Dissertation Defense: Gretchen Sileo

Candidate: Gretchen Sileo

Major: Economics

Advisor: Nathan Miller, Ph.D.

Title: Industrial Organization of Public Institutions

This dissertation consists of two chapters on the industrial organization of public institutions. In the first chapter, Proactive and Reactive Infrastructure Investment, I examine investment decisions of drinking water system managers in the United States. Properly functioning infrastructure is maintained through investment. A proactive investment strategy prevents failures but requires expenditures before quality deteriorates. A reactive investment strategy accepts some risk of failure to avoid unnecessary expenditures. I explore proactive and reactive investments in a newly collected dataset on Kentucky drinking water systems to assess the ability of system managers to maintain infrastructure quality. I establish that proactive and reactive investments differentially reduce the probability of a future system failure, and that both managers and consumers are sensitive to system quality. I construct and estimate a dynamic discrete choice model of system manager infrastructure investment decisions incorporating the empirical relationships and investment strategy intuition. Through simulations, I determine that investment is currently too low to successfully prevent the decline of system quality. Counterfactual policies that promote only proactive projects lead some managers to make unnecessary investments even as other systems become vulnerable to extreme quality decline. By contrast, policies that facilitate more effective reactive investment incorporate more equitable levels of risk, reduce overspending, and enable all managers to maintain system quality.

In the second chapter, The Price That Inmates Pay, co-authored with Marleen Marra and Nathan H. Miller, we study the prison phone industry. Incarcerated individuals in the United States purchase goods and services from monopoly vendors selected by their correctional authority. We study the price that inmates pay for phone calls, which the Federal Communications Commission has characterized as “exorbitant.” We specify an auction model of procurement and estimate it using data from public records requests. Our results indicate that market power contributes to high prices but that more important are kickbacks (or “commissions”) that providers give to the correctional authority. Regulation that substantially lowers price and eliminates commissions can more than double inmate surplus and simultaneously enable providers to recover their costs.