Knowledge that Transforms

Between 1940 and 1970, more than 4 million African Americans moved from the South to the North of the US, during the Second Great Migration. This same period witnessed the struggle and eventual success of the civil rights movement in ending institutionalized racial discrimination. This article shows that the Great Migration and support for civil rights are causally linked. Predicting Black inflows with a shift-share instrument, we find that the Great Migration raised support for the Democratic Party, increased Congress members’ propensity to promote civil rights legislation, and encouraged pro-civil rights activism outside the US South. We provide different pieces of evidence that support for civil rights was not confined to the Black electorate but was also shared by segments of the white population.

We study the interaction between tax advantages for municipal bonds and the market structure of auctions for these bonds. We show that this interaction can limit a bidder’s ability to extract information rents and is a crucial determinant of state and local governments’ borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp lowers mean borrowing costs by 9–10%. We estimate a structural auction model to measure markups and to illustrate and quantify how the interaction between tax policy and bidder strategic behaviour determines the impact of tax advantages on municipal borrowing costs. We use the estimated model to evaluate the efficiency of Obama and Trump administration policies that limit the tax advantage for municipal bonds. Because reductions in the tax advantage inflate bidder markups and depress competition, the resulting increase in municipal borrowing costs more than offsets the tax savings to the government. Finally, we use the model to analyse a recent non-tax regulation that affects entry into municipal bond auctions.

Can massive online retailers such as Amazon and Alibaba issue digital tokens that potentially compete with bank debit accounts? There is a long history of trading stamps and loyalty points, but new technologies are poised to sharply raise the significance of redeemable assets as a store of value. Here, we develop a simple stylized model of redeemable tokens that can be used to study sales and pricing strategies for issuing tokens, including ICOs. Our central finding is that platforms can potentially earn higher revenues by making tokens non-tradable unless they can generate a sufficiently high outside-platform convenience yield.

The historical transition to a low fertility regime was central for long-run growth, but what caused it? Existing economic explanations largely focus on the economic incentives to limit fertility. This article presents new evidence highlighting the importance of cultural forces as a complementary driver of the fertility transition. We leverage a sharp change in fertility in Britain in 1877 and document large synchronized declines in fertility among culturally British households residing outside of Britain, in Canada, the US, and South Africa, relative to their non-British neighbours. We propose a plausible catalyst for the change: the famous Bradlaugh–Besant trial of 1877.

We examine the ability of the government to impact mortgage refinancing activity and spur consumption by focusing on the Home Affordable Refinance Program (HARP) that relaxed housing equity constraints by extending government credit guarantee on insufficiently collateralized refinanced mortgages. Difference-in-difference tests based on program eligibility criteria reveal a significant increase in refinancing activity by HARP. More than three million eligible borrowers with primarily fixed-rate mortgages refinanced under HARP, receiving an average reduction of 1.45% in interest rate ($3,000 in annual savings). Durable spending by borrowers increased significantly after refinancing. Regions more exposed to the program saw a relative increase in non-durable and durable consumer spending, a decline in foreclosure rates, and faster recovery in house prices. Competitive frictions in the refinancing market hampered the program’s impact: the take-up rate and annual savings among those who refinanced were reduced by 10–20%, with amplified effects for the most indebted borrowers.

Does immigration change support for redistribution? We design and conduct large-scale surveys and experiments in six countries to investigate how people perceive immigrants and how these perceptions influence their support for redistribution. We find striking misperceptions about the number and characteristics of immigrants. In all countries, respondents greatly overestimate the total number of immigrants, think immigrants are culturally and religiously more distant from them, and economically weaker—less educated, more unemployed, and more reliant on and favoured by government transfers—than they actually are. In the experimental part of our article, we show that simply making respondents think about immigration before asking questions about redistribution makes them support less redistribution, including actual donations to charities. The perception that immigrants are economically weaker and more likely to take advantage of the welfare system is strongly correlated with lower support for redistribution, much more so than the perceived cultural distance or the perceived share of immigrants. These findings are confirmed by further experimental evidence. Information about the true shares and origins of immigrants does not change support for redistribution. An anecdote about a “hard-working” immigrant has somewhat stronger effects but is unable to counteract the negative priming effect of making people think about immigration. Our results further suggest that narratives shape people’s views on immigration more deeply than hard facts.

We find strong empirical evidence that the liquidity yield on government bonds in combination with standard economic fundamentals can well account for nominal exchange rate movements. We find impressive evidence that changes in the liquidity yield are significant in explaining exchange rate changes for all the G10 countries, and we stress that the US dollar is not special in this relationship. We show how these relationships arise out of a canonical two-country New Keynesian model with liquidity returns. Additionally, we find a role for sovereign default risk and currency swap market frictions.

We quantify intergenerational and assortative processes by comparing different degrees of kinship within the same generation. This “horizontal” approach yields more, and more distant kinship moments than traditional methods, which allows us to account for the transmission of latent advantages in a detailed intergenerational model. Using Swedish registers, we find strong persistence in the latent determinants of status, and a striking degree of sorting—to explain the similarity of distant kins, assortative matching must be much stronger than previously thought. Latent genetic influences explain little of the variance in educational attainment, and sorting occurs primarily in non-genetic factors.

This paper proposes an adaptive randomisation procedure for two-stage randomised controlled trials. The method uses data from a first-wave experiment in order to determine how to stratify in a second wave of the experiment, where the objective is to minimise the variance of an estimator for the average treatment effect. We consider selection from a class of stratified randomisation procedures which we call stratification trees: these are procedures whose strata can be represented as decision trees, with differing treatment assignment probabilities across strata. By using the first wave to estimate a stratification tree, we simultaneously select which covariates to use for stratification, how to stratify over these covariates, and the assignment probabilities within these strata. Our main result shows that using this randomisation procedure with an appropriate estimator results in an asymptotic variance which is minimal in the class of stratification trees. Moreover, our results are able to accommodate a large class of assignment mechanisms within strata, including stratified block randomisation. In a simulation study, we find that our method, paired with an appropriate cross-validation procedure, can improve on ad-hoc choices of stratification. We conclude by applying our method to the study in Karlan and Wood (2017, Journal of Behavioral and Experimental Economics, vol. 66, 1–8), where we estimate stratification trees using the first wave of their experiment.

Technological change, from the advent of robots to expanded trade opportunities, creates winners and losers. How should government policy respond? We provide a general theory of optimal technology regulation in a second-best world, with rich heterogeneity across households, linear taxes on the subset of firms affected by technological change, and a non-linear tax on labour income. Our first set of results consists of optimal tax formulas, with minimal structural assumptions, involving sufficient statistics that can be implemented using evidence on the distributional impact of new technologies, such as robots and trade. Our final results are comparative static exercises illustrating, among other things, that while distributional concerns create a rationale for non-zero taxes on robots and trade, the magnitude of these taxes may decrease as the process of automation and globalization deepens and inequality increases.