Work In Progress

Inter-regional Trade, the Business Tax, and Production Networks (with Jian Zou, draft coming soon)

[Job Market Paper]

Abstract

We study the business tax, where firms pay taxes on their intermediate purchase as a source of sectoral and spatial misallocation. Using a recent tax reform replacing the business tax with value-added tax for the service sector in China, we documented firm- level evidence that firms in treated sectors display a differentially higher growth than those in control sectors. Region-sector level panel gravity equation shows an increase in inter- and intra-regional input-output use. We build a spatial general equilibrium framework that models the endogenous input-output relationship of region-sectors pair and allow for the possibility of vertical integration to examine the welfare implication of the reform

Regional Heterogeneity of the Monetary Policy in China 

[Working Paper (Latest Version)]

Abstract

I estimate the effect of China’s single monetary policy on GDP growth rates in different economic regions. Focusing on the differences between the East region and the rest of the country, I find that the impact of China’s monetary policy is less salient in the East region, which means the monetary policy seems to generate an inequality-reducing effect. But when I take a deep look at the mechanism, this result may not be as desirable as it appears.

Commodity Prices and Credit Cycles  (with Flavio Rodrigues, Vinicios Sant'Annas, and Bernardus  van Doornik, draft coming soon)

Abstract

We study the transmission of fluctuations in global commodity prices to bank lending in Brazil by exploiting regional variations in exposure to the shock. Using bank-branch data at the micro-region level, we find that banks significantly increase the amount of outstanding loans in response to increases in commodity prices. In the future, we will turn to loan-level data to disentangle the supply and demand channel for credit, investigate the reallocation of credit across sectors, and construct a model to study its aggregate implications.

Publications

Four internal inconsistencies in Tversky and Kahneman’s (1992) Cumulative Prospect Theory paper: A case study in ambiguous theoretical scope and ambiguous parsimony. Advances in Methods and Practices in Psychological Science, 2021, with Michel Regenwetter and Maria Robinson) [link]

Abstract

Scholars heavily rely on theoretical scope as a tool to challenge existing theory. We advocate that scientific discovery could be accelerated if far more effort were invested into also overtly specifying and painstakingly delineating the intended purview of any proposed new theory at the time of its inception. As a case study, we consider Tversky and Kahneman (1992). They motivated their Nobel-Prize-winning cumulative prospect theory with evidence that in each of two studies, roughly half of the participants violated independence, a property required by expected utility theory (EUT). Yet even at the time of inception, new theories may reveal signs of their own limited scope. For example, we show that Tversky and Kahneman’s findings in their own test of loss aversion provide evidence that at least half of their participants violated their theory, in turn, in that study. We highlight a combination of conflicting findings in the original article that make it ambiguous to evaluate both cumulative prospect theory’s scope and its parsimony on the authors’ own evidence. The Tversky and Kahneman article is illustrative of a social and behavioral research culture in which theoretical scope plays an extremely asymmetric role: to call existing theory into question and motivate surrogate proposals. 

Are you an exception to your favorite decision theory? Behavioral decision research is a Linda problem! Decision, 2021, with Michel Regenwetter and Maria Robinson [link]

Abstract

Stylized characteristics, such as loss aversion, risk aversion for gains, risk seeking for losses, overweighting of small probabilities, and diminishing sensitivity permeate both popular science and scholarly treatises about how ‘people’ make decisions. This note highlights that behavioral decision research is, in effect, a large-scale Linda problem: The likelihood that a given individual satisfies the conjunction of many such stylized characteristics may be vanishingly small. We concentrate on a case study, namely the pervasive oversimplifications surrounding Amos Tversky and Daniel Kahneman’s Prospect Theory and Cumulative Prospect Theory (CPT). Focussing entirely on evidence from within the original papers, we show that each and every person may be an exception to (Cumulative) Prospect Theory as advertised. Similar problems afflict many other behavioral research paradigms. We call on scholars to relinquish overly simplified characterizations of choice behavior. Telling practitioners and laypersons in stylized fashion how ‘people’ think promotes conjunction fallacies on a huge scale. Rather than conceptualize individual differences as a mere add-on to a schematic decision theory of central tendencies, decision scholars should recognize heterogeneity as a major theoretical primitive when proposing new theories.