For industries ranging from software to pharmaceuticals and entertainment, there is an intense debate about the appropriate level of protection for intellectual property. The Internet provides a natural crucible to assess the implications of reduced protection because it drastically lowers the cost of copying information. In this paper, we analyze whether file sharing has reduced the legal sales of music. While this question is receiving considerable attention in academia, industry, and Congress, we are the first to study the phenomenon employing data on actual downloads of music files.We match an extensive sample of downloads to U.S. sales data for a large number of albums. To establish causality, we instrument for downloads using data on international school holidays. Downloads have an effect on sales that is statistically indistinguishable from zero. Our estimates are inconsistent We would like to thank Bharat Anand, Gary Becker, Bob Frank, Shane Greenstein, Austan Goolsbee, Alan Krueger, Steven Levitt, Tom Mroz, Alan Sorensen, Joel Waldfogel, Steven Wildman, Pai-Ling Yin, participants at numerous seminars, and two anonymous referees for helpful comments. This project would not have been possible without the assistance of several individuals and organizations. MixMasterFlame and the FlameNap network shared P2P data with us, and BigChampagne LLC, the CMJ Network, Nathaniel Leibowitz, and Nevil Brownlee generously provided auxiliary data. We thank Keith Ross and David Weekly for assistance in understanding the KaZaA, OpenNap, and WinMX search protocols and database indices. Sarah Woolverton and Christina Hsiung Chen provided superb research assistance. The financial support of the George F. Baker Foundation (Oberholzer-Gee) and the Kenan Faculty Fund (Strumpf) is gratefully acknowledged. We appreciated the aural support from Massive Attack, Sigur Ros, and the Mountain Goats.

This paper argues that long-run trends in geographic segregation are inconsistent with models where residential choice depends solely on local public goods (the Tiebout hypothesis). We develop an extension of the Tiebout model that predicts as mobility costs fall, the heterogeneity across communities of individual public good preferences and of public good provision must (weakly) increase. Given the secular decline in mobility costs, these predictions can be evaluated using historical data. We find decreasing heterogeneity in policies and proxies for preferences across (i) a sample of U.S. municipalities (1870–1990); (ii) all Boston-area municipalities (1870–1990); and (iii) all U.S. counties (1850–1990).

The economic theory of federalism is largely built around the premise that more heterogeneous preferences result in more decentralized policy making. Despite its prominence and importance, this central tenet of economic federalism has never been empirically evaluated. This paper presents the first formal test of the link between preference heterogeneity and endogenous policy decentralization using as a case study liquor control in the United States over the period 1934–70. The results are reassuring: States with more heterogeneous preferences are more likely to decentralize liquor control and allow for local government decision making.

We develop a demand model for goods that are subject to habit formation. We show that consumption plans of forward-looking individuals depend on preferences, current period prices, and individual beliefs about the evolution of future prices. Moreover, an increase in price uncertainty reduces consumption along the optimal path. With smoking as our application, we test the predictions of our model using a unique data set of prices for cigarettes and the restricted-use version of the National Education Longitudinal Study. Our estimation results suggest that teenagers who live in metropolitan areas with a large amount of cigarette price volatility have, on average, significantly lower levels of cigarette consumption.