Welcome to my website!
I am Linchuan Xu, a PhD candidate in Economics at the London School of Economics and Political Science (LSE). My main areas of research interest are development, environmental economics, and macro-development.
You can access my CV here.
Email: l.xu25@lse.ac.uk
Abstract: Can the market correct misallocations and promote development through endogenous institutional change? This paper studies the role of recruitment agencies in mitigating spatial labor misallocations in China. Using a newly constructed dataset, I find that such profit-driven labor intermediaries established branches to arbitrage away pre-existing inter-regional wage disparities. Exploiting the staggered rollout of agencies in difference-in-differences and IV designs, the analysis shows that the expansion of agency networks facilitated temporary mobility of low-skilled workers and reduced regional wage dispersion by 10%. This translates into 3% aggregate output gains by 2010, of which agencies appropriated 40% as profits. I develop a neoclassical growth model with endogenous agency dynamics, where initial misallocations create pecuniary incentives for agencies who in turn speed up regional convergence. Promoting agency workers’ transition into the permanent labor force in receiving regions can generate large efficiency gains while also ensuring these gains are more widely shared.
Funding: STICERD
with Timothy Besley (LSE), Konrad Burchardi (IIES), and Maitreesh Ghatak (LSE)
Abstract: Expanding credit market access is a potential source of economic empowerment and can also have equilibrium effects on wages so that the gains from financial development are widely shared. But others see credit market expansion as an unwelcome process of ''financialization'' with many of the gains being appropriated by financial institutions. This paper explores the consequences of financial sector expansion for profits, wages and entrepreneurial activity using a calibrated general equilibrium model with financial frictions, endogenous default, and wealth inequality. The model examines how the surplus created in the real economy by expanding financial markets is shared between borrowers, lenders, and workers. We show that competition and the contracting environment are important determinants of the gains from financial inclusion.
with Timothy Besley (LSE) and Maitreesh Ghatak (LSE)
Abstract: This paper builds a framework for understanding the dynamics of motivation and the missions adopted by profit-maximizing firms. The approach is useful for thinking about the dynamic consequences of adopting missions such as Diversity, Equity, and Inclusion (DEI) or Environmental, Social, and Governance (ESG) goals. By embedding these ideas in a model of cultural evolution via workplace socialization, we explore when, in the long-run, such goals can become consistent with profit-maximization even if they involve pecuniary costs. The incentives of a firm's owners can be important, with more patient and mission-oriented ownership likely to making a mission sustainable in the long-run. However, we show that there is the possibility of hysteresis, whereby how a firm behaves in its early years can have long-run consequences that are robust to subsequent changes of ownership. Throughout the paper we focus on cases where mission choice is voluntary, but we also discuss the case for regulations that impose requirements to adopt such missions at the firm level.
Abstract: Should the government set up a separate ministry for all environmental issues, or ask all the existing decentralized and regional political organizations to have an environment mandate? This paper studies how organizational forms, i.e. the ''shell'' of the bureaucracy, incentivize political agents to internalize environment related externalities. The theory of M-form versus U-form organizations features negative spillovers among different bureaucratic tasks, as well as spatial pollution externality that one region generates to another. I show that the optimality of organizational form depends crucially on the intensity of these externalities, and M-form reform may work to deliver better environmental performances only when spatial pollution externality is less salient and task spillovers are stronger. I further argue that the simple form of yardstick competition among bureaucrats, which is often believed to favor M-form organization, may exacerbate the environmental problem. I examine the empirical setting of River Chief System in China as a shift from U-form to M-form in river management. With water quality observations from monitoring stations and environmental management information from 2015 to 2020, the empirical results emphasize the heterogeneity of the effectiveness of M-form reform on river quality, which are largely consistent with the theoretical predictions.
Abstract: This paper develops a heterogeneous agent model of biological resources extraction, where wealth accumulation interacts with ecological dynamics. If extracting certain resources is capital intensive, only wealthy agents can extract them under capital market imperfections; the poor instead live on the labor-intensive extraction of alternative resources. The overfishing problem may partially offset such income gap because depleting the species of the rich may benefit the poor through ecosystem interactions. I derive the optimal biodiversity conservation policy which corrects externalities on the future stock of both the harvested species and the alternative species that others rely upon. The theoretical framework is then applied to Lake Victoria, where the invasive Nile perch was introduced in the 1960s to commercialize the fishing industry but caused severe biodiversity loss of the native species. Quantitative results highlight the efficiency and equity tradeoff of alternative fishing regulations central to the current policy debate. Selectively protecting certain species may not be optimal even if one values them the most.
with Lachi Singh (LSE)
Abstract: There is a growing literature on electric vehicles (EVs) adoption in developed countries, but not much discussion on what that transition path would be for the developing world. The transportation sector in India is characterized by a wide variety of vehicles (two-wheelers, three-wheelers, etc.) with different ownership structure and driving usage. Combining the vehicle registration dataset with measures of pollution, traffic congestion and government subsidies, we explore the effect of subsidies on EV adoption and environment outcomes in India. We use a quantitative framework to explore how complementary policies, such as congestion zones and charging station subsidies, could better facilitate the green transition. We emphasize a unique channel that can contribute to a better understanding of the environmental effects of EV adoption policies in developing countries: a reduction in clean vehicle price due to subsidies could increase vehicle ownership and therefore lead to more traffic congestion. Gasoline vehicle drivers will spend more time on the road generating higher pollution. The overall environmental benefits from EV subsidies will crucially depend on the ownership effect and the speed of substitution from dirty to clean vehicles.
Funding: IGC
EC428 Development and Growth (2023-2026)
PP440 Micro and Macro Economics for Public Policy (2024-2025)
PP450 Public Organization: Theory and Practice (2022-2024)
EC411 Microeconomics (2022-2023)
EC201 Microeconomic Principles I (2021-2022)
with Maitreesh Ghatak and Ramya Raghavan, The India Forum, September 2022
