Showing papers in "Quarterly Journal of Economics in 2023"
TL;DR: The authors examined the labor market implications of the EU posting policy, a large temporary migration program facilitated by the liberalization of the free provision of services in Europe, and found that posted workers are mostly sent from low-wage countries to perform manual tasks in sectors formerly insulated from trade, and they represent a substantial share of EU migrant workers.
Abstract:
This paper examines the labor market implications of the EU posting policy, a large temporary migration program facilitated by the liberalization of the free provision of services in Europe. Posting allows EU firms to send (“post”) their employees abroad to export customer-facing services. Combining administrative data and quasi-experimental policy variation, I find that the policy permanently increased total factor mobility in Europe without crowding-out of traditional migration. This result suggests that unrealized gains from trade in factor services remained despite the absence of regulatory barriers to trade and migration in the EU. Furthermore, posted workers are mostly sent from low-wage countries to perform manual tasks in sectors formerly insulated from trade, and they represent a substantial share of EU migrant workers. In receiving countries, posting had persistent negative effects on employment for domestic workers in the more exposed sectors and local labor markets, but it had no effects on domestic wages. In low-wage sending countries, firms in formerly “nontradable” sectors experienced increased sales, profits, and tax payments when exporting services through posting. Posted workers earn more once sent abroad but remain paid at lower wages than comparable domestic workers in the receiving country. Wage gains for posted workers are mostly explained by minimum wages enforced by the EU policy, highlighting the role of labor market regulations in shaping the way gains from globalization are shared between labor and capital owners in origin countries.
4 citations
TL;DR: In this paper , the authors use census data to show that married cousins are more rural and have lower-paying occupations, and they also gradually shift to higher-paying occupation, driven by the social and cultural effects of dispersed family ties rather than genetics.
Abstract:
Close-kin marriage, by sustaining tightly knit family structures, may impede development. We find support for this hypothesis using U.S. state bans on cousin marriage. Our measure of cousin marriage comes from the excess frequency of same-surname marriages, a method borrowed from population genetics that we apply to millions of marriage records from the eighteenth to the twentieth century. Using census data, we first show that married cousins are more rural and have lower-paying occupations. We then turn to an event study analysis to understand how cousin marriage bans affected outcomes for treated birth cohorts. We find that these bans led individuals from families with high rates of cousin marriage to migrate off farms and into urban areas. They also gradually shift to higher-paying occupations. We also observe increased dispersion, with individuals from these families living in a wider range of locations and adopting more diverse occupations. Our findings suggest that these changes were driven by the social and cultural effects of dispersed family ties rather than genetics. Notably, the bans also caused more people to live in institutional settings for the elderly, infirm, or destitute, suggesting weaker support from kin.
4 citations
TL;DR: In this article , a general equilibrium, multicountry, multisector model of trade with two key ingredients: (i) endogenous trade imbalances arising from households' consumption and saving decisions; (ii) labor market frictions across and within sectors.
Abstract: Abstract We argue that modeling trade imbalances is crucial for understanding transitional dynamics in response to globalization shocks. We build and estimate a general equilibrium, multicountry, multisector model of trade with two key ingredients: (i) endogenous trade imbalances arising from households’ consumption and saving decisions; (ii) labor market frictions across and within sectors. We use our model to perform several empirical exercises. We find that the “China shock” accounted for 28% of the decline in U.S. manufacturing between 2000 and 2014—1.65 times the magnitude predicted from a model imposing balanced trade. A concurrent rise in U.S. service employment led to a negligible aggregate unemployment response. We benchmark our model’s predictions for the gains from trade against the popular ACR sufficient-statistics approach. We find that our predictions for the long-run gains from trade and consumption dynamics significantly diverge.
3 citations
TL;DR: The authors investigated gender differences in the job search process in the field and lab and found that women accepted jobs substantially earlier than men, and a sizable gender earnings gap in accepted offers, which narrows in favor of women over the course of the search period.
Abstract:
This article investigates gender differences in the job search process in the field and lab. Our analysis is based on rich information on initial job offers and acceptances from undergraduates of Boston University’s Questrom School of Business. We find (i) a clear gender difference in the timing of job offer acceptance, with women accepting jobs substantially earlier than men, and (ii) a sizable gender earnings gap in accepted offers, which narrows in favor of women over the course of the job search period. To understand these patterns, we develop a job search model that incorporates gender differences in risk aversion and overoptimism about prospective offers. We validate the model’s assumptions and predictions using the survey data and present empirical evidence that the job search patterns in the field can be partly explained by the greater risk aversion displayed by women and the higher levels of overoptimism displayed by men. We replicate these findings in a laboratory experiment that features sequential job search and provide direct evidence on the purported mechanisms. Our findings highlight the importance of risk preferences and beliefs for gender differences in job-finding behavior and, consequently, early-career wage gaps among the highly educated.
3 citations
TL;DR: In this article , the authors showed that moderate wealth taxation may be a more appealing alternative than capital income taxation, which can be significantly more distorting under return heterogeneity than under the equal-returns assumption.
Abstract:
How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent return heterogeneity, we revisit this question. With heterogeneity, the two tax systems typically have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive and therefore generate more income pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average welfare. Turning to optimal taxation, the optimal wealth tax (OWT) is positive and yields large welfare gains by raising efficiency and lowering inequality. In contrast, the optimal capital income tax (OKIT) is negative– a subsidy– and delivers lower welfare gains than OWT, owing to the welfare losses from higher inequality. Furthermore, when the transition path is considered, the gains from OKIT turn into significant welfare losses for existing cohorts, whereas OWT continues to deliver robust welfare gains. These results suggest that moderate wealth taxation may be a more appealing alternative than capital income taxation, which can be significantly more distorting under return heterogeneity than under the equal-returns assumption.
2 citations
TL;DR: In this article , the authors leverage the as-if random assignment of nonviolent misdemeanor cases to assistant district attorneys (ADAs) who decide whether a case should be prosecuted in the Suffolk County District Attorney's Office in Massachusetts and find that for the marginal defendant, nonprosecution of a nonviolent misdemeanor offense leads to a 53% reduction in the likelihood of a new criminal complaint and a 60% reduction of new criminal complaints over the next two years.
Abstract: Abstract Communities across the United States are reconsidering the public safety benefits of prosecuting nonviolent misdemeanor offenses, yet there is little empirical evidence to inform policy in this area. We report the first estimates of the causal effects of misdemeanor prosecution on defendants’ subsequent criminal justice involvement. We leverage the as-if random assignment of nonviolent misdemeanor cases to assistant district attorneys (ADAs) who decide whether a case should be prosecuted in the Suffolk County District Attorney’s Office in Massachusetts. These ADAs vary in the average leniency of their prosecution decisions. We find that for the marginal defendant, nonprosecution of a nonviolent misdemeanor offense leads to a 53% reduction in the likelihood of a new criminal complaint and a 60% reduction in the number of new criminal complaints over the next two years. These local average treatment effects are largest for defendants without prior criminal records, suggesting that averting criminal record acquisition is an important mechanism driving our findings. We also present evidence that a recent policy change in Suffolk County imposing a presumption of nonprosecution for nonviolent misdemeanor offenses had similar beneficial effects, decreasing the likelihood of subsequent criminal justice involvement.
2 citations
TL;DR: In this article , the role of spatial competition between intermediaries in determining the prices that farmers receive in India by focusing on a law that restricts farmers to selling their goods to intermediary in their own state.
Abstract: Abstract Market power of intermediaries contributes to the low incomes of farmers in India. I study the role of spatial competition between intermediaries in determining the prices that farmers receive in India by focusing on a law that restricts farmers to selling their goods to intermediaries in their own state. I show that the discontinuities in market power generated by the law translate into discontinuities in prices. Increasing spatial competition by one standard deviation causes prices received by farmers to increase by 6.4%. I propose and estimate a quantitative spatial model of bargaining and trade to shed light on spatial and aggregate implications. Estimates from the structural model suggest that removing the interstate trade restriction in India would increase competition between intermediaries. Thereby average farmer prices and their output would increase by at least 11% and 7%, respectively. The value of the national crop output would increase by at least 18%. However, there are distributional consequences as well, as some farmers stand to lose due to increased local production.
2 citations
TL;DR: In this paper , the authors developed a new class of general-equilibrium models with partially unfunded debt to propose a fiscal theory of persistent inflation, where the monetary authority controls inflation and the fiscal authority stabilizes debt.
Abstract:
We develop a new class of general-equilibrium models with partially unfunded debt to propose a fiscal theory of persistent inflation. In response to business cycle shocks, the monetary authority controls inflation and the fiscal authority stabilizes debt. However, the central bank accommodates unfunded fiscal shocks, causing persistent movements in inflation, output, and real interest rates. In an estimated quantitative model, fiscal inflation accounts for the bulk of inflation dynamics. In the aftermath of the pandemic, unfunded fiscal shocks sustain the recovery, but also cause a persistent increase in inflation. The model is able to predict the inflationary effects of the American Rescue Plan Act (ARPA) fiscal stimulus out of sample and with real time data.
1 citations
TL;DR: In this article , the authors provide evidence for a bias that is called Representative Signal Distortion (RSD) which is particularly relevant to settings of statistical discrimination, where subjects distort their evaluation of new evidence on individual group members and interpret such information to be more representative of the group to which the individual belongs (relative to a reference group).
Abstract:
We provide evidence for a bias that we call “representative signal distortion” (RSD) which is particularly relevant to settings of statistical discrimination. Experimental subjects distort their evaluation of new evidence on individual group members and interpret such information to be more representative of the group to which the individual belongs (relative to a reference group) than it really is. This produces a discriminatory gap in the evaluation of members of the two groups. Because it is driven by representativeness, the bias (and the discriminatory gap) disappears when subjects are prevented from contrasting different groups; because it is a bias in the interpretation of information, it disappears when subjects receive information before learning of the individual’s group. We show that this bias can be easily estimated from appropriately constructed datasets and can be distinguished from previously documented inferential biases in the literature. Importantly, we document how removing the bias produces a kind of free lunch in reducing discrimination, making it possible to significantly reduce discrimination without lowering accuracy of inferences.
1 citations
TL;DR: In this paper , the authors build a dynamic model with granular geographical information in terms of topographical features and the location of productive agricultural land to quantitatively gauge the effects of fractured land on state formation in Eurasia.
Abstract: Abstract Patterns of state formation have crucial implications for comparative economic development. Diamond (1997) famously argued that “fractured land” was responsible for China’s tendency toward political unification and Europe’s protracted polycentrism. We build a dynamic model with granular geographical information in terms of topographical features and the location of productive agricultural land to quantitatively gauge the effects of fractured land on state formation in Eurasia. We find that topography alone is sufficient but not necessary to explain polycentrism in Europe and unification in China. Differences in land productivity, in particular the existence of a core region of high land productivity in northern China, deliver the same result. We discuss how our results map into observed historical outcomes, assess how robust our findings are, and analyze the differences between theory and data in Africa and the Americas.
1 citations
TL;DR: In this paper , the authors study learning via shared news and show that beliefs can diverge in this environment, leading to polarization, and they apply their theory to shed light on the polarization of public opinion about climate change.
Abstract: Abstract We study learning via shared news. Each period agents receive the same quantity and quality of firsthand information and can share it with friends. Some friends (possibly few) share selectively, generating heterogeneous news diets across agents. Agents are aware of selective sharing and update beliefs by Bayes’s rule. Contrary to standard learning results, we show that beliefs can diverge in this environment, leading to polarization. This requires that (i) agents hold misperceptions (even minor) about friends’ sharing and (ii) information quality is sufficiently low. Polarization can worsen when agents’ friend networks expand. When the quantity of firsthand information becomes large, agents can hold opposite extreme beliefs, resulting in severe polarization. We find that news aggregators can curb polarization caused by news sharing. Our results hold without media bias or fake news, so eliminating these is not sufficient to reduce polarization. When fake news is included, it can lead to polarization but only through misperceived selective sharing. We apply our theory to shed light on the polarization of public opinion about climate change in the United States.
TL;DR: In this article , the authors examined the relationship between ethnic-based gender norms and conflict-related sexual violence and found that male-dominant armed actors are more likely to be perpetrators of sexual violence.
Abstract:
This paper examines the relationship between ethnic-based gender norms and conflict-related sexual violence. We generate a novel dyadic dataset that contains information on the ethnic identity of all the actors involved in ethnic civil conflicts around the world between 1989 and 2019 and their use of sexual violence. We exploit ethnographic information to construct a new male dominance index at the ethnicity level that captures deep-rooted gender norms. First, we find that male-dominant armed actors are more likely to be perpetrators of sexual violence. Second, we consider the cultural distance in gender norms between the combatants, and show that sexual violence is driven by a specific clash of conceptions on the appropriate role of men and women in society: sexual violence increases when the perpetrator is more male dominant than the victim. Additional analyses suggest that gender norms influence both the strategic use of sexual violence for military purposes and the expressive use of sexual violence for private motivations. These patterns are specific to sexual violence and do not explain general violence within a conflict. Differences in other cultural dimensions unrelated to gender are not associated with conflict-related sexual violence.
TL;DR: In this paper , the effects of large, idiosyncratic, and temporary cuts to federal funding in a researcher's preexisting narrow field of study were studied. And they found that these negative federal funding shocks reduce high-tech entrepreneurship and publications but increase patenting.
Abstract: Abstract This article studies how federal funding affects the innovation outputs of university researchers. We link person-level research grants from 22 universities to patents, publications, and career outcomes from the U.S. Census Bureau. We focus on the effects of large, idiosyncratic, and temporary cuts to federal funding in a researcher’s preexisting narrow field of study. Using an event study design, we document that these negative federal funding shocks reduce high-tech entrepreneurship and publications but increase patenting. The lost publications tend to be higher quality and more basic, whereas the additional patents tend to be lower quality, less general, and more often privately assigned. These federal funding cuts lead to an increase in private funding, which partially compensates for the decline in federal funding. Together with evidence from industry-university contracts, the results suggest that federal funding cuts shift university research funding from federal to private sources and lead to innovation outputs that are less openly accessible and more often appropriated by corporate funders.
TL;DR: In this article , the authors propose a dynamic model to study the effects of market failures and government failures on a green transition, showing that market failures can prevent a welfare-increasing green transition from materializing or make an ongoing green transition too slow.
Abstract: Abstract Reducing the emissions of greenhouse gases may be almost impossible without a green transition—a substantial transformation of consumption and production patterns. To study such transitions, we propose a dynamic model, which differs from the common approach in economics in two ways. First, consumption patterns reflect not just changing prices and taxes, but changing values. Transitions of values and technologies create a dynamic complementarity that can help or hinder a green transition. Second, and unlike fictitious social planners, policy makers in democratic societies cannot commit to future policy paths, as they are subject to regular elections. We show that market failures and government failures can interact to prevent a welfare-increasing green transition from materializing or make an ongoing green transition too slow.
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TL;DR: The authors show that liberals are more willing to post a tweet opposing the movement to defund the police, are seen as less prejudiced, and face lower social sanctions when their tweet implies they had first read credible scientific evidence supporting their position.
Abstract: Abstract Dissent plays an important role in any society, but dissenters are often silenced through social sanctions. Beyond their persuasive effects, rationales providing arguments supporting dissenters’ causes can increase the public expression of dissent by providing a “social cover” for voicing otherwise stigmatized positions. Motivated by a simple theoretical framework, we experimentally show that liberals are more willing to post a tweet opposing the movement to defund the police, are seen as less prejudiced, and face lower social sanctions when their tweet implies they had first read credible scientific evidence supporting their position. Analogous experiments with conservatives demonstrate that the same mechanisms facilitate anti-immigrant expression. Our findings highlight both the power of rationales and their limitations in enabling dissent and shed light on phenomena such as social movements, political correctness, propaganda, and antiminority behavior.
TL;DR: For example, this paper found that children moving into high-exposure counties are more likely to experience post-move exposure events and exhibit significantly worse outcomes by age 26 on multiple dimensions (earnings, criminal activity, teen parenthood, mortality); effects are strongest for those who moved at earlier ages.
Abstract: Abstract Children’s indirect exposure to the justice system through biological parents or coresident adults is both a marker of their own vulnerability and a measure of the justice system’s expansive reach in society. Estimating the size of this population for the United States has historically been hampered by inadequate data resources, including the inability to observe nonincarceration events, follow children throughout their childhood, and measure adult nonbiological parent cohabitants. To overcome these challenges, we leverage billions of restricted administrative and survey records linked with Criminal Justice Administrative Records System data and find substantially larger exposure rates than previously reported: prison, 9% of children born between 1999–2005; felony conviction, 18%; and any criminal charge, 39%. Charge exposure rates exceed 60% for Black, American Indian, and low-income children. While broader definitions reach a more expansive population, strong and consistently negative correlations with childhood well-being suggest that these remain valuable predictors of vulnerability. Finally, we document substantial geographic variation in exposure, which we leverage in a movers design to estimate the effect of living in a high-exposure county during childhood. We find that children moving into high-exposure counties are more likely to experience postmove exposure events and exhibit significantly worse outcomes by age 26 on multiple dimensions (earnings, criminal activity, teen parenthood, mortality); effects are strongest for those who moved at earlier ages.
TL;DR: The Rapid Employment and Development Initiative (READI) Chicago as discussed by the authors offered an 18-month job alongside cognitive behavioral therapy and other social support to men with high potential for gun violence reduction.
Abstract: Abstract Gun violence is the most pressing public safety problem in American cities. We report results from a randomized controlled trial (N = 2,456) of a community-researcher partnership called the Rapid Employment and Development Initiative (READI) Chicago. The program offered an 18-month job alongside cognitive behavioral therapy and other social support. Both algorithmic and human referral methods identified men with strikingly high scope for gun violence reduction: for every 100 people in the control group, there were 11 shooting and homicide victimizations during the 20-month outcome period. Fifty-five percent of the treatment group started programming, comparable to take-up rates in programs for people facing far lower mortality risk. After 20 months, there is no statistically significant change in an index combining three measures of serious violence, the study’s primary outcome. Yet there are signs that this program model has promise. One of the three measures, shooting and homicide arrests, declines 65 percent (p = .13 after multiple-testing adjustment). Because shootings are so costly, READI generates estimated social savings between $182,000 and $916,000 per participant (p = .03), implying a benefit-cost ratio between 4:1 and 20:1. Moreover, participants referred by outreach workers—a prespecified subgroup—show enormous declines in both arrests and victimizations for shootings and homicides (79 and 43 percent, respectively) which remain statistically significant even after multiple-testing adjustments. These declines are concentrated among outreach referrals with higher predicted risk, suggesting that human and algorithmic targeting may work better together.
TL;DR: In this paper , the authors build a new data set consisting of harmonized microdata from rotating panel labor force surveys covering 80 million people from 49 countries and provide new evidence on how labor market dynamics vary with development.
Abstract: Abstract We provide new evidence on how labor market dynamics vary with development. We build a new data set consisting of harmonized microdata from rotating panel labor force surveys covering 80 million people from 49 countries. Labor market flows, such as the job-finding or employment exit rate, are higher in developing economies. These higher flows largely reflect a slippery job ladder: workers transition frequently to and from marginal employment without climbing to or persisting in better-paying jobs. Subsistence self-employment and different patterns of selection for wage workers each play a role in our findings and are useful avenues for future theories of labor market frictions.
TL;DR: This article studied the macroeconomic implications of imperfect risk sharing implied by a class of New Keynesian models with heterogeneous agents and found that deviations from perfect risk sharing imply only 7% of output volatility on average but can have sizable output effects when nominal interest rates reach their lower bound.
Abstract: Abstract This article studies the macroeconomic implications of imperfect risk sharing implied by a class of New Keynesian models with heterogeneous agents. The models in this class can be equivalently represented as a representative-agent economy with wedges. These wedges are functions of households’ consumption shares and relative wages, and they identify the key cross-sectional moments that govern the impact of households’ heterogeneity on aggregate variables. We measure the wedges using U.S. household-level data and combine them with a representative-agent economy to perform counterfactuals. We find that deviations from perfect risk sharing implied by this class of models account for only 7% of output volatility on average but can have sizable output effects when nominal interest rates reach their lower bound.
TL;DR: In this article , the authors explore efficiency and optimal policy in decentralized transport markets, such as taxis, trucks, and bulk shipping, and show that search frictions distort the transportation network and the dynamic allocation of carriers over space.
Abstract: Abstract We explore efficiency and optimal policy in decentralized transport markets, such as taxis, trucks, and bulk shipping. We show that in these markets, search frictions distort the transportation network and the dynamic allocation of carriers over space. We derive explicit and intuitive conditions for efficiency, and show how they translate into efficient pricing rules, or optimal taxes and subsidies for the planner who cannot set prices directly. The results imply that destination-based pricing is essential to attain efficiency. Then, using data from dry bulk shipping, we demonstrate that search frictions lead to a sizeable social loss and substantial misallocation of ships over space. Optimal policy can eliminate about half of the welfare loss. Can a centralizing platform, often arising as a market-based solution to search frictions, do better? Interestingly, the answer is no; although the platform eradicates frictions, it exerts market power thus eroding the welfare gains. Finally, we use two recent interventions in the industry (China’s Belt and Road Initiative and the environmental initiative IMO 2020) to demonstrate that taking into account the efficiency properties of transport markets is germane to any proposed policy.
TL;DR: This article found that exposure to Southern white neighbors increased adoption of conservative religious norms and blurred the North-South cultural divide and reshaped the geography of conservatism in the United States, concluding that the migration of millions of Southern whites in the 20th century shaped the cultural and political landscape across the U.S.
Abstract: Abstract This article shows how the migration of millions of Southern whites in the twentieth century shaped the cultural and political landscape across the United States. Racially and religiously conservative, Southern white migrants created new electoral possibilities for a broad-based coalition with economic conservatives. With their considerable geographic scope, these migrants hastened partisan realignment and helped catalyze and bolster a New Right movement with national influence over the long run. More than just augmenting the conservative voter base outside the South, they influenced non-Southerners by building evangelical churches, diffusing right-wing media, and mixing through intermarriage and residential integration. Tracking non-Southern households, we show that exposure to Southern white neighbors increased adoption of conservative religious norms. Overall, our findings suggest that this mass migration blurred the North–South cultural divide and reshaped the geography of conservatism in the United States.
TL;DR: This article showed that cognitive uncertainty predicts various systematic biases in economic decisions, such as base rate insensitivity, conservatism, and sample size effects in belief updating, and predictable overoptimism and -pessimism in forecasts of economic variables.
Abstract: Abstract This paper documents the economic relevance of measuring cognitive uncertainty: people’s subjective uncertainty over their ex ante utility-maximizing decision. In a series of experiments on choice under risk, the formation of beliefs and forecasts of economic variables, we show that cognitive uncertainty predicts various systematic biases in economic decisions. When people are cognitively uncertain—either endogenously or because the problem is designed to be complex—their decisions are heavily attenuated functions of objective probabilities, which gives rise to average behavior that is regressive to an intermediate option. This insight ties together a wide range of empirical regularities in behavioral economics that are typically viewed as distinct phenomena or even as reflecting preferences, including the probability weighting function in choice under risk; base rate insensitivity, conservatism, and sample size effects in belief updating; and predictable overoptimism and -pessimism in forecasts of economic variables. Our results offer a blueprint for how a simple measurement of cognitive uncertainty generates novel insights about what people find complex and how they respond to it.
TL;DR: In this paper , the authors propose a theory in which spatial differences in job loss emerge in equilibrium because of systematic differences between employers across local labor markets, and the spatial sorting decisions of employers in turn shape heterogeneity across locations.
Abstract: Abstract Unemployment rates differ widely across local labor markets. I offer new empirical evidence that high local unemployment emerges because of elevated local job-losing rates. Local employers, rather than local workers or location-specific factors, account for most of the spatial gaps in job stability. I propose a theory in which spatial differences in job loss emerge in equilibrium because of systematic differences between employers across local labor markets. The spatial sorting decisions of employers in turn shape heterogeneity across locations. Labor market frictions induce productive employers to overvalue locating close to each other. The optimal policy incentivizes them to relocate toward areas with high job-losing rates, providing a rationale for commonly used place-based policies. I estimate the model using French administrative data. The estimated model accounts for over three-quarters of the cross-sectional dispersion in unemployment rates and for the respective contributions of job-losing and job-finding rates. Inefficient location choices by employers amplify spatial unemployment differentials fivefold. Both real-world and optimal place-based policies can yield sizable local and aggregate welfare gains.
TL;DR: In this article , the authors study differences in markups earned by Bangladeshi garment exporters across buyers with different sourcing strategies and make three contributions: they distinguish buyers with a relational versus a spot sourcing strategy and show that a buyer's sourcing strategy is correlated across products and origins, suggesting that these depend on organizational capabilities.
Abstract: Abstract We study differences in markups earned by Bangladeshi garment exporters across buyers with different sourcing strategies and make three contributions. First, we distinguish buyers with a relational versus a spot sourcing strategy and show that a buyer’s sourcing strategy is correlated across products and origins. Buyer fixed effects explain most of the variation in sourcing strategies, suggesting that these depend on organizational capabilities. Second, we use novel data that match quantities and prices of the two main variable inputs in the production of garments (fabric and labor on sewing lines) to specific export orders. We derive conditions under which these data allow measurement of within exporter–product–time differences in markups across orders produced for different buyers. Third, we show that exporters earn higher markups on otherwise identical orders produced for relational, as opposed to spot, buyers. A sourcing model with imperfect contract enforcement, idiosyncratic shocks to exporters, and buyers that adopt different sourcing strategies trading off higher prices and reliable supply rationalizes this and other observed facts in the industry. We discuss alternative explanations and policy implications.
TL;DR: In this article , the authors combine a large-scale field experiment with a residential sorting model to derive utility-theoretic measures of renter welfare loss associated with the constraints imposed by discrimination in the rental housing market.
Abstract: Abstract By constraining an individual’s choice during a search, housing discrimination distorts sorting decisions away from true preferences and results in a ceteris paribus reduction in welfare. This study combines a large-scale field experiment with a residential sorting model to derive utility-theoretic measures of renter welfare loss associated with the constraints imposed by discrimination in the rental housing market. Results from experiments conducted in five cities show that key neighborhood amenities are associated with higher levels of discrimination. Counterfactual simulations based on the sorting model suggest that discrimination imposes damages equivalent to 4.4% and 3.5% of the annual incomes for African American and Hispanic/Latinx renters, respectively. Damages are increasing in income for African American renters, such that impacts become stronger for economically mobile households. Renters of color must make substantial investments in additional search to mitigate the costs of these constraints. We find that a naive model ignoring discrimination constraints yields biased estimates of willingness to pay for key neighborhood amenities.
TL;DR: In this paper , the authors use data on repeated interactions between a large sample of U.S. physicians and many different insurers to document the complexity of healthcare billing, and estimate its economic costs for doctors and consequences for patients.
Abstract: Abstract Who bears the consequences of administrative problems in healthcare? We use data on repeated interactions between a large sample of U.S. physicians and many different insurers to document the complexity of healthcare billing, and estimate its economic costs for doctors and consequences for patients. Observing the back-and-forth sequences of claim denials and resubmissions for past visits, we can estimate physicians’ costs of haggling with insurers to collect payments. Combining these costs with the revenue never collected, we estimate that physicians lose 18% of Medicaid revenue to billing problems, compared with 4.7% for Medicare and 2.4% for commercial insurers. Identifying off of physician movers and practices that span state boundaries, we find that physicians respond to billing problems by refusing to accept Medicaid patients in states with more severe billing hurdles. These hurdles are quantitatively just as important as payment rates for explaining variation in physicians’ willingness to treat Medicaid patients. We conclude that administrative frictions have first-order costs for doctors, patients, and equality of access to healthcare. We quantify the potential economic gains—in terms of reduced public spending or increased access to physicians—if these frictions could be reduced, and find them to be sizable.
TL;DR: This paper found that bin widths and fit lines have the largest effects on whether participants correctly perceive the presence or absence of a discontinuity in a regression discontinuity graph, and suggested using small bins with no fit lines as a starting point to construct RD graphs.
Abstract: Abstract Despite the widespread use of graphs in empirical research, little is known about readers’ ability to process the statistical information they are meant to convey (“visual inference”). We study visual inference in the context of regression discontinuity (RD) designs by measuring how accurately readers identify discontinuities in graphs produced from data-generating processes calibrated on 11 published papers from leading economics journals. First, we assess the effects of different graphical representation methods on visual inference using randomized experiments. We find that bin widths and fit lines have the largest effects on whether participants correctly perceive the presence or absence of a discontinuity. Our experimental results allow us to make evidence-based recommendations to practitioners, and we suggest using small bins with no fit lines as a starting point to construct RD graphs. Second, we compare visual inference on graphs constructed using our preferred method with widely used econometric inference procedures. We find that visual inference achieves similar or lower type I error (false positive) rates and complements econometric inference.
TL;DR: The authors investigate biases in expectations across different settings through a large-scale randomized experiment where participants forecast stable stochastic processes, and develop a tractable model of expectations formation with costly processing of past information.
Abstract: Abstract We investigate biases in expectations across different settings through a large-scale randomized experiment where participants forecast stable stochastic processes. The experiment allows us to control forecasters’ information sets as well as the data-generating process, so we can cleanly measure biases in beliefs. We report three facts. First, forecasts display significant overreaction to the most recent observation. Second, overreaction is stronger for less persistent processes. Third, overreaction is also stronger for longer forecast horizons. We develop a tractable model of expectations formation with costly processing of past information, which closely fits the empirical facts. We also perform additional experiments to test the mechanism of the model.
TL;DR: In this paper , the authors developed a model in which specialized bond investors must absorb shocks to the supply and demand for long-term bonds in two currencies, and found that central banks' quantitative easing policies impact exchange rates.
Abstract: Abstract We develop a model in which specialized bond investors must absorb shocks to the supply and demand for long-term bonds in two currencies. Since long-term bonds and foreign exchange are both exposed to unexpected movements in short-term interest rates, a shift in the supply of long-term bonds in one currency influences the foreign exchange rate between the two currencies, as well as bond term premia in both currencies. Our model matches several important empirical patterns, including the comovement between exchange rates and term premia, as well as the finding that central banks’ quantitative-easing policies impact exchange rates. An extension of our model links spot exchange rates to the persistent deviations from covered interest rate parity that have emerged since 2008.
TL;DR: In this article , the authors estimate the push and pull factors involved in the outmigration of Jews facing persecution in Nazi Germany from 1933 to 1941, using a unique individual-level data set that records the migration history of the Jewish community in Germany.
Abstract: Abstract We estimate the push and pull factors involved in the outmigration of Jews facing persecution in Nazi Germany from 1933 to 1941. Our empirical investigation makes use of a unique individual-level data set that records the migration history of the Jewish community in Germany over the period. Our analysis highlights new channels, specific to violent contexts, through which social networks affect the decision to flee. We estimate a structural model of migration where individuals base their migration decision on the observation of persecution and migration among their peers. Identification rests on exogenous variations in local push and pull factors across peers who live in different cities of residence. Then we perform various experiments of counterfactual history to quantify how migration restrictions in destination countries affected the fate of Jews. For example, removing work restrictions for refugees in the recipient countries after the Nuremberg Laws (1935) would have led to an increase in Jewish migration out of Germany in the range of 12% to 20% and a reduction in mortality due to prevented deportations in the range of 6% to 10%.