Date of Award

Spring 2024

Project Type

Dissertation

Program or Major

Economics

Degree Name

Doctor of Philosophy

First Advisor

Loris LR Rubini

Second Advisor

Karen KC Conway

Third Advisor

Yin YG Germaschewski

Abstract

What are the macroeconomic consequences of market failure in the long and short runs? How do asymmetric information, externality, and lack of the rule of law contribute to resource misallocation, output, and the business cycle in an economy at the aggregate level? My research focuses on these research questions. Specifically, I explore the macroeconomic effects of asymmetric information, the external impacts of innovation decisions as a part of firm’s dynamic decisions, and the implications of corruption on the fluctuation of the business cycle.

In the first chapter, titled “Hidden Information as a Source of Misallocation: An Application to the Opioid Crisis”, we develop a general equilibrium model in which essential information about employee productivity is hidden from employers, resulting in a suboptimal allocation of resources. The health of employees is unverifiable by employers, and employees with poor health are less productive than their healthier counterparts. We utilize this framework to examine the output losses associated with the opioid crisis. Workers with opioid use disorder exhibit higher absenteeism and reduced productivity, directly contributing to output losses. Furthermore, since employers cannot distinguish addicts from non-addicts, wages deviate from marginal productivity, leading to a suboptimal allocation of resources. Calibrating the model to the US, we find that opioid misuse reduces output by $133 billion and the misallocation channel accounts for 17.6% of this.

The second chapter of my dissertation, titled "Trade, Innovation, and Pollution" presents a model examining the impact of reduced trade costs on pollution, particularly in scenarios with an extensive margin of innovation. While conventional wisdom suggests that international trade leads to increased pollution due to higher output from polluting firms, recent empirical evidence contradicts this notion. Our model reveals that some new exporters tend to adopt cleaner technologies, unintentionally becoming environmentally friendly producers. Calibrated with data from the Chilean economy, our findings indicate a 4.4% reduction in pollution emission between 1995 and 2007 as trade costs decline. Moreover, there is an increase in pollution without technology adoption, that is, when all or none of the firms innovate. An extensive margin of adopting new technology causes a reduction in total pollution and its intensity.

For the third chapter, my research question is: “Are Sovereign Wealth Funds a Good Idea in the Presence of Corruption?”. Commodity-exporting countries are highly vulnerable to commodity price shocks, and many governments establish sovereign wealth funds (SWFs) to smooth consumption and accumulate revenue during periods of high commodity prices, relative to the reference price. While SWFs are typically an important source of government revenue in such countries, their accumulation can also create opportunities for corruption that may undermine the benefits of stabilizing consumption. Mongolia is one such country where corruption is a significant problem (IMF, 2021). I analyze how corruption can diminish the effectiveness of SWFs in mitigating business cycle fluctuations in resource-rich countries, using data from Mongolia and developing a theoretical model.

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