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Faculty members in the Economics Department are engaged in cutting edge research. The department has built up a global reputation in empirical, experimental and theoretical methods.  Our research output continues to be published in the very top journals in economics including the American Economic Review.  In its latest study, the National Research Council ranked us as 11th in the nation in terms of per faculty productivity. Read below for some faculty research spotlights.

Rocio Madera

There is broad consensus among economists that earnings risk, or the probability of unexpected changes in earnings (often as a result of but not limited to unemployment), rises in recessions. In recent work, Assistant Professor Rocio Madera and coauthors address the question: Does government policy diminish the exposure of households to large drops in income in recessions? Using data for the United States, Germany, and Sweden, they examine whether government policy smooths incomes so that households do not face the big fluctuations that happen as countries’ economies go from expansions to recessions. The authors find that government tax and transfer programs blunt some of the largest declines in incomes in recessions. Unemployment benefits and the personal income tax code are the prime reasons. Note that these public programs, and particularly in very progressive tax systems like the Swedish case, also prevent earnings from increasing too much in expansions. The authors concluded that, overall, households’ welfare is higher with social insurance and a progressive tax code to smooth their income than in a counterfactual world where the government stops all transfers and tax redistribution.

Nathaniel Pattison

Social insurance in the United States comes in many forms:   unemployment insurance, disability insurance, Medicare and social security.  One of the largest social insurance programs in the United States is legal protections for defaulting borrowers. Around 10% of households have filed for bankruptcy, and a greater percentage informally default on debt outside of bankruptcy. Given the amount of consumer debt and the frequency of default, the design of these debtor protection systems can have significant consequences for social welfare. Recent research by Nathaniel Pattison and coauthors provides evidence about the benefits and costs of the laws and behavior that shape debtor protections. The authors use large-scale data and new empirical strategies to clarify and quantify the trade-offs involved. The evidence indicates that debtor protections do benefit borrowers during times of financial distress, but there are also costs. More generous consumer policies result in a reduction in credit supply and higher interest rates, partially driven by strategic responses of borrowers. The magnitude of these trade-offs differ across types of consumers, debts, geographies, and laws, so optimal policy design must account for these differences when weighing the cost and benefits.