Essays in Applied Microeconomics and Finance

This dissertation consists of three essays that examine how new technologies help to alleviate financial frictions, and how monetary incentives can improve the performance of local politicians. In two chapters, I study the effects of high-speed internet on banking and credit. In another chapter, I estimate the causal effect of higher mayoral wages on public procurement outcomes. The first chapter studies the impact of access to broadband internet on bank credit supply to nonfinancial firms. We rely on granular micro-data from Italy and instrument the staggered arrival of broadband through the historical presence of telephone infrastructures. We find that banks with branches in municipalities reached by fast internet increase loan supply, both at the extensive and the intensive margin. We document that the expansion of credit goes through two main channels: banks improve internal efficiency; competition in municipalities reached by broadband internet increases. Moreover, we find that growing competition pushes down credit prices. To increase lending, fast internet also leads banks to expand their geographical markets and to make internal credit reallocation. Finally, while broadband connection moves credit away from smaller municipalities, it still benefits local economic growth as firms obtain more credit from branches located in larger municipalities. The second chapter exploits the staggered arrival of submarine cables in Africa and shows that high-speed internet lifted financial markets. We document a novel mechanism through which fast internet promotes banking and credit supply. Plummeting telecommunication costs induce banks to adopt new financial technologies, the real-time gross settlement system (RTGS), which lower transaction costs and promote credit. We find that upon connecting to high-speed internet, banks adopt the RTGS, reduce liquidity hoarding and increase interbank transactions and lending. We also observe that fast internet particularly strengthens firms in countries with weak pre-existing interbank markets. The third chapter documents the causal effect of mayoral wages on procurement outcomes in Italy, using a regression discontinuity analysis. To identify the effect of mayoral wages, I use a unique characteristic of the Italian legislation, namely that mayoral remuneration varies at predetermined population thresholds. The main results are as follows. First, I show that higher mayoral wages are not related to differences in aggregate measures of procurement. Second, I show that specific procurement outcomes are affected by higher mayoral wages: the number of admitted offers increases, as do the final rebates on the reserve price; the probability that the same firm is awarded a contract repeatedly decreases; and for a limited sample, cost overruns go down. Finally, I provide evidence that re-election incentives play a role in explaining the effect of mayoral wages.