Policy Analysis in Heterogeneous Agent Economies

In this dissertation I provide an evaluation of three policy proposals for the areas of education, gender inequality, and social networks. All three areas are of high relevance in the context of labor market economics and the research in this area is an important tool in order to provide better economic outcomes for individuals. In order to account for the complexities of the possible effects I employed the methodological approach of Agent-based models for all three policies. I first looked into the possible effects of an educational voucher that is meant to alleviate the inferior educational outcomes of students from low income families who are forced to default into low performing public schools while increasing the competitive pressure on public schools. I show that initial concerns that the policy might lead to "cream skimming" over the group of public schools are not unsubstantiated and the universal voucher would not lead to unequivocal welfare gains. The vouchers increase the number of students who are actually able to choose their preferred school, thereby leaving the public schools no other choice than increasing their educational expenditure to attract more students or prevent current students from leaving. Meanwhile, due to the positive correlation between ability and preference for higher quality schools, the group of students most likely to leave public schools for private schools are high ability students, thus decreasing the welfare gains from the increased public school expenditure due to a lower mean ability. As an alternative, I analyze the effect of so called target vouchers, which are a function of student ability and show that these would allow to reap the benefits of higher competition while avoiding the "cream skimming" effect. These results indicate that the effects of a voucher based school are highly dependent on the particular voucher design and any implementation needs to take potential detrimental effects into account. Furthermore, I analyze an alternative policy instrument to the fixed gender quota for the boards of publicly listed companies as it was recently introduced in Germany (as of 2016) and Norway (since 2003). As the case of Norway suggested, the fixed quota can lead to large negative effects for the targeted companies due the difficulties of filling positions with qualified women. Due to the heterogeneous labor supply of women across sector, some firms find it particularly difficult to fulfill the quota. For this reason, a more flexible policy is required. I evaluate such an alternative policy, namely a tradable quota, that would provide companies with certificates that entitle them to hire men. This would avoid exposing firms to a fixed gender ratio and rather offer them to fill their positions based on the number of certificates they own. Companies with more men, could then buy certificates from companies that hire more women. Using a computational model, the chapter demonstrates that a tradable quota is a superior alternative (in terms of welfare) that would allow to achieve the same aggregate ratio of women to men at much lower adjustment costs to firms. In the last chapter, I demonstrate the effects of labor market subsidy that takes the network structure that potential beneficiaries of the policy are embedded in, into account. In the analysis, I employ a setting in which individuals maximize intertemporal utility by choosing between consumption today and investment into their education. Hereby, the model takes into account potential externalities introduced by the peers of each individual. That is, each agent profits from the educational investment of their peers and vice versa. Using this setting I demonstrate how a policy that takes the network structure into account by targeting the most central agents can lead to an ambiguous effect. While potential spill-over effects on non-treated individuals are maximized through this strategy, inequality increases as individuals in the periphery of the network fall further behind through this approach. These finding are in contrast to similar studies who argue unequivocally in favor of targeting the central agents when it comes to breaking up crime networks. Instead, for such a "positive" labor market policy the effects on the overall group of agents are not as clear and indicate that a careful design of such a policy is necessary.