Knowledge that Transforms

This paper explores how digitization and the associated use of customer data have affected the evolution of consumer privacy concerns. We measure privacy concerns by reluctance to disclose income in an online marketing research survey. Using over three million responses over eight years, our data show: (1) Refusals to reveal information have risen over time, (2) Older people are less likely to reveal information, and (3) The difference between older and younger people has increased over time. Our results suggest that the trends over time are partly due to broadening perceptions of the contexts in which privacy is relevant.

Two players choose hawkish or dovish actions in a conflict game with incomplete information. An “extremist,” who can either be a hawk or a dove, attempts to manipulate decision making. If actions are strategic complements, a hawkish extremist increases the likelihood of conflict, and reduces welfare, by sending a public message which triggers hawkish behavior from both players. If actions are strategic substitutes, a dovish extremist instead sends a public message which causes one player to become more dovish and the other more hawkish. A hawkish (dovish) extremist is unable to manipulate decision making if actions are strategic substitutes (complements). (JEL D74, D82)

Foreign banks pulled significant funding from their US branches during the Great Recession. We estimate that the average-sized branch experienced a twelve percent net internal fund “withdrawal,” with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheet of US branches of foreign banks had sizable effects on their lending. On average, for each dollar of funds transferred internally to the parent, branches decreased lending supply by about forty to fifty cents. However, the extent of the lending effects was very different across branches depending on their pre-crisis modes of operation in the United States.

We characterize the equilibrium of a two-country, two-good economy in which agents have opposite preference bias toward one of the two consumption goods and fear model misspecification. We document that disagreement about endowments' growth prospects is a persistent endogenous outcome of this class of economies.

Acemoglu, Johnson, and Robinson's (2001) seminal article argues property-rights institutions powerfully affect national income, using estimated mortality rates of early European settlers to instrument capital expropriation risk. However, 36 of the 64 countries in the sample are assigned mortality rates from other countries, often based on mistaken or conflicting evidence. Also, incomparable mortality rates from populations of laborers, bishops, and soldiers—often on campaign—are combined in a manner that favors the hypothesis. When these data issues are controlled for, the relationship between mortality and expropriation risk lacks robustness, and instrumental-variable estimates become unreliable, often with infinite confidence intervals. (JEL D02, E23, F54, I12, N40, O43, P14)

Theories based on information costs or frictions have become increasing popular in macroeconomics and macro-finance. The literature has used various types of information choices, such as rational inattention, inattentiveness, information markets and costly precision. Using a unified framework, we compare these different information choice technologies and explain why some generate increasing returns and others, particularly those where agents choose how much public information to observe, generate multiple equilibria. The results can help applied theorists to choose the appropriate information choice technology for their application and to understand the consequences of that modeling choice.

The empirical evidence on rational inattention lags the theoretical developments: micro evidence on one of the most immediate consequences of observation costs––the infrequent observation of state variables––is not available in standard datasets. We contribute to filling the gap using new household surveys. To match these data we modify existing models, shifting the focus from nondurable to durable consumption. The model features both observation and transaction costs and implies a mixture of time-dependent and state-dependent rules. Numerical simulations explain the frequencies of trading and observation of the median investor with small observation costs and larger transaction costs. (JEL D12, D14, E21, G11)

The paper provides a first analysis of market jump starting and its two-way interaction between mechanism design and participation constraints. The government optimally overpays for the legacy assets and cleans up the market of its weakest assets, through a mixture of buybacks and equity injections, and leaves the firms with the strongest legacy assets to the market. The government reduces adverse selection enough to let the market rebound, but not too much, so as to limit the cost of intervention. The existence of a market imposes no welfare cost. (JEL D82, D83, G01, G31, H81)

This paper assesses the impact of pollution on worker productivity by relating exogenous daily variations in ozone with productivity of agricultural workers as recorded under piece rate contracts. We find robust evidence that ozone levels well below federal air quality standards have a significant impact on productivity. These results suggest that, in contrast to common characterizations of environmental protection as a tax on producers, environmental protection can also be viewed as an investment in human capital, and thus a tool for promoting economic growth.

Liberalization of the European automobile distribution system in 2002 limits the ability of manufacturers to impose vertical restraints, leading to a substantial increase in competitive pressure among dealers. We estimate an equilibrium model of profit maximization to evaluate how dealers change their innovation adoption strategies following the elimination of exclusive territories. Using French data we evaluate the existence of complementarities between the adoption of software applications and the scale of production. Firms view these innovations as substitutes and concentrate their effort in one type of software as they expand their scale of production. Results are robust to the existence of unobserved heterogeneity. (JEL D24, K21, L21, L22, L62, O32)