Research:
Location, Productivity, and Trade
Does trade liberalization increase competition? Location models provide a natural tool for answering this question, but, because of technical problems, their use in the trade literature has been limited. This paper develops a novel location model which is robust to arbitrary differences in productivity. In an otherwise standard general equilibrium trade environment, the model remains tractable under consumer preferences which are dramatically more general than those in traditional location models. I find that firms set variable markups which are increasing in firm productivity but which decline under a trade reform. Variable markups offer several improvements over the standard Dixit-Stiglitz framework with CES preferences, including the presence of small firms and measured gains in GDP under a trade reform. In this model trade liberalization reduces the total number of firms and increases their isolation in product space in a range of parameters that best explains firm data.
Tough Love for Lazy Kids: Dynamic Insurance and Equal Bequests joint with Ctirad Slavik
Simple theories about why parents give money to their children fail to explain a central puzzle in inter-generational transfers: While they are alive, parents give more money to their poorer children. When they leave bequests, most parents divide money equally among their children. We develop a model in which parents differentiate between gifts and bequests to help their children more effectively. Parents are able to use future income uncertainty to provide the children with more help and better incentives. We show that in our model poor children get more in gifts than richer children and bequests are equal for all children under some parameterizations. We build a richer quantitative model to compare the explanatory power of our model as compared with a perfect altruism model when parameters are picked to match US income and wealth data. We find that our model significantly reduces the costs needed to rationalize equal division of bequests.