Working Papers

Two-stage Budgeting with Bounded Rationality. (2023). (joint with Christopher Y. Olivola and Alan Montgomery). 

• Status: Under Review
• Abstract: We construct a unifying theory of two-stage budgeting and bounded rationality with mental accounting features. Mental accounting and rational inattention induce behavioral wedges between first-stage and second-stage expenditure budgets, reducing the fungibility of money across accounts. Because reviewing one's financial activities is cognitively costly, consumers might re-assess only a subset of their spending budgets every period. Over- or under-spending affects future budgeting and expenditure decisions. We apply latent Bayesian inference to agent-level weekly expenditure data in order to structurally estimate the degree to which low-income consumers appear rationally constrained with respect to budgeting. Our findings provide insight into how consumers may respond to interventions that encourage more disciplined budgeting behavior, like push notifications in budgeting apps. We show that if financial attentiveness constraints are relaxed, consumers who want but fail to discipline their expenditure may become financially worse off. 
• Presentations: (2022) FUR Conference, Ghent, Belgium; (2021) Columbia University, New York; (2020) INFER (Virtual); NBER-NSF SBIES (Virtual); UCSB, Theory Underground; ARC for Financial Planning, Washington D.C.; (2019) ACR, Atlanta; (2017) INFORMS Marketing Science, Los Angeles.
• Supplementary Material: Technical Appendices
• Notes: Previous versions of this paper were circulated under the titles, A Structual Model of Mental Accounting  and Two-stage Budgeting Under Mental Accounting.

• Status: New Draft
• Abstract: We explore several possible causes which have driven the rise in aggregate U.S. health services prices since 1960. Our model features endogenous population aging, market concentration in the health sector, and differential rates of sectoral technological change. The rise in the relative price of health services is almost exclusively a result of increasing market concentration in the health services sector, as well as relatively slow sectoral TFP growth. Further, the rising relative price of health services has had no impact on life expectancy. Population aging and increases to life expectancy are almost exclusively a result of changing preferences for healthiness. As preferences for longevity rise the returns to health investment also rise, driving up life expectancy and population aging. However, the relative price does not significantly respond to these changes in the composition of demand because we estimate that the health sector is associated with a similar rate of capital deepening relative to the broader economy. This mechanism dampens the possible general equilibrium effects on the relative price of health services of the changing composition of demand which results from population aging.

• Status: Job Market Paper, 2022-2023
• Abstract: I construct a measure of consumption/leisure inequality from a model featuring Becker (1965) home production. Consumers simultaneously allocate liquid resources toward many different market purchases and time toward both market tasks (labor) and many different off-market activities. Each activity is uniquely associated with products purchased from the market. I use micro data on household time use and spending to quantify the degree to which households across the income distribution value the activities in which they spend time consuming. This measure is fundamentally different from a classic expenditure measure because it accounts for a household’s simultaneous decision to allocate both liquid resources and time toward specific consumption activities. Model-implied dispersion is 3 to 7 times lower than that implied directly by expenditure data and over 2.5 to 5.5 times lower than that implied by wages.
• Presentations: (2023) FRB, St. Louis (upcoming); The Australian National University; (2022) Williams College; Southern Methodist University; Stony Brook University (SUNY); Midwest Macro, Logan, UT.
• Supplementary Material: Technical Appendices

• Status: Under Review
• Abstract: Consumers allocate both liquid resources toward consumption of goods and services and off-market time toward activities using either goods or services. A model with Becker (1965) home production embeds rich income effects, which has implications for the causal mechanism driving the rise in the services share of expenditure in the U.S. We estimate that consumers increasingly treat goods as luxuries relative to services. The model predicts that the rise in the services share of U.S. expenditure over the last 70 years is almost entirely attributable to the decline in the relative price of goods to services, not income effects.
• Presentations: (2022) FRB, Philadelphia; Midwest Macro, Dallas, TX; UCSB, LAEF Growth, Development, and Structural Transformation Conference; University of Pittsburgh; University of Wuerzburg, Germany.
• Supplementary Material: Technical Appendices
• Notes: Some components of this draft were previously circulated under the titles Home Production with Time to Consume and Structural Change Under Home Production with Time to Consume. This draft focusses on how changes to the consumption experience, as measured by off-market time use patterns, have contributed to the rising services share of expenditure.

• Status: Under Review
• Abstract: We construct a novel dataset of rooftop solar electricity prices and use it to calibrate a structural model of household solar demand allowing for geographical heterogeneity in preferences. The calibrated model finds solar subsidies suffer from twin rebounding and backfiring effects: subsidies increase both aggregate electrical demand and electricity demanded from the grid. Subsidies are cost effective at inducing demand. Despite substantial geographical dispersion, the implied price of solar demand is lower than its private cost in all counties. However, our estimates suggest the social value of induced demand is unlikely to offset the social costs of additional carbon emissions from increased grid-electricity demand.
• Presentations: (2022) University at Albany (SUNY); SED, Madison, WI (slides).
• Supplementary Material: Technical Appendices

• Status: New Draft Coming Soon!
• Abstract: A typical model of the consumption of consumer durables either treats all durables as a single stock of indistinguishable units of utility-generating capital or naively ignores service flows from past purchases altogether. We explore an alternative structure where each new durable product purchased is unique and may be associated with its own, unique rate of depreciation. Treating durables in this manner has implications for how we think about discounting, risk aversion, and intertemporal rates of substitution. We consider an application of our model toward reconciling the equity premium puzzle. Indeed, our results suggest the puzzle results from a failure of CAPMs to adequately account for the role durables play in generating consumption utility.

• Abstract: The simultaneous rise in the services share of aggregate U.S. expenditure, fall in labor hours per worker, fall in the aggregate nominal labor share, and re-allocation of capital and labor inputs between sectors are reconciled in a general equilibrium model featuring home production, elastic labor, and differences in sectoral elasticities of substitution. Home production, where different consumption products are associated with separate time use decisions, can generate the non-linear Engel curves necessary to match the rise in the services share. With elastic labor, heterogeneity in the time intensities of home production activities causes labor hours to respond to changes in relative market prices even if wages remain fixed. The sectoral labor shares of income and the aggregate labor share of income vary over time because of differences in sectoral elasticities of substitution for capital and labor which lead to general equilibrium effects. We analytically show and quantify the degree to which the re-allocation of household expenditure, as resulting from rich income and substitution effects due to home production, has contributed to the declining labor share of income. Finally, we show how to construct cost-of-living indices that account for the tradeoffs households across the income distribution face when engaging in home production. These indices are estimated using micro data to understand how structural change, in terms of the declining relative price of goods to services, has impacted welfare and inequality when accounting for differences in the time intensity of consumption activities.

• Presentations: (2021) SAEE, Barcelona. 

• Abstract: Households consist of multiple adults with different skill sets, who must each allocate time toward either labor activities, off-market activities, or both. The household collectively chooses to allocate liquid resources toward market expenditure and/or investment. Market purchases are complementary with off-market time in ways which depend on the types of activities different household members engage in. Different adults are associated with different abilities with respect to market work, home production, and other off-market activities. Households allocate liquid resources and the time of each adult toward different activities in order to maximize household utility. On the intensive margin, absent labor force participation constraints, efficient allocations may feature some adults working minimal hours and allocating most of their time to off-market activities. We introduce a novel mechanism that effects dynamic job-separation risk, wherein failing to supply a minimum number of labor hours increases the risk of job separation, affecting future household income. Thus, along the dynamic path, the degree to which different household members have comparative advantages with respect to ofmarket production activities will determine the number of labor force participants in the household. We use this mechanism to explore changes to male and female labor force participation rates in the U.S.

• Abstract: Allowing for differential complementarities between off-market time use and market consumption expenditure generates income and substitution effects that impact the allocation of total expenditure across product types. Depending on the definition of the product and activity space, non-homothetic preferences without off-market time use (e.g., Stone-Geary utility functions) are only reduced-form representations of the tradeoffs households face when allocating resources toward consumption. In models with elastic off-market time use across multiple activities, each of differing degrees of time/product substitutability and time intensity, income and substitution effects with regards to the responsiveness of consumption to relative price and income variation result from rich interactions between off-market time use, labor supply, and consumption decisions. Within such a model the household produces final consumption from its activities that combine time and market purchases and then effectively sells this final consumption back to itself. Low-income households may have a comparative advantage in home production, but this comparative advantage may not exist under certain relative prices. The model generates equilibrium expressions for the relative rate of exchange at which households ``trade'' the products they produce amongst their own members. These in-home prices and levels of final consumption (the outputs of home production) can then be used to measure the relative cost-of-living households face both cross-sectionally and over time. Since different households are associated with different in-home and market productivities, the in-home value of final consumption is non-homogeneous, except under very restrictive parameterizations for the utility function and home production functions.
• Presentations: (2021) NBER-NAS SBIES (Virtual); Vigo Workshop on Dynamic Macro, Vigo Spain; SED, Minneapolis, MN; University of Miami, Florida (Virtual); (2020) SNDE, Virtual; University of Miami, Florida (Virtual); (2019) UCSB; Midwest Macro, East Lansing, MI; SED, Saint Louis, MO; (2018) UCSB.

• Abstract: Using endogenous, age-dependent measures of the value of statistical lives (VSL), this paper examines the demographic implications of recessions driven by disease contagions. Depending on the age-distribution mortality profile of the disease, long-run welfare losses resulting from the recession may outweigh lost VSL’s directly attributable to the disease. This is because disease contagions that induce high levels of hospitalization simultaneously impact aggregate output, via a recession caused by social-distancing, and the productivity of health care services. The efficiency of health investment falls driving down life expectancy (LE). VSL’s fall both because LE’s fall and the marginal value of health care investment falls. Using the Hall and Jones (2007) model of age-specific, endogenous health investment, it is shown that the COVID-19 crisis of 2020 will lead to lost welfare for young agents that exceeds VSL’s lost from the disease. If COVID-19 had the same age-mortality profile as the 1918 Spanish Flu, where more young agents died, contagion-mitigation policies that cause deep recessions would still be socially optimal since more of the high-valued lives of young people would be saved.
• Presentations: (2020) Macro-Dev-Trade-Environment Group Meeting, Virtual, Iowa State.

• Abstract: Throughout the 21st century, population aging in the United States will lead to increases in the number of elderly people requiring some form of living assistance which, as some argue, is to be seen as a burden on society, straining old-age insurance systems and requiring younger agents to devote an increasing fraction of their time toward caring for infirm elders. Given this concern, it is natural to ask how aggregate GDP growth is affected by such a phenomenon. We develop an overlapping generations model where young agents face idiosyncratic risk of contracting an old-age disease, like for example Alzheimer's or dementia, which adversely affects their ability to fully enjoy consumption. Young agents care about their infirm elders and can choose to supplement elder welfare by spending time taking care of them. Through this channel, aggregate GDP growth endogenously depends on young agents' degree of altruism. We calibrate the model and show that projected population aging will lead to future reductions in output of 17% by 2056 and 39% by 2096 relative to an economy with a constant population distribution. Curing diseases like Alzheimer's and dementia can lead to a compounded output increase of 5.4% while improving welfare for all agents.
• Press:  Benefits Pro; Who Will Care for All the Old People? VoxEU in: Live Long and Prosper? The Economics of Ageing Populations. (2019).
• Presentations: (2019) SNDE, Dallas Fed; XXIV Workshop on Dynamic Macro, Vigo Spain; (2018) UCSB; University of Missouri; Midwest Macro, Madison, WI; SED, Mexico City.

• Abstract: In his 1999 summary of all things mental accounting, Richard Thaler describes one of the primary components of mental accounting as the budgeting of specific utility-providing activities which can depend, but does not have to, on the resources used to fund those activities. The analysis presented in this paper focusses specifically on household expenditure of durable and non-durable goods and the liquidity sources used to fund these different expenditures. Specifically, we exploit a linked dataset of credit and debit card users to examine consumer purchasing patterns of durable and non-durable consumption commodities under both methods of payment. Our findings suggest that on average durable purchases are more sensitive to increases in available credit than non-durable purchases, and most consumers are more likely to increase total consumption due to increases in available credit than increases in available checking account balances. We empirically show that the standard neo-classical consumption/savings model, the equilibrium conditions of which implicitly assume that the household’s available resources (liquidity and investments) are perfectly fungible, fails to rationalize our data for the median/modal consumer in our sample. However, our results are rich because we also show that the behavioral distribution of consumers includes both households which treat liquidity as fungible and those that do not. Given the heterogeneity we find, future work should test whether these results would matter on aggregate.
• Presentations: (2019) ACR, Atlanta; Finance Forum, Madrid; (2018) Boulder Consumer Finance Conference; BDRM, Harvard; SJDM, New Orleans.

Works in Progress

Time Constraints and  Market Power: Efficiency and Optimal Policy. (2022). (joint with Brian Albrecht and Thomas Phelan).

Credit Default Probabilities and the Marginal Propensity to Pay Debt. (2021). (joint with Vitaly Meursault).