Abstract: One of the recent developments among American cities is the diverging trend in their skill compositions and measured innovation (e.g., patents, venture capital). Over the past thirty years, skilled cities have become more skilled and more productive, and have experienced faster growth in average wages and housing prices. The geographical divergence has contributed substantially to the rising inequality in America. This paper constructs a multi-city model of spatial skill sorting to explore the causes of this divergence. The key idea is that cities with advantages in innovation attract more productive entrepreneurs and more workers, thereby driving up wages and housing prices. I then show that the changing technologies have reinforced the geographical sorting of skills. Specifically, three types of technological changes have increased the benefits of skill clustering in innovative cities: general productivity increases; improvements in communications technologies; and declines in trade costs.
Abstract: Chinese housing market has been undergoing a rapid booming period since 1998, causing the house prices increased significantly. As a result, households endured severe financial burdens to buy homes at price-to-income ratios of around six. Along with the rising house prices, the household savings rate has been increasing consistently since 1998. Can the rising house prices be an important factor to explain the increase in household saving rate? This paper develops a life-cycle dynastic model with endogenous choices on housing, coresidence and intergenerational transfer, then quantitatively analyze the effect of housing price on household saving. It shows that housing is an important motive for saving, and it accounts for about 35% of the increase in the household savings rate. The housing situation affects households’ saving behavior through three channels. First, households are financially constrained due to the down payment requirement and they choose to limit their consumption in order to buy houses. Second, young adults live in their parents’ houses for a long time and save more intensively, since they get to pay less for the housing expenses under coresidence. Thirdly, older parents make the large sum of intergeneration transfer in aid of the children’s housing purchase, indicating the housing affordability issue also has an influence on old parents’ saving decisions.
When does elastic labor supply cause an inverted-U effect of patents on innovation? (with Angus C. Chu and Shiyuan Pan) Economics Letters, 2012, 117(1) 211–213
This study analyzes how patent protection affects innovation in an R&D-based growth model with elastic labor supply. We find that increasing patent breadth may generate an inverted-U effect on innovation depending on whether the model features the knowledge-driven or lab-equipment innovation process. This result highlights an important interaction between elastic labor supply and the innovation process through which patent protection has an inverted-UU effect as documented in recent empirical studies.