Search Results
Working Paper
Incumbency Disadvantage of Political Parties: The Role of Policy Inertia and Prospective Voting
We document that postwar U.S. elections show a strong pattern of ?incumbency disadvantage": If a party has held the presidency of the country or the governorship of a state for some time, that party tends to lose popularity in the subsequent election. To explain this fact, we employ Alesina and Tabellini's (1990) model of partisan politics, extended to have elections with prospective voting. We show that inertia in policies, combined with sufficient uncertainty in election outcomes, implies incumbency disadvantage. We find that inertia can cause parties to target policies that are more ...
Working Paper
Minimum consumptions requirements: theoretical and quantitative implications for growth and distribution
The authors study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase during which the growth rate of per-capita quantities rise toward their steady-state values and the distributions of wealth, consumption, and permanent income become more unequal. The authors calibrate the minimum consumption requirement to match estimates available for a sample of Indian ...
Working Paper
A quantitative theory of unsecured consumer credit with risk of default
The authors study, theoretically and quantitatively, the general equilibrium of an economy in which households smooth consumption by means of both a riskless asset and unsecured loans with the option to default. The default option resembles a bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code. Competitive financial intermediaries offer a menu of loan sizes and interest rates wherein each loan makes zero profits. They prove the existence of a steady-state equilibrium and characterize the circumstances under which a household defaults on its loans. They show that their model accounts ...
Working Paper
Endogenous Political Turnover and Fluctuations in Sovereign Default Risk
A sovereign default model in which the sovereign derives private benefits from public office and contests elections to stay in power is developed. The economy?s growth process is modeled as a Markov switching regime, which is shown to be a better description of the data for our set of emerging economies. In the model, consistent with evidence, the sovereign is less likely to be reelected if economic growth is weak. In the low-growth regime, there is higher probability of loss of private benefits due to turnover, which makes the sovereign behave more myopically. This growth-linked variation in ...
Working Paper
Maturity, indebtedness, and default risk
In this paper, the authors advance the theory and computation of Eaton-Gersovitz style models of sovereign debt by incorporating long-term debt and proving the existence of an equilibrium price function with the property that the interest rate on debt is increasing in the amount borrowed and implementing a novel method of computing the equilibrium accurately. Using Argentina as a test case, they show that incorporating long-term debt allows the model to match the average external debt-to-output ratio, average spread on external debt, the standard deviation of spreads and simultaneously ...
Journal Article
Ores and scores: two cases of how competition led to productivity \\"miracles.\\"
Although iron ore mining and public schools may seem to have nothing in common, you may be surprised. Recent research suggests that the labor productivity of ore producers and teachers may respond similarly to competitive pressure. To date, most macroeconomic research on the determinants of labor productivity has generally focused on variables such as capital stock per worker, technology, the quality of the workforce, and laws and regulations that govern production. However, this conventional view may leave something out: the degree of competitive pressure faced by a production unit. In ...
Working Paper
Urban density and the rate of invention
Economists, beginning with Alfred Marshall, have studied the significance of cities in the production and exploitation of information externalities that, today, we call knowledge spillovers. This paper presents robust evidence of those effects. We show that patent intensity?the per capita invention rate?is positively related to the density of employment in the highly urbanized portion of MAs. All else equal, a city with twice the employment density (jobs per square mile) of another city will exhibit a patent intensity (patents per capita) that is 20 percent higher. Patent intensity is ...
Working Paper
Insuring college failure risk
Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 to 50 percent). The authors examine whether insurance against college-failure risk can be offered, taking into account moral hazard and adverse selection. To do so, they developed a model that accounts for college enrollment, dropout, and completion rates among new high school graduates in the US and use that model to study the feasibility and optimality of offering ...
Working Paper
Incumbency Disadvantage in U.S. National Politics: The Role of Policy Inertia and Prospective Voting
We document that postwar U.S. national elections show a strong pattern of incumbency disadvantage": If the presidency has been held by a party for some time, that party tends to lose seats in Congress. We develop a model of partisan politics with policy inertia and prospective voting to explain this finding. Positive and normative implications of the model are explored.