Working Papers

9. “Endogenous Social Networks and Inequality in an Intergenerational Setting.” February 8, 2016. PDF. Human Capital and Economic Opportunity Global Working Group paper 2015-012.

Abstract. In a world where individuals interact in myriads of ways, one wonders how the benefits of one’s connections with others compare with those conferred by individual characteristics when it comes to acquisition of human capital. It is particularly interesting to be able to distinguish between connections that are the outcome of deliberate decisions by individuals and connections being given exogenously and beyond an individual’s control. The paper explores the consequences of the joint evolution of social connections and human capital investments. It thus allows one to study a broad range of possibilities in which social connections may influence inequality in consumption, human capital investment and welfare across the members of the economy, cross-sectionally and intertemporally. It embeds inequality analysis in models of endogenous social network formation. The novelty of the model lies in its joint treatment of human capital investment and social network formation in intergenerational settings, while distinguishing between the case of impact on human capital from endogenous as opposed to exogenous social networking. Among several results in the case of exogenous connections, we demonstrate conditions under which the limit distribution of human capital has a Pareto upper tail.

We develop allow for intergenerational transfers in a dynastic version of the infinite horizon Ramsey-Cass-Koopmans model and of overlapping-generations models. Thus, intergenerational transfers of both human capital endowments and social networking endowments are jointly determined. When social connections are not optimized, individuals’ human capital reflect a much more general dependence on social connections, which does not reduce to aggregate statistics of social connections. For the overlapping generations model, the elasticity of the intergenerational transfer received by an individual is increasing in the intergenerational transfer received by the parent, exhibits rich dependence on social effects, and is positive and less than 1. We show that the dynamics of demographically increasingly complex models, as expressed by a sequence of models with increasing number of overlapping-generations, depend on the product of the adjacency matrices associated with each of the overlapping generations.

 8. “A Conceptual Framework for Reforms versus Debt in the Context of a Fiscal Union within the European Monetary Union.” March 6, 2016PDF

Abstract. This paper emphasizes the importance of differences in population sizes in a model of a monetary union under alternative scenaria of monetary and fiscal policy coordination. It goes beyond Casella (1992) by allowing for coexistence of fiscal policy, national as well as union-wide, along with monetary policy. The paper also allows for inefficiencies in tax collection that serves as another difference across countries and for the possibility that tax and spending policy in the union are decided by means of different procedures. This is intended to explore the contrast between monetary policy outcomes determinant by deliberations and voting in the ECB, given the fiscal policy stance, and national fiscal policy stance, given monetary policy. It examines what options this logic confers on smaller versus larger members of a currency union? It goes beyond both Casella (1992) and Ioannides (2016) in examining the impact of market reforms and of various types of technological progress and explores their consequences for the sustainability of public debt.

7. “Ubiquitous Digital Technologies and Spatial Structure: A Preliminary Analysis.” With Emmanouil Tranos. August. 2015. PDF

Abstract. This paper sheds light on the potential effect that Information and Communication Technologies (ICT) might generate on cities and spatial structure. The extensive theoretical discussion and speculation on how cities and geography might be affected by digital technologies, which took place before the actual adoption of such technologies, have not been accompanied by in depth empirical analysis to verify early predictions. The few examples of such studies, which approached such research questions both analytically and empirically, were insightful, but many of them led to inconclusive results. However, these studies took place before digital technologies such as the Internet had matured. Nowadays, these technologies have been adopted widely and we are thus in a better position to approach empirically such a research question and quantify the relation between ICTs and spatial structure. The preliminary empirical analysis presented in this paper suggests significant causal effects that ICT penetration generates on spatial structure. Internet and mobile phone penetration in non-EU/NAFTA countries have led to more spatially dispersed population and more uniform city size distribution. However, such effects are not present in non-EU/NAFTA countries, a phenomenon which might be related to the maturity of urban systems and advanced state of technological adoption in those countries. The proposed methodology, which relies on extensive econometric investigations with a number of models includes 2SLS regressions with instrumented variables, resulted to estimations which are robust against potential endogeneity problems.

 

6. “A DMP Model of Intercity Trade.” Revised, October 27, 2015PDF

Abstract. The paper presents a model of an economy whose urban structure consists of cities of different types. All cities produce a non-tradeable final good using ranges of tradeable intermediate varieties. Each city has an internal spatial structure: individuals commute to the CBD in order to work, when employed, and to seek jobs, when unemployed. Hiring by each intermediate producing firm is subject to frictions, which are modeled in the Diamond–Mortensen–Pissarides fashion. Job matching requires either travel to the CBD for face-to-face contacts or, alternatively, referrals from social contacts. City type is conferred by specialization in producing one of two types of intermediate varieties and there is intercity trade in intermediate varieties. The paper examines the properties of equilibrium with intercity trade and its dependence on such parameters as those pertaining to productivity, the matching process, the rate of job destruction and their consequences for the variation of unemployment, output and welfare across the economy along a steady state. The paper provides a framework for studying spatial mismatch. The model’s use of international trade tools confers a central role to labor market tightness, akin to factor intensity. A natural dependence of unemployment on city size is generated. Equilibrium outcomes generically diverge from the planner’s optimum: socially optimal unemployment trades off the probability of employment to search costs of firms independently for each skill type and independently of city size. Socially optimal city sizes are independent of the matching model and therefore labor market tightness considerations but reflect both market size effects and the skill composition of the economy. (Related to talk, titled: Urban Business Cycles through a DMP Lens: The Steady State Case.”)

5. “Why Productivity Enhancing Reforms Will Help Greece Exit the Crisis and Usher in Long Run Growth.” January 24, 2015. PDF.

Abstract.  The paper first assesses various ideas about getting growth started, and what might be hampering that. It also details what we could expect in the way of productivity growth when reforms currently envisioned and hopefully in progress are brought to fruition. The discussion draws extensively from the case of the Finnish Great Depression, an episode that all things considered is quite similar to the Greek crisis, which could well justify the term Greek Great Depression. It was precipitated by the shock of the collapse of the Soviet Union, Finland’s greatest trading partner at the time, but was also accompanied by a banking and credit crisis. It was followed by an admirable period of economic growth, which I find a rich source of lessons for the Greek crisis. The paper details growth-hampering features of the Greek educational system and discusses in depth growth-enhancing properties of market deregulation. Small improvements in each of many markets and industries can add up to significant contributions to Greece’s total factor productivity growth performance. Second, in the immediate aftermath of fiscal stabilization, the problem of the Greek trade deficit, which some consider as the principal cause of the crisis remains acute. The considerable improvement in unit labor costs that has taken place has not been followed by a commensurate improvement in the trade deficit. Recapturing and realizing gains in foreign markets is in part a problem that Greece shares with other “peripheral” EU countries, and to a degree not sufficiently appreciated and widely discussed. Real appreciation of the euro appears to be mainly due nominal exchange rate appreciation rather than domestic costs (measured via either unit labor costs or the consumer price index). This in turn suggests that in order for Greece to improve its advantage in international markets it needs to accelerate its effort at productivity improvements and just as much at growth-enhancing product market reforms.

 

4. “Walled Cities in Late Imperial China.” With Junfu Zhang, November 2, 2014. Rev. August 2016 PDF

Abstract. For thousands of years, the Chinese and many other nations around the world built defensive walls around their cities. This phenomenon is not well understood from an economic perspective. We rationalize the existence of city walls by developing a simple model that relates the dimensions and quality of city walls to a set of economic and geographic variables. We report an empirical analysis using hand-collected and previously unutilized data on city walls in the Ming (1368-1644) and Qing (1644-1911) Dynasties. We find that the circumference of a city wall is positively correlated with population size in the jurisdiction and that frontier cities subject to a higher probability of attack tend to have stronger city walls. We examine the physical size distribution of walled cities in late imperial China and show that city sizes above a certain cutoff follow Zipf’s law, although the Zipf coefficient is sensitive to the choice of the cutoff point. This result complements findings in the existing literature that focuses almost exclusively on the population size distribution of cities. We also find that cities with walls in the past have higher employment and population densities at the present time.

3. “Thinking about Corruption in Greece.” with Costas Azariadis. May 24, 2014. Rev. February 20, 2015. PDF

Abstract. The paper addresses the issue of corruption, which appears to be endemic in Greece. It reviews the facts about corruption as a multifaceted phenomenon and its close relationship to tax evasion, by comparing Greece to its EU partners as well internationally. It addresses corruption as an instance of anti-social behavior by means of a number of simple metaphors that allow reliance on powerful tools of modern social interactions and property rights literatures. It emphasizes that whereas tepid enforcement might reduce somewhat corruption and other instances of anti-social behavior, drastic enforcement is required to move an economy and society to qualitatively different levels of such practices. The paper reviews different EU proposals regarding enforcement mechanisms and proposes three key constitutional amendments that are required to allow long-delayed reforms to take hold in Greece.

 

2. “Searching for the Best Neighborhood: Mobility and Social Interactions,” with Giulio Zanella, April 2008. PDF Under revision.

Abstract.  The paper seeks to contribute to the social interactions literature by exploiting data on individuals’ self-selection into neighborhoods. We study a model in which households search for the best location in the presence of neighborhood effects in the formation of children’s human capital and in the process of cultural transmission. We use micro data from the PSID which we have merged, using geocodes, with contextual information at the levels of census tracts and of counties from the 2000 US Census. We control for numerous individual characteristics and neighborhood attributes and find, consistently with neighborhood effects models, that households with children, but not those without, are more likely to move out of neighborhoods whose attributes are not favorable to the production of human capital and the transmission of parents’ cultural traits, and to move into neighborhoods which instead exhibit desirable such attributes.

1. “Random Graphs and Social Networks: An Economics Perspective,” Revised June 2015. PDF

Abstract. This review of current research on networks emphasizes three strands of the literature on social networks. The first strand is composed of models of endogenous network formation from both the economics and the computer science literature. The review highlights the sensitive dependence of the topology of endogenous networks on parameters of the behavioral models employed. The second strand draws from the recent econophysics literature in order to review the recent revival of interest in the random graph theory. This mathematical tool allows one to study social networks that result from uncoordinated random action of individuals in setting up connections with others. The review explores a number of examples to assess the potential of recent research on random graphs with arbitrary degree distributions in accommodating more general behavioral motivations for social network formation. The third strand focuses on a specific model of social networks, Markov random graphs,  that is quite central in the mathematical sociology and spatial statistics literatures but little known outside those literatures. These are random graphs where the events that different edges are present are dependent, if edges are incident to the same node, and   independent, otherwise. The paper assesses the potential for economic applications with this particular tool. The paper concludes with an assessment  of observable consequences of optimizing behavior in networks for the purpose of estimation.