Levon Barseghyan

Entry costs, industry structure, and cross-country income and TFP differences

Entry costs vary dramatically across countries. To assess their impact on cross-country differences in output and TFP, we construct a model with endogenous entry and operation decisions by firms. We calibrate the model to match the U.S. distribution of employment and firms by size. Higher entry costs lead to greater misallocation of productive factors and lower TFP and output. In the model, countries in the lowest decile of the entry costs distribution have 1.32 to 1.45 times higher TFP and 1.52 to 1.75 times higher output per worker than countries in the highest decile. As in the data, higher entry costs are associated with lower entry rates and business density.

Inference under stability of risk preferences

We leverage the assumption that preferences are stable across contexts to partially identify and conduct inference on the parameters of a structural model of risky choice. Working with data on households’deductible choices across three lines of insurance coverage and a model that nests expected utility theory plus a range of non-expected utility models, we perform a revealed preference analysis that yields household-speci…c bounds on the model parameters. We then impose stability and other structural assumptions to tighten the bounds, and we explore what we can learn about households’risk preferences from the intervals de…ned by the bounds. We further utilize the intervals to (i) classify households into preference types and (ii) recover the single parameterization of the model that best …ts the data. Our approach does not entail making distributional assumptions about unobserved heterogeneity in preferences.

Institutional Causes of Macroeconomic Volatility

In this paper we investigate the relation between the quality of institutions and macroeconomic volatility. Using instrumental variable regressions, we show that higher barriers to entry lead to higher volatility. In particular, a one standard deviation increase in entry costs increases the standard deviation of output growth by roughly 40% of its average value in our sample. To the contrary, property rights protection has no statistically significant effect on volatility.

Institutions and growth in limited access societies

We build a dynamic political economy model with a two-class society, workers and the elite, in which the elite formation, the innovation rate and fiscal policy are endogenous. The model generates a mapping between institutions and patterns of growth consistent with empirical evidence. Ex ante, when facing constraints in choosing institutions, the elite may delegate policy control to some of its members, even though such delegation exacerbates the conflict within the elite and causes policy failures. Committing to such institutional arrangements prevents more harmful outcomes, such as rapid entry and subsequent deterioration of the elite[modifier letter apostrophe]s economic and political power.

Distinguishing Probability Weighting from Risk Misperceptions in Field Data

We outline a strategy for distinguishing rank-dependent probability weighting from systematic risk misperceptions in field data. Our strategy relies on singling out a field environment with two key properties: (i) the objects of choice are money lotteries with more than two outcomes; and (ii) the ranking of outcomes differs across lotteries. We first present an abstract model of risky choice that elucidates the identification problem and our strategy. The model has numerous applications, including insurance choices and gambling. We then consider the application of insurance deductible choices and illustrate our strategy using simulated data.

Growth and Fiscal Policy: A Positive Theory

We present a political economy theory of growth in which the government affects the growth rate both directly through public investments in infrastructure, and indirectly through the effect of taxation on learning by doing. Policy choices are made by a legislature consisting of representatives elected by geographically defined districts. The legislature can raise revenues via a discretionary income tax and by issuing public debt. We study the equilibrium relationship between the dynamics of debt and the growth rate of the economy. We use the model to study the impact of an austerity program in which a country is forced to reduce the debt/GDP ratio. To quantify these effects, the model is calibrated to the U.S. economy.