MPhil+PhD in Economics
Job Market Candidates
Job Market Paper:
Uncertainty, Corporate Diversification and Misallocation
Abstract:
In the environment of high uncertainty, corporations may choose to diversify their business. Using data on U.S. public firms at the segment and deal levels, I empirically document that 1) Firms expand their business scope in response to a rise in cross-sectional uncertainty, and high-productivity firms are more responsive; 2) Entry into a new business line in uncertain periods predicts lower growth, equity value and credit capacity; and 3) At the aggregate level, rising diversification following uncertainty shocks is associated with synchronized recession in aggregate activities and persistent decline in aggregate productivity. I explain these facts by building a heterogeneous-firm model with endogenous diversification and external financing constraint. In the model, a cross-sectional uncertainty shock prompts a diversification wave, which redistributes cash flow and credit away from high productivity sectors, leading to inefficient reallocation of resources and decline in aggregate TFP. The misallocation effect is amplified in competitive equilibrium where negative externality of diversification choice on other firms' value is not internalized. This novel channel enables a cross-sectional uncertainty shock to generate a recession with synchronized declines in aggregate activities, in line with empirical evidence.
Research Interests:
Macroeconomics, Financial Economics
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Job Market Paper:
Overbuilding and Underinvestment over Housing Boom-Bust Cycles
Abstract:
In this paper, I unveil a novel mechanism through which a housing market boom can lead to a deep recession by decreasing the physical investment and rendering capital scarce. This inefficiency arises from a crowding-out effect: the available liquidity, which could otherwise be channeled into firms’ capital investments (e.g., factories, equipment, R&D), is redirected toward the residential sector. The crowded-out physical investment subsequently amplifies the losses of the bust and prolongs the duration of the recession. Employing a new identification method of a shock that generates housing boom-bust cycles via a structural vector regression model, this paper empirically verifies the crowding-out effect and finds that a 2% jump in housing prices can crowd out 1% physical investment at the peak. Then, I develop a heterogeneous household model to quantify this welfare effects of this novel mechanism, It documents that the crowding-out effect can account for up to 13% of the welfare losses during the recession period. Finally, I show that a macroprudential policy targeting the overheated housing market can significantly alleviate the crowding-out effect and welfare losses.
Research Interests:
Macroeconomics of Household Heterogeneity, Inequality, Monetary and Macroprudential Policies, and Quantitative Methods for Empirical (VAR) and Numerical (HANK) Analysis
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Job Market Paper:
Splitting Award or Winner Takes All?: Evidence from China's National Drug Procurement Auction
Abstract:
A significant number of procurements in both public and private sectors have adopted the practice of splitting the award among multiple bidders in an auction, as an alternative to the one-winner-take-all approach. This aims to encourage participation from small firms and reduce dependency on a single supplier. One prominent example is China's national drug procurement split-award auction, where the societal importance of drug prices underscores the need for a thorough examination of the rationale for using this auction format. However, there is limited theoretical and empirical guidance available in the literature. This paper investigates the competitive impact of split-award auctions on key outcomes, such as participation and procurement costs. Theoretically, I demonstrate that split-award auctions consistently boost participation but only decrease the expected procurement cost if otherwise no participation in the winner-take-all auction. Empirically, I estimate the direction and magnitude of the effects using drug procurement data. The findings reveal that split-award auctions moderately increase average participation by 0.85 bidders (17%), but significantly raise the unit expected procurement cost by 4 CNY (38%). The reallocation of production to more expensive bidders and an increase in bidders' markups contribute equally to the rise of the expected procurement cost.
Research Interests:
Empirical Industrial Organization, Quantitative Marketing
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Job Market Paper:
Breaking the Fences: Patent Purchase and Export Performance of Chinese Firms
Abstract:
The burgeoning export activities of Chinese firms are accompanied by a marked surge in patent purchase across the globe. Using a novel database of firm-level patent transactions, I document several stylized facts regarding the connection between global patent purchase and export performance of Chinese firms. First, China's patent purchase is mainly targeted to the first patent filing in patent family, is conducted by a small number of Chinese firms, and concentrates in a few origins. Second, firms that select into patent purchase are larger in terms of export value and number of export destinations. Last but not least, the firm's patent purchase from a market is positively correlated with its future export and patent applications across the globe, mainly in the places where purchased patents have related family members. Then I develop a multi-market trade model allowing heterogeneous firms to purchase patents. Patent purchase from any origin could alter the firm's demand across global markets. Through the lens of my model, I structurally estimate the benefits and costs of patent purchase, and provide a quantitative assessment of patent purchase on bilateral trade flows.
Research Interests:
International Trade, Chinese Economy, Innovation, International Macroeconomics
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Job Market Paper:
Knowing More Can Hurt: An Experiment
Abstract:
Theory suggests that mandatory disclosure of private interest can be harmful, as it deters the transmission of private information. Previous experiments, however, show that disclosing private interest can be beneficial through the psychological effects of moral licensing and insinuation anxiety. We conducted an experiment to investigate the effect of information disclosure in the setting of strategic information transmission with unknown motives. Our experimental design captures the core spirit of Li and Madarasz (2008), in which a sender has partially aligned interest with a receiver and has private information about his own bias and the state. We show that disclosing private interest results in a unique babbling equilibrium, whereas informative equilibria exist when the private interest is hidden. We then use neologism-proofness and a best-response dynamics approach to sharpen the theoretical prediction. Our experimental evidence provides support for the theory, as we find that hidden information facilitates information transmission and improves welfare. We perform a level-k analysis to explain this phenomenon and find that a source of the welfare loss when private interest is disclosed is the mismatch between senders and receivers with different levels of sophistication. Meanwhile, our experimental data are inconsistent with the phenomena of moral licensing and insinuation anxiety, suggesting that these psychological effects do not persist when direct conflict of interest becomes partially aligned interests.
Research Interests:
Experimental Economics, Industrial Organization, Applied Microeconomics