How does firm entry affect innovation incentives in incumbent firms? Microdata suggest that there is heterogeneity across industries. Specifically, incumbent productivity growth and patenting is positively correlated with lagged greenfield foreign firm entry in technologically advanced industries, but not in laggard industries. In this paper we provide evidence that these correlations arise from a causal effect predicted by Schumpeterian growth theory—the threat of technologically advanced entry spurs innovation incentives in sectors close to the technology frontier, where successful innovation allows incumbents to survive the threat, but discourages innovation in laggard sectors, where the threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro panel data for the United Kingdom. We control for the endogeneity of entry by exploiting major European and U.K. policy reforms, and allow for endogeneity of additional factors. We complement the analysis for foreign entry with evidence for domestic entry and entry through imports

Do corporate tax avoidance activities advance shareholder interests? This paper tests alternative theories of corporate tax avoidance using unexplained differences between income reported to capital markets and to tax authorities. OLS estimates indicate that the effect of tax avoidance on firm value is a function of firm governance, as predicted by an agency perspective on corporate tax avoidance. Instrumental variables estimates based on exogenous changes in tax regulations yield larger overall effects and reinforce the basic result, as do several robustness checks. The results suggest that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete given the agency problems characterizing shareholder-manager relations

With climate change as prototype example, this paper analyzes the implications of structural uncertainty for the economics of low-probability, high-impact catastrophes. Even when updated by Bayesian learning, uncertain structural parameters induce a critical “tail fattening” of posterior-predictive distributions. Such fattened tails have strong implications for situations, like climate change, where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages. This paper shows that the economic consequences of fat-tailed structural uncertainty (along with unsureness about high-temperature damages) can readily outweigh the effects of discounting in climate-change policy analysis

Using a new database of islands throughout the Atlantic, Pacific, and Indian Oceans we find a robust positive relationship between the number of years spent as a European colony and current GDP per capita. We argue that the nature of discovery and colonization of islands provides random variation in the length and type of colonial experience. We instrument for length of colonization using variation in prevailing wind patterns. We argue that wind speed and direction had a significant effect on historical colonial rule but do not have a direct effect on GDP today. The data also suggest that years as a colony after 1700 are more beneficial than earlier years. We also find a discernable pecking order among the colonial powers, with years under U.S., British, French, and Dutch rule having more beneficial effects than Spanish or Portuguese rule. Our finding of a strong connection between modern income and years of colonization is conditional on being colonized at all since each of the islands in our data set spent some time under colonial rule.

We examine the impact of recent state-level Medicaid policy changes that expanded eligibility for family planning services to higher-income women and to Medicaid clients whose benefits would expire otherwise. We show that the income-based policy change reduced overall births to non-teens by about 2% and to teens by over 4%; estimates suggest a decline of 9% among newly eligible women. The reduction in fertility appears to have been accomplished via greater use of contraception. Our calculations indicate that allowing higher-income women to receive federally funded family planning cost on the order of $6,800 for each averted birth.

This paper provides new evidence on racial profiling using information on the race of both motorists and officers. Extending the model of Knowles, Persico, and Todd (2001), we develop a new test for distinguishing between preference-based and statistical discrimination. Our test is based on the notion that if search decisions are driven purely by statistical discrimination, then they should be independent of officer race. Our results, by contrast, demonstrate that officers are more likely to search if officer race and driver race differ. We then investigate and rule out two alternative explanations for our findings

We estimate the effect of extreme weather on life expectancy in the United States. Using high-frequency data, we find that both extreme heat and cold result in immediate increases in mortality. The increase in mortality following extreme heat appears mostly driven by near-term displacement, while the increase in mortality following extreme cold is long lasting. We estimate that the number of annual deaths attributable to cold temperature is 0.8% of average annual deaths in our sample. The longevity gains associated with mobility from the Northeast to the Southwest account for 4% to 7% of the total gains in life expectancy experienced by the U.S. population over the past thirty years.

This paper analyzes welfare-state determinants of individual attitudes toward immigrants—within and across countries—and their interaction with labor market drivers of preferences. We consider two mechanisms through which a redistributive welfare system might adjust as a result of immigration. Under the first model, immigration has a larger impact on high-income individuals, while under the second one low-income individuals are those most affected. Individual attitudes are consistent with the first welfare-state model and with labor market determinants. In countries where immigration is unskilled, income is negatively correlated with pro-immigration preferences, while skill is positively correlated with them. These relationships are reversed in economies characterized by skilled migration

This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel data set of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. These two forces imply increased aggregate volatility. Third, sectors that are more open to trade are less correlated with the rest of the economy, an effect that acts to reduce overall volatility. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and overall volatility is positive and economically significant

This paper identifies neighborhood peer effects on children's school enrollment decisions using experimental evidence from the Mexican PROGRESA program. We use exogenous variation in the school participation of program-eligible children to identify peer effects on the schooling decisions of ineligible children residing in treatment communities. We find that peers have considerable influence on the enrollment decisions of program-ineligible children, and these effects are concentrated among children from poorer households. These findings imply that policies aimed at encouraging enrollment can produce large social multiplier effects