Linchuan Xu

Welcome to my website!

I am Linchuan Xu, a fifth year PhD student in the Department of Economics at the London School of Economics and Political Science (LSE). My main areas of research interest are development economics, environmental economics and organizational economics.

I obtained MRes in Economics (with Distinction) and MSc in Economics (with Distinction), both from the LSE. I did my undergraduate degree in English Literature from Beijing Foreign Studies University.

Email: l.xu25@lse.ac.uk

Working Papers

Organizational Form and River Quality: Theory and Evidence from China [PDF]

Abstract: Should the government set up a separate ministry for all environmental issues, or ask all the existing decentralized and regional political organizations to have an environment mandate? This paper studies how organizational forms, i.e. the ''shell'' of the bureaucracy, incentivize political agents to internalize environment related externalities. The theory of M-form versus U-form organizations features negative spillovers among different bureaucratic tasks, as well as spatial pollution externality that one region generates to another. I show that the optimality of organizational form depends crucially on the intensity of these externalities, and M-form reform may work to deliver better environmental performances only when spatial pollution externality is less salient and task spillovers are stronger. I further argue that the simple form of yardstick competition among bureaucrats, which is often believed to favor M-form organization, may exacerbate the environmental problem. I examine the empirical setting of River Chief System in China as a shift from U-form to M-form in river management. With water quality observations from monitoring stations and environmental management information from 2015 to 2020, the empirical results emphasize the heterogeneity of the effectiveness of M-form reform on river quality, which are largely consistent with the theoretical predictions.

Empowerment or Financialization? The Gains from Financial Inclusion [PDF]

with Timothy Besley (LSE), Konrad Burchardi (IIES), and Maitreesh Ghatak (LSE)

Abstract: Expanding credit market access is a potential source of economic empowerment and can also have equilibrium effects on wages so that the gains from financial development are widely shared. But others see credit market expansion as an unwelcome process of ''financialization'' with many of the gains being appropriated by financial institutions. This paper explores the consequences of financial sector expansion for profits, wages and entrepreneurial activity using a calibrated general equilibrium model with financial frictions, endogenous default, and wealth inequality. The model examines how the surplus created in the real economy by expanding financial markets is shared between borrowers, lenders, and workers. We show that competition and the contracting environment are important determinants of the gains from financial inclusion.

Organizational Purpose and the Dynamics of Motivation

with Timothy Besley (LSE) and Maitreesh Ghatak (LSE)

Abstract: This paper builds a framework for understanding the dynamics of motivation and the missions adopted by profit-maximizing firms. The approach is useful for thinking about the dynamic consequences of adopting missions such as Diversity, Equity, and Inclusion (DEI) or Environmental, Social, and Governance (ESG) goals. By embedding these ideas in a model of cultural evolution via workplace socialization, we explore when, in the long-run, such goals can become consistent with profit-maximization even if they involve pecuniary costs. The incentives of a firm's owners can be important, with more patient and mission-oriented ownership likely to making a mission sustainable in the long-run. However, we show that there is the possibility of hysteresis, whereby how a firm behaves in its early years can have long-run consequences that are robust to subsequent changes of ownership. Throughout the paper we focus on cases where mission choice is voluntary, but we also discuss the case for regulations that impose requirements to adopt such missions at the firm level.

Work in Progress

"Second-Class" Workers and China's Productivity Growth (Job Market Paper)

Biodiversity and Inequality: Theory and Application on Lake Victoria

Abstract: Biodiversity conditions have experienced more rapid changes than ever before, yet the economic and distributional impact of such changes on human society remains largely under-explored. I develop a heterogenous agent model with natural resources extraction, as well as the interactions of these resources in the ecosystem. If the extraction of certain resources is capital intensive, only rich enough entrepreneurs can extract them under market imperfections; the poor instead lives on the labor-intensive extraction of alternative resources. Such income gap is partially offset by the overfishing problem as more people develop into the capital-intensive extraction, which reduces its natural stock but may benefit the poor who lives on the alternatives. Hence while a well-functioning capital market may facilitate the poor to take up the capital-intensive technology, it also speeds up the further decline of natural resources and people crowding in the backward technology. I apply the theory to the empirical setting of Lake Victoria, where the invasive Nile perch was introduced in the 1960s to commercialize the fishing industry but has caused severe biodiversity loss of the native fish species. The calibrated framework allows me to evaluate the environment and distributional implications of different fishing regulation proposals central to the policy debate: the existing policy regime requiring a minimum mesh size to protect the juvenile fish, and an alternative plan of fishing quotas that can be traded among rich and poor fishermen.

A Third Way of Green Transition? Adoption of Electric Vehicles in India

with Lachi Singh (LSE)

Abstract: There is a growing literature on electric vehicles (EVs) adoption in developed countries, but not much discussion on what that transition path would be for the developing world. The transportation sector in India is characterized by a wide variety of vehicles (two-wheelers, three-wheelers, etc.) with different ownership structure and driving usage. Combining the vehicle registration dataset with measures of pollution, traffic congestion and government subsidies, we explore the effect of subsidies on EV adoption and environment outcomes in India. We use a quantitative framework to explore how complementary policies, such as congestion zones and charging station subsidies, could better facilitate the green transition. We emphasize a unique channel that can contribute to a better understanding of the environmental effects of EV adoption policies in developing countries: a reduction in clean vehicle price due to subsidies could increase vehicle ownership and therefore lead to more traffic congestion. Gasoline vehicle drivers will spend more time on the road generating higher pollution. The overall environmental benefits from EV subsidies will crucially depend on the ownership effect and the speed of substitution from dirty to clean vehicles.

Teaching

Teaching Fellow in Economics and Public Policy, LSE (2022-)

EC428 Development and Growth (2023-)

PP440 Micro and Macro Economics for Public Policy (2024-2025)

PP450 Public Organization: Theory and Practice (2022-2024)

EC411 Microeconomics (2022-2023)

Graduate Teaching Assistant, LSE (2021-2022)

EC201 Microeconomic Principles I (2021-2022)

Essays

Trends in Economic Inequality in India

with Maitreesh Ghatak and Ramya Raghavan, The India Forum, September 2022

There has been an increase in economic inequality in India over the past few decades, with the rich-poor gaps among the largest of several peer economies. Household surveys show that alongside the slowdown of growth in recent years, there appears to have been some decrease in inequality.

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