Department of Economics
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The Department of Economics is in Vanderbilt’s College of Arts and Science. It consists of more than 30 full-time faculty whose research covers most major areas of modern economics. The department has been consistently ranked among the top 40 economics departments in the United States.
The faculty are committed to delivering outstanding undergraduate and graduate programs and to producing high-quality research. Economics is the largest undergraduate major in the College of Arts and Science. The undergraduate program provides rigorous training in micro and macroeconomics and offers a variety of advanced elective courses. Students are prepared for future careers in business, law, and government, or for pursuing graduate study. The Ph.D. program in economics builds on a core of economic theory and econometric methods, and equips students to conduct frontier research in their dissertations. Students enter the Ph.D. program from around the country and abroad. Recent graduates have been hired in tenure-track positions at the London School of Economics, University of Michigan, the University of North Carolina, Emory University, and Universitat Pompeu Fabra, among others. The Graduate Program in Economic Development offers the MA degree in economic development, as well as a non-thesis certificate in economic development. Since its inception in 1956, about 1300 students from 120 countries have studied in the program and many of them have gone to distinguished careers in public service and international development organizations..
| Department Location: | Department of Economics 415 Calhoun Hall Vanderbilt University Nashville, TN 37240 |
| Mailing Address: | Vanderbilt University Department of Economics PMB 351819 Station B 2301 Vanderbilt Place Nashville, TN 37235 |
| Phone: | 615-322-2871 |
| Fax: | 615-343-8495 |
| Email: | economics@vanderbilt.edu |
| Website: | Department of Economics |
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Item A Class of Chronic Poverty Measures(Vanderbilt University, 2007) Foster, James E.This paper presents a new family of chronic poverty measures based on the Pa poverty measures of Foster, Greer,and Thorbecke (1984). The chronically poor are identified using two cutoffs: a standard poverty line, which identifies the time periods during which a person is poor; and a duration cutoff, which is the minimum percentage of time a person must be in poverty in order to be chronically poor. The new family of chronic poverty measures is constructed by raising the (per-period) normalized gaps of the chronically poor to a power a > 0 and then aggregating. The resulting indices, which can be viewed as duration adjusted Pa measures, satisfy a battery of properties for chronic poverty indices, including time monotonicity and population decomposability. An illustrative application of the family is provided using data from Argentina.Item A Defense of the Current US Tax Treatment of Employer-Provided Medical Insurance(Vanderbilt University, 2010) Huang, Kevin X. D.; Huffman, Gregory W.We develop a general equilibrium search model with endogenous health accumulation and a unique feature of the US tax code, that exempts employer-provided medical benefits from taxation, to jointly account for US long term unemployment rate and medical expenditure to aggregate consumption ratio. Through various counterfactual experiments, we find (1) eliminating the employment-based tax subsidy lowers medical expenditure but, via a general equilibrium labor market effect, increases unemployment and lowers output, and contrary to conventional wisdom, lowers welfare; (2) having government raise taxes to finance the provision of medical care substantially increases unemployment rate, while reducing income and welfare.Item A Dynamic Model of Lawsuit Joinder and Settlement(Vanderbilt University, 2009) Daughety, Andrew F.; Reinganum, Jennifer F.In this paper we examine a dynamic model of the process by which multiple related lawsuits may be filed and combined; we also examine actions a defendant may employ that may disrupt the formation of a joint suit. Our initial model involves two potential plaintiffs, with private information about the harm they have suffered, in a multi-period setting with positive costs of filing a suit. If two plaintiffs file, they join their suits to obtain a lower per-plaintiff trial cost and a higher likelihood of prevailing against the defendant. We find that some plaintiff types never file, some wait to see if another victim files and only then file, some file early and then drop their suits if not joined by another victim and, finally, some file and pursue their suits whether or not they are joined; thus, the equilibrium resembles a "bandwagon." We then consider the effect of allowing preemptive settlement offers by the defendant aimed at discouraging follow-on suits. Preemptive settlement results in a "gold rush" of cases into the first period. In general, plaintiffs (ex ante) strictly prefer that such preemptive settlements not be allowed, and computational results suggest this may be broadly true for defendants as well; however, the inability of defendants to commit to such a policy results in an equilibrium with preemptive settlement. Finally, we consider partial unawareness of victims as to the source of harm; this provides a role for plaintiffs' attorneys, who may seek additional victims to join a combined lawsuit. Confidential preemptive settlements in the case of partial unawareness restrict the plaintiff's attorney from seeking additional victims and therefore leads to higher preemptive settlement amounts. Moreover, the defendant strictly prefers to employ preemptive settlement if the fraction of unaware victims is sufficiently high.Item A Model Selection Test for Bivariate Failure-Time Data(Vanderbilt University, 2004) Chen, Xiaohong; Fan, YanqinIn this paper, we address two important issues in survival model selection for censored data generated by the Archimedean copula family; method of estimating the parametric copulas and data reuse. We demonstrate that for model selection, estimators of the parametric copulas based on minimizing the selection criterion function may be preferred to other estimators. To handle the issue of data reuse, we put model selection in the context of hypothesis testing and propose a simple test for model selection from a finite number of parametric copulas. Results from a simulation study and two empirical applications provide strong support to our theoretical findings.Item A Neighborhood-Level View of Riots, Property Values, and Population Loss: Cleveland 1950-1980(Vanderbilt University, 2005) Collins, William J.; Smith, Fred H.We undertake a case study of riots in the context of Cleveland's economic decline between 1950 and 1980. Our empirical perspective emphasizes differential changes in property values and population levels across census tracts depending on their proximity to the riots' epicenter. We find patterns that are consistent with concentrated, negative, and long-lasting effects from the 1960s riots. These estimates do not depend on whether we use a narrow or a broad categorization for "riot tracts", whether we use simple difference-in-difference measures or detailed information on the distance of each tract from the riot center, or whether we use ordinary least squares or matching estimation techniques. Moreover, the negative relationship between riots and property value trends is not merely a reflection of the pre-existing trend in value, the pre-riot racial composition of the neighborhoods, the pre-riot proportion of neighborhood residents holding manufacturing jobs, the neighborhood crime rate, nor changes in the observable characteristics of the housing stock. Cleveland¬πs economic difficulties did not start with the riots. Rather, we suggest that the impact of the riots was compounded by long-run forces that were already eroding Cleveland¬πs economic base.Item A Nonparametric Measure of Convergence Toward Purchasing Power Parity(Vanderbilt University, 2002) Shintani, MototsuguIt has been claimed that the deviations from purchasing power parity are highly persistent and have quite long half-lives under the assumption of a linear adjustment of real exchange rates. However, inspired by trade cost models, nonlinear adjustment has been widely employed in recent empirical studies.This paper proposes a simple nonparametric procedure to evaluate the speed of adjustment in the presence of nonlinearity, using the largest Lyapunov exponent of the time series. The empirical result suggests that the speed of convergence to a long-run price level is indeed faster than what was found in previous studies with linear restrictions.Item A Proposal for a Selection Criterion in a Class of Dynamic Rational Expectations Models with Multiple Equilibria(Vanderbilt University, 2002) Driskill, Robert A.The paper argues that multiple equilibria-whether non-stationary or stationary- are a generic property of dynamic rational expectations models. In light of this, this paper proposes a selection criterion for choosing between these multiple equilibria in an important class of dynamic rational expectations models. The criterion is based on the idea that agents can be assumed to coordinate their beliefs around the limit of a finite-horizon equilibrium. For three examples examined, all of which can have multiple stationary, i.e., non-explosive, rational expectations equilibria, there is, among the multiple equilibria of an infinite-horizon model, only one that is the limit of a finite-horizon model.Item A Revelation Principle for Dominant Strategy Implementation(Vanderbilt University, 2008) Schwartz, Jesse A.; Wen, QuanWe introduce a perfect price discriminating (PPD) mechanism for allocation problems with private information. A PPD mechanism treats a seller, for example, as a perfect price discriminating monopolist who faces a price schedule that does not depend on her report. In any PPD mechanism, every player has a dominant strategy to truthfully report her private information. We establish a revelation principle for dominant strategy implementation: any outcome that can be dominant strategy implemented can also be dominant strategy implemented using a PPD mechanism. We apply this principle to derive the optimal, budget-balanced, dominant strategy mechanisms for public good provision and bilateral bargaining.Item A Simple Cointegrating Rank Test Without Vector Autoregression(Vanderbilt University, 2000) Shintani, MototsuguThis paper proposes a fully nonparametric test for cointegrating rank which does not require estimation of a vector autoregressive model. The test exploits the fact that the degeneracy in the moment matrix of the variables with mixed integration order corresponds to the notion of cointegration. With an appropriate standardization, the test statistics are shown to have a nuisance parameter free limiting distribution and to be consistent under reasonable conditions. Monte Carlo experiments also suggest that the performance of the test is satisfactory with a moderate sample size. The proposed tests are applied to the stochastic growth model using the U.S. aggregate data.Item A Simple Model of Inequality Occupational Choice and Development(Vanderbilt University, 2000) Ghatak, Maitreesh; Jiang, Nien-HueiThis paper analyzes a simple and tractable model of occupational choice in the presence of credit market imperfections. We examine the relative roles of parameters governing technology and transaction costs, and history in terms of the initial wealth distribution in determinig the long term wealth distribution and level of income of an economy. The possibility of the existence of cycles, and the role of lotteries and redistributive policies in archieving greater efficiency are examined.Item A Subsidized Vickrey Auction for Cost Sharing(Vanderbilt University, 2007) Schwartz, Jesse A.; Wen, QuanWe introduce a subsidized Vickrey auction for cost sharing problems. Although the average, marginal, and serial cost sharing mechanisms are budget-balanced, they are not allocatively efficient and they do not induce players to truthfully reveal their values as a dominant strategy. The conventional Vickrey auction, on the other hand, is allocatively efficient and does induce truthful bidding as a dominant strategy, but also generates an overpayment. This paper modifies the conventional Vickrey auction so that some of the overpayment is used to subsidize additional production without upsetting the players' incentives to bid truthfully. Although this subsidized Vickrey auction is not allocatively efficient, it always Pareto dominates the conventional Vickrey auction and sometimes dominates other existing cost sharing mechanisms.Item A Unified Approach to Strategy-Proofness for Single-Peaked Preferences(Vanderbilt University, 2011) Weymark, John A.This article establishes versions of Moulin's [On strategy-proofness and single peakedness, Public Choice 35 (1980), 31-38] characterizations of various classes of strategy-proof social choice functions when the domain consists of all profiles of single-peaked preferences on an arbitrary subset of the real line. Two results are established that show that the median of 2n+1 numbers can be expressed using a combination of minimization and maximization operations applied to subsets of these numbers when either these subsets or the numbers themselves are restricted in a particular way. These results are used to show how Moulin's characterizations of generalized median social choice functions can be obtained as corollaries of his characterization of min-max social choice functions.Item Accounting for Persistence and Volatility of Good-Level Real Exchange Rates: The Role of Sticky Information'(Vanderbilt University, 2008) Crucini, Mario J.; Shintani, Mototsugu; Tsuruga, TakayukiVolatile and persistent real exchange rates are observed not only in aggregate series but also in the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro-price adjustment cannot replicate the time-series properties of the law-of-one-price deviations. We extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of Mankiw and Reis (2002). Under a reasonable assumption on the money growth process, we show that the model fully explains both persistence and volatility of the good-level real exchange rates. Furthermore, our framework allows for multiple cities within a country. Using a panel of U.S.-Canadian city pairs, we estimate a dynamic price adjustment process for each 165 individual goods. The empirical result suggests that the dispersion of average time of information update across goods is comparable to that of average time of price adjustment.Item Activation of a Modern Industry(Vanderbilt University, 2001) Wang, Ping; Xie, DanyangThis paper constructs an integrated framework to disentangle the underlying economic mechanism of industrial transformation. We consider three essential elements for the analysis: skill requirements, industry wide spillovers and degrees of consumption subsistence. We find that human and nonhuman resources, production factor matching and industrial coordination are all important for activating a modern industry. In the process of industrial transformation, job destruction may exceed job creation, and income distribution may get worse immediately following the activation of a modern industry. An array of policy prescriptions for advancing a poor country are provided.Item Aids Home and Community-Based Waivers: Effects on Use of Services Expeditures and Survival(Vanderbilt University, 2000) Anderson, Kathryn; Mitchell, JeanState Medicaid home and community-based waiver programs for persons with AIDS (PWAs) were implemented with the expectation that PWAs would use home and community-based services in lieu of more expensive hospital-based care. If so, then Medicaid spending per PWA should decline and this in turn should generate program cost savings. While some published research indicates that waiver participants incur lower expenditures than non-participants, this evidence is based on data which pre-dates the development of highly effective but expensive antiretroviral combination therapies. In this study, we analyzed Florida Medicaid claims data for PWAs from December 1995 through December 1997 to determine how participation in the home and community-based waiver affects the use of inpatient services, the receipt of antiretroviral combination therapies, monthly expenditures and survival of PWAs. Importantly, antiretroviral combination therapies were available to Medicaid recipients with AIDS throughout this time period. Four important findings are obtained. 1) the waiver program offers a different form of care to PWAs; waiver participants are more likely to receive combination therapies, but are less likely to use hospital-based care relative to non-participants. 2)The waiver is not randomly selected by PWAs; white men and sicker patients are much more likely to join the waiver program than other eligible PWAs. 3) After controlling for the non-random selection of the waiver and other patient characteristics, monthly expenditures for waiver participants are 49% lower than non-participants. 4) Waiver participation does not significantly affect survival.Item An Alternative View of Taxation and Endogenous Growth(Vanderbilt University, 2001) Huffman, Gregory W.In this paper, a modification is made to the endogenous growth model studied by Lucas [1988]. It is shown that if individuals derive utility from their level of human capital, then a tax on the return to physical capital can raise the equilibrium growth rate. Consumption taxation may increase the growth rate. If there is an externality in production of human capital, then it may be optimal to impose a capital tax, as opposed to a subsidy, to achieve the optimal growth rate. This may be a reason why existing estimates of the welfare costs of capital taxation may be overstated.Item An Analysis of Fiscal Policy with Endogenous Investment-Specific Technological Change(Vanderbilt University, 2008) Huffman, Gregory W.The effects of distortional fiscal policies are studied within a model in which there is endogenous investment-specific technological change. Labor is used in the production of output and also for research purposes. Labor or capital taxes then distort the trade-off between developing new technologies, and investing in existing types of capital. It is shown that if there is an externality in the research activity, then it may be socially optimal to impose both a capital tax, and an investment tax credit. The growth rate is shown to be increasing in the rate of capital taxation and decreasing in the rate of labor taxation, although the effect of taxation on the growth rate is modest. This supports the observation that there is relatively little relationship between growth rates of economies, and their rates of taxation.Item Anonymous Price Taking Equilibrium in Tiebout Economies with a Continuum of Agents: Existence and Characterization(Vanderbilt University, 2008) Allouch, Nizar; Conley, John P.; Wooders, MyrnaWe introduce a model of a local public goods economy with a continuum of agents and jurisdictions with finite, but unbounded populations, where the set of possible projects for each jurisdiction/club is unrestricted in size. Under boundedness of per capita payoffs, which simply ensures that equal treatment payoffs are bounded above, we apply results of Kaneko and Wooders (1986) to obtain nonemptiness of the core of the economy. We then demonstrate, under the stronger condition of strict small group effectiveness, that the equal treatment core coincides with the set of price-taking equilibrium outcomes with anonymous prices -- that is, prices for public goods depend only on observable characteristics of agents. Existence of equilibrium follows from nonemptiness of the core and equivalence of the core to the set of equilibrium outcomes. Our approach provides a new technique for showing existence of equilibrium in economies with a continuum of agents.Item Anticipated Inflation, Real Disturbances and Money Demand: The Case if Chinese Hyperinflation, 1946-49(Vanderbilt University, 2001) Tallman, Ellis W.; Tang, De-paio; Wang, PingThis paper re-examines the dynamics of hyperinflation extending the standard Cagan framework. In our theoretical model, we allow the relative price of capital goods in units of consumption goods to vary in order to examine interactions between the real and monetary sectors. The theory generates empirically testable implications that suggest expanding the standard Caganian money demand function to include both anticipated inflation and relative price effects in a nonlinear fashion. Employing data from the post-WWII Chinese hyperinflationary episode, the empirical findings suggest that conventional econometric investigations of money demand during hyperinflations overlook important nonlinear interactions between real and monetary activities, and hence, underestimate the true welfare costs of hyperinflation.Item Are Financial Development and Corruption ControlSubstitutes in Promoting Growth?(Vanderbilt University, 2007) Ahlin, Christian; Pang, JiarenWhile financial development and corruption control have been studied extensively, their interaction has not. We develop a simple model in which low corruption and financial development both facilitate the undertaking of productive projects, but act as substitutes in doing so. The substitutability arises because corruption raises the need for liquidity and thus makes financial improvements more potent; conversely, financial underdevelopment makes increased corruption more onerous and thus raises the gains from reducing it. We test this substitutability by predicting growth, of countries and industries, using measures of financial development, lack of corruption, and a key interaction term. Both approaches point to positive effects from improving either factor, as well as to a substitutability between them. The growth gain associated with moving from the 25th to the 75th percentile in one factor is 0.63-1.68 percentage points higher if the second factor is at the 25th percentile rather than the 75th. The results show robustness to different measures of corruption and financial development and do not appear to be driven by outliers, omitted variables, or other theories of growth and convergence.