Knowledge that Transforms

We develop and analyze a labor market model in which heterogeneous firms operate under decreasing returns and compete for labor by posting long-term contracts. Firms achieve faster growth by offering higher lifetime wages, which allows them to fill vacancies with higher probability, consistent with recent empirical findings. The model also captures several other regularities about firm size, job flows, and pay, and generates sluggish aggregate dynamics of labor market variables. In contrast to existing bargaining models with large firms, efficiency obtains and the model allows a tractable characterization over the business cycle. (JEL E24, J64, L11)

This paper considers the measurement of consumer loss aversion in product markets. We introduce a test based on a “substitution effect,” focusing on how the end of a sale affects sales not of the good itself, but a substitute good. Such an effect cannot be easily confounded with consumer stockpiling. Using a unique dataset from an online hardware retailer, we find evidence consistent with consumer loss aversion. Moreover, we find that less experienced consumers suffer a more prominent loss aversion bias compared to more experienced consumers.

This article briefly summarizes and judges recent experimental developments exploring the predictions of dynamically inconsistent models. An opinion is provided as to how the literature may evolve given these recent advances.

We study how unexpected changes in uncertainty about fiscal policy affect economic activity. First, we estimate tax and spending processes for the United States with time-varying volatility to uncover evidence of time-varying volatility. Second, we estimate a VAR for the US economy using the time-varying volatility found in the previous step. Third, we feed the tax and spending processes into an otherwise standard New Keynesian model. Both in the VAR and in the model, we find that unexpected changes in fiscal volatility shocks can have a sizable adverse effect on economic activity. An endogenous increase in markups is a key mechanism. (JEL E12, E23, E32, E52, E62)

In a large-scale controlled trial in collaboration with the reelection campaign of an Italian incumbent mayor, we administered (randomized) messages about the candidate's valence or ideology. Informational treatments affected both actual votes in the precincts and individual vote declarations. Campaigning on valence brought more votes to the incumbent, but both messages affected voters' beliefs. Cross-learning occurred, as voters who received information about the incumbent also updated their beliefs on the opponent. With a novel protocol of beliefs elicitation and structural estimation, we assess the weights voters place upon politicians' valence and ideology, and simulate counterfactual campaigns. (JEL D12, D72, D83)

Relative to backward firms, technologically-advanced firms source inputs from other advanced firms. These sourcing patterns lead to a magnification effect of technology adoption. A firm that adopts higher-technology increases the relative supply and demand for higher-technology inputs. As a result, it positively influences the technology of other firms in its production chain. Using data from a Colombian manufacturing survey, we provide evidence that advanced firms disproportionately value advanced inputs. More novel, we provide suggestive evidence that technological advancements in some firms increase the technology of other firms indirectly linked to them through a common input market.

Using data from Pennsylvania and an array of empirical techniques to control for confounding factors, we recover hedonic estimates of property value impacts from nearby shale gas development that vary with water source, well productivity, and visibility. Results indicate large negative impacts on nearby groundwater-dependent homes, while piped-water-dependent homes exhibit smaller positive impacts, suggesting benefits from lease payments. Results have implications for the debate over regulation of shale gas development. (JEL L71, Q35, Q53, R31)

Inattention may be an important contributor to the energy efficiency gap and may be particularly acute in residential buildings where many different features will determine a home's energy use. Energy audits can provide information on how to reduce energy loss in a home, but the use of audits is rare. We use data from a national survey of 1700 homeowners to study the factors affecting a home owner's choice to have an audit. We create an index of energy inattention for our survey respondents. This index and two additional behavioral factors prove to be important determinants of the audit choice.

Despite significant progress in average yields, the sensitivity of corn and soybean yields to extreme heat has remained relatively constant over time. We combine county-level corn and soybeans yields in the United States from 1989-2013 with the fraction of the planting area that is insured under the federal crop insurance program, which expanded greatly over this time period as premium subsidies increased from 20 percent to 60 percent. Insured corn and soybeans are significantly more sensitive to extreme heat that uninsured crops. Insured farmers do not have the incentive to engage in costly adaptation as insurance compensates them for potential losses.

This paper develops a framework for estimating preferences in a many-to-one matching market using only observed matches. I use pairwise stability and a vertical preference restriction on one side to identify preferences on both sides of the market. Counterfactual simulations are used to analyze the antitrust allegation that the centralized medical residency match is responsible for salary depression. Due to residents' willingness to pay for desirable programs and capacity constraints, salaries in any competitive equilibrium would remain, on average, at least $23,000 below the marginal product of labor. Therefore, the match is not the likely cause of low salaries.