Knowledge that Transforms

This paper documents the impact of popular media on racial hate by examining the first American blockbuster: 1915’s The Birth of a Nation, a fictional portrayal of the KKK’s founding rife with racist stereotypes. Exploiting the film’s five-year “road show,” I find a sharp spike in lynchings and race riots coinciding with its arrival in a county. Instrumenting for road show destinations using the location of theaters prior to the movie’s release, I show that the film significantly increased local Klan support in the 1920s. Road show counties continue to experience higher rates of hate crimes and hate groups a century later. (JEL J15, K42, L82, N31, N32, N41, Z13)

This paper studies leverage regulation when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal regulation responds to arbitrary changes in investors’/creditors’ beliefs, relating our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors/creditors, calls for tighter leverage regulation. Our results apply to environments with (i) planners with imperfect knowledge of investors’/creditors’ beliefs, (ii) monetary policy, (iii) bailouts and pecuniary externalities, and (iv) endogenous beliefs. (JEL D62, D83, E52, G01, G21, G28, H81)

We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half costs half its original cost. Together with Blackwell monotonicity and a continuity condition, these axioms determine the cost of a signal up to a vector of parameters. These parameters have a clear economic interpretation and determine the difficulty of distinguishing states. (JEL D82, D83)

Homeownership is widely stimulated by policy, yet its economic effects are poorly understood. We exploit quasi-random variation in homeownership generated by privatization decisions of municipally owned buildings and use granular data on demographics, income, housing, financial wealth, and debt that allow us to construct high-quality measures of spending. Homeownership causes wealth accumulation via house price appreciation, increases consumption, and improves consumption smoothing across time and states of the world. It increases mobility for young households, who move up the property ladder, and amplifies wealth accumulation for older households, who take more risk in their financial portfolio. (JEL D15, E21, G51, R21, R23, R31, R38)

A main focus in economics is how to design optimal policies in second-best situations, which often requires a trade-off between giving some individuals more than they deserve, false positives, and others less than they deserve, false negatives. This paper provides novel evidence on people’s second-best fairness preferences from large-scale experimental studies in the United States and Norway. The majority of people are more concerned with false negatives than with false positives, but we document substantial heterogeneity in second-best fairness preferences between the countries and across the political spectrum. The findings shed light on the political economy of social insurance and redistribution. (JEL D63, D72, D78, H23, I38)

This paper explores the intergenerational consequences of social exclusion on prosociality. A lab-in-the-field approach in the historical region of Colombia’s leper colony reveals that descendants of socially excluded individuals are locally altruistic and extend such altruism to outsiders who have undergone similar circumstances. These individuals also display mistrust toward those who have, historically, been exclusionary—in this case, doctors. The content of historical narratives shared by ancestors who were excluded, which emphasize the endured mistreatment and doctors’ historical misinformation, is one mechanism that partially explains the intergenerational patterns. (JEL D64, H51, I12, I18, N36, N96, Z13)

We examine international regulatory agreements that are negotiated under lobbying pressures from producer groups. The way in which lobbying influences the cooperative setting of regulatory policies, as well as the welfare impacts of international agreements, depend crucially on whether the interests of producers in different countries are aligned or in conflict. The former situation tends to occur for product standards, while the latter tends to occur for process standards. We find that, if producer lobbies are strong enough, agreements on product standards lead to excessive deregulation and decrease welfare, while agreements on process standards tighten regulations and enhance welfare. (JEL F13, F14, F15, L15, L51)

We propose a tractable model of asset management in which benchmarking arises endogenously, and analyze its welfare consequences. Fund managers' portfolios are not contractible and they incur private costs in running them. Incentive contracts for fund managers create a pecuniary externality through their effect on asset prices. Benchmarking inflates asset prices and creates crowded trades. The crowding reduces the effectiveness of benchmarking in incentive contracts for others, which fund investors fail to account for. A social planner, recognizing the crowding, opts for contracts with less benchmarking and less incentive provision. The planner also delivers lower asset management costs. (JEL D82, D86, G11, G12, G23, G41)

Improving academic outcomes for economically disadvantaged students has proven challenging, particularly for children at older ages. We present two large-scale randomized controlled trials of a high-dosage tutoring program delivered to secondary school students in Chicago. One innovation is to use paraprofessional tutors to hold down cost, thereby increasing scalability. Participating in math tutoring increases math test scores by 0.18 to 0.40 standard deviations, and increases math and nonmath course grades. These effects persist into future years. The data are consistent with increased personalization of instruction as a mechanism. The benefit-cost ratio is comparable to many successful early childhood programs. (JEL H75, I21, I24, I26, I32, J13, J15)

The influence of behavioral biases on aggregate outcomes depends in part on self-selection: whether rational people opt more strongly into aggregate interactions than biased individuals. In betting market, auction and committee experiments, we document that some errors are strongly reduced through self-selection, while others are not affected at all or even amplified. A large part of this variation is explained by differences in the relationship between confidence and performance. In some tasks, they are positively correlated, such that self-selection attenuates errors. In other tasks, rational and biased people are equally confident, such that self-selection has no effects on aggregate quantities. (JEL C91, D44, D91)