Knowledge that Transforms

Long-run growth in many models is the product of two terms: the effective number of researchers and their research productivity. We present evidence from various industries, products, and firms showing that research effort is rising substantially while research productivity is declining sharply. A good example is Moore’s Law. The number of researchers required today to achieve the famous doubling of computer chip density is more than 18 times larger than the number required in the early 1970s. More generally, everywhere we look we find that ideas, and the exponential growth they imply, are getting harder to find. (JEL D24, E23, O31, O47)

Soda taxes aim to reduce excessive sugar consumption. We assess who is most impacted by soda taxes. We estimate demand using micro longitudinal data covering on-the-go purchases, and exploit the panel dimension to estimate individual-specific preferences. We relate these preferences and counterfactual predictions to individual characteristics and show that soda taxes are relatively effective at targeting the sugar intake of the young, are less successful at targeting the intake of those with high total dietary sugar, and are unlikely to be strongly regressive especially if consumers benefit from averted internalities. (JEL D12, H22, H25, H71)

We propose a criterion of stability for two-sided markets with asymmetric information. A central idea is to formulate off-path beliefs conditional on counterfactual pairwise deviations and on-path beliefs in the absence of such deviations. A matching-belief configuration is stable if the matching is individually rational with respect to the system of on-path beliefs and is not blocked with respect to the system of off-path beliefs. The formulation provides a language for assessing matching outcomes with respect to their supporting beliefs and opens the door to further belief-based refinements. The main refinement analyzed in the paper requires the Bayesian consistency of on-path and off-path beliefs with prior beliefs. We define concepts of Bayesian efficiency, the rational expectations competitive equilibrium, and the core. Their contrast with pairwise stability manifests the role of information asymmetry in matching formation. (JEL C78, D40, D82, D83)

Behaviors and information often spread via person-to-person diffusion. This paper highlights how diffusion processes can facilitate coordination. I study contagion in a discrete network with Bayesian players. In addition to characterizing the extent and rate of adoption, we uncover a new effect: when large cascades are possible in equilibrium, exposure conveys information about a player’s network position. This effect underscores a novel trade-off in the design of marketing campaigns, suggesting conditions under which word-of-mouth is relatively more effective. A generalization of the model to multi-type networks suggests a new approach to targeted seeding. (JEL D83, D85, M31, M37, Z13)

Does public cheap talk by a biased expert benefit voters? The answer depends on the nature of democratic institutions and the extent of communication possibilities. Expert endorsements induce office-seeking parties to serve the expert’s interests, hurting voters. Expert advocacy makes policies respond to information, helping voters. Together, policy advocacy and partisan endorsements are often better than either alone. Their interaction creates a delegation benefit that makes indirect democracy superior to direct democracy and office-seeking parties better than those motivated by public interest. But voter welfare is highest when an expert captured technocratic party competes against an uninformed populist one. (JEL D72, D82)

We study information acquisition in dealer markets. We first identify a one-sided strategic complementarity in information acquisition: the more informed traders are, the larger market makers’ gain from becoming informed. When quotes are observable, this effect in turn induces a strategic complementarity in information acquisition amongst market makers. We then derive the equilibrium pattern of information acquisition and examine the implications of our analysis for market liquidity and price discovery. We show that increasing the cost of information can decrease market liquidity and improve price discovery. (JEL O82, O83, G14)

We study the long-run effects of forced migration on investment in education. After World War II, millions of Poles were forcibly uprooted from the Kresy territories of eastern Poland and resettled (primarily) in the newly acquired Western Territories, from which the Germans were expelled. We combine historical censuses with newly collected survey data to show that, while there were no pre-WWII differences in educational attainment, Poles with a family history of forced migration are significantly more educated today than other Poles. These results are driven by a shift in preferences away from material possessions toward investment in human capital. (JEL I25, I26, J24, N34, R23)

The US Environmental Protection Agency (EPA) uses a dynamic approach to enforcing air pollution regulations, with repeat offenders subject to high fines and designation as high priority violators (HPV). We estimate the value of dynamic enforcement by developing and estimating a dynamic model of a plant and regulator, where plants decide when to invest in pollution abatement technologies. We use a fixed grid approach to estimate random coefficient specifications. Investment, fines, and HPV designation are costly to most plants. Eliminating dynamic enforcement would raise pollution damages by 164 percent with constant fines or raise fines by 519 percent with constant pollution damages. (JEL Q52, Q53, Q58)

We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a model of this mechanism, and assess the ability of the quantitative theory to match the evidence. (JEL E44, E52, G12, G14, G35)

This paper proposes a flexible-price theory of the role of money in an economy with incomplete idiosyncratic risk sharing. When the risk premium goes up, money provides a safe store of value that prevents interest rates from falling, reducing investment. Investment is too high during booms when risk is low, and too low during slumps when risk is high. Monetary policy cannot correct this: money is superneutral and Ricardian equivalence holds. The optimal allocation requires the Friedman rule and a tax/subsidy on capital. The real effects of money survive even in the cashless limit. (JEL E32, E41, E43, E44, E52)