CAREER: Macroeconomic Implications of Gender Roles and Consumer Credit Markets: Using Quantitative Life-Cycle Models for Policy Analysis

Stanford University, Stanford CA

Investigators

Abstract

The project comprises two different components: research on the macroeconomic consequences and determinants of gender roles and the analysis of consumer credit markets. The first component advances the understanding of the importance of gender in the macroeconomic context. The research is motivated by several observations pointing towards the importance of taking women as decision-makers seriously: (1) the fact that women's rights and GDP are highly correlated across countries. (2) The fact there are more women infected with HIV than men in Sub-Saharan African countries, contrary to the US and Western Europe where HIV is a largely male phenomenon. (3) The fact that fertility and income are negatively correlated in the cross-section, but that fertility gaps become smaller as a country grows richer. The project sheds light on these observations by compiling new evidence from legal and historical sources, developing new hypotheses, and formulating the theories as mathematical models. One such novel theory is that the extension of legal rights to women in the United States during the 19th Century was largely driven by the increased importance of human capital during this time period. Giving women more decision-making power in the family can increase investment in children's human capital and thereby accelerate the growth rate in a country. Understanding the historical evolution of women's rights will be important for anyone interested in the position of women in developing countries today. The work on HIV explores new theories on how decisions about risky sexual behavior are made. The numerical simulations analyze several possible interventions and thereby provide some guidance to policy-makers. The general equilibrium models allow the incorporation of feedback effects (for example that a decrease in the infection risk through circumcision may lead to more sexual activity and hence possibly a larger prevalence rate and thus a higher infection risk) which are crucial for the success of a given policy but have been largely ignored in the literature so far. The second component analyzes changes in consumer credit markets in the United States over the last three decades. Incorporating default as an option into life-cycle models of consumption and saving behavior allows a quantitative analysis of consumer bankruptcies-which have been on the rise since the early 1980s. In 1996, the annual number of personal bankruptcies crossed the 1 million threshold, which led to an extensive policy-debate and in fact to a change of the law in 2005. The research investigates to what extent technological innovation in the financial sector may have contributed to this rise. The work provides a new theoretical framework to analyze declines in the cost of credit contracts, which allows for a more thorough understanding of which consumers benefited from the rapid expansion of credit cards. The empirical part of the project sheds new light on changes in the distribution of access to credit and interest rates faced by different consumers. Several new facts emerge (such as a substantial flattening of the interest rate distribution), which will be an important ingredient into future models of consumer credit. These findings are also expected to shape the policy debate about regulation of the consumer credit market.