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Working Paper
Efficient investment in children
If children are society?s most precious resource, as many would argue, how should we invest in them? To gain insight into this question, the authors develop a dynamic, general-equilibrium model in which children differ by ability. Parents invest time and money in their offspring, depending on their altruism, to help them grow into more productive adults. The authors characterize the efficient allocation, then compare it with the outcome that arises when financial markets are incomplete. They also examine the situation where childcare markets are lacking and analyze the consequences of impure ...
Working Paper
Synergizing Ventures
Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC backing increases a startup's likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the ...
Journal Article
An Elementary Model of VC Financing and Growth
This article uses an endogenous growth model to study how the improvements in financing for innovative start-ups brought by venture capital (VC) affect firm innovation and growth. Partial equilibrium results show how lending contracts change as financing efficiency improves, while general equilibrium results show that better screening and development of projects by VC investors leads to higher aggregate productivity growth.
Discussion Paper
On the cyclical allocation of risk
A real business cycle model with heterogeneous agents is parameterized, calibrated, and simulated to see if it can account for some stylized facts characterizing postwar U.S. business cycle fluctuations, such as the countercyclical movement of labors share of income, and the acyclical behavior of real wages. There are two types of agents in the model, workers and entrepreneurs, who participate on an economy-wide market for contingent claims. On this market workers purchase insurance from entrepreneurs, through optimal labor contracts, against losses in income due to business cycle ...
Journal Article
The Third Industrial Revolution
The author examines periods of rapid technological change for coincidences of widening inequality and slowing productivity growth. He contends that while the introduction of technologies offers profits to investors and premiums for skilled workers, in the long run the rising tide of technological change lifts everybody's boat.
Working Paper
Quantifying the impact of financial development on economic development
How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests a country like Uganda could increase its output by 140 to 180 percent if it could adopt the world's best practice in the financial sector. Still, ...
Discussion Paper
The allocation of goods and time over the business cycle
A Beckerian model of household production is developed to study the allocation of capital and time between market and home activities over the business cycle. The adopted framework treats the business and household sectors symmetrically. In the market, labor interacts with business capital to produce market goods and services, and likewise at home the remaining time, leisure, is combined with household capital to produce home goods and services. The theoretical model presented is parameterized, calibrated, and simulated to see whether it can rationalize the observed allocation of capital and ...
Discussion Paper
Macroeconomic implications of investment-specific technological change
A quantitative investigation of investment-specific technological change for the U.S. postwar period is undertaken, analyzing both long-term growth and business cycles within the same framework. The premise is that the introduction of new, more efficient capital goods is an important source of productivity change, and an attempt is made to disentangle its effects from the more traditional Hicks-neutral form of technological progress. The balanced growth path for the model is characterized and calibrated to U.S. National Income and Product Account data. The long- and short-run U.S. data are ...
Report
On the existence and uniqueness of nonoptimal equilibria in dynamic stochastic economies
The question of the existence and uniqueness of a stationary equilibrium for distorted versions of the standard neoclassical growth model is addressed in this paper. The conditions presented guaranteeing the existence and uniqueness of nontrivial equilibrium for the class of economies under study are simple and intuitively appealing, while the existence and uniqueness proof developed is elementary. Examples are presented illustrating that economies with distortional taxation, endogenous growth with externalities, and monopolistic competition can all fit into the framework developed.
Report
Tax analysis in a real business cycle model: on measuring Harberger triangles and Okun gaps
A tax distorted real business cycle model is parameterized, calibrated, and solved numerically in an attempt to measure the size of Harberger Triangles relative to Okun Gaps. In particular, the model constructed is used to study, quantitatively, the impact of various distortional government tax and subsidy schemes. It is shown that the government can use tax policy to stabilize cyclical fluctuations, and this is done for the economy being studied. The benefits of implementing such a stabilization policy are calculated and compared with the size of the welfare gains realized from reducing ...