Title: Essays in Public and Urban Economics
Description: This dissertation uses applied microeconomic tools to study three topics of fundamental importance for the regulation of the urban environment: housing, pollution, and the criminal justice system. The first chapter considers the mortgage market, and analyzes the regulatory tradeoff between optimal credit access and mortgage default. The second chapter examines the difficulties of designing environmental policy in interlinked production processes. In particular, we investigate (i) the impact of regulation on the producers of an upstream good on the pollution practices of the downstream firms that process that good and (ii) the subsequent health impacts on those who live in the cities and towns surrounding the downstream firms. The third chapter explores the bail system used for criminal defendants in the United States, and shows that the requirement that defendants post money bail has profound impacts on case outcomes. Chapter 1, "Asymmetric Information and the Link Between Leverage and Mortgage Default" begins with the observation that borrowers with large mortgages relative to their home values are more likely to default.

This chapter asks whether this correlation is due to moral hazard---larger balances causing borrowers to default---or adverse selection---ex-ante risky borrowers choosing larger loans. To separate these information asymmetries, I exploit a natural experiment resulting from (i) the unique contract structure of Option Adjustable Rate Mortgages and (ii) the unexpected divergence, during the 2008 crisis, of two financial indices used to determine interest rate adjustments for these loans. I find that moral hazard is responsible for 60-70 percent of the baseline correlation between leverage and default, but adverse selection explains the remaining 30-40 percent. I construct and calibrate a simple model of mortgage choice and default with asymmetric information to highlight the policy tradeoff informed by my estimates. I show that optimal regulation of mortgage leverage must weigh losses from defaults against under-provision of credit due to adverse selection. In Chapter 2, "Interlinked Firms and the Consequences of Piecemeal Regulation", coauthored with Jonas Hjort and Gianmarco Leon, we note that industrial regulations are typically designed with a particular policy objective and set of firms in mind.

Yet when input-output linkages connect firms across sectors, such ``piecemeal'' regulations may worsen externalities elsewhere in the economy. Using daily administrative and survey data, we show that in Peru's industrial fishing sector, the world's largest, air pollution from downstream (fishmeal) manufacturing plants caused 55,000 additional respiratory hospital admissions per year as a consequence of the introduction of individual property rights (over fish) upstream. By removing suppliers' incentive to ``race'' for the resource and enabling market share to move from inefficient to efficient firms, the reform spread production out across time, as predicted by a conceptual framework of vertically connected sectors. We show that longer periods of moderate air polluting production are worse for health than shorter periods of higher intensity exposure. Our findings demonstrate the risks of piecemeal regulatory design in interlinked economies. In Chapter 3, "The Heavy Costs of High Bail: Evidence from Judge Randomization", coauthored with Ethan Frenchman and Arpit Gupta, considers the bail system in the United States.

On any given day, roughly 450,000 people are detained awaiting trial, typically because they have not posted bail. Using a large sample of criminal cases in Philadelphia and Pittsburgh, we analyze the consequences of the money bail system by exploiting the variation in bail-setting tendencies among randomly assigned bail judges. Our estimates suggest that the assignment of money bail causes a 12% rise in the likelihood of conviction, and a 6--9% rise in recidivism. Our results highlight the importance of credit constraints in shaping defendant outcomes and point to important fairness considerations in the institutional design of the American money bail system.