Knowledge that Transforms

We estimate the impacts of the Earned Income Tax Credit on labor supply using local variation in knowledge about the EITC schedule. We proxy for EITC knowledge in a Zip code with the fraction of individuals who manipulate reported self-employment income to maximize their EITC refund. This measure varies significantly across areas. We exploit changes in EITC eligibility at the birth of a child to estimate labor supply effects. Individuals in high-knowledge areas change wage earnings sharply to obtain larger EITC refunds relative to those in low-knowledge areas. These responses come primarily from intensive-margin earnings increases in the phase-in region.

We conduct an experiment assessing the extent to which people trade off the economic costs of truthfulness against the intrinsic costs of lying. The results allow us to reject a type-based model. People's preferences for truthfulness do not identify them as only either “economic types” (who care only about consequences) or “ethical types” (who care only about process). Instead, we find that preferences for truthfulness are heterogeneous among individuals. Moreover, when examining possible sources of intrinsic costs of lying and their interplay with economic costs of truthfulness, we find that preferences for truthfulness are also heterogeneous within individuals.

We analyze under what conditions intermarriage can be used as an indicator of tolerance, and whether such tolerant attitudes persisted in Germany during the twentieth century. We find strong evidence for the persistence of tolerant attitudes towards intermarriage with Jews. At the same time, our empirical analysis also cautions against using intermarriage as a simple proxy for tolerance: The size of Jewish communities in the early twentieth century is an important confounding factor.

This paper develops a model of demand, pricing and advertising in the presence of social learning via word-of-mouth communication between friends. In the model consumers must receive information about a monopolist's product in order to consider purchasing it. The presence of word-of-mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population. I derive the comparative static results of connectivity, mean-preserving spread of friendships, and clustering of friends on prices. The optimal targets for advertising are not, generically, the individuals with the most friends.

We use a simple theory of a system of cities to decompose the determinants of the city size distribution into three main components: efficiency, amenities, and frictions. Higher efficiency and better amenities lead to larger cities but also to greater frictions through congestion and other negative effects of agglomeration. Using data on MSAs in the United States, we estimate these city characteristics. Eliminating variation in any of them leads to large population reallocations, but modest welfare effects. We apply the same methodology to Chinese cities and find welfare effects that are many times larger than those in the US.

I consider optimal nonlinear taxation of income and bequests with a joy-of-giving bequest motive and explicitly characterize the optimal estate tax rate. The optimal formula trades off correction of externality from giving and discouraging effort of children due to income effect generated by bequests. The analysis shows that optimality of a positive tax on bequests rests on the strength of the effect of bequests on behavior of future generations. The analysis also suggests that inheritance, rather than estate tax, is better suited to implement the optimal policy.

We examine changes in consumption and income inequality between 2000 and 2011. During the most recent recession, unemployment rose and asset values declined sharply. We investigate how the recession affected inequality while addressing concerns about underreporting in consumption data. Income inequality rose throughout the period from 2000 to 2011. The 90/10 ratio was 19 percent higher at the end of this period than at the beginning. In contrast, consumption inequality rose during the first half of this period but then fell after 2005. By 2011, the 90/10 ratio for consumption was slightly lower than it was in 2000.

A growing literature explores differences in subjective well-being across demographic groups, often relying on surveys with high nonresponse rates. By using the reported number of call attempts made to participants in the University of Michigan's Surveys of Consumers, we show that comparisons among easy-to-reach respondents differ from comparisons among hard-to-reach ones. Notably, easy-to-reach women are happier than easy-to-reach men, but hard-to-reach men are happier than hard-to-reach women, and conclusions of a survey could reverse with more attempted calls. Better alternatives to comparing group sample averages might include putting greater weight on hard-to-reach respondents or even extrapolating trends in responses.

We consider two life cycle models of labor supply that use nonconvexities to generate retirement. In each case we derive a link between hours worked prior to retirement, the intertemporal elasticity of substitution for labor (IES), and the size of the nonconvexities. This link is robust to allowing for credit constraints and human capital accumulation by younger workers and suggests values for the IES that are .75 or higher.

The payoff of actions is estimated and the resulting empirical payoff is controlled for in regression analyses to formulate a test of rational expectations in information cascade experiments. We show that the empirical payoff of actions is a function of estimates of choice probabilities and estimates of the information parameters of the game. We introduce an alternative empirical payoff of actions with true values of the information parameters. Our improved measure of the success of social learning confirms that rational expectations are violated, but deviations from rational expectations are statistically significantly smaller than in Weizsacher (2010).