Knowledge that Transforms

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.

Satoshi Nakamoto (2008) invented a new kind of economic system that does not need the support of government or rule of law. Trust and security instead arise from a combination of cryptography and economic incentives, all in a completely anonymous and decentralized system. This article shows that Nakamoto’s novel form of trust, while undeniably ingenious, is deeply economically limited. The core argument is three equations. A zero-profit condition on the quantity of honest blockchain “trust support” (work, stake, etc.) and an incentive-compatibility condition on the system’s security against majority attack (the Achilles heel of all forms of permissionless consensus) together imply an equilibrium constraint, which says that the “flow” cost of blockchain trust has to be large at all times relative to the benefits of attacking the system. This is extremely expensive relative to traditional forms of trust and scales linearly with the value of attack. In scenarios that represent Nakamoto trust becoming a more significant part of the global financial system, the cost of trust would exceed global GDP. Nakamoto trust would become more attractive if an attacker lost the stock value of their capital in addition to paying the flow cost of attack, but this requires either collapse of the system (hardly reassuring) or external support from rule of law. The key difference between Nakamoto trust and traditional trust grounded in rule of law and complementary sources, such as reputations, relationships, and collateral, is economies of scale: society or a firm pays a fixed cost to enjoy trust over a large quantity of economic activity at low or zero marginal cost.

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.

Does family history matter for policy making in democracies? Linking members of Congress (MCs) to the census, we observe countries of birth for members, their parents, and their grandparents, allowing us to measure ancestry for the politicians in office when U.S. immigration policy changed dramatically, from closing the border in the 1920s to reshaping admittance criteria in the 1960s. We find that legislators descended from immigrant parents or grandparents support more permissive immigration legislation. They are also less likely to speak negatively about immigration in speeches before Congress. A regression discontinuity design analyzing close elections, which addresses district-level selection and holds district composition constant, confirms our results on roll call voting and speech. Efforts to account for selection into immigration—such as comparing international immigrants to domestic migrants and exploiting variation in restrictive legislation targeting specific regions of origin—further confirm the relationship between family immigration experience and more permissive stances on immigration policy. We then explore mechanisms, finding support for in-group identity in connecting family history with policy making. MCs name their children in ways that express immigrant identity, and immigrant-descended MCs discuss immigration using more personal frames, emphasizing family over economic considerations. Our findings illustrate the important role of personal background in legislative behavior in democratic societies, even on major and controversial topics like immigration, and suggest how experiences transmitted from previous generations can inform lawmakers’ views.

Gender imbalance in time spent on child-rearing causes gender inequalities in labor market outcomes, human capital accumulation, and economic mobility. We conduct a large-scale field experiment with a near universe of U.S. schools to investigate a potential source of inequality: external demands for parental involvement. Schools receive an email from a fictitious two-parent household and are asked to call one of the parents back. Mothers are 1.4 times more likely than fathers to be contacted. We decompose this inequality and demonstrate that the gender gap in external demands is associated with various measures of gender norms. We also show that signaling a father’s availability substantially changes the gender pattern of callbacks. Our findings underscore a process through which agents outside the household contribute to within-household gender inequalities.

I study the effect of industrial policies on industrial development by considering an important episode during the East Asian miracle: South Korea’s heavy and chemical industry (HCI) drive, 1973–1979. Based on newly assembled data, I use the introduction and termination of industrial policies to study their effects during and after the intervention period. I reveal that HCI policies promoted the expansion and dynamic comparative advantage of directly targeted industries. Using variation in exposure to policies through the input-output network, I demonstrate that the policy indirectly benefited downstream users of targeted intermediates. The benefits of HCI persisted even after the policy ended, and some results took time to materialize. The findings suggest that the temporary drive shifted Korean manufacturing into more advanced markets and supported durable change. This study helps clarify the lessons drawn from the East Asian growth miracle.

We estimate productivity growth in England from 1250 to 1870. Real wages over this period were heavily influenced by plague-induced swings in the population. Our estimates account for these Malthusian dynamics. We find that productivity growth was zero before 1600. Productivity growth began in 1600—almost a century before the Glorious Revolution. Thus, the onset of productivity growth preceded the bourgeois institutional reforms of seventeenth-century England. We estimate productivity growth of 2% per decade between 1600 and 1800, increasing to 5% per decade between 1810 and 1860. Much of the increase in output growth during the Industrial Revolution is explained by structural change—the falling importance of land in production—rather than faster productivity growth. Stagnant real wages in the eighteenth and early nineteenth centuries—Engels’ Pause—is explained by rapid population growth putting downward pressure on real wages. Yet feedback from population growth to real wages is sufficiently weak to permit sustained deviations from the “iron law of wages” prior to the Industrial Revolution.

This article examines the impact of denying a wanted abortion on women and children in Colombia using high-quality administrative microdata and credibly exogenous variation in abortion access. Women can seek legal abortions through a tutela, with cases randomly assigned to judges. Female judges are 20 percentage points (32%) less likely to deny abortion cases than are male judges, and we use the judge’s sex as an instrument for abortion denial. Denial of a wanted abortion has both immediate and lasting effects. It increases a woman’s risk of death by 2.5 percentage points within nine months, mainly due to unsafe abortion procedures, and raises the likelihood of carrying the pregnancy to term by 31 percentage points. Tracking outcomes up to 15 years later, we find that women denied an abortion experience more health issues, lower educational attainment, reduced labor force participation, and higher rates of single motherhood, poverty, and reliance on government assistance. Existing children, born before their mother sought an abortion, are less likely to attend school and are more likely to work.

We study the consequences of “regime-induced” exchange rate depreciations by comparing outcomes for peggers versus floaters to the U.S. dollar in response to a dollar depreciation. Pegger currencies depreciate relative to floater currencies and these depreciations are strongly expansionary. The boom is associated with a fall in net exports, and (if anything) an increase in interest rates in the pegger countries. This suggests that expenditure switching and domestic monetary policy are not the main drivers of the boom. We show that a large class of existing models cannot match our estimated responses and develop a model with imperfect financial openness that can. Following a depreciation, uncovered interest parity deviations lower the costs of borrowing from abroad and stimulate the economy, as in the data. The model is consistent with (unconditional) exchange rate disconnect and the Mussa fact, even though exchange rates have large effects on the economy.

Tax authorities around the world rely on audits to detect underreported tax liabilities and to verify that taxpayers qualify for the benefits they claim. We study differences in Internal Revenue Service audit rates between Black and non-Black taxpayers. Because neither we nor the IRS observe taxpayer race, we propose and use a novel partial identification strategy to estimate these differences. Despite race-blind audit selection, we find that Black taxpayers are audited at 2.9 to 4.7 times the rate of non-Black taxpayers. An important driver of the disparity is differing audit rates by race among taxpayers claiming the Earned Income Tax Credit (EITC). Using counterfactual audit selection models to explore why the disparity arises, we find that maximizing the detection of underreported taxes would not lead to Black EITC claimants being audited at higher rates. Rather, the audit disparity among EITC claimants stems largely from a policy decision to prioritize detecting overclaims of refundable credits over other forms of noncompliance. Modifying the audit selection algorithm to target total underreported taxes while holding fixed the number of audited EITC claimants would reduce the share of audited taxpayers who are Black and would lead to more audits focused on accurate reporting of business income and deductions, fewer audits focused on the eligibility of claimed dependents, higher per audit costs, and more detected noncompliance.