Articles
Working Papers
Political Economy
Federal Competition and Economic Growth (with Katrina Kosec) PDF
We examine the question of how competition between governments within metropolitan areas affects economic growth outcomes. Using data on metropolitan statistical areas (MSAs) in the United States, we find that the number of county governments is significantly and positively correlated with the average annual growth rate of income per employee over 1969-2006. Exploiting exogenous variation in the natural topography of our MSAs to instrument for the number of county governments, we find evidence supporting a causal interpretation of the effect of inter-jurisdictional competition on economic growth. Furthermore, our estimates suggest that not accounting for the endogeneity of inter-jurisdictional competition may lead to systematic underestimation of its growth-enhancing benefits. A natural question is whether our findings merely reflect some form of reversion to the mean. Quite to the contrary, we find that higher inter-jurisdictional competition was already associated with higher income in 1969, and that the disparity only grew over the intervening 37 years.
Ricardian Equivalence for Local Government Bonds: A Utility Maximization Approach PDF
We investigate the question of Ricardian equivalence in the context of local public finance. Earlier work has suggested that, even in the absence of altruism, Ricardian equivalence will hold for local public finance. We show that this is case if and only if subnational units use property taxes. However, for other tax bases, a weaker result can be shown: the unique equilibrium has the same economic outcomes as the ones where districts may not issue debt.
Backward Intergenerational Goods and Endogenous Fertility PDF
This paper characterizes the consequences of introducing the public provision of intergenerational goods to the elderly in a model with endogenous fertility. With exogenous fertility, it has been shown that the government can mandate the first-best outcome by simply imposing the socially optimal transfer. By contrast, with endogenous fertility, the government can no longer enforce this outcome. This is due, in part, to the effects of mandatory provision on the birth rate. However, taxes may still have a salubrious effect on social welfare as they can eliminate particularly bad equilibria.
Lobbyist Power and Polarization PDF
We consider how changes in the polarization of a legislature affect the power of lobbyists. If there is only one lobbyist, and he cares about policy along the dimension of polarization, an increase in polarization causes the cost of implementing any given proposal to fall and for the equilibrium policy to be farther from the median legislator’s ideal point. However, even if the lobbyists policy goals are orothogonal to the dimension of polarization, i.e. all legislators have the same ideal point on the lobbyists policy dimension, an increase in polarization along the general policy dimension will decrease the cost to the lobbyist of implementing any given policy in the lobbyists policy dimension, and move the equilibrium policy in this dimension farther from the legislatures ideal point. Furthermore, the policy choice in the dimension of legislature polarization will likely move away from the median voters ideal point, even though the lobbyist has no interest in the general policy dimension per se. With competing lobbyists, the effects on implementation cost and on equilibrium policy of an increase in polarization is ambiguous; however, the size of the optimal supermajority will fall as polarization increases.
Revenue Decentralization, the Local Income Tax Deduction, and the Provision of Public Goods
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We consider a model where local and national governments both tax income and use the revenue to invest in both productive and consumptive public goods. We show that a positive national income tax will lead to underprovision of local productive public goods, while the local consumptive public good will be produced efficiently. However, the introduction of a local income tax deduction incentivizes local districts to produce an optimal amount of the productive public good; however, such districts will now overinvest in local consumptive public goods. In both cases the central government will underinvest in both types of public goods. A national government that sets one, national tax rate, and gives grants to the states will also underinvest in both types of national goods, and will result in underprovision of the local productive public good. Further, this type of centralized revenue collection mechanism will result in lower welfare in equilibrium than the mechanism detailed earlier if the national government can choose the percentage of local tax deduction.
Federalism, Taxation, and Economic Growth
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We show that federalism will lead to higher economic growth. We present a model of endogenous growth where government services, funded by income and capital taxes, are a component of production. In this model a decentralized government will choose tax policy to maximize economic growth, while a centralized government will not do so. Furthermore, these conclusions hold regardless of whether the government is beholden to a median voter or is a rent-maximizing Leviathan. However, a decentralized government will under-provide a consumptive public good. Finally, we show our results are robust to imperfect capital mobility between districts and in such a model that districts with a lower total factor productivity will choose a more growth-enhancing tax policy.
Multitasking, Limited Liability, and Political Agency (with Gerard Padró i Miquel)
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This paper considers a simple framework of political accountability in which the politician exerts unobserved effort in two independent dimensions. We show that it is difficult to implement vectors that devote attention to both dimensions: the citizens have to sacrifice half of total effort with respect to the case in which they hold the politician accountable for a single dimension, as the problem of the politician becomes non-convex in the two dimensions if excessive rewards are provided. Given this, we then consider why we do not observe more direct election of different ministers. We find that if there is an element of unobserved types together with the moral hazard problem, a united executive generally dominates one with divided accountability.
Federalism, Tax Base Restrictions, and the Provision of Intergenerational Public Goods PDF
We investigate the level of investment in local public goods that will be enjoyed by future generations under decentralized provision of these goods, under both head tax and land tax regimes. We then compare these outcomes to results for the centralized provision of such goods. We find that decentralizing the provision of intergenerational goods always leads to more efficient provision of intergenerational goods, regardless of the tax base available to the centralized and decentralized governments. However, choice of tax base is still important; under a head tax regime, we obtain efficient investment under very general assumptions. Under a land tax regime, we obtain efficient investment only in the limit of perfect competition and noncongestibility of the public good, while investment is inefficiently low if either of these conditions fails.
Matching Theory
Many-to-Many Matching with Contracts (with Scott Duke Kominers) PDF
We develop a model of many-to-matching with contracts which subsumes as special cases many-to-many matching markets and buyer-seller markets with
heterogeneous and indivisible goods. We show that the substitutes condition
is suffcient and necessary (in the usual sense) to guarantee the existence of a
nonempty lattice of stable matches in this setting. This result implies that a
stable couples match is theoretically guaranteed only if couples' preferences are
substitutable. Furthermore, we demonstrate that the stable allocation correspondence
is Nash implementable and that the law of aggregate demand and
substitutes together yield a rural hospitals result in this context. Finally, we
apply these results to derive a new condition sufficient for the existence of a
lattice of stable allocations in the context of many-to-one matching with contracts;
extensions of this condition yield rural hospitals and strategy-proofness
results as well.
Strategy-Proof and Nonbossy Quota Allocations
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We consider the problem of designing mechanisms to allocate objects to agents when each agent has a quota that must be filled exactly. Agents are assumed to have responsive (i.e. additively seperable) preferences over items. We show that the only strategy-proof, Pareto optimal, nonbossy, and neutral mechanisms are serial dictatorships. We also show that the only strategy-proof, Pareto optimal, and nonbossy mechanisms are sequential dictatorships. Since these negative results hold for responsive preferences, they hold for more general preferences as well.
Incentive Compatibility in Matching with Contracts (with Fuhito Kojima)
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Hatfield and Milgrom (2005) present a unified model of matching with contracts, which includes the standard two-sided matching and some package auction models as special cases. They show that the doctor-optimal stable mechanism is strategy-proof for doctors if hospitals’ preferences satisfy substitutes and the law of aggregate demand. We show that the doctor-optimal stable mechanism is group strategy-proof for doctors under these same conditions. That is, no group of doctors can make each of its members strictly better off by jointly misreporting their preferences. We derive as a corollary of this result that no individually rational matching is preferred by all the doctors to the doctor-optimal stable match.
Matching with Contracts: Corrigendum (with Fuhito Kojima)
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Hatfield and Milgrom (2005) present a unified model of matching with contracts, which includes the standard two-sided matching and some package auction models as special cases. They show that there exists a stable set of contracts if contracts are substitutes for each hospital. They further claim that the substitutes condition is in a sense necessary to guarantee the existence of a stable set of contracts: that is, if contracts are not substitutes for a hospital, then there exists a preference profile of other hospitals and doctors such that no stable allocation exists. We show that the last claim does not hold in general. We further show that the claim holds in a special class of problems, the Kelso and Crawford (1982) labor matching problems with adjustable wages, and also present a weaker condition that is necessary to guarantee the existence of stable allocations.
Substitutes and Stability for Matching with Contracts (with Fuhito Kojima) PDF
We consider the matching problem with contracts of Hatfield and Milgrom (2005), and we introduce new concepts of bilateral and unilateral substitutes. We show that bilateral substitutes is the necessary and sufficient condition for the existence of a stable allocation in this framework. However, the set of stable allocations does not form a lattice under this condition, and there does not necessarily exist a doctor-optimal stable allocation. Under a slightly stronger condition, unilateral substitutes, the set of stable allocations still does not form a lattice with respect to doctors’ preferences, but there does exist a doctor-optimal stable allocation, and other key results such as incentive compatibility and the rural hospitals theorem are recovered. The existing substitutes condition is shown to be necessary and sufficient for the set of stable allocations to form a lattice with respect to doctors’ preferences.
