UC Santa Barbara

My dissertation studies the sectoral and regional reallocation of capital and labor for an economy in transition using general equilibrium model framework. The first chapter, ``Capital in Transition: Housing and Sectoral Reallocation in the Long Run'', studies the sectoral allocation of capital between housing and non-residential sectors using a two-sector general equilibrium model in a neoclassical growth environment. Calibrated to both the United States and China, the model can account for both the positive correlation between the share of housing capital and the consumption-output ratio in the United States and the negative correlation between the share of housing capital and the consumption-output ratio in China. The calibration to the Chinese economy implies that the rapid increase in the share of housing capital and the simultaneous decrease in the consumption-output ratio observed in China can be rationalized by a combination of three factors: a high elasticity of substitution between the two sectors, a high capital intensity of production of the housing sector, and a low initial share of housing capital before the Chinese housing market reform. This paper provides a tractable framework to understand the sectoral allocation of capital between housing and non-residential sectors across countries.

The second chapter, ``Human Capital Spillover and Housing price'', provides a model framework to study the relationship between the external effect of human capital and housing price growth in the SEZ economy in China. In a two-region model, high wage in the SEZ region reflects high level of human capital, and these jobs are not available to low human capital migrants from the non-SEZ economy. The migrants come to the SEZ economy for two reasons: on the one hand, the SEZ economy is a better place to accumulate human capital and earn a higher wage in the future; on the other hand, the SEZ economy has a better amenities for living. In the baseline model with migration, the share of population that choose to migrate to the SEZ economy is determined by the utility equalization between living in either economy. In the baseline model, the migration occurs all at once at the first period. Further, I extend the baseline model by incorporating the spillover effect of human capital: time invested in human capital accumulation has a higher return in high human capital environment. In this case, the migration to the SEZ economy becomes increasingly attractive as the gap between the human capital leaders and followers increase. By comparing the extended model with the baseline, I capture the significant positive impact of human capital spillover on the increase of housing prices.

The third chapter, `'Dynamic Arrow-Debreu Economy for General Equilibrium Analysis'', coauthored with Cheng-Zhong Qin, develops a dynamic Arrow-Debreu abstract economy to more closely capture the timing of moves of Walrasian general equilibrium model. Instead of inducing a pseudo game, the extensive form of the dynamic Arrow-Debreu abstract economy is well defined. As such, various game-theoretic solutions with and without symmetric information can be applied. We show that the set of subgame-perfect

equilibrium allocations coincides with the set of Walrasian equilibrium allocations when information is symmetric.

The set of perfect Bayesian equilibrium allocations coincides with the set of

rational expectations equilibrium allocations when information is asymmetric. These results are useful

for analyzing and refining Walrasian and rational expectations equilibrium allocations.