Working papers
“Estimating Individual Responses when Tomorrow Matters” (joint with Stéphane Bonhomme) [link] Updated May 15th, 2024
We propose a regression-based approach to estimate how individuals’ expectations influence their responses to a counterfactual change. We provide conditions under which average partial effects based on regression estimates recover structural effects. We propose a practical three-step estimation method that relies on panel data on subjective expectations. We illustrate our approach in a model of consumption and saving, focusing on the impact of an income tax that not only changes current income but also affects beliefs about future income. Applying our approach to Italian survey data, we find that individuals’ beliefs matter for evaluating the impact of tax policies on consumption decisions.
"Estimating Heterogeneous Effects: Applications to Labor Economics" (survey) (joint with Stéphane Bonhomme) [link ]
A growing number of applications involve settings where, in order to infer heterogeneous effects, a researcher compares various units. Examples of research designs include children moving between different neighborhoods, workers moving between firms, patients migrating from one city to another, and banks offering loans to different firms. We present a unified framework for these settings, based on a linear model with normal random coefficients and normal errors. Using the model, we discuss how to recover the mean and dispersion of effects, other features of their distribution, and to construct predictors of the effects. We provide moment conditions on the model’s parameters, and outline various estimation strategies. A main objective of the paper is to clarify some of the underlying assumptions by highlighting their economic content, and to discuss and inform some of the key practical choices.
"Heterogeneous and Uncertain Health Dynamics and Working Decisions of Older Adults” [link] Updated January 14th, 2024
As the population ages, governments and international organizations are trying to lengthen the labor-force participation of older adults. For older adults, health is an important determinant of working decisions. In this paper, I introduce heterogeneity in health dynamics with age and argue uncertainty about health dynamics affects the working decisions of older adults. Using the Health and Retirement Study, I first show evidence of heterogeneity in health profiles with age. Second, I use subjective survival expectations to infer health beliefs in a Bayesian-learning framework. Third, I flexibly estimate how working decisions depend on those beliefs, using a neural-network approach that does not require additional structure. The results show beliefs have substantial negative bias. That is, on average, individuals incorrectly believe their health will deteriorate too fast. Furthermore, eliminating that bias would increase labor-force participation by up to 2 percentage points. In the last part of the paper, I look at a policy that could affect beliefs: the provision of information on blood-glucose and cholesterol levels. I take advantage of the randomization in the collection and provision of such information. The results show the information has only small effects on beliefs and working decisions, and consequently, policies with larger effects on beliefs are needed to delay retirement.