Knowledge that Transforms

We develop a tractable framework for deficit and debt dynamics. A “free lunch” fiscal deficit—one that raises spending without higher future taxes—is sustainable without zero lower bound (ZLB) only when R < G − φ, where φ is the sensitivity of the interest rate to the debt level. With the ZLB, both high and low deficits can increase debt, as the latter weaken demand and reduce nominal growth at the ZLB. A rise in income inequality expands fiscal space outside the ZLB, but contracts it at the ZLB. Calibrating the model, we find little space for “free lunch” policies for the United States in 2019, but significant space for Japan. (JEL D31, E23, E43, E62, H62, H63)

Using field and laboratory experiments, we demonstrate that the complexity of incentive schemes and worker bounded rationality can affect effort provision. This is because some attributes of the incentives become opaque; that is, workers do not take them into account. In our setting, workers overprovide effort relative to a fully rational benchmark, improving efficiency. We identify contract features, and facets of worker cognitive ability, that matter for opacity. We find that even relatively small degrees of opacity can cause large shifts in behavior. Our results illustrate important implications of complexity and bounded rationality for designing and regulating workplace incentive contracts. (JEL C90, D21, D91, J22, J31, J41)

Based on data gathered from 27,000 real-world meetings between financial advisors and clients of a large German bank, we show that advisors offer more self-serving advice to women, while men are more likely to receive sales fee rebates and less likely to be recommended expensive in-house multi-asset (IHMA) funds. Additional client and advisor surveys provide evidence consistent with statistical discrimination based on gender as a proxy for client financial sophistication, with female clients exhibiting lower financial literacy, confidence, and price sensitivity. Moreover, female advisors report less confidence in their own professional skills and engage in less discrimination than male colleagues. (JEL D83, G21, G51, G53, J16, L84)

Individuals might experience negative utility from not consuming a popular product. With such externalities to nonusers, standard consumer surplus measures, which take aggregate consumption as given, fail to appropriately capture consumer welfare. We propose an approach to account for these externalities and apply it to estimate consumer welfare from two social media platforms: TikTok and Instagram. Incentivized experiments with college students indicate positive welfare based on the standard measure but negative welfare when accounting for these nonuser externalities. Our findings high-light the existence of product market traps, where active users of a platform prefer it not to exist. (JEL D62, D83, D91, L82, Z13)

Common values auction models, where bidder decisions depend on noisy signals of common values, provide predictions about Bayesian Nash equilibrium (BNE) outcomes. In settings where these common values can be estimated, these predictions can be tested. We propose a series of tests, robust to assumptions about the signal structure, to determine whether the observed data could have been generated by a Bayesian Nash equilibrium. In the setting of oil and gas lease auctions in New Mexico, we find evidence that participation decisions are correlated and that participants systematically underbid in light of ex post outcomes. (JEL D44, D82, L12, L71, Q35)

I present a new theory of oligopoly and markups in general equilibrium, based on an innovative, scalable hedonic demand system, which I take to the data for the universe of US public firms. In my model, firms compete in a network of product market rivalries that emerge endogenously out of the characteristics of the products they supply. I estimate that consumer surplus is almost three times as large as profits; decompose firm-level markups into metrics of quality-adjusted productivity and market centrality; and analyze the extent, evolution, and drivers of monopoly power in the United States between 1995 and 2021. (JEL D21, D43, D85, G34, L13, L14)

In additive instrumental variables models, the robustness to some failure of instrumental validity or additive separability depends on the strength of a priori restrictions on the structural relationship between outcomes and treatments. I provide theoretical analysis of the problem, discuss the implications for empirical practice, and demonstrate with a numerical study calibrated on real-world data. (JEL C26, G51, H24, J13)

This paper leverages nationally representative surveys across 60 countries and 64,000 respondents to present novel stylized facts about the relationship-specific nature of altruism. Across individuals, universalist preferences systematically vary with demographics such as age and religiosity and are predictive of many left-wing political views, albeit in culturally highly heterogeneous ways. Across countries, universalism is strongly linked to a broader radius of trust. Looking at origins, universalism varies with the economic, political, and religious organization of societies in ways that are consistent with the idea that the scope of altruism is partly shaped by economic incentives and democracy. (JEL D12, D64, D72, Z12, Z13)

This paper shows that self-employment shapes labor market power in low-income countries, with implications for industrial development. Using Peruvian data, we find that wage-setting power increases with employer concentration but less so where self-employment is more prevalent. A general equilibrium model shows that in oligopsonistic labor markets, self-employment raises the supply elasticity of wage labor, weakening employer market power. However, by the same mechanism, procompetitive policies aimed at expanding wage employment and reducing reliance on self-employment may unintentionally strengthen labor market power, undermining their objectives. (JEL J22, J23, J31, J42, L13, O14, O15)