Research in progress

Hidden Information as a Source of Misallocation: An Application to the Opioid Crisis

Bayarmaa Dalkhjav, Loris Rubini

We develop a general equilibrium model where key employee information is hidden from employers, leading to a sub-optimal allocation of resources. The health of the employees is not verifiable by employers, and an employee with poor health is less productive than a healthy one. We use this framework to study the loss of resources due to misallocation associated with the opioid crisis. Individuals with opioid use disorder are less productive and absent more often, which by itself generates output losses. In addition, since employers cannot distinguish unhealthy from healthy workers, wages differ from marginal productivity, creating a sub-optimal allocation of resources. Calibrating the model to the US, we find that opioid misuse reduces output by $133 billion and the misallocation channel accounts for 17.6% of this.

Trade, Innovation, and Pollution

Bayarmaa Dalkhjav, Ziba Karjoo

This study presents a model examining the impact of reduced trade costs on pollution, particularly in scenarios with an extensive margin of innovation. While conventional wisdom suggests that international trade leads to increased pollution due to higher output from polluting firms, recent empirical evidence contradicts this notion. Our model reveals that some new exporters tend to adopt cleaner technologies, unintentionally becoming environmentally friendly producers. Calibrated with data from the Chilean economy, our findings indicate a 4.4% reduction in pollution and a 0.85% decrease in pollution intensity between 1995 and 2007 as trade costs decline. Moreover, there is an increase in pollution without technology adoption, that is, when all or none of the firms innovate. An extensive margin of adopting new technology causes a reduction in total pollution and its intensity.

Are Sovereign Wealth Funds a Good Idea in the Presence of Corruption?

Bayarmaa Dalkhjav

Commodity-exporting countries are highly vulnerable to macroeconomic volatility, and many governments establish sovereign wealth funds (SWFs) to smooth consumption and accumulate revenue during periods of high commodity prices, relative to the reference price (Medina et al., 2016). While SWFs are typically an important source of government revenue in such countries, their accumulation can also create opportunities for corruption that may undermine the benefits of stabilizing consumption. Mongolia is one such country where corruption is a significant problem (IMF, 2021). Therefore, I examine how corruption can weaken the effectiveness of SWFs in reducing business cycle fluctuations in resource-rich countries, using data from both Mongolia and Chile and building a theoretical model.