for high-ability students by improving education
quality, which depends on the amount of monetary investment. Programs subsidizing repayment may
encourage borrowing and motivate students to select better and often more expensive schools. This in
turn stimulates schools to raise tuition to increase monetary resources. I develop a new general
equilibrium model of the legal education market and the lawyer labor market that captures the large
degree of quality differentiation among law schools, their tuition and admission policies, schools'
monetary investment in education quality, and the return to these investments in the labor market. This
work in progress estimates this model using a variety of datasets on the law schools' admission rules,
tuition, and school characteristics.
“Participation in Municipal Electoral Competition in the U.S.” (with Holger Sieg)
Abstract: The purpose of this research is to improve our understanding of individual decisions to run for
local public office. While there has been some research focused on the career decisions of politicians
that compete for state or federal office, much less is known about local elections. Participation decisions
of incumbents are likely driven by the quality of the available outside options. In contrast, participation
decisions of challengers are not only influenced by qualifications and skills, but also depend on the
incumbency status and the potential vulnerability of the incumbent. To conduct our empirical analysis,
we have assembled a data set that covers all major candidates in 128 elections in the largest 25 U.S.
cities from 1990 to 2012. A key challenge of the data collection process is to characterize pre-election
and post-election career choices. Our preliminary findings suggest that 54 percent of challengers in open
elections are elected officials. The remaining challengers are recruited from a pool that consists of
appointed politicians (15 percent), public sector employees (7 percent), and private sector workers (24
percent). There are distinct observed differences in skills and qualifications. Challengers are less likely
to have law degrees than incumbents, but they are more likely to hold Master’s degrees. Challengers are
also less likely to have a recognizable politician in the immediate family.
Computer Skills:
Stata, Matlab, Fortran, Parallel Programming
Language:
Chinese, English
“The Impact of Student Debt on the Education, Career, and Marriage Choices of Female Lawyers”
Yu Wang
University of Pennsylvania
Obtaining a J.D. is one of the most expensive possible investments in human capital. As a consequence,
law students quite often take on substantial amounts of debt to finance their graduate education. There has
been much concern in the legal profession and among policy makers that this debt burden distorts career
choices. The purpose of this paper is to study the impact of student debt on the education, career, and
marriage choices of female lawyers.
The empirical analysis is based on a novel, nationally representative, longitudinal dataset. In contrast to
the previous literature that has focused largely on males and finds only small effects, these new data
suggest that debt has large and significant negative effects on female career and marriage outcomes.
Specifically, women with more debt stay longer in private sector jobs, postpone marriage, marry men with
lower earnings, and delay childbearing.
These facts speak to a long-standing concern of the legal profession: does high student debt impel law
graduates to eschew public service jobs in favor of more lucrative positions in private practices? The
answer has important policy implications regarding the launch and design of public service loan
forgiveness programs. Much of the previous literature suggests that the career choices of male lawyers
are not related to student debt, and that the effects of such policies are not pronounced. However, these
policies may effectively increase public service employment of females, who account for nearly half of a
typical cohort.
Another part of the research question, namely how potential debt burden affects schooling choices, is
particularly relevant in the legal profession. Law school costs rise substantially with school rankings and
induce a palpable quality-price tradeoff for applicants. If the debt burden affects female choices postgraduation, the top law schools may be even more costly for females who resort to student debt in order
to finance their education. This paper analyzes the extent to which students of equal ability but different
means may choose lower-ranked, cheaper law schools in order to avoid the debt burden.
To address these questions, I develop a dynamic model of the education, labor, and marriage markets.
Students first need to choose among a set of differentiated law schools to some of which they are admitted.
Schools differ by costs and rankings. Upon graduation all students enter the labor market which offers a
number of occupational tracks such as private law firms, private companies, and public sector jobs, in
addition to the option to stay at home. At the same time, female lawyers are active in marriage markets.
Potential marriages depend flexibly on one's debt burden and individual characteristics.
Labor markets for lawyers have some special features that deserve attention. First, young lawyers
employed at private law firms often face an up-or-out decision regarding promotion to partner. Promotion
is highly uncertain. This system is similar to that of tenure in academia. A key feature of the model is thus
a learning process which allows young lawyers to infer the likelihood of promotion based on their work
experience. I show that a learning model can explain the rapidly declining prevalence of private law firm
jobs during the life cycle as observed in the data. Second, this paper models differences in the required
number of hours of work in addition to differences in salaries among occupational tracks. This approach
is consistent with the fact that lawyers in private law firms tend to work longer hours than those in the
public sector or at private companies. Finally, this model accounts for the importance of clerkships for
young, aspiring lawyers who may delay entry into the job market so as to gain additional training.
The objective of the structural analysis is to evaluate the importance of alternative mechanisms that may
explain why debt has such a large impact on female lawyers. In the model, debt affects the lifetime budget
constraint and thus primarily influences consumption and labor supply choices over time. In addition, debt
affects prospects in the marriage market.
The key empirical finding of this paper is that differences in female career choices are driven in large part
by marriage market prospects. If one equalizes marriage market prospects for females with and without
debt, the differences in labor market choice shrink substantially. The intuition is that females with large
debt have fewer opportunities in the marriage market, and thereby experience poorer marriage outcomes.
Consequently, it takes them longer to meet a qualified spouse and to have children. The second finding is
that females significantly under-invest in education quality in anticipation of the diminished marriage
market prospects associated with their future debt burden.
Using the estimated parameters from the structural analysis, I finally turn to evaluating loan repayment
assistance programs. My main contribution here is to show the importance of timing for such policies.
The motivation is that females, on average, graduate at age 28 and, as discussed above, the debt effect
through marriage prospects is large. In light of this, the existing Public Service Loan Forgiveness Program
offered by the Department of Education, which requires ten years of public service for eligibility for loan
forgiveness, offers potential room for improvement. I compare a loan forgiveness policy similar to the
Public Service Loan Forgiveness Program to a career-contingent tuition waiver policy. The tuition waiver
policy conditionally discharges a fraction of debt immediately upon graduation, which is repayable if a
job in the public service is not held for a specified number of years. The main finding is that it is much
more effective to subsidize debt sooner rather than later.
CHUNZAN WU
https://economics.sas.upenn.edu/graduate-program/candidates/chunzan-wu
chunzan@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN @ ECON.UPENN.EDU
215-898-6880
215-898-7350
215-898-5691
Office Contact Information
160 McNeil Building, 3718 Locust Walk
Philadelphia, PA 19104
Phone: 530-219-7231
Personal Information
Citizenship: China
Undergraduate Studies
B.S., Chemistry, Peking University, 2004
B.A., Economics, Peking University, 2004
Masters Level Work
M.A., Economics, Peking University, 2007
Graduate Studies
University of California, Davis, 2009 to 2011
University of Pennsylvania, 2011 to present
Thesis Title: “Macroeconomic and Fiscal Policy Implications of Household Labor Supply”
Expected Completion Date: June 2016
Thesis Committee and References:
Professor Dirk Krueger (Primary Advisor)
Department of Economics,
University of Pennsylvania,
3718 Locust Walk,
Philadelphia, PA 19104, USA
Phone: (215) 573-1424
Email: dkrueger@econ.upenn.edu
Professor Harold L. Cole
Department of Economics,
University of Pennsylvania,
3718 Locust Walk,
Philadelphia, PA 19104, USA
Phone: (215) 898-7788
Email: colehl@sas.upenn.edu
Professor Guido Menzio
Department of Economics,
University of Pennsylvania,
3718 Locust Walk,
Philadelphia, PA 19104, USA
Phone: (215) 898-5170
Email: gmenzio@sas.upenn.edu
Teaching and Research Fields
Primary fields: Macroeconomics
Secondary fields: Public Finance, Labor Economics, Computational Economics
Teaching Experience
Ph.D. Level
Spring, 2014
Macroeconomic Theory I , University of Pennsylvania, Teaching Assistant for
Spring, 2013
Professor Dirk Krueger And Professor Jesus Fernandez-Villaverde
Undergraduate Level
Fall, 2015
Macroeconomic Theory, University of Pennsylvania, Teaching Assistant for
Professor Dirk Krueger
Spring, 2015
Macroeconomic Theory, University of Pennsylvania, Teaching Assistant for
Professor Guido Menzio
Fall, 2014
Macroeconomic Theory, University of Pennsylvania, Teaching Assistant for
Professor Guillermo Ordonez
Fall, 2013
Statistics for Economists ,University of Pennsylvania, Teaching Assistant for
Professor Francis J. DiTraglia
Fall, 2012
International Trade, University of Pennsylvania, Teaching Assistant for Professor
Wilfred J. Ethier
Research Experience and Other Employment
Fall, 2013
University of Pennsylvania, Research Assistant for Professor Mathieu
Taschereau-Dumouchel
Spring, 2013
University of Pennsylvania, Research Assistant for Professor Iourii Manovskii
Honors, Scholarships, and Fellowships
2015
Joel Popkin Graduate Student Teaching Prize in Economics for outstanding
teaching performance by a teaching assistant in economics, University of
Pennsylvania
2012
Lawrence Robbins Prize in Economics to the student judged to be the best in the
first year class, University of Pennsylvania
Research Papers:
“More Unequal Income But Less Progressive Taxation: Economics or Politics?” (Job Market Paper)
Abstract: Since the 1970s in the US, income inequality has increased sharply. During the same time
span, the US federal income tax has become less progressive. Why? I examine this question in a Ramsey
optimal tax policy framework. Within this framework, the tax policy is determined by: (1) a set of Pareto
weights representing the government's preference over different households; (2) household lifetime
utilities encompassing the effects of economic fundamentals. I first quantify the changes of economic
fundamentals using an overlapping generations incomplete-markets life-cycle model with heterogeneous
households. The model features both endogenous human capital accumulation and household labor
supply, and is calibrated to match the major changes of the labor income structure and demographics in
the US between 1970s and 2010s. Then I use this economic model to determine whether the change in
taxes is the result of changing economic fundamentals or the consequence of a change in Pareto weights.
I interpret the later as changes in the political powers of various income groups. I find: (1) The changes
of economic fundamentals alone induce a less progressive optimal income tax, and can account for 40%
of the reduction in progressivity in the data. In particular, skill-biased technological change, increased
female labor productivity, and the aging US population contribute to this reduction in progressivity, but
their effects are partially offset by the increase of idiosyncratic income risks. (2) The change of Pareto
weights is in favor of the high income households, and imply less valued government services. Finally,
using a stylized political economy model, I discuss potential explanations for this change of Pareto
weights such as lower cost of conveying information to swing voters and the rising inequality of voter
turnout among different socioeconomic groups.
“How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?”
(with Dirk Krueger)
Abstract: We show that a calibrated life-cycle two-earner household model with endogenous labor
supply can rationalize the extent of consumption insurance against wage shocks estimated empirically
by Blundell, Pistaferri, and Saporta-Eksten (2014) (BPS hereafter) in US data. With additive separable
preferences, the model can account for about 94% and 91% of consumption insurance against male and
female permanent wage shocks in the data, and only 41% of male and 28% of female permanent wage
shocks in the model pass through to household consumption. With non-separable preferences, more
consumption insurance is generated, and the pass-through rates are 27% and 18%, respectively. Most
notably, the majority of the consumption insurance against permanent male wage shocks is provided
through the endogenous labor supply response of the female earner. We also evaluate, using modelsimulated data, whether the empirical approach of BPS delivers unbiased consumption responses to
wage shocks. We find that the method overestimates the amount of consumption insurance against male
permanent wage shocks, and underestimates that against female permanent wage shocks, but only
moderately so. We find larger biases for the outside insurance coefficient which BPS use to capture the
insurance provided through channels outside their model. We document that the magnitudes of the
biases are not sensitive to the existence of tight borrowing constraints or the presence of an extensive
female labor supply margin given their implementation method.
Macroeconomic and Fiscal Policy Implications of Household Labor Supply
Chunzan Wu
Dissertation Abstract
chunzan@sas.upenn.edu
October 16, 2015 https://economics.sas.upenn.edu/graduate-program/candidates/chunzan-wu
More Unequal Income But Less Progressive Taxation: Economics or Politics?
(Job Market Paper)
Overview
Since the 1970s in the US, income inequality has increased sharply. During the same time
span, the US federal income tax has become less progressive. Why? Does it imply the policymakers today are more influenced by the high income people than they were in 1970s? Or are there
economic forces behind such income tax policy changes? I examine this questions in a Ramsey
optimal tax policy framework, and identify the roles of the changing economic fundamentals and
the changing preferences of policymakers in shaping the less progressive income tax we observe.
I find that skill-biased technological change, increased female labor productivity, and the aging
US population require a less progressive income tax, but their effects are partially offset by the
increase of idiosyncratic income risks. Overall, economic changes require the income tax to be
less progressive, and quantitatively account for 40% of the reduction in progressivity in the data.
When interpreted through the lens of my model, the remaining change of the income tax implies
a change in preferences of policymakers towards high income households and less valued government services. In the last part of the paper, I provide potential explanations for this change of
political preferences of policymakers such as lower cost of conveying information to swing voters
and the rising inequality of voter turnout among different socioeconomic groups.
Methodology
In the Ramsey optimal tax policy framework, the tax policy is determined by: (1) a set of
Pareto weights representing the government’s preference over different households; (2) household lifetime utilities encompassing the effects of economic fundamentals. The changes of economic fundamentals since 1970s is quantified using an economic model of households disciplined
by the data in 1970s and 2010s. The Pareto weights are harder to measure directly, but can be inferred from the actual tax policies chosen by inverting the Ramsey problem, i.e., finding the Pareto
weights which rationalize the actual tax policy as the solution to the Ramsey problem. By construction, the combination of the change of Pareto weights identified this way and the economic
changes in the model replicates exactly the change of the income tax in the data. A counterfactual
experiment in which economic changes are introduced whereas holding the Pareto weights fixed
at the 1970s values identifies the part of income tax change which serves as an optimal response to
the underlying economic forces, and the remaining part is then attributed to the change in political
powers, as approximated by a change in Pareto weights.
Quantitative Life-Cycle Model
The economic model employed to capture the changes of economic fundamentals since 1970s is
a quantitative overlapping generations incomplete-markets life-cycle model with heterogeneous
households. To model skill-biased technological change, a Ben-Porath style human capital accumulation technology is introduced. The return to human capital investment depends on the
heterogeneous learning abilities of earners, and increases from 1970s to 2010s to match the widening gap in the upper half of the labor income distribution. To account explicitly for the changing
role of female labor supply in the economy, each household in the model consists of two earners,
a male and a female, and they make joint decisions on household consumption, savings, labor
supply and human capital investment. Female labor productivity increases between 1970s and
2010s to match the declining gender income gap in the data. Finally, earners face uninsurable idiosyncratic risks of labor productivity both at labor market entry and over the span of household
life cycle, and are subject to tight borrowing constraints. The amount of idiosyncratic risk in the
model is calibrated to match the dispersion of labor income of young earners and the earnings
dynamics over the life cycle in the data.
1
Macroeconomic and Fiscal Policy Implications of Household Labor Supply
Chunzan Wu
Dissertation Abstract
chunzan@sas.upenn.edu
October 16, 2015 https://economics.sas.upenn.edu/graduate-program/candidates/chunzan-wu
Main Findings
The first main finding of my quantitative analysis is that the changes of economic fundamentals since 1970s alone require a less progressive optimal income tax policy to be adopted, and can
quantitatively account for 40% of the reduction in progressivity we observe. Counterfactual experiments show that skill-biased technological change, increased female labor productivity, and
the aging of population all contribute to the less progressive optimal income tax, but the effects
of these are partially offset by the increase of idiosyncratic risks which increased the insurance
benefits of progressive income taxes.
The second main finding is that the Pareto weights have changed between 1970s and 2010s
in two dimensions: (1) the Pareto weights of the high income households have increased relative
to those at the lower end of the income distribution; (2) the Pareto weights on household private
utilities have increased relative to the weight on government services. The first change is most responsible for the remaining 60% of reduction in income tax progressivity, while the second change
is most responsible for the significant fall of the overall level of US income taxes since 1970s.
Political Economy Explanations
Since the model ascribes a significant part of observed changes in the income tax policy to
changes in political powers, as approximated by the Pareto weights, in the last part of this paper, I provide potential political economy explanations for this phenomenon. Using a stylized
probabilistic voting model with political contributions, I show that a lower cost of conveying information to swing voters due to information technology improvements leads to an increased
demand for campaign expenditures, as observed in the data. I show that this induces a change
of the Pareto weights benefiting the high income households, consistent with the change of income tax policy studied in the first part. I also show that rising inequality of voter turnout among
different socioeconomic groups may also have contributed to such changes of the Pareto weights.
How Much Consumption Insurance in Bewley Models with Endogenous Family Labor
Supply? (joint with Dirk Krueger)
Abstract
We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against wage shocks estimated empirically by Blundell, Pistaferri, and Saporta-Eksten (2014) (BPS hereafter) in US data. With additive
separable preferences, the model can account for about 94% and 91% of consumption insurance
against male and female permanent wage shocks in the data, and only 41% of male and 28%
of female permanent wage shocks in the model pass through to household consumption. With
non-separable preferences, more consumption insurance is generated, and the pass-through rates
are 27% and 18%, respectively. Most notably, the majority of the consumption insurance against
permanent male wage shocks is provided through the endogenous labor supply response of the
female earner. We also evaluate, using model-simulated data, whether the empirical approach of
BPS delivers unbiased consumption responses to wage shocks. We find that the method overestimates the amount of consumption insurance against male permanent wage shocks, and underestimates that against female permanent wage shocks, but only moderately so. We find larger biases
for the outside insurance coefficient which BPS use to capture the insurance provided through
channels outside their model. We document that the magnitudes of the biases are not sensitive to
the existence of tight borrowing constraints or the presence of an extensive female labor supply
margin given their implementation method.
2
YinYin Yu
https://economics.sas.upenn.edu/graduate-program/candidates/yinyin-yu
yinyiny@sas.upenn.edu
UNIVERSITY OF PENNSYLVANIA
Placement Director: Iourii Manovskii
Placement Director: Andrew Postlewaite
Graduate Student Coordinator: Kelly Quinn
MANOVSKI@ ECON.UPENN.EDU
APOSTLEW@ECON.UPENN.EDU
KQUINN @ ECON.UPENN.EDU
215-898-6880
215-898-7350
215-898-5691
Office Contact Information
3718 Locust Walk Rm 160
Philadelphia, PA 19104
Phone: (410) 979-6345
Citizenship: USA
Undergraduate Studies:
BA, Economics, Mathematics, University of Pennsylvania, magna cum laude, 2010
Graduate Studies:
University of Pennsylvania, 2010 to present
Thesis Title: “The Intended and Unintended Consequences of Regulating For-Profit Colleges: A
Model of Enrollment and Retention”
Expected Completion Date: May 2016
Thesis Committee and Teaching Reference:
Prof. Hanming Fang (Primary Advisor)
Department of Economics
3718 Locust Walk Rm 160, Philadelphia, PA
19104
hanming.fang@econ.upenn.edu
(215) 898-7767
Prof. Jean-Francois Houde
Wharton School of Business
1455 Steinberg Hall-Dietrich Hall, 3620 Locust
Walk, Philadelphia, PA 19104
houde@wharton.upenn.edu
(215) 573-6849
Prof. Petra Todd
Department of Economics
3718 Locust Walk Rm 160, Philadelphia, PA
19104
ptodd@econ.upenn.edu
(215) 898-4084
Prof. Eduardo Azevedo (Teaching Reference)
Wharton School of Business
1455 Steinberg Hall-Dietrich Hall, 3620 Locust
Walk, Philadelphia, PA 19104
eazevedo@wharton.upenn.edu
(215) 573-9984
Research Fields:
Education, Industrial Organizations, Applied Microeconomics
Teaching Experience:
Spring, 2015
Honors Managerial Economics, Wharton School of Business, University of
Pennsylvania, Recitation Instructor for Professor Eduardo Azevedo
Fall, 2014
Economic Analysis of the Public Sector (MPA), Fels Institute of Government,
University of Pennsylvania, Teaching Assistant for Professor Janice Madden
Fall, 2014
Economic Principle of Public Policy (Executive MPA), Fels Institute of
Fall, 2012
Fall, 2012
Spring, 2012
Fall, 2011
Government, University of Pennsylvania, Teaching Assistant for Professor Peter
Angelides
Topics in Development, Department of Economics, University of Pennsylvania,
Teaching Assistant for Professor Jere Behrman
Law and Economics, Department of Economics, University of Pennsylvania,
Teaching Assistant for Professor Camilo Garcia-Jimeno
Development Economics, Department of Economics, University of Pennsylvania,
Teaching Assistant for Professor Matthias Kredler
Topics in Development, Department of Economics, University of Pennsylvania,
Teaching Assistant for Professor Jere Behrman
Research Experience and Other Employment:
2007-2010
Research Assistant, Department of Accounting, Wharton School of Business
2008-2010
Research Assistant, Center for International Comparisons, University of
Pennsylvania
Honors, Scholarships, and Fellowships:
2010-2011
University Fellowship
Programming Languages:
MATLAB, STATA
Job Market Paper:
“The Intended and Unintended Consequences of Regulating For-Profit Colleges: A Model of
Enrollment and Retention”
My research takes a closer look at the public debate over for-profit colleges and evaluates the
consequences of restricting federal student financial aid to for-profit college students as proposed by
policy makers. Opponents of for-profit higher education accuse these schools of gaming the federal
student financial aid system by providing extra assistance to their students on financial aid applications
and inflating tuition. On the other hand, proponents of for-profit higher education argue that these
colleges in fact serve a niche student population that is underserved by community colleges, and that forprofit colleges provide value in terms of higher graduation rates than community colleges. To understand
the effect of restricting federal student financial aid to for-profit college students, I develop a two-period
discrete choice model of differentiated products much in the spirit of Berry, Pakes and Levinsohn (1995)
and Petrin (2002), and estimate it using school-level data collected by the Department of Education. In
my model, risk neutral and forward-looking individuals make both enrollment and dropout decisions
based on school characteristics, tuition, and financial aid availability. I find that simply eliminating the
extra assistance for-profit colleges provide on federal student loan applications induces a 13.7% decrease
in for-profit college enrollment. Of those who leave for-profit colleges, 91.7% choose to abandon college
plans altogether rather than switch to community colleges. This validates the claim that for-profit colleges
are indeed serving a niche student population. Furthermore, I find that for-profit colleges' graduation rates
are on average 7 percentage points higher than those of community colleges, which translates into a 0.79
percentage point reduction in average graduation rate under this counterfactual scenario. However,
reducing federal student financial aid for for-profit college students is effective in combating student
indebtedness. Eliminating for-profit colleges' extra assistance on federal student loan applications results
in a decrease in average loan by 24% ($589) and a decrease in tuition paid by 4% ($176), which means
that those who forgo the college option are the most credit constrained. Also, among dropouts, who are
four times more likely to default on their student loans than those who graduate, average loan decreases
by 21% ($200).
YinYin Yu University of Pennsylvania "The Intended and Unintended Consequences of Regulating For‐Profit Colleges: A Model of Enrollment and Retention " In recent years for‐profit colleges have been a topic of controversy, both in the media and among policy makers. These institutions provide postsecondary vocational training and offer mostly certificates and associate degrees. But unlike their main competitors, the community colleges, for‐profit colleges are characterized by much higher tuition, higher federal student financial aid uptake, higher federal student loan default rates, and lower instructional spending. Opponents of for‐profit colleges accuse them of gaming the federal student financial aid system by providing extra assistance to students on financial aid applications and inflating tuition. On the other hand, proponents of for‐profit higher education argue that these colleges actually serve a niche student population that is underserved by community colleges, and that for‐profit colleges provide value in terms of higher graduation rates than community colleges. In my research, I closely examine the debate over the merits and flaws of for‐profit higher education. More specifically I answer the following questions: 1) Are proponents of for‐profit colleges correct in their claims that these schools serve a niche student population and that they have higher graduation rates than community colleges? 2) How would restricting federal student financial aid availability to for‐profit college students, as proposed by policy makers, affect various outcomes of interest, including college enrollment rate, graduation rate, average tuition spent, and average federal student financial aid acquired by those who will eventually drop out, in the market for postsecondary vocational training where the major players are for‐profit colleges and community colleges. My research contributes to the nascent but growing literature on for‐profit colleges. Most of the existing studies focus on examining post‐graduation outcomes of for‐profit college students using individual‐level data (Cellini and Chaudhary 2012; Deming et al. 2012; Lang and Weinstein 2013; Liu and Belfield 2014), or on evaluating the effect of government aid on for‐profit colleges' tuition (Cellini 2009, 2010; Cellini and Goldin 2014). My research aims to understand the determinants of students' enrollment and dropout decisions in the market for postsecondary vocational training, and to assess the effects of potential policy interventions directed at for‐profit colleges. Specifically, I study students' responses to (i) eliminating the extra assistance for‐profit colleges provide on federal student financial aid applications, (ii) increasing the federal student loan interest rate for for‐profit college students, and (iii) denying for‐profit college students access to federal student financial aid. A unique advantage of my modeling framework is its ability to accommodate large for‐profit colleges' multi‐state or national operations, including online programs. This allows me to study the for‐profit college industry in its entirety rather than only focusing on local schools within specific states as done in previous works. Being able to model the operations of these large for‐profit colleges is particularly important as these schools constitute the bulk of for‐profit college enrollment. Another attractive feature of my model is that it accounts for non‐pecuniary benefits of college. Most of the existing literature on labor market returns to for‐profit colleges find no wage difference from that of community colleges despite the sizable difference in cost. This result alludes to the presence of non‐pecuniary benefits. Yu 1 YinYin Yu University of Pennsylvania I develop a two‐period discrete choice model of differentiated products much in the spirit of Berry, Pakes and Levinsohn (1995) and Petrin (2002), and estimate it using school‐level data collected by the Department of Education. My sample of colleges consists of the set of Title‐IV eligible postsecondary institutions with no admission standards, most of which are for‐profit colleges and community colleges. I define the set of potential students as those between ages 18‐44, with at least a high school diploma but less than a Bachelor's degree. An individual's choice set consists of the set of colleges available in his/her Core‐Based Statistical Area (CBSA). A college is available in the CBSA's in which it has campuses, with the exception of a few colleges with extensive nation‐wide online offerings that are available in every CBSA regardless of their campus presence. Individuals in my model are forward‐looking and risk neutral, and they make decisions in two periods. In the first period, individuals choose among the schools in their choice sets based on school characteristics, tuition, and financial aid availability. They also have the outside option of not going to school. At this stage, individuals know the payoff of not attending college but only know the payoff distribution associated with graduating from each college in their choice sets, where different colleges' payoff distributions differ in mean but have the same variance. Individuals may have different tastes for school characteristics depending on their demographics. In the second period, those enrolled in colleges learn about the payoff from graduating with a degree/certificate, decide whether or not to drop out, and receive the corresponding payoffs. They are also liable to start repayment on their student loans upon leaving school. I combine school‐level data from the Integrated Postsecondary Education Data System (IPEDS) with data from the Postsecondary Education Participants Systems (PEPS) to construct a complete picture of the 2009‐2010 school year, which marked the height of the for‐profit college industry. I estimate my model using GMM, matching moments related to grants and loans, graduation rate, market shares, and demographic‐specific market shares. My estimates show that for‐profit college enrollment is heavily reliant on federal student financial aid and that these institutions actually do serve a niche student population. For instance, simply eliminating the extra assistance for‐profit colleges provide on federal student financial aid applications induces in a 13.7% decrease in for‐profit college enrollment (3.5% of total enrollment). Of those who leave for‐profit colleges, 91.7% choose to abandon college plans altogether rather than switch to community colleges. This validates the claim that for‐profit colleges are indeed serving a niche student population that is underserved by community colleges. Furthermore, I find that for‐profit colleges' graduation rates are on average 7 percentage points higher than those of community colleges, which translates into a 0.79 percentage point reduction in average graduation rate under this counterfactual scenario. However, restricting federal student financial aid access to for‐profit college students is effective in reducing student indebtedness. Eliminating for‐profit colleges' extra assistance on federal student loan applications results in a decrease in average loan by 24% ($589) and a decrease in tuition paid by 4% ($176), which means that those who forgo the college option are the most credit constrained. Also, among dropouts, who are four times more likely to default on their student loans than those who graduate, average loan decreases by 21% ($200). Yu 2