This paper studies how spatial sorting of local service firms creates and amplifies income segregation in cities. Households with different incomes vary in their expenditures across various local services and sort into neighborhoods based on their availability. Since service firms sort towards their respective customers price indices of local services endogenously depend on the local income composition. To study this new channel, I develop a quantitative spatial model of the city that features this two-sided sorting and amenity spillovers, recently employed in urban economics to account for sorting patterns in the data. Using detailed microdata from Los Angeles, I find that spatial variation in local price indices is a key driver of segregation patterns while reducing the importance of amenity spillovers by 30-50 percent. I simulate prominent place-based policies in the model with two-sided sorting and find substantially different effects on neighborhood composition and welfare compared to a model with only amenity spillovers.
“Scaling Up Agricultural Policy Interventions: Theory and Evidence from Uganda” (with Lauren Bergquist, Benjamin Faber, Thibault Fally, Edward Miguel, Andres Rodriguez-Clare)
Interventions aimed at raising agricultural productivity in developing countries have been a centerpiece in the global fight against poverty. These policies are increasingly informed by evidence from field experiments and natural experiments, with the well-known limitation that findings based on local variation generally do not speak to the general equilibrium (GE) effects if the intervention were to be scaled up to the national level. In this paper, we develop a new framework to quantify these forces based on a combination of theory and rich but widely available microdata. We build a quantitative GE model of farm production and trade, and propose a new solution method in this environment for studying high-dimensional counterfactuals at the level of individual households in the macroeconomy. We then bring to bear microdata from Uganda to calibrate the model to all households populating the country. We use these building blocks to explore the average and distributional implications of local shocks compared to policies at scale, and quantify the underlying mechanisms.
“A Trade Model of the Financial Sector” (with Marc Dordal i Carreras, Jens Orben)
Using techniques from the international trade literature, we propose a model of the interbank market that accommodates a high degree of heterogeneity in banks' characteristics and nests into a standard New Keynesian model of the economy. Interbank markets arise as the result of liquidity mismatches, and the resulting patterns of interbank trade in assets, market concentration and bank sizes are important to understand the amplification of financial shocks. We provide an analytical approximation to the gains from interbank markets that depend on a welfare trade-off between efficiency from market integration, diversification of funding sources and exposure to interbank volatility. We also study optimal central bank lender-of-last-resort policy and find that active provision of credit to distressed banks reduces the welfare costs of financial shocks. Finally, using microdata on bilateral transactions for the universe of German monetary financial institutions, we show that access to interbank markets is a key determinant of bank performance. We provide estimates of the gains from interbank market integration, monetary policy counterfactuals and the welfare costs of the reduction in interbank market volume during the 2007/2008 financial crisis.
Work in Progress:
“Spatial Taxes and Commuting”