Essays on the Life-Cycle Choices

In my dissertation, I investigate households' choices along their life-cycle. In my first chapter, I examine the causes and macroeconomic consequences of academic mismatch—that is, the measured departure from perfect assortative matching—between student ability and college quality. I build a general equilibrium heterogeneous-agent model with college enrollment decisions. Agents receive noisy signals about their ability and face borrowing limits, psychic costs of education, and college capacity constraints. I estimate the model to match enrollment at colleges across student ability and ability premia across college quality. I find that the primary source of mismatch is the interaction of psychic costs (idiosyncratic tastes for colleges) with capacity constraints. If psychic costs are eliminated but capacity constraints are not relaxed, then mismatch rises by 15%. Capacity constraints themselves only account for 3% of the mismatch. However, if both psychic costs and capacity constraints are removed, mismatch falls by 40%. Noisy signals about ability account for 7%, and borrowing limits have little effect. I also find that the measure of mismatch does not help predict changes in output and welfare; output and welfare could go up or down in response to a fall in the measured mismatch. If mismatch increases due to a change in psychic costs, output also increases. In addition, if agents are sorted by ability and placed into colleges by decreasing quality, retaining the capacity constraints, mismatch falls to its minimum level, but welfare also falls. In the second chapter, coauthored with Geoffrey Carr, we paper examines the welfare implications of the unemployment insurance (UI) expansion policy under COVID-19. We build an equilibrium search and matching model with an incomplete market structure. We find that the UI policy has little to no effect on unemployment. Moreover, we find that the expansion harmed households by an average of \$2,400. Much of the benefits are paid to wealthy households choosing not to work during the pandemic due to health risk and large costs are imposed by the accumulation of government debt.