Gregory Veramendi

Returns to Education: The Causal Effects of Education on Earnings, Health, and Smoking

This paper estimates returns to education using a dynamic model of educational choice that synthesizes approaches in the structural dynamic discrete choice literature with approaches used in the reduced-form treatment effect literature. It is an empirically robust middle ground between the two approaches that estimates economically interpretable and policy-relevant dynamic treatment effects that account for heterogeneity in cognitive and noncognitive skills and the continuation values of educational choices. Graduating from college is not a wise choice for all. Ability bias is a major component of observed educational differentials. For some, there are substantial causal effects of education at all stages of schooling.

Networks, Frictions, and Price Dispersion

This paper studies price dispersion in buyer-seller markets using networks to model frictions, where buyers are linked with a subset of sellers and sellers are linked with a subset of buyers. Although there is a large search literature studying wage/price dispersion, search models typically restrict the type of competition that can occur between buyers (firms) and sellers (workers) when determining prices or wages. Our approach allows for indirect competition, where a buyer who is not directly linked with a seller affects the price obtained by that seller. Indirect competition generates the central finding of our paper: even when there are significant frictions, price distributions and allocations are close to the perfectly competitive outcome where the law of one price holds. We then investigate the role of indirect competition in a dynamic setting by studying wages in the context of an on-the-job search model. We find that indirect competition has similar effects on wage dispersion and wage dynamics. This leads to two novel pre- dictions relative to the search literature. Lowering frictions (so that workers receive job offers at a higher rate) leads to: (1) lower worker mobility and lower expected wage growth and (2) lower expected wages in markets with high unemployment. We argue that our framework is suited to the analysis of a wide range of real-world markets, such as the labor market and buyer-seller trading platforms like eBay or Amazon.

Frictions in Internet Auctions with Many Traders: a Counterexample

Peters and Severinov (2006) (PS henceforth) characterize a perfect Bayesian equilibrium (PBE) in a competing auctions environment, where all buyers are linked to all the sellers. PS characterize a PBE using a simple bidding rule, whereby buyers select in which auction to bid. In this note we show that when buyers are linked with a subset of the sellers (i.e. when there are search frictions), the PS bidding rule is no longer guaranteed to be efficient nor a PBE of the competing auctions game of PS. Our results indicate that researchers should be cautious when using the PS bidding rule to make inference about the behavior of buyers and sellers in a market where frictions are present such as eBay.

The Non-Market Benefits of Education and Ability

This paper analyzes the nonmarket benefits of education and ability. Using a dynamic model of educational choice, we estimate returns to education that account for selection bias and sorting on gains. We investigate a range of nonmarket outcomes, including incarceration, mental health, voter participation, trust, and participation in welfare. We find distinct patterns of returns that depend on the levels of schooling and ability. Unlike the monetary benefits of education, the benefits to education for many nonmarket outcomes are greater for low-ability persons. College graduation decreases welfare use, lowers depression, and raises self-esteem more for less-able individuals.