Showing papers in "The American Economic Review in 2018"

The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment

Abstract: We examine the concerns that new technologies will render labor redundant in a framework in which tasks previously performed by labor can be automated and new versions of existing tasks, in which labor has a comparative advantage, can be created. In a static version where capital is fixed and technology is exogenous, automation reduces employment and the labor share, and may even reduce wages, while the creation of new tasks has the opposite effects. Our full model endogenizes capital accumulation and the direction of research towards automation and the creation of new tasks. If the long-run rental rate of capital relative to the wage is sufficiently low, the long-run equilibrium involves automation of all tasks. Otherwise, there exists a stable balanced growth path in which the two types of innovations go hand-in-hand. Stability is a consequence of the fact that automation reduces the cost of producing using labor, and thus discourages further automation and encourages the creation of new tasks. In an extension with heterogeneous skills, we show that inequality increases during transitions driven both by faster automation and introduction of new tasks, and characterize the conditions under which inequality is increasing or stable in the long run.

Railroads of the Raj: Estimating the Impact of Transportation Infrastructure

Abstract: How large are the benefits of transportation infrastructure projects, and what explains these benefits? To shed new light on these questions, I collect archival data from colonial India and use it to estimate the impact of India's vast railroad network. Guided by six predictions from a general equilibrium trade model, I find that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional and international trade; (3) eliminated the responsiveness of local prices to local productivity shocks (but increased the transmission of these shocks between regions); (4) increased the level of real income (but harmed neighboring regions without railroad access); (5) decreased the volatility of real income; and (6), a sufficient statistic for the effect of railroads on welfare in the model accounts for virtually all of the observed reduced-form impact of railroads on real income. I find similar results from an instrumental variable specification, no spurious effects from over 40,000 km of lines that were approved but never built, and tight bounds on the estimated impact of railroads. These results suggest that transportation infrastructure projects can improve welfare significantly, and do so because they allow regions to exploit gains from trade.

Polluters’ Profits and Political Response: Direct Control Versus Taxes: Reply

Abstract: This chapter presents a positive theory of externality control that explains the observed frequency of direct regulation as opposed to penalty taxes or charges. In the public-choice theory of policy, the interests of those who are subjected to the control instruments must be taken into account as well as the interests of those affected by the external diseconomies. The chapter emphasizes an elementary efficiency basis for preferring taxes and charges which heretofore has been neglected by economists. Economists of divergent political persuasions agree on the superior efficacy of penalty taxes as instruments for controlling significant external diseconomies which involve the interaction of many parties. There is an important economic basis for favoring the penalty tax over the direct control instrument, one that has been neglected by economists. By assessing a tax per unit of output on all firms in the industry, the government can insure that profit-maximizing decisions lead to a new and lower industry output that is Pareto optimal.

Monetary Policy According to HANK

Abstract: We revisit the transmission mechanism from monetary policy to household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of wealth and marginal propensities to consume because of two features: uninsurable income shocks and multiple assets with different degrees of liquidity and different returns. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where the substitution channel drives virtually all of the transmission from interest rates to consumption. Failure of Ricardian equivalence implies that, in HANK models, the fiscal reaction to the monetary expansion is a key determinant of the overall size of the macroeconomic response.

Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?

Abstract: This paper concerns the regulation of hazardous economic activities. Economists have generally viewed ex ante regulations (safety standards, Pigouvian fees) that regulate an activity before an accident occurs as substitutes for ex post policies (exposure to tort liability) for correcting externalities. This paper shows that where there is uncertainty, there are inefficiencies associated with the exclusive use of negligence liability and that ex ante regulation can correct the inefficiencies. In such a case it is efficient to set the safety standard below the level of precaution that would be called for if the standard were used alone. (JEL 619)

Intergenerational Mobility and Preferences for Redistribution

Abstract: Using new cross-country survey and experimental data, we investigate how beliefs about intergenerational mobility affect preferences for redistribution in France, Italy, Sweden, the United Kingdom, and the United States. Americans are more optimistic than Europeans about social mobility. Our randomized treatment shows pessimistic information about mobility and increases support for redistribution, mostly for "equality of opportunity" policies. We find strong political polarization. Left-wing respondents are more pessimistic about mobility: their preferences for redistribution are correlated with their mobility perceptions; and they support more redistribution after seeing pessimistic information. None of this is true for right-wing respondents, possibly because they see the government as a "problem" and not as the "solution".

Lying Aversion and the Size of the Lie

Abstract: Author(s): Gneezy, Uri; Kajackaite, Agne; Sobel, Joel | Abstract: This paper studies lying. An agent randomly picks a number from a known distribution. She can then report any number and receive a monetary payoff based only on her report. The paper presents a model of lying costs that generates hypotheses regarding behavior. In an experiment, we find that the highest fraction of lies is from reporting the maximal outcome, but some participants do not make the maximal lie. More participants lie partially when the experimenter cannot observe their outcomes than when the experimenter can verify the observed outcome. Partial lying increases when the prior probability of the highest outcome decreases. (JEL C91, D12, D90, Z13)

The Effects of Pre-Trial Detention on Conviction, Future Crime, and Employment: Evidence from Randomly Assigned Judges

Abstract: Over 20 percent of prison and jail inmates in the United States are currently awaiting trial, but little is known about the impact of pretrial detention on defendants. This paper uses the detention tendencies of quasi-randomly assigned bail judges to estimate the causal effects of pretrial detention on subsequent defendant outcomes. Using data from administrative court and tax records, we find that pretrial detention significantly increases the probability of conviction, primarily through an increase in guilty pleas. Pretrial detention has no net effect on future crime, but decreases formal sector employment and the receipt of employment- and tax-related government benefits. These results are consistent with (i) pretrial detention weakening defendants' bargaining positions during plea negotiations and (ii) a criminal conviction lowering defendants' prospects in the formal labor market. (JEL J23, J31, J65, K41, K42)

Why is Pollution from U.S. Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade

Abstract: Between 1990 and 2008, air pollution emissions from U.S. manufacturing fell by 60 percent despite a substantial increase in manufacturing output. We show that these emissions reductions are primarily driven by within-product changes in emissions intensity rather than changes in output or in the composition of products produced. We then develop and estimate a quantitative model linking trade with the environment to better understand the economic forces driving these changes. Our estimates suggest that the implicit pollution tax that manufacturers face doubled between 1990 and 2008. These changes in environmental regulation, rather than changes in productivity and trade, account for most of the emissions reductions.

How Do Firms Form Their Expectations? New Survey Evidence

Abstract: We survey New Zealand firms and document novel facts about their macroeconomic beliefs. There is widespread dispersion in beliefs about past and future macroeconomic conditions, especially inflation. This dispersion in beliefs is consistent with firms' incentives to collect and process information. Using experimental methods, we find that firms update their beliefs in a Bayesian manner when presented with new information about the economy and that changes in their beliefs affect their decisions. Inflation is not generally perceived as being important to business decisions so firms devote few resources to collecting and processing information about inflation.

The Economic Consequences of Hospital Admissions.

Abstract: We use an event study approach to examine the economic consequences of hospital admissions for adults in two datasets: survey data from the Health and Retirement Study, and hospitalization data linked to credit reports. For non-elderly adults with health insurance, hospital admissions increase out-of-pocket medical spending, unpaid medical bills and bankruptcy, and reduce earnings, income, access to credit and consumer borrowing. The earnings decline is substantial compared to the out-of-pocket spending increase, and is minimally insured prior to age-eligibility for Social Security Retirement Income. Relative to the insured non-elderly, the uninsured non-elderly experience much larger increases in unpaid medical bills and bankruptcy rates following a hospital admission. Hospital admissions trigger less than 5 percent of all bankruptcies.

Measuring and Bounding Experimenter Demand

Abstract: We propose a technique for assessing robustness of behavioral measures and treatment effects to experimenter demand effects. The premise is that by deliberately inducing demand in a structured way we can measure its influence and construct plausible bounds on demand-free behavior. We provide formal restrictions on choice that validate our method, and a Bayesian model that microfounds them. Seven pre-registered experiments with eleven canonical laboratory games and around 19,000 participants demonstrate the technique. We also illustrate how demand sensitivity varies by task, participant pool, gender, real versus hypothetical incentives, and participant attentiveness, and provide both reduced-form and structural analyses of demand effects.

The Nexus of Monetary Policy and Shadow Banking in China

Abstract: We study how monetary policy in China influences banks' shadow banking activities. We develop and estimate the endogenously switching monetary policy rule that is based on institutional facts and at the same time tractable in the spirit of Taylor (1993). This development, along with two newly constructed micro banking datasets, enables us to establish the following empirical evidence. Contractionary monetary policy during 2009–2015 caused shadow banking loans to rise rapidly, offsetting the expected decline of traditional bank loans and hampering the effectiveness of monetary policy on total bank credit. We advance a theoretical explanation of our empirical findings.

Firms, Informality, and Development: Theory and Evidence from Brazil

Abstract: This paper develops and estimates an equilibrium model where heterogeneous firms can exploit two margins of informality: (i) not register their business, the extensive margin; and (ii) hire workers "off the books," the intensive margin. The model encompasses the main competing frameworks for understanding informality and provides a natural setting to infer their empirical relevance. The counterfactual analysis shows that once the intensive margin is accounted for, firm and labor informality need not move in the same direction as a result of policy changes. Lower informality can be, but is not necessarily associated with higher output, TFP, or welfare.

Equal but Inequitable: Who Benefits from Gender-Neutral Tenure Clock Stopping Policies?

Abstract: Many skilled professional occupations are characterized by an early period of intensive skill accumulation and career establishment Examples include law firm associates, surgical residents, and untenured faculty at research-intensive universities High female exit rates are sometimes blamed on the inability of new mothers to survive the sustained negative productivity shock associated with childbearing and early childrearing in these environments Gender-neutral family policies have been adopted in some professions in an attempt to "level the playing field" The gender-neutral tenure clock stopping policies adopted by the majority of research-intensive universities in the United States in recent decades are an excellent example But to date, there is no empirical evidence showing that these policies help women Using a unique data set on the universe of assistant professor hires at top-50 economics departments from 1985-2004, we show that the adoption of gender-neutral tenure clock stopping policies substantially reduced female tenure rates while substantially increasing male tenure rates

Forward Guidance without Common Knowledge

Abstract: How does the economy respond to news about future policies or future fundamentals? Standard practice assumes that agents have common knowledge of such news and face no uncertainty about how others will respond. Relaxing this assumption attenuates the general equilibrium effects of news and rationalizes a form of myopia at the aggregate level. We establish these insights within a class of games which nests, but is not limited to, the New Keynesian model. Our results help resolve the forward-guidance puzzle, offer a rationale for the front-loading of fiscal stimuli, and illustrate more broadly the fragility of predictions that rest on long series of forward-looking feedback loops. (JEL D82, D83, D84, E12, E23, E52, E62)

Family Ruptures, Stress, and the Mental Health of the Next Generation.

Abstract: This paper studies how in utero exposure to maternal stress from family ruptures affects later mental health. We find that prenatal exposure to the death of a maternal relative increases take-up of ADHD medications during childhood and anti-anxiety and depression medications in adulthood. Further, family ruptures during pregnancy depress birth outcomes and raise the risk of perinatal complications necessitating hospitalization. Our results suggest large welfare gains from preventing fetal stress from family ruptures and possibly from economically induced stressors such as unemployment. They further suggest that greater stress exposure among the poor may partially explain the intergenerational persistence of poverty.

Export Markets and Labor Allocation in a Low-income Country

Abstract: We study the effects of a positive export shock on labor allocation between the informal, microenterprise sector and the formal firm sector in a low-income country The United States-Vietnam Bilateral Trade Agreement led to large reductions in US tariffs on Vietnamese exports We find that the share of manufacturing workers in Vietnam in the formal sector increased by 5 percentage points in response to the US tariff reductions The reallocation was greater for workers in more internationally integrated provinces and for younger cohorts We estimate the gap in labor productivity within manufacturing across the informal and formal sectors This gap and the aggregate labor productivity gain from the export-induced reallocation of workers across the two sectors are reduced when we account for worker heterogeneity, measurement error, and differences in labor intensity of production

From Cashews to Nudges: The Evolution of Behavioral Economics

Abstract: Richard H Thaler delivered his Prize Lecture on 8 December 20167 at the Aula Magna, Stockholm University

The Long-Run Effects of Disruptive Peers

Abstract: A large and growing literature has documented the importance of peer effects in education. However, there is relatively little evidence on the long-run educational and labor market consequ...

Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany

Abstract: Because of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages. We circumvent these problems by using an 11-year panel of data on 11,441 German municipalities' tax rates, 8 percent of which change each year, linked to administrative matched employer-employee data. Consistent with our theoretical model, we find a negative effect of corporate taxation on wages: a 1 euro increase in tax liabilities yields a 77 cent decrease in the wage bill. The direct wage effect, arising in a collective bargaining context, dominates, while the conventional indirect wage effect through reduced investment is empirically small due to regional labor mobility. High and medium-skilled workers, who arguably extract higher rents in collective agreements, bear a larger share of the corporate tax burden.

Rural Roads and Local Economic Development

Abstract: Nearly one billion people worldwide live in rural areas without access to the paved road network. This paper measures the impacts of India's $40 billion national rural road construction program using regression discontinuity and data covering every individual and firm in rural India. The main effect of new feeder roads is to allow workers to obtain nonfarm work. However, there are no major changes in consumption, assets or agricultural outcomes. Nonfarm employment in the village expands only slightly, suggesting the new work is found outside of the village. Even with better market connections, remote areas may continue to lack economic opportunities.

Changing Business Dynamism and Productivity: Shocks vs. Responsiveness

Abstract: The pace of job reallocation has declined in all U.S. sectors since 2000. In standard models, aggregate job reallocation depends on (a) the dispersion of idiosyncratic productivity shocks faced by businesses and (b) the marginal responsiveness of businesses to those shocks. Using several novel empirical facts from business microdata, we infer that the pervasive post-2000 decline in reallocation reflects weaker responsiveness in a manner consistent with rising adjustment frictions and not lower dispersion of shocks. The within-industry dispersion of TFP and output per worker has risen, while the marginal responsiveness of employment growth to business-level productivity has weakened. The responsiveness in the post-2000 period for young firms in the high-tech sector is only about half (in manufacturing) to two thirds (economy wide) of the peak in the 1990s. Counterfactuals show that weakening productivity responsiveness since 2000 accounts for a significant drag on a ggregate productivity.

Implications of US Tax Policy for House Prices, Rents, and Homeownership

Abstract: This paper studies the impact of the preferential tax treatment of housing, including the mortgage interest deduction, on equilibrium house prices, rents, and homeownership. We build a dynamic model of housing tenure choice that features a realistic progressive tax system in which owner-occupied housing services are tax-exempt, and mortgage interest payments and property taxes are tax deductible. We simulate the eect of various tax reform proposals on the housing market, and nd that repealing existing tax deductions causes house prices to decline and also increases the homeownership rate. Our results challenge the widely held view that the mortgage interest tax deduction promotes homeownership.

Consumer Price Search and Platform Design in Internet Commerce

Abstract: The platform design, the process that helps potential buyers on the internet navigate toward products they may purchase, plays a critical role in reducing search frictions and determining market outcomes. We study a key trade-off associated with two important roles of efficient platform design: guiding consumers to their most desired product while also strengthening seller incentives to lower prices. We use simple theory to illustrate this, and then combine detailed browsing data from eBay and an equilibrium model of consumer search and price competition to quantitatively assess this trade-off in the particular context of a change in eBay's marketplace design. (JEL D12, D44, D83, L81, L86)

How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications

Abstract: This paper builds a new internationally comparable database of hours worked to measure how hours vary with income across and within countries. We document that average hours worked per adult are substantially higher in low-income countries than in high-income countries. The pattern of decreasing hours with aggregate income holds for both men and women, for adults of all ages and education levels, and along both the extensive and intensive margin. Within countries, hours worked per worker are also decreasing in the individual wage for most countries, though in the richest countries, hours worked are flat or increasing in the wage. One implication of our findings is that aggregate productivity and welfare differences across countries are larger than currently thought.

Immigration Restrictions as Active Labor Market Policy: Evidence from the Mexican Bracero Exclusion.

Abstract: An important class of active labor market policy has received little rigorous impact evaluation: immigration barriers intended to improve the terms of employment for domestic workers by deliberately shrinking the workforce. Recent advances in the theory of endogenous technical change suggest that such policies could have limited or even perverse labor-market effects, but empirical tests are scarce. We study a natural experiment that excluded almost half a million Mexican 'bracero' seasonal agricultural workers from the United States, with the stated goal of raising wages and employment for domestic farm workers. We build a simple model to clarify how the labor-market effects of bracero exclusion depend on assumptions about production technology, and test it by collecting novel archival data on the bracero program that allow us to measure state-level exposure to exclusion for the first time. We cannot reject the hypothesis that bracero exclusion had no effect on U.S. agricultural wages or employment, and find that important mechanisms for this result include both adoption of less labor-intensive technologies and shifts in crop mix.

Speed, Accuracy, and the Optimal Timing of Choices

Abstract: We model the joint distribution of choice probabilities and decision times in binary decisions as the solution to a problem of optimal sequential sampling, where the agent is uncertain of the utility of each action and pays a constant cost per unit time for gathering information. We show that choices are more likely to be correct when the agent chooses to decide quickly provided that the agent's prior beliefs are correct. This better matches the observed correlation between decision time and choice probability than does the classical drift-diffusion model (DDM), where the agent knows the utility difference between the choices.

Innovation, Reallocation and Growth

Abstract: We thank participants in Kuznetz Lecture at Yale University and in seminars at New York University, Federal Reserve Bank of Minneapolis, North Carolina State University, Bank of Finland, University of Pennsylvania, University of Toronto Growth and Development Conference, AEA 2011 and 2012, NBER Summer Institute Growth Meeting 2012, CREI-MOVE Workshop on Misallocation and Productivity, Federal Reserve Bank of Philadelphia, and Microsoft for helpful comments. This research is supported by Harvard Business School, Innovation Policy and the Economy forum, Kauffman Foundation, National Science Foundation, and University of Pennsylvania. Douglas Hanley provided excellent research assistance in all parts of this project. The research in this paper was conducted while the authors were Special Sworn Status researchers of the US Census Bureau at the Boston Census Research Data Center (BRDC). Support for this research from NSF grant ITR-0427889 [BRDC] is gratefully acknowledged. Research results and conclusions expressed are the authors’ and do not necessarily reflect the views of the Census Bureau or NSF. This paper has been screened to ensure that no confidential data are revealed.

Firm Sorting and Agglomeration

Abstract: To account for the uneven distribution of economic activity in space, I propose a theory of the location choices of heterogeneous firms in a variety of sectors across cities. In equilibrium, the distribution of city sizes and the sorting patterns of firms are uniquely determined and affect aggregate TFP and welfare. I estimate the model using French firm-level data and find that nearly half of the productivity advantage of large cities is due to firm sorting, the rest coming from agglomeration economies. I quantify the general equilibrium effects of place-based policies: policies that subsidize smaller cities have negative aggregate effects.