Knowledge that Transforms

We propose a simple explanation for the long-run decline in the US start-up rate. It originates from a slowdown in labor supply growth since the late 1970s, largely predetermined by demographics. This channel can explain roughly half of the decline and why incumbent firm survival and average growth over the life cycle have changed little. We show these results in a standard model of firm dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer entry rate series imputed using historical establishment tabulations rises over the 1960s–1970s period of accelerating labor force growth. (JEL D22, D25, E24, J11, J22, J23, M11)

We study how social organization shapes patterns of economic interaction and the effects of national policy, focusing on the distinction between age-based and kin-based groups in sub-Saharan Africa. Motivated by ethnographic accounts suggesting that this distinction affects redistribution, we analyze a cash transfer program in Kenya and find that in age-based societies there are consumption spillovers within the age cohort, but not the extended family, while in kin-based societies we find the opposite. Next, we document that social structure shapes the impact of policy by showing that Uganda’s pension program had positive effects on child nutrition only in kin-based societies. (JEL H23, I12, I38, J13, O15, Z13)

A buyer procures a good owned by a group of sellers whose heterogeneous cost of trade is private information. The buyer must either buy the whole good or nothing, and sellers share the transfer in proportion to their share of the good. We characterize the optimal mechanism: trade occurs if and only if the buyer’s benefit of trade exceeds a weighted average of sellers’ virtual costs. These weights are endogenous, with sellers who are ex ante less inclined to trade receiving higher weight. This mechanism always outperforms posted-price mechanisms. An extension characterizes the entire Pareto frontier. (JEL D44, D63, D82, Q15, Q24)

Existing theories of media competition imply that advertisers will pay a lower price in equilibrium to reach consumers who multi-home across competing outlets. We generalize and extend this theoretical result and test it using data from television and social media advertising. We find that the model is a good match, qualitatively and quantitatively, to variation in advertising prices across demographic groups, outlets, platforms, and over time. We use the model to quantify the effects of competition within and across platforms. (JEL G34, K21, L13, L82, M37)

We consider the market design problem of matching students to schools in the presence of crowding effects. These effects are salient in parents’ decision-making and the empirical literature; however, they cause difficulties in the design of satisfactory mechanisms and, as such, are not currently considered. We propose a new framework and an equilibrium notion that accommodates crowding, no-envy, and respect for priorities. The equilibrium has a student-optimal element that induces an incentive-compatible mechanism and is implementable via a novel algorithm. Moreover, analogs of fundamental structural results of the matching literature (the rural hospitals theorem, welfare lattice, etc.) survive. (JEL D47, H75, I21, I28)

We collect data on the size distribution of US businesses for 100 years, and use these data to estimate the concentration of production (e.g., asset share or sales share of top businesses). The data show that concentration has increased persistently over the past century. Rising concentration was stronger in manufacturing and mining before the 1970s, and stronger in services, retail, and wholesale after the 1970s. The results are robust to different measurement methods and consistent across different historical sources. Our findings suggest that large firms have become more important in the US economy for a long period of time. (JEL D22, E24, L11, L25, N12)

Without strong assumptions about how noise manifests in choices, we can infer little from existing empirical observations of the common ratio effect (CRE) about whether there exists an underlying common ratio preference (CRP). We propose to solve this inferential challenge using paired valuations, which yield valid inference under common assumptions. Using this approach in an online experiment with 900 participants, we find no evidence of a systematic CRP. To reconcile our findings with existing evidence, we present the same participants with paired choice tasks and demonstrate how noise can generate a CRE even for individuals without an associated CRP. (JEL C91, D81, D91)

Firms in developing countries are embedded in supply chains and labor networks. These linkages may propagate or attenuate shocks. Using panel data from Thai villages, we document three facts: as households facing idiosyncratic shocks adjust their production, these shocks propagate to other households on both the production and consumption sides; propagation is greater via labor than supply chain links; and shocks in denser networks and to more central households propagate more, while access to formal or informal insurance reduces propagation. Social benefits from expanding safety nets may be higher than private benefits. (JEL D13, D22, G22, I10, L14, L26, O10)

How did countries recover from the Great Depression? In this paper we explore the argument that leaving the gold standard helped by boosting inflationary expectations and lowering real interest rates. We do so for a sample of 30 countries, using modern nowcasting methods and a new dataset containing more than 230,000 monthly and quarterly observations for over 1,500 variables. In those cases where the departure from gold happened on clearly defined dates, it seems clear that inflationary expectations rose in the wake of departure. IV regressions and synthetic matching techniques suggest that the relationship is causal, a finding that is supported by DSGE model-based counterfactuals as well.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

We study unanticipated tariffs in a setting with firm-to-firm supply relationships. Firms conduct costly searches and negotiate with potential suppliers that pass a reservation level of match productivity. Global supply chains form in anticipation of free trade. Then, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or search for replacements. Calibrating the model’s parameters to match initial import shares and the estimated responses to the US tariffs imposed on China, we find an overall welfare loss of 0.12 percent of GDP, with substantial contributions from changes in input sourcing and search costs. (JEL D72, F13, F14, L14, O19, P33)