Knowledge that Transforms

We study how online job search advice affects job search behavior and labor market outcomes of unemployed workers. In a large-scale field experiment embedded in the online platform of the Danish public employment service, we provide job seekers with vacancy information and occupational recommendations. Using a two-stage randomized design with regionally varying treatment intensities, we examine both direct effects of advice and treatment spillovers. We find that advice significantly increases employment and earnings when provided to a limited share of job seekers. As treatment intensity rises, these effects diminish and eventually disappear. The decline is driven by negative spillovers among treated job seekers, consistent with increased congestion in the occupations toward which job seekers redirect their search. Spillover effects on untreated job seekers are heterogeneous and depend on how advice alters occupation-specific competition in local labor markets.

Quality regulation seeks to ensure quality and foster competition by reducing vertical differentiation, but it may also have adverse effects on market structure. We study this trade-off in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. By exploiting the introduction of bioequivalence in Chile, we find that stronger regulation reduced the number of drugs in the market by 18% and increased average paid prices by 13%. We estimate a model of drug entry, certification, and demand to study how drug quality, aversion to generics, and certification costs shape the equilibrium effects of quality regulation. We find that quality regulation increased demand for generic drugs by resolving asymmetric information and reducing aversion to unbranded generics, which induced the entry of high-quality drugs in place of low-quality drugs. Consumer welfare increased despite higher prices and a lower number of firms. We compare minimum quality standards with alternative designs of quality regulation, including quality disclosure.

To study competition, innovation, and industry dynamics that arise as a result of their interaction, we develop a new oligopolistic general-equilibrium Schumpeterian growth model. This model ties together the endogenous growth, oligopolistic competition, and dynamic industrial organization literatures in a single unified framework. Within each industry, there are an endogenously determined number of large firms (“superstars”) that compete á la Cournot and a continuum of small firms which collectively constitute a competitive fringe. Firms dynamically choose their innovation strategies, cognizant of other firms' choices, and their entry and exit are endogenous. The model is consistent with the macroeconomic trends observed in the United States since the 1970s, such as the domination of industries by a small number of superstar firms, the rise of markups, market concentration, profits, and R&D spending, and the decline in business dynamism, productivity growth, and the labor share. It replicates the empirical relationship between innovation and competition within and across industries. As an application, we estimate the model to disentangle the effects of separate mechanisms on the structural transition observed in the United States, which yields striking results: (1) While the increase in the average markup causes a significant static welfare loss, this loss is overshadowed by the dynamic welfare gains from increased innovation in response to higher profit opportunities. (2) The increasing costs of innovation are found to be the primary determinant of lackluster productivity growth, i.e., ideas are getting harder to find.

When financial constraints bind, firms adjust employment in response to cash flow shocks. A 2010 revaluation of business rates, a UK tax levied on business-occupied properties, implied that similar firms, occupying similar properties in narrow geographical locations, experienced different tax changes. I find that, on average, for every ￡1 of additional cash flow triggered by the tax change, 39 pence were spent on employment, with small and leveraged firms responding the most. I use these findings to discipline a general equilibrium model with firm heterogeneity and financial frictions and quantitatively determine the aggregate effects of a fiscal transfer to firms.

Standard New Keynesian (NK) models feature an optimal inflation target well below 2%, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop an NK framework with endogenous productivity and downward nominal wage rigidity (DNWR) which challenges these results. The interaction between endogenous growth and DNWR generates asymmetric hysteresis effects on unemployment and R&D. As a consequence, the model features a nonvertical long-run Phillips curve and a trade-off between price distortions and output hysteresis that changes the welfare-maximizing inflation rate to above 2%. Deviations from the optimal target carry welfare costs multiple times those in traditional NK models. Taylor rules that respond to the unemployment rate address more effectively the asymmetric hysteresis in our model. Results are robust to the inclusion of the effective lower bound on interest rates.

We compare and combine two distinct approaches to estimating market power in the US brewing industry—one based on production data, the other on demand. Both methods produce similar estimates of average markups and reveal a recent upward trend. We then combine the two approaches in two ways. First, we replace conventional instruments in demand estimation with a moment involving a production-based markup estimate, yielding similar results. We then evaluate the common (but controversial) assumption that retail markets operate competitively, finding that demand-based markups recovered with the assumption of competitive retail markets align with production-based estimates, as long as downstream costs are accounted for.

The structure of the Social Security program presents a trade-off between benefit duration and size; individuals who claim early receive lower monthly payments. Surprisingly, even wealthy Americans with high life expectancies frequently claim benefits at the earliest eligibility age, a behavior inconsistent with conventional life-cycle theory predictions. In fact, there is a striking similarity in claiming ages across groups with vastly different life expectancies, wealth levels, and incentives to delay. This paper resolves this puzzle by introducing policy details and subjective beliefs about longevity and program rules into a rich, forward-looking life-cycle model. When included in the model, subjective beliefs substantially narrow the claiming-age gaps across education (college vs. non-college) and marital-status (married vs. single) groups. Specifically, differences in program beliefs alone account for 48.6% of the education claiming age gap and 75.1% of the marital status gap. Counterfactual policy simulations demonstrate that failing to account for these claiming mechanisms dramatically overstates individual responses to an increase in the normal retirement age and understates the resulting fiscal savings.

Even as global oil demand has increased in recent years, it is plausible to envision scenarios in which clean energy technologies or climate policies drive demand to essentially zero by the century’s end. This paper asks what such a demand decline, when anticipated, might mean for global oil supply. One possibility is a “green paradox”: producers accelerate extraction. However, because extraction requires durable capital investments, the opposite may occur: producers reduce their investment rate, decreasing extraction. To evaluate the relative strengths of these opposing mechanisms, I develop a model of global oil supply that incorporates both, among other industry features. For model inputs with the strongest empirical support, both effects are modest, with disinvestment typically outweighing the green paradox. In order for the green paradox to substantially increase cumulative global oil extraction, investments must have short time horizons, and producers’ discount rates must be less than 4% real.

We use a sufficient statistic approach to quantify the general equilibrium effects of population aging on the returns to wealth, wealth accumulation, and global imbalances. Combining population forecasts with household survey data from 25 countries, we measure the compositional effect of aging: how a changing age distribution affects wealth-to-GDP, holding the age profiles of wealth and labor income fixed. In a baseline overlapping generations model this statistic, in conjunction with cross-sectional information and two standard macro parameters, pins down general equilibrium outcomes. Since the compositional effect is positive, large, and heterogeneous across countries, our model predicts that population aging will lower returns to wealth, increase wealth-to-GDP ratios, and widen global imbalances through the twenty-first century. These conclusions extend to a richer model in which bequests, individual savings, and the tax-and-transfer system all respond to demographic change.

Over the past four decades, the U.S. economy has seen a decline in the share of young firms alongside a rise in the profit share of GDP. This paper explores how population aging contributes to these twin trends through a demand-side channel. The core hypothesis is that younger households exhibit lower consumer inertia—a tendency to stick with previously chosen products—than older households. As demand shifts toward more inertial consumers, entry becomes harder, incumbents raise markups, and market share tilts toward larger firms. To quantify this mechanism, I develop and calibrate a firm dynamics model with overlapping generations of consumers who differ in their degree of inertia. Using detailed micro data, I show that younger households are significantly less inertial. The model implies that population aging accounts for 20%–30% of the observed decline in young firms and rise in profits. Reduced-form evidence across U.S. states and product categories supports the model’s predictions.