- The Free Rider Problem: A Dynamic Analysis, March 2012
Joint with Marco Battaglini and Thomas Palfrey, NBER Working Paper No. 17926
Abstract: We present a dynamic model of free riding in which n infinitely lived agents choose between private consumption and contributions to a durable public good g. We characterize the set of continuous Markov equilibria in economies with reversibility, where investments can be positive or negative; and in economies with irreversibility, where g can only be reduced by depreciation. With reversibility, there is a continuum of equilibrium steady states: the highest equilibrium steady state of g is increasing in n, and the lowest is decreasing. With irreversibility, the set of equilibrium steady states converges to the highest steady state possible with reversibility as depreciation converges to zero. We also show that in economies with reversability there are always non-monotonic equilibria in which g converges to the steady state with damped oscillations; and there can be equilibria with persistent limit cycles.
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- The Political Economy of the U.S. Auto Industry Crisis, May 2011
Slides
Abstract: I examine how ideology, special interests - measured by campaign contributions from automotive manufacturers and unions - and constituent interests - measured by employment in domestic and foreign automotive plants at the congressional district level - may have influenced U.S. Congress voting behavior on the Auto Industry Financing and Restructuring Act of 2008 (AIFRA). House representatives from districts with high employment in domestic (foreign) automakers plants are more (less) likely to vote in favor of AIFRA, and the response is stronger in more competitive districts. Moreover, higher campaign contributions from the Big Three (GM, Chrysler, Ford) are associated with an increased likelihood of voting in favor of AIFRA. Retiring representatives are affected by constituent interests, but not by financial contributions, and representatives with the best college education vote on purely ideological grounds. In the Senate, voting behavior is more ideological, with weak response to constituent interests and negligible impact of campaign contributions.
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- Quantal Response and Nonequilibrium Beliefs Explain Overbidding in Maximum-Value Auctions, January 2011
Joint with Colin Camerer and Thomas Palfrey, Caltech Social Science Working Paper no. 1349
Slides
Abstract: We analyze data from the second-price maximum-value auction experiment reported in Ivanov, Levin and Niederle (2010) in order to investigate the extent to which the winner's curse can be explained by quantal response, in combination with different assumptions about equilibrium (QRE) or nonequilibrium beliefs (QCH or QCE). We find a close correspondence between the theoretical predictions of those models and experimental behavior, even in the presence of frequent (and extreme) overbidding. The basic pattern in the data consists of a combination of flat overbidding for low signals, and monotonically increasing bidding for higher signals. The logit QRE model fits this pattern reasonably well. Incorporating nonequilibrium beliefs into the QRE model, in the form of either levels of strategic sophistication or cursed beliefs, leads to an even better match with the data, as these models imply slightly higher bids. We also show that these imperfect best response models predict essentially no treatment effects across different versions of the game, consistent with the experimental findings. Overall, our study indicates that the winner curse phenomenon in this auction is plausibly attributable to limits on strategic thinking combined with imperfect best response.
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- Electoral Incentives and Economic Policy Across Political Regimes, August 2010
Joint with Vincenzo Galasso, CEPR Working Paper no. 7959
Slides
Abstract: This paper provides a direct test of the causal link from electoral rules to economic policy. Our theoretical model delivers unambigous predictions on the interaction between institutions and a time varying event, namely the unemployment rate in pivotal and non-pivotal districts. We use local level data on unemployment rate and political competition to obtain an empirical specification which matches our model. First, we test the effect of electoral incentives under majority rule, by analyzing the US House representatives voting records on the 2009 Emergency Unemployment Compensation Extension Act, which increased unemployment benefit coverage and generosity. Second, we exploit the time-varying dimension of our theoretical prediction to test the causal effect on panel data. We use a dataset with local information on electoral competitiveness and unemployment rates for 29 OECD countries in 1980-2001 and employ panel analysis on different measures of UB generosity. The empirical evidence strongly supports our theoretical predictions.
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- The Effects of Redistricting on Distributive Outcomes, February 2010
Joint with Michiko Ueda
Slides
Abstract: While the effects of redistricting on electoral outcomes have extensively been studied, little is known about its impact on policy outcomes. This paper argues that redistricting changes the incentives of legislators to serve their constituencies. This possibility arises because congressional redistricting in the United States typically involves violations of political boundaries. Examining the flow of federal assistance to counties before and after the 2000s rounds of redistricting, we find that when political subdivisions are split into multiple congressional districts, they receive less federal assistance than they did before the split. The result is robust to different specifications and holds even when we take into account other factors that can have an impact on the amount of transfers, such as the effect of being represented by non-incumbent House members, the presence of split-party county "delegations," and the distinction between electorally core and marginal areas.
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