Knowledge that Transforms

We estimate a model of importers in Hungarian microdata and conduct counterfactual analysis to investigate the effect of imported inputs on productivity. We find that importing all input varieties would increase a firm’s revenue productivity by 22 percent, about one-half of which is due to imperfect substitution between foreign and domestic inputs. Foreign firms use imports more effectively and pay lower fixed import costs. We attribute one-quarter of Hungarian productivity growth during the 1993–2002 period to imported inputs. Simulations show that the productivity gain from a tariff cut is larger when the economy has many importers and many foreign firms.

Previous work demonstrates that low-income higher achievers fail to apply to selective colleges despite their being admitted at high rates and receiving financial aid so generous that they pay less than at non-selective schools. The Expanding College Opportunities project, a randomized controlled trial, provides individualized information about colleges' net prices, resources, curricula, students, and outcomes. Our prior study shows that the intervention raises students' applications to, admissions at, enrollment, and progress at selective colleges. Here we use survey data to show that it actually changes students' knowledge and decision-making. We highlight topics on which they are misinformed.

We use microdata to show that young households with children are underinsured against the risk that an adult member of the household dies. This empirical finding can be explained by a macroeconomic model with human capital risk, age-dependent returns to human capital investment, and endogenous borrowing constraints due to limited contract enforcement. When calibrated, the model quantitatively accounts for the observed life-cycle variation in life insurance holdings, financial wealth, earnings, and consumption inequality. The model also predicts that reforms making consumer bankruptcy more costly will substantially increase the volume of both credit and insurance.

Using data from an anti-vote-buying field experiment we conducted in the Philippines, we report and validate a proxy measure for vote-selling. We demonstrate that our proxy measure, vote-switching, changes as expected with voter preferences and monetary offers from candidates. Voters are less likely to vote for someone different than their initial preference the larger the favorability rating difference between the preferred and alternative candidates. Similarly, vote-switching increases the more money the alternative candidate offers compared to the preferred candidates. We also describe the effects of the promise-based interventions on vote-switching, reported in full in a companion paper.

Andreoni and Sprenger (2012a, b) report evidence that distinct utility functions govern choices under certainty and risk. I investigate the robustness of this result to the experimental design. I find that the effect disappears completely when a multiple price list instrument is used instead of a convex time budget design. Alternatively, the effect is reduced by half when sooner and later payment risks are realized using a single lottery instead of two independent lotteries. The result is thus at least partially driven by intertemporal diversification, supporting an explanation in terms of concavity of the intertemporal, and not only atemporal, utility function.

Using state-level data from 1980-2010 we examine whether economic freedom, as measured by the Economic Freedom of North America Index, has had any impact in increasing or decreasing the ratio of median income for black households to the median income of white households. To our knowledge, there has been no research on racial income disparities and the role that economic freedom might have in alleviating or exacerbating the problem. We find evidence that economic freedom is associated with an increase in the racial income gap.

We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.

While both cultural and legal norms (institutions) help foster cooperation, culture is the more primitive of the two and itself sustains formal institutions. Cultural changes are rarer and slower than changes in legal institutions, which makes it difficult to identify the role played by culture. Cultural changes and their effects are easier to identify in simpler, more controlled, environments, such as corporations. Corporate culture, thus, is not only interesting per se, but also as a laboratory to study the role of societal culture and the way it can be changed.

Secular stagnation on the supply side takes the form of a slow 1.6 percent annual growth rate of US potential real GDP, roughly half the 3.1 percent annual growth rate of actual real GDP realized from 1972 to 2004. This slowdown stems from a sharp decline in the growth rate of aggregate hours of work and of output per hour. This paper attributes the productivity growth decline to diminishing returns in the digital revolution that had its peak effect business hardware, software, and best practices in the late 1990s but has resulted in little change in those methods over the past decade.

This paper empirically studies firm's strategic exit decisions in an environment where demand is declining. Specifically, I quantify the extent to which the exit process generated by firms' strategic interactions deviates from the outcome that maximizes industry profits. I develop and estimate a dynamic exit game using data from the US movie theater industry in the 1950s, when the industry faced demand declines. Using the estimated model, I quantify the magnitude of strategic delays and find that strategic interactions cause an average delay of exit of 2.7 years. I calculate the relative importance of several components of these strategic delays.