Papers

Journal Article
Chetty, Raj, Nathaniel Hendren, and Lawrence Katz. 2016. “The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Project.” American Economic Review 106 (4). Abstract

The Moving to Opportunity (MTO) experiment offered randomly selected families living in high-poverty housing projects housing vouchers to move to lower-poverty neighborhoods. We present new evidence on the impacts of MTO on children's long-term outcomes using administrative data from tax returns. We find that moving to a lower-poverty neighborhood significantly improves college attendance rates and earnings for children who were young (below age 13) when their families moved. These children also live in better neighborhoods themselves as adults and are less likely to become single parents. The treatment effects are substantial: children whose families take up an experimental voucher to move to a lower-poverty area when they are less than 13 years old have an annual income that is $3,477 (31%) higher on average relative to a mean of $11,270 in the control group in their mid-twenties. In contrast, the same moves have, if anything, negative long-term impacts on children who are more than 13 years old when their families move, perhaps because of disruption effects. The gains from moving fall with the age when children move, consistent with recent evidence that the duration of exposure to a better environment during childhood is a key determinant of an individual's long-term outcomes. The findings imply that offering families with young children living in high-poverty housing projects vouchers to move to lower-poverty neighborhoods may reduce the intergenerational persistence of poverty and ultimately generate positive returns for taxpayers.

Paper Slides
Hendren, Nathaniel. 2016. “The Policy Elasticity.” Tax Policy and the Economy 30. NBER Working Paper #19177 Abstract

This paper illustrates how one can use causal effects of a policy change to measure its welfare impact without decomposing them into income and substitution effects. Often, a single causal effect suffices: the impact on government revenue. Because these responses vary with the policy in question, I term them policy elasticities, to distinguish them from Hicksian and Marshallian elasticities. The model also formally justifies a simple benefit-cost ratio for non-budget neutral policies. Using existing causal estimates, I apply the framework to five policy changes: top income tax rate, EITC generosity, food stamps, job training, and housing vouchers. 

Paper Slides
Chetty, Raj, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner. 2014. “Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility.” American Economic Review Papers and Proceedings 104 (5). Abstract

We present new evidence on trends in intergenerational mobility in the U.S. using administrative earnings records. We find that percentile rank-based measures of intergenerational mobility have remained extremely stable for the 1971-1993 birth cohorts. For children born between 1971 and 1986, we measure intergenerational mobility based on the correlation between parent and child income percentile ranks. For more recent cohorts, we measure mobility as the correlation between a child’s probability of attending college and her parents’ income rank. We also calculate transition probabilities, such as a child’s chances of reaching the top quintile of the income distribution starting from the bottom quintile. Based on all of these measures, we find that children entering the labor market today have the same chances of moving up in the income distribution (relative to their parents) as children born in the 1970s. However, because inequality has risen, the consequences of the “birth lottery” – the parents to whom a child is born – are larger today than in the past.

Paper Slides
Chetty, Raj, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez. 2014. “Where is the Land of Opportunity: The Geography of Intergenerational Mobility in the United States.” Quarterly Journal of Economics 129 (4): 1553-1623. Publisher's Version Abstract

We use administrative records on the incomes of more than 40 million children and their parents to describe three features of intergenerational mobility in the United States. First, we characterize the joint distribution of parent and child income at the national level. The conditional expectation of child income given parent income is linear in percentile ranks. On average, a 10 percentile increase in parent income is associated with a 3.4 percentile increase in a child's income. Second, intergenerational mobility varies substantially across areas within the U.S. For example, the probability that a child reaches the top quintile of the national income distribution starting from a family in the bottom quintile is 4.4% in Charlotte but 12.9% in San Jose. Third, we explore the factors correlated with upward mobility. High mobility areas have (1) less residential segregation, (2) less income inequality, (3) better primary schools, (4) greater social capital, and (5) greater family stability. While our descriptive analysis does not identify the causal mechanisms that determine upward mobility, the publicly available statistics on

intergenerational mobility developed here can facilitate research on such mechanisms.

Paper Slides
Hendren, Nathaniel. 2014. “Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets.” Geneva Risk and Insurance Review 39 (2): 176-183. Publisher's Version Abstract

Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that insurance markets may “un- ravel”. This memo clarifies the distinction between these two notions of unraveling in the context of a binary loss model of insurance. I show that the two concepts are mutually exclusive occurrences. Moreover, I provide a regularity condition under which the two concepts are exhaustive of the set of possible occurrences in the model. Akerlof unraveling characterizes when there are no gains to trade; Rothschild and Stiglitz unraveling shows that the standard notion of competition (pure strategy Nash equilibrium) is inadequate to describe the workings of insurance markets when there are gains to trade.

Paper Lecture Slides
Gruber, Jonathan, Nathaniel Hendren, and Robert M Townsend. 2014. “The Great Equalizer: Health Care Access and Infant Mortality in Thailand.” American Economic Journal: Applied Economics 6 (1): 91 - 107. Abstract

This paper analyzes Thailand’s 2001 healthcare reform, “30 Baht”. The program increased funding available to hospitals to care for the poor and reduced copays to 30 Baht (~$0.75). Our estimates suggest the supply-side funding of the program increased healthcare utilization, especially amongst the poor. Moreover, we find significant impacts on infant mortality: prior to 30 Baht poorer provinces had significantly higher infant mortality rates than richer provinces. After 30 Baht this correlation evaporates to zero. The results suggest that increased access to healthcare among the poor can significantly reduce their infant mortality rates.

Paper
Hendren, Nathaniel. 2013. “Private Information and Insurance Rejections.” Econometrica 81 (5): 1713-1762. Slate Article Abstract

Across a wide set of nongroup insurance markets, applicants are rejected based on observable, often high-risk, characteristics. This paper argues that private information, held by the potential applicant pool, explains rejections. I formulate this argument by developing and testing a model in which agents may have private information about their risk. I first derive a new no-trade result that theoretically explains how private in- formation could cause rejections. I then develop a new empirical methodology to test whether this no-trade condition can explain rejections. The methodology uses subjec- tive probability elicitations as noisy measures of agents’ beliefs. I apply this approach to three nongroup markets: long-term care, disability, and life insurance. Consistent with the predictions of the theory, in all three settings I find significant amounts of private information held by those who would be rejected; I find generally more private infor- mation for those who would be rejected relative to those who can purchase insurance, and I show it is enough private information to explain a complete absence of trade for those who would be rejected. The results suggest that private information prevents the existence of large segments of these three major insurance markets.

Paper Underwriting Guidelines Supplemental Appendix Slides
Book Chapter

Nathaniel Hendren of Harvard University reviews "Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry", by Howard C. Kunreuther, Mark V. Pauly, and Stacey McMorrow. The Econlit abstract of this book begins: "Explores the behavior of individuals at risk, insurance industry decision-makers, and policymakers at the local, state, and federal levels involved in the selling, buying, and regulating of insurance. Discusses an introduction to insurance in practice and theory; anomalies and rumors of anomalies; behavior consistent with benchmark models; real-world complications; why people do or do not demand insurance; demand anomalies; descriptive models of insurance supply; anomalies on the supply side; design principles for insurance; strategies for dealing with insurance-related anomalies; innovations in insurance markets through multiyear contracts; publicly provided social insurance; and a framework for prescriptive recommendations. Kunreuther is James G. Dinan Professor of Decision Sciences and Business and Public Policy in the Wharton School and Co-director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania. Pauly is Bendheim Professor in the Department of Health Care Management in the Wharton School at the University of Pennsylvania. McMorrow is a research associate in the Health Policy Center at the Urban Institute."

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