Political Economy Workshop (Gov 3007)

Co-taught by Professors Kenneth Shepsle and Jeffry Frieden, the Research Workshop in Political Economy (Government 3007) is a year-long graduate seminar that aims to encourage cross-disciplinary research and excellence in graduate training. Political economy is a research tradition that explores how institutions affect political and economic outcomes. The workshop emphasizes the development of dissertation proposals and is a place where graduate students can present their research to an audience of committed and informed peers. It is open to graduate students in the Departments of Government and Economics, and the Program in Political Economy and Government. The workshop holds both internal and public seminars and meetings. At the internal meetings, approximately twelve per semester, graduate students and faculty present their own work to one another. At the public meetings, up to two per semester, leading scholars are invited to Harvard to present their work. Although the workshop is by invitation only, affiliates of the Weatherhead Center are encouraged to attend the public meetings. Shoshana Vasserman will present her paper "Budget Constraints and Rent Extraction in Public Sector Procurement” (with Valentin Bolotnyy). Pamela Ban will be the discussant. Then, Galit Eizman will present his paper “Home Ownership or Higher Education? Lessons from the Effect of Mortgage Debt on Student Loans”. Abstract for “Budget Constraints and Rent Extraction in Public Sector Procurement” (with Valentin Bolotnyy) Public infrastructure projects are notorious for going over-budget. Using data on bids and outcomes for maintenance and construction projects undertaken by the Massachusetts Department of Transportation (MassDOT) since 1998, we demonstrate that the auction design itself contributes to overruns. The design involves contractors bidding a per-unit price for each item specified in the contract. Total bids are computed as the dot product of the unit bids offered by each contractor and estimates of the quantities needed, produced by MassDOT, with the lowest total bidder winning the auction. Actual payments, however, depend on the actual quantities used and the winning bidder’s unit bids. If they are better able to predict actual quantities than MassDOT, contractors can exploit the discrepancy between quantity estimates and actual quantities by placing unit bids strategically and extracting rents. In this paper, we demonstrate evidence that strategic bidding occurs in MassDOT’s procurement auctions. Furthermore, we show that maintenance projects, for which budget constraints are known to induce purposeful under-estimates of certain items, are especially prone to strategic bidding and rent extraction. Exploiting the heterogeneity in the quality of MassDOT’s quantity estimates across project types, we structurally estimate the value of asymmetric information (or expression of information) in this context. Abstract for “Home Ownership or Higher Education? Lessons from the Effect of Mortgage Debt on Student Loans” This paper examines the relationship between the tendency to borrow for homeownership as reflected by trends in the mortgage market, and the tendency to borrow for higher education as reflected by student loans. While prior research addresses the effect of student loans on homeownership[i], we examine the reverse effect, particularly for selected age groups of borrowers. For the purpose of this paper, we combine individual-level credit bureau data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) with income information from the Bureau of Economic Analysis (BEA), and IPEDS-derived tuition and enrollment information from DeltaCost. We further investigate the causal effect by using the most recent economic crisis and its consequences for the mortgage market. Our preliminary results show that there is a substitution between homeownership borrowing and higher education borrowing. The strongest effect is amongst youngest age cohorts and for individuals who tend to borrow more in the first place. Hence we conclude that the post-crisis restricted access to mortgage credit increased the access to higher education for a select group over our period of analysis. Based on our results, we are able to analyze and define a theoretical concept of marginal propensity to capital-borrow (MPCB).