Knowledge that Transforms

Public policy in modern India features affirmative action programs intended to reduce inequality that stems from a centuries-old caste structure and history of disparate treatment by gender. We study the effects of one such affirmative action program: an admissions policy that fixes percentage quotas, common across more than 200 engineering colleges, for disadvantaged castes and for women. We show that the program increases college attendance of targeted students, particularly at relatively higher-quality institutions. An important concern is that affirmative action might harm intended beneficiaries by placing them in academic programs for which they are ill-prepared. We find no evidence of such adverse impacts.

Private markets are becoming an increasingly important way of financing rapidly growing and mature firms, and private investors are reputed to have far-reaching economic impacts. These important markets, however, are uniquely difficult to study. This paper explores these challenges, as well as the ways they can be overcome, using the experiences of the Private Capital Research Institute as a case.

We use unique data from over 600 Indonesian communities on what individuals know about the poverty status of others to study how network structure influences information aggregation. We develop a model of semi-Bayesian learning on networks, which we structurally estimate using within-village data. The model generates qualitative predictions about how cross-village patterns of learning relate to network structure, which we show are borne out in the data. We apply our findings to a community-based targeting program, where citizens chose households to receive aid, and show that the networks that the model predicts to be more diffusive differentially benefit from community targeting.

There has been a lot of interest since the global financial crisis in policies allowing emerging market economies to smooth the effects of the global financial cycle. Although the literature has focused mostly on capital controls emerging market governments have relied mostly on international reserves management. This paper discusses the role of reserves in capital flow management based on a simple welfare-based model of capital flows with international banking frictions.

Using an annual panel of US states over the period 1982-2014, we estimate the response of macroeconomic variables to a shock to the number of new firms (startups). We find that these shocks have significant effects that persist for many years on real GDP, productivity, and population. This is consistent with simple models of firm dynamics where a “missing generation” of firms affects productivity persistently.

We analyze children of immigrants' healthy immigrant effect using parental year of arrival and region of birth. Using data from Integrated National Health Interview Survey 2008-2014, we evaluate children of immigrants' health status by using obesity rates and the number of visits to the doctor versus their native counterparts. Consistent with their parents, children of immigrants' health status declines the longer their parents, remain in the United States. Meanwhile, there is an increase in the number of visits to the doctor the more years their parents, have resided in the country. The convergence rate differs by immigrant group.

Rothschild and Stiglitz (1970) represent random variables as convex functions (integrals of the cumulative distribution function). Combining this representation with Blackwell's Theorem (1953), we characterize distributions of posterior means that can be induced by a signal. This characterization provides a novel way to analyze a class of Bayesian persuasion problems.

We investigate in a sample of 53 emerging markets over 1980-2014 whether countries with open capital accounts are necessarily at the mercy of global events, or are able to take policy actions when receiving inflows to mitigate the impact of a subsequent reversal. Our analysis suggests that, while changes in global conditions have an important bearing on crisis susceptibility, countries that allow the buildup of macroeconomic and financial vulnerabilities during boom times, and which receive mostly debt flows, are significantly more likely to see capital inflow surge episodes end in a financial crisis.

We document that the Bay Area rose from 4% of all successful US patent applications in 1976 to 16% in 2008. This is partly driven by the increase in the prevalence of information and communication technology; however, even for patents unrelated to information and communication technology, we see a disproportionate increase in the share of US patents from the Bay Area. We interpret this growth as a trend to coagglomeration in invention across technologies, and explore different dimensions of this trend.

We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks' domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio--known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.