Knowledge that Transforms

Resource-based theories propose that firms grow by diversifying into products that use common capabilities. We provide evidence for common-input capabilities, using a policy that removed entry barriers in input markets to show that the similarity of a firm’s and an industry’s input mix determines firm production choices. We model industry choice and economies of scope from input capabilities. When the model is estimated for Indian manufacturing, input complementarities make firms 5% more likely to produce in an industry and are quantitatively as important as time-invariant drivers of coproduction rates. Upstream entry barriers were equivalent to a 9.5% tariff on inputs.

We study how managers mitigate the negative impacts of environmental shocks. Pairing productivity data from a garment firm with granular measures of air pollution, we show that productivity suffers as a result of pollution shocks but that managers respond by reallocating particularly sensitive workers to improve worker-to-task matches, thus mitigating team productivity losses. Responses are smaller for more inattentive managers; these same managers are also least able to mitigate productivity declines. These patterns are confirmed by leveraging variation in opportunities for reallocation and comparing how close managers of differing attentiveness can get to the simulated production frontier by reallocating workers.

Many firms claim that “social impact” influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures, because consumers’ willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfare-enhancing tax with limited pass-through.

The quality of the match between students and schools affects learning, but little is known about the magnitude of these effects or how they respond to changes in market structure. I develop a quantitative equilibrium model of school competition with horizontal competition in match quality. I estimate the model using data from Pakistan, a country with high private enrollment, and (1) quantify the importance of good matches, (2) show that profit-maximizing private schools' choices of quality advantage wealthier students, increasing inequality and reducing welfare and learning, and (3) provide intuition for when interventions in the market are valuable.

Recent studies consistently find important economic effects of year-to-year weather fluctuations. I study the economic effects of long-term and gradual climate change over 250 years in the Little Ice Age (1600–1850), during which people and economies had time to adapt. Results show significant negative economic effects of long-term climate change. Temperature impacted the economy through its effect on agricultural productivity and mortality. To adapt to the Little Ice Age, economies increased trade and changed land use. I discuss the relevance of these results for understanding the impact of today’s climate change, especially in developing countries.

Individuals typically differ in their identities—the behaviors they deem ideal for themselves and for the members of their network—and in their tolerance for behaviors that deviate from their ideals. This paper studies compromise—that is, departures from one’s ideal point, to be accepted by others. I show that an individual’s compromise in equilibrium is bounded by the difference between her tolerance level and the lowest tolerance level in society. Relatively intolerant individuals, who serve as “bridges,” are critical for reciprocated compromise. When individuals with extreme identities are systematically less tolerant, societies polarize. In contrast, intolerance among moderates encourages cohesion.

We study workers who are employed by a large US retailer, work in many store locations, and are paid based on performance. By means of a border-discontinuity analysis, we document that workers become more productive and are terminated less often after a minimum wage increase. These effects are stronger among workers whose pay is more often supported by the minimum wage. However, when workers are monitored less intensely, the minimum wage depresses productivity. We interpret these findings through an efficiency wage model. After a minimum wage increase, profits decrease, and a calibration exercise suggests that worker welfare increases.

We use option prices and realized returns to decompose risk premia into different parts of the return state space. In the data, 8/10 of the average equity premium is attributable to monthly returns below −10%, but returns below −30% matter very little. In contrast, prominent asset pricing models based on habits, long-run risks, rare disasters, undiversifiable idiosyncratic risk, and constrained intermediaries attribute the premium predominantly to returns above −10% or to the extreme left tail. We show that the discrepancy arises from an unrealistically small price of risk for stock market tail events in the models.

This paper studies the cyclical dynamics of skill mismatch and quantifies its impact on labor productivity. We build a tractable directed search model, in which workers differ in skills along multiple dimensions and sort into jobs with heterogeneous skill requirements. Skill mismatch arises because of information frictions and is prolonged by search frictions. Estimated to the United States, the model replicates salient business cycle properties of mismatch. Job transitions in and out of bottom job rungs, combined with career mobility, are key to account for the empirical fit. The model provides a novel narrative for the scarring effect of unemployment.

Almond (2006) argues that in utero exposure to the 1918 influenza pandemic reduced the 1919 birth cohort's adult socioeconomic status (SES). We show that this cohort came from lower-SES families, which is incompatible with Almond's cohort-comparison identification strategy. The adult SES deficit is reduced after background characteristics are controlled for; it is small and statistically insignificant in models that include household fixed effects. Replicating Almond's state-level dose-response analysis, we find no evidence in census data that influenza exposure reduced adult SES. Evidence from a city-level dose-response analysis on educational attainment using WWII enlistees from 287 cities is mixed.