Knowledge that Transforms

The Internet has made consumer search easier, with consequences for prices, industry structure, and the kinds of products offered. We provide an industry model with strategic design choices that explores these issues. A polarized market structure results: some firms choose designs aimed at broad-based audiences, while others target narrow niches. We analyze the effect of reduced search costs, finding results consistent with the reported prevalence of niche goods and long-tail and superstar phenomena. In particular, the model suggests that long-tail effects arise when there is a wide range of potential designs, relative to vertical heterogeneity among firms. JEL: D11, D21, D83, L11, L86, M31

Areas differ in their propensity to experience natural disasters. Exposure to disaster risks can be reduced either through migration (i.e., self-protection) or through public infrastructure investment (e.g., building seawalls). Using migration data from the 1920s and 1930s, this paper studies how the population responded to disaster shocks in an era of minimal public investment. We find that, on net, young men move away from areas hit by tornados but are attracted to areas experiencing floods. Early efforts to protect against future flooding, especially during the New Deal era of the late 1930s, may have counteracted an individual migration response.

This paper uses a rich panel dataset of Spanish manufacturing firms (1990–2006) and a propensity score reweighting estimator to show that multinational firms acquire the most productive domestic firms, which, on acquisition, conduct more product and process innovation (simultaneously adopting new machines and organizational practices) and adopt foreign technologies, leading to higher productivity. We propose a model of endogenous selection and innovation in heterogeneous firms that explains both the observed selection patterns and the innovation decisions. Further, we show in the data that innovation upon acquisition is associated with the increased market scale provided by the parent firm.

This paper studies an empirical model of spatial competition applied to gasoline markets. The main feature is to specify commuting paths as the “locations'' of consumers in a Hotelling-style model. As a result, spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows. The model is estimated using panel data on the Quebec City gasoline market and used to evaluate the consequences of a recent vertical merger. Difference-in-difference and counterfactual simulation methods are compared, and the results, to a large extent, validate the assumptions of the demand model.

As both a regulator and an academic, Fred Kahn argued that end-use electricity consumers should face prices that reflect the time-varying marginal costs of generating electricity. This has been very slow to happen in the US, even in light of recent technological advances that have lowered costs and improved functionality for meters and automated demand response technologies. We describe these recent developments and discuss the remaining barriers to the proliferation of time-varying electricity pricing.

How would people spend additional time if confronted by permanent declines in market work? We examine the impacts of cuts in legislated standard hours which raised employers' overtime costs in Japan around 1990 and in Korea in the early 2000s. Using time-diaries from before and after, we show the shocks were effective -- per-capita hours of market work declined discretely. The economy-wide drops in market work were reallocated solely to leisure and personal maintenance. In the absence of changing household technology a permanent time gift leads to no increase in time spent in household production by the average individual.

Workers plan and save for retirement throughout their careers. Individuals must navigate complex financial instruments and understand public and employer-provided retirement plan characteristics. Beginning when a worker is first hired, most employers provide the option to contribute to retirement saving plans. As workers near retirement, they face many choices that have considerable consequences for their retirement income security. At these two important periods, employers can provide timely information assisting workers in making choices that optimize lifetime wellbeing. Our research, conducted in cooperation with several large employers, illustrates the importance of employer-provided education in increasing worker understanding of several retirement-related issues.

Depression is pervasive in the US particularly among women. The costs in terms of direct medical costs and forgone earnings are substantial. This paper investigates an additional cost of depression. Using data from the National Longitudinal Survey of Adolescent Health, we use a unique instrument, the attacks of September 11, which have been linked to depression, to identify the effect of depression on risky sexual behaviors. We find that depressed women are more likely to be sexually active, to engage in oral sex and to have sex without a condom, even after controlling for a rich set of covariates.

This paper points to the important role that the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of policymaking in a decentralized economy with mobile capital and spillovers among jurisdictions. In accordance with previous studies, we show that under the assumption of a fixed capital supply (zero capital supply elasticity) the decentralized policy choice is optimal. If the capital supply elasticity is strictly positive, however, capital tax rates are inefficiently low in the decentralized equilibrium.

This paper provides a new theory of international capital flows. In a framework that integrates factor-proportions-based trade and financial capital flows, a novel force emerges: capital tends to flow toward countries that become more specialized in capital-intensive industries. This “composition” effect competes with the standard force that channels capital toward the location where it is scarcer. If the composition effect dominates, capital flows away from the country hit by a positive labor force/productivity shock—a flow “reversal.'' Extended to a quantitative framework, the model generates sizable current account imbalances between developing and developed countries broadly consistent with the data.