Knowledge that Transforms

By augmenting the continuous-time specification of Harris and Laibson (2013) with the assumption that hard borrowing constraints do not bind in equilibrium, present bias can be tractably incorporated into rich consumption-saving models featuring stochastic income, risky and illiquid assets, and costly borrowing. I present closed-form expressions characterizing how present bias affects consumption, illiquid asset demand, and welfare. This welfare analysis specifies the channels through which present bias can matter for policy and uncovers the present-bias dilemma: present bias can have large welfare costs, but individuals have little ability to alleviate these costs using financial commitment devices like illiquid assets.

I develop a model of the social construction of race. Racial categories emerge from labor conflict when elites privilege intrinsically irrelevant traits to divide workers against each other and extract workers’ surplus. I show that elites use color to grant unequal rights and track these rights across generations because it is heritable, observable, and relatively immutable. Depending on the demographic conditions the elites face, the system of racialization manifests either as ancestry-based or color-based categories. This approach to the social construction of race provides a unified explanation of skin-tone inequality, racial homophily in marriage, the social status of mixed-race people, the psychological wage of Jim Crow, and legal restrictions on manumission. I test for historical variations in racial boundaries using census data from the United States and Brazil and for differential patterns of skin-tone inequality between ancestry-based and color-based systems using survey data from across the Americas.

ABSTRACT What is the effect of the real minimum wage on wages and inequality? I develop a theory that nests the race between education and technology. The theory predicts that the effect of changes in minimum wages is initially small but grows over time. I present empirical evidence of these dynamic effects: the elasticity of real wages grows substantially over a three-year period. I show that minimum wages help rationalize a considerable decline in real wages of low-education workers in the 1980s and play a role in shaping the evolution of the U.S. college premium.

From a new data set, we infer time series of term structures of yields on U.S. federal bonds during the gold standard era from 1791–1933 and use our estimates to reassess historical narratives about how the United States expanded its fiscal capacity. We show that U.S. debt carried a default risk premium until the end of the nineteenth century, when it started being priced as an alternative safe asset to U.K. debt. During the Civil War, investors expected the United States to return to a gold standard so the federal government was able to borrow without facing denomination risk. After the introduction of the National Banking System, the slope of the yield curve switched from down to up and the premium on U.S. debt with maturity less than one year disappeared.

Noncarceral conviction is a common outcome of criminal court cases: for every person incarcerated, there are approximately three who were recently convicted but not sentenced to prison or jail. We extend the binary-treatment judge IV framework to settings with multiple treatments and use it to study the consequences of noncarceral conviction. We outline assumptions under which widely used 2SLS regressions recover margin-specific treatment effects, relate these assumptions to models of judge decision-making, and derive an expression that provides intuition about the direction and magnitude of asymptotic bias when a key assumption on judge decision-making is not met. We find that noncarceral conviction (relative to dismissal) leads to a large and long-lasting increase in recidivism for felony defendants in Virginia. In contrast, incarceration (relative to noncarceral conviction) leads to a short-run reduction in recidivism, consistent with incapacitation. Our empirical results suggest that noncarceral felony conviction is an important and overlooked driver of recidivism.

ABSTRACT Low unionization rates, a falling real federal minimum wage, and outsourcing have hampered wage growth in the low-wage sector in the United States for several decades. In recent years (2014–2023), a number of large private retailers—including some of the largest employers in the United States—have opted to institute or raise company-wide, voluntary minimum wages (VMWs) for their employees. We use anonymized payroll data from a large credit bureau and a major payroll provider to study the effects of these national retailer policies on adopting employers’ own wages and employment as well as their spillovers to other employers in shared local labor markets, variously defined. Using stacked event studies centered around multiple VMW events and a continuous treatment variable defined as the gap between local-area wages and the company minimum, we find that VMWs result in sizable wage increases and reductions in turnover at the companies that implement them. Turning to wages at other companies, we estimate small, often economically negligible, spillover effects across multiple measures of exposure to VMWs and numerous definitions of relevant competitors, including firms connected by worker flows. Together, the evidence points to little role for strategic interactions in the transmission of large retailers’ wage policies to other firms. Voluntary minimum wage policies have affected over 3 million jobs at adopting employers, yet their impact on the broader labor market is limited.

ABSTRACT We develop a framework to measure the welfare impact of macroeconomic shocks throughout the distribution. The first-order impact of a shock is summarized by the induced movements in agents’ feasible sets: their budget constraint and borrowing constraints. We combine estimated impulse response functions with micro-data on household consumption bundles, asset holdings, and labor income for different U.S. households. We find that inflationary oil shocks are regressive, but monetary expansions are progressive, and there is substantial heterogeneity throughout the life cycle. In all cases, the dominant channel is the effect of the shock on the cost of accumulating assets, not movements in goods prices or labor income.

ABSTRACT Observed international investment positions and cross-country heterogeneity in rates of return to capital are hard to reconcile with frictionless capital markets. This article develops a theory of international capital allocation: a multi-country dynamic spatial general equilibrium model in which the entire network of cross-border investment is endogenously determined. Our model features cross-country heterogeneity in fundamental risk, a demand system for international assets, and frictions that cause segmentation in international capital markets. We measure frictions affecting international investment and apply our model to data from nearly 100 countries, using a new dataset of international capital taxes and cultural, linguistic, and geographic distances between countries (geopoliticaldistance.org). Our model performs well in reproducing the composition of international portfolios, the cross section of home bias and rates of return to capital, and other key features of international capital markets. Finally, we carry out counterfactual exercises: we show that barriers to international investment reduce world output by 7% and raise the cross-country dispersion of capital per employee, contributing in a meaningful way to global inequality.

Market-based environmental regulations are seldom used in low-income countries, where pollution is highest but state capacity is often low. We collaborated with the Gujarat Pollution Control Board (GPCB) to design and experimentally evaluate the world’s first particulate-matter emissions market, which covered industrial plants in a large Indian city. There are three main findings. First, the market functioned well. Treatment plants, randomly assigned to the emissions market, traded permits to become significant net sellers or buyers. After trading, treatment plants held enough permits to cover their emissions 99% of the time, compared with just 66% compliance with standards under the command-and-control status quo. Second, treatment plants reduced pollution emissions, relative to control plants, by 20%–30%. Third, the market reduced abatement costs by an estimated 11%, holding constant emissions. This cost-savings estimate is based on plant-specific marginal cost curves that we estimate from the universe of bids to buy and sell permits in the market. The combination of pollution reductions and low costs imply that the emissions market has mortality benefits that exceed its costs by at least 25 times.

This article examines language patterns in U.S. television news coverage of police killings. First, we document that the media use syntactic structures—such as passive voice, nominalizations, and intransitive verbs—that obscure responsibility more often in cases of police killings than in cases of civilian killings. Through an online experiment, we demonstrate the significance of these syntactic differences, revealing that participants are less likely to hold police officers morally responsible and demand penalties when exposed to obfuscatory language, particularly in cases involving unarmed victims. Further analysis of news data shows greater use of obfuscatory language when the victims are unarmed or video footage is available—situations in which obfuscation may have the greatest impact. Exploring the causes of this differential obfuscation, we do not find evidence that it is driven by either demand-side factors or supply-side factors associated with TV station ownership and political leaning. Instead, our results suggest that narratives crafted by police departments are more likely drivers of media obfuscation. This article highlights how syntactic choices and their semantic consequences in media shape perceptions, extending beyond coverage volume and bias.