Knowledge that Transforms

We study how investors perceive the skill set that different types of CEOs bring into their companies. We compare CEOs who started their careers during a recession with other CEOs. We show that the announcement return around the appointment of a recession CEO is very significant and positive, and this positive market reaction is driven by cases where a recession CEO replaces a non-recession CEO. Our results indicate that the market assigns a positive and economically meaningful value to a recession CEO, suggesting that there is a limited supply of these types of CEOs in the executive labor market.

Lacking a long time series on the assets of the very wealthy, Saez and Zucman (2015) use US tax records to obtain estimates of wealth holdings by capitalizing asset income from tax returns. They document marked upward trends in wealth concentration. We use data on tax returns and actual wealth holdings from tax records for the whole Norwegian population to test the robustness of the methodology. We document that measures of wealth based on the capitalization approach can lead to misleading conclusions about the level and the dynamics of wealth inequality if returns are heterogeneous and even moderately correlated with wealth.

This paper summarizes the book and assesses the reviews contained in the four contributed papers. Gregory Clark provides convincing arguments that extend the book's forecast that future technological change will be slower. Nicholas Crafts shows declining mortality and shorter work hours greatly increase welfare-augmented TFP growth during 1929-50. Benjamin Friedman points out that optimism about future technological change casts doubt on future employment growth, while technological pessimism implies employment optimism. Daron Acemoglu and co-authors emphasize the institutional environment that influences the timing and magnitude of innovation.

We use a firm-CEO assignment framework to model the market for CEO effective labor. In the model’s equilibrium, more talented CEOs match with and supply more effort to larger firms. Taxation of CEO incomes affects the equilibrium pricing of CEO effective labor and, hence, spills over and affects firm profits. Absent the ability to tax profits or a direct concern for firm owners, a standard prescription for high marginal income taxes emerges. However, given such an ability or concern, the optimal marginal tax rates are much lower.

We examine the reference-dependent risk preferences of Kőszegi and Rabin (2007), focusing on their choice-acclimating personal equilibria. Although their model has only a trivial intersection (expected utility) with other reference-dependent models, it has very strong connections with models that rely on different psychological intuitions. We prove that the intersection of rank-dependent utility and quadratic utility, two well-known generalizations of expected utility, is exactly monotone linear gain-loss choice-acclimating personal equilibria. We use these relationships to identify parameters of the model, discuss loss and risk aversion, and demonstrate new applications.

The uncovered interest parity puzzle concerns the empirical regularity that high interest rate countries tend to have high expected returns on short term deposits. A separate puzzle is that high real interest rate countries tend to have currencies that are stronger than can be accounted for by the path of expected real interest differentials under uncovered interest parity. These two findings have apparently contradictory implications for the relationship of the foreign-exchange risk premium and interest-rate differentials. We document these puzzles, and show that existing models appear unable to account for both. A model that might reconcile the findings is discussed.

This paper presents empirical evidence that the growth of export manufacturing in Mexico during a period of major trade reforms (the years 1986 to 2000) altered the distribution of education. I use variation in the timing of factory openings across commuting zones to show that school drop-out increased with local expansions in export-manufacturing industries. The magnitudes I find suggest that for every 25 jobs created, one student dropped out of school at grade 9 rather than continuing through to grade 12. These effects are driven by less-skilled export-manufacturing jobs which raised the opportunity cost of schooling for students at the margin.

In strategic settings a player may be able to influence the behavior of an opponent by revealing information about their own characteristics. They may for example aim to exploit stereotypes held by others. We provide an experimental test of this. A substantial fraction of players in a trust game exhibit a positive willingness to pay to reveal a photograph of themselves to their randomly-assigned partner. This suggests that they perceive that they can use their own characteristics to influence the behavior of others. The demand for such self-revelation depends negatively on price.

We show that gender diversity in corporate boards could improve firm value because of the contributions that women make to the board. Prior studies examine valuation effects of gender-diverse boards and reach mixed conclusions. To help resolve this conundrum, we consider how gender diversity could affect firm value, that is, what mechanisms could explain how female directors benefit corporate board performance. We hypothesize and provide evidence that women directors contribute to boards by offering specific functional expertise, often missing from corporate boards. The additional expertise increases board heterogeneity which Kim and Starks (2015) show can increase firm value.

I analyze the effects of short-duration paid parental leave on maternal labor supply. Using monthly longitudinal data from the Survey of Income and Program Participation, my event-study research design estimates impacts of paid leave laws in California and New Jersey on women's labor-force outcomes around childbirth. I find that paid leave laws are associated with a substantial increase in labor-force attachment in the months directly around birth. While US-style short-duration leave is unlikely to change prolonged exits from the labor force, my findings imply that paid leave laws induce some women stay more attached to jobs, particularly low-skill women.