Knowledge that Transforms

Abstract We document a series of stylized facts about how firms seek to protect the rents from innovation, using a large nationally representative survey of U.S. businesses over the period 2008-2015. Just 1.4 percent of firms obtain patents, but these patenting firms account for 87 percent of R&D investment. Firms consider utility patents less important than other forms of IP protection, like trade secrets, trademarks, and copyrights. Firm industry and size are strongly correlated with firms’ use of all types of intellectual property, but firm-age is not. Implications for innovation research and policy are discussed.

Abstract Court capture in developing countries is pervasive, yet its economic effects remain underexplored. We study a Chinese reform that transferred financial and personnel authority over local courts from local to provincial governments. Exploiting the staggered roll-out, we find a 7.3% decline in local defendants’ win rates against non-local plaintiffs, alongside improved judicial quality. The reform encouraged smaller non-local firms to litigate and attracted non-local investment, potentially raising GDP by 1.9%. Yet favoritism toward politically connected firms and inter-provincial protectionism remain, and centralization itself promotes less qualified judges— revealing both its promise and limits.

Abstract Counterfactuals in quantitative trade and spatial models are functions of the current state of the world and the model parameters. Common practice treats the current state of the world as perfectly observed, but there is good reason to believe that it is measured with error. This paper provides tools for quantifying uncertainty about counterfactuals when the current state of the world is measured with error. I recommend an empirical Bayes approach to uncertainty quantification, and show that it is both practical and theoretically justified.

Abstract This paper provides novel evidence on how dietary habits – a key health behavior – are transmitted across generations, exploiting unique grocery transaction data linked with administrative records. We document strong intergenerational persistence in dietary habits, exceeding that of income, and consider several channels that might explain this pattern. Specifically, we find that socioeconomic status and geography account for only a small share of the transmission. Combined with the absence of a dietary response following a parent’s unexpected lifestyle-related death, these findings underscore the importance of early-life influences and habit formation.

Abstract We study the role of war bonds and inflation in post-WWII federal elections. After WWII, major bouts of inflation in 1946-48 and 1950-51 depressed the real returns of the bonds sold to households during the war. In a difference-in-differences framework, we find that counties with higher war bond purchases shifted their votes towards the Republican Party in postwar elections. To address the endogeneity of war bond purchases, we use an instrumental variables design, and obtain similar results. Bond ownership raised the saliency of inflation, and the severe rise in prices after the war triggered a backlash against the incumbent Democrats.

Abstract This paper uncovers that input tariff reductions result in less domestic innovation, but standard models of trade ensure a positive correlation between importing and innovation. Hence, the paper develops a dynamic framework with a task-specific laboraugmenting productivity and a non-homothetic import demand system to rationalize this finding. The model implies that input liberalization enables firms to use cheaper intermediate imports as a substitute for self-made inputs, a strategy that decreases marginal production costs but also discourages firms from investing in their own inhouse varieties. Finally, the paper compares the effectiveness of trade and innovation policies in boosting aggregate productivity growth.

Abstract We investigate the role financial conditions play in the composition of U.S. growth-at-risk. We document that, by a wide margin, growth-at-risk is investment-at-risk. That is, if financial conditions indicate U.S. real GDP growth will be in the lower tail of its conditional distribution, we know that quantitatively, the main contributor is a decline in investment. Consumption contributes under extreme financial stress. Government spending and net exports do not play a role. We show that leverage plays a key role in determining both consumption- and investment-at-risk, which provides support to the financial accelerator mechanism proposed by Bernanke et al. (1999).

Abstract Nonprofit organizations rely on donations from large competitive marketplaces to provide key social service goods. Most research focuses on competition in output markets without considering philanthropic markets where nonprofits make decisions about how much effort to put into fundraising. We develop and estimate a model that highlights the strategic nature of fundraising, showing that rival NP’s fundraising responses can be strategic complements or substitutes. We find evidence of strategic substitutes. NPs demonstrate nontrivial strategic responses to rival’s fundraising and, in totality, the across sector impacts are important to consider. Counterfactual exercises show that reducing competition decreases equilibrium fundraising levels.

Abstract Market power is costly to build and, once established, is typically persistent and difficult to change. This paper investigates the impact of large economic shocks (serious epidemics) on the redistribution of market power in manufacturing industries. Using a model of firms’ dynamic decisions on production, pricing, and inventory holding, we demonstrate the importance of inventory stock and demand uncertainty in understanding market power and propose a new measure of market power. We find that the 2003 SARS shock in China significantly reduced the market power of firms in SARS-impacted areas. This effect is long lasting. SARS also substantially increased the inventory of affected firms, which partially contributed to the redistribution of market power.

Abstract Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs – larger than CUSFTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called “Swiss formula” that governed the Tokyo Round tariff liberalization to provide evidence of its effects on imports and inequality. Instrumented tariff reductions explain approximately 20% of the rise in income inequality between non-production and production workers between 1979 and 1988. This effect is largest among women, workers in routine occupations, and workers in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change.