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Social interaction and economic institution

Yongjin Park, University of Massachusetts Amherst

Abstract

The first chapter explores the link between inequality and longer work hours. It shows that desire to keep up with the consumption standard set by the rich provides a link between inequality and work hour. In an attempt to provide an empirical support for this idea, I find that coefficient of inequality is statistically significant in both OLS and fixed effects estimates and its effects are large and estimates are robust across a variety of specifications. The second chapter further develops the idea of Veblen effect by showing relationship between earnings inequality of men and labor supply decision of their wives. This result not only confirms the proposed effect of earnings inequality on individual labor supply decision, it also discriminates emulation effect from other explanations about the potential link such as rat-race model. The third chapter provides a cost-benefit analysis of relationship banking. When banks can acquire ex post informational monopoly on borrowing firms, banks may increase the number of firms they initially finance by offering lower loan rates. At the same time, banks have an incentive to limit the size of loans granted to young and untested firms, preventing the potential over-investment problem that may arise from the lower loan rates they offer. Therefore, relationship banks can effectively prevent over-investment that has been suggested as a potential problem of relationship banking. Using NSSBF data set, I show that the young and small firms in a concentrated banking market display relatively lower debt-to-asset ratio and less institutional debt while the interest rates offered to them are lower. ^

Subject Area

Finance|Labor economics

Recommended Citation

Park, Yongjin, "Social interaction and economic institution" (2004). Doctoral Dissertations Available from Proquest. AAI3118322.
http://scholarworks.umass.edu/dissertations/AAI3118322

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