Knowledge that Transforms

Consumer surplus, the area between the demand curve and the price, plays a key role in many models of trade and growth. Quantifying it typically requires estimating and extrapolating demand curves. This paper provides an alternative approach to measuring consumer surplus by focusing on firms as consumers of inputs. We show that the elasticity of a downstream firm's marginal cost to supplier additions and separations measures the downstream firm's consumer surplus relative to its input costs. Using Belgian data and instrumenting for changes in supplier access, we find that for every 1% of suppliers gained or lost, the marginal cost of downstream firms falls or rises by roughly 0.3%. Our estimates are directly informative about the strength of love‐of‐variety effects and the gains from movements along quality ladders. We use our microeconomic estimates of consumer surplus to assess the macroeconomic importance of supplier additions and separations in a growth accounting framework. We find that supplier churn plausibly accounts for about half of aggregate productivity growth.

We develop a tractable small‐open‐economy framework to characterize the constrained efficient use of the monetary policy rate, foreign exchange (FX) intervention, capital controls, and domestic macroprudential measures. The model features dominant currency pricing, positive premia on local currency debt arising from financiers' portfolio constraints, and occasionally‐binding external and domestic borrowing constraints. We characterize the conditions under which the traditional prescription—relying solely on the policy rate and exchange rate flexibility—remains sufficient, even in the presence of externalities. By contrast, to manage noise trader flows into and out of the local currency debt market, FX intervention and in some cases capital inflow taxes should be used instead of the traditional prescription. Moreover, if a country faces a mix of local currency premia and external borrowing constraints, we establish that certain regulations to limit FX mismatch may alleviate the external borrowing constraint but exacerbate the local currency premia. Finally, we show that capital controls may dominate domestic macroprudential measures in cases when external shocks trigger stress in domestic housing markets.

I study whether platform competition in app‐based transportation generates waste and whether consolidating competing networks would improve efficiency. I build a spatial model of a ride‐hailing market where competing platforms set prices strategically and estimate it using detailed data from two major platforms in New York City. Comparing the status quo to simulated counterfactuals, I find that: (i) platform market power and the fragmentation of users across networks cause a $176 million annual loss in social welfare and waste 21% of driver‐generated traffic; (ii) a platform merger would trade off gains from pooling all users into a single network against harms from greater market power, reducing traffic by 8% but lowering consumer surplus by $77 million per year due to a 4% price hike; and (iii) interoperability regulations would bring these gains without undermining competition, reducing wasteful traffic by 6% while raising consumer surplus by $63 million per year.

Fiduciary duty aims to solve principal‐agent problems, and the United States is in the middle of a protracted debate surrounding the merits of extending it to all financial advisers. Leveraging a transaction‐level data set of deferred annuities and state‐level variation in common law fiduciary duty, we find that it raises risk‐adjusted returns by 25 bp and leads to a 16% decline in the entry of affected firms. Through the lens of a model of entry and advice provision, we show that this effect can be due to both an increase in fixed costs and an increase in the cost of providing low‐quality advice. We show how to disentangle these channels and find that both are empirically relevant. Counterfactual simulations show that further increases in the stringency of fiduciary duty monotonically improve advice quality.

We use the martingale construction of Luedtke and van der Laan (2016) to develop tests for the presence of treatment heterogeneity. The resulting sequential validation approach can be instantiated using various validation metrics, such as BLPs, GATES, QINI curves, etc., and provides an alternative to cross‐validation‐like cross‐fold application of these metrics. This note was prepared as a comment on the Fisher–Schultz paper by Chernozhukov, Demirer, Duflo, and Fernández‐Val, forthcoming in Econometrica.