Two Essays in Economics of Education and Political Economy

Abstract

This dissertation consists of two unrelated topics in economics. One in economics of education and another one in political economy.

In the first chapter, we introduce a new approach to measuring the match between education and occupation by using the number of college courses related to one's occupation. Previous studies have only considered the match between college "major'' and occupation. That approach ignores the content of education and the courses taken in college. We find that taking courses in college that are relevant to one's occupation is significantly associated with higher wages, which can be taken as evidence against the notion that returns to college are principally a matter of signaling. A student's wage increases, on average, by 1.5-2.1 percent for each matched course.

In the second chapter, we look at the political economy of regulatory cycles. Financial regulatory policy in the U.S. has been conspicuously pro-cyclical over the last two decades. A closer look at historical financial boom-bust cycles suggests that, in fact, pro-cyclicality in financial regulation is a common and recurring pattern. This chapter combines a signaling model of elections with a simple financial regulation model to study how public opinion, financial innovation, and policy-makers incentives shape financial regulation. While changes in voters’ perceptions of financial innovation alone can generate a pro-cyclical pattern, we show that this cyclicality can be significantly amplified by politicians’ electoral incentives: Both over-regulation and under-regulation can naturally arise in equilibrium, and small changes in public opinion can induce large regulatory shifts.