"Spatial Misallocation, Informality and Transit Improvements: Evidence from Mexico City" [Download PDF]
Urban Economics Association 2020 Student Prize (Honorable Mention)
This paper proposes a new mechanism to explain resource misallocation in developing countries: the high commuting costs within cities that prevent workers from accessing formal employment. To test this mechanism, I combine a rich collection of microdata and exploit the opening of new subway lines in Mexico City. I find that transit improvements reduce informality rates by seven percent in areas near the new subway stations. I develop a spatial model that accounts for the direct effects of transit infrastructure in perfectly efficient economies and on allocative efficiency. Changes in allocative efficiency driven by workers' reallocation to the formal sector amplify the welfare gains by around 20%-25%.
"Measuring Imperfect Competition in Product and Labor Markets. An Empirical Analysis using Firm-level Production Data" (with Darío Tortarolo) [Download PDF] [Slides] (New version with exchange rate shocks coming soon)
We disentangle the extent of imperfect competition in product and labor markets using plant-level data. We derive a formula for the ratio between markups and markdowns assuming cost-minimizing firms that face upward-sloping labor supply and downward-sloping product demand curves. We then separate this combined measure of market power by estimating firm-level labor supply elasticities instrumenting wages with intermediate inputs. Our results suggest that both markets exhibit imperfect competition, but the variation is mainly driven by markups. Additionally, we estimate the relative gains of removing market power dispersion on allocative efficiency, finding that markups are more important on TFP than markdowns.