Knowledge that Transforms

I derive a formula for the equilibrium distribution of markups in the search-theoretic model of imperfect competition of Butters (1977), Varian (1980), and Burdett andJudd (1983).The level of markups and the sign of the relationship between a seller's markup and its size depends on the extent of search frictions, as well as on other deep parameters.Markups are efficient.Markups are positive even though the varieties produced by sellers are perfect substitutes.Markups are heterogeneous even when all sellers operate the same production technology.Markups depend on size, even though the substitutability between a variety and the others does not depend on how much of that variety is consumed.Interpreting these markups through the lens of the monopolistic competition model of Dixit and Stiglitz (1977) would lead one to recover incorrect and unstable buyers' preferences.Interpreting these markups through the lens of the Dixit-Stiglitz model would also leads to incorrect policy recommendations.These results are a cautionary note on recent work in macroeconomics.

In this paper we provide new estimates of the impact of unions on nonunion wage setting. We allow the presence of unions to affect nonunion wages both through the typically discussed channel of nonunion firms emulating union wages in order to fend off the threat of unionisation and through a bargaining channel in which nonunion workers use the presence of union jobs as part of their outside option. We specify these channels in a search and bargaining model that includes union formation and, in our most complete model, the possibility of nonunion firm responses to the threat of unionisation. Our results indicate an important role played by union wage spillovers in lowering wages over the 1980-2010 period. We find de-unionisation can account for 38% of the decline in the mean hourly wage between 1980 and 2010, with two-thirds of that effect being due to spillovers. Both the traditional threat and bargaining channels are operational, with the bargaining channel being more important.

The U.S. shale boom has profoundly increased crude oil movements by both pipelines-the traditional mode of transportation-and railroads. This paper develops a model of how pipeline investment and railroad use are determined in equilibrium, emphasizing how railroads' flexibility allows them to compete with pipelines. We show that policies that address crude-by-rail's environmental externalities by increasing its costs should lead to large increases in pipeline investment and substitution of oil flows from rail to pipe. Similarly, we find that policies enjoining pipeline construction would cause 80-90% of the displaced oil to flow by rail instead.

An updating rule specifies how an agent reacts to information. An updating rule is Blackwell monotone if more information is always better for an agent in a decision problem and strictly Blackwell monotone if, in addition, there is always a decision problem in which more information is strictly better for an agent. Bayes'law is strictly Blackwell monotone, and I show that within a broad class of updating rules--those that distort the Bayesian posteriors in a signal-independent manner--it is the only strictly Blackwell-monotone updating rule. If an agent's decisions are evaluated non-paternalistically (according to her beliefs), the Blackwell-monotone updating rules are affine distortions of the Bayesian posteriors.

Previous articleNext article No AccessMentoring and Schooling Decisions: Causal EvidenceArmin Falk, Fabian Kosse and Pia PingerArmin Falk, Fabian Kosse, and Pia PingerPDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookXLinkedInRedditBlueskyEmailPrint SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Just Accepted Article DOIhttps://doi.org/10.1086/738484 PermissionsRequest permissions HistoryAccepted August 01, 2023 © 2025 The University of Chicago. All Rights reserved.PDF download Crossref reports no articles citing this article.

We state a sufficient condition under which choice data alone suffices to identify consumer preferences when choices are not fully informed. Suppose that: (i) the data generating process is a search model in which the attribute hidden to consumers is observed by the econometrician; (ii) if a consumer searches good j, she also searches goods which are better than j in terms of the non-hidden component of utility; and (iii) consumers choose the good that maximizes overall utility among searched goods. Canonical models will be biased: the value of the hidden attribute will be understated because consumers will be unresponsive to variation in the attribute for goods that they do not search. Under the conditions above and additional mild restrictions, an alternative method of recovering preferences using cross derivatives of choice probabilities succeeds regardless of the search protocol and is thus robust to whether consumers are informed. The approach nests several standard models, including full information. Our methods suggest natural tests for full information and can be used to forecast how consumers will respond to additional information. We verify in a lab experiment that our approach succeeds in recovering preferences when consumers engage in costly search.

This paper examines the impact of cultural diversity on innovation. Focusing on the United States from 1850 to 1940, we develop a novel surname-based measure of cultural diversity and combine this with patent data. Leveraging quasi-random variation in counties' surname compositions driven by historical immigration, we find that rising diversity increased both the quantity and quality of innovation within counties and for individual inventors. Examining mechanisms, we provide evidence suggesting that greater surname diversity accelerated innovation both by expanding the range of ideas, skills and perspectives available for recombination and by fostering the diverse social interactions that facilitate idea sharing.

During adolescence, peer interactions become increasingly central to children’s development, whereas the direct influence of parents wanes. Nevertheless, parents can continue to exert leverage by shaping their children’s peer groups. We construct and estimate a model of parenting with peer and neighborhood effects where parents intervene in peer formation and show that the model captures empirical patterns of skill accumulation, parenting style, and peer characteristics among US high school students. We find that interventions that move children to better neighborhoods lose impact when they are scaled up, because parents’ equilibrium responses push against successful integration with the new peer group.