NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Xiao Yu Wang

Department of Economics
Duke University
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Tel: 919/660-1814

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NBER Program Affiliations: DEV
NBER Affiliation: Faculty Research Fellow

NBER Working Papers and Publications

February 2016The Limits of Meritocracy: Screening Bureaucrats Under Imperfect Verifiability
with Juan Carlos Suárez Serrato, Shuang Zhang: w21963
Meritocracies that aim to identify high-ability bureaucrats are less effective when performance is imperfectly observed. First, we show meritocratic governments forgo output maximization when they design incentives that screen for ability. This trade-off has empirical implications that reveal whether governments prioritize screening. We show Chinese governments used the One Child Policy to screen mayors, implying a meritocratic objective. Second, we show misreporting limits bureaucratic screening. Using a non-manipulated measure of performance, we show mayors misreported performance metrics, and that promoted mayors were not of higher ability. We thus challenge the notion that meritocratic promotions were effective substitutes for democratic institutions.
August 2014Risk Sorting, Portfolio Choice, and Endogenous Informal Insurance
w20429
Heterogeneously risk-averse individuals who lack access to formal insurance build and use relationships with each other to manage risk. I study the formation of these relationships. I show that the composition of equilibrium groups under pairwise matching and when group size is endogenous is determined by a trade-off in expected return and variance of return (captured by the coefficient of variation) across differentially risky productive opportunities, even when output distributions are skewed and have infinitely-many nonzero cumulants. This has important policy implications. For example, a policy which ignores the equilibrium response of informal institutions may exacerbate inequality and hurt most those it intended to help: a reduction in aggregate risk may lead to an increase in risk b...
 
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