Essays in Applied Economics PDF
By:Teng Sun
Published on 2015 by
This dissertation examines a few empirical questions in public economics, labor economics and corporate finance. Chapter 1 studies the negative externality from the uninsured drivers on the insured in terms of insurance premium. When the uninsured drivers are determined at fault in an accident, they could ultimately declare bankruptcy due to limited liability and thus refuse payment of damage. The damaged incurred by them will then have to be paid by the insurance companies to the insured driver. An empirical analysis of this negative externality channel face two major challenges, one is the measurement error in the local uninsured drivers rate, and the other is a host of endogeneity concerns. Most prominent of the endogeneity concerns is the reverse causality, that fewer people buy insurance as insurance premium are high for other reasons. Using a novel panel data set and a staggered policy change that introduces exogenous variation in the rate of uninsured drivers at the county level in California, we find that uninsured drivers lead to higher insurance premia: a 1 percentage point increase in the rate of uninsured drivers raises premia by roughly 1\\%. We calculate the monetary fine on the uninsured that would fully internalize the externality and conclude that actual fines in most US states are inefficiently low. This chapter is coauthored with my classmate Constantine Yannelis. Chapter 2 studies whether credit constraints affect demand for higher education in the United States. And it uses staggered bank branching deregulation across states in the United States to examine the impact of the resulting increase in the supply of credit on college enrollment from the 70s to early 90s. Our research design produces estimates that are not confounded by wealth effects due to changes in income or housing value. We find that lifting branching restrictions raises college enrollment by about 2.6 percentage points (4.9\\%). Our results rule out alternative interpretations to the credit constraints channel. The effects are statistically significant for low and middle income families, while insignificant and close to zero in magnitude for upper income families as well as bankrupt families who would have been unaffected by the increased access to private credit. We find similar effects for two-year college completion as well as four-year college completion. We also show that household educational borrowing increased as a result of lifting branching restrictions. Our results provide novel evidence that credit constraints play an important role in determining household college enrollment decisions in the United States. This chapter is also coauthored with my classmate Constantine Yannelis. Chapter 3 identify the causal effect of managerial ownership on firm performance exploiting the 2003 Dividend Tax Cut in a quasi-natural experiment, which increased the net-of-tax effective managerial ownership. Consistent with predictions from agency theory, we find a significant and hump-shaped improvement in firm performance measured by Tobin's Q with respect to the level of managerial ownership due to the tax cut. Further, the relation between managerial ownership and firm performance relies on the level of moral hazard inside the firm proxied by investment intensity and asset tangibility as well as the strength of other co-existing channels of corporate governance. In particular, only firms with weak internal corporate governance proxied by G-Index or E-Index are significantly affected in a hump-shaped manner by the tax cut. The increase in performance is more pronounced for firms with weak alternative governance mechanisms such as institutional blockholders and firm leverage. These findings strengthen our interpretation that the improvement in firm performance is due to increased managerial incentive. Our results are robust to examination of pre-trend and placebo tests, accounting measures of firm performance as well as other considerations. This chapter is coauthored with my classmate Xing Li. Chapter 4 examines the effect of increased creditor governance well before the state of bankruptcy on corporate innovation by exploiting the state of debt contract covenant violation and the institutional feature that creditors obtain increased control right of the firm. Consistent with the view that increased creditor monitoring has disciplining effect on the managers, we find no significant change in the R\\ & D spending, significant but modest decrease in the total patent counts two years forward as well as significant and large positive impact on the citation counts of the patents. Our results demonstrate that increased creditor governance is overall beneficial to firm innovation.
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