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UBC Theses and Dissertations

Three essays in applied economics Dai, Guang


This dissertation discusses three topics in applied economics. The first essay examines the causal effect of social capital on individual income by exploiting the historically determined pattern of family name distribution in Chinese villages. Family name distribution impacts social capital through historical inter-lineage rivalry and cooperation. The estimates show a strong first order effect on male villagers, which implies a one standard deviation increase in social capital is equivalent to two to four years of education. No effects on female villagers were found. The gender differentiation could be accounted for by occupation difference: male villagers' income mainly comes from market exchange, while female villagers' income comes mainly from home production. Using a simple model, it is demonstrated that a village's social capital determines its trade scope and therefore income of its residents. The second essay proposes a general method to identify subjective expectation bias. The method exploits an implication of rational expectations that requires the identical weight of an independent variable in projecting both objective and subjective probabilities. The empirical analysis shows that female seniors do not correctly internalize age information while male seniors fail at internalizing income information. Though cognitive ability and risk aversion can partially explain the results, they are not the sources of the identified biases. The third essay explores how seniors make long term care insurance (LTCI) decisions by developing a dynamic structural discrete choice model where a rational, risk averse, bequest motivated senior has to decide at each period whether to buy an insurance policy or not. Using the Health and Retirement Survey data, this essay finds substantial heterogeneity in bequest motive that drives LTCI decisions. Specially, the idiosyncratic bequest motive helps to explain why LTCI holders do not experience a higher incidence rate than non-holders.

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