Research
“Education Costs, Entrepreneurship, and Demographics” (Job Market Paper)
There is concern about the observed decline in entrepreneurship over the past 30 years and whether it will continue. My paper contends that this decline reflects a change in the timing of entrepreneurship decisions because of increased educational attainment and its associated cost. In the data, I observe that fewer young people are choosing to become entrepreneurs, while a greater number of older workers are choosing to become entrepreneurs. I use an overlapping generations model with endogenous education and entrepreneurship choices to explain the changing age composition of entrepreneurs in the U.S. I find that education costs and the skill premium alone cannot explain the change in the age composition of entrepreneurs. In a series of sensitivity analyses, I establish that, to successfully match the observed rates, it is important to take into account the change in the retirement age, as well as the impact of education and work experience on entrepreneurial ability. Further, the increased efficiency associated with a better educated workforce indicates that decreased entrepreneurship might not be as troubling a trend as previously thought.
“Asymmetric International Transmission” (In Progress with Arun Kandanchatha)
This paper develops a model of financial flows to help explain asymmetric transmission of crises. As shown in Quadrini, Mendoza, and Rios-Rull (2008) (QMRR), differing abilities of countries to insure against shocks leads to large capital inflows comprised primarily of debt into the U.S., while the U.S. generally purchases productive assets abroad. By including a retrenchment mechanism during financial crises and allowing for size differences, in terms of both population and economic output, the model generates two types of asymmetries when transmitting the crisis. First, the U.S. retrenchment will shrink the outflow of productive assets to foreign countries, transmitting the crisis. Crises that originate abroad will reduce debt flows to the U.S. but will not affect the supply of productive assets. Second, the output response of affected foreign countries will vary depending on the degree of dependence on capital inflows. These two results are supported in the data.
“The Macroeconomic Effects of Portfolio Choice with Heterogeneous Incompleteness of Markets” (In Progress)
The effects of the Financial Crisis of 2008 disproportionately affected the net worth of the wealthiest households in the U.S., while its effects on consumption were most pronounced on the lower portion of the wealth distribution. I argue that the widely varying holdings of financial assets across the wealth distribution explain this asymmetric effect of the recession. In the U.S., poorer households hold “safe” assets, such as checking and savings accounts, while riskier assets, like stocks and long term bonds, are not held until around the median of the wealth distribution. In addition, the majority of these risky assets are held in intermediated products such as mutual funds, while holdings of raw stocks are concentrated at the very top of the wealth distribution. I propose an optimal portfolio choice model that features stocks, bonds, and the ability to pay for a mutual fund. In the model, the mutual fund works as partially state-contingent claims that dampens the variability of shocks. When the recession hits, households are no longer able to afford the cost of diversification, leading to a decline in consumption for middle income households, while wealthier households see a larger loss in relative net worth but are able to maintain their consumption.