Knowledge that Transforms

We study the cyclical properties of sales, regular price changes, and average prices paid by consumers (“effective” prices) using data on prices and quantities sold for numerous retailers across many US metropolitan areas. Inflation in the effective prices paid by consumers declines significantly with higher unemployment while little change occurs in the inflation rate of prices posted by retailers. This difference reflects the reallocation of household expenditures across retailers, a feature of the data which we document and quantify, rather than sales. We propose a simple model with household store-switching and assess its implications for business cycles and policymakers.

Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. However, participants’ inertia could be offset by DC plan sponsors, who adjust the plan's investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds from DC assets are more volatile and exhibit more performance sensitivity than non‐DC flows, primarily due to adjustments to the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning than non‐DC money.

The Great Migration-the massive migration of African Americans out of the rural South to largely urban locations in the North, Midwest, and West-was a landmark event in U.S. HISTORY: Our paper shows that this migration increased mortality of African Americans born in the early twentieth century South. This inference comes from an analysis that uses proximity of birthplace to railroad lines as an instrument for migration.

IRBs can disallow high incentives they deem coercive. A vignette study on MTurk concerning participation in medical trials shows that a substantial minority of subjects concurs. They think high incentives cause more regret, and that more people would be better off without the opportunity to participate. We model observers as judging the ethicality of incentives by partially using their own utility. The model predicts that payments are repugnant only to the extent that they affect the participation decision, and more so for larger transactions. Incentivizing poorer participants is more repugnant, and in-kind incentives are less repugnant than monetary incentives.

We propose a new theory of exclusive dealing. The theory is based on the assumption that a dominant firm has a competitive advantage over its rivals, and that the buyers' willingness to pay for the product is private information. In this setting, the dominant firm can impose contractual restrictions on buyers without necessarily compensating them, implying that exclusive dealing contracts can be both profitable and anticompetitive. We discuss the general implications of the theory for competition policy and illustrate by examples its applicability to antitrust cases.

Researchers typically invoke theoretical assumptions to estimate mark-ups. Instead, we directly obtain mark-ups by surveying Pakistani soccer-ball producers. We document six facts: (i) Mark-ups are more dispersed than costs; (ii) Mark-ups and costs increase with firm size; (iii) The mark-up elasticity with respect to size exceeds the cost elasticity; (iv) Costs increase with size because larger firms use higher-quality inputs; (v) Larger firms charge higher mark-ups because they have higher production shares of high-quality balls that carry higher mark-ups, and because they charge higher mark-ups conditional on ball type; (vi) Correlations suggest marketing efforts are important for generating higher mark-ups.

Why wealth is systematically lower in the tropics remains a puzzle. We point out that latitude may have fundamental economic consequence because it plays a key role in how countries experience geophysical processes that have economic implications. We demonstrate that annual fluctuations in the El Nino Southern Oscillation (ENSO) leads to hotter and dryer local weather across tropical countries and subsequently to substantial losses in agricultural yields, output, and value-added. If volatility in agricultural production impedes economic growth, the relatively stronger influence of ENSO on the tropics may offer yet another partial explanation for slower historical growth in the tropics.

Using novel administrative data from Austria, we investigate the nature of temporary layoffs and recalls. We find that on average jobs ending in temporary layoffs lasted shorter but paid higher wages. The majority of temporarily laid-off workers return to their previous employer, but also one-fifth of those permanently laid-off are recalled. Compared to job switchers, recalls have shorter unemployment spells and do not experience wage losses. Negative duration dependence of unemployment only appears once recall exits are excluded for temporary and permanent layoffs. However, for temporary layoffs, the aggregate pattern masks significant heterogeneity by pre-unemployment tenure. Additional survey evidence suggests a lower average search level for temporary layoffs.

This article develops a theory in which a firm's adoption of a prosocial purpose can increase profitability by strengthening employees' reputation and identity—leading to higher effort and lower wages—as long as implementing purpose is costly with respect to direct monetary payoffs. Employees who value prosocial action will select into firms with a social purpose, which then become a visible carrier for these employees' identity and reputation.

Faced with numerous potential catastrophes—nuclear and bioterrorism, mega-viruses, climate change, and others—which should society attempt to avert? A policy to avert one catastrophe considered in isolation might be evaluated in cost-benefit terms. But because society faces multiple catastrophes, simple cost-benefit analysis fails: even if the benefit of averting each one exceeds the cost, we should not necessarily avert them all. We explore the policy interdependence of catastrophic events, and develop a rule for determining which catastrophes should be averted and which should not.