Knowledge that Transforms

Abstract Market power is costly to build and, once established, is typically persistent and difficult to change. This paper investigates the impact of large economic shocks (serious epidemics) on the redistribution of market power in manufacturing industries. Using a model of firms’ dynamic decisions on production, pricing, and inventory holding, we demonstrate the importance of inventory stock and demand uncertainty in understanding market power and propose a new measure of market power. We find that the 2003 SARS shock in China significantly reduced the market power of firms in SARS-impacted areas. This effect is long lasting. SARS also substantially increased the inventory of affected firms, which partially contributed to the redistribution of market power.

Abstract Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs – larger than CUSFTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called “Swiss formula” that governed the Tokyo Round tariff liberalization to provide evidence of its effects on imports and inequality. Instrumented tariff reductions explain approximately 20% of the rise in income inequality between non-production and production workers between 1979 and 1988. This effect is largest among women, workers in routine occupations, and workers in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change.

Abstract This paper investigates the long-term impacts of China’s nationwide public health campaigns targeting malaria, measles, and meningitis between the 1960s and 1980s. Exploiting regional variation in precampaign disease prevalence across birth cohorts, we show that these interventions generated sizable improvements in education, cognition, health, and income. As an illustrative case, individuals from high-malaria regions who were fully exposed to the eradication campaign attained about 0.5 additional years of schooling and earned over 10% higher income in adulthood, with cognitive and schooling gains explaining a substantial share of the income effects. Extending the same approach to measles and meningitis vaccination campaigns reveals comparably large benefits, with internal rates of return ranging from 21% to 34%. Together, these findings highlight the lasting socioeconomic returns to early-life health interventions and underscore the role of public health as a foundation for human capital accumulation and long-run economic growth.

Abstract In 2001, Germany abolished public occupational disability insurance (ODI)—the second tier of its public DI system—for cohorts born after 1960. Using administrative data, we first document that, in the long run, overall DI inflows declined by roughly one-third. Second, using representative survey data, we document at best modest ODI insurance take-up responses in the private individual, risk-rated market, which lacks guaranteed issue. Third, an equilibrium model incorporating interactions between the public safety net, the first-tier public DI, and the private market reveals that coverage denials and weak insurance demand, driven by complementary social insurance, can explain the modest private ODI take-up response. Coverage gradients by income and health are thus substantial. Finally, counterfactual simulations highlight the limited scope of incremental reforms.

Abstract We examine firm responses to state hiring and investment subsidies. We leverage institutional features of the California Competes Tax Credit (CCTC), a large-scale business incentive program that incorporates best practices from prior job creation policies. The CCTC award selection procedure combines formula-based and discretionary components. Leveraging applicant score eligibility cutoffs in a regression discontinuity design and taking advantage of rich longitudinal microdata on establishments and their parent firms, we find that businesses expand employment in California in response to CCTC awards. There is little evidence that these expansions come at the expense of firms’ operations in other states. Our results suggest that targeted and audited hiring and investment subsidies can be effective in promoting local business expansions without inducing significant cross-state displacement effects.

Abstract We study how regional housing market disruptions spill over across US local markets through multimarket firm networks. Using granular barcode-level data linked to producer information, we exploit variation in firms’ exposure to local house price declines. A firm’s local sales respond more strongly to indirect housing price declines in its other markets than to direct local declines. The barcode-level data reveal a novel uniform product replacement mechanism: Firms respond to adverse shocks by replacing higher-value products with lower-value alternatives uniformly across all markets. This propagates regional demand shocks through the supply side, with new implications for regional economics.

Abstract How do import tariffs affect employment? We develop an empirical strategy to identify the effects of tariffs using a difference-in-differences strategy, comparing antidumping (AD) investigations resulting in AD tariffs to those not resulting in AD tariffs. We find that an AD tariff decreases imports and increases employment in the protected sector. Moreover, employment in downstream firms decreases, while upstream firms are unaffected because the protected sector sources inputs abroad. Using a model to quantify the aggregate effects, we find that the Brazilian AD policy increased employment by 0.06% at a welfare loss of 2.4%.

Abstract We document that in response to intensified competition from China in the U.S., poor countries reduce their export prices relative to rich countries, consistent with conventional wisdom. Interestingly, however, the opposite is true for export quantities. To reconcile these facts, we develop and estimate a general equilibrium model of trade featuring (i) cross-country heterogeneity in the ability to produce high-quality goods and (ii) a two-dimensional Bertrand competition on price and quality. Our model explains the empirical facts by showing that rich countries have a comparative advantage in quality upgrading, whereas a nested model without quality cannot do so.

Abstract This paper investigates fairness perceptions of extreme income inequality generated in winner-take-all competitions. Two large-scale experiments with more than 7,000 participants from the general population of the U.S. show that extreme earnings inequality is widely accepted, even when the winner only slightly outperforms the runner-up. The effect of the winning margin on inequality acceptance is modest compared to the effect of shifting the source of inequality from luck to winning by the smallest possible margin. The experimental choices are systematically associated with broader fairness attitudes and policy preferences, including support for higher taxation of top earners and redistributive economic policy.

Abstract This paper examines how politically connected firms shape housing supply in U.S. cities. Using new data on campaign donations to U.S. mayors and a regression discontinuity design, I present three findings. First, developers connected to the mayor sell more new housing units. Second, more sales of new housing by connected developers coincide with higher local housing supply: cities where mayors received more developer donations issue nearly 70 percent more permits for new housing units. Third, differences in mayors’ pre-existing policy stances—rather than connections to developers—is a quantitatively larger determinant of local housing supply.