Knowledge that Transforms

This paper reviews the main motivations and arguments of my work on comparative development, colonialism, and institutional change, which was often carried out jointly with James Robinson and Simon Johnson. I then provide a simple framework to organize these ideas and connect them with my research on innovation and technology. The framework is centered around a utility-technology possibilities frontier, which delineates the possible distributions of resources in a society both for given technology and working via different technological choices. It highlights how various types of institutions, market structures, norms, and ideologies influence moves along the frontier and shifts of the frontier, and it provides a simple formalization of the social forces that lead to institutional persistence and those that can trigger institutional change. The framework also enables us to conceptualize how, during periods of disruption, existing—and sometimes quite small—differences can have amplified effects on prosperity and institutional trajectories. In this way, it suggests some parallels between different disruptive periods, including the onset of European colonialism, the spread (or lack thereof) of industrial technologies in the nineteenth century, and decisions related to the use, adoption, and development of AI today.

A college degree offers a pathway to economic mobility for low-income students. Using a multisite randomized controlled trial combined with administrative and survey data, we demonstrate that intensive advising during high school and college significantly increases bachelor’s degree attainment among lower-income students. We leverage unique data on preadvising college preferences and causal forest methods to show that these gains are primarily driven by improvements in initial enrollment quality. Our results suggest that strategies targeting college choice may be a more effective and efficient means of increasing degree attainment than those focused solely on affordability.

Applicants to schools, colleges, and jobs hedge by applying to a broad range of options, including reaches, matches, and safeties. We develop a simultaneous-search framework that rationalizes this practice. In this framework, the admissions process is correlated across schools so that if an applicant is rejected by one school, she is more likely to be rejected by more selective schools. We find that an applicant then optimally targets both safeties and reaches. We characterize how the optimal portfolio varies with the applicant’s beliefs, risk attitudes, and application costs and offer an algorithm that delivers the optimal portfolio in polynomial time.

We study how individual political views shape firm behavior and labor market outcomes using new microdata from Brazil. We first show that business owners are considerably more likely to employ copartisan workers. This phenomenon is in part driven by the overlapping of political and social networks. Multiple tests—surveys, event studies, analyses of wage premia and promotions within the firm, and a field experiment—further highlight how business owners’ political preferences directly influence firms’ employment decisions. A channel of political discrimination appears more relevant than one of political quid pro quo between firms and politicians.

This paper studies, through a randomized field experiment involving community health workers in Pakistan, if public sector organizations can improve worker performance by investing in their mission motivation. The findings reveal that training aimed at strengthening mission motivation improves workers' performance in their core responsibility of monthly household visits, as well as in multiple tasks performed during and outside these visits. This holistic improvement in performance leads to improved health outcomes for children in the communities served by these workers. These results highlight the importance of promoting organizational missions as a strategy to improve public sector performance in low-income countries.

We show that the strong negative effect of higher mortgage rates on cash-out refinancing reflects substitution into other borrowing products, not large changes in total new household borrowing. We exploit plausibly exogenous changes in interest rates due to unconventional monetary policy surprises to show that changes in cash-out and other borrowing are roughly offsetting. The elasticity of new household borrowing with respect to mortgage rates is low and varies little with the borrower’s outstanding mortgage rate. Our results suggest that the cash-out refinance channel of unconventional monetary policy is weak and not path dependent.

We study how couples allocate retirement-saving contributions across each spouse’s account. In a new dataset covering over a million US individuals, we find retirement contributions are not allocated to the account with the highest employer match rate. This lack of coordination—which goes against the assumptions of most models of household decision-making—is common, costly, persistent over time, and cannot be explained by inertia, auto-enrollment, or simple heuristics. Complementing the administrative evidence with an online survey, we find that inefficient allocations reflect both financial mistakes as well as deliberate choices, especially when trust and commitment inside the households are weak.

How quickly does a fiat money become valueless? I study the speculative hyperinflation equilibria of continuous-time economies with decentralized markets where money is essential. I establish necessary and sufficient conditions under which money dies in finite time. A necessary condition is that the liquidity return of money grows unbounded as the value of money approaches zero. Under CRRA preferences, the longevity of money shrinks with the money growth rate and the frequency of liquidity needs, but it increases with seller’s market power. Money duration also depends on the strictness of legal restrictions and the rates of return of competing currencies.

We develop a framework to estimate the marginal cost of air pollution regulation and apply it to assess policy efficiency. We exploit a provision of the Clean Air Act that requires new plants to pay incumbent facilities to reduce emissions. This “offset” policy creates hundreds of local pollution markets, differing by pollutant and location. Theory and transaction data suggest that offset prices reveal marginal abatement costs. We compare these prices to marginal benefits of pollution reduction estimated using leading air quality models and find that, on average, marginal benefits exceed marginal costs by more than a factor of ten.

Multinationals in the extractive sectors of weak states face resource theft by armed groups. Criminality is often abetted by state corruption, even though firms are willing to pay for protection. I study indigenization in Nigeria’s oil sector, which increased local firms’ participation substantially. Despite lower quality, local firms increase output by reducing oil theft. A bargaining model illustrates that political connections align law enforcement incentives, solving commitment problems. Data on law enforcement raids show that local firms receive preferential protection. Connections to military elites drive the local advantage. The aggregate gains from indigenization are at most between 2.3 and 5.7 percent of GDP.