Showing papers in "The Review of Economic Studies in 2021"
TL;DR: In this paper, the authors examined the gender earnings gap among rideshare drivers in the U.S. and found that women's relatively high opportunity cost of non-paid-work time and gender-based differences in preferences and constraints can sustain a gender pay gap.
Abstract: The growth of the “gig” economy generates worker flexibility that, some have speculated, will favour women. We explore this by examining labour supply choices and earnings among more than a million rideshare drivers on Uber in the U.S. We document a roughly 7% gender earnings gap amongst drivers. We show that this gap can be entirely attributed to three factors: experience on the platform (learning-by-doing), preferences and constraints over where to work (driven largely by where drivers live and, to a lesser extent, safety), and preferences for driving speed. We do not find that men and women are differentially affected by a taste for specific hours, a return to within-week work intensity, or customer discrimination. Our results suggest that, in a “gig” economy setting with no gender discrimination and highly flexible labour markets, women’s relatively high opportunity cost of non-paid-work time and gender-based differences in preferences and constraints can sustain a gender pay gap.
181 citations
TL;DR: In this article, the authors argue that aging leads to greater industrial automation, and in particular, to more intensive use and development of robots, and they also provide evidence of more rapid development of automation technologies in countries undergoing greater demographic change.
Abstract: We argue theoretically and document empirically that aging leads to greater (industrial) automation, and in particular, to more intensive use and development of robots. Using US data, we document that robots substitute for middle-aged workers (those between the ages of 36 and 55). We then show that demographic changeâcorresponding to an increasing ratio of older to middle-aged workersâis associated with greater adoption of robots and other automation technologies across countries and with more robotics-related activities across US commuting zones. We also provide evidence of more rapid development of automation technologies in coun- tries undergoing greater demographic change. Our directed technological change model further predicts that the induced adoption of automation technology should be more pronounced in industries that rely more on middle-aged workers and those that present greater opportunities for automation. Both of these predictions receive support from country-industry variation in the adoption of robots. Our model also implies that the productivity implications of aging are ambiguous when technology responds to demographic change, but we should expect produc- tivity to increase and labor share to decline relatively in industries that are most amenable to automation, and this is indeed the pattern we find in the data.
119 citations
TL;DR: The authors examine a determinant of cultural persistence that has emerged from a class of models in evolutionary anthropology: the similarity of the environment across generations, and find that populations with ancestors who lived in environments with more cross-generational instability place less importance on maintaining tradition today and exhibit less cultural persistence.
Abstract: We examine a determinant of cultural persistence that has emerged from a class of models in evolutionary anthropology: the similarity of the environment across generations. Within these models, when the environment is more stable across generations, the traits that have evolved up to the previous generation are more likely to be suitable for the current generation. In equilibrium, a greater value is placed on tradition and there is greater cultural persistence. We test this hypothesis by measuring the variability of climatic measures across 20-year generations from 500 to 1900. Employing a variety of tests that use different samples and empirical strategies, we find that populations with ancestors who lived in environments with more cross-generational instability place less importance on maintaining tradition today and exhibit less cultural persistence.
96 citations
TL;DR: The paper derives closed-form formulas of the fees and waiting times and studies their properties; compares pricing under the Bitcoin Payment System to that under a traditional payment system operated by a profit-maximizing firm; and suggests protocol design modifications to enhance the platform's efficiency.
Abstract: Bitcoin provides its users with transaction-processing services which are similar to those of traditional payment systems. This paper models the novel economic structure implied by Bitcoin's innovative decentralized design, which allows the payment system to be reliably operated by unrelated parties called miners. We find that this decentralized design protects users from monopoly pricing. Competition among service providers within the platform and free entry imply no entity can profitably affect the level of fees paid by users. Instead, a market for transaction-processing determines the fees users pay to gain priority and avoid transaction-processing delays. The paper derives closed-form formulas of the fees and waiting times and studies their properties; compares pricing under the Bitcoin Payment System to that under a traditional payment system operated by a profit-maximizing firm; and suggests protocol design modifications to enhance the platform’s efficiency. The appendix describes and explains the main attributes of Bitcoin and the underlying blockchain technology.
79 citations
TL;DR: The authors proposed a relative thinking model where a person weighs a given change along a consumption dimension by less when it is compared to bigger changes along that dimension in deterministic settings, the model predicts context effects such as the attraction effect but predicts meaningful bounds on such effects driven by the intrinsic utility for the choices.
Abstract: Fixed differences loom smaller when compared to large differences We propose a model of relative thinking where a person weighs a given change along a consumption dimension by less when it is compared to bigger changes along that dimension In deterministic settings, the model predicts context effects such as the attraction effect but predicts meaningful bounds on such effects driven by the intrinsic utility for the choices In risky environments, a person is less likely to sacrifice utility on one dimension to gain utility on another that is made riskier For example, a person is less likely to exert effort for a fixed monetary return if there is greater overall income uncertainty We design and run experiments to test basic model predictions and find support for these predictions
78 citations
TL;DR: In this article, a new econometric framework for shift-share instrumental variable (SSIV) regressions was proposed, in which identification follows from the quasi-random assignment of shocks, while exposure shares are allowed to be endogenous.
Abstract: Many studies use shift-share (or “Bartik”) instruments, which average a set of shocks with exposure share weights We provide a new econometric framework for shift-share instrumental variable (SSIV) regressions in which identification follows from the quasi-random assignment of shocks, while exposure shares are allowed to be endogenous The framework is motivated by an equivalence result: the orthogonality between a shift-share instrument and an unobserved residual can be represented as the orthogonality between the underlying shocks and a shock-level unobservable SSIV regression coefficients can similarly be obtained from an equivalent shock-level regression, motivating shock-level conditions for their consistency We discuss and illustrate several practical insights delivered by this framework in the setting of Autor et al (2013)
75 citations
TL;DR: This article found that responses to unanticipated gains are vastly heterogeneous (either zero or substantially positive), responses increase in the size of the gain, driven by the extensive margin of spending adjustments; responses to losses are much larger and more widespread than responses to gains; and even those with large responses to gain do not respond to news about future gains.
Abstract: We use survey questions about spending in hypothetical scenarios to investigate features of propensities to consume that are useful for distinguishing between consumption theories. We find that (1) responses to unanticipated gains are vastly heterogeneous (either zero or substantially positive); (2) responses increase in the size of the gain, driven by the extensive margin of spending adjustments; (3) responses to losses are much larger and more widespread than responses to gains; and (4) even those with large responses to gains do not respond to news about future gains. These four findings suggest that limited access to disposable resources, and frictions in adjusting consumption, are important determinants of consumption behaviour. We also find that (5) households do not respond to the offer of a one-year interest-free loan, suggesting that this is not a consequence of short-term credit constraints; and (6) people do cut spending in response to news about future losses, suggesting that neither is this a consequence of myopia. A calibrated precautionary savings model with utility costs of changing consumption, and a sufficient fraction of low-wealth households, can account for these features of propensities to consume on both the extensive and intensive margins.
63 citations
TL;DR: In this article, the authors recast the Aiyagari-Bewley-Huggett model of income and wealth distribution in continuous time, and proved that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one.
Abstract: We recast the Aiyagari-Bewley-Huggett model of income and wealth distribution in continuous time. This workhorse model – as well as heterogeneous agent models more generally – then boils down to a system of partial differential equations, a fact we take advantage of to make two types of contributions. First, a number of new theoretical results: (i) an analytic characterization of the consumption and saving behavior of the poor, particularly their marginal propensities to consume; (ii) a closed-form solution for the wealth distribution in a special case with two income types; (iii) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one; (iv) characterization of “soft” borrowing constraints. Second, we develop a simple, efficient and portable algorithm for numerically solving for equilibria in a wide class of heterogeneous agent models, including – but not limited to – the Aiyagari-Bewley-Huggett model.
62 citations
TL;DR: In this article, a principal-agent model of bias was proposed where loan examiners are incentivized to maximize a short-term outcome, not long-term profits, leading to bias against illiquid applicants at the margin of loan decisions.
Abstract: This paper tests for bias in consumer lending using administrative data from a high-cost lender in the United Kingdom. We motivate our analysis using a new principal-agent model of bias where loan examiners are incentivized to maximize a short-term outcome, not long-term profits, leading to bias against illiquid applicants at the margin of loan decisions. We identify the profitability of marginal applicants using the quasi-random assignment of loan examiners, finding significant bias against immigrant and older applicants when using the firm’s preferred measure of long-run profits but not when using the short-run measure used to evaluate examiner performance. In this case, market incentives based on characteristics that vary across groups lead to inefficient group-based bias.
60 citations
TL;DR: In this article, the authors show that a sustained fall in automation costs can lead to a massive rise in income inequality, and they characterize the optimal tax system in this model and find that it is optimal to tax robots while the current generations of routine workers, who can no longer move to non-routine occupations, are active in the labor force.
Abstract: Using a quantitative model that features technical progress in automation and endogenous skill choice, we show that, given the current U.S. tax system, a sustained fall in automation costs can lead to a massive rise in income inequality. We characterize the optimal tax system in this model. We find that it is optimal to tax robots while the current generations of routine workers, who can no longer move to non-routine occupations, are active in the labor force. Once these workers retire, optimal robot taxes are zero.
60 citations
TL;DR: In this article, the authors study a real small open economy with two key ingredients: (i) partial segmentation of home and foreign bond markets and (ii) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows.
Abstract: We study a real small open economy with two key ingredients: (i) partial segmentation of home and foreign bond markets and (ii) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry-trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (a) the optimal policy leans against the wind, stabilizing the exchange rate; (b) it involves smooth spreads but allows exchange rates to jump; (c) it partly relies on “forward guidance”, with non-zero interventions even after the shock has subsided; (d) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.
TL;DR: The authors explored the implications of firm heterogeneity for household price indices across the income distribution and found that larger, more productive firms endogenously sort into catering to the taste of wealthier households.
Abstract: A growing literature has emphasized the role of Melitz-type firm heterogeneity within sectors in accounting for nominal income inequality. This paper explores the implications of firm heterogeneity for household price indices across the income distribution. Using detailed matched US home and store scanner microdata that allow us to trace the firm size distribution into the consumption baskets of individual households, we present evidence that richer US households source their consumption from on average significantly larger producers of brands within disaggregated product groups compared to poorer US households. We use the microdata to explore alternative explanations, write down a quantitative framework that rationalizes the observed moments, and estimate its parameters to quantify the underlying channels and explore model-based counterfactuals. Our central findings are that larger, more productive firms endogenously sort into catering to the taste of wealthier households, and that this gives rise to asymmetric effects on household price indices. We find that these price index effects significantly amplify observed nominal income inequalities in both the cross-section of households and for changes over time, and that they lead to a significantly more regressive distribution of the gains from international trade.
TL;DR: In this paper, the authors characterize trade policies that result from political competition when assessments of well-being include both material and psychosocial components, and analyse the nature of these policy changes.
Abstract: We characterize trade policies that result from political competition when assessments of well-being include both material and psychosocial components. The material component reflects, as usual, satisfaction from consumption. Borrowing from social identity theory, we take the psychosocial component as combining the pride and self-esteem an individual draws from the status of groups with which she identifies and a dissonance cost she bears from identifying with those that are different from herself. In this framework, changes in social identification patterns that may result, for example, from increased income inequality or heightened class or ethnic tensions, lead to pronounced changes in trade policy. We analyse the nature of these policy changes.
TL;DR: This article proposed a unified explanation for both anomalies, similar to the explanation given for related phenomena in the case of perceptual judgments: they result from judgments based on imprecise (and noisy) mental representations of the decision situation.
Abstract: Observed choices between risky lotteries are difficult to reconcile with expected utility maximization, both because subjects appear to be too risk averse with regard to small gambles for this to be explained by diminishing marginal utility of wealth, as stressed by Rabin (2000), and because subjects’ responses involve a random element We propose a unified explanation for both anomalies, similar to the explanation given for related phenomena in the case of perceptual judgments: they result from judgments based on imprecise (and noisy) mental representations of the decision situation In this model, risk aversion results from a sort of perceptual bias—but one that represents an optimal decision rule, given the limitations of the mental representation of the situation We propose a quantitative model of the noisy mental representation of simple lotteries, based on other evidence regarding numerical cognition, and test its ability to explain the choice frequencies that we observe in a laboratory experiment
TL;DR: In this paper, the authors examined the impact of a property rights reform in rural China that allowed farmers to lease out their land and found that the reform led to increases in land rental activity in rural households.
Abstract: This article examines the impact of a property rights reform in rural China that allowed farmers to lease out their land. We find the reform led to increases in land rental activity in rural households. Our results indicate that the formalization of leasing rights resulted in a redistribution of land toward more-productive farmers. Consequently, output and aggregate productivity increased by 8% and 10%, respectively. We also find that the reform increased the responsiveness of land allocation across crops to changes in crop prices.
TL;DR: In this article, a large-scale randomized controlled trial was conducted in which one treatment group is given the option to opt-in to time-based pricing while another is defaulted into the program but allowed to opt out.
Abstract: We study default effects in the context of a residential electricity pricing program. We implement a large-scale randomized controlled trial in which one treatment group is given the option to opt-in to time-based pricing while another is defaulted into the program but allowed to opt-out. We provide dramatic evidence of a default effect – a significantly higher fraction of households defaulted onto the time-based pricing plan enroll in the program, even though opting out simply involved making a phone call or clicking through to a website. A distinguishing feature of our empirical setting is that we observe follow-on behavior subsequent to the default manipulation. Specifically, we observe customers’ electricity consumption in light of the pricing plan they face. This, in conjunction with randomization of the default provision, allows us to separately identify the electricity consumption response of “complacent” households (i.e., those who only enroll in time-based pricing if assigned to the opt-out treatment). We find that the complacent households do reduce electricity use during higher priced peak periods, though significantly less on average compared to customers who actively opt in. However, with complacents comprising approximately 75 percent of the population, we observe significantly larger average demand reductions among consumers assigned to the opt-out group. We examine the extent to which the behavioral responses we observe are consistent with a standard model of switching costs, or with alternative mechanisms including inattention, and preferences constructed based on contextual features of the choice setting.
TL;DR: In this article, the authors exploit a volcanic "experiment" to study the costs and benefits of geographic mobility and show that moving costs are very large and labor therefore does not flow to locations where it earns the highest returns.
Abstract: We exploit a volcanic “experiment" to study the costs and benefits of geographic mobility. We show that moving costs (broadly defined) are very large and labor therefore does not flow to locations where it earns the highest returns. In our experiment, a third of the houses in a town were covered by lava. People living in these houses were much more likely to move away permanently. For those younger than 25 years old who were induced to move, the “lava shock” dramatically raised lifetime earnings and education. Yet, the benefits of moving were very unequally distributed within the family: Those older than 25 (the parents) were made slightly worse off by the shock. The large gains from moving for the young are surprising in light of the fact that the town affected by our volcanic experiment was (and is) a relatively high income town. We interpret our findings as evidence of the importance of comparative advantage: the gains to moving may be very large for those badly matched to the location they happened to be born in, even if differences in average income are small.
TL;DR: This paper provided the first causal estimates on diversion in the criminal justice system, an intervention that provides offenders with a second chance to avoid a criminal record, and found that diversion cuts reoffending rates in half and grows quarterly employment rates by nearly 50% over 10 years.
Abstract: This article provides the first causal estimates on the popular, cost-saving practice of diversion in the criminal justice system, an intervention that provides offenders with a second chance to avoid a criminal record. We exploit two natural experiments in Harris County, Texas where first-time felony defendants faced abrupt changes in the probability of diversion. Using administrative data and regression discontinuity methods, we find robust evidence across both experiments that diversion cuts reoffending rates in half and grows quarterly employment rates by nearly 50% over 10 years. The change in trajectory persists even 20 years out and is concentrated among young black men. An investigation of mechanisms strongly suggests that stigma associated with a felony conviction plays a key role in generating these results. Other possible mechanisms including changes in incarceration, other universal adjustments in policy or practice, and differences in criminal processing are ruled out empirically.
TL;DR: The authors provided new time-varying estimates of the housing wealth effect back to the 1980s using three identification strategies: ordinary least squares with a rich set of controls, the Saiz housing supply elasticity instrument, and a new instrument that exploits systematic differences in city-level exposure to regional house price cycles.
Abstract: We provide new time-varying estimates of the housing wealth effect back to the 1980s. We use three identification strategies: ordinary least squares with a rich set of controls, the Saiz housing supply elasticity instrument, and a new instrument that exploits systematic differences in city-level exposure to regional house price cycles. All three identification strategies indicate that housing wealth elasticities were if anything slightly smaller in the 2000s than in earlier time periods. This implies that the important role housing played in the boom and bust of the 2000s was due to larger price movements rather than an increase in the sensitivity of consumption to house prices. Full-sample estimates based on our new instrument are smaller than recent estimates, though they remain economically important. We find no significant evidence of a boom–bust asymmetry in the housing wealth elasticity. We show that these empirical results are consistent with the behaviour of the housing wealth elasticity in a standard life-cycle model with borrowing constraints, uninsurable income risk, illiquid housing, and long-term mortgages. In our model, the housing wealth elasticity is relatively insensitive to changes in the distribution of loan-to-value (LTV) for two reasons: first, low-leverage homeowners account for a substantial and stable part of the aggregate housing wealth elasticity; second, a rightward shift in the LTV distribution increases not only the number of highly sensitive constrained agents but also the number of underwater agents whose consumption is insensitive to house prices.
TL;DR: In this paper, the authors show that the creation of the first integrated multi-modal pan-European transport network during Roman times influences economic integration over two millennia, and that contemporary interregional trade was influenced by connectivity within the network.
Abstract:
We show that the creation of the first integrated multi-modal pan-European transport network during Roman times influences economic integration over two millennia. Drawing on spatially highly disaggregated data on excavated Roman ceramics, we document that contemporary interregional trade was influenced by connectivity within the network. Today, these connectivity differentials continue to influence integration as approximated by cross-regional firm investment behaviour. Continuity is partly explained by selective infrastructure routing and cultural integration due to bilateral convergence in preferences and values. We show that our results are Roman-connectivity specific and do not reflect pre-existing patterns of exchange using pre-Roman trade data.
TL;DR: In this paper, the authors study price competition and entry of platforms in multi-sided markets and demonstrate that in the presence of externalities, the standard effects of competition can be reversed: as platform competition increases, prices and platform profits can go up and consumer surplus can go down.
Abstract: We study price competition and entry of platforms in multi-sided markets. Utilizing the simplicity of the equilibrium pricing formula in our setting with heterogeneity of customers’ membership benefits, we demonstrate that in the presence of externalities, the standard effects of competition can be reversed: as platform competition increases, prices, and platform profits can go up and consumer surplus can go down. We identify economic forces that jointly determine the social inefficiency of the free-entry equilibrium and provide conditions under which free entry is socially excessive as well as an example in which free entry is socially insufficient.
TL;DR: The authors showed that helping young job-seekers signal their skills to employers generates large and persistent improvements in their labour market outcomes, by comparing an intervention that improves the ability to signal skills (the "job application workshop" to a transport subsidy treatment designed to reduce the cost of job search.
Abstract: We show that helping young job-seekers signal their skills to employers generates large and persistent improvements in their labour market outcomes. We do this by comparing an intervention that improves the ability to signal skills (the ‘job application workshop’) to a transport subsidy treatment designed to reduce the cost of job search. In the short-run, both interventions have large positive effects on the probability of finding a formal job. The workshop also increases the probability of having a stable job with an open-ended contract. Four years later, the workshop significantly increases earnings, job satisfaction, and employment duration, but the effects of the transport subsidy have dissipated. Gains are concentrated on individuals who generally have worse labour market outcomes. Overall, our findings highlight that young people possess valuable skills that are unobservable to employers. Making these skills observable generates earnings gains that are far greater than the cost of the intervention.
TL;DR: In this paper, the existence of multiple equilibria in infinite-horizon open economy models in which the value of tradable and non-tradable endowments serves as collateral is established.
Abstract: This article establishes the existence of multiple equilibria in infinite-horizon open economy models in which the value of tradable and non-tradable endowments serves as collateral. In this environment, the economy displays self-fulfilling financial crises in which pessimistic views about the value of collateral induce agents to deleverage. Under plausible calibrations, there exist equilibria with underborrowing. This result stands in contrast to the overborrowing result stressed in the related literature. Underborrowing emerges in the present context because in economies that are prone to self-fulfilling financial crises, individual agents engage in excessive precautionary savings as a way to self-insure.
TL;DR: In this paper, the authors propose the logic of the quadrilogy by showing that it emerges naturally as an equilibrium outcome in a game between banks and the government, where regulation and public insurance services (LOLR, deposit insurance) are complementary.
Abstract: Traditional banking is built on four pillars: SME lending, insured deposit taking, access to lender of last resort, and prudential supervision. This paper unveils the logic of the quadrilogy by showing that it emerges naturally as an equilibrium outcome in a game between banks and the government. A key insight is that regulation and public insurance services (LOLR, deposit insurance) are complementary. The model also shows how prudential regulation must adjust to the emergence of shadow banking, and rationalizes structural remedies to counter financial contagion: ring-fencing between regulated and shadow banking and the sharing of liquidity in centralized platforms.
TL;DR: In this paper, the authors discuss the comparative statics of a theoretical model in which the negative social attitudes toward working women might contribute to the relatively lower marriage rate of skilled women and might also induce a non-monotonic relationship between their labour market prospects and their marriage outcomes.
Abstract: In most of the developed world, skilled women marry at a lower rate than less skilled ones. We document heterogeneity across countries in how the marriage gap between skilled and unskilled women has evolved over time. As labour market opportunities for women have improved, the marriage gap has been growing in some countries but shrinking in others. We discuss the comparative statics of a theoretical model in which the (negative) social attitudes toward working women might contribute to the relatively lower marriage rate of skilled women and might also induce a non-monotonic relationship between their labour market prospects and their marriage outcomes. The model delivers predictions about how the skilled–unskilled marriage gap should react to changes in labour market opportunities across economies with more or less conservative attitudes toward working women. We verify the key predictions of this model in a panel of 26 developed countries, as well as in a panel of U.S. states.
TL;DR: In this paper, the authors study when pure bundling, i.e., offering only the grand bundle of all products, is optimal for a multi-product monopolist and prove the results by decomposing the problem into simpler ones in which types can be ranked according to their values for the grand bundles.
Abstract: We study when pure bundling, i.e., offering only the grand bundle of all products, is optimal for a multi-product monopolist. Pure bundling is optimal if consumers with higher values for the grand bundle have higher relative values for smaller bundles compared to the grand bundle. Conversely, pure bundling is not optimal if consumers with higher values for the grand bundle have lower relative values. We prove the results by decomposing the problem into simpler ones in which types can be ranked according to their values for the grand bundle.
TL;DR: This article studied how the appearance of a new immigrant group affects the integration of earlier generations of migrants and found that the assimilation success was larger for those culturally closer to native whites (i Western and Northern Europeans).
Abstract: How does the appearance of a new immigrant group affect the integration of earlier generations of migrants? We study this question in the context of the first Great Migration (1915-1930), when 15 million African Americans moved from the US South to northern urban centers, where 30 million Europeans had arrived since 1850 We exploit plausibly exogenous variation induced by the interaction between 1900 settlements of southern-born blacks in northern cities and state-level outmigration from the US South after 1910 Black arrivals increased both the effort exerted by immigrants to assimilate and their eventual Americanization These average effects mask substantial heterogeneity: while initially less integrated groups (ie Southern and Eastern Europeans) exerted more assimilation effort, assimilation success was larger for those culturally closer to native whites (ie Western and Northern Europeans) Labor market outcomes do not display similar heterogeneity, suggesting that these patterns cannot be entirely explained by economic forces Our findings are instead more consistent with a framework in which changing perceptions of outgroup distance among native whites lowered the barriers to the assimilation of white immigrants
TL;DR: In this article, the authors developed a two-sector model to assess the contribution of this process of skill-biased structural change to the rise of the skill premium in the US over the period 1977 to 2005.
Abstract: We document for a broad panel of advanced economies that increases in GDP per capita are associated with a shift in the composition of value added to sectors that are intensive in high-skill labor. It follows that further development in these economies leads to an increase in the relative demand for skilled labor. We develop a two-sector model of this process and use it to assess the contribution of this process of skill-biased structural change to the rise of the skill premium in the US over the period 1977 to 2005. We find that these compositional demands account for between 25 and 30% of the overall increase of the skill premium due to technical change.
TL;DR: This article showed that the frequency of sales is strongly countercyclical, as much as doubling during the Great Recession, and built a general equilibrium model in which cyclical sales arise endogenously as retailers try to attract bargain hunters.
Abstract: Macroeconomists traditionally ignore temporary price markdowns (“sales”) under the assumption that they are unrelated to aggregate phenomena. We revisit this view. First, we provide robust evidence from the U.K. and U.S. CPI micro data that the frequency of sales is strongly countercyclical, as much as doubling during the Great Recession. Second, we build a general equilibrium model in which cyclical sales arise endogenously as retailers try to attract bargain hunters. The calibrated model fits well the business cycle co-movement of sales with consumption and hours worked, and the strong substitution between market work and shopping time documented in the time-use literature. The model predicts that after a monetary contraction, the heightened use of discounts by firms amplifies the fall in the aggregate price level, attenuating by a third the one-year response of real consumption.
TL;DR: In this article, the authors investigate the impact of community-driven development on economic interactions within rural villages in The Gambia. And they find evidence that is consistent with elite capture, favouritism, and unequally distributed benefits leading to reductions in social capital and thus economic transactions.
Abstract: This article investigates the effects of development projects on economic networks. To this end, we study the impact that a randomly allocated Community-Driven Development program in The Gambia has on economic interactions within rural villages. The program provides an exogenous source of variation to village-level stocks of productive capital and to village-wide collective activities. Based on detailed data on economic and social networks, we find a significant reduction of transfers in these networks in treatment villages. Guided by a theoretical framework, we investigate several possible mechanisms and find evidence that is consistent with two channels. First, the evidence points to modest wealth effects and a village-level transformation process towards a more formal economy. Second, we also find evidence that is consistent with elite capture, favouritism, and unequally distributed benefits leading to reductions in social capital and thus economic transactions. Overall, our findings suggest changes in networks as an avenue through which development interventions may have unintended consequences.