Working Papers
Revise and Resubmit, Review of Economic Studies (Resubmitted)
Economic growth has varied tremendously across regions of the United States over the past several decades. In this paper, I develop a dynamic quantitative spatial model to study the distributional implications of spatially heterogeneous shocks. The model incorporates two key mechanisms that link welfare to local economic conditions: migration costs and homeownership. I use the model to analyze the welfare effects of heterogeneous productivity shocks across U.S. cities. I find that local productivity shocks have important distributional consequences: on average, a 1% shock to local productivity raises residents’ welfare by 0.37%. The pass-through from a local productivity shock to welfare varies substantially by age and housing tenure. I show that homeownership plays a central role in spatial redistribution: in an otherwise similar model without homeownership, the average welfare effect of a 1% local productivity shock is just 0.03%. This is because house price changes counteract the welfare effects of wage changes for renters, but augment them for owners. These results suggest that accounting for homeownership is essential for understanding the distributional effects of spatially heterogeneous shocks.
We build a dynamic model of an urban area which combines key features of quantitative spatial models and macro-housing models. It integrates a large number of locations, forward-looking households, commuting, costly migration, uninsurable income risk, and housing tenure choice. We cast the model in continuous time, while shocks arrive and some choices are taken at discrete time intervals. This “mixed time” approach allows us to efficiently compute both steady state equilibrium and transition dynamics, even when there are thousands of location pairs. Using a quantitative model of the San Francisco Bay Area, we show how accounting for forward-looking behavior, spatial frictions, and transition dynamics changes the estimated effects of spatially heterogeneous shocks and policies that have traditionally been studied with static models.
The Geography of Wealth: Shocks, Mobility, and Precautionary Savings (with Maximiliano Dvorkin)
The spatial distribution of wealth in the United States is very heterogeneous, with important differences within and across US states. We study the distribution of wealth in a country and how it is shaped by the characteristics earnings across regions, and by the frictions individuals face to move and reallocate across space. For this, we develop a tractable model of consumption, savings, and location choice with many regions, incomplete markets, and heterogeneous agents facing persistent and transitory income shocks. Our analysis focuses on the role of income shocks, precautionary savings, mobility, and sorting in shaping the geographic distribution of income and wealth over time. Our theory extends the workhorse macroeconomic model of consumption and savings under uncertainty and risk to an economy with multiple labor markets and costly mobility. Despite the complex spatial and individual heterogeneity, we can characterize the optimal consumption, savings, and mobility decisions of workers in closed form. Mobility frictions increase precautionary savings as workers hedge against sharp fluctuations in consumption generated by their mobility decisions. The spatial distribution of wealth is primarily driven by the interaction between persistent income shocks, saving behavior, and worker sorting across locations. The results highlight the importance of accounting for worker mobility and regional heterogeneity in earnings dynamics when studying the spatial distribution of wealth.
Publications
Demand, Growth, and Deleveraging (with Conor Walsh).
Review of Economic Dynamics, 51 (2023): 795-812.
Review of Economic Dynamics, 51 (2023): 795-812.
We present empirical evidence that weak household demand contributed to a reduction in firm entry in the Great Recession. Motivated by this evidence, we study the general equilibrium response of aggregate economic growth to a severe deleveraging event. To do so, we combine a standard incomplete markets model with a frontier class of endogenous growth models. A large reduction in credit access causes the zero lower bound to bind, inducing a drop in demand via employment rationing. Decreased demand in turn lowers the return to entrepreneurship and innovation, endogenously lowering productivity. We find that a persistent recession induced by deleveraging can significantly influence growth in productivity. Our main result is a powerful feedback effect: households increase savings in response to future slow growth, exacerbate the fall in demand, and further slow the recovery.
Can Self-Help Groups Really be 'Self-Help'? (with Joseph Kaboski and Eva Van Leemput).
Review of Economic Studies, 83 (2016): 1614-1644. Appendix
Review of Economic Studies, 83 (2016): 1614-1644. Appendix
We provide an experimental and theoretical evaluation of a cost-reducing innovation in the delivery of “self-help group” microfinance services, in which privatized agents earn payments through membership fees for providing services. Under the status quo, agents are paid by an outside donor and offer members free services. In our multi-country randomized control trial we evaluate the change in this incentive scheme on agent behavior and performance, and on overall village-level outcomes. We find that privatized agents start groups, attract members, mobilize savings, and intermediate loans at similar levels after a year but at much lower costs to the NGO. At the village level, we find higher levels of borrowing, business-related savings, and investment in business. Examining mechanisms, we find that self-help groups serve more business-oriented clientele when facilitated by agents who face strong financial incentives.
Notes
Comment on Hsieh and Moretti (2019)
Revise and Resubmit, American Economic Journal: Macroeconomics (Resubmitted)
Selected Work in Progress
Does Globalization Undermine Sustainability? (with Joseph Shapiro and Katherine Wagner)
Natural Disaster Policy in a Warming World (with Katherine Wagner)