This dissertation contains three essays. They offer contributions to the study of matching in foster care (Chapters 1 and 2), and to the study of the effect of product market competition on managerial incentives (Chapter 3).
Chapter 1 presents an empirical framework to study the assignment of children into foster homes and its implications on placement outcomes. The empirical application uses a novel dataset of confidential foster care records from Los Angeles County, California. The estimates of the empirical model are used to examine policy interventions aimed at improving placement outcomes by increasing market thickness. If placements were assigned across all the administrative regions of the county, the model predicts that (i) the average number of foster homes children go through before exiting foster care would decrease by 8% and (ii) the distance between foster homes and children’s schools would be reduced by 54%.
Chapter 2 proposes and studies a dynamic model of centralized matching in foster care. The optimal matching policy is characterized by minimizing the number of children who remain unmatched in every period. The main finding is that the optimal matching policy gives priority to younger children. The model captures several dynamic trade-offs, most notably between children’s ages and the heterogeneity in the expected duration of placements. I also analyze federal data from the Adoption and Foster Care Analysis and Reporting System (AFCARS). I find that, in Los Angeles County, placements and their durations are strongly correlated with the race of children and their foster parents.
Chapter 3, co-authored with Kaniṣka Dam, develops an incentive contracting model under oligopolistic competition to study how incumbent firms adjust managerial incentives following deregulation policies that enhance competition. We show that firms elicit higher managerial effort by offering stronger incentives as an optimal response to entry, as long as incumbent firms act as production leaders. Our model draws a link between an industry-specific feature, the time needed to build production capacity, and the effect that product market competition has on executive compensation. We offer new testable implications regarding how this industry-specific feature shapes the incentive structure of executive pay.
}, address = {1200 East California Boulevard, Pasadena, California 91125}, advisor = {Shum, Matthew S.}, } @phdthesis{10.7907/3GAD-4Z16, author = {Zhang, Mali}, title = {Information and Strategic Decision-Making in the Oil and Gas Industry: An Empirical Assessment}, school = {California Institute of Technology}, year = {2018}, doi = {10.7907/3GAD-4Z16}, url = {https://resolver.caltech.edu/CaltechTHESIS:05172018-154911560}, abstract = {This dissertation comprises three essays addressing questions from Industrial Organization Economics concerning the oil and gas industry. The essays offer substantive contributions to the study of joint decision-making (Chapter 2), extrapolative beliefs (Chapter 3), and auctions (Chapter 4).
Chapter 2 investigates the quality of joint operations, where multiple oil and gas companies explore a piece of land together. By developing a discrete-choice model which can be matched to actual drilling data, I show that joint operators consisting of only large companies have the least accurate signals. Further counterfactual analyses show that the best policy governing joint operations depends on government priority: to maximize revenue or to avoid damage to the environment.
Chapter 3, co-authored with Lawrence Jin and Matthew Shum, presents a model of dynamic investment and production in which producers over-extrapolate recent demand conditions into the future. We show theoretically and empirically that, in a volatile industry, these biased beliefs can be beneficial in the long-run by counteracting the general trend in the industry. Calibration of our model to Alaska oil exploration shows that the cushioning effect can be large in reducing price decline and accelerating price recovery.
Chapter 4 examines whether common value or private value auction model best describes the bidding decisions made by oil and gas companies. The common value model suggests that more competition can lead to lower equilibrium bids from bidders and lower revenue. By analyzing tract auction data from Alaska, I find that common value components play a slightly larger role when observable heterogeneity is removed. However, expected revenue still increases with competition and plateaus when competition becomes sufficiently high.
}, address = {1200 East California Boulevard, Pasadena, California 91125}, advisor = {Shum, Matthew S.}, } @phdthesis{10.7907/Z9MS3QQZ, author = {Montero, Sergio}, title = {Essays in Econometrics and Political Economy}, school = {California Institute of Technology}, year = {2016}, doi = {10.7907/Z9MS3QQZ}, url = {https://resolver.caltech.edu/CaltechTHESIS:05272016-213755050}, abstract = {This dissertation comprises three essays in Econometrics and Political Economy offering both methodological and substantive contributions to the study of electoral coalitions (Chapter 2), the effectiveness of campaign expenditures (Chapter 3), and the general practice of experimentation (Chapter 4).
Chapter 2 presents an empirical investigation of coalition formation in elections. Despite its prevalence in most democracies, there is little evidence documenting the impact of electoral coalition formation on election outcomes. To address this imbalance, I develop and estimate a structural model of electoral competition that enables me to conduct counterfactual analyses of election outcomes under alternative coalitional scenarios. The results uncover substantial equilibrium savings in campaign expenditures from coalition formation, as well as significant electoral gains benefitting electorally weaker partners.
Chapter 3, co-authored with Benjamin J. Gillen, Hyungsik Roger Moon, and Matthew Shum, proposes a novel data-driven approach to the problem of variable selection in econometric models of discrete choice estimated using aggregate data. Our approach applies penalized estimation algorithms imported from the machine learning literature along with confidence intervals that are robust to variable selection. We illustrate our approach with an application that explores the effect of campaign expenditures on candidate vote shares in data from Mexican elections.
Chapter 4, co-authored with Abhijit Banerjee, Sylvain Chassang, and Erik Snowberg, provides a decision-theoretic framework in which to study the question of optimal experiment design. We model experimenters as ambiguity-averse decision makers who trade off their own subjective expected payoff against that of an adversarial audience. We establish that ambiguity aversion is required for randomized controlled trials to be optimal. We also use this framework to shed light on the important practical questions of rerandomization and resampling.
}, address = {1200 East California Boulevard, Pasadena, California 91125}, } @phdthesis{10.7907/Z9639MPX, author = {Chiong, Khai Xiang}, title = {Essays in Social and Economic Networks}, school = {California Institute of Technology}, year = {2015}, doi = {10.7907/Z9639MPX}, url = {https://resolver.caltech.edu/CaltechTHESIS:05292015-045627301}, abstract = {This thesis consists of three chapters, and they concern the formation of social and economic networks. In particular, this thesis investigates the solution concepts of Nash equilibrium and pairwise stability in models of strategic network formation. While the first chapter studies the robustness property of Nash equilibrium in network formation games, the second and third chapters investigate the testable implication of pairwise stability in networks.
The first chapter of my thesis is titled “The Robustness of Network Formation Games”. In this chapter, I propose a notion of equilibrium robustness, and analyze the robustness of Nash equilibria in a class of well-studied network formation games that suffers from multiplicity of equilibria. Under this notion of robustness, efficiency is also achieved. A Nash equilibrium is k-robust if k is the smallest integer such that the Nash equilibrium network can be perturbed by adding some k number of links. This chapter shows that acyclic networks are particularly fragile: with the exception of the periphery-sponsored star, all Nash equilibrium networks without cycles are 1-robust, or minimally robust. The main result of this paper then proves that for all Nash equilibria, cyclic or acyclic, the periphery-sponsored star is the most robust Nash equilibrium. Moreover the periphery-sponsored star is by far the most robust in the sense that asymptotically in large network, it must be at least twice as robust as any other Nash equilibria.
The second chapter of my thesis is titled “On the Consistency of Network Data with Pairwise Stability: Theory”. In this chapter, I characterize the consistency of social network data with pairwise stability, which is a solution concept that in a pairwise stable network, no agents prefer to deviate by forming or dissolving links. I take preferences as unobserved and nonparametric, and seek to characterize the networks that are consistent with pairwise stability. Specifically, given data on a single network, I provide a necessary and sufficient condition for the existence of some preferences that would induce this observed network as pairwise stable. When such preferences exist, I say that the observed network is rationalizable as pairwise stable. Without any restriction on preferences, any network can be rationalized as pairwise stable. Under one assumption that agents who are observed to be similar in the network have similar preferences, I show that an observed network is rationalizable as pairwise stable if and only if it satisfies the Weak Axiom of Revealed Pairwise Stability (WARPS). This result is generalized to include any arbitrary notion of similarity.
The third chapter of my thesis is titled “On the Consistency of Network Data with Pairwise Stability: Application”. In this chapter, I investigate the extent to which real-world networks are consistent with WARPS. In particular, using the network data collected by Banerjee et al. (2013), I explore how consistency with WARPS is empirically associated with economic outcomes and social characteristics. The main empirical finding is that targeting of nodes that have central positions in social networks to increase the spread of information is more effective when the underlying networks are also more consistent with WARPS.
}, address = {1200 East California Boulevard, Pasadena, California 91125}, advisor = {Echenique, Federico}, } @phdthesis{10.7907/AQV1-S968, author = {Ruchti, Thomas Gorden}, title = {Markets and Microstructure}, school = {California Institute of Technology}, year = {2013}, doi = {10.7907/AQV1-S968}, url = {https://resolver.caltech.edu/CaltechTHESIS:04262013-021647332}, abstract = {This document contains three papers examining the microstructure of financial interaction in development and market settings. I first examine the industrial organization of financial exchanges, specifically limit order markets. In this section, I perform a case study of Google stock surrounding a surprising earnings announcement in the 3rd quarter of 2009, uncovering parameters that describe information flows and liquidity provision. I then explore the disbursement process for community-driven development projects. This section is game theoretic in nature, using a novel three-player ultimatum structure. I finally develop econometric tools to simulate equilibrium and identify equilibrium models in limit order markets.
In chapter two, I estimate an equilibrium model using limit order data, finding parameters that describe information and liquidity preferences for trading. As a case study, I estimate the model for Google stock surrounding an unexpected good-news earnings announcement in the 3rd quarter of 2009. I find a substantial decrease in asymmetric information prior to the earnings announcement. I also simulate counterfactual dealer markets and find empirical evidence that limit order markets perform more efficiently than do their dealer market counterparts.
In chapter three, I examine Community-Driven Development. Community-Driven Development is considered a tool empowering communities to develop their own aid projects. While evidence has been mixed as to the effectiveness of CDD in achieving disbursement to intended beneficiaries, the literature maintains that local elites generally take control of most programs. I present a three player ultimatum game which describes a potential decentralized aid procurement process. Players successively split a dollar in aid money, and the final player–the targeted community member–decides between whistle blowing or not. Despite the elite capture present in my model, I find conditions under which money reaches targeted recipients. My results describe a perverse possibility in the decentralized aid process which could make detection of elite capture more difficult than previously considered. These processes may reconcile recent empirical work claiming effectiveness of the decentralized aid process with case studies which claim otherwise.
In chapter four, I develop in more depth the empirical and computational means to estimate model parameters in the case study in chapter two. I describe the liquidity supplier problem and equilibrium among those suppliers. I then outline the analytical forms for computing certainty-equivalent utilities for the informed trader. Following this, I describe a recursive algorithm which facilitates computing equilibrium in supply curves. Finally, I outline implementation of the Method of Simulated Moments in this context, focusing on Indirect Inference and formulating the pseudo model.
}, address = {1200 East California Boulevard, Pasadena, California 91125}, advisor = {Shum, Matthew S.}, }