Abstract. We estimate the preferences of individuals from different wealth backgrounds to explain intergenerational wealth mobility. We use rich micro-level data on the balance sheets, consumption, and risky investments of Swedish residents, together with family wealth background measured during the offspring's early adulthood. We find that patience and risk tolerance are strongly correlated with wealth background. Counterfactual analyses reveal that background-dependent preferences can explain at least 75 percent of the wealth gap between adults of non-rich backgrounds (90 percent of the population) and very-rich backgrounds (2.5 percent of the population). In contrast, early-adulthood heterogeneity in wealth, gifts and inheritances, and intergenerational transmission of human capital are not dominant determinants of wealth mobility.
Abstract. Using credit bureau data, we show that nearly half the increase in student debt since 2010 is due to deferred payments and the expansion of income-driven repayment (IDR) plans. These plans help borrowers smooth consumption, insure income risk, and reduce the effective debt cost. Using a life-cycle model, we quantify the welfare gains from this payment deferment and the channels through which welfare increases. We show that, by extending the repayment period while also raising the income threshold for repayment, an optimally calibrated plan can achieve similar welfare gains at a much lower cost to taxpayers, and without encouraging additional borrowing. Finally, we use our quantitative framework to evaluate recent proposals to reform IDR rules.
Abstract. We document that finance-dependent industries benefit from financial development, but if and only if trade barriers are low. To explain this finding, we develop an international trade model featuring cross-country financial friction heterogeneity. Although product markets are competitive, production in finance-dependent sectors is supported by endogenous profit margins to prevent firms from making strategic defaults. We test this mechanism using cross-country firm-level ORBIS data. We further show that, because of profit shifting, a country may gain more (relative to the frictionless case) when trading with less financially developed economies, and a small open economy may not benefit from financial development.
In the news- Knowledge@Wharton: Why Making Public Colleges Tuition Free Won’t Close the Enrollment Gap
Abstract. Students from low-income families invest much less in college education than high-income families. To assess the role of finance and subsidy schemes, I estimate a model of college choice with financing frictions. I find that the college education gap is mainly due to heterogeneity in preparedness for college; frictionless access to student loans would substantially increase consumption during college but would only marginally affect the investment gap in college education. I show that making public colleges tuition-free would mitigate financing constraints, but overall it would entail $11 billion deadweight loss per year and would disproportionately benefit wealthier students.
Abstract. This paper introduces a computationally efficient methodology for estimating variants of structural models. Our approach approximates the relationship between moments and parameters, offering a low-cost alternative to traditional estimation methods. We establish general convergence conditions, primarily requiring model-based moments to be continuous functions of parameters. While this continuity does not necessitate a continuous economic model, it does require the model to have only sparse discontinuities, a concept we define. We also provide convergence rate bounds for Kernel and Neural Net approximations, with the latter demonstrating superior performance in higher dimensions.
We apply this methodology to two standard structural models: (1) dynamic corporate finance and (2) life-cycle portfolio choice. We demonstrate the reliability of our approach through simulations and then use it to explore identification, robustness to sample splits and moment selection, and model misspecification. These explorations are computationally infeasible with standard techniques, but become trivial with our methodology.
Abstract. We estimate a search-and-matching model with bargaining, using real-stakes experiments with U.S. venture capitalists (VCs) and startups, alongside real-world portfolio data, to examine how bargaining affects the distribution of payoffs and welfare in the startup-VC matching environment. We identify startup and VC characteristics that influence bargaining and find that 60 (55) percent of the impact of appealing characteristics on startups' (VCs') benefits from matching arises from improved bargaining power. Counterfactual analyses further reveal a nontrivial impact of search frictions on bargaining and welfare. Overall, our results highlight the first-order importance of bargaining in shaping matching outcomes in entrepreneurial financing ecosystems.