Knowledge that Transforms

Using a new nationally representative dataset, we find minor differences in test outcomes between black and white infants that disappear with a limited set of controls. However, relative to whites, all other races lose substantial ground by age two. Combining our estimates with results in prior literature, we show that a simple model with assortative mating fits our data well, implying that differences in children's environments between racial groups can fully explain gaps in intelligence. If parental ability influences a child's test scores both genetically and through environment, then our findings are less informative and can be reconciled with a wide range of racial differences in inherited intelligence.

We analyze under what conditions intermarriage can be used as an indicator of tolerance, and whether such tolerant attitudes persisted in Germany during the twentieth century. We find strong evidence for the persistence of tolerant attitudes towards intermarriage with Jews. At the same time, our empirical analysis also cautions against using intermarriage as a simple proxy for tolerance: The size of Jewish communities in the early twentieth century is an important confounding factor.

This paper develops a model of demand, pricing and advertising in the presence of social learning via word-of-mouth communication between friends. In the model consumers must receive information about a monopolist's product in order to consider purchasing it. The presence of word-of-mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population. I derive the comparative static results of connectivity, mean-preserving spread of friendships, and clustering of friends on prices. The optimal targets for advertising are not, generically, the individuals with the most friends.

We use a simple theory of a system of cities to decompose the determinants of the city size distribution into three main components: efficiency, amenities, and frictions. Higher efficiency and better amenities lead to larger cities but also to greater frictions through congestion and other negative effects of agglomeration. Using data on MSAs in the United States, we estimate these city characteristics. Eliminating variation in any of them leads to large population reallocations, but modest welfare effects. We apply the same methodology to Chinese cities and find welfare effects that are many times larger than those in the US.

I consider optimal nonlinear taxation of income and bequests with a joy-of-giving bequest motive and explicitly characterize the optimal estate tax rate. The optimal formula trades off correction of externality from giving and discouraging effort of children due to income effect generated by bequests. The analysis shows that optimality of a positive tax on bequests rests on the strength of the effect of bequests on behavior of future generations. The analysis also suggests that inheritance, rather than estate tax, is better suited to implement the optimal policy.

We examine changes in consumption and income inequality between 2000 and 2011. During the most recent recession, unemployment rose and asset values declined sharply. We investigate how the recession affected inequality while addressing concerns about underreporting in consumption data. Income inequality rose throughout the period from 2000 to 2011. The 90/10 ratio was 19 percent higher at the end of this period than at the beginning. In contrast, consumption inequality rose during the first half of this period but then fell after 2005. By 2011, the 90/10 ratio for consumption was slightly lower than it was in 2000.

The standard assumption that asset demand increases in income and decreases in price has its origin in Arrow's classic model with one risky and one risk free asset, where both are held long, and preferences exhibit decreasing absolute and increasing relative risk aversion. However if one allows shorting of the risk free asset or decreasing relative risk aversion, the risk free asset can not only fail to be a normal good but can be a Giffen good. This behavior can occur even for members of the popular HARA utility family. More generally, Giffen behavior can occur over multiple income ranges.

This paper contributes to the existing literature on the effect of legal status on educational access among immigrant youth in the United States. The Immigration Reform and Control Act (IRCA) of 1986 granted amnesty to undocumented immigrants who entered the United States before 1982. Using a difference-indifferences framework, I analyze the effect of this large amnesty program on immigrant youth's postsecondary educational access. My main finding shows that immigrant youths who were granted amnesty under IRCA are more likely to enroll in postsecondary education.

The literature on the determinants of firms' financing constraints has paid little attention to gender as a determinant of access to finance. Using data for 34,342 firms from 90 developing countries, the paper analyzes the determinants of firms' financing constraints and assesses whether female-owned firms are more financially constrained than male-owned businesses. The results show that female-owned firms in sub-Saharan Africa are more likely to be financially constrained than male-owned firms, but there is no gender gap in other developing regions. The gender gap in sub-Saharan Africa is robust to variations in specifications and econometric estimation procedures.

Firms face competing needs to expand product variety and reduce production costs. Access to larger markets enables innovation to reduce costs. Although firm scale increases, foreign competition reduces markups. Firms' ability to recapture lost markups depends on the interplay between within-firm competition and across-firm competition. Narrowing product variety eases within-firm competition but lowers market share. I provide a theory detailing the impact of trade policy on product and process innovation. Unbundling innovation provides new insights into welfare gains and innovation policy. Product innovation increases welfare beyond standard gains from trade. The relative returns to innovation policy change with trade liberalization.