http://hdl.handle.net/1721.1/7808 2013-05-19T21:53:07Z http://hdl.handle.net/1721.1/77874 Optimal intertemporal decisions in imperfect capital markets Cardenas, Ruben Ojeda Optimal intertemporal investment solution paths are derived for both, firms operating in perfect financial markets and those facing credit constraints, due to imperfect capital markets. However, as in these markets, saving and investment decision may not be separable, we obtain the optimal dynamic path of these decisions for agents that own capital but do not have any access to credit and extend the analysis when these agents have some access to credit but yet face credit constraints from financial intermediaries. We next consider agents without physical capital and who derived their income from wages and/or financial assets. We study their optimal intertemporal decisions, among, consumption, financial assets and durable goods, first under perfect capital markets and then when credit constraints are present. The above results may be useful for both, the comparative dynamic analysis of agents with different type of endowments and immersed in imperfect financial markets and also to derive, from micro foundations, the aggregate demand and supply functions of intertemporal macro models for developing economies. The distinction between different types of agents according to their endowment may also help to assess the wealth and income distribution implications of economic policy. Thesis (S.M.)--Massachusetts Institute of Technology, Dept. of Economics, 2012.; Cataloged from PDF version of thesis.; Includes bibliographical references. 2012-01-01T05:00:00Z http://hdl.handle.net/1721.1/77873 Essays on financial economics Vargas Mendoza, Alberto This thesis consists of three independent essays on Financial Economics. In chapter one I investigate the possible mispricing of European-style options in the Mexican Stock Exchange. The source of this problem is that when the Mexican Stock Exchange introduced options over its main index (the IPC) in 2004, it chose Heston's (1993) "square root" stochastic volatility model to price them on days when there was no trading. I investigate whether Heston's model is a good specification for the IPC and whether more elaborate models produce significantly different option prices. To do so, I use an MCMC technique to estimate four different models within the stochastic volatility family. I then present both classical and Bayesian diagnostics for the different models. Finally, I use the transform analysis proposed by Duffie, Pan and Singleton (2000) to price the options and show that the prices implied by the models with jumps are significantly different from those implied by the model currently used by the exchange. Next, I turn to a problem in behavioral portfolio choice: It has been shown that the portfolio choice problem faced by a behavioral agent that maximizes Choquet expected utility is equivalent to solving a quantile linear regression. However, if the agent faces a vast set of assets or when transaction fees are considerable, it becomes optimal for the agent to take non-zero positions on only a subset of the available assets. Thus, in chapter 2, I present a portfolio construction procedure for this context using Li penalized quantile regression methods and explore the performance of these portfolios relative to their unrestricted counterparts. In chapter three, co-authored with Victor Chernozhukov, we present the Extended Pareto Law as an alternative for modeling operational losses. Through graphical examination and formal goodness of fit tests we show that it outperforms the main parsimonious alternative, Extreme Value Theory, in terms of statistical fit. Finally, we show that using the Extended Pareto Law as a modeling technique also leads to reasonable capital requirements. Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012.; Cataloged from PDF version of thesis.; Includes bibliographical references. 2012-01-01T05:00:00Z http://hdl.handle.net/1721.1/77797 Empirical essays on firm behavior in India Ryan, Nicholas (Nicholas James) In this thesis, I study the behavior of industrial firms in India in the electricity market and with respect to locational choice and environmental regulation. In the first chapter, I study the competitive effects of transmission infrastructure on market outcomes in the Indian day-ahead electricity market. Transmission constraints may increase local market power by limiting competition across regions. I find that bidders in import-constrained regions do raise bid prices in response to congestion and I simulate the effects of relaxing transmission constraints using a structural model of power-market bidding. The welfare gain from infrastructure expansion is large as a share of market surplus and mostly due to the strategic responses of bidders to a better-integrated market. In the second chapter, I study the agglomeration of manufacturing activity in India. Industry in India is shown to be spatially agglomerated to an extent similar to that observed in the United States and perhaps slightly greater. All the Marshallian forces of linkages in goods, labor and ideas between industries are important for industrial colocation, with hiring similar workers the strongest predictor of coagglomeration patterns. Finally, in the third chapter, my advisors, Esther Duflo and Michael Greenstone, Rohini Pande and I measure the effects of auditor independence on the reliability of reports by third-party environmental auditors and the regulatory compliance of the firms they audit, using a field experiment. We find that a reformed audit system in which auditors were randomly assigned to plants, monitored and given incentives for accuracy greatly improves the accuracy of auditor reporting, as measured by independent backchecks of true pollution levels. Moreover, the treatment plants subject to greater scrutiny under the reformed audit system responded by reducing pollution output relative to the control group. Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012.; Cataloged from PDF version of thesis.; Includes bibliographical references (p. 143-149). 2012-01-01T05:00:00Z http://hdl.handle.net/1721.1/77796 Essays on innovation, productivity, and talent allocation Shu, Pian This thesis contains three essays on innovation, productivity, and talent allocation. The first essay explores a novel channel through which short-term economic fluctuations affect the long-term innovative output of the economy: innovators' accumulation of human capital. Using a newly constructed data set on the patenting history of all individuals obtaining a bachelor's degree from the Massachusetts Institute of Technology (MIT) between 1980 and 2005, I find that cohorts graduating during booms produce significantly fewer patents over the subsequent two decades. Initial economic conditions do not affect inventors' long-term occupational affiliation, suggesting that the main differences lie in their long-term level of inventive human capital. The decrease in patent output of cohorts graduating during booms is mainly from inventors with relatively low GPAs, and marginal patents receive fewer citations than the rest. The second essay uses the 2008 financial crisis as a natural experiment to study the characteristics of recent graduates from MIT bachelor programs who pursued a career in finance immediately after graduation. I find that finance competes against science and engineering graduate programs for the best talent from MIT but values academic skills less. As a result of endogenous skill development during college, financiers have significantly lower academic skills than students entering graduate school at graduation, despite having similar levels of raw academic talent measured at college entrance. Marginal financiers have lower starting salaries than average financiers, suggesting that there is positive selection into finance. The third essay examines the asset accumulation and labor force participation of Social Security Disability Insurance applicants. Using the RAND Health and Retirement Study panel data, I provide empirical support for the theory that an imperfectly screened disability insurance program encourages individuals who dislike work to save more in the present and plan to apply for disability insurance in the future, regardless of their future health. Despite exhibiting lower labor force attachment and earning less than accepted applicants, rejected applicants have significantly more assets immediately prior to their application, but not in the several years before. Although imperfect, the current screening differentiates the applicants in meaningful ways without using assets as an additional criterion. Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012.; Cataloged from PDF version of thesis.; Includes bibliographical references. 2012-01-01T05:00:00Z