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AER, JPE, QJE, ECM, RES最新一期论文
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American Economic Review
Journal of Political Economy
We introduce a simple model of dynamic matching in networked markets, where agents arrive and depart stochastically and the composition of the trade network depends endogenously on the matching algorithm. If the planner can identify agents who are about to depart, then waiting to thicken the market substantially reduces the fraction of unmatched agents. If not, then matching agents greedily is close to optimal. We specify conditions under which local algorithms that choose the right time to match agents, but do not exploit the global network structure, are close to optimal. Finally, we consider a setting where agents have private information about their departure times and design a mechanism to elicit this information.
We study optimal policy in a business-cycle setting in which firms hold dispersed private information about, or are rationally inattentive to, the state of the economy. The informational friction is the source of both nominal and real rigidity. Because of the latter, the optimal monetary policy does not target price stability. Instead, it targets a negative relation between the nominal price level and real economic activity. Such leaning against the wind helps maximize production efficiency. An additional contribution is the adaptation of the primal approach of the Ramsey literature to a flexible form of informational friction.
We develop a dynastic human capital investment framework to study the importance of family borrowing constraints and uninsured labor market risk, as well as the process of intergenerational ability transmission, in determining human capital investments in children at different ages. We calibrate our model to data from the Children of the National Longitudinal Survey of Youth. While the effects of relaxing any borrowing limit at a single stage are modest, eliminating all life-cycle borrowing limits dramatically increases investments, earnings, and intergenerational mobility. The impacts of policy changes at college-going ages are greater when anticipated earlier, and shifting subsidies to earlier ages increases aggregate welfare and human capital.
We provide a new estimator for a broad class of equilibrium models of metropolitan housing markets with housing differentiated by quality. Quality is a latent variable that captures all features of a dwelling and its environment. We estimate the model for Chicago and New York, obtaining hedonic housing price functions for each quality level for each metropolitan area, stocks of each quality, and compensating variations required for a household of a given income in Chicago to be equally well off in New York.
Women?s reluctance to negotiate is often used to explain the gender wage gap, popularizing the push for women to ?lean in? and negotiate more. Examining an environment in which women achieve positive profits when they choose to negotiate, we find that increased negotiations are not helpful. Women know when to ask: they enter negotiations resulting in positive profits and avoid negotiations resulting in negative profits. While the findings are similar for men, we find no evidence that men are more adept than women at knowing when to ask. Thus, our results caution against a greater push for women to negotiate.
In most US health insurance markets, plans face strong incentives to upcode the patient diagnoses they report to the regulator, as these affect the risk-adjusted payments that plans receive. We show that enrollees in private Medicare plans generate 6%?16% higher diagnosis-based risk scores than they would under fee-for-service Medicare, where diagnoses do not affect most provider payments. Our estimates imply that upcoding generates billions in excess public spending and significant distortions to firm and consumer behavior. We show that coding intensity increases with vertical integration, suggesting a principal-agent problem faced by insurers, who desire more intense coding from the providers with whom they contract.
We develop a general equilibrium model of asset prices in which benefits of technological innovation are distributed asymmetrically. Financial market participants do not capture all economic gains from innovation even when they own shares in innovating firms. Such gains accrue partly to the innovators, who cannot sell claims on proceeds from their future ideas. We show how the resulting inequality among agents can give rise to a high risk premium on the aggregate stock market, return comovement and average return differences among firms, and the failure of traditional representative agent asset pricing models to account for cross-sectional differences in risk premia.
This article proposes definitions of lying, deception, and damage in strategic settings. Lying depends on the existence of accepted meanings for messages but does not require a model of how the audience responds to messages. Deception does require a model of how the audience interprets messages but does not directly refer to consequences. Damage requires consideration of the consequences of messages. Lies need not be deceptive. Deception does not require lying. Lying and deception are compatible with equilibrium. I give conditions under which deception must be damaging.
We develop a dynamic limit pricing model where an incumbent repeatedly signals information relevant to a potential entrant?s expected profitability. The model is tractable, with a unique equilibrium under refinement, and dynamics contribute to large equilibrium price changes. We show that the model can explain why incumbent airlines cut prices dramatically on routes threatened with entry by Southwest, presenting new reduced-form evidence and a calibration that predicts a pattern of price changes across markets similar to the one observed in the data. We use our calibrated model to quantify the welfare effects of asymmetric information and subsidies designed to encourage Southwest?s entry.
Econometrica
Consider a researcher estimating the parameters of a regression function based on data for all 50 states in the United States or on data for all visits to a website. What is the interpretation of the estimated parameters and the standard errors? In practice, researchers typically assume that the sample is randomly drawn from a large population of interest and report standard errors that are designed to capture sampling variation. This is common even in applications where it is difficult to articulate what that population of interest is, and how it differs from the sample. In this article, we explore an alternative approach to inference, which is partly design-based. In a design-based setting, the values of some of the regressors can be manipulated, perhaps through a policy intervention. Design-based uncertainty emanates from lack of knowledge about the values that the regression outcome would have taken under alternative interventions. We derive standard errors that account for design-based uncertainty instead of, or in addition to, sampling-based uncertainty. We show that our standard errors in general are smaller than the usual infinite-population sampling-based standard errors and provide conditions under which they coincide.
We develop a tractable model of endogenous production networks. Each one of a number of products can be produced by combining labor and an endogenous subset of the other products as inputs. Different combinations of inputs generate (prespecified) levels of productivity and various distortions may affect costs and prices. We establish the existence and uniqueness of an equilibrium and provide comparative static results on how prices and endogenous technology/input choices (and thus the production network) respond to changes in parameters. These results show that improvements in technology (or reductions in distortions) spread throughout the economy via input?output linkages and reduce all prices, and under reasonable restrictions on the menu of production technologies, also lead to a denser production network. Using a dynamic version of the model, we establish that the endogenous evolution of the production network could be a powerful force towards sustained economic growth. At the root of this result is the fact that the arrival of a few new products expands the set of technological possibilities of all existing industries by a large amount?that is, if there are n products, the arrival of one more new product increases the combinations of inputs that each existing product can use from 2n?1 to 2n, thus enabling significantly more pronounced cost reductions from choice of input combinations. These cost reductions then spread to other industries via lower input prices and incentivize them to also adopt additional inputs.
This paper examines the prices of basic staples in rural Mexico. We document that nonlinear pricing in the form of quantity discounts is common, that quantity discounts are sizable for basic staples, and that the well-known conditional cash transfer program Progresa has significantly increased quantity discounts, although the program, as documented in previous studies, has not affected unit prices on average. To account for these patterns, we propose a model of price discrimination that nests those of Maskin and Riley (1984) and Jullien (2000), in which consumers differ in their tastes and, because of subsistence constraints, in their ability to pay for a good. We show that under mild conditions, a model in which consumers face heterogeneous subsistence or budget constraints is equivalent to one in which consumers have access to heterogeneous outside options. We rely on known results to characterize the equilibrium price schedule, which is nonlinear in quantity. We analyze the effect of nonlinear pricing on market participation as well as the impact of a market-wide transfer, analogous to the Progresa one, when consumers are differentially constrained. We show that the model is structurally identified from data on prices and quantities from a single market under common assumptions. We estimate the model using data on three commonly consumed commodities from municipalities and localities in Mexico. Interestingly, we find that relative to linear pricing, nonlinear pricing is beneficial to a large number of households, including those consuming small quantities, mostly because of the higher degree of market participation that nonlinear pricing induces. We also show that the Progresa transfer has affected the slopes of the price schedules of the three commodities we study, which have become steeper as consistent with our model, leading to an increase in the intensity of price discrimination. Finally, we find that a reduced form of our model, in which the size of quantity discounts depends on the hazard rate of the distribution of quantities purchased in a village, accounts for the shift in price schedules induced by the program.
We provide a tractable, quantitatively-oriented theory of innovation and technology diffusion to explore the role of international trade in the process of development. We model innovation and diffusion as a process involving the combination of new ideas with insights from other industries or countries. We provide conditions under which each country's equilibrium frontier of knowledge converges to a Fréchet distribution, and derive a system of differential equations describing the evolution of the scale parameters of these distributions, that is, countries' stocks of knowledge. The model remains tractable with many asymmetric countries and generates a rich set of predictions about how the level and composition of trade affect countries' frontiers of knowledge. We use the framework to quantify the contribution of bilateral trade costs to long-run changes in TFP and individual post-war growth miracles. For our preferred calibration, we find that both gains from trade and the fraction of variation of TFP growth accounted for by changes in trade more than double relative to a model without diffusion.
We theoretically and empirically study an incomplete information model of social learning. Agents initially guess the binary state of the world after observing a private signal. In subsequent rounds, agents observe their network neighbors' previous guesses before guessing again. Agents are drawn from a mixture of learning types?Bayesian, who face incomplete information about others' types, and DeGroot, who average their neighbors' previous period guesses and follow the majority. We study (1) learning features of both types of agents in our incomplete information model; (2) what network structures lead to failures of asymptotic learning; (3) whether realistic networks exhibit such structures. We conducted lab experiments with 665 subjects in Indian villages and 350 students from ITAM in Mexico. We perform a reduced-form analysis and then structurally estimate the mixing parameter, finding the share of Bayesian agents to be 10% and 50% in the Indian-villager and Mexican-student samples, respectively.
We provide a systematic analysis of the properties of individual returns to wealth using 12 years of population data from Norway's administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 22.1%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
Savage (1954) provided the first axiomatic characterization of expected utility without relying on any given probabilities or utilities. It is the most famous preference axiomatization existing. This note shows that Savage's axiom P3 is implied by the other axioms, which reveals its redundancy. It is remarkable that this was not noticed before as Savage's axiomatization has been studied and taught by hundreds of researchers for more than six decades.
This paper considers the problem of forecasting a collection of short time series using cross-sectional information in panel data. We construct point predictors using Tweedie's formula for the posterior mean of heterogeneous coefficients under a correlated random effects distribution. This formula utilizes cross-sectional information to transform the unit-specific (quasi) maximum likelihood estimator into an approximation of the posterior mean under a prior distribution that equals the population distribution of the random coefficients. We show that the risk of a predictor based on a nonparametric kernel estimate of the Tweedie correction is asymptotically equivalent to the risk of a predictor that treats the correlated random effects distribution as known (ratio optimality). Our empirical Bayes predictor performs well compared to various competitors in a Monte Carlo study. In an empirical application, we use the predictor to forecast revenues for a large panel of bank holding companies and compare forecasts that condition on actual and severely adverse macroeconomic conditions.
Two main classes of channels are studied as informational sources of financial contagion. One is a fundamental channel that is based on real and financial links between economies, and the second is a social learning channel that arises when agents base their decisions on noisy observations about the actions of others in foreign markets. Using global games, I present a two-country model of financial contagion in which both channels can operate and I test its predictions experimentally. The experimental results show that subjects do not extract information optimally, which leads to two systematic biases that affect these channels directly. Base-rate neglect leads subjects to underweight their prior, and thus weakens the fundamental channel. An overreaction bias strengthens the social learning channel, since subjects rely on information about the behavior of others, even when this information is irrelevant. These results have significant welfare effects rooted in the specific way in which these biases alter behavior.
Quarterly Journal of Economics
The Return to Protectionism
After decades of supporting free trade, in 2018 the United States raised import tariffs and major trade partners retaliated. We analyze the short-run impact of this return to protectionism on the U.S. economy. Import and retaliatory tariffs caused large declines in imports and exports. Prices of imports targeted by tariffs did not fall, implying complete pass-through of tariffs to duty-inclusive prices. The resulting losses to U.S. consumers and firms that buy imports was 7.2 billion, or 0.04% of GDP. Import tariffs favored sectors concentrated in politically competitive counties, and the model implies that tradeable-sector workers in heavily Republican counties were the most negatively affected due to the retaliatory tariffs.
Cash and the Economy: Evidence from India’s Demonetization
We analyze a unique episode in the history of monetary economics, the 2016 Indian “demonetization.” This policy made 86% of cash in circulation illegal tender overnight, with new notes gradually introduced over the next several months. We present a model of demonetization where agents hold cash both to satisfy a cash-in-advance constraint and for tax evasion purposes. We test the predictions of the model in the cross-section of Indian districts using several novel data sets including: the geographic distribution of demonetized and new notes for causal inference; night light activity and employment surveys to measure economic activity including in the informal sector; debit/credit cards and e-wallet transactions data; and banking data on deposit and credit growth. Districts experiencing more severe demonetization had relative reductions in economic activity, faster adoption of alternative payment technologies, and lower bank credit growth. The cross-sectional responses cumulate to a contraction in aggregate employment and night lights–based output due to the the cash shortage of at least 2 percentage points and of bank credit of 2 percentage points in 2016Q4 relative to their counterfactual paths, effects that dissipate over the next few months. Our analysis rejects monetary neutrality using a large-scale natural experiment, something that is still rare in the vast literature on the effects of monetary policy.
Productivity and Misallocation in General Equilibrium
This paper develops a general theory of aggregation in inefficient economies. We provide nonparametric formulas for aggregating microeconomic shocks in economies with distortions such as taxes, markups, frictions to resource reallocation, financial frictions, and nominal rigidities. We allow for arbitrary elasticities of substitution, returns to scale, factor mobility, and input-output network linkages. We show how to separately measure changes in technical and allocative efficiency. We also show how to compute the social cost of distortions. We pursue applications focusing on firm-level markups in the United States. We find that improvement in allocative efficiency, due to the reallocation over time of market share to high-markup firms, accounts for about half of aggregate TFP growth over the period 1997–2015. We also find that eliminating the misallocation resulting from the large and dispersed markups estimated in the data would raise aggregate TFP by about 15%, increasing the economy-wide cost of monopoly distortions by two orders of magnitude compared with the famous 0.1% estimate by Harberger (1954). These exact numbers should be interpreted with care because the data are imperfect and require substantial imputation.
Inflation Expectations and Firm Decisions: New Causal Evidence
We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms’ economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation whereas other firms are not. This information treatment generates exogenous variation in inflation expectations. We find that higher inflation expectations on the part of firms leads them to raise their prices, increase demand for credit, and reduce their employment and capital. However, when policy rates are constrained by the effective lower bound, demand effects are stronger, leading firms to raise their prices more and no longer reduce their employment.
How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry
Many industries have become increasingly concentrated through mergers and acquisitions, which in health care may have important consequences for spending and outcomes. Using a rich panel of Medicare claims data for nearly one million dialysis patients, we advance the literature on the effects of mergers and acquisitions by studying the precise ways providers change their behavior following an acquisition. We base our empirical analysis on more than 1,200 acquisitions of independent dialysis facilities by large chains over a 12-year period and find that chains transfer several prominent strategies to the facilities they acquire. Most notably, acquired facilities converge to the behavior of their new parent companies by increasing patients’ doses of highly reimbursed drugs, replacing high-skill nurses with less-skilled technicians, and waitlisting fewer patients for kidney transplants. We then show that patients fare worse as a result of these changes: outcomes such as hospitalizations and mortality deteriorate, with our long panel allowing us to identify these effects from within-facility or within-patient variation around the acquisitions. Because overall Medicare spending increases at acquired facilities, mostly as a result of higher drug reimbursements, this decline in quality corresponds to a decline in value for payers. We conclude the article by considering the channels through which acquisitions produce such large changes in provider behavior and outcomes, finding that increased market power cannot explain the decline in quality. Rather, the adoption of the acquiring firm’s strategies and practices drives our main results, with greater economies of scale for drug purchasing responsible for more than half of the change in profits following an acquisition.
Are Referees and Editors in Economics Gender Neutral?
We study the role of gender in the evaluation of economic research using submissions to four leading journals. We find that referee gender has no effect on the relative assessment of female- versus male-authored papers, suggesting that any differential biases of male referees are negligible. To determine whether referees as a whole impose different standards for female authors, we compare citations for female- and male-authored papers, holding constant referee evaluations and other characteristics. We find that female-authored papers receive about 25% more citations than observably similar male-authored papers. Editors largely follow the referees, resulting in a 1.7 percentage point lower probability of a revise and resubmit verdict for papers with female authors relative to a citation-maximizing benchmark. In their desk rejection decisions, editors treat female authors more favorably, though they still impose a higher bar than would be implied by citation maximization. We find no differences in the informativeness of female versus male referees or in the weight that editors place on the recommendations of female versus male referees. We also find no differences in editorial delays for female- versus male-authored papers.
Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark
Using administrative wealth records from Denmark, we study the effects of wealth taxes on wealth accumulation. Denmark used to impose one of the world’s highest marginal tax rates on wealth, but this tax was greatly reduced starting in 1989 and later abolished. Due to the specific design of the wealth tax, the 1989 reform provides a compelling quasi-experiment for understanding behavioral responses among the wealthiest segments of the population. We find clear reduced-form effects of wealth taxes in the short and medium run, with larger effects on the very wealthy than on the moderately wealthy. We develop a simple life cycle model with utility of residual wealth (bequests) allowing us to interpret the evidence in terms of structural primitives. We calibrate the model to the quasi-experimental moments and simulate the model forward to estimate the long-run effect of wealth taxes on wealth accumulation. Our simulations show that the long-run elasticity of taxable wealth with respect to the net-of-tax return is sizable at the top of the distribution.
Complementary Information and Learning Traps
We develop a model of social learning from complementary information: short-lived agents sequentially choose from a large set of flexibly correlated information sources for prediction of an unknown state, and information is passed down across periods. Will the community collectively acquire the best kinds of information? Long-run outcomes fall into one of two cases: (i) efficient information aggregation, where the community eventually learns as fast as possible; (ii) “learning traps,” where the community gets stuck observing suboptimal sources and information aggregation is inefficient. Our main results identify a simple property of the underlying informational complementarities that determines which occurs. In both regimes, we characterize which sources are observed in the long run and how often.
Diversification Through Trade
A widely held view is that openness to international trade leads to higher income volatility, as trade increases specialization and hence exposure to sector-specific shocks. Contrary to this common wisdom, we argue that when country-wide shocks are important, openness to international trade can lower income volatility by reducing exposure to domestic shocks and allowing countries to diversify the sources of demand and supply across countries. Using a quantitative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversification) and show that in recent decades international trade has reduced economic volatility for most countries.
Measuring Aggregate Price Indices with Taste Shocks: Theory and Evidence for CES Preferences
We develop an approach to measuring the cost of living for CES preferences that treats demand shocks as taste shocks that are equivalent to price shocks. In the presence of relative taste shocks, the Sato-Vartia price index is upward biased because an increase in the relative consumer taste for a variety lowers its taste-adjusted price and raises its expenditure share. By failing to allow for this association, the Sato-Vartia index underweights drops in taste-adjusted prices and overweights increases in taste-adjusted prices, leading to what we call a “taste-shock bias.” We show that this bias generalizes to other invertible demand systems.
Review of Economic Studies
Weak States: Causes and Consequences of the Sicilian Mafia
We document that the spread of the Mafia in Sicily at the end of the 19th century was in part caused by the rise of socialist Peasant Fasci organizations. In an environment with weak state presence, this socialist threat triggered landowners, estate managers, and local politicians to turn to the Mafia to resist and combat peasant demands. We show that the location of the Peasant Fasci is significantly affected by a severe drought in 1893, and using information on rainfall, we estimate the impact of the Peasant Fasci on the location of the Mafia in 1900. We provide extensive evidence that rainfall before and after this critical period has no effect on the spread of the Mafia or various economic and political outcomes. In the second part of the article, we use this source of variation in the strength of the Mafia in 1900 to estimate its medium-term and long-term effects. We find significant and quantitatively large negative impacts of the Mafia on literacy and various public goods in the 1910s and 20s. We also show a sizable impact of the Mafia on political competition, which could be one of the channels via which it affected local economic outcomes. We document negative effects of the Mafia on longer-term outcomes (in the 1960s, 70s, and 80s) as well, but these are in general weaker and often only marginally significant. One exception is its persistent and strong impact on political competition.
Identification and Estimation of Dynamic Games When Players’ Beliefs Are Not in Equilibrium
This article deals with the identification and estimation of dynamic games when players’ beliefs about other players’ actions are biased, that is, beliefs do not represent the probability distribution of the actual behaviour of other players conditional on the information available. First, we show that an exclusion restriction, typically used to identify empirical games, provides testable non-parametric restrictions of the null hypothesis of equilibrium beliefs in dynamic games with either finite or infinite horizon. We use this result to construct a simple Likelihood Ratio test of equilibrium beliefs. Second, we prove that this exclusion restriction, together with consistent estimates of beliefs at two points in the support of the variable involved in the exclusion restriction, is sufficient for non-parametric point-identification of players’ belief functions as well as useful functions of payoffs. Third, we propose a simple two-step estimation method. We illustrate our model and methods using both Monte Carlo experiments and an empirical application of a dynamic game of store location by retail chains. The key conditions for the identification of beliefs and payoffs in our application are the following: (1) the previous year’s network of stores of the competitor does not have a direct effect on the profit of a firm, but the firm’s own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs; and (2) firms’ beliefs are unbiased in those markets that are close, in a geographic sense, to the opponent’s network of stores, though beliefs are unrestricted, and potentially biased, for unexplored markets which are farther away from the competitors’ network. Our estimates show significant evidence of biased beliefs. Furthermore, imposing the restriction of unbiased beliefs generates a substantial attenuation bias in the estimate of competition effects.
The Glittering Prizes: Career Incentives and Bureaucrat Performance
Bureaucracies are configured differently to private sector and political organizations. Across a wide range of civil services entry is competitive, promotion is constrained by seniority, jobs are for life, and retirement occurs at a fixed age. This implies that older entering officers, who are less likely to attain the glittering prize of reaching the top of the bureaucracy before they retire, may be less motivated to exert effort. Using a nationwide stakeholder survey and rich administrative data on elite civil servants in India, we provide evidence that: (i) officers who cannot reach the senior-most positions before they retire are perceived to be less effective and are more likely to be suspended and (ii) this effect is weakened by a reform that extends the retirement age. Together, these results suggest that the career incentive of reaching the top of a public organization is a powerful determinant of bureaucrat performance.
Estimating the Elasticity of Intertemporal Substitution Using Mortgage Notches
Using a novel source of quasi-experimental variation in interest rates, we develop a new approach to estimating the Elasticity of Intertemporal Substitution (EIS). In the U.K., the mortgage interest rate features discrete jumps—notches—at thresholds for the loan-to-value (LTV) ratio. These notches generate large bunching below the critical LTV thresholds and missing mass above them. We develop a dynamic model that links these empirical moments to the underlying structural EIS. The average EIS is small, around 0.1, and quite homogeneous in the population. This finding is robust to structural assumptions and can allow for uncertainty, a wide range of risk preferences, portfolio reallocation, liquidity constraints, present bias, and optimization frictions. Our findings have implications for the numerous calibration studies that rely on larger values of the EIS.
Frictional Goods Markets: Theory and Applications
We analyse dynamic general equilibrium models with more-or-less directed search by informed buyers and random search by uninformed buyers. This nests existing specifications and generates new insights. A quantitative application concerns the welfare cost of inflation, which is known to be quite high with pure random search and low with pure directed search. Our calibration implies the impact of inflation is fairly low, in part because, in addition to the usual costs, it provides benefits by more heavily taxing high-price sellers that inefficiently profit from exploiting the uninformed. Other applications analyse analytically and numerically changes in credit conditions and information.
The Contingent Effect of Management Practices
This article investigates how the success of a management practice depends on the underlying values articulated by the management. A large U.S. transportation company is in the process of fitting its trucks with an electronic on-board recorder (EOBR) to provide drivers with information on their driving performance. The company also has commenced a multi-year initiative to remake its internal operations, the first phase of which focuses exclusively on changing values toward a greater emphasis on teamwork and empowerment. In this setting, a natural question is whether the optimal managerial practice consists of: (1) letting each driver know his or her individual performance only; or also (2) providing drivers with information about their performance with respect to other drivers. Using the EOBR-provided driver performance data, we randomize these practices across sites. The main result of our experiment is that (2) leads to better performance than (1) in a particular site if and only if the site has not yet received the values intervention, and worse performance if it has. The result is consistent with the presence of a conflict between competition-based managerial practices and a shift to a cooperation-based value system. More broadly, it highlights the role of intangible factors in determining the optimal set of managerial practices.
Consumer Scores and Price Discrimination
We study the implications of aggregating consumers’ purchase histories into scores that proxy for unobserved willingness to pay. A long-lived consumer interacts with a sequence of firms. Each firm relies on the consumer’s current score–a linear aggregate of noisy purchase signals—to learn about her preferences and to set prices. If the consumer is strategic, she reduces her demand to manipulate her score, which reduces the average equilibrium price. Firms in turn prefer scores that overweigh past signals relative to applying Bayes’ rule with disaggregated data, as this mitigates the ratchet effect and maximizes the firms’ ability to price discriminate. Consumers with high average willingness to pay benefit from data collection, because the gains from low average prices dominate the losses from price discrimination. Finally, hidden scores—those only observed by the firms—reduce demand sensitivity, increase average prices, and reduce consumer surplus, sometimes below the naive-consumer level.
Long-Term Impacts of Childhood Medicaid Expansions on Outcomes in Adulthood
We use administrative data from the Internal Revenue Service to examine long-term impacts of childhood Medicaid eligibility expansions on outcomes in adulthood at each age from 19 to 28. Greater Medicaid eligibility increases college enrolment and decreases fertility, especially through age 21. Starting at age 23, females have higher contemporaneous wage income, although male increases are imprecise. Together, both genders have lower mortality. These adults collect less from the earned income tax credit and pay more in taxes. Cumulatively from ages 19 to 28, at a 3% discount rate, the federal government recoups 58 cents of each dollar of its “investment” in childhood Medicaid.
Salience, Myopia, and Complex Dynamic Incentives: Evidence from Medicare Part D
The standard Medicare Part D drug insurance contract is non-linear—with reduced subsidies in a coverage gap—resulting in a dynamic purchase problem. We consider enrolees who arrived near the gap early in the year and show that they should expect to enter the gap with high probability, implying that, under a benchmark model with neoclassical preferences, the gap should impact them very little. We find that these enrolees have flat spending in a period before the doughnut hole and a large spending drop in the gap, providing evidence against the benchmark model. We structurally estimate behavioural dynamic drug purchase models and find that a price salience model where enrolees do not incorporate future prices into their decision-making at all fits the data best. For a nationally representative sample, full price salience would decrease enrolee spending by 31%. Entirely eliminating the gap would increase insurer spending 27%, compared to 7% for generic-drug-only gap coverage.
Using Elasticities to Derive Optimal Bankruptcy Exemptions
This article studies the optimal determination of bankruptcy exemptions for risk averse borrowers who use unsecured contracts but have the possibility of defaulting. In a large class of economies, knowledge of four variables is sufficient to determine whether a bankruptcy exemption level is optimal or should be increased or decreased. These variables are 1. the composition of households’ liabilities, 2. the sensitivity of the credit supply schedule to exemption changes, 3. the probability of filing for bankruptcy with non-exempt assets, and 4. the value given by households to a marginal dollar in different states, which can be mapped to changes in households’ consumption. I recover empirical estimates of the sufficient statistics using U.S. data over the period 2008–16 and find that increasing exemption levels improves overall welfare, although there is substantial variation in estimated welfare gains across U.S. states and income quintiles.
Regulating Household Leverage
This article studies how credit markets respond to policy constraints on household leverage. Exploiting a sharp policy-induced discontinuity in the cost of originating certain high-leverage mortgages, we study how the Dodd–Frank “Ability-to-Repay” rule affected the price and availability of credit in the U.S. mortgage market. Our estimates show that the policy had only moderate effects on prices, increasing interest rates on affected loans by 10–15 basis points. The effect on quantities, however, was significantly larger; we estimate that the policy eliminated 15% of the affected market completely and reduced leverage for another 20% of remaining borrowers. This reduction in quantities is much greater than would be implied by plausible demand elasticities and indicates that lenders responded to the policy not only by raising prices but also by exiting the regulated portion of the market. Heterogeneity in the quantity response across lenders suggests that agency costs may have been one particularly important market friction contributing to the large overall effect as the fall in lending was substantially larger among lenders relying on third-parties to originate loans. Finally, while the policy succeeded in reducing leverage, our estimates suggest this effect would have only slightly reduced aggregate default rates during the housing crisis.
Public Goods Institutions, Human Capital, and Growth: Evidence from German History
What are the origins and consequences of the state as a provider of public goods? We study public goods provision established through new laws in German cities during the 1500s. Cities that adopted the laws subsequently began to differentially produce and attract human capital and to grow faster. Legal change occurred where ideological competition introduced by the Protestant Reformation interacted with local politics. We study plagues that shifted local politics in a narrow period as sources of exogenous variation in public goods institutions, and find support for a causal interpretation of the relationship between legal change, human capital, and growth.
Manipulated Electorates and Information Aggregation
We study the aggregation of dispersed information in elections in which turnout may depend on the state. State-dependent turnout may arise from the actions of a biased and informed “election organizer”. Voters are symmetric ex ante and prefer policy a in state αα and policy bb in state ββ, but the organizer prefers policy aaregardless of the state. Each recruited voter observes a private signal about the unknown state but does not learn the turnout. First, we characterize how the outcomes of large elections depend on the turnout pattern across states. In contrast to existing results for large elections, there are equilibria in which information aggregation fails whenever there is an asymmetry in turnout; information aggregation is only guaranteed in all equilibria if turnout is state independent. Second, when the turnout is the result of costly voter recruitment by a biased organizer, the organizer can ensure that its favourite policy aa is implemented with high probability independent of the state as the voter recruitment cost vanishes. Moreover, information aggregation will fail in all equilibria. The critical observation is that a vote is more likely to be pivotal for the decision if turnout is smaller, leading to a systematic bias of the decision toward the low-turnout state.
Optimal Bank Regulation and Fiscal Capacity
Financial regulation is harmonized across countries even though countries vary in their ability to bail-out their banking sector in the event of a crisis. This article addresses the question of whether countries with different fiscal capacity should optimally have different bank regulation, implemented—among other tools—through capital requirements—a question so far ignored by the theoretical banking literature. I show that countries with larger fiscal capacity should have lower ex ante minimum bank capital requirements, in an environment with endogenously incomplete markets and overinvestment due to “Too-Big-To-Fail” moral hazard and pecuniary externalities. I also show that, in addition to a minimum bank capital requirement, regulators in countries with strong “Too-Big-To-Fail” moral hazard should impose a limit on the liabilities pledged by financial institutions in a crisis state. This implies limits on put options/credit default swap contracts. Finally, I argue that the type of regulatory instrument used is crucial as to whether larger fiscal capacity implies more- or less-stringent bank regulation.
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