Random research in politics, economics, firms, etc.

Politics and political institutions

The United States has among the highest influenza vaccination rates in the OECD.

Ten Things Political Scientists Know that You Don’t (link)

We find that face-to-face and FinTech lenders charge Latinx/African-American borrowers 6-9 basis points higher interest rates, consistent with the extraction of monopoly rents in weaker competitive environments and from profiling borrowers on shopping behavior. In aggregate, Latinx/African-American pay \$250-\$500M per year in extra mortgage interest. FinTech algorithms have not removed discrimination, but may have shifted the mode. (link)

We find that police departments in cities that collect a greater share of their revenue from fees solve violent and property crimes at significantly lower rates. The effect on violent crime clearance is more salient in smaller cities where police officers’ assignments tend not to be highly specialized. (link)

The “overwhelming majority…progressive Democrats” – favored efficiency over equality by 4 to 1. “Average Americans” split evenly. Fascinating study of elite values. bu.edu/research/artic… (link)

“For Democrats, the education effect was even worse: the more educated a Democrat is, according to the study, the less he or she understands the Republican worldview.” (link)

To explain the coexistence of economic freedom and big government, this paper distinguishes between big government in the fiscal sense of requiring high taxes, and big government in the Hayekian sense of requiring knowledge that is difficult to acquire from a central authority. The indicators of government size in measures of economic freedom capture the fiscal size but ignore the Hayekian knowledge problem. Thinking about government size in both the fiscal and Hayekian dimensions suggests the possibility of Hayekian welfare states where trust and state capacity facilitate experimentation and learning, resulting in a public sector that is big in a fiscal sense but not necessarily more vulnerable to the Hayekian knowledge problem. Pensions in Sweden are used as a case to illustrate the empirical relevance of the argument. The new pension system represents big government in a fiscal sense, but by relying on decentralized choice it requires relatively little central knowledge. (link)

By assuming that policy is an object of choice, economists have no alternative but to naively hope for a decision-maker sensitive to economic logic. An alternative approach is to think of policy, not as an object of choice but as an outcome of a competitive process. (link)

Republican control of state governments has not stopped the growth of government at the state level (median voter theorem still underrated).

How much does it matter which party controls the government? There are a number of reasons to believe that the partisan composition of state government should affect policy. But the existing evidence that electing Democrats instead of Republicans into office leads to more liberal policies is surprisingly weak, inconsistent, and contingent. We bring clarity to this debate with the aid of a new measure of the policy liberalism of each state from 1936-2014, using regressiondiscontinuity and dynamic panel analyses to estimate the policy effects of the partisan composition of state legislatures and governorships. We find that until the 1980s, partisan control of state government had negligible effects on policy liberalism, but that since then partisan effects have grown markedly. Even today, however, the policy effects of partisan composition pale in comparison to the policy differences across states. They are also small relative to the partisan divergence in legislative voting records. (http://caughey.mit.edu/sites/default/files/documents/CaugheyWarshawXu-PolicyEffectsOfParty.pdf)

The 2018 Senate race in Wyoming, the smallest state by pop, was won by Barrasso (R) with 74,983 more votes. The Senate seat in Florida, the 3rd largest state, was determined 10,033 votes. Your vote mattered more in Florida that year.

The US is still among the least concentrated newspaper industries. (link)

“Those scoring higher in narcissism…participate more in politics, including contacting politicians, signing petitions, joining demonstrations, donating money, and voting in midterm elections.” buff.ly/2XCxklL

America can never be like Denmark because Denmark benefits massively from the technological spillovers bought by American capitalism. nber.org/papers/w18441

I’m also really interested in funding org decision - i.e. DARPA’s Program Managers have individual accountability/rapid funding, compare with NSF’s multi-actors/stages: nsf.gov/about/how.jsp I’d love to have govt funding orgs compete on model as well. (link) Nick Pinkston

The Heckman Curve characterizes the rate of return to public investments in human capital as rapidly diminishing with age. For the disadvantaged, it describes investments early in the life course as having significantly higher rates of return compared to later in life. This paper assesses the Heckman Curve using estimates of program benefit cost ratios from the Washington State Institute for Public Policy. We find no support for the claim that social policy programs targeted early in the life course have the largest benefit cost ratios, or that on average the benefits of adult programs are less than the cost of the intervention.

In selectorate theory, three groups of people affect leaders. These groups are the nominal selectorate, the real selectorate, and the winning coalition. The nominal selectorate, also referred to as the interchangeables, includes every person who has some say in choosing the leader (for example, in an American presidential election, all registered voters). The real selectorate, also referred to as the influentials, are those who really choose the leaders (for example, in an American presidential election, those people who cast a vote). The winning coalition, also referred to as the essentials, are those whose support translates into victory (for example, in an American presidential election, those voters that get a candidate to 270 Electoral College votes). In other countries, leaders may stay in power with the support of much smaller numbers of people, such as senior figures in the security forces, and business oligarchs, in contemporary Russia.[1]

“How does engagement with markets affect socioeconomic values and political preferences? A long line of thinkers has debated the nature and direction of such effects, but claims are difficult to assess empirically because market engagement is endogenous. We designed a large field experiment to evaluate the impact of financial markets, which have grown dramatically in recent decades. Participants from a national sample in England received substantial sums they could invest over a 6‐week period. We assigned them into several treatments designed to distinguish between different theoretical channels of influence. Results show that investment in stocks led to a more right‐leaning outlook on issues such as merit and deservingness, personal responsibility, and equality. Subjects also shifted to the right on policy questions. These results appear to be driven by growing familiarity with, and decreasing distrust of markets. The spread of financial markets thus has important and underappreciated political ramifications.” That is from a newly published paper by Yotam Margalit and Moses Shayo, via the excellent Kevin Lewis.

People make too much of the profit movie in prisons. Incentives matter: “Yes, private firms have incentives to maximize the number of prisoners — but so do public sector actors, and they often have stronger incentives to do so, not to mention easier access to the politicians,” Pfaff writes. “In fact, public prisons suffer from every pathology attributed to private prison firms. Every one, and likely in costlier ways.” Pfaff actually suggests that private prisons could be used to reduce incarceration. The trick is in writing better contracts, which have too often rewarded failure (when a former prisoner comes back, the private prison profits). “Imagine that instead of paying private prisons based on the number of prisoners they held each day, we paid them based on how those prisoners performed upon release,” Pfaff says. (source)

Institutions are durable: “China’s historically rice-farming areas had tighter social norms than wheat-farming areas, even beyond differences in development and urbanization.” (Link)

This paper reveals how community-level income inequality affects political participation. We theorize that local experiences of inequality increase awareness of the unequal distribution of income in the US, provoking political activity, particularly among those with more resources enabling them to act. Using restricted geographic data from the 2012 and 2016 ANES, we show local income inequality increases political participation, especially among the affluent. Using an instrumental variables design, we demonstrate these findings are not the result of reverse causality. Our results reveal the importance of considering both individual- and community-level factors when evaluating political behavior. They also suggest that as income inequality in the US continues to rise, so too will the gap in political participation between the rich and the poor, potentially leading elected officials to be even less responsive to the preferences and needs of the less affluent. (Link)

Intellectual humility, the admission that one’s beliefs may be fallible, robustly curbed affective polarization, the resentment over one’s political opponents being jerks. http://psyarxiv.com/qn25s/

Paper on that issue - “Who becomes a politician” (in Sweden). “politicians are on average significantly smarter and better leaders than the population they represent” “at best a weak trade-off in selection between competence and social representation” (link)

While there is much concern about the role of race in police use of force, identifying causal effects is difficult. This is in part because of selection, and in part because researchers often observe only interactions that end in use of force, necessitating nontrivial benchmarking assumptions. This paper addresses these problems by using data on officers dispatched to over 2 million 911 calls in two cities, neither of which allows for discretion in the dispatch process. Using a location-by-time fixed effects approach that isolates the random variation in officer race, we show white officers use force 60 percent more than black officers, and use gun force twice as often. To examine how civilian race affects use of force, we compare how white officers increase use of force as they are dispatched to more minority neighborhoods, compared to minority officers. Perhaps most strikingly, we show that while white and black officers use gun force at similar rates in white and racially mixed neighborhoods, white officers are five times as likely to use gun force in predominantly black neighborhoods. Similarly, white officers increase use of any force much more than minority officers when dispatched to more minority neighborhoods. Consequently, difference-in-differences estimates from individual officer fixed effect models indicate black (Hispanic) civilians are 30 - 60 (75 - 120) percent more likely to experience any use of force, and five times as likely to experience gun use of force, compared to if white officers scaled up force similarly to minority officers. These findings highlight race as an important determinant of police use of force, including and especially lethal force. (Link)

However, this Article argues that codetermination promises to be a poor fit for U.S. corporations. While Germany arguably reaps significant benefits from codetermination, legal, social, and institutional differences between Germany and the United States make it highly unlikely that the United States would be able to replicate those benefits. Furthermore, the costs of codetermination would probably be much higher in the United States than they are in Germany. (link)

The American Frontier shaped a culture of rugged individualism. It attracted individualistic types and made settlers more individualistic over time; its effects persist today as more exposed counties show greater opposition to government https://econometricsociety.org/publications/econometrica/journal-materials/forthcoming-papers

Some government policies can systematically influence citizens’ acquisition of economic information. Since voters evaluate policy platforms in light of this information, politicians might exploit these policy feedback effects to shape voter’s future policy preferences to their advantage. We illustrate this logic in the context of government subsidies to property ownership. Using an extension of the Romer-Meltzer-Richard model with imperfect information about the economy, we show how subsidies to ownership of real estate—such as mortgage interest deductions or discounted sales of public housing—produce an electorate that is systematically less favorable to redistributive taxation. The resulting political complementarity between home subsidies and fiscal conservatism is consistent with several empirical regularities. (link)

In this article, we use a regression discontinuity design to estimate the causal effect of incumbency on campaign contributions in the U.S. House and state legislatures. In both settings, incumbency causes approximately a 20–25 percentage-point increase in the share of donations flowing to the incumbent’s party. The effect size does not vary with legislator experience and does not appear to depend on incumbent office-holder benefits. Instead, as we show, the effect is primarily the result of donations from access-oriented interest groups, especially donors from industries under heavy regulation and those with less ideological ties. Given the role of money in elections, the findings suggest that access-oriented interest groups are an important driver of the electoral security of incumbents. (link)

In the US, states typically pay for prison, while county employees (judges, prosecutors, probation officers…) determine time spent in custody. When the cost of incarceration is internalized by the entity choosing punishment, incarceration is lower, without detectable effects on crime. Misaligned incentives in criminal justice may have contributed to the growth of incarceration in the United States. (Link)

“This evidence suggests that exploring constraints on how the state can be used to shape economic interactions—for example, the extent to which elites can employ state machinery to coerce labor or citizens can use state guarantees to protect their property—is a more useful starting point than land inequality for modeling Latin America’s long-run growth trajectory.” https://scholar.harvard.edu/files/dell/files/ecta8121_0.pdf

The paper uses survey data we collected, linked to tax returns & a panel of credit reports to document that 1) low-income households have substantial uncertainty regarding their annual refund and 2) this meaningfully impacts the welfare associated with tax-linked transfers. 2/10 [link]

Myopic Voters and Natural Disaster Policy Do voters effectively hold elected officials accountable for policy decisions? Using data on natural disasters, government spending, and election returns, we show that voters reward the incumbent presidential party for delivering disaster relief spending, but not for investing in disaster preparedness spending. These inconsistencies distort the incentives of public officials, leading the government to underinvest in disaster preparedness, thereby causing substantial public welfare losses. We estimate that \$1 spent on preparedness is worth about \$15 in terms of the future damage it mitigates. By estimating both the determinants of policy decisions and the consequences of those policies, we provide more complete evidence about citizen competence and government accountability. [link]

This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and their subsequent propagation to the economy. The struggle between groups that disagree on targeted public spending (e.g., pork) results in governments being endogenously short-sighted: Systematic underinvestment in infrastructure and overspending on targeted goods arise, above and beyond what is observed in symmetric environments. Because the party enjoying an electoral advantage is less short-sighted, it devotes a larger proportion of revenues to productive investment. Hence, political turnover induces economic fluctuations in an otherwise deterministic environment. I characterize analytically the longrun distribution of allocations and show that output increases with electoral advantage, despite the fact that governments expand. Volatility is non-monotonic in electoral advantage and is an additional source of inefficiency. Using panel data from US states I confirm these findings. [link]

Do big cities exert more power than less populous ones in American state legislatures? In many political systems, greater representation leads to more policy gains, yet for most of the nation’s history, urban advocates have argued that big cities face systematic discrimination in statehouses. Drawing on a new historical dataset spanning 120 years and 13 states, we find clear evidence that there is no strength in numbers for big-city delegations in state legislatures. District bills affecting large metropolises fail at much higher rates than bills affecting small cities, counties, and villages. Big cities lose so often because size leads to damaging divisions. We demonstrate that the cities with the largest delegations — which are more likely to be internally divided — are the most frustrated in the legislative process. Demographic differences also matter, with district bills for cities that have many foreign-born residents, compared with the state as a whole, failing at especially high rates. [link]

Economists Yaniv Reingewertz and Thushyanthan Baskaran studied how U.S. presidents distribute federal money to local governments and found that Democratic presidents — Clinton and Obama in the study — favored districts dominated by Democrats. Republican presidents did not demonstrate partisan favoritism.

VOX: From 2014 to 2019, Campbell tracked more than 1,600 BLM protests across the country, largely in bigger cities, with nearly 350,000 protesters. His main finding is a 15 to 20 percent reduction in lethal use of force by police officers — roughly 300 fewer police homicides — in census places that saw BLM protests.

Campbell’s research also indicates that these protests correlate with a 10 percent increase in murders in the areas that saw BLM protests. That means from 2014 to 2019, there were somewhere between 1,000 and 6,000 more homicides than would have been expected if places with protests were on the same trend as places that did not have protests. Campbell’s research does not include the effects of last summer’s historic wave of protests because researchers do not yet have all the relevant data.

…One other possible explanation for the increased murder rate is that law enforcement officials are the ones voluntarily reducing their interactions with the community and as a result emboldening criminal activity. One way to observe whether police are reducing their efforts is to see whether the share of property crimes cleared falls over this period. In other words, are police not trying as hard — either because they are demoralized or angry at public scrutiny of their behavior — to solve low-level crimes that are reported to them? Campbell observes a 5.5 percent decline in the share of property crimes cleared, which is consistent with police reducing their efforts immediately following the protests.

Based on this paper. The explanation is consistent with what happened in Baltimore after the Freddie Gray protests and riots, namely arrests went down and murders went up.

“Yeah, what I would say is that attachment to is not the same as hatred of the outgroup, right? This is something Ashley Jardina points out also in her book. And if you look at the American National Election Study, the thermometer of whites who are warmer towards whites are not colder towards blacks, quite the opposite. So there just isn’t . . . and this is, again, part of the psychological literature. We’ve known that for a long time. Unless there’s a violent conflict going on, attachment to your own group is not the same as hating an outgroup. Attachment to being white or attachment to a North European ancestry is not a predictor of disliking a minority. The problem is, if we try and mash those together and outlaw this identity, we store up more trouble than if we simply say, ‘Okay. This is fine. You can express this identity like anybody else, but it’s got to be moderate, and you have to bear in mind the common good, so it should be subordinate to that.'”


Relative to the benchmark economy, a corporate income tax cut can reduce the non-employment rate by up to 7 percent. (link)

Consumption taxes would be better for households but the transition would nullify any benefit. (link)

Corporate profits before taxes as a percentage of GDP. (link)

The District has spent more than \$184 million on tax incentives to encourage high-tech employment in the city. But those incentives don’t appear to be paying off, according to DC’s CFO. @ally_schweitzer has the details: https://t.co/QcGmEqaAiu https://t.co/jF5P45FFAo

“Our key finding is that the R&D tax credit is associated with a significant long-term impact on both the overall quantity and quality-adjusted quantity of entrepreneurship, with the bulk of the effect materializing more than five years after the policy is enacted. These findings stand in contrast to an analysis of the adoption of state-level investment tax credits.” (link)

We find that the elasticity of revenues with respect to the tax rate over a ten-year period is -0.5 to -0.3, indicating that capital gains tax cuts do not pay for themselves, and that a 5 percentage point rate increase would yield \$18 to \$30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent. (Link)

We measure the benefit of the Second Avenue Subway extension in New York City by analyzing local real estate prices which capitalize the benefits of transit spillovers. We find that price increase by 10%, creating \$7 billion in new property value. Using cell phone ping data, we document substantial reductions in commuting time especially among subway users, offering a plausible mechanism for the price gains. Higher prices reflect both higher rents and lower risk. Infrastructure improvements thus lower the riskiness of real estate investments. Only 30% of the private value created by the subway is captured by local government through higher property tax revenue, and is insufficient to cover the cost of the subway. Targeted property tax increases may help capture more of the value created, and serve as a useful funding tool. (link)


“This paper studies when religion can hamper diffusion of knowledge and economic development, and through which mechanism. I examine Catholicism in France during the Second Industrial Revolution (1870–1914). In this period, technology became skill-intensive, leading to the introduction of technical education in primary schools. I find that more religious locations had lower economic development after 1870. Schooling appears to be the key mechanism: more religious areas saw a slower adoption of the technical curriculum and a push for religious education. In turn, religious education was negatively associated with industrial development 10 to 15 years later, when schoolchildren entered the labor market.” (link)

Apparently, there is a religious residue effect. “Formerly religious individuals differed from never religious and currently religious individuals…” These individuals were still relatively likely to engage in prosocial behavior. Details: https://buff.ly/2Ld6ucM

Capital and markets

We study the effects of the liberty bond drives of World War I on financial intermediation in the 1920s and beyond. Using panel data on U.S. counties we find that higher liberty bond subscription rates led to an increase in the number of investment banks, stronger local competition between investment banks and commercial banks, and a relative contraction in commercial bank assets. We also find that individuals residing in states with higher liberty bond subscription rates were more likely to report owning stocks or bonds in the late 1930s. Finally, we find that this shift in financial intermediation away from commercial banks was correlated with slower growth in the number of manufacturing enterprises and farms at the county level. Although they were conducted to support the American effort in World War I, the liberty loan drives reshaped American finance. (link)

“It summarizes selectively a literature on the interaction between the capital and product markets at the nexus of industrial organization and corporate finance, and develops two key insights. First, capital market constraints on an individual firm are determined at the level of the industry and depend on product market competition. Second, capital markets constrain the product strategy of firms and thereby influence product market performance.” (link)

The rise of “financial analysts encourage[d] firms to make more efficient investments related to innovation, which increases their future patents & citations, & influences the novelty of their innovations.” (link)

A private equity buyout leads acquired firms to increase sales by 50%, largely through new products and geographic expansion: https://buff.ly/3fnvknG

Psychology and risk

People born between 1963 and 1965 are less likely to drive a car to work, are more likely to commute using public transit and are even less likely to own a car than people born just before or after those years. Why? It’s a great puzzle. Give it a guess. Severen and van Benthem have a compelling answer: “An individual’s initial experiences with a common good, such as gasoline, can shape their behavior for decades. We first show that the 1979 oil crisis had a persistent negative effect on the likelihood that individuals that came of driving age during this time drove to work in the year 2000 (i.e., in their mid 30s). The effect is stronger for those with lower incomes and those in cities. Combining data on many cohorts, we then show that large increases in gasoline prices between the ages of 15 and 18 significantly reduce both (i) the likelihood of driving a private automobile to work and (ii) total annual vehicle miles traveled later in life, while also increasing public transit use. Differences in driver license age requirements generate additional variation in the formative window. These effects cannot be explained by contemporaneous income and do not appear to be only due to increased costs from delayed driving skill acquisition. Instead, they seem to reflect the formation of preferences for driving or persistent changes in the perceived costs of driving.”

Across three traits, American adults (N=3,458; Mage = 33-51 years) believe today’s youth are in decline; however, these perceptions are associated with people’s standing on those traits. Authoritarian people especially think youth are less respectful of their elders, intelligent people especially think youth are less intelligent, well-read people especially think youth enjoy reading less. These beliefs are not predicted by irrelevant traits. Two mechanisms contribute to humanity’s perennial tendency to denigrate kids: (1) a person-specific tendency to notice the limitations of others where one excels, (ii) a memory bias projecting one’s current qualities onto the youth of the past. When observing current children, we compare our biased memory to the present and a decline appears. This may explain why the kids these days effect has been happening for millennia. (link)

This paper provides a large scale, empirical evaluation of unintended effects from invoking the precautionary principle after the Fukushima Daiichi nuclear accident. After the accident, all nuclear power stations ceased operation and nuclear power was replaced by fossil fuels, causing an exogenous increase in electricity prices. This increase led to a reduction in energy consumption, which caused an increase in mortality during very cold temperatures. We estimate that the increase in mortality from higher electricity prices outnumbers the mortality from the accident itself, suggesting the decision to cease nuclear production has contributed to more deaths than the accident itself. (link)

Decades of research has shown that our intuition is bad at assessing differences in scale. For instance, one study found that people were willing to pay about the same amount to save 2,000 birds from oil spills as they were to save 200,000 birds, even though the latter is objectively one hundred times better. This is an example of a common error called scope neglect.

In economics, dynamic inconsistency or time inconsistency is a situation in which a decision-maker’s preferences change over time in such a way that a preference can become inconsistent at another point in time.

Modern investors face a high-dimensional prediction problem: thousands of observable variables are potentially relevant for forecasting. We reassess the conventional wisdom on market efficiency in light of this fact. In our model economy, which resembles a typical machine learning setting, N assets have cash flows that are a linear function of J firm characteristics, but with uncertain coefficients. Risk-neutral Bayesian investors impose shrinkage (ridge regression) or sparsity (Lasso) when they estimate the J coefficients of the model and use them to price assets. When J is comparable in size to N, returns appear cross-sectionally predictable using firm characteristics to an econometrician who analyzes data from the economy ex post. A factor zoo emerges even without p-hacking and data-mining. Standard in-sample tests of market efficiency reject the no-predictability null with high probability, despite the fact that investors optimally use the information available to them in real time. In contrast, out-of-sample tests retain their economic meaning. https://nber.org/papers/w26586

The United States, in 2018, implemented a nationwide requirement that chain restaurants disclose calorie information on their menus and menu boards. This law was motivated by concern that consumers underestimate the number of calories in restaurant food, but it remains unclear the extent to which this information disclosure affects consumer knowledge. This paper fills that gap by estimating the impact of information disclosure on consumer knowledge through a randomized controlled field experiment of calorie labels on the menus of a full-service restaurant. The results indicate that information disclosure significantly reduces the extent to which consumers underestimate the number of calories in restaurant food; the labels improve the accuracy of consumers’ post-meal estimates of the number of calories they ordered by 4.0 percent and reduces by 28.9% the probability of underestimating the calories in one’s meal by 50% or more, both of which are statistically significant. However, even after information disclosure, there remains considerable error in consumer beliefs about the calorie content of the restaurant food they ordered. Even among the treatment group who received calorie labels, the average absolute value of percent error in their report is 34.2%. (link) WR: Information makes you smarter, but you were pretty dumb to begin with

Is there a growing class divide in happiness? Among U.S. adults ages 30 and over in the nationally representative General Social Survey (N = 44,198), the positive correlation between socioeconomic status (SES; including income, education, and occupational prestige) and happiness grew steadily stronger between the 1970s and 2010s. Associations between income and happiness were linear, with no tapering off at higher levels of income. Between 1972 and 2016, the happiness of high-SES White adults was fairly stable, whereas the happiness of low-SES White adults steadily declined. Among Black adults, the happiness of low-SES adults was fairly stable, whereas the happiness of high-SES adults increased. Thus, the happiness advantage favoring high-SES adults has expanded over the decades. Age–period–cohort analyses based on hierarchical linear modeling demonstrate that this effect is primarily caused by time period rather than by birth cohort or age. (PsycInfo Database Record (c) 2020 APA, all rights reserved) (link)

The Vietnam draft seems to have had important intergenerational effects. Eligibility “increases measures of substance use, intensity of use, decreases age of initiation—particularly for marijuana—and increases measures of delinquency [for children].” (link)

“Many consumers make poor financial choices, and older adults are particularly vulnerable to such errors. About half of the population between ages 80 and 89 have a medical diagnosis of substantial cognitive impairment. We study life-cycle patterns in financial mistakes using a proprietary database with information on 10 types of credit transactions. Financial mistakes include suboptimal use of credit card balance transfer offers and excess interest rate and fee payments. In a cross section of prime borrowers, middle-aged adults made fewer financial mistakes than either younger or older adults. We conclude that financial mistakes follow a U-shaped pattern, with the cost-minimizing performance occurring around age 53. We analyze nine regulatory strategies that may help individuals avoid financial mistakes. We discuss laissez-faire, disclosure, nudges, financial “driver’s licenses,” advance directives, fiduciaries, asset safe harbors, and ex post and ex ante regulatory oversight. Finally, we pose seven questions for future research on cognitive limitations and associated policy responses.” (link)

People want the numinous: https://www.psychologytoday.com/us/blog/making-humans/201208/chronic-lack-awe

In June 2020, we surveyed 2,516 Americans regarding their preferences for both short- and long-term expansions to government-provided healthcare and unemployment insurance programs. We find that support for such programs is positively associated with (a) COVID-19 deaths and infections in the respondent’s county, (b) the pandemic-induced change in the unemployment rate in the respondent’s county, and (c) survey elicitations of the respondent’s perceptions of COVID-19’s consequences. These associations persist when controlling for pre-COVID-19 political ideology and demographics. These results suggest that real or perceived exposure to COVID-19’s consequences has influenced support for expansions to the U.S. safety-net system. (link)

Social scientists often consider temporal stability when assessing the usefulness of a construct and its measures, but whether behavioral biases display such stability is relatively unknown. We estimate stability for 25 biases, in a nationally representative sample, using repeated elicitations three years apart. Bias level indicators are largely stable in the aggregate and within-person. Within-person intertemporal rank correlations imply moderate stability and increase dramatically when using other biases as instrumental variables. Additional results reinforce three key inferences: biases are stable, accounting for classical measurement error in bias elicitation data is important, and eliciting multiple measures of multiple biases is valuable. (link)

Researchers found that being exposed to a forecasting prediction “increases certainty about an election’s outcome, confuses many, and decreases turnout.” (link)

Time to failure of a conspiracy (link)

Is the assumption that people automatically know their own prefer- ences innocuous? We present a theory and an experiment that study the limits of preference discovery. Our theory shows that if tastes must be learned through experience, preferences for some goods will be learned over time, but preferences for other goods will never be learned. This is because sampling a new item has an opportunity cost. Learning is less likely for people who are impatient, risk averse, low income, or short-lived, and for consumption items that are rare, expensive, must be bought in large quantities, or are initially judged negatively relative to other items. Preferences will eventually stabilize, but they need not stabilize at true preferences. We suggest that a pes- simistic bias about untried goods should increase with time. Agents will make choice reversals during the learning process. [source]

The roots of why people refuse to engage in win-win thinking.

Jobs and labor

Wage stagnation:

According to Markovits, elites today work an average of 12 more hours per week than middle-class workers (the equivalent of 1.5 additional workdays). (Link)

Wages are sticky in continuing jobs but flexible in new matches https://www.jstor.org/stable/25621364

Paid family leave in California didn’t increase women’s employment, wage earnings, or attachment to employers. It also lowered annual wages by 8 percent six to ten years after giving birth. All the details can be found here: http://buff.ly/2MShxd5

Following a centuries-long decline in the rate of self-employment, a remarkable discontinuity in this downward trend seems beyond doubt for many advanced economies starting in the 1970s and 80s. In some countries there is an ongoing revival of self-employment. At the same time, crosssectional analysis shows a U-shaped relationship between start-up rates of enterprise and levels of economic development. We provide an overview of the empirical evidence concerning the relationship between independent entrepreneurship, also known as self-employment or business ownership, and economic development. We also argue that the reemergence of independent entrepreneurship is based on at least two ‘revolutions’. If we distinguish between solo selfemployed at the lower end of the entrepreneurship spectrum, and ambitious and/or innovative entrepreneurs at the upper end, many advanced economies show a revival at both extremes. Policymakers in advanced economies should be aware of both revolutions and tailor their policies accordingly. ([http://www.ices-study.org/WhatIsEnterpreneurship/Research/(knowledge%20web)%20the%20relationship%20between%20enteprenurship%20and%20economic%20development.pdf](http://www.ices-study.org/WhatIsEnterpreneurship/Research/(knowledge web) the relationship between enteprenurship and economic development.pdf))

“men who experienced severe economic conditions in youth are more risk averse in adulthood and the effect is long-lasting. In addition, those men are less likely to be self-employed and they have longer tenure, which are consistent with elevated risk aversion.” (link)

“It then follows that when production is labor-intensive, outsourcing is the optimal governance structure; when production is capital-intensive, vertical integration dominates. Thus, the model predicts a higher propensity to integrate suppliers in capital-intensive sectors, which in turn explains the observed positive cross-industry correlation between capital intensity and the share of intrafirm imports in total U.S. imports.” (link)

Research out of Geneva suggests that job search assistance can place job seekers quickly, but at the expense of long term employment stability. (link)

This new NBER paper is big if true: “We also show that the decline in the labor income share can be attributed to computerization, which substitutes labor across all industries.” https://t.co/rMC5H9Mhap

Baumol’s cost disease is seriously underappreciated. As industries get more productive, their workforce shrinks and people move into industries where productivity is lower. Rinse, repeat. https://t.co/1pQldkRWk5

Fascinating and weird wrinkle to the wage gap conversation: Single women, married women, and single men all make about the same amount of money. It’s MARRIED men who vastly out-earn everybody else. (link)

RT @CityLab: There’s job growth in Rural America, too. @Richard_Florida explores the myths and realities of America’s urban-rural divide: https://t.co/OPAritldC5 https://t.co/qfp5qPqhdr

Autor reports, as picked up by The Economist and MR, that the urban wage premium has essentially disappeared for low-educated men.

80,000 fake pitch emails were sent to 28,000 venture capitalists and business angels. Female entrepreneurs received an 8% higher rate of interested replies than men pitching identical projects. (source)

This paper uses a large-scale two-level randomized experiment to study direct and displacement effects of job search assistance. Our findings show that the assistance reduces unemployment among the treated, but also creates substantial displacement leading to higher unemployment for the non-treated. By using detailed information on caseworker and job seeker behavior we show that vacancy referrals passed on from caseworkers to job seekers is the driving mechanism behind the positive direct effect. We also examine explanations for the displacement effect and show that displacement is not due to constrained resources, but arises in the labor market. A comparison between different meeting formats suggests that face-to-face meetings and distance meetings are more effective than group meetings. Despite the existence of displacement effects, when we incorporate our results into an equilibrium search model we find that a complete roll-out of the program would lead to lower unemployment and reduced government spending. (link)

Have passive rentiers replaced the working rich at the top of the U.S. income distribution? Using administrative data linking 10 million firms to their owners, this paper shows that private business owners who actively manage their firms are key for top income inequality. Private business income accounts for most of the rise of top incomes since 2000 and the majority of top earners receive private business income—most of which accrues to active owner-managers of mid-market firms in relatively skill-intensive and unconcentrated industries. Profit falls substantially after premature owner deaths. Top-owned firms are twice as profitable per worker as other firms despite similar risk, and rising profitability without rising scale explains most of their profit growth. Together, these facts indicate that the working rich remain central to rising top incomes in the twenty-first century. That is from a new paper by Matthew Smith, Danny Yagan, Owen Zidar, and Eric Zwick, via the excellent Kevin Lewis.


Sources of firm value

  • Using an exceptionally rich firm-level dataset from Belgium, this column finds that large firms benefit more from IT than small firms, and that IT explains about 10% of the productivity dispersion. IT has contributed to Belgian GDP and productivity growth prior to the Global Crisis, but the recession seems to have led firms to forgo investment in IT. Achieving optimal IT investment levels could reinvigorate productivity growth. (link)

  • “On average, physical capital accounts for 30% to 40% of firm’s market value, installed labor force accounts for 14% to 22%, knowledge capital accounts for 20% to 43%, and brand capital accounts for 6% to 25%. The importance of physical capital for firm value decreased in the last decades, while the importance of knowledge capital increased, especially in high-tech industries.” (link)

  • We use an innovative survey tool to collect management practice data from 732 medium-sized firms in the United States, France, Germany, and the United Kingdom. These measures of managerial practice are strongly associated with firm-level productivity, profitability, Tobin’s Q, and survival rates. Management practices also display significant cross-country differences, with U.S. firms on av- erage better managed than European firms, and significant within-country dif- ferences, with a long tail of extremely badly managed firms. We find that poor management practices are more prevalent when product market competition is weak and/or when family-owned firms pass management control down to the el- dest sons (primogeniture). (Link)

  • US productivity growth accelerated after 1995 (unlike Europe’s), particularly in sectors that intensively use information technologies (IT). Using two new micro panel datasets we show that US multina- tionals operating in Europe also experienced a “productivity mira- cle.” US multinationals obtained higher productivity from IT than non-US multinationals, particularly in the same sectors responsible for the US productivity acceleration. Furthermore, establishments taken over by US multinationals (but not by non-US multination- als) increased the productivity of their IT. Combining pan-European firm-level IT data with our management practices survey, we find that the US IT related productivity advantage is primarily due to its tougher “people management” practices. (link)

  • Using product recall data, these economists estimated that reputation accounts for 8.3 percent of firm value: https://buff.ly/2HTRP84

  • A private equity buyout leads acquired firms to increase sales by 50%, largely through new products and geographic expansion: https://buff.ly/3fnvknG

    “We find that the average premature death of a million-dollar-earning owner causes an 82% decline in firm profits.” And: “The data reveal a striking world of business owners who prevail at the top of the income distribution. We find that most private business profits reflect the return to owner human capital. Overall, the top earners are predominantly working rich, and the majority of top income accrues to the human capital of wage earners and entrepreneurs, not idle owners of financial and physical capital.” That is from Matthew Smith, Danny Yagan, Owen M. Zidar, and Eric Zwick, “Capitalists in the Twenty-First Century,” a new research paper. https://www.nber.org/papers/w25442

We examine market selection mechanisms and their strength for a representative cohort of US new independent firms. In particular, we explore whether and how effectively markets reward newlyborn firms according to their ‘fitness’ in terms of both labour productivity and profitability. Our analysis yields puzzling results in contrast with canonical industry dynamics models. First, we find that selection on differential growth is mainly related to productivity while profitability plays a negligible role. Second, in contrast with the growth of the fitter principle, selection appears to be driven by changes in firms’ relative productivity. Third, we explore how new firms’ relative fitness affects their growth performance in different sectors. Our results reveal that market selection operates quite differently across them with higher incidence for new-born firms in services, low-tech and less concentrated sectors. Fourth, concerning selection via exit, our results support the survival of the fitter principle with respect to productivity, while relative profitability does not seem to exert any significant effect on survival probabilities. However, the contribution of firm relative ‘fitness’ to the total firm exit rates variation appears to be modest. http://www.lem.sssup.it/WPLem/files/2017-06.pdf

Roughly one-third of world trade is intrafirm trade. In 1994, 42.7 percent of the total volume of U.S. imports of goods took place within the boundaries of multinational firms, with the share being 36.3 percent for U.S. exports of goods (Zeile, 1997). (link)

A new study compared survey data on business incomes, valuations, and rates of return, some key inputs for research on wealth inequality & firm concentration, with real data and found discrepancies. https://buff.ly/30C2g4q

The rise of “financial analysts encourage[d] firms to make more efficient investments related to innovation, which increases their future patents & citations, & influences the novelty of their innovations.” (link)

And that last paper has a warning: “Size-dependent policies aimed at reducing concentration can reduce the aggregate markup but have the side effect of greatly increasing misallocation and reducing aggregate productivity.” https://t.co/wOfeMwCzRM

By combining models of self-employment, researchers find that subsidies for small businesses do not attract talented-but-reluctant entrepreneurs, but instead attract individuals with strong preferences for running a business & low-quality business ideas: https://t.co/ome5NoLSD7

“The mean founder age for the 1 in 1,000 fastest growing new ventures is 45.” https://www.nber.org/papers/w24489

A new research paper finds that liability risk can percolate throughout a vertical chain and may have a significant chilling effect on downstream innovation. cc ⁦@sethgoldin⁩ https://t.co/29GkNQmLWv

Management practices account for more than 20 percent of the variation in productivity, a similar, or greater, percentage as that accounted for by R&D, ICT, or human capital. We find evidence of two key drivers to improve management. The business environment, as measured by right-to-work laws, boosts incentive management practices. Learning spillovers, as measured by the arrival of large “Million Dollar Plants” in the country, increase the management scores of incumbents. (link)

We derive a measure that captures the extent to which overlapping ownership structures shift managers’ incentives to internalize externalities. A key feature of the measure is that it allows for the possibility that not all investors are attentive to whether a manager’s actions benefit the investor’s overall portfolio. Empirically, we show that potential drivers of ownership overlap, including mergers in the asset management industry and the growth of indexing, could in fact diminish managerial motives. Our findings illustrate the importance of accounting for investor inattention and cast doubt on the possibility that the growth of common ownership has had a significant impact on managerial incentives. (link)

A debate about whether firms with superior customer satisfaction earn superior stock returns has been persistent in the literature. Using 15 years of audited returns, the authors find convincing empirical evidence that stock returns on customer satisfaction do beat the market. The recorded cumulative returns were 518% over the years studied (2000-2014), compared with a 31% increase for the S&P 500. Similar results using back-tested instead of real returns were found in the United Kingdom. The effect of customer satisfaction on stock price is, at least in part, channeled through earnings surprises. Consistent with theory, customer satisfaction has an effect on earnings themselves. In addition, the authors examine the effect of stock returns from earnings on stock returns from customer satisfaction. If earnings returns are included among the risk factors in the asset pricing model, the earnings variable partially mitigates the returns on customer satisfaction. Because of the long time series, it is also possible to examine time periods when customer satisfaction returns were below market. The reversal of the general trend largely resulted from short-term market idiosyncrasies with little or no support from fundamentals. Such irregularities have been infrequent and eventually self-correcting. The authors provide reasons why irregularities may occur from time to time. (link)

“in countries where enterprise liability is weaker, groups tend to partition their assets more finely into distinct legally independent subsidiaries and grant their subsidiaries more autonomy. Groups also tend to grow faster. This paper highlights one underappreciated channel—risk compartmentalization through incorporation—through which legal systems affect economic outcomes.” http://nber.org/papers/w24720

Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms. Integrating administrative data on firms, workers, and owners, we study start-ups systematically in the United States and find that successful entrepreneurs are middle-aged, not young. The mean age at founding for the 1-in-1,000 fastest growing new ventures is 45.0. The findings are similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits. Prior experience in the specific industry predicts much greater rates of entrepreneurial success. These findings strongly reject common hypotheses that emphasize youth as a key trait of successful entrepreneurs. (link)

Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data. (link)

Anti-anti-corporate: “Public firms have greater research intensity than private firms, inconsistent with theories asserting private ownership is more conducive to exploration. We also find public firms invest more intensely in innovation of all sorts.” bit.ly/2SN95hO

Theory offers differing perspectives and predictions about the impact of product market competition on corporate social responsibility (CSR). Using firm-level data on CSR from 2002 through 2015 and panel data on competition laws in 48 countries, we discover that intensifying competition induces firms to increase CSR activities. Analyses indicate that (a) intensifying competition spurs firms to invest more in CSR as a strategy for strengthening relationships with workers, suppliers, and customers and (b) the competition-CSR effect is stronger in economies where social norms prioritize CSR-type activities, e.g., treating others fairly, satisfying implicit agreements, protecting the environment, etc. (link)

In this paper, we use firm-level data to investigate the link between the marginal product of capital and financial rates of return across countries. Computed estimates from financial statement data show that capital-scarce countries display higher marginal products of capital. However, inflation-adjusted financial returns are roughly equal across capital-scarce and capital-abundant countries. The divergence between the marginal products of capital and financial returns implies that there may be little incentive for capital to flow to capital-scarce countries. We suggest that domestic capital-accumulation frictions such as sufficiently large capital adjustment costs can decouple financial rates of return from the marginal product of capital across countries. (Link)

Division of innovation labor - Do firms and universities play distinct roles in the process of science-based invention and if so, how do they differ? This paper examines the relative impact of both types of organizations on knowledge use empirically. We disentangle the marginal impact of the organizational environment from the impact of selection, in which firms gravitate around scientific knowledge that has a higher technological potential. Exploiting simultaneous discoveries as “knowledge twins,” we find that firms and universities are conducive to a different uses of scientific knowledge. While firms efficiently translate knowledge into patented inventions, universities tend to use it to produce yet more scientific knowledge in the form of scientific publications. These differences are also apparent within discovery teams when observing collaborations between firms and universities. (link)

Using the farm tractor as a case study, I show that lags in technology diffusion arise along two distinct margins, which I term scale and scope. Though tractors are now used in nearly every agricultural field operation and in the production of nearly all crops, they first developed with much more limited application. Early diffusion was accordingly rapid in these narrower applications, but limited in scope until tractor technology generalized. The sequence of diffusion is consistent with a model of R&D in specific- versus general-purpose attributes and with other historical examples, suggesting that the key to understanding technology diffusion lies not only in explaining the number of different users, but also in explaining the number of different uses. (link)

We document that since 1997, the rate of startup formation has precipitously declined for firms operated by U.S. PhD recipients in science and engineering. These are supposedly the source of some of our best new technological and business opportunities. We link this to an increasing burden of knowledge by documenting a long-term earnings decline by founders, especially less experienced founders, greater work complexity in R&D, and more administrative work. The results suggest that established firms are better positioned to cope with the increasing burden of knowledge, in particular through the design of knowledge hierarchies, explaining why new firm entry has declined for high-tech, high-opportunity startups. (link)

“in 1973, 61.5 % of Russian industrial production was carried out by the 5,300 largest enterprises (a total of the last three lines of the table). In the United States in the same year a slightly larger portion of industrial production (65 %) was carried out by a mere 500 firms. Another table of annual statistics for Russia tells us (again for 1973) that 31.1 % of industrial production was carried out by 1.4 % of the enterprises - numbering 660. In the United States the same percentage (31 %) is accounted for by 50 firms! The relative weakness of concentration in Russian industry is plain. On the economic level the structure of the American industry lends itself much more to «planning» than that of Russian industry.” (link)

We provide new estimates of the separations elasticity, a proximate determinant of the labor supply facing a firm with respect to hourly wage, using matched Oregon employer-employee data. Existing estimates using individual wage variation may be biased by mismeasured wages and use of wage variation unrelated to firm choices. We estimate the impact of the firm component of wage variation on separations using both firm fixed effects estimated from a wage equation as well as a matched IV event study around employment transitions between firms. Separations are a declining function of firm wage policies: we find that the implied firm-level labor supply elasticities generated are around 4, consistent with recent experimental and quasi-experimental evidence, and that they are approximately 3 to 4 times larger that those using individual wages. Further, we find lower separations elasticities for low wage workers, high turnover sectors, and periods of economic downturn but with little heterogeneity by urban status or labor market concentration. We conclude that monopsonistic competition is pervasive, and largely independent of forces driving classical monopsony. (Link)

Research indicates that new applied science STEM graduates enjoy a large wage premium over their liberal arts peers (Deming and Noray 2018). However, that premium shrinks by half in the first decade of work because their skills quickly become obsolete.

An emerging consensus in certain legal, business, and scholarly communities maintains that corporate managers are pressured unduly into chasing shortterm gains at the expense of superior long-term prospects. The forces inducing managerial myopia are easy to spot, typically embodied by activist hedge funds and Wall Street gadflies with outsized appetites for next quarter’s earnings. Warnings about the dangers of “short termism” have become so well established, in fact, that they are now driving changes to mainstream practice, as courts, regulators and practitioners fashion legal and transactional constraints designed to insulate firms and managers from the influence of investor short-termism. This Article draws on academic research and a series of case studies to advance the thesis that the emergent folk wisdom about short-termism is incomplete. A growing literature in behavioral finance and psychology now provides sound reasons to conclude that corporate managers often fall prey to long-term bias—excessive optimism about their own long-term projects. We illustrate several plausible instantiations of such biases using case studies from three prominent companies where managers have arguably succumbed to a form of “long-termism” in their own corporate stewardship. Unchecked, long-termism can impose substantial costs on investors that are every bit as damaging as short-termism. Moreover, we argue that long-term managerial bias sheds considerable light on the paradox of why short-termism evidently persists among supposedly sophisticated financial market participants: Shareholder activism—even if unambiguously myopic—can provide a symbiotic counter-ballast against managerial long-termism. Without a more definitive understanding of the interaction between short- and long-term biases, then, policymakers should be cautious about embracing reforms that focus solely on half of the problem. (link)

We demonstrate that since the early 1990’s, it is becoming increasingly common for firms to be run by CEOs who are aligned with the Democratic Party, which we refer to as the blue trend. We find evidence that at least one factor driving this trend appears to be the rise of the role of women, who tend to have values that align with the Democratic Party. Further, we find that the blue trend is stronger in industries that are more considerable to women as a source of employees or customers (e.g., hospitality, computers, etc.). Nevertheless, the trend appears to be quite pervasive, as nearly 75% of industries turned bluer. The blue trend also has several implications on corporate governing and on the overall stock market performance and volatility, as the presence of more CEOs who are aligned with the Democratic Party is associated with the lower overall stock market returns. Collectively, our evidence suggests that there is a change in the leadership on Wall Street and that has implications for corporate culture, and the stock market landscape. (link)

Networks matter. Between 1869 and 1914, Italian migrants to Argentina were more successful than Spanish migrants, despite being less literate, thanks to the institutions and networks they accessed: https://buff.ly/2KPRgy7

Algorithms and data science

On January 31, 2009, Google flagged the entire internet as maleware. (link)

Individuals tend to tweet more often during extreme events making it an ideal mechanism for social contagion. https://t.co/H4uS9SZvpV

“All the impressive achievements of deep learning amount to just curve fitting.” https://t.co/2NJavGzRRp https://t.co/WoPm9biJ4M

So this just came out. 225 pages from Zuck in response to nearly 2000 open questions following the April Senate hearing: https://t.co/w7VPVMiBoj

The Illinois Department of Children and Family Services is ending a high-profile risk assessment algo for children. @StatModeling has the details: https://t.co/yrhOJOvdhx

The future of the data market: Companies “are buying and selling data sets, with a fixed price. Buyers don’t know how much financial value the data is going to provide…But we can price the value of a prediction.” https://t.co/8x8UpVFc1o

The world largest robot is a long haul train running through western Australia https://t.co/6fjxOovk81 https://t.co/WsbTe1sFh7

“Algorithmic risk assessments are still just a tiny cog in a large, human system. Even if we were to design the most exceptionally fair algorithm, it would remain nothing more than a tool in the hands of human decision-makers.” @MeganTStevenson https://t.co/qk3YvubO3X

JX Press has developed a tool, using machine learning, for finding breaking news in social media posts & writing it up as news reports. It gave them an edge in reporting the death of Kim Jong-Un’s half brother by about an hour. More on the #AI here: https://t.co/UVZhnCiY9Z

The best paper I’ve read this week comes from @sarahbmyers and is titled “Censored, suspended, shadowbanned: User interpretations of content moderation on social media platforms.” Given this week’s hearings, it is worth your time: https://t.co/XJRxjhNuAr.

Data breaches affect stock performance in the long run, study finds https://www.zdnet.com/article/data-breaches-affect-stock-performance-in-the-long-run-study-finds/

A new research paper on the an information deletion law in Chile found it reduced costs for most of the poorer defaulters, but raised costs for non-defaulters, leading to a 3.5% decrease in lending overall: https://t.co/K3lr04iBxC

Careful tuning of hyperparameters can greatly reduce performance differences between seemingly disparate models (link)

The empirical Bayesian estimator appropriately accounts for sampling variation, shrinking the magnitude of the treatment effect relative the standard approach. The approach is illustrated with an analysis of a merger of gasoline assets in Hawaii. The paper finds that the merger is associated with an 18 cent per gallon price reduction which is 19% less than the difference in difference estimator. (link)

Equal pricing for everyone, like @tristanharris wants, is very common at retailers & adversely impacts poor people. See: cnb.cx/2UScZUT

The GAO just published a massive report on #AI: https://t.co/GRQNOraksO

Telecom and broadband studies

The proposed merger of AT&T and T-Mobile: Are there unexhausted scale economies in U.S. mobile telephony? (link)

Rural development in the digital age: A systematic literature review on unequal ICT availability, adoption, and use in rural areas. (link)

This paper studies the effect of the introduction of government‐provided Internet technology to rural communities (Internet communities) on regional entrepreneurship. Entrepreneurship increases among larger Internet communities, as the Internet spurs entrepreneurial activities by enabling agglomeration across areas that have a preexisting cluster of real entrepreneurial activities. There is, however, a decrease in entrepreneurship among smaller and more geographically remote Internet communities, as the Internet facilitates the consumption of items and services not produced within such smaller communities. Overall, the key finding is that virtual entrepreneurial clusters are not independent of real entrepreneurial clusters. (link)

A review of the economics of broadband from ⁦@robertoge⁩, Brian Whitacre, and Alison Grant. https://t.co/X85yq9cS9Z

“This study investigates the relationship between super-fast broadband and firms’ sales and employment level in Sweden…We find heterogeneity in the broadband effect, but the overall effect is negative. This effect may be associated with the roll-out of 4G mobile broadband in 2011; mobile broadband services are a byproduct of optic fiber because mobile broadband is transmitted from the same high capacity fiber-optic base stations. We suggest that the negative effect found is related to internet use at work and the mixing of private and work related internet use.” (link)

In a random control experiment in Peru “there were no significant effects of internet access on math and reading achievement, cognitive skills, self-esteem, teacher perceptions, or school grades when compared to either group.” nber.org/papers/w25312

FCC broadband cost link (https://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0119/DOC-343135A1.pdf)

It was rural Illinois in fact that helped to create the modern electric company. Sam Insull, founder of Commonwealth Edison in Chicago, strung up his home in rural Lake County in what he called the Lake County Experiment. Insull’s experiment became the model for power generation in the city and really sparked the organization of modern electric utilities. Insull, for example, discovered load balancing this way. To be fair to @Ali_Christopher , rural wired electricity wasn’t common. For the most part, urban executives looked with disdain at both rural electrification and telephany because they held condescending views towards those in rural America. But on the other hand, the demand side of the market didn’t develop until the 1930s, driven by university research funded by the Committee on the Relation of Electricity to Agriculture. @Ali_Christopher explains that, “As a result, President Franklin Roosevelt created the Rural Electrification Administration in 1936 to provide loans and grants to rural electric and telephone companies.” But the REA didn’t just support telephone development. Yes, @Ali_Christopher is right. The REA was “a tremendous success.” But! There is an important and lost history here about the development of the demand side and of uses for rural electricity. Moreover, the REA actively worked to reduce electricity prices. By 1939, the Rural Electrification Administration reported that the cost of building rural electricity lines decreased more than a third of the cost in just a few years. Today’s discussion about broadband is vastly different. The REA gave out loans. Most state broadband policies have loans and grants in place. We also aren’t talking about actively reducing broadband prices, we are talking about subsidizing them. My twitter thread.

However, cross-price elasticities of 0.618 and 0.766, respectively, indicate that cable and DSL are strong substitutes for one another - Is this still the case? (source)

We study the trade-offs faced by Internet Service Providers (ISPs) that serve as platforms through which consumers access both television and internet services. As online streaming video improves, these providers may respond by attempting to steer consumers away from streaming video toward their own TV services, or by attempting to capture surplus from this improved internet content. We augment the standard mixed bundling model to demonstrate the trade-offs the ISP faces when dealing with streaming video, and we show how these trade-offs change with the pricing options available to the ISP. Next, we use unique household-level panel data and the introduction of usage-based pricing (UBP) in a subset of markets to measure consumers’ responses and to evaluate quantitatively the ISP’s trade-offs. We find that the introduction of UBP led consumers to upgrade their internet service plans and lower overall internet usage. Our findings suggest that while steering consumers towards TV services is possible, it is likely costly for the ISP and therefore unlikely to be profitable. This is especially true if the ISP can offer rich pricing menus that allow it to capture some of the surplus generated by a better internet service. The results suggest that policies like UBP can increase ISPs' incentive to maintain open access to new internet content. (link)

In the telecommunications industry, the ladder-of-investment approach claims that service-based competition (when entrants lease access to incumbents’ facilities) can serve as a “stepping stone” for facility-based entry (when entrants build their own infrastructures to provide services). In this paper, we build an empirical model that encompasses a complete ladder-of-investment, composed of three rungs: bitstream access, local loop unbundling and new access facilities. Using data from the European Commission’s “Broadband access in the EU” reports covering 15 European member states for 17 semesters, we test the ladder-of-investment hypothesis. We find no empirical support for this hypothesis, that is, for the transition from local loop unbundling to new access infrastructures, and weak empirical support for the transition from bitstream access lines to local loop unbundling. These results are robust when we take into account the migration effect, the number of access rungs, the development of broadband cable, the regulatory performance, and the evolution of local loop unbundling prices. (link)

Online communities Facebook, Twitter, etc.

Overall, the evidence suggests that while young men have dramatically increased the amount of time they spend gaming over the past decade and a half, their decreasing levels of employment and labor force participation are more likely to result from changes in labor demand. (link) Gray Kimbrough

Though the populations sampled and the auction design differ across the experiments, we consistently find the average Facebook user would require more than \$1000 to deactivate their account for one year. (link)

Efforts by Facebook and Twitter to reduce misinformation on their platforms seem to have worked, according to a new research paper: https://buff.ly/2MQImwx


While concentration can lead to less aggressive bidding through increased buyer power, it can also allow a more efficient targeting of keywords through the use of superior information. We first use a machine learning algorithm to cluster the sample of keywords by thematic groups to define the relevant markets. Then, using an instrumental variable strategy, we assess the impact of changes in networks’ concentration and find evidence of a negative effect on the search engine’s revenues. The choice of the keywords on which to advertise appears to drive this result. (link)

Using a suite of outcomes from both surveys and direct measurement, we show that Facebook deactivation (i) reduced online activity, including other social media, while increasing offline activities such as watching TV alone and socializing with family and friends; (ii) reduced both factual news knowledge and political polarization; (iii) increased subjective well-being; and (iv) caused a large persistent reduction in Facebook use after the experiment. We use participants' pre-experiment and post-experiment Facebook valuations to quantify the extent to which factors such as projection bias might cause people to overvalue Facebook, finding that the magnitude of any such biases is likely minor relative to the large consumer surplus that Facebook generates. (link)

Hard news constitutes just 1.3 percent of all the content on Facebook. For Facebook, the core product is clearly family content. Carving out news might be a good long term solution for Facebook simply because of the social baggage that it brings. https://t.co/kTFzA4GCYn https://t.co/K86UaZBIHC

In 2016, based on conservative estimates, American adults spent 437 billion hours, worth at least \$7.1 trillion in terms of foregone wages, consuming content on ad-supported media. The paper shows that the exchange of content for time internalizes externalities between consumers and advertisers and that the use of content to harvest attention results in significant economic efficiencies. It then presents a simple model of the attention market, based on platforms competing for scarce attention and selling into a competitive market for advertising, and shows that this model is broadly consistent with key empirical regularities. Lastly, the paper shows that the attention market likely generates considerable consumer surplus from content creation as well as economic efficiency from intensifying competition through the delivery of advertising messages, many of which consumers would have avoided if they could. (link)

A social network service is one of the most prospering social media in the Web 2.0 era. In SNSs, a massive number of people make online friends and share their interests. In May 2007, Facebook made an announcement of “Open API” policy, which allows a third-party to create applications in Facebook. After “Open API,” users of Facebook can utilize various interactions other than just messaging. This led to radical increase in user growth of Facebook and threatened Myspace, which was the top SNS at that time…We collect web traffic data of Facebook and Myspace from Alexa and test the structural change after the adoption of “Open API” policy. The result of the analytical model shows that social network adoption follows a quadratic growth under Metcalfe’s law and an exponential growth under Reed’s law. The result also shows the conditions for a SNS to take all new adopters in the market. If the SNS follows Reed’s law, it can absorb all new adopters even if that particular SNS is a newcomer in the market. The empirical result confirms that there exists a significant difference in the growth pattern between, before and after “Open API.” This implies that “Open API” transformed Facebook one-to-one communication network into a group forming network. Eventually, this transition increases potential connectivity in social network and leads to exponential growth of social network adoption. [link]

This is a fascinating space of research. Better information (ie more data) should lead to less information asymmetry and more uniform prices, which has been found: https://t.co/yDTisO4aBd. Yet it also makes prices less sticky. https://t.co/dlTohGPXrh

A new study from Pew Research Center found that most Americans can’t tell social media bots from real humans, and most are convinced bots are bad. “Only 47 percent of Americans are somewhat confident they can identify social media bots from real humans,” reports The Verge. “In contrast, most Americans surveyed in a study about fake news were confident they could identify false stories.”

A Few Useful Things to Know about Machine Learning by Pedro Domingos (link)

According to a seriously under-reported poll from Reuters from earlier this years, three out of four Facebook users are aware of their privacy settings, and even more know how to change their privacy settings (78 percent). ([link](http://fingfx.thomsonreuters.com/gfx/rngs/FACEBOOK-PRIVACY-POLL/010062SJ4QF/2018 Reuters Tracking - Social Media Usage 5 3 2018.pdf))

Facebook exodus: Nearly half of young users have deleted the app from their phone in the last year, says study. (link)

When looking at sleep problems, we found that stress related to social media use was a better indicator of sleep problems than the amount of social media use. This seems to indicate that it is not social media use per se that is related to sleep problems, but rather whether adolescents feel stressed by their usage. (link)

Concentration in the online ad market leads to less revenue for those firms because it can allows for a more efficient targeting of keywords through the use of superior information. http://papers.nber.org/conf_papers/f112403/f112403.pdf

An internal white paper at Facebook shows in detail how Trump’s campaign was better at leveraging Facebook’s advertising tools than Clinton’s campaign. https://t.co/gak2iY3oL6

The limits of automated filtering

Targeting specific audiences for digital advertising is a lot more complicated in practice than it may seem at first. Via @TimothyTTaylor, I learned just how complicated it is. https://t.co/YdkcXGypK0 https://t.co/PR7yalrCup

PEW: Eight-in-ten blacks say social media help shed light on rarely discussed issues; the same share of whites say these sites distract from more important issues. https://t.co/mFeHYYV6tt https://t.co/8UTdrUFkmt

The effect of cell phones on violence: “The move away from turf-based dealing reduced violence principally through its effectson gangs, we propose. Simply put, as the turf lost its value, so did the turf war…Compared to 1990, homicides in 2000 were down by about 10,000 and back-of-the-envelop calculations suggest cell-phone mainstreaming can account for 1,900-2,900 of that decline.” https://bit.ly/2VQBVg0

Taking a break from social media “resulted in lower positive affect for active users and had no significant effects for passive users. This result is contrary to popular expectation, and indicates that SNS usage can be beneficial for active users.” https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0217743

“Our new estimates imply that accounting for innovations in consumer content delivery matters: The innovations boost consumer surplus by nearly \$1,800 (2017 dollars) per connected user per year for the full period of this study (1987 to 2017) and contribute more than 1/2 percentage point to US real GDP growth during the last ten. All told, our more complete accounting of innovations is (conservatively) estimated to have moderated the post-2007 GDP growth slowdown by nearly .3 percentage points per year.” (link)

A new paper finds that “News consumption on small screens may be less informative and mobilizing than news consumption on larger screens.” (link)

“In both experiments, higher usage of smartphones led only to a diminished ability to interpret and analyze the deeper meaning of information. However, Study 3 showed that, after a 4‐week interval, the difference in the ability to interpret and analyze meaning between lower and higher phone usage groups was no longer evident. The findings of this study suggest that, even in the rare cases where smartphones might alter cognition, this effect is likely transitory.” (link)

Most empirical studies on the role of information in markets analyze policies that reduce asymmetries in the information that market participants possess, often suggesting that the policies improve welfare. We exploit the introduction of pedestrian countdown signals - timers that indicate when traffic lights will change - to evaluate a policy that increases the information that all market participants possess. We find that although countdown signals reduce the number of pedestrians struck by automobiles, they increase the number of collisions between automobiles. We also find that countdown signals caused more collisions overall. The findings imply welfare gains can be attained by revealing the information to pedestrians and hiding it from drivers. We conclude that policies which increase asymmetries in information can improve welfare. (link)

Although marketers increasingly rely on customer data, firms have little insight into the ramifications of these uses or how to prevent negative effects. Data management efforts may heighten customers' vulnerability worries or create real vulnerability. Using a conceptual framework grounded in gossip theory, this research links customer vulnerability to negative performance effects. Three studies show transparency and control in firms' data management practices can suppress the negative effects of customer data vulnerability. Experimental manipulations reveal that mere access to personal data inflates feelings of violation and reduces trust. An event study of data security breaches affecting 414 public companies also confirms negative effects, as well as spillover vulnerabilities from rival firms' breaches, on firm performance. Severity of the breach hurts the focal firm but helps the rival firm, which provides some insight into mixed findings in prior research. Finally, a field study with actual customers of 15 companies across three industries demonstrates consistent effects across four types of customer data vulnerability and confirms that violation and trust mediate the effects of data vulnerabilities on outcomes.

This research theorizes that sellers of durable goods can utilize inferences about the buyer’s willingness to pay based not only on her decision to trade in the old good but also on its characteristics. We find empirical support for this theory using transaction data for new car purchases. The results support the notion that dealers infer a higher willingness to pay and charge higher prices to consumers who trade in a used vehicle than to those who do not. We also find that dealers charge even higher prices to those consumers who trade in used cars that are similar to the new one. (link)

Social Media, Political Polarization, and Political Disinformation: A Review of the Scientific Literature (link)

Time spent using social media was not related to individual changes in depression or anxiety over 8 years. (link)

I’m not completely sold on all the specifics, but here is a paper modeling out a breakup of Facebook. (bit.ly/2pG723v) The effect: Consumer surplus would be lowered by 44 percent.

From Jan 2015 to Feb 2017, the most prolific 0.01% and 0.1% of reddit commenters wrote 3% and 12% of all comments respectively [OC] https://www.reddit.com/r/dataisbeautiful/comments/6dftf1/from_jan_2015_to_feb_2017_the_most_prolific_001/?st=J35SZ0I4&sh=6da96e5b

We find that Spotify use displaces permanent downloads. In particular, 137 Spotify streams appear to reduce track sales by 1 unit. Consistent with the existing literature, our analysis also shows that Spotify displaces music piracy. Given the current industry’s revenue from track sales (\$0.82 per sale) and the average payment received per stream (\$0.007 per stream), our sales displacement estimates show that the losses from displaced sales are roughly outweighed by the gains in streaming revenue. In other words, our analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry.

“How do information interventions affect individual efforts to expand social networks? We study a randomized controlled trial of a program providing information on settling in the U.S. for new immigrants from the Philippines. Improved information leads new immigrants to acquire fewer new social network connections. Treated immigrants make 16-28 percent fewer new friends and acquaintances and are 65 percent less likely to receive support from organizations of fellow immigrants. The treatment has no effect on employment, wellbeing, or other outcomes. Consistent with a simple model, the treatment reduces social network links more in places likely to have lower costs of acquiring network links (those with more prior fellow immigrants). Information and social network links appear to be substitutes in this context: better-informed immigrants invest less in expanding their social networks upon arrival. Our results suggest that endogenous reductions in acquisition of social network connections can reduce the effectiveness of information interventions.”

Last month @BKCHarvard released a paper finding that misinformation about the risk of voter fraud was elite driven and through the mass media. Most importantly, they found that “social media plays a secondary role.” Details: https://buff.ly/3pucAst

A group of psychologists in the Netherlands have discovered that we have a tendency to gradually close ourselves off when dating online. In other words, the more dating profiles people see, the more likely they are to reject them. (Link)


Nearly one-third of patented U.S. inventions rely on federally-funded science, a rate which has grown substantially over the past 90 years (link)

“We find that the historical price advantage of a China-based factory relative to a U.S.-based factory is not driven by country-specific advantages, but instead by scale and supply-chain development.” (link)

“For the entire postwar period and for the nonfarm business sector, Nordhaus estimates that innovators are able to capture about 2.2 percent of the total surplus from innovation.” (link)

“Experts can differentiate among early-stage ventures on grounds of quality beyond the explicit venture and entrepreneur characteristics contained in the written summaries. They can only do so effectively, however, for ventures in the hardware, energy, life sciences, and medical devices sectors; they cannot do so for ventures in the consumer products, consumer web and mobile, and enterprise software sectors. Our results highlight sector-specific heterogeneity in the information needed to effectively screen ventures, a finding that has implications for the design of optimal investment strategies.” (link)

“Our key finding is that the R&D tax credit is associated with a significant long-term impact on both the overall quantity and quality-adjusted quantity of entrepreneurship, with the bulk of the effect materializing more than five years after the policy is enacted. These findings stand in contrast to an analysis of the adoption of state-level investment tax credits.” (link)

We document empirical support for a key micro-level channel - innovation by young, private firms - through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of innovation by young, private firms. In contrast, interstate banking deregulation, which decreased the local market power of banks, increased the level and risk of innovation by young, private firms. These contrasting effects on innovation also translated into contrasting effects on economic growth. Our study suggests that the nature of financial sector deregulation crucially affects its potential benefits to the real economy. (link)

We present evidence that banking development plays a key role in technological progress. We focus on manufacturing firms' innovative performance, measured by patent-based metrics, and employ exogenous variations in banking development arising from the staggered deregulation of banking activities across US states during the 1980s and 1990s. We find that interstate banking deregulation had significant beneficial effects on the quantity and quality of innovation activities, especially for firms highly dependent on external capital and located closer to entering banks. Furthermore, we find that these results are strongly driven by a greater ability of deregulated banks to geographically diversify credit risk. (link)

Extending previous research on the hedonic benefits of spending money on doing rather than having, this paper investigates when people prefer to consume experiential and material purchases. We contend that the preferred timing of consumption tends to be more immediate for things (like clothing and gadgets) than for experiences (like vacations and meals out). First, we examine whether consumers exhibit a stronger preference to delay consumption of experiential purchases compared to material goods. When asked to make choices about their optimal consumption times, people exhibit a relative preference to have now and do later. In the next set of studies, we found that this difference in preferred consumption led participants to opt for a lesser material item now over a superior item later, but to wait for a superior experiential purchase rather than settle for a lesser experience now. This tendency is due to the fact that consumers derive more utility from waiting for experiences than from waiting for possessions. Finally, we provide evidence that these preferences affect people’s real-world decisions about when to consume. (link)

Using data of US firms from 1990 to 2012, we find evidence that an increase in financial analysts leads firms to cut research and development expenses, acquire more innovative firms, and invest in corporate venture capital. We attribute the first result to the effect of analyst pressure and the others to the informational role of analysts. We also find that financial analysts encourage firms to make more efficient investments related to innovation, which increases their future patents and citations and influences the novelty of their innovations. (link)

A person’s schooling years are a formative time for cognitive development, and also a period of intense social interaction and friendship formation. In this paper, we estimate the production of social capital during adolescence and its effect on wages. We develop a model where homophily and coordination play crucial roles in the decision to socialize and study, which in turn determine educational attainment, network formation, and labor market outcomes. We document that individuals make investments to accumulate friends and other forms of social capital. Sometimes these investments compete with schooling investments (particularly when they involve alcohol consumption), but not always. These social investments have payoffs in the labor market and cannot be thought of as pure leisure. We estimate that receiving five to six friend nominations in adolescence has an impact on wage earnings of approximately 10%, comparable to a broad set of estimates of the return to an additional year of schooling. Therefore, policies that alter the schooling environment should be evaluated by their impacts on social capital as well as their impact on education. (link)

We use social network data from Facebook to show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties. This effect of social proximity on investment behavior is distinct from the effect of geographic proximity. Social connections have the largest influence on investments of small investors with concentrated holdings as well as on investments in firms with a low market capitalization and little analyst coverage. We also find that the response of investment decisions to social connectedness affects equilibrium capital market outcomes: firms in locations with stronger social ties to places with substantial institutional capital have higher institutional ownership, higher valuations, and higher liquidity. These effects of social proximity to capital on capital market outcomes are largest for small firms with little analyst coverage. We find no evidence that investors generate differential returns from investments in locations to which they are socially connected. Our results suggest that the social structure of regions affects firms' access to capital and contributes to geographic differences in economic outcomes. https://www.nber.org/papers/w27299

Direct public support for business R&D is a well-established remedy to market failures, yet empirical evidence on its effectiveness yields conflicting results. The paper investigates the impact of the first European public R&D grant program targeting small and medium enterprises (i.e. the SME Instrument) on a wide range of firm outcomes. We leverage the assignment mechanisms of the policy and employ a sharp regression discontinuity design to provide the broadest quasiexperimental evidence on R&D grants over both geographical and sectoral scopes. Results show that grants trigger sizable impacts. They increase investment, notably in intangibles, and innovation outcomes as measured by cite-weighted patents; they trigger faster growth in assets, employment and revenues; they lead to higher likelihood of receiving follow-on equity financing and lower failure chances. These effects tend to be larger for firms that are smaller and younger, or operating in sectors characterized by higher financial frictions. Furthermore, responses are stronger in countries and regions with lower economic development. The paper provides extensive evidence that the beneficial effects of R&D grants materialize through funding rather than certification effects. (link)

Insufficient diffusion of new technologies has been quoted as one possible reason for weak productivity performance over the past two decades (Andrews et al., 2016). This paper uses a novel data set of digital technology usage covering 25 industries in 25 European countries over the 2010-16 period to explore the drivers of digital adoption across two broad sets of digital technologies by firms, cloud computing and back or front office integration. The focus is on structural and policy factors affecting firms’ capabilities and incentives to adopt – including the availability of enabling infrastructures (such as high-speed broadband internet), managerial quality and workers skills, and product, labour and financial market settings. We identify the effects of structural and policy factors based on the difference-in-difference approach pioneered by Rajan and Zingales (1998) and show that a number of these factors are statistically and economically significant for technology adoption. Specifically, we find strong support for the hypothesis that low managerial quality, lack of ICT skills and poor matching of workers to jobs curb digital technology adoption and hence the rate of diffusion. Similarly our evidence suggests that policies affecting market incentives are important for adoption, especially those relevant for market access, competition and efficient reallocation of labour and capital. Finally, we show that there are important complementarities between the two sets of factors, with market incentives reinforcing the positive effects of enhancements in firm capabilities on adoption of digital technologies (link)

“Japan is years ahead in any innovation. But it hasn’t been able to get business out of it,” said Gerhard Fasol, president of the Tokyo-based IT consulting firm, Eurotechnology Japan. The Japanese have a name for their problem: Galápagos syndrome. (link)

The challenge of mitigating climate change has focused recent attention on basic scientific research feeding into the development of new energy technologies (Popp, 2017). Energy innovation tends to consist of a series of partially overlapping processes involving: (1) the production of scientific and technological knowledge, (2) the translation of that knowledge into working technologies or artifacts, and (3) the introduction of the artifacts into the marketplace, where they are matched with users’ requirements. However, relatively little data are available showing how long each of these processes takes for energy technologies. Here we combine information from patent applications with bibliographic data to shine light on the second process—that is, the translation of scientific knowledge into working prototypes. Our results show that “clean” energy technologies are more dependent on underlying science than “dirty” technologies, and that the average lag between publication of scientific findings and the incorporation of those findings in clean energy patents has risen from about five to about eight years since the 1980s. These findings will help policymakers to devise more effective mechanisms and strategies for accelerating the overall rate of technological change in this domain. (link)

Using newly-assembled data encompassing up to 75 countries and starting circa 1910, we find that the Schumpeterian process of creative destruction aptly describes the replacement of large firms by other firms, but exceptions to the norm of replacement are not rare and replacement is often not by new firms. (link)

The rise of gig work is associated with a ~5% increase of new business registrations in the area and a correspondingly-sized increase in small business lending to newly registered businesses. https://buff.ly/2YhVd1s

The kill zone debate has been bereft of data. The first study to look at VC deals from 2010 to 2019, “found a persistent positive impact of the big tech start-up acquisitions on the appetite of VCs to also invest in start-ups of similar industry segments.” https://buff.ly/32UXiTf

This NBER paper suggests one reason for weak investment: “Cloud service providers are undertaking large amounts of own-account investment in IT equipment and that some of this investment may not be captured in GDP.” (link)

Knitting Community: Human and Social Capital in the Early Transition into Entrepreneurship “The process by which individuals become entrepreneurs is often described as a decisive moment of transition, yet it necessarily involves a series of smaller steps. This study examines how human capital and social capital are accumulated and deployed in the earliest stages of the entrepreneurial transition in the setting of “user entrepreneurship.” Using the unique dataset from Ravelry—the Facebook of knitters—I study why and how some knitters become entrepreneurs. I show that knitters who make the entrepreneurial transition are distinctive in that they have experience in fewer techniques and more product categories. I also show that this transition is facilitated by participation in offline social networks where knitters garner feedback and encouragement. Importantly, social and human capital appear to complement each other with social capital producing the greatest effect on the most skilled users. Broader theoretical implications on user innovation, the role of social capital, and entrepreneurship research are discussed.” Here is part of the concluding summary: “The critical factor explaining why some creative knitters transition to designers is the feedback and encouragement they receive from fellow knitters and friends. With a carefully matched sample, difference-in-difference analysis verifies that the participation in an offline local networking group increases the likelihood of transition by 25%. Furthermore, the results suggest that social capital effect is largest among those with entrepreneurial human capital, as social capital complements human capital in knitters’ transition to designers.”

Yes, Sarbanes-Oxley is one well-known reason but there are more reasons, most of all stemming from a shift in the balance of power toward founders, boosting their ability to raise private capital: “One such notable deregulation event has been the National Securities Markets Improvement Act (NSMIA), passed in October 1996. NSMIA has made it easier for both private startups and the private funds investing in them to raise capital. First, NSMIA exempts private firms selling unregistered securities under Rule 506 of Regulation D from state securities regulations known as blue sky laws (Rule 506 is one of the exemptions firms can use to issue private shares not registered with the SEC). As a result, NSMIA has made it easier for startups to raise private capital from out-of-state investors by exempting private firms from complying with the blue sky laws of every new state where they issue securities (public firms have long been exempt from blue sky laws). Second, NSMIA has made it easier for private funds such as venture capital (VC) and private equity (PE) funds to raise large amounts of capital by increasing the number of investors in a fund that force the fund to register under the Investment Company Act (ICA).2Registered funds have to regularly disclose their investment portfolio and face leverage and other restrictions, and so VC and PE funds tend to avoid having to register.” That is from a new NBER working paper by Michael Ewens and Joan Farre-Mensa.

Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings “We show that skill requirements in job vacancy postings differentially increased in MSAs that were hit hard by the Great Recession, relative to less hard-hit areas. These increases persist through at least the end of 2015 and are correlated with increases in capital investments, both at the MSA and firm-levels. We also find that effects are most pronounced in routine-cognitive occupations, which exhibit relative wage growth as well. We argue that this evidence is consistent with the restructuring of production toward routine-biased technologies and the more-skilled workers that complement them, and that the Great Recession accelerated this process.” [NBER]

Amazon and retail

Using an employer-employee payroll dataset for approximately 2.6 million retail workers, we analyze the impact of the staggered rollout of a major e-commerce retailer’s fulfillment centers on the income and employment of workers at geographically proximate brick-and-mortar retail stores. We find that the establishment of an e-commerce fulfillment center in a county has a negative effect on the income of retail workers in that county and in neighboring counties within 100 miles. Wages of hourly workers, especially part-time hourly workers, decrease significantly. This decrease is driven by a drop in the number of hours worked. We observe a U-shaped pattern in which both young and old workers experience a sharper decrease in wage income. Consequently, in these counties, there is a decrease in credit scores and an increase in delinquency for retail workers that have higher prior credit utilization.

Using sales and employment data for 3.2 million stores, we find that retail stores in counties around fulfillment centers experience a reduction in sales and in their number of employees. Further, there is a decrease in entry and an increase in exits for stores in the retail sector, with small and young retail stores exiting at a higher rate. Our robustness tests show that our results are unlikely to be driven by prevailing local economic conditions. Overall, our results highlight the extent to which a dramatic increase in e-commerce retail sales can have some adverse consequences for workers at traditional brick-and-mortar stores.

Amazon was clearly disruptive to retail, but it doesn’t maintain a dominant grasp. A report from @dunnhumby found that “regional grocers are experiencing a resurgence in customer preference” and “local grocers overall — are becoming stronger in competing with non-traditional national chains like Amazon.” buff.ly/39UHIte

“The direct-to-consumer brand revolution is one of the most dominant forces in the retailing business today. It began with a handful of start-ups, then grew to dozens, then hundreds — from mattresses (Casper) to bras (ThirdLove) to electric toothbrushes (Quip) to vitamins (Ritual) to tampons (Lola) to luggage (Away) to sneakers (Allbirds) to makeup (Glossier) to hair color (eSalon) to pet food (Farmer’s Dog) — and even thousands, counting the brands filling the endless digital aisles and shelves of Amazon Marketplace. Between 2013 and 2017, some \$17 billion in sales shifted from big consumer brands to small brands — and that was before many of the latest start-ups began getting traction. This trend is likely to strengthen in the coming years, thanks in large part to the continued growth of sales on Amazon. In 2018, small and medium-size companies sold \$160 billion in goods on Amazon, up from just \$100 million in 1999, a 1,600-fold increase. While some of those companies are reselling products made by others, many of them, including Amazon itself, are creating their own new brands.” (link)

“E-Commerce spending reached 8% of consumption by 2017, yielding consumers the equivalent of a 1% permanent boost to their consumption, or over \$1,000 per household. While some of the gains arose from saving travel costs of buying from local merchants, most of the gains stemmed from substituting to online merchants. Higher income cardholders gained more, as did consumers in more densely populated counties.” (link)

Infrastructure, housing, and urbanism

Larry Summers: “The promiscuous distribution of veto power.”

This article investigates the costs of transport regulation using the example of agricultural markets in the US. Using a large database of prices by state of agricultural commodities, we find that dispersion fell for many commodities until the First World War. We demonstrate that this reflected changes in transport costs which in turn in the long run depended on productivity growth in railroads. The year 1920 marked a change in this relationship, however, and between the First and Second World Wars we find considerable disintegration of agricultural markets, ultimately as a consequence of the 1920 Transportation Act. We argue that this benefited railroad companies in the 1920s and workers in the 1930s, and we put forward an estimate of the welfare losses for the consumers of railroad services (that is, agricultural producers and final consumers). (link)

“We find little support for claims of a dramatic productivity boost from increased infrastructure outlays. In a specification designed to provide an upper bound for the influence of infrastructure, we estimate that raising the rate of infrastructure investment would have had a negligible impact on annual productivity growth between 1971 and 1986.” (link)

“American construction firms have significant wage- and price-setting power. This imperfect competition generates a considerable amount of rents, two-thirds of which is captured by the firms.” (link)

New working paper and policy brief (with @basquith827 and Davin Reed): “Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas” WP: research.upjohn.org/cgi/viewconten… Brief: research.upjohn.org/cgi/viewconten…

This is a controversial topic. Some think that large new apartment buildings (we study 50+ units) in low-income areas increase nearby rents by making the area more attractive to high-income households. Others say buildings will absorb demand, reducing pressure on rents. Both stories are plausible, so the net effect is an empirical question with high policy importance. We investigate with address-level data on new construction, listed rents, and migration histories for 11 major cities. We always focus on low-income neighborhoods. We start by showing that although more high-income people move into the neighborhood after a building is completed, the increase is totally absorbed by the new building. The arrival rate to nearby units does not seem to change.


Next, we estimate the causal effect of new buildings. Rents near a new building go down by about 5-7% relative to rents slightly further away or near the sites of future construction. Note this means rents are lower than they would be, not that rents go down year-over-year.


Less expensive units may be underrepresented in our rent data (provided by Zillow). However, we show that new buildings also increase the number of households from other low-income neighborhoods who move into the area. This suggests that rents also fell in these units.


One explanation for why rents don’t go up: we show that new buildings typically go into already-changing areas, limiting how much they can affect amenities or reputation. The snowball is already rolling by the time big buildings arrive. Overall, it seems like the story that new apartment buildings drive up nearby rents is not, on average, true. This worry may have too large of an influence on housing policy, preventing the construction of new housing that can improve both local and regional affordability. Some caveats. We study only big rental buildings in large, strong-market cities. We also are only able to consider 3-7 years after construction. Finally, our average results could disguise examples where a building did push an area over a tipping point and increase rents.

High speed rail

  • For the consumer, the revenue per passenger mile is the lowest for air travel, compared to rail. The BTS data is here: https://www.bts.gov/…/average-passenger-revenue…. In other words, the costs are typically lowest per mile traveled for air. Given the relative high cost, it is not surprising that consumer demand for rail is almost always lower than initially projected. For a summary of those missteps, see: http://ti.org/antiplanner/?p=10045.
  • It goes without saying that a a lot of high speed rail projects fail a benefit cost analysis. Here is a Dutch project that failed, for example: http://citeseerx.ist.psu.edu/viewdoc/download….
  • And speaking of California, since the costs have grown to around \$100 billion, I’m not sure it would pass the benefit cost today as compared to 2014 when the report was conducted, which projected \$80 billion in benefits: https://www.hsr.ca.gov/…/BPlan_2014_Sec_7_CaHSR_Benefit….
  • Not even the Chinese are making high speed rail affordablke (link)

Although more high-income people move into the neighborhood after a building is completed, the increase is totally absorbed by the new building. The arrival rate to nearby units does not seem to change. Rents near a new building go down by about 5-7% relative to rents slightly further away or near the sites of future construction. Note this means rents are lower than they would be, not that rents go down year-over-year. https://threadreaderapp.com/thread/1216734543547228163.html

New NBER research paper finds that “subways cause cities to decentralize, although the effect is smaller than previously documented effects of highways on decentralization.” https://t.co/I240pDy6LQ

In Germany, “…local opponents of the wind farms often go to court to stall new developments or even have existing towers dismantled. According to the wind-industry lobby BWE, 325 turbine installations with a total capacity of more than 1 gigawatt (some 2% of the country’s total installed capacity) are tied up in litigation. The irony is that the litigants are often just as “green” as the wind-energy proponents — one is the large conservation organization NABU, which says it’s not against wind energy as such but merely demands that installations are planned with preserving nature in mind.” (link)

Brookings paper “Infrastructure Costs” (link)

OTOH, the differences in infrastructure costs between US states seem to be enormous:


“I recently advised a Ph.D. student, Andrew Garin, studying the impact of the American Recovery and Reinvestment Act’s highway spending on county-level employment. Garin’s estimates show that highway projects had essentially zero effect on local employment, four years after the onset of the recession. The projects may have raised employment in the counties of the contractors—the statistical results are ambiguous—but he found no impact on the counties where the projects were built. The extra infrastructure, in other words, does not seem to have improved economic vitality anywhere that it might have been expected to.” (link)

The current American economy would be significantly more productive were millions of workers to move to the largest job-engine cities from smaller communities in the U.S., yet land-use restrictions and building constraints discourage this from happening by artificially driving up housing costs, especially in the most desired metros. Fascinating paper (built on a lot of assumptions, obviously) estimating some of the costs of these local land-use restrictions: (link) “4. If planning regulations were lifted entirely, NYC would reach about 40 million people [from current 20M], Philadelphia 38 million (that’s a lot of objectionable sports fans!), and Boston just shy of 30 million (ditto).”

Is that idea too radical? “7. …If America’s three most productive cities relaxed their planning regulations to the same level as the median U.S. city, real per capita income [nationwide, not just in those cities] would rise by about 8.2%.”

The biggest winners would be persons currently outside the largest metros who would move there. Their incomes would rise by an average 25 percent in real terms (that is, even after higher urban costs of living were backed out.) There would be some losses in real consumption by current residents of the biggest metros, substantial in the case of residents of greater New York (13%) and less so in the case of those in Boston (1%)

Appalled at the prospect of the biggest American cities getting even bigger? You could run the opposite experiment, but it would be costly:

“3. If you were to force America’s 11 largest cities to be no larger [in population] than Miami, real income per American would fall by 7.9%.”

This makes me chuckle: The DC “Metro has spent \$3.8 million and taken five years to build two unfinished bike racks - at East Falls Church and Vienna Metro Stations.” https://buff.ly/3cx0cBw

We measure the benefit of the Second Avenue Subway extension in New York City by analyzing local real estate prices which capitalize the benefits of transit spillovers. We find that price increase by 10%, creating \$7 billion in new property value. Using cell phone ping data, we document substantial reductions in commuting time especially among subway users, offering a plausible mechanism for the price gains. Higher prices reflect both higher rents and lower risk. Infrastructure improvements thus lower the riskiness of real estate investments. Only 30% of the private value created by the subway is captured by local government through higher property tax revenue, and is insufficient to cover the cost of the subway. Targeted property tax increases may help capture more of the value created, and serve as a useful funding tool. (link)

In the United States, 42% of public infrastructure projects report delays or cost overruns. To mitigate this problem, regulators scrutinize project operations. We study the effect of oversight on delays and overruns with 262,857 projects spanning 71 federal agencies and 54,739 contractors. We identify our results using a federal bylaw: if the project’s budget is above a cutoff, procurement officers actively oversee the contractor’s operations; otherwise, most operational checks are waived. We find that oversight increases delays by 6.1%–13.8% and overruns by 1.4%–1.6%. We also show that oversight is most obstructive when the contractor has no experience in public projects, is paid with a fixed-fee contract with performance-based incentives, or performs a labor-intensive task. Oversight is least obstructive—or even beneficial—when the contractor is experienced, paid with a time-and-materials contract, or conducts a machine-intensive task. That is from a new paper by Calvo, Cui, and Serpa, via the excellent Kevin Lewis.

“We study how internal agglomeration—geographic clustering of business establishments owned by the same parent company—influences establishment productivity. Using Census microdata on the population of U.S. hotels from 1987‐2007, we find that doubling the intensity of internal agglomeration is associated with a productivity increase of about 2% in pre‐existing establishments. We consider several mechanisms that may be driving the productivity effect and find evidence consistent with the idea that an economically meaningful component of the productivity effect is due to knowledge transfer between internally agglomerated establishments. We replicate our main findings with Census microdata on the full population of U.S. restaurants from 1987‐2007, suggesting that the internal agglomeration effects we document may generalize broadly to other industries with multi‐unit firms.” (link)

This paper studies the impact of state-level land-use restrictions on U.S. economic activity, focusing on how these restrictions have depressed macroeconomic activity since 2000. We use a variety of state-level data sources, together with a general equilibrium spatial model of the United States to systematically construct a panel dataset of state-level land-use restrictions between 1950 and 2014. We show that these restrictions have generally tightened over time, particularly in California and New York. We use the model to analyze how these restrictions affect economic activity and the allocation of workers and capital across states. Counterfactual experiments show that deregulating existing urban land from 2014 regulation levels back to 1980 levels would have increased US GDP and productivity roughly to their current trend levels. California, New York, and the Mid-Atlantic region expand the most in these counterfactuals, drawing population out of the South and the Rustbelt. General equilibrium effects, particularly the reallocation of capital across states, accounts for much of these gains. (link)

We find that removing the Interstate Highway System reduces real GDP by \$619.1 billion (or 3.9 percent) with one quarter due to reduced international market access. We also quantify the value of the twenty longest highway segments and find a range between \$2.7 and \$55.1 billion with I-5 being the most valuable. Our results highlight the role of domestic transportation infrastructure in shaping regional comparative advantage and gains from international trade. (Link)

Gentrification: “We use new longitudinal census microdata to provide the first causal evidence of how gentrification affects a broad set of outcomes for original resident adults and children. Gentrification modestly increases out-migration, though movers are not made observably worse off and neighborhood change is driven primarily by changes to in-migration. At the same time, many original resident adults stay and benefit from declining poverty exposure and rising house values. Children benefit from increased exposure to higher-opportunity neighborhoods, and some are more likely to attend and complete college. Our results suggest that accommodative policies, such as increasing the supply of housing in high-demand urban areas, could increase the opportunity benefits we find, reduce out-migration pressure, and promote long-term affordability.” (Link)

“Something you may not know about San Francisco: There are ~6 people who oppose nearly every new development in SF (residential & commercial), successfully using various loopholes and review processes to delay them by months or years. 6 people holding back an entire city.” [link] “In courts, we have a list of vexatious litigants (people who sue all the time). There should be a list for development projects.” My guess - Dean Preston, Calvin Welch, Sue Hestor, Aaron Peskin. “According to Jeffrey Tumlin, Muni’s new director, each of the five appeals will cost about 100 hours of work by his staff. He said each hearing at the Board of Supervisors, which serves as the judge and jury in these cases, costs a combined \$10,000 in city officials’ and attorneys’ time. In fact, Tumlin said each appeal is taking more time and money than it took to create the emergency programs in the first place.” [link]

A major obstacle to new housing construction in gentrifying neighborhoods is the fear that new units will induce additional housing demand, increasing local rents and fueling further gentrification. Although this is counterintuitive, there are many plausible mechanisms by which an increased concentration of wealthy households could make a neighborhood more attractive to other wealthy households. However, there is little to no empirical evidence on this topic. We study induced demand near new apartment complexes in gentrifying areas using listing-level data on rental prices from Zillow and exact household migration data from Infutor. Preliminary results using a spatial difference-in-differences approach suggest that any induced demand effects are overwhelmed by the effect of increased supply. In neighborhoods where new apartment complexes were completed between 2014-2016, rents in existing units near the new apartments declined relative to neighborhoods that did not see new construction until 2018. Changes in in-migration appear to drive this result. Although the total number of migrants from high-income neighborhoods to the new construction neighborhoods increases after the new units are completed, the number of high-income arrivals to previously existing units actually decreases, as the new units absorb a substantial portion of these households. On the whole, our results suggest that—on average and in the short-run—new construction lowers rents in gentrifying neighborhoods. [link]

We provide new theory and evidence on the role of consumption access in understanding the agglomeration of economic activity. We combine smartphone data that records user location every 5 minutes of the day with economic census data on the location of service-sector establishments to measure commuting and non-commuting trips within the Greater Tokyo metropolitan area. We show that non-commuting trips are frequent, more localized than commuting trips, strongly related to the availability of nontraded services, and occur along trip chains. Guided by these empirical findings, we develop a quantitative urban model that incorporates travel to work and travel to consume non-traded services. Using the structure of the model, we estimate theoretically-consistent measures of travel access, and show that consumption access makes a sizable contribution relative to workplace access in explaining the observed variation in residents and land prices across locations. Undertaking counterfactuals for changes in travel costs, we show that abstracting from consumption trips leads to a substantial underestimate of the welfare gains from a transport improvement (because of the undercounting of trips) and leads to a distorted picture of changes in travel patterns within the city (because of the different geography of commuting and non-commuting trips). [link]

Previous work has examined a new light-rail line or upgrades to existing rail infrastructure. However, the following is the first examination of the value of an extension of a light-rail line. The analysis relies on repeat sales of houses in Bayonne, New Jersey, where the first sale occurred before the 2008 announcement of a southern extension to the Hudson-Bergen Light Rail to 8th Street in Bayonne, and the second sale occurred after the opening of the station in 2011. Our results show that the 8th Street Station had no statistically significant impact on annual house price appreciation. That is, we find no evidence that properties closer to the station showed more price appreciation than properties further from the station. [link]

Abstract: In this paper we examine the effect of light rail transit on the residential real estate market in Hampton Roads, Virginia. Norfolk’s Tide light rail began operations in August of 2011 and has experienced disappointing levels of ridership compared to other light rail systems. We estimate the effect of the Tide using a difference-in-differences model and consider several outcome variables for the residential housing market, including sale price, sale-list price spread and the time-on-market. Our identification strategy exploits a proposed rail line in neighboring Virginia Beach, Virginia that was rejected by a referendum in 1999. Overall, the results show negative consequences from the constructed light rail line. Properties within 1,500 meters experienced a decline in sale price of nearly 8%, while the sale-list price spread declined by approximately 2%. Our results highlight the potential negative effects of light rail when potential accessibility benefits do not out weigh apparent local costs. [link]

I study the effect of transit access on neighborhood incomes by exploiting a quasi-experimental setting of an extensively planned, but only partially built urban rail system in Dallas. I show that neighborhood income in census tracts that received rail access increases compared to neighborhoods that were promised to receive access, but did not due to funding cuts. The treatment effect is positively correlated with initial neighborhood income and negative for the poorest tracts. This reconciles gentrification and “poverty magnet” effects of rail infrastructure found in the earlier literature and highlights the role of transit as a potential incubator for income segregation. [link]

We find that a 10% increase in a region’s stock of highways causes a 1.7% increase in regional patenting over a five-year period. We show that roads facilitate the flow of local knowledge and allow innovators to access more distant knowledge inputs. This finding suggests that transportation infrastructure may spur regional growth above and beyond the more commonly discussed agglomeration economies that are predicated on an inflow of new workers. (link)

Never mind that the number of structurally deficient bridges has been steadily declining for 25 years while pavement roughness has been improving. If there is a transportation “infrastructure crisis,” it exists due to a failure to maintain mass transit facilities and municipal streets, neither of which can be fixed by increasing federal capital spending (as a general rule, maintenance projects and non-National Highway System road segments are ineligible for these funds).

As Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter document in their indispensable Megaprojects and Risk, the large development effects claimed by project boosters rarely materialize (or are so small and diffuse that they are undetectable to researchers), operational viability is generally overstated, cost overruns of 50 to 100 percent are the norm, and demand forecasts are frequently off by 20 to 70 percent. These problems exist worldwide at all levels of development.

As economist Andrew M. Warner noted in a 2014 International Monetary Fund paper evaluating public infrastructure investment in developing countries, “Overall, it is difficult to find a clear-cut example that fits the oft-repeated narrative of a public investment boom followed by acceleration in GDP growth. If anything, the cases of clear-cut booms illustrate the opposite – major drives in the past have been followed by slumps rather than booms.”

Law and economics

This is interesting: “banning exclusionary contracts will increase the aggregate probability of innovation and joint surplus of buyers and sellers only when the R&D technology exhibits sufficient diseconomies of scale.” https://buff.ly/3dORBdo

Structural remedies don’t work according to this Brookings paper (link)

The Chicago School of Antitrust is like the Founding Fathers. There might have been agreement on broad principles but when it came to rulings, the founders were all over the place. (link)

On property rights, “weak possession rights lead to high density and poor structures and that weak transfer rights lead to a spatial mismatch between residences and workplaces.” (link)


Do firms seek to make the market transparent,or do they confuse the consumers in their product perceptions? We show that the answer to this question depends decisively on preference heterogeneity. Contrary to the well-studied case of homogeneous goods, confusion is not necessarily an equilibrium in markets with differentiated goods. In particular, if the taste distribution is polarized, so that indifferent consumers are relatively rare, firms strive to fully educate consumers. By contrast, if the taste distribution features a concentration of indecisive consumers, confusion becomes part of the equilibrium strategies. The adverse welfare consequences of confusion can be more severe than with homogeneous goods, as consumers may not only pay higher prices, but also choose a dominated option, or inefficiently refrain from buying. Qualitatively similar insights obtain for political contests, in which candidates compete for voters with heterogeneous preferences. (link)

“Great question! There is some relatively new research looking at happiness from experiences vs. material possessions. Most of it shows that happiness from equally valued (e.g. price) experiences is higher than for possessions. HOWEVER, and this is a big however, all that work tends to ignore long run happiness with highly prized possessions. For instance, if you have a sentimentally valued object, happiness that stems from that object lasts for a long time. What most possessions don’t do is provide long lasting happiness. You buy a new shiny toy and it DOES make you happy…but that happiness goes away quickly. My collaborators and I have termed this idea “Hedonic Decline.”

So as for minimalism, there is not evidence that I know of that shows that less possessions make you happier. There’s plenty showing that more possessions don’t make you happier, but that’s not the same thing.

One more layer of complexity: there are two routes to happiness: hedonic and eudaimonic. The former is what we usually think of when we think of happiness: how much joy does XYZ bring me. The latter, however, is closer to self-actualization. It’s the happiness the comes from a accomplishing something….even if there was pain involved in getting there. I wonder if minimalism can increase eudaimonic happiness.


Are they making less than their parents? When you check recent Census data, you get a completely different interpretation. Table P-10 located here (https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-people.html) lays out median/mean income for those 25 to 34 going back to 1974, adjusted to constant 2018 dollars. It starts at line 104. Quite clearly those aged 25-34 in 2018 are doing better than any group in the 1980s since the median income of \$37,133 is higher than the 1980s peak of \$33,356.

Regulation studies

Compliance with Hart-Scott-Rodino is notoriously costly: “despite some FTC and DOJ efforts to reduce burdens, second request compliance costs remain very high, averaging \$4.3 million.” Peter Boberg & Andrew Dick, Findings from the Second Request Compliance Burden Survey, 14(3) ABA SECTION ON ANTITRUST LAW THRESHOLD NEWSLETTER 26, 33 (Summer 2014).

We examine how the regulatory burdens affect the investment and innovation of newly public firms. To do so, we exploit the Jumpstart our Business Start-up (JOBS) Act, which eliminates certain disclosure, auditing, and governance requirements for a subset of newly public firms. Firms treated with these reduced burdens invest more and more efficiently after going public relative to untreated firms. These findings are concentrated in innovative investments, are accompanied by treated firms being less prone to cater to short-term earnings benchmarks, and are non-existent in dual class firms. We conclude that one reason the burdens to being public affect investment and innovation is because they divert resources away from long-run value increasing investments. (link)

In this paper, we develop a new firm-level measure of distance to the productivity frontier that accounts for international technology spillovers stemming from the use of imported intermediate goods. The trade-weighted technological distance to frontier is matched with sector- and country-level data on regulation and firm dynamics (entry and exit rates) of 16 European countries. Using our measure of trade-adjusted technology gap, we investigate the role of labour, capital, and product market regulatory frameworks in the technology catch-up process, gauging the effect of firms' dynamics in mediating and moderating the impact of regulation on the technology gap. Our study offers a novel perspective and insights to the analysis of the link between framework conditions and technological distance to frontier. While most scholars argue that less regulation always favours productivity growth and the diffusion of technology, our results provide a more nuanced picture. Deregulation is not a one-size-fits-all solution that leads to faster technology diffusion, instead heterogeneity in business dynamism and countries' regulatory structures need to be considered. (link)

“We construct a new measure of firm-level uncertainty from analyzing the text of mandatory reports filed with the U.S. Securities and Exchange Commission. Using firm and establishment level panel data on investment margins and employment dynamics, we find our uncertainty measure has large effects on investment even after controlling for industry and time-varying shocks. Periods of high firm uncertainty (1) reduce investment rates by 0.5% and attenuate the response to positive sales shocks by about half and (2) reduce employment growth rates by 1.4% and the response to positive sales shocks by 30%. Firms are less responsive to demand shocks at the firm level and across establishments within the firm. Consistent with “wait and see” dynamics, uncertainty affects new investment activity, e.g. plant births and acquisition, more than disinvestment margins.” (link)

We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence - including human readings of 12,000 newspaper articles - indicate that our index proxies for movements in policy-related economic uncertainty. Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction. At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies. Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s. (link)

Cost of AI and automation

  • Google’s DeepMind lost roughly \$162 million in 2016.
  • Facebook might have access to vast engineering resources and data about language, but still their chatbot project, M, fell short. According to one source familiar with the program, M never surpassed 30 percent automation.
  • Microsoft’s Tay chatbot was pulled from Twitter less than 24 hours after it launched because it was repeating offensive and vile tweets.
  • Ocado, the UK based online supermarket, explained in late 2017 that the company would need to spend “an extra couple of million pounds” to hire software engineers to work on automating its warehouses.
  • Facebook tried to largely automate their content moderation process, but had to pull back on the project and has instead upped the number of content moderators.
  • After years of development, T-Mobile is getting rid of its robotic customer service lines.
  • Throughout 2017, Tesla founder Elon Musk was touting how the company would be implementing advanced robotics in the new factories. But after missing countless production estimates, he explained that “Excessive automation at Tesla was a mistake.”
  • Google’s various end roads in robotics, “held the industry back more than moving it forward,” claimed one CEO.
  • Automation is costly, so AI researchers and companies are now trying to address this by essentially turning the technology on itself, using machine learning to automate the trickier aspects of developing AI algorithms. (link)
  • Some more cold water: “Despite the hype and excitement, the majority of companies that commit to tackling AI projects will fail.” (link)
  • According to a study performed by PriceWaterhouse Coopers and Iron Mountain, a staggering 43% of companies realize little actual benefit from their Big Data projects and a further 23% fail to realize any benefit at all.
  • experts at OpenAI recently developed Dactyl, a robotic hand that could handle objects. This is a task that any human child learns to perform subconsciously at an early age. But it took Dactyl 6,144 CPUs and 8 GPUs and about one hundred years' worth of experience to develop the same skills.
  • https://arstechnica.com/cars/2018/04/experts-say-tesla-has-repeated-car-industry-mistakes-from-the-1980s/
  • Christopher Mims, writing for WSJ:The internet giants that tout their AI bona fides have tried to make their algorithms as human-free as possible, and that’s been a problem. It has become increasingly apparent over the past year that building systems without humans “in the loop” – especially in the case of Facebook and the ads it linked to 470 “inauthentic” Russian-backed accounts – can lead to disastrous outcomes, as actual human brains figure out how to exploit them. Whether it’s winning at games like Go or keeping watch for Russian influence operations, the best AI-powered systems require humans to play an active role in their creation, tending and operation(Editor’s note: the link could be paywalled; alternative source). Facebook, of course, is now a prime example of this trend. The company recently announced it would add 10,000 content moderators to the 10,000 it already employs – a hiring surge that will impact its future profitability, said Chief Executive Mark Zuckerberg.
  • Also that trust and quality issues slow progress, with only 29 percent of respondents having complete trust in the quality of their organization’s data. Nearly three-quarters (74 percent) say they face unprecedented volumes of data but struggle to generate useful insights from it, estimating that they use only about half (51 percent) of the data they collect or generate. What’s more, respondents estimate that less than half (48 percent) of all business decisions are based on data. https://betanews.com/2018/07/11/outdated-tech-holds-back-business/
  • Amazon.com will open an artificial intelligence research center in the German university city of Tuebingen. It joins BMW, Bosch, Daimler, Facebook and Porsche in backing a German initiative launched last year and focused on areas such as robotics, machine learning and computer vision. (link)

In Japanese nursing homes, “robot adoption increases employment by augmenting the number of care workers and nurses on flexible employment contracts, and decreases difficulty in staff retention.” [link]

America is changing

Yeah, the future is going to be wild:


“Young women in New York and several of the nation’s other largest cities who work full time have forged ahead of men in wages, according to an analysis of recent census data.” (link)

“Across countries, #metoo increased reporting of sex assault and harassment by 10%. In at least the US, it also increased arrests for sexual assault. Effects were long lasting.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3496903

Fewer young adults are engaging in casual sexual intercourse now than in the past, but the reasons for this decline are unknown. The authors use data from the 2007 through 2017 waves of the Panel Study of Income Dynamics Transition into Adulthood Supplement to quantify some of the proximate sources of the decline in the likelihood that unpartnered young adults ages 18 to 23 have recently had sexual intercourse. Among young women, the decline in the frequency of drinking alcohol explains about one quarter of the drop in the propensity to have casual sex. Among young men, declines in drinking frequency, an increase in computer gaming, and the growing percentage who coreside with their parents all contribute significantly to the decline in casual sex. The authors find no evidence that trends in young adults’ economic circumstances, internet use, or television watching explain the recent decline in casual sexual activity. [link]

Across three traits, American adults (N=3,458; Mage = 33-51 years) believe today’s youth are in decline; however, these perceptions are associated with people’s standing on those traits. Authoritarian people especially think youth are less respectful of their elders, intelligent people especially think youth are less intelligent, well-read people especially think youth enjoy reading less. These beliefs are not predicted by irrelevant traits. Two mechanisms contribute to humanity’s perennial tendency to denigrate kids: (1) a person-specific tendency to notice the limitations of others where one excels, (ii) a memory bias projecting one’s current qualities onto the youth of the past. When observing current children, we compare our biased memory to the present and a decline appears. This may explain why the kids these days effect has been happening for millennia. (link)

“The gender gap in partisanship is new since the 1970s and 1980s, and growing bigger now. But the gender gap in preferences in some policy areas has existed since the beginning of modern polling.” (link)

Research suggests that spiritual training may have the paradoxical effect of boosting superiority feelings. https://buff.ly/37ILgON

Using time-diary data from the U.S. and six wealthy European countries, I demonstrate that non-partnered mothers spend slightly less time performing childcare, but much less time in other household activities than partnered mothers. Unpartnered mothers’ total work time—paid work and household production—is slightly less than partnered women’s. In the U.S. but not elsewhere they watch more television and engage in fewer other leisure activities. These differences are independent of any differences in age, race/ethnicity, ages and numbers of children, and household incomes. Non-partnered mothers feel slightly more pressured for time and much less satisfied with their lives. Analyses using the NLSY79 show that mothers whose partners left the home in the past two years became more depressed than those whose marriages remained intact. Coupled with evidence that husbands spend substantial time in childcare and with their children, the results suggest that children of non-partnered mothers receive much less parental care—perhaps 40 percent less—than other children; and most of what they receive is from mothers who are less satisfied with their lives. (Link)

Do men and women differ systematically in their cooperation behaviors? Researchers have long grappled with this question, and studies have returned equivocal results. We developed an evolutionary perspective according to which men are characterized by greater intrasex variability in cooperation as a result of sex-differentiated psychological adaptations. We tested our hypothesis in two meta-analyses. The first involved the raw data of 40 samples from 23 social-dilemma studies with 8,123 participants. Findings provided strong support for our perspective. Whereas we found that the two sexes do not differ in average cooperation levels, men are much more likely to behave either selfishly or altruistically, whereas women are more likely to be moderately cooperative. We confirmed our findings in a second meta-analytic study of 28 samples from 23 studies of organizational citizenship behavior with 13,985 participants. Our results highlight the importance of taking intrasex variability into consideration when studying sex differences in cooperation and suggest important future research direction. (Link)

Time preferences vary by age. Notably, according to experimental studies, senior citizens tend to discount future payoffs more heavily than working-age individuals. Based on these findings, we hypothesize that demographic change has contributed to the cut-back in government-financed investment that many advanced economies experienced over the last four decades. We demonstrate for a panel of 19 OECD countries between 1971 and 2007 that the share of elderly people and public investment rates are cointegrated, indicating a long-run relationship between them. Estimating this cointegration relationship via dynamic OLS (DOLS) we find a negative and significant effect of population aging on public investment. Moreover, the estimation of an error correction model reveals long-run Granger causality running exclusively from aging to investment. Our results are robust to the inclusion of additional control variables typically considered in the literature on the determinants of public investment. (link)

Environmental issues

This paper examines the effects of LEED certification on energy efficiency in federally owned buildings. Using propensity score matching and difference in differences models, we find no effect of LEED certification on average energy consumption. This reflects the fact that energy use is one of a number of attributes that receives scores under the LEED program. Buildings with above average energy scores have greater energy efficiency post-certification. Some other attributes, notably higher water scores, decrease energy efficiency post-certification. Trade-offs across LEED attributes account for the absence of energy savings on average. If energy efficiency is the primary policy goal, LEED certification may not be the most effective means to reach that goal. (Link)