Knowledge that Transforms

We examine whether managerial cognitive heuristics spill over from personal to corporate decisions. We identify “anchoring CEOs” who anchor on the 52-week high in personal stock trading and show that this behavior extends to corporate financial decisions. These CEOs are more likely to issue seasoned equity offerings near the 52-week high and place greater weight on the target’s 52-week high in acquisition pricing, with the latter associated with negative abnormal returns. The effect is stronger under competitive pressure and uncertainty but weaker with stronger governance and CEO experience. Our findings highlight cross-domain persistence in managerial heuristics and the role of governance in mitigating behavioral distortions.

We study the relationship between corporate income taxation and carbon dioxide (CO 2 ) emissions in the United States. We show CO 2 -intensive firms benefit more from the tax advantage of debt and pay lower income taxes on their capital income. Building on these new facts, we provide evidence that a cut in the corporate income tax rate leads to a larger expansion of clean firms. We develop a multisector general equilibrium model that accounts for our evidence and quantify the impact of corporate tax reforms on aggregate emissions. A policy that eliminates the tax advantage of debt could reduce aggregate emissions without affecting GDP.

An increasing number of decisions are guided by machine learning algorithms. But when consequential decisions are encoded in algorithms, individuals may strategically alter their behavior to achieve desired outcomes. This paper develops an empirical approach that adjusts decision algorithms to anticipate manipulation. By explicitly modeling incentives to manipulate, our approach produces decision rules that are stable under manipulation, even when the rules are fully transparent. We stress-test this approach through a large field experiment in Kenya. When implemented, linear strategy-robust decision rules outperform standard linear models such as LASSO.

We document how deepening resource scarcity results in rationing on the basis of race in a high-stakes setting: health care. Using detailed, time stamped data on 107,000 inpatient admissions to a large health system, we find that in-hospital mortality increases for Black but not White patients as hospitals reach capacity. These findings are not explained by differential patient selection. We identify rationing by wait times as a mechanism, documenting that sicker Black patients wait longer for care than healthier White patients at almost all capacity levels. Text analysis of unstructured clinical notes reveals rationing of provider effort as another mechanism.

Experimental and quasi-experimental studies show that childhood neighborhoods have substantial causal impacts on children's adult earnings and other long-term socioeconomic outcomes. Several market failures are likely to lead to excessive residential segregation by parental income and to an undersupply of mixed-income neighborhoods. Missing markets for opportunity originate in capital market imperfections for borrowing on children's future earnings, neighbor spillovers, behavioral biases, and housing search frictions. Customized housing mobility services combined with subsidized housing vouchers can help low-income families move to higher-opportunity areas. Place-based policies that create mixed-income neighborhoods appear to increase long-term outcomes for less-advantaged children.

We study a macroprudential regulation in the emerging market of Chile that raised loan-loss provisions for residential mortgages with loan-to-value (LTV) ratios above 80%. The policy reduced high-LTV borrowing and overall leverage but unintentionally affected households likely to borrow above 80% LTV based on preregulation characteristics. These borrowers liquidated term deposits to meet higher down payments, lowering liquidity and raising short-term delinquency, especially near the threshold. The results uncover a regulatory trade-off: systemic risk is curbed, but financially constrained households face short-term vulnerability.