Intellectual Development Statement

Hanming Fang

Department of EconomicsDuke University

Website: http://www.econ.duke.edu/~hf14May 2008

A. RESEARCH STATEMENT

I am an applied microeconomist with broad theoretical and empirical interests, and with a focuson Public and Labor Economics. The hallmark of my research is to approach economic problemsthrough both the lens of economic theory and the empirical data: I have developed theoreticalmodels in order to cast new light on a topic of interest, and when appropriate, have conductedempirical work to determine whether the theory is an adequate description of reality. Also, mywork tends to cross the boundaries of narrowly de�ned �elds and disciplines as I choose my projectsbased mainly on whether the ideas are promising instead of whether they �t into my �area.�This isre�ected below on the breadth of research topics that I have been involved over the years. However,I believe that I have also achieved a certain degree of depth in each the topics that I have pursued.

In this research statement, I attempt to categorize my research papers into seven related topics:

1. Economics of Discrimination: Theory, Empirical Methods and Evidence;

2. Social Economics;

3. Assessing the Impact of Welfare Reform of 1996;

4. Applications of Psychology in Economics;

5. Multi-dimensional Private Information: Auctions, Public Goods and Insurance Market;

6. Empirical and Theoretical Analysis of Asymmetric Information and Externalities in Markets;

7. Development Economics.

Within each topic, I �rst summarize my completed (both published and unpublished) research, andthen I describe my ongoing and/or planned research.

1 Economics of Discrimination: Theory, Empirical Methods andEvidence

Summary of Completed Research. This research topic originated in my 2000 University ofPennsylvania Ph.D. dissertation titled �Discrimination with Endogenous Group Choices and its

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Empirical Application.�The main motivation for this research project is the following observation:in many economic transactions, the basis on which we are preferentially treated or discriminatedagainst is not race or gender (traits that are exogenously given and immutable), rather it is whetherwe belong to an endogenously chosen group (such as whether we graduated from an Ivy Leagueuniversity or whether we belong to an exclusive golf club, etc.). To the extent that such group labelscan be endogenously altered with some cost, my dissertation theoretically investigates whetherdiscrimination based on such mutable group memberships can persist. On the theoretical front,the main discovery is the idea of �endogenous signaling instrument.� An endogenous signallinginstrument is an activity (which de�nes one�s group label) that a priori does not satisfy Spence�ssingle-crossing property, but in a discriminatory equilibrium, it does, and thus becomes a validsignaling instrument endogenously. I used this idea in my paper �Social Culture and EconomicPerformance�[1, American Economic Review, 2001 ] to examine the e¢ ciency rationale forproviding preferential treatments to �elite�groups that are de�ned by whether one undertakes someseemingly irrelevant activities. In that paper, I interpret the connection between obtaining higherpaying jobs and undertaking some seemingly irrelevant activity as �social culture.�In the contextof a society trying to adopt a new technology, I show that by allowing the �rms to give preferentialtreatment to workers based on some �cultural activity,� the society can partially overcome aninformational free-riding problem, and allow the society to adopt new technologies that requireworkers�unobservable skill investment to be productive. As a result, social culture may a¤ect theeconomic performance by altering the e¤ective production technology of the economy.

On the empirical front, I used the framework as the basis of a structural model of endogenouseducational choices and wage determination to estimate the contributions of ability signaling andproductivity enhancement in the college wage premium. This was my junior job market paper in2000, �Disentangling the College Wage Premium: Estimating a Model with Endoge-nous Education Choices,� [14, International Economic Review, 2006 ]. Here, educationchoices, whether it is college or high school, become the relevant group labels. This is a parsimoniousstructural model that nests both ability signaling and human capital enhancement explanations ofthe college wage premium. The model has empirical implications on college and high school wagedistributions as well as college enrollment rate. The key idea to distinguish ability signaling fromproductivity enhancement can be heuristically illustrated as follows. Imagine a population of agentswith heterogeneous abilities. In an ability signaling model, the college wage premium is the result ofthe di¤erence in the average abilities between college and high school graduates. To the extent thateducation choices are endogenous, the scope of ability signaling in generating wage di¤erentials isrestricted by the equilibrating forces of education choices. On the other hand, the scope of produc-tivity enhancement in generating college premium is not restricted by the equilibrating process sinceit is an exogenous technology parameter in the education production function. This suggests that ingeneral a model that admits the forces of both productivity enhancement and ability signaling canbetter rationalize the observed college wage premium than a pure signaling model, given a familyof parametric models. In the extreme case that the observed college wage premium lies outside thelevel that can be rationalized in a pure ability signalling model, the data will actually call for somerole of productivity enhancement. I estimate the parametric structural parameters of the model us-

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ing Census data; and then disentangles the contribution of ability signaling to the observed collegewage premium through a counterfactual experiment. In that experiment, I examine the maximalsustainable college wage premium in a hypothetical economy where college were not productivityenhancing; and I consider the di¤erence between the college wage premium in the hypotheticaleconomy and the actual college wage premium as the contribution of productivity enhancementof college education. The model is estimated under various distributional parameterizations using1990 U.S. Census �ve percent Public Use Micro Sample. Under these parameterizations, I �ndthat college education enhances attendees�productivity by about forty percent, and productivityenhancement accounts for close to two-thirds of the college wage premium.

The question of how information free riding problem in the labor market (which was the focus of[1]) may be alleviated or exacerbated by government policy is the focus of a joint paper with PeterNorman titled �Government-Mandated Discriminatory Policies: Theory and Evidence�[13, International Economic Review, 2006 ]. In this paper we analyzed perverse incentivee¤ects of government-mandated discriminatory policies. We study an economy with private andpublic sectors in which workers invest in imperfectly observable skills that are important to theprivate sector but not to the public sector. Government regulation allows native majority workersto be employed in the public sector with positive probability while excluding the minority from it.We show that even when the public sector o¤ers the highest wage rate, it is still possible that thediscriminated group is, on average, economically more successful. The reason is that the preferentialpolicy lowers the majority�s incentive to invest in imperfectly observable skills by exacerbating theinformational free riding problem in the private sector labor market. The widening Chinese/Malaywage gap in Malaysia since the adoption of its New Economic Policy in 1970, which is actuallyan economic policy that expanded and mandated discrimination against the Chinese and gavepreferential treatment to the Malays, is consistent with our model, but di¢ cult to rationalize withalternative explanations.

My recent research interest on the topic of economics of discrimination centers on racial pro�ling.In a joint paper with my student Shamena Anwar (now at the Heinz School of Public Policyat Carnegie Mellon) titled �An Alternative Test of Racial Prejudice in Motor VehicleSearches: Theory and Evidence� [12, American Economic Review, 2006 ], we proposea simple model of trooper behavior to design empirical tests for whether troopers of di¤erentraces are monolithic in their search behavior, and whether they exhibit relative racial prejudicein motor vehicle searches. The test we propose is a variant of the outcome test of Gary Becker.However, our proposed test of relative racial prejudice provides a partial solution to the well-knowninfra-marginality and omitted-variables problems associated with outcome tests. More speci�cally,the infra-marginality problem refers to the problem that the �marginal� is typically not equal to�average.�While the rigorous use of the outcome test relies on the comparison of �marginals,�typically only �averages� are observed. Our proposed test relies on the comparisons of averagesearch rates and search success rates against a given race of motorists by police o¢ cers of di¤erentraces. Because our test relies on the comparison of search rates and search success rates againstthe same race of motorists, it is not subject to the infra-marginality problem as long as o¢ cers ofdi¤erent races face the same distribution of motorists of that given race. We also propose resampling

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methods to deal with situations for which this assumption is not valid. We call our test �rank orderinvariance test�because the test will reject the null hypothesis that the troopers of di¤erent racesdo not exhibit relative racial prejudice when the ranking over o¢ cers of di¤erent races of the averagesearch rates and/or search success rates di¤er by the race of the motorists. When applying to aunique dataset from Florida, our tests soundly reject the hypothesis that troopers of di¤erent racesare monolithic in their search behavior, but the tests fail to reject the hypothesis that troopers ofdi¤erent races do not exhibit relative racial prejudice.

Future Research. I am working on a paper with Peter Arcidiacono and Esteban Aucejo titled�Does A¢ rmative Action Lead to Mismatch? A New Test and Evidence� [28]. Thepaper is related to the recent literature on the question of whether a¢ rmative action in admissionsto elite universities may have actually led to mismatch, i.e., whether minority students who enrolledat elite institutions because of a¢ rmative action policies might have performed better in the second-tier institutions. Instead of focusing on how to evaluate the counterfactual outcome of what theminorities who attended elite institutions might have performed if they had gone to the second-tierinstitutions, we instead take the view that minority students would enroll in elite institutions wheno¤ered an admission only if, in expectation, they believe they are better o¤ in doing so. Thus,a necessary condition for mismatch to occur is if somehow, the minority students do not havecomplete information about their potential outcome in the elite institutions. That is, we argue thata¢ rmative action may lead to mismatch only if the elite universities have private information aboutminority students�performance. We test for this necessary condition for mismatch e¤ect using datafrom Duke University�s Campus Life and Learning Survey. Both parametric and nonparametrictests for private information are conducted.

To summarize my own research and teaching on this topic, I am also in the process of prepar-ing a book manuscript tentatively titled �Economics of Discrimination: Theory, EmpiricalMethods and Evidence� [34]. It is almost �fty years since the publication of Becker�s classic�The Economics of Discrimination�(Chicago University Press 1957). The theoretical literature ofdiscrimination has developed tremendously in this time span. Theories of statistical discrimination,discrimination with endogenous group choices, discrimination as a result of inter-group interactionsall contribute to a better understanding of the disparate outcomes between groups. On the empir-ical side, many methods such as outcome tests, audit methods and their combination have beendeveloped and polished. Ample empirical evidence has accumulated. In teaching this materialin my Ph.D. public economics class at Yale and the undergraduate senior seminar �Economics ofPoverty and Discrimination�, I have found that students are very interested in this topic. I am inthe process of drafting a manuscript on this topic based on lecture notes I accumulated over yearsin teaching this topic.

2 Social Economics

Summary of Completed Research. This project attempts to bring sociological concepts intoeconomic analysis; and study the role of various important sociological constructs such as social

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norms, social status, culture and identity in economic performance from a rational-choice perspec-tive. My interest on this topic is heavily in�uenced by my Ph.D. advisors Andrew Postlewaiteand George Mailath who have studied the e¤ect of social norms in regulating non-market interac-tions. More recently I have also been interested in understanding the phenomenon of residentialsegregation, neighborhood emergence and transition, as well as risk sharing properties of socialnetworks.

My �rst attempt on this topic was an application of the discrimination with endogenous groupchoices model on social culture, reported in �Social Culture and Economic Performance�[1,American Economic Review, 2001 ] which I described earlier.

With Glenn C. Loury, I have worked on a paper titled �Toward an Economic Theory ofCollective Identity�[9, in Social Economics of Poverty, Chapter 2 ]. �Identity�and �col-lective identity�are important sociological concepts that have not been incorporated into economicanalysis until recently by George Akerlof and Rachel Kranton. They proposed models of iden-tity where an individual�s identity directly enters his or her utility function. We take a di¤erentapproach and ask the question of how such notion of identity-behavior mapping in Akerlof andKranton could be modelled in a rational-choice framework. In the process, we advance a novelchoice-theoretic model of �identity�based on the notions of categories and narratives. Identity, inour paper, is conceived as a matter of �re�exive perception�� how people understand themselves.Choosing an identity is equivalent to making a generalization about one�s past that highlights themost salient aspects of experience. When many individuals make a common choice in this regard,they embrace a collective identity which is dysfunctional if it is Pareto dominated by an alterna-tive self-classi�catory schema. Using a simple multi-stage risk sharing game, we explore conditionsunder which dysfunctional collective identities might be expected to emerge. We show that dif-ferent collective identities have di¤erent implications on the scope of risk sharing. A summary ofthis longer book chapter also appeared in �Dysfunctional Identities Can be Rational� [8,American Economic Review Papers &Proceedings, 2005 ].

My recent e¤ort in this research topic is the collaborated research titled �Separate whenEqual? Racial Inequality and Segregation� [26, NBER Working Paper 11507 ] withPatrick Bayer and Robert McMillan. In this paper, we question the standard intuition whichsuggests that residential segregation in the United States will decline when racial inequality narrows.Instead, we hypothesize that the opposite will occur. We note that middle-class black neighborhoodsare in short supply in many U.S. metropolitan areas, forcing highly educated blacks either to livein predominantly white high-socioeconomic status (SES) neighborhoods or in more black lower-SES neighborhoods. Increases in the proportion of highly educated blacks in a metropolitan areamay then lead to the emergence of new middle-class black neighborhoods, causing increases inresidential segregation. We formalize this mechanism using a simple model of residential choicethat permits endogenous neighborhood formation. Our primary empirical analysis, based on across-MSA evidence from the 2000 Census, indicates that this mechanism does indeed operate: as theproportion of highly educated blacks in an MSA increases, so the segregation of blacks at alleducation levels increases. Time-series evidence provides additional support for the hypothesis,showing that an increase in black educational attainment in a metropolitan area between 1990-2000

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signi�cantly increases segregation. We discuss in length how other seemingly plausible mechanismsdo not �t the evidence. Our analysis has important implications for the evolution of both residentialsegregation and racial socioeconomic inequality, drawing attention to a negative feedback loop likelyto inhibit reductions in segregation and racial inequality over time.

Future Research. I have several ideas for future research on this topic. On the issue of collectiveidentity, it will be important to further investigate the incentive e¤ects of collective identity. Thestarting point of this is the fact that in our previous papers [8, 9] we assumed that one�s experience(in the risk-sharing example, one�s income realizations each period) is not a¤ected by the adoptedcollective identity in the community. But if di¤erent collective identity implies di¤erent scopesof risk sharing, and to the extent that individuals can choose e¤ort that may a¤ect the incomerealizations, we may think that collective identities that are good at achieving ex post risk sharingmay be bad in providing ex ante e¤ort incentives. We show that in a world of incomplete incomeindicators (which was the reason for the role of collective identities in the �rst place), such intuitionis not necessarily true.

Another research idea is on the racial disparities in risk sharing properties of social networks.This idea, pursued jointly with Andrea Moro (at Vanderbilt University) and Giorgio Topa (at theResearch Department of the Federal Reserve Bank of New York), is motivated by the familiar imagesfrom the catastrophe caused by Hurricane Katrina where throngs of blacks, but rarely whites, wereseen in the shelters. Of course it is true that New Orleans had a very large percentage of blackpopulation, but there were still lots of whites, and especially poor whites. Katrina is a regionalcatastrophe, and it is a shock that many residents, unfortunately also all levels of governments,were not well prepared for. Our research question is, what explains the fact that whites, andeven those poor whites, are able to deal with this unforeseen negative shock better than blacks?We will focus on the social networks of individuals and families, and understand the sources ofthe racial disparities in the ability of their social networks to cope with negative shocks. Morespeci�cally my research hypothesis is that blacks were disproportionately represented in the shelterpopulation not only because they were poorer on average, but also because their social networkswere less diversi�ed geographically. The question is what are the sources of this racial disparity inrisk sharing properties of social networks.

A simple theoretical model of residential location choices for di¤erent members of the family.In words, the model can be described as follows. Imagine that there are two possible residentiallocations, A and B; and consider the location decisions of a family of two people. Each individual�sincome will depend on his/her individual characteristics and the common characteristics of thelocation he/she chooses to live in. If the two members of the family live in the same location,the bene�t is that they can tend to each other�s individual shock at a lower cost. For example,if one member or his/her children are sick, the other family member can help. The cost of livingin the same location is that, if the location is hit with a negative shock such as a hurricane (as inNew Orleans) or experiences a decline of the main industry (as in Detroit), then there is no one tohelp them. The costs and bene�ts for the family members to live in di¤erent cities are exactly theopposite. The cost is that they cannot tend to each other�s daily negative shocks; but the bene�t

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is that they can help each other out when one region, but not the other, is hit with a negativeshock. The theoretical part of the project aims to derive testable implications about how familieswith di¤erent means will optimally choose their residential location patterns with these trade-o¤sin mind.

Empirically, we would like to, �rst of all, document the racial di¤erences in social networks, interms of residential location and occupation. For this purpose we will be working with NationalSurvey of Families and Households (NSFH), Panel Study of Income Dynamics (PSID) and NationalLongitudinal Survey of Youth (1979 Cohort and their children supplement). We will also attemptto use recent regional data from the Federal government related to Katrina to do further analysison these issues. Second, we would like to test the implications of our theoretical model.

3 Assessing the Impact of Welfare Reform of 1996

Summary of Completed Research. This project originated with the puzzling observation thatwelfare reform of 1996, with its time limits and work requirement, was advertised by politicians asbeing compassionate to the recipients themselves. This is puzzling because in standard economicmodels, eligibility restrictions such as time limits and work requirement will necessarily make apotential welfare recipient worse o¤.

With Dan Silverman in a paper titled �On the Compassion of Time-Limited WelfarePrograms� [5, Journal of Public Economics, 2004 ], we started out by proposing a simplemodel of agents with present-biased preferences that may provide a rationale for the claim. We �rstidentify four types of outcome that describe the behavior of a present-biased agent in the absence oftime limits. We then show that the behavioral consequences of time limits are contingent on whichoutcome characterizes the agent�s behavior in the absence of time limits. We show that under someconditions the imposition of time limits may improve the wellbeing of welfare recipients evaluatedboth in terms of long-run, time-consistent utility and the period-one self�s utility. This bene�t oftime limits may come either from allowing the welfare eligible to start working earlier than theyotherwise would or, contrary to the intent of the reforms, from allowing them to postpone working.

We were not satis�ed to merely have a possible theoretical rationale for the possible compassionof time-limited welfare reform; we want to know the empirical relevance of such theories. For thatpurpose, in a companion paper �Time Inconsistency and Welfare Program Participation:Evidence from the NLSY� [19, forthcoming, International Economic Review ], we em-pirically implement a dynamic structural model of labor supply and welfare program participationfor agents with potentially time-inconsistent preferences. Using panel data on the choices of singlewomen with children from the NLSY 1979, we provide estimates of the degree of time-inconsistency,and of its in�uence on the welfare take-up decision. With these estimates, we conduct counter-factual experiments to quantify the utility loss stemming from the inability to commit to futuredecisions, and the potential utility gains from commitment mechanisms such as welfare time limitsand work requirements.

My knowledge in the institutional details of the US welfare system was signi�cantly boosted inmy joint work with Michael Keane on the paper �Assessing the Impact of Welfare Reform

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on Single Mothers� [6, Brookings Papers on Economic Activity, 2004 ]. The main goalof this paper is to ascertain the contributions of various components of welfare reform, and othercontemporaneous economic and policy changes, to the huge decline in welfare participation andincrease in work among single mothers from 1993-2002. To this end, we have constructed an exten-sive data set that characterizes changes in welfare policy, as well as other important determinantsof welfare participation and work, at the State level for the 1980-2002 period. Using these datatogether with the individual level data from the Current Population Survey, we develop a modelthat rather successfully explains both levels and changes in welfare and work participation ratesacross States, time, and various demographic groups, for the whole 1980-2002 period. We then usethe estimates of the model and simulation to obtain estimates of the contributions of various policyand economic variables to the labor supply of single mothers.

Future Research. Two projects that I am currently pursuing are related to the empirical re-search reported in �Time Inconsistency and Welfare Program Participation: Evidencefrom the NLSY� [19, forthcoming, International Economic Review ]. The �rst project,titled �Identi�cation and Estimation of Dynamic Discrete Choice Models with Hyper-bolic Discounting Time Preferences, with an Application to Preventive Care Deci-sions� [31] (with my Duke Ph.D. student Yang Wang), carefully takes on the issue of identi�ca-tion of dynamic discrete choice models with hyperbolic discounting preferences. We show formally,using Hotz-Miller�s conditional choice probability (CCP) approach, how the present bias factor,standard discounting factor, and naivety factors are or are not identi�ed from individual�s choicedata. We apply our identi�cation results to the setting of preventive care decisions and ask theextent to which hyperbolic discounting preferences might have contributed to the under-utilizationof preventive care.

The second project, titled �An Alternative Test of Hyperbolic Discounting Based onTime Aggregation� [33], recognizes that in all existing applications of hyperbolic discountingpreferences, a rather arbitrary assumption has to be made about the length of a decision period.Whether it is a year or a month or a week, it is often assumed for convenience or due to restric-tion of data. The assumption about the length of a decision period becomes more important withhyperbolic-discounting decision makers because higher rate of discounting is assumed between nowand the next period, but not between periods thereafter. I show that the sensitivity of the esti-mates of discounting factors to time aggregation may be used as an alternative test of hyperbolicdiscounting. That is, if the true data-generating process (DGP) is exponential discounting, thentime aggregation of the data would not a¤ect our estimate of the discount factor; but if the trueDGP is hyperbolic discounting, then discount factor estimates are sensitive of the time aggregationof the data.

4 Applications of Psychology in Economics

Summary of Completed Research. My interest in this topic initiates in my research on thecompassion of time-limited welfare programs described above. That project brought me to the

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realm of behavioral economics. My general view on this topic is that economists should not dismisso¤-hand robust behavioral anomalies. Incorporating such behavioral biases into economic analysisdoes not at all mean the rejection of rationality; rather, it implies rationality subject to moreconstraints, or rationality with respect to non-standard preferences or technologies.

My research in this vein includes two research papers described above with Dan Silverman ontime inconsistent preferences and welfare participation, namely, �On the Compassion of Time-Limited Welfare Programs� [5, JPubE 2004 ] and Inconsistency and Welfare ProgramParticipation: Evidence from the NLSY� [19, forthcoming, International EconomicReview ].

We also jointly worked on a third paper titled �Distinguishing Between Cognitive Biases:Beliefs vs. Time Discounting in Welfare Program Participation� [10, in BehavioralPublic Finance, Chapter 3 ]. In that paper, we start to worry about how di¤erent formsof psychological biases can be empirically distinguished. We consider this to be an importantchallenge for behavioral economists as they introduce more and more cognitive biases into economicmodels. We present a simple model of welfare program participation that nests two well-documentedcognitive biases that economists have recently incorporated into their analyses: projection bias andpresent bias. We argue that agents with present bias and projection bias will exhibit di¤erentattitude toward time limits and other welfare eligibility restrictions, both before and after suchrestrictions are implemented. To the extent that such attitudes can be accurately elicited andmeasured, we argue that we can use attitudinal data to distinguish present bias and projection biasmodels.

With Giuseppe Moscarini, I have examined the implications of overcon�dence on �rms�optimalwage setting policies in a paper titled �Morale Hazard�[7, Journal of Monetary Economics,2005 ]. This paper provides a new and fully rational theory of fairness in wage setting, based onthe notion that workers may be overcon�dent about their own ability. (Self overcon�dence of thepossession of desirable traits is indeed a very robust psychological �nding.) In that model, weassume that a worker is uncertain about his own ability, which a¤ects the marginal productivityof his e¤ort. As a result, a worker�s e¤ort responds to wage incentives both directly and indirectlythrough its e¤ect on his perception of his own ability, which we call his �morale�. If the �rm receivesnoisy and private information about worker�s ability through performance evaluations for example,then any wage o¤ers by the �rm play both the direct allocative role as well as a signaling role.Wage di¤erentiation reveals who did and did not do well in the �rm�s evaluation, thus a¤ectingthe individual morale of each employee. The resulting decline in the e¤ort of some workers, dueto their discouragement when receiving a lower wage (or a wage cut), may more than o¤set theencouragement of the others, and be detrimental to the �rm overall.

In joint work with Michael Keane, Ahmed Khwaja, Martin Salm and Dan Silverman, titled�Testing the Mechanisms of Structural Models: The Case of the Mickey Mantle Ef-fect�[8, American Economic Review Papers & Proceedings, 2007 ], we argued that testingthe latent mechanisms of structural models, independent of full blown structural estimation, canbe a valuable model validation tool. This validation perspective has the bene�t that it can poten-tially rationalize much of the descriptive or IV-based empirical work being done in economics as

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contributing to the structural research program. We illustrate this validation idea by examiningthe evidence for the �Mantle e¤ect�, which refers to the e¤ect of beliefs about future health on thedemand for health investment and have been found to play a key role in some structural model ofinvestment in health. We �nd clear evidence for the e¤ect with respect to smoking, but mixed evi-dence with respect to heavy drinking and high BMI. Our �ndings about how more optimistic beliefsabout future health may positively a¤ect health investment have an interesting policy implication.Currently in the US and elsewhere, the government information campaign against smoking anddrinking has mainly focused on the negative consequences, both on health and on life in general, ofsuch actions; our �nding suggests a useful complementary information campaign that emphasizesto the viewers that the medical technology has improved so much that one can actually live a quitelong life. Once viewers are convinced that they are likely to live long, they would choose to smokeand drink less!

Future Research. My current research projects related to this topic are already described in Sec-tion 3, namely, �Identi�cation and Estimation of Dynamic Discrete Choice Models withHyperbolic Discounting Time Preferences, with an Application to Preventive CareDecisions� [31] (with Yang Wang) and �An Alternative Test of Hyperbolic DiscountingBased on Time Aggregation� [33].

5 Multi-dimensional Private Information in Auctions, Public Goodsand Markets

Summary of Completed Research. Issues of multi-dimensional private information appear inseveral of my research papers. My focus in this research topic is on how multidimensionality a¤ectsthe equilibrium of standard mechanism, and how it a¤ects the optimal mechanisms, and how ita¤ects the market equilibrium.

It started in my joint work with Sergio Parreiras (currently at UNC-Chapel Hill) when wewere both still Ph.D. students at the University of Pennsylvania in a project tilted �Auctions withFinancially Constrained Bidders.�Two publications came out of this project. The �rst is titled�Equilibrium of A¢ liated Value Second Price Auctions with Financially ConstrainedBidders: The Two-Bidder Case� [2, Games and Economic Behavior, 2002 ]. In thatpaper, we study a¢ liated value second price auctions with two �nancially constrained bidders. Inthis auction environment bidders have two dimensions of private information, their signal for thevalue of the object and their bidding budget. We prove the existence of a symmetric equilibriumunder quite general conditions and provide comparative static results. In the second paper is tilted�On the Failure of the Linkage Principle with Financially Constrained Bidders,� [3,Journal of Economic Theory, 2003 ], we provide a class of examples of two-bidder commonvalue second price auctions in which bidders may be �nancially constrained and the seller hasaccess to information about the common value. We show that the seller�s expected revenue undera revelation policy may be lower than that under a concealing policy. The intuition for the failure

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of the linkage principle is as follows. In the presence of �nancial constraints, the bidders�upwardresponse in their bids to the seller�s good signals is limited by their �nancial constraints, while theirdownward response to bad signals is not.

With Stephen Morris, I wrote a paper titled �Multidimensional Private Value Auctions�[11, Journal of Economic Theory, 2006 ] in which we consider parametric examples of sym-metric two-bidder private value auctions in which each bidder observes her own private valuationas well as noisy signals about her opponent�s private valuation. Thus in our set up, bidders havemulti-dimensional private information in the sense that they both possess private information abouttheir own valuation for the object (which we call �valuation type�and is the same as the standardauction models) and private information about signals about their opponents�value (which we call�information type�and it does not appear in standard auction models). This provides the simplestframework to examine the e¤ect of higher-order beliefs on the equilibrium of standard auctions.We show that, in such environments,the revenue equivalence between the �rst and second priceauctions breaks down and there is no de�nite revenue ranking; while the second price auction isalways e¢ cient allocatively, the �rst price auction may be ine¢ cient; equilibria may fail to existfor the �rst price auction. We also show that auction mechanisms provide di¤erent incentives forbidders to acquire costly information about opponents�valuation.

The work with Stephen Morris led to a collaboration with David J. Cooper at Case Western Re-serve University on an experimental economics project titled �Understanding Overbidding inSecond-Price Auctions: An Experimental Investigation� [18, forthcoming, EconomicJournal ]. It is well-known that overbidding is prevalent and persistent in lab experiments. Sur-prisingly economists have rather limited empirical understanding of why overbidding occurs in SPA.The key idea of our paper is the following. Suppose that bidders are either given for free, or areallowed to purchase, noisy signals about their opponents�value. Even though in standard modelsof SPA, such information about opponents�value theoretically has no strategic use, it provides uswith a convenient instrument to change bidders�perception about the �strength�(i.e. the value) oftheir opponent. This empirical relationship between the incidence and magnitude of overbiddingand bidders�perception of the strength of their opponent provides the key to understand whetheroverbidding in second price auctions are driven by �spite" motives or by the �joy of winning.�Ourexperimental data show that bidders are much more likely to overbid, though less likely to submitlarge overbid, when they perceive their rivals to have similar values as their own. We argue that thisempirical relationship is more consistent with a modi�ed �joy of winning�hypothesis than with the�spite�hypothesis. However, neither of the non-standard preference explanations are able to fullyexplain all aspects of the experimental data. We �nd clear evidence of learning both in avoidingcostly overbidding and in subjects�choices to purchase costly information, thus lending support forthe role of bounded rationality. We also �nd that bidder heterogeneity plays an important role inexplaining their bidding behavior.

I have continued the investigation of the e¤ect of multi-dimensional private information insettings other than auctions. The next topic of interest is the provision of multiple excludable publicgoods. This project is joint with Peter Norman and it resulted in a line of research on bundling thathas eventually gone beyond public goods. Before describing the details of the papers in this project,

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let me state up-front that mechanism design for multi-dimensional private information environmentis a very di¢ cult problem whose complete solution will probably require new mathematical tools.Facing such a technical barrier, three di¤erent approaches, none of which is perfect, are taken inour research. The �rst approach is simply to do with simple parametric family of examples; thesecond approach takes the number of goods to in�nity and appeal to law of large numbers; and thethird approach focuses on local deviations instead of global analysis of the optimal mechanism.

In �Optimal Provision of Multiple Excludable Public Goods� [21, Cowles Founda-tion Discusion Paper 1441R], we took the �rst approach. We study the optimal provisionmechanism for multiple excludable public goods when agents�valuations are private information.We provide some partial characterizations for the optimal mechanism that signi�cantly reduce theset of mechanisms that we need to consider, but are unable to characterize the optimal mechanismfor general environments. However, we are able to completely characterize the optimal mechanismfor a parametric class of problems with binary valuations. We show in that parametric family ofexamples that the optimal mechanism involves bundling. Bundling alleviates the free riding prob-lem in large economies in two ways: �rst, it can increase the asymptotic provision probability ofsocially e¢ cient public goods from zero to one; second, it decreases the extent of use exclusions.

In �Overcoming Participation Constraints�[25, Cowles Foundation Discussion Pa-per 1511R], we took the second approach and ask whether any almost e¢ cient mechanism isfeasible when the number of goods go to in�nity. This paper is most closely related to a recentEconometrica paper by Matthew O. Jackson and Hugo Sonnenschein titled �Overcoming Incen-tive Constraints by Linking Decisions.�In that paper, Jackson and Sonnenschein showed that theutility costs associated with incentive constraints become negligible when the decision problem islinked with a large number of independent replicas of itself under the linking mechanism in whichagents must budget their representations of preferences so that the frequency of preferences acrossproblems mirrors the underlying distribution of preferences, and then arguing that agents�incen-tives are to satisfy their budget by being as truthful as possible. The nice feature of Jackson andSonnenschein�s result is that the linking mechanism works under non-transferable utility environ-ments. Our paper complements Jackson and Sonnenschein�s analysis because it departs from theirin two dimensions. The �rst di¤erence is that we restrict ourselves only to transferable utilityenvironments, which is obviously a shortcoming. The second di¤erence, however, is a relaxation:we consider a large number of independent but unrelated issues. We provide regularity conditionsunder which a Groves mechanism amended with a veto game implements an e¢ cient outcomewith probability arbitrarily close to one, and satis�es interim participation, incentive and resourceconstraints.

The paper �To Bundle or Not To Bundle� [15, Rand Journal of Economics, 2006 ]is about the pro�t-maximizing bundling decisions for a monopolist seller who sells �nite numberof private goods. The idea in this paper grew out of the public good provision research reportedabove where we �rst discovered the usefulness of the statistical concept called �peakedness.�Wefocus on the �nite product case because for the in�nite case research by Mark Armstrong hasshown that the monopolist can extract all the surplus by exploiting the laws of large numbers. Ourknowledge about whether bundle increases pro�ts in the case of �nite number of goods is limited

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to a few numerical examples by Richard Schmalensee. In this paper, we obtain a rather intuitivecharacterization for when a multi-product monopolist should bundle and when it should sell thegoods separately in order to maximize its pro�ts. To some extent this con�rms (mainly) numericalresults in Schmalensee�s studies, namely, the higher the marginal cost and the lower is the meanvaluation, the less likely that bundling dominates separate sales. When limiting our comparison topure bundling and separate sales, we are able to highlight a clear intuition for what happens whentwo or more goods are sold as a bundle. The key e¤ect driving all the results is that the variancein the relevant willingness to pay is reduced when goods are bundled. In our paper we provide apartial characterization for when this reduction in variance is bene�cial for the monopolist, andwhen it is not.

In �Toward an E¢ ciency Rationale for the Public Provision of Private Goods� [23,NBER Working Paper 13827 ], we pursue a third strategy described above, namely, local deviationsstrategy, to deal with multi-dimensional mechanism design problem. Speci�cally, we show thatpublic provision of private goods may be justi�ed on pure e¢ ciency grounds in an environmentwhere individuals consume both public and private goods. The government�s involvement in theprovision of private goods provides it with information about individuals�private good purchasesthat facilitates more e¢ cient revenue extraction for the provision of public goods. We show thatpublic provision of the private good improves economic e¢ ciency under a condition that is alwaysful�lled under stochastic independence and satis�ed for an open set of joint distributions. Our modelis an example where there is e¢ ciency loss from separating revenue and expenditure problems inpublic �nance, and is therefore of more general interest for the study of optimal taxation.

Multi-dimensional private information also appears somewhat surprisingly in an empirical paper(joint with Michael Keane and Dan Silverman) titled �Sources of Advantageous Selection:Evidence from the Medigap Insurance Market� [17, Journal of Political Economy,2008 ]. This paper is closely related to the empirical implications of the classical theoretical modelsof insurance. These models assume that potential insurance buyers have one-dimensional privateinformation regarding their risk type, and they choose from a menu of contracts, specifying theprice and amount of coverage, the one best suited to their type. A testable empirical predictionof these models is the so-called �positive correlation property,� namely, there must be a positivecorrelation between insurance coverage and ex post realizations of loss. This property is implied bythe standard insurance model of one-dimensional private information with or without moral hazard.However, recent empirical papers fail to �nd empirical support for the positive correlation propertyin a variety of important insurance markets, including life insurance, automobile insurance andhealth insurance markets. These empirical �ndings have point toward the possibility of selectionbased on multi-dimensional private information, and the existing literature has focused on riskaversion as the leading suspect for other dimensions of private information that may a¤ect thedemand for insurance and cause the positive correlation property to fail. However, so far theliterature has not provided direct evidence to support this conjecture. Our paper �lls this gap.We study the advantageous selection phenomenon using data from the Medicare supplemental or�Medigap� insurance market. We show that the Medigap insurance market is characterized byadvantageous selection: conditional on the determinants of price, those who purchase supplemental

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insurance tend to be healthier than those who do not. More importantly, we go beyond priorresearch to investigate several potential sources of this advantageous selection. We provide directevidence that risk aversion, can explain a substantial portion of the observed advantageous selectionin the Medigap market. But that is not the whole story. We �nd that additional important sourcesof advantageous selection include selection based on education, income, longevity expectations and�nancial planning horizons, along with other measures not typically included in economic models,such as cognition and numeracy. Once we condition on all these variables, we �nd that individualswith higher expected medical expenditures are indeed more likely to purchase Medigap insurance.

Future Research. The empirical results reported in �Sources of Advantageous Selection:Evidence from the Medigap Insurance Market� [17, Journal of Political Economy,2008 ] point toward several interesting theoretical questions. The �rst question is the relationshipbetween selection based on multi-dimensional private information and the equilibrium size of themarket. Consider two insurance markets, say life insurance and annuity insurance markets. In bothinsurance markets suppose that individuals choose to buy more insurance if they have higher risks(mortality risk for life insurance and longevity risk for annuity insurance) and if they have highervalues of another variable (I am deliberately vague about what is, but it is safe to assumeit denotes risk aversion). Suppose that in one market (say life insurance market) is negativelycorrelated with risk (i.e. mortality risk), but in another market (say annuity insurance market), is positively correlated with risk (i.e. longevity risk). What can be said about the equilibrium sizeof the markets? Would it always be the case that the equilibrium market size will be higher in the�rst market where acts as a source of advantageous selection to alleviate the adverse selectiondue to selection based on risk? What about e¢ ciency? These questions are important for a betterunderstanding of the implications of multi-dimensional private information on market equilibria.In this proposed research I intend to examine Akerlof�s lemons market which is a much simplersetting that allows me to abstract from the screenings by the sellers.

6 Empirical and Theoretical Analysis of Asymmetric Informationand Externalities in Markets

Summary of Completed Research. The research on advantageous selection in Medigap insur-ance market reported in �Sources of Advantageous Selection: Evidence from the MedigapInsurance Market� [17, Journal of Political Economy, 2008 ] further spurred a larger andnew agenda of empirically analyzing the relevance and importance of di¤erent forms of asymmetricinformation and dynamic ine¢ ciency in a variety of markets.

In joint work with Alessandro Gavazza titled �Dynamic Ine¢ ciencies in Employment-Based Health Insurance System: Theory and Evidence� [24, NBER Working Paper13371 ], we attempt to empirically examine the dynamic ine¢ ciencies under an employer-providedhealth insurance system. As is well known, most people in the United States receive health insurancecoverage through their employers. An important feature of health is that it is a form of general

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human capital : a healthy worker is presumably more productive on her current job as well as otherpotential jobs. The standard Beckerian competitive labor market models predict that generalhuman capital would be provided at an e¢ cient level, paid for by the employers. However, frictionsin the labor market may lead to ine¢ ciency in the provision of general human capital. We thusinvestigate how the employment-based health insurance system in the U.S. a¤ects individuals�life-cycle health-care decisions taking the viewpoint that health is a form of human capital thata¤ects workers�productivities on the job, and derive implications of employees� turnover on theincentives to undertake health investment. Our model suggests that employee turnovers lead todynamic ine¢ ciencies in health investment, and particularly, it suggests that employment-basedhealth insurance system in the U.S. might lead to an ine¢ cient low level of individual health duringindividuals�working ages. Moreover, we show that under-investment in health is positively relatedto the turnover rate of the workers� industry and increases medical expenditure in retirement.We provide empirical evidence for the predictions of the model using two data sets, the MedicalExpenditure Panel Survey (MEPS) and the Health and Retirement Study (HRS). In MEPS, we �ndthat employers in industries with high turnover rates are much less likely to o¤er health insuranceto their workers. When employers o¤er health insurance, the contracts have higher deductibles andemployers�contribution to the insurance premium is lower in high turnover industries. Moreover,workers in high turnover industries have lower medical expenditure and undertake less preventivecare. In HRS, instead we �nd that individuals who were employed in high turnover industrieshave higher medical expenditure when retired. The magnitude of our estimates suggests signi�cantdegree of intertemporal ine¢ ciencies in health investment in the U.S. as a result of the employment-based health insurance system. We also evaluate and cast doubt on alternative explanations.

In a joint paper with Hongbin Cai and Yuyu Chen (both at Peking University) titled �Ob-servational Learning: Evidence from a Randomized Natural Field Experiment� [20,Revised and Resubmitted, American Economic Review ], we note that despite the intuitiveappeal of observational learning (and the large theoretical literature on herding and informationcascades), to empirically establish that an individual�s decisions are a¤ected by the observationof others� choices because of its informational content is complicated by at least two plausibleconfounding mechanisms. The �rst is the saliency e¤ect. Observing others�choices could makethose choices more salient than the alternatives. When consumers are not aware of their entirechoice set, the di¤erential salience of the elements in the choice set may a¤ect the decision-maker�schoices. As a result, a consumer may follow others�choices because they are more salient. Thesecond confounding mechanism is the conformity e¤ect, that is, individuals may adopt the observedchoices of others because they want to conform. In this paper we report results from a randomizednatural �eld experiment conducted in a large chain restaurants in Beijing, China, to distinguishthe observational learning e¤ect from the saliency e¤ect and moreover quantitatively evaluate themagnitude of the e¤ect of observational learning on consumer demand. We �nd that, when cus-tomers are given ranking information of the �ve most popular dishes, the demand for those dishesincreases by 13 to 20 percent. We do not �nd a signi�cant saliency e¤ect. We also �nd modestevidence that the observational learning e¤ects are stronger among infrequent customers, and thatdining satisfaction is increased when customers are presented with the information of the top �ve

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dishes, but not when presented with only names of some sample dishes.

Future Research. I am currently engaged in a project, tentatively titled �How Does the Sec-ondary Life Insurance Market A¤ect the Primary Market?� [32] (joint with my DukePh.D. student Edward Kung), in which we theoretically investigate how the emergency of a sec-ondary life insurance market would impact the contracts being o¤ered in equilibrium by primarylife insurance companies, and how it a¤ects the consumer welfare.

In another ongoing project joint with Panle Jia and Paul Schrimpf (both at MIT), titled �Esti-mating the Consumer Bene�ts from Retail Agglomeration�[30], we estimate a structuralmodel of consumer shopping location choices to investigate how shopping malls, which starteddominating the retail sector in the U.S. from 1950s, have a¤ected consumer welfare. In particular,we empirically investigate the sources of retail agglomeration e¤ects.

I am also interested in continuing the investigation of the selections in the Medigap insurancemarket. In �Sources of Advantageous Selection: Evidence from the Medigap InsuranceMarket� [17, Journal of Political Economy, 2008 ], we only exploited the cross-sectionalvariation in �Total Medical Expenditure�by Medigap status in [17] and did not examine the possiblechanges of Medigap coverage status over an individual�s lifetime. This has important implicationsbecause the price control we used (age polynomial, gender and State of residence) is no longeraccurate if an individual�s Medigap coverage ever lapsed. In that case, insurance companies maysubsequently impose both coverage and pricing rules di¤erent from those which apply during theopen enrollment period. Thus our Medigap price controls (age polynomial, gender and state ofresidence) do not re�ect the prices faced by those who let their coverage lapse. In this case, our�nding that expenditures for those with Medigap are about $4,000 less than for those without may,to some extent, re�ect the following possibility: those without Medigap are less healthy becausetheir coverage previously lapsed and, moreover, are currently priced out of Medigap due to theirpoor health.

It may be argued that if this mechanism is in�uencing our estimates its e¤ect is consistent withour interpretation of advantageous selection. Consider the group of individuals without Medigapwho are unhealthy and priced out of Medigap because of a lapse in their coverage. One possibilityis that they never purchased a Medigap policy in the �rst place. This would be consistent withour interpretation of advantageous selection: less healthy individuals are less likely to purchaseMedigap during open enrollment (when everyone is approximately the same age and thus state andgender controls alone would be su¢ cient to control for Medigap pricing). The second possibility isthat those without Medigap did purchase a policy during open enrollment, but subsequently failedto renew. The standard adverse selection model with one dimensional private information aboutrisk suggests that less healthy people should be more likely to renew, just as they should be morelikely to enroll in the �rst place. If, in contrast, less healthy people are less likely to renew, this isarguably also a form of advantageous selection.

We would like to investigate in detail the relative importance of open enrollment period andsubsequent renewal in the overall advantageous selection we documented earlier. Equally impor-tantly, we would like to know whether the sources of advantageous selection in the open enrollment

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period and in the renewals are di¤erent. We plan to use the rotating panels available in MCBSand HRS to address these questions by following individuals overtime from when they just becomeeligible for Medicare at age 65. Another goal of the project is to explain the age pattern of themagnitude of advantageous selection.

7 Development Economics

This is a new emerging area of my research interest. In a joint paper with Hongbin Cai (PekingUniversity) and Colin Xu (World Bank) titled �Eat, Drink, Firms and Government: AnInvestigation of Corruption From Entertainment and Travel Costs of Chinese Firms�[22, NBER Working Paper 11592 ], we investigate the institutional determinants of corrup-tion and its e¤ects on �rm performance using a unique source of information ��rms�expenses onEntertainment and Travel Costs on their accounting book. As some background, Entertainmentand Travel Costs (ETC) is an expenditure item in standard accounting books of �rms in Chinathat amount to about 20% of total wage bills in a sample of 3470 Chinese �rms. Using a detaileddataset of these �rms, we analyze the composition of ETC and e¤ects of ETC on �rm performance.We develop a simple model of managerial decisions on the amount of entertainment expendituresto spend on strengthening relational capital with suppliers and clients, bribing government o¢ cials,and private consumption. This model allows us to identify components of ETC by examining howthey should respond to di¤erent environmental variables. We �nd strong evidence that �rms�ETCcompromise a mix that includes expenditures on government o¢ cials both as �grease money�and�protection money,�expenditures to build relational capital with suppliers and clients, and man-agerial private consumption. Overall, ETC have signi�cantly negative e¤ects on �rm performance,but their negative e¤ects can be much less pronounced when their marginal returns are higher,particularly, under severe government expropriation and when the quality of government serviceis very poor. This research has been pro�led in mainstream print media in Singapore (The StraitTimes) and in Hong Kong (South China Morning Post).

I also have an ongoing project with Roger Ke (MIT) and Li-An Zhou (Peking University)titled �The Insurance Role of ROSCAs in the Present of Credit Markets: Theory andEvidence�[29]. ROSCAS are an important informal �nancial institution in developing countries.In a typical ROSCA, a group of individuals, mostly connected in certain social network, commit tocontributing a given sum of money at each of equally-spaced dates to form a pot, and then the potwill be allotted through certain mechanism to each of members in turn. There are two prevalentmechanisms to determine the order in which these individuals access the pot: random lottery andbidding. The seminal analysis by Timothy Besley, Stephen Coate and Glenn Loury modelled therole of ROSCAS as a Pareto improving institution in the context of saving to purchase expensivedurable goods. The subsequent literature has extended their model in several important directions,but none has examined the role of ROSCAS in the presence of formal credit markets. Indeed ina unique data set of a large number of bidding ROSCAS from China (City of Wenzhou, ZhejiangProvince), Rongzhu Ke (currently a Ph.D. student at MIT) and I found two interesting features.First, many of the ROSCAS participants actually have access to formal credit market and in fact

17

some of them are borrowing money from the formal credit market in order to ful�l their obligationsin the ROSCAS. Second, the implicit interests for these ROSCAS typically are non-monotonic withrespect to time, which is at odds with the predictions from Besley, Coate and Loury�s model. Theseempirical observations motivate our theoretical investigation of a model of ROSCAS in the presenceof formal credit markets and focus on its role of mutual insurance.

Another ongoing project with Hongbin Cai, Yuyu Chen and Li-An Zhou (all at Peking Uni-versity) is tentatively titled ��Flying Pigs�: Evidence on the Perils of Incentives from aRandomized Natural Field Experiment� [27]. Our natural �eld experiment took advantageof an opportunity in October 2007 where insurance products subsidized by the Chinese governmentwere introduced to farmers who raise sows (mother pigs). We randomly provided incentive schemesto insurance agents assigned to each villages. A total of about 500 villages (and thus insuranceagents) participated in our experiment. There are four incentive treatment. In the �rst treatmentgroup, we provided the agents with a �at subsidy of 50 Yuan for participating in our study; inthe second treatment group, we provided the agents with a �at subsidy of 20 Yuan and o¤ered 2additional Yuan for each additional sow they were able to insure; in the third treatment group, weprovided the agents with a �at subsidy of 20 Yuan and o¤ered 4 additional Yuan for each addi-tional sows they insured; and lastly in the fourth treatment group, we o¤ered the agents with a �atsubsidy of 30 Yuan and promised an additional 30 Yuan subsidy if they were able to insure morethan 90% of the sows in their village. We have the actual number of sows in each village. We thenobserved the total number of insured sows from all the villages, as well as the subsequent deathsfor the insured sows. We �nd that insurance agents facing steeper incentives (groups 2 and 3, andto some degree group 4 as well) do insure more pigs, but we have hard evidence that some of thepigs that they insured are actually �fake�! The key evidence is in the death rate for the insuredpigs.

8 Teaching/Research Alignment

Now I describe how I have aligned my research with my teaching over the years. To summarize,I teach a lot of what my own research has covered, but also like to teach topics that I have not yetdone active researches, and often use teaching as a springboard to move into these research areas.

Graduate Public Economics Course. In graduate public economics course I taught severalyears at Yale University, I have covered topics such as Economics of Discrimination, Welfare Reformand Public Good Provision (see attached course syllabus). These topics, as I described above, arepart of my active research areas.

Graduate Module on �Social Insurance.� In Spring 2008 I taught a graduate 7-week moduleon �Social Insurance�where I included topics that I am familiar with from my own research, forexample, tests of asymmetric information and dynamic externalities in health insurance market,but also included topics that I am interested in doing research on, such as unemployment insuranceand life insurance markets. Teaching these papers have led me to some new research projects such

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as a project titled �How Does the Secondary Life Insurance Market A¤ect the PrimaryMarket?� [32] (joint with my Duke Ph.D. student Edward Kung) which I described above.

Undergraduate Senior Seminar on Poverty and Discrimination. Taking advantage of myextensive research on the economics of discrimination, this senior seminar covers discussions aboutmany important conceptual points, as well as a lot of discussions about empirical applications. Iam using the prepared teaching material as the basis of the book manuscript titled �Economicsof Discrimination: Theory, Empirical Methods and Evidence� [34].

Undergraduate Senior Seminar on Behavioral Economics. At Yale University, I alsotaught an undergraduate senior seminar on behavioral economics that aligns my research inter-est on the applications of psychology to economics.

References

[1] Fang, Hanming. �Social Culture and Economic Performance.�American Economic Review,September 2001: 934-947.

[2] Fang, Hanming and Sergio O. Parreiras. �Equilibrium of A¢ liated Value Second Price Auc-tions with Financially Constrained Bidders: The Two-Bidder Case.�Games and EconomicBehavior, May 2002, 215-236.

[3] Fang, Hanming and Sergio O. Parreiras. �On the Failure of the Linkage Principle with Finan-cially Constrained Bidders.�Journal of Economic Theory, June 2003, 374-392.

[4] Fang, Hanming. �Lottery versus All-Pay Auction Models of Lobbying.�Public Choice, Sep-tember 2002, 351�371.

[5] Fang, Hanming and Dan Silverman. �On the Compassion of the Time-Limited Welfare Pro-grams.�Journal of Public Economics, Volume 88, Issues 7-8 , July 2004, 1445-1470.

[6] Fang, Hanming and Michael P. Keane. �Assessing the Impact of Welfare Reform on SingleMothers.�Brookings Papers on Economic Activity, 2004, Volume 1, 1-116.

[7] Fang, Hanming and Giuseppe Moscarini. �Morale Hazard.�Journal of Monetary Economics,May 2005, Vol. 52, 749-777.

[8] Fang, Hanming and Glenn C. Loury. � �Dysfunctional Identities�Can Be Rational.�AmericanEconomic Review Papers and Proceedings, May 2005: 104-111.

[9] Fang, Hanming and Glenn C. Loury. �Toward an Economic Theory of Dysfunctional Identity,�in The Social Economics of Poverty: On Identities, Groups, Communities and Networks,Edited by Christopher B. Barrett, London: Routledge, 2005, pp. 12-55.

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[10] Fang, Hanming and Dan Silverman. �Distinguishing Between Cognitive Biases: Belief vs. TimeDiscounting in Welfare Program Participation,� in Behavioral Public Finance, edited by JoelSlemrod and Edward McCa¤ery, Russell Sage Foundation, pp. 47-81.

[11] Fang, Hanming and Stephen Morris. �Multidimensional Private Value Auctions.�Journal ofEconomic Theory, January 2006, Vol. 126, 1-30.

[12] Anwar, Shamena and Hanming Fang. �An Alternative Test of Racial Prejudice in MotorVehicle Searches: Theory and Evidence.�American Economic Review, March 2006, Vol. 96,No. 1, 127-151.

[13] Fang, Hanming and Peter Norman. �Government-Mandated Discriminatory Policies: Theoryand Evidence.�International Economic Review, March 2006.

[14] Fang, Hanming. �Disentangling the College Wage Premium: Estimating a Model with Endoge-nous Education Choices.�International Economic Review, Vol. 47, No. 4, 1151-1185, November2006.

[15] Fang, Hanming and Peter Norman. �To Bundle or Not To Bundle.�Rand Journal of Eco-nomics.Winter 2006, Vol. 37, No. 4, 946-963.

[16] Fang, Hanming, Michael Keane, Ahmed Khwaja, Martin Salm and Dan Silverman. �Testingthe Mechanisms of Structural Models: The Case of the Mickey Mantle E¤ect.� AmericanEconomic Review (Papers and Proceedings), May 2007, 53-59.

[17] Fang, Hanming, Michael Keane and Dan Silverman. �Sources of Advantageous Selection: Ev-idence from the Medigap Insurance Market.� Journal of Political Economy, Vol. 116, No. 2,April 2008, 303-350.

[18] Cooper, David J. and Hanming Fang. �Understanding Overbidding in Second Price Auctions:An Experimental Study.� forthcoming, Economic Journal.

[19] Fang, Hanming and Dan Silverman. �Time Inconsistency and Welfare Program Participation:Evidence from the NLSY.� forthcoming, International Economic Review.

[20] Cai, Hongbin, Yuyu Chen and Hanming Fang. �Observational Learning: Evidence from a Ran-domized Natural Field Experiment.�Revised and Resubmitted, American Economic Review,March 2008.

[21] Fang, Hanming and Peter Norman. �Optimal Provision of Multiple Excludable Public Goods.�Under journal review, last revised January 2008.

[22] Cai, Hongbin, Hanming Fang and Colin Xu. �Eat, Drink, Firms and Government: An Investi-gation of Corruption from Entertainment and Travel Costs of Chinese Firms.�under journalreview, last revised March 2008. [NBER Working Paper 11592]

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[23] Fang, Hanming and Peter Norman. �Toward An E¢ ciency Rationale for the Public Provisionof Private Goods.�under journal review, last revised February 2008. [NBER Working Paper13827]

[24] Fang, Hanming and Alessandro Gavazza. �Dynamic Ine¢ ciencies in Employment-Based HealthInsurance System: Theory and Evidence.� last revised, September 2007. [NBER WorkingPaper 13371]

[25] Fang, Hanming and Peter Norman. �Overcoming Participation Constraints.� Cowles Foun-dation Discussion Paper 1511R, Revised, February 2006, under revision. [Cowles FoundationDiscussion 1511R]

[26] Bayer, Patrick, Hanming Fang and Robert McMillan. �Separate When Equal? Racial Inequal-ity and Residential Segregation.�October 2005, under revision. [NBER Working Paper 11507]

Work in Progress:

[27] Cai, Hongbin, Yuyu Chen, Hanming Fang and Li-An Zhou. � �Flying Pigs�: Evidence on thePerils of Incentives from a Randomized Natural Field Experiment.�

[28] Arcidiacono, Peter, Esteban Aucejo and Hanming Fang. �Does A¢ rmative Action Lead toMismatch? A New Test and Evidence.�

[29] Fang, Hanming, Roger Ke and Li-An Zhou. �The Insurance Role of ROSCAS in the Presenceof the Credit Market: Theory and Evidence.�

[30] Fang, Hanming, Panle Jia and Paul Schrimpf. �Estimating the Consumer Bene�ts from RetailAgglomeration.�

[31] Fang, Hanming and Yang Wang. �Identi�cation and Estimation of Dynamic Discrete ChoiceModels with Hyperbolic Discounting Time Preferences, with an Application to Preventive CareDecisions.�

[32] Fang, Hanming and Edward Kung. �How Does the Secondary Life Insurance Market A¤ectthe Primary Market?�

[33] Fang Hanming. �An Alternative Test of Hyperbolic Discounting Based on Time Aggregation.�

Manuscript in Preparation:

[34] Economics of Discrimination: Theory, Empirical Methods and Evidence.

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