Knowledge that Transforms

We model intergroup conflict driven by economic changes within groups. We show that if group incomes are low, increasing group incomes raises violence against that group and lowers violence generated by it. We then apply the model to data on Hindu-Muslim violence in India. Our main result is that an increase in per capita Muslim expenditures generates a large and significant increase in future religious conflict. An increase in Hindu expenditures has a negative or no effect. These findings speak to the origins of Hindu-Muslim violence in post-Independence India.

Investment of US firms responds asymmetrically to Tobin’s Q: investment of established firms—“intensive” investment—reacts negatively to Q whereas investment of new firms—“extensive” investment—responds positively and elastically to Q. This asymmetry, we argue, reflects a difference between established and new firms in the cost of adopting new technologies. A fall in the compatibility of new capital with old capital raises measured Q and reduces the incentive of established firms to invest. New firms do not face such compatibility costs and step up their investment in response to the rise in Q.

We measure the capitalization of housing market externalities into residential housing values by studying the unanticipated elimination of stringent rent controls in Cambridge, Massachusetts, in 1995. Pooling data on the universe of assessed values and transacted prices of Cambridge residential properties between 1988 and 2005, we find that rent decontrol generated substantial, robust price appreciation at decontrolled units and nearby never-controlled units, accounting for a quarter of the $7.8 billion in Cambridge residential property appreciation during this period. The majority of this contribution stems from induced appreciation of never-controlled properties. Residential investment explains only a small fraction of the total.

Which and how many attributes are relevant for the sorting of agents in a matching market? This paper addresses these questions by constructing indices of mutual attractiveness that aggregate information about agents’ attributes. The first k indices for agents on each side of the market provide the best approximation of the matching surplus by a k-dimensional model. The methodology is applied on a unique Dutch household survey containing information about education, height, body mass index, health, attitude toward risk, and personality traits of spouses.

Consumers purchase multiple types of goods but may be able to examine only a limited number of markets for the best price. We propose a simple model that captures these features, conveying new insights. A firm’s price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of cross-market competition. We characterize the equilibrium and show that having partially attentive consumers improves consumer welfare. With less attention, consumers are more likely to miss the best offers; but enhanced cross-market competition decreases average price paid, as leading firms try to stay under the consumers’ radar.

We analyze a model economy with many agents, each with a different productivity level. Agents divide their time between two activities: producing goods with the production-related knowledge they already have and interacting with others in search of new, productivity-increasing ideas. These choices jointly determine the economy’s current production level and its rate of learning and real growth. We construct the balanced growth path for this economy. We also study the allocation chosen by an idealized planner who takes into account and internalizes the external benefits of search. Finally, we provide three examples of alternative learning technologies and show that the properties of equilibrium allocations are quite sensitive to two of these variations.

During the Age of Mass Migration (1850-1913), the United States maintained an open border, absorbing 30 million European immigrants. Prior cross-sectional work finds that immigrants initially held lower-paid occupations than natives but converged over time. In newly assembled panel data, we show that, in fact, the average immigrant did not face a substantial occupation-based earnings penalty upon first arrival and experienced occupational advancement at the same rate as natives. Cross-sectional patterns are driven by biases from declining arrival cohort skill level and departures of negatively selected return migrants. We show that assimilation patterns vary substantially across sending countries and persist in the second generation.

We investigate the role of dynamic production inputs and their associated adjustment costs in shaping the dispersion of static measures of capital misallocation within industries (and countries). Across nine data sets spanning 40 countries, we find that industries exhibiting greater time-series volatility of productivity have greater cross-sectional dispersion of the marginal revenue product of capital. We use a standard investment model with adjustment costs to show that variation in the volatility of productivity across these industries and economies can explain a large share (80–90 percent) of the cross-industry (and cross-country) variation in the dispersion of the marginal revenue product of capital.

We study the effect of constraints on chiefs' power on economic outcomes, citizens' attitudes, and social capital. A paramount chief in Sierra Leone must come from a ruling family originally recognized by British colonial authorities. In chiefdoms with fewer ruling families, chiefs face less political competition, and development outcomes are significantly worse today. Variation in the security of property rights over land is a potential mechanism. Paradoxically, with fewer ruling families, the institutions of chiefs' authority are more highly respected, and measured social capital is higher. We argue that these results reflect the capture of civil society organizations by chiefs.

We investigate the role of skill complementarities in production and mobility across cities. The nature of the complementarities determines the equilibrium skill distribution across cities. With extreme-skill complementarity, the skill distribution has thicker tails in large cities; with top-skill complementarity, there is first-order stochastic dominance. Using wage and housing price data, we find robust evidence of thick tails in large cities: large cities disproportionately attract both high- and low-skilled workers, while average skills are constant across city size. This pattern of spatial sorting is consistent with extreme-skill complementarity, where the productivity of high-skilled workers and of the providers of low-skilled services are mutually enhanced.