Essays on Inequality and Market Failure

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Essays on Inequality and Market Failure

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Title: Essays on Inequality and Market Failure
Author: Hilger, Nathaniel Green
Citation: Hilger, Nathaniel Green. 2013. Essays on Inequality and Market Failure. Doctoral dissertation, Harvard University.
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Abstract: This dissertation comprises three chapters. The first chapter develops a research design to estimate the causal effect of parental layoffs and income during adolescence on children's college outcomes, and implements this design on administrative data for the United States. The design compares outcomes of children whose fathers lose jobs before college decisions with outcomes of children whose fathers lose jobs after college decisions. I find that layoffs and unanticipated income losses during adolescence have very small adverse effects on future college outcomes. These effects are smaller than estimates in prior work based on firm closures rather than timing of layoffs. I replicate these larger estimates and show they are driven by selection of workers into closing firms. The findings suggest that relaxing parental liquidity constraints during adolescence will do little to increase enrollment compared to improvements in financial aid, especially for low-income children. The second chapter, written with my advisor and other colleagues, shows that classroom quality in early childhood has large causal impacts on adult outcomes, and that test score gains can help to identify classroom quality even when these gains fade out over time. We first link administrative data to records from Project STAR, in which 11,571 students in Tennessee and their teachers were randomly assigned to classrooms within their schools from kindergarten to third grade. We then document four sets of experimental impacts. First, students in small classes are more likely to attend college and exhibit improvements on other outcomes. Second, students who had a more experienced teacher in kindergarten have higher earnings. Third, students who were randomly assigned to higher quality classrooms in grades K-3 -- as measured by classmates' end-of-class test scores -- have higher earnings, college attendance rates, and other outcomes. Finally, the effects of class quality fade out on test scores in later grades but gains in non-cognitive measures persist. The third chapter explores theoretical properties of markets for "credence goods." Credence goods such as health care involve consumer reliance on expert diagnosis. When consumers observe expert cost functions, competitive markets tend strongly toward efficiency. I argue that consumers do not observe expert cost functions and extend an existing model to incorporate this insight. The key result is that prices and competition no longer eliminate mistreatment.
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