Knowledge that Transforms

What are the implications of the dramatic fall in IT prices for aggregate technology? When firm-level technologies are continuously differentiable, a factor price shock leads to (i) a substitution between factors and/or (ii) an endogenous response of returns to scale. The second channel is governed by the output elasticity of relative factor demand. Using detailed firm-level data from France, we estimate this elasticity to be positive for IT factor demand. A quantitative exercise accounting for both technological channels shows that falling IT prices can explain much of the changes in concentration and the composition of aggregate labor share in France. (JEL D22, D24, D33, E25, L63, L86)

Taking advantage of key recent advances in long-run economic and financial data, we analyze the statistical properties of global long-maturity real interest rates over the past seven centuries. In contrast to existing consensus, we find that real interest rates are in fact trend stationary and exhibit a persistent downward trend since the Renaissance. We investigate structural breaks in real interest rates over time and find that overall the Black Death and the 1557 “Trinity default” appear as consistent inflection points. We further show that demographic and productivity factors do not represent convincing drivers of real interest rates over long spans. (JEL E43, F30, N20)

This paper studies sequential information acquisition by an ambiguity-averse decision-maker (DM), who decides how long to collect information before taking an irreversible action. The agent optimizes against the worst-case belief and updates prior by prior. We show that the consideration of ambiguity gives rise to rich dynamics: compared to the Bayesian DM, the DM here tends to experiment excessively when facing modest uncertainty and, to counteract it, may stop experimenting prematurely when facing high uncertainty. In the latter case, the DM’s stopping rule is nonmonotonic in beliefs and features randomized stopping. (JEL C61, D81, D83, D91)

In 2013, China launched a landmark program to monitor air quality and disclose real-time data, significantly increasing the public’s access to and awareness of pollution information. The program triggered cascading behavioral changes such as stronger avoidance of outdoor pollution exposure and increased spending on protective products. These behavioral responses mitigated the mortality impact of air pollution. Conservative estimates indicate that the program’s health benefits outweigh the costs by an order of magnitude. The findings highlight the benefits of improving public access to pollution information in developing countries which often experience severe air pollution but lack pollution data collection and dissemination. (JEL D83, D91, I12, O13, P28, Q51, Q53)

This paper evaluates a large urban public works program randomly rolled out across neighborhoods of Addis Ababa, Ethiopia. We find the program increased public employment and reduced private labor supply among beneficiaries and improved local amenities in treated locations. We then combine a spatial equilibrium model and unique commuting data to estimate the spillover effects of the program on private sector wages across neighborhoods: under full program rollout, wages increased by 18.6 percent. Using our model, we show that welfare gains to the poor are six times larger when we include the indirect effects on private wages and local amenities. (JEL H76, I38, J22, J31, O15, O18, R23)

We develop a task-based model of occupational sorting to identify and quantify the effect of discrimination, racial skill gaps, and aggregate task prices on Black-White differences in labor market outcomes over time. At the heart of our framework is the idea that the size and nature of racial barriers faced by Black workers vary by the task requirements of each job. We define a new task that measures the extent to which individuals interact with others as part of their job. We show that this measure is a good proxy for the extent of discrimination in the economy. (JEL J15, J23, J31, J71, M51)

We use newly digitized records from the post office to study the effects of strengthened state capacity between 1875 and 1901. Exploiting the implementation of the Pendleton Act—a landmark statute that shielded bureaucrats from political interference—across US cities over two waves, we find that civil service reform reduced postal delivery errors and increased productivity. These improvements were most pronounced during election years when the reform dampened bureaucratic turnover. We provide suggestive evidence that reformed cities witnessed declining local partisan newspapers. Separating politics from administration, therefore, not only improved state effectiveness but also weakened the role of local politics. (JEL D24, D73, H83, J45, L82, L87, N41)

I investigate men’s limited entry into female-dominated sectors through a large-scale field experiment. The design exogenously varies recruitment messages by showing photographs of current workers (male or female) and providing information on the share of workers who received high evaluations in the past (higher or lower). A male photograph has no impact on men’s applications, but informing about a lower share of high evaluations encourages men to apply and enables the employer to hire and retain more talented men. The impact of this informational intervention remains positive for the employer also accounting for its effects on female applicants and hires. (JEL C93, D83, J16, J22, J23, J24, M51)

In the United States, after age 65, households face income and health risks, and a large fraction of these risks are transitory. While consumption significantly responds to transitory income shocks, out-of-pocket medical expenses do not. In contrast, both consumption and out-of-pocket medical expenses respond to transitory health shocks. Thus, most US elderly keep their out-of-pocket medical expenses close to a satiation point that varies with health. Consumption responds to health shocks mostly because adverse health shocks reduce the marginal utility of consumption. The effect of health on marginal utility changes the optimal transfers due to health shocks. (JEL D12, E21, G22, G51, I10, J14, J26)

We examine whether adverse selection has unraveled private markets for equity and state-contingent debt contracts for financing higher education. Using survey data on beliefs, we show a typical college-goer would have to repay $1.64 in present value for every $1 of financing to overcome adverse selection in an equity market. We find that risk-averse college-goers are not willing to accept these terms, so markets unravel. We discuss why moral hazard, biased beliefs, and outside credit options are less likely to explain the absence of these markets. We quantify the welfare gains for subsidizing equity-like contracts that mitigate college-going risks. (JEL D82, D83, G51, I22, I23, I26, J24)