Knowledge that Transforms

Research on intrahousehold time allocations has assumed that housework is a necessary evil and focused exclusively on the causal role of opportunity costs. In fact, agents likely act to maximize happiness, and preferences regarding even mundane household chores differ considerably. I use information from the 2000-01 UK Time Use Survey to examine time spent on laundry, ironing, cleaning, and food shopping. Joint multivariate analysis of his and her time on weekend and weekday days as well as maid service reveals that her opportunity cost of time matters more than his, but that his preferences play a greater role than hers.

Motivated by the evidence that risk premia are large and countercyclical, this paper studies a tractable real business cycle model with a small risk of economic disaster, such as the Great Depression. An increase in disaster risk leads to a decline of employment, output, investment, stock prices, and interest rates, and an increase in the expected return on risky assets. The model matches well data on quantities, asset prices, and particularly the relations between quantities and prices, suggesting that variation in aggregate risk plays a significant role in some business cycles.

We examine the informal exchange of favors in societies such that any two individuals interact too infrequently to sustain exchange, but such that the social pressure of the possible loss of multiple relationships can sustain exchange. Patterns of exchange that are locally enforceable and renegotiation-proof necessitate that all links are “supported”: any two individuals exchanging favors have a common friend. In symmetric settings, such robust networks are “social quilts”: tree-like unions of completely connected subnetworks. Examining favor exchange networks in 75 villages in rural India, we find high levels of support and identify characteristics that correlate with support.

This paper explores the links between exports, export destinations, and skill utilization. We identify two mechanisms behind these links: differences across destinations in quality valuation and in exporting required services, activities that are intensive in skilled labor. Depending on the characteristics of the source country (income, language), the theories suggest a skill-bias in export destinations. We test the theory using a panel of Argentine manufacturing firms. We find that Argentine firms exporting to high-income countries hired more skilled workers than other exporters and domestic firms. Instead, we cannot identify any causal effect of exporting per se on skill utilization.

This research examines the relationship between the economic status of an immigrant's home country and the probability of self-employment in the US. We find that immigrants from developing countries on average have lower self-employment probabilities relative to immigrants from developed countries. Similarly, we find a positive correlation between the current HDI of an immigrant's home country and the probability of self-employment in the US. These result are unexpected given that past research suggests immigrants from countries with high levels of self-employment (developing countries) are more likely to be self-employed in the US. We provide a possible explanation for these results.

A model of public and private liquidity integrates financial intermediation theory with a New Monetarist monetary framework. Non-passive fiscal policy and costs of operating a currency system imply that an optimal policy deviates from the Friedman rule. A liquidity trap can exist in equilibrium away from the Friedman rule, and there exists a permanent nonneutrality of money, driven by an illiquidity effect. Financial frictions can produce a financial-crisis phenomenon that can be mitigated by conventional open market operations working in an unconventional manner. Private asset purchases by the central bank are either irrelevant or they reallocate credit and redistribute income.

Firms and workers may sign complex contracts that govern many aspects of their interactions. I show that when firms regard contracts as substitutes, bargaining over contracts can be understood as bargaining only over wages. Substitutes is the assumption commonly used to guarantee the existence of stable matchings of workers and firms. JEL: C78, D86, J31, J41

We show that large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of the products also offered by the smaller rivals, in order to discriminate multistop shoppers from one-stop shoppers. Loss leading thus appears as an exploitative device rather than as an exclusionary instrument, although it hurts the smaller rivals as well; banning below-cost pricing increases consumer surplus, rivals' profits, and social welfare. Our insights extend to industries where established firms compete with entrants offering fewer products. They also apply to complementary products such as platforms and applications.

We study the design of interventions to stabilize financial markets plagued by adverse selection. Our contribution is to analyze the information revealed by participation decisions. Taking part in a government program carries a stigma, and outside options are mechanism dependent. We show that the efficiency of an intervention can be assessed by its impact on the market interest rate. The presence of an outside market determines the nature of optimal interventions and the choice of financial instruments (debt guarantees in our model), but it does not affect implementation costs.

Using a matched employer-employee data set, we study the effects of trade liberalization on wage dispersion in Brazil across heterogeneous worker groups, keeping in mind that the assignment of workers to firms may be non-random and determined by the time-invariant productivity of workers specific to the firms with which they are matched. We find differential effects of trade reform on residual wage inequality across worker groups. High education workers experience greater increases in wage dispersion relative to low education workers following trade liberalization. This finding is broadly consistent with the theoretical predictions that emerge from models with heterogeneous firms, heterogeneous workers, and labor market frictions.