Two Essays in Applied Microeconomics

Abstract

This dissertation consists of two chapters. The first chapter: Does going to prison increase the chance that one eventually applies for U.S. disability insurance (DI)? Since the 1980's, there have been substantial increases in both the number of people who have been incarcerated and the number of people applying for DI. Both increases have caused higher costs to taxpayers. While several studies have explored the causes of the increased DI applications and several others have looked at the labor outcomes of ex-inmates, no study has yet asked whether prison itself has any effect on the DI application process. Prison, with its harsh conditions, could cause physical and mental disabilities that increase the chance of a DI application. Properly measuring this, however, requires considering any endogeneity that predisposes ex-inmates to a DI application prior to incarceration. To do this, I use the instruments of states' minimum wages and legal high school drop-out ages to explore the effect of increasing incarceration numbers on state-level DI applications. I find that prison does have a significant effect on DI applications; a 1.0% increase in incarceration causes approximately a 0.5% increase in DI applications six years after the initial increase in incarceration numbers. I find that prison's effect is especially strong for a means-tested group who also concurrently applies to Supplemental Security Income (SSI); here a 1.0% increase in prison leads to a 0.9% increase in people who apply for both DI and SSI after a six year lag. This suggests lower income groups are more sensitive to incarceration. Also, the cost of imprisonment should take into account the cost of subsequent DI applications and awards. The second chapter: This paper assesses the specific case of when a monopolist manufacturer producing two types of goods is allowed to bundle the goods when selling to retailers who are allowed to re-sell the goods individually, have territorial market power and have heterogeneity in the resale demand functions. While the literature covers bundling in a variety of forms, no paper has considered the effect that the presence of multiple retailers may have on an upstream manufacturer who bundles and how benefits to bundling may accrue to consumers, retailers, and manufacturer in the presence of retailer heterogeneity. It is shown that under plausible circumstances, the ability of a retailer to retain profit in the face of bundling may prevent consumers in other markets from realizing greater welfare-enhancing effects although bundling in these cases at least weakly improves consumer welfare and never diminishes it. It is also shown by example, that in the case of three retailers, some retailers may actually profit more when the upstream manufacturer bundles while other retailers may profit less. This suggests that in certain cases some retailers may even favor upstream bundling as their interests align with that of the manufacturer.