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Essays on Coordination and Economic Efficiency

  • Author(s): Rojas Bohorquez, Juan Sebastian
  • Advisor(s): Costa, Dora L
  • et al.
Abstract

While competition has long been recognized in economic literature as a tenet of economic efficiency, the link between coordination and efficiency is yet to be fully understood. In this dissertation, I study three separate episodes that contribute to our understanding on the ambiguous link between coordination and efficiency. The first episode is set in the early stages of development of the wine industry in California. I show how the disclosure of information fostered coordination between winemakers and vintners, which improved the efficiency in the use of resources and played a crucial role in the industrial growth of one of the major agro-industrial businesses in the state. The second episode presents a negative relationship between coordination and efficiency. We show how a loophole in Medicaid has allowed state and local governments to coordinate with providers to maximize federal matching funds at the expense of efficiency in the provision of care. Lastly, using evidence from pension funds in Colombia we show how ownership acts as a conduit for coordination between firms having a mixed effect on the efficient use of financial assets.

Chapter 1 studies the effects of information disclosure on coordination and, ultimately, on industrial growth, using evidence from the wine and grape industry in the United States. Between 1960 and 1968, the Raisin Lay Survey gave accurate, weekly information about the size and allocation of the raisin harvest to grape growers, packers, and winemakers. Relying on data from 1950 to 1970 at county-year level from multiple newly digitized sources, I estimate a difference-in-differences model that exploits the fact that the Survey was, for budgetary reasons, only implemented in a reduced area compared with the original plan. The results show that information disclosure led to larger wine production in surveyed areas and increased investment from both grape growers and winemakers. Furthermore, I provide empirical evidence that the main mechanism driving these results is the enhanced coordination between growers and winemakers that resulted from the information disclosure.

Chapter 2 shows theoretically and empirically how loopholes in the institutional design of joint Medicaid funding can lead to coordination between local governments and providers that result in price and volume distortions. Our empirical analysis combines audit, survey, and administrative datasets on skilled nursing facilities (SNFs) from 1999-2017 with two reforms and difference-in-differences models. We first document that states use creative financing schemes to divert federal Medicaid matching funds. Using the case study of Indiana, we then document that these schemes lead to an increase in Medicaid SNF days for dementia patients. The expansion of SNFs of lower match quality leads to an increase in mortality pointing to a misallocation of vulnerable patients to providers.

Finally, Chapter 3 studies the distortions of common ownership on the portfolio allocation of financial entities. We use evidence from Colombian pension funds, which is a highly concentrated market, the largest entities are integrated with large financial conglomerates and manage funds that amount to roughly 25% of GDP and 87% of the market capitalization of the Colombian stock exchange. We use a rich database on the daily portfolio positions of all pension funds, which is collected by the Financial Superintendence of Colombia. we exploit the variation in ownership coming from two mergers where two of the largest pension funds that are part of financial conglomerates acquire other pension funds. We use a difference-in-differences specification to test whether after the merger the pension funds disproportionately increased their holdings of assets issued by other firms in their financial conglomerate. The preliminary results suggest that pension funds disproportionately favor investments in related firms as merge firms more than double their share of commonly owned assets in their portfolios. This reduced-form evidence lays the building blocks to a structural analysis that allows decomposing the observed changes between ownership, market power, and changes in expectations, which would ultimately shed light on the efficiency of the allocation of financial assets.

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