Efficiency Gain from Mergers: Evidence from the U.S. Railroad Network (Job Market Paper)
Abstract: Increased efficiency is generally cited as the primary benefit of mergers to both consumers and industry. However, there is little evidence on the mechanism of cost efficiency following mergers, and whether this cost efficiency offsets incentives to raise prices. This paper uncovers the sources of cost efficiencies following freight railroad mergers. Using detailed shipment data on 12 million waybills I show that following a merger, the average shipment price decreases by 9%. The price reduction from merger is greater where railcars must be switched between two companies at 11%. To evaluate cost efficiencies, I estimate an optimal transport network model that features firms pricing, routing, and investment decisions in multiple origin-destination markets. I use the model to decompose the sources of cost efficiencies and find both results with consumer welfare increases and decreases depending on topology of the network. Counterfactual simulations show that on average shipment cost decreases by 32% after mergers, implying a predicted price decrease of 10%.
A Structural Empirical Model of R&D, Firm Heterogeneity, and Industry Evolution (with Daniel Yi Xu)
Abstract: This paper develops and estimates a dynamic industry equilibrium model of R&D, R&D spill-overs, and productivity evolution of manufacturing plants in the Korean electric motor industry from 1991 to 1996. Plant-level decisions for R&D, physical capital investment, entry, and exit are integrated in an equilibrium model with imperfectly competitive product market. We use a Simulated Method of Moments estimator to estimate the cost of R&D, the magnitude of the R&D spill-over, adjustment costs of physical investment, and the distribution of plant scrap values. The recent approximation method of Weintraub, Benkard and Van Roy (2007) is applied. Counterfactual experiments of two policies are implemented. Increasing the elasticity of substitution between products increases plant innovation incentives and the plant turnover. In contrast, a lower entry cost does not change industry productivity. Although the market selection effect is strengthened by higher firm turnover, the plant’s incentives to invest in R&D are reduced.
Collateral Damage: The Impact of Shale Gas on Mortgage Lending (with James Roberts, Christopher Timmins, and Ashley Vissing)
Abstract: We analyze mortgage lenders’ behavior with respect to shale gas risk during the period of the U.S. shale gas boom, which coincided with the U.S. housing market rise, collapse and subsequent increase in lending industry scrutiny. Shale gas operations may place affected houses into technical default such that GSE’s (Fannie Mae and Freddie Mac) are unable to maintain them in their portfolios. We find that lenders did indeed increase the weight they place on shale risk relative to income risk in mortgage pricing behavior after 2010. This effect is particularly evident for groundwater dependent properties, indicating that lenders view shale activities as placing the residential value of these properties at greater risk.
Optimizing the Scale of Markets for Water Quality Trading (with Martin W. Doyle, Lauren A. Patterson, Kurt E. Schnier, and Andrew J. Yates), Sep 2014, Water Resources Research 50.9: 7231-7244
Economic Incentives to Target Species and Fish Size: Prices and Fine-Scale Product Attributes in Norwegian Fisheries (with Frank Asche and Martin D. Smith), Dec 2014, ICES Journal of Marine Science 72, no. 3: 733-740.
Mortality Decline, Retirement Age, and Aggregate Savings (with Sau-Him Paul Lau), Apr 2016, Macroeconomic Dynamics 20, no. 3: 715-736.