Essays in Industrial Organization and Environmental Economics

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2020

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This dissertation is comprised of three chapters in industrial organization and environmental economics. Chapter 2 examines the mechanism of cost efficiency following mergers of U.S. freight railroads and uncovers the sources. Efficiency is generally cited as the primary reason why mergers are good for consumers, yet there is little evidence showing the sources of cost efficiency. In this chapter, I first provide reduced-form result showing that following mergers, average shipment price significantly decreases, and the price effect of the merger is greater where railcars must be switched between two companies. However, given that markets are interdependent in railroad networks because of routing and investment decisions, merger efficiency cannot be measured simply by comparing individual markets. I addresses this with a structural model of firm pricing, routing, and investment decisions. Model estimates allow simulations that reveal sources of cost efficiency to include elimination of interchange costs, routing and consolidation of traffic, and re-optimization of investment. Welfare impacts show a great deal of geographic heterogeneity across markets.

Chapter 3 studies R\&D spill-over in the in the Korean electric motor industry. I develop and estimate 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. I 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. Counterfactual experiments of two policies are implemented. The results show that 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.

Chapter 4 analyzes 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. The results show 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. I find that insurers, on average, lose around \$2,394.9, or 1.2\% of profit earned on an average mortgage.

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Chen, Yanyou (2020). Essays in Industrial Organization and Environmental Economics. Dissertation, Duke University. Retrieved from https://hdl.handle.net/10161/21441.

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