Research

Working papers:

Willingness to Pay for Signals of Rare Events  (with Arya Gaduh and Peter McGee)

Designing multiple kinds of signals involves trade-offs between false-positive and false-negative costs. We conduct a laboratory experiment to evaluate preferences over these trade-offs in a controlled environment. We find that the choices significantly diverge from the predictions of the model with a risk-neutral decision-maker as well as from some predictions of expected utility frameworks. Relative to a risk neutral decision-maker, willingness-to-pay overreacts to false-negative rates for low priors, but underreacts for high priors. Subjects' preferences demonstrate a reverse bias for false-positive rates. This causes overpaying for signals with positive FP rates when the prior is low, and overpaying for all priors for low-quality signals with positive FP and FN rates. We find that this pattern is not consistent with the EU framework, but most consistent with a decision-making heuristic in which subjects do not differentiate between false-positive and false-negative rates when choosing signals.

Talent Misallocation across Countries: Evidence from Educational Achievement Tests

The paper uses the PISA dataset to measure the role of cognitive skills in occupational choice across countries. I find that in most developing countries cognitive skills of students have relatively little effect on prestige, skill intensity or earning potential of future expected occupations. While these facts are consistent with a higher role of non-cognitive skills in occupational choice, the evidence provides more support to the hypothesis that developing countries have higher frictions in matching workers to jobs. Next, I evaluate the efficiency losses associated with matching frictions by calibrating the model of occupational choice and aggregate output. The estimation implies that by removing the matching frictions some developing countries can increase the productivity of workers with high school education by up to fifteen percent.

Technology Spillovers and Suboptimal Rent Sharing

The paper studies the effects of technology spillovers through the employee mobility on technology adoption. It challenges the theoretical result of Franco and Filson (2006) by assuming that the workers are risk averse and that the number of competitors is finite. I find that for realistic parameter values the high-technology firm operates in an almost socially optimal way by employing and training large number of workers immediately after starting production. However, technology spillovers can significantly affect the high-technology firm's decision to enter the market. For realistic parameter values, the presence of the technology spillovers can reduce the value function of the high-technology firm by 50-80\% as compared to the no spillovers case if the gap between current technology and new technology is very high. For smaller productivity gaps technology spillovers can be beneficial for high-technology firms. These effects of technology spillover can skew technology transfer towards more developed regions with better local technologies.

Income Effects on Education Quality (draft is available upon request)

Better education quality improves productivity and income, but do incomes explain disparities in education quality between rich and poor countries? Several models of human capital accumulation predict that incomes have a positive causal effect on human capital for given levels of education by increasing the consumption of educational goods. The paper tests this prediction by using a within country variation in incomes per-capita across different cohorts of US immigrants. Wages of US migrants conditional on years of education serve as a measure of education quality. I find that average domestic incomes experienced by migrants in age from zero to twenty years have a significant positive effect on their future earnings in the US. I show that the selection of migrants is unlikely to account for this result which is also robust to multiple specifications and sub-samples.

Lives Saved vs Time Lost: Direct Societal Benefits of Probabilistic Tornado Warnings ("Weather, Climate and Society")

National Weather Service is planning to implement the system of probabilistic tornado warnings. In this paper, we estimate and compare full societal costs of tornadoes with existing deterministic and potential probabilistic  warnings. These full costs include the value of statistical lives lost as well as the value of the time spent sheltering. We find that probabilistic tornado warnings would decrease total expected fatalities. The improvement in decision-making would also decrease the total opportunity cost of time spent sheltering even though the total sheltering time is likely to increase. In total, probabilistic warnings should lower societal costs of tornadoes relative to deterministic warnings by approximately 75-150 million USD per year with a large portion of this improvement coming from lower casualties

Works in Progress:

Welfare Costs of Occupational Decline: Counterfactual Approach 

Economic Benefits of Extended Tornado Warnings 

Exploring Experience Mills: Determinants of Firm-Specific Returns to Experience