Knowledge that Transforms

Certain extremum estimators have asymptotic distributions that are non‐Gaussian, yet characterizable as the distribution of the arg max of a Gaussian process. This paper presents high‐level sufficient conditions under which such asymptotic distributions admit a continuous distribution function. The plausibility of the sufficient conditions is demonstrated by verifying them in three examples, namely, maximum score estimation, empirical risk minimization, and threshold regression estimation. In turn, the continuity result buttresses several recently proposed inference procedures whose validity seems to require a result of the kind established herein. A notable feature of the high‐level assumptions is that one of them is designed to enable us to employ the Cameron–Martin theorem. In a leading special case, the assumption in question is demonstrably weak and appears to be close to minimal.

Apprenticeships play a key role in enabling successful school‐to‐work transitions in many countries, but in the presence of imperfect information, the specificity of this type of training may entail important costs for those working outside their training fields. I study this issue in one of the most prominent training settings, the German apprenticeship system. Using administrative data and a broad occupational classification, I find that 40% of individuals work in occupations different from their training. I estimate the cost of mismatch using vacancy instruments and extend methodological approaches in high‐dimensional selection settings. Lacking training in one's occupation entails an average wage penalty of 14%, the equivalent of two years of work experience. The penalty increases with the task distance between training and occupation. My findings suggest that retraining is crucial to mitigate the adverse consequences from imperfect information in specialized training settings.

Studies on agricultural technology adoption often focus on one input, practice, or package, which is analytically useful, but may overlook the complexities involved with multidimensional learning needed for a lot of agricultural decisions. In Kenya, we study farmers' dynamic learning (from oneself and others) and adoption decisions over six seasons after randomly inviting them to participate in agronomic research trials, comparing different combinations of inputs during three consecutive seasons. As a response to the trials, adoption increases steadily despite the absence of positive profits multiple seasons after exposure to the trials. Know‐how increases rapidly and faster for high skill farmers who experiment the most, at the cost of making new mistakes. The findings are consistent with a theoretical model with multidimensionality of input and practice decisions and differential learning from one's own experience by skills, where complementarities imply that adoption of an input requires finding how to re‐optimize other dimensions, which adds to the cost of adoption.

We derive a novel decomposition of the Gini coefficient into within‐ and between‐group inequality terms that sum to the aggregate Gini coefficient. This decomposition is derived from a set of axioms that ensure desirable behavior for the within‐ and between‐group inequality terms. The decomposition of the Gini coefficient is unique given our axioms, easy to compute, and can be interpreted geometrically.

Tirole (1985) studied an overlapping generations model with capital accumulation and showed that the emergence of asset bubbles solves the capital over‐accumulation problem. His Proposition 1(c) claims that if the dividend growth rate is above the bubbleless interest rate (the steady‐state interest rate in the economy without the asset) but below the population growth rate, then bubbles are necessary in the sense that there exists no bubbleless equilibrium but there exists a unique bubbly equilibrium. We show that this result (as stated) is incorrect by presenting an example economy that satisfies all assumptions of Proposition 1(c) but its unique equilibrium is bubbleless. We also restore Proposition 1(c) under the additional assumptions that initial capital is sufficiently large and dividends are sufficiently small. We show through examples that these conditions are essential.

This paper studies the economic effects of rural‐urban migration on Brazilian cities. Using a shift‐share IV design, we show that, over a decade, drought‐induced immigration reduces informality, has no effect on unemployment, and increases the number of formal firms and jobs. Downward formal wage adjustments play a key role, as these long‐run effects are weaker in regions with stronger wage rigidity. In the short run, when wage rigidity is strongest, we replicate the informality‐increasing effects documented in the literature. We develop and estimate a model of firm dynamics and informality that rationalizes these results. The counterfactuals reveal that, in the short run, the informal sector absorbs the expanding labor force and acts as a “stepping‐stone” to formality for firms and workers. In the long run, however, it reduces the aggregate benefits from immigration by allowing the least productive firms to survive.

We analyze marital matching on income using an extremely rich Dutch data set containing all income tax files over seven years. We develop a novel methodology that directly extends previous contributions to allow for highly flexible matching patterns. Investigating all marriages that took place between 2013 and 2019, we find that marital patterns are particularly intriguing. While a majority of couples match assortatively, a small but significant minority display negative assortative matching. We also show that standard approaches, which consider all married couples using current incomes (as opposed to pre‐marriage incomes used in our approach), may generate misleading conclusions.

This paper studies the labor market impacts of firm accommodation decisions after workplace disability and assesses implications for the design of firm subsidies. We leverage a workers' compensation (WC) program in Oregon that provides wage subsidies to firms for accommodating workers with workplace disabilities. Leveraging rich administrative data and a policy change to the wage subsidy, we show that accommodation rates respond to the subsidy rate and that receipt of accommodation leads to a significant increase in employment and earnings a year later. To explore welfare implications, we develop and estimate a frictional labor market model of accommodation as a form of human capital investment. Worker turnover and imperfect experience rating in WC lead to underaccommodation and inefficient labor market outcomes after workplace disability. Counterfactual simulations show that subsidizing accommodation not only improves long‐run labor market outcomes of workers experiencing work‐related disability but also yields welfare gains for most workers.

This paper studies how governments intervene in agricultural markets to reshape the economic consequences of climate extremes. We construct a global dataset of agricultural policies and extreme heat exposure by country and crop since 1980. Extreme heat shocks to domestic production lead to policies that assist consumers by lowering domestic food prices. This effect is persistent, primarily implemented via border policies, and stronger during election years. Shocks to foreign production induce the opposite response: policies that assist producers by raising prices. These findings can be rationalized by a model in which governments use agricultural policy to redistribute among domestic interest groups. Our estimates imply that policy responses shield domestic consumers, while exacerbating losses for domestic producers and foreign consumers. Policy responses have regressive consequences globally, disproportionately harming poor and heat‐exposed countries.

In sequential games, the set of paths consistent with rationality and forward‐induction reasoning may change nonmonotonically when adding transparent restrictions on players' beliefs. Yet, we prove that—in an incomplete‐information environment—predictions become sharper when the restrictions only concern initial beliefs about types. Thus, strong rationalizability for games with payoff uncertainty characterizes the path predictions of forward‐induction reasoning across all possible restrictions on players' hierarchies of exogenous beliefs. With this, we can solve an open problem: the implementation of social choice functions through sequential mechanisms under forward‐induction reasoning—which considerably expands the realm of implementable functions compared with simultaneous mechanisms (Müller (2016))—is indeed robust in the sense of Bergemann and Morris (2009).