Knowledge that Transforms

This paper examines the frequency, pervasiveness, and determinants of product switching by US manufacturing firms. We find that one-half of firms alter their mix of five-digit SIC products every five years, that product switching is correlated with both firm- and firm-product attributes, and that product adding and dropping induce large changes in firm scope. The behavior we observe is consistent with a natural generalization of existing theories of industry dynamics that incorporates endogenous product selection within firms. Our findings suggest that product switching contributes to a reallocation of resources within firms toward their most efficient use. (JEL L11, L21, L25, L60)

This is a submitted manuscript of an article published by the American Economic Association in the American Economic Review.

Issuer Credit Quality and the Price of Asset Backed Securities by Oliver Faltin-Traeger, Kathleen W. Johnson and Christopher Mayer. Published in volume 100, issue 2, pages 501-05 of American Economic Review, May 2010

In a January 2009 lecture on the financial crisis, Federal Reserve Chairman Bernanke advocated a new Fed policy of credit easing, defined as a combination of lending to financial institutions, providing liquidity directly to key credit markets, and buying of long term securities. We show that Bernanke's analysis and recommendations can be naturally considered in a model of "unstable banking," which relies on two mechanisms: 1) fire sales reduce asset prices below fundamental values, and 2) financial institutions prefer speculation to new lending when markets are dislocated. We analyze credit easing and compare it to alternative government interventions during the crisis.

The need for efficient coordination is ubiquitous in organizations and industries. The literature on the determinants of efficient coordination has focused on individual decision making so far. In reality, however, teams often have to coordinate with other teams. We present a series of coordination experiments with a total of 1,101 participants. We find that teams of three subjects each coordinate much more efficiently than individuals. This finding adds one important cornerstone to the recent literature on the conditions for successful coordination. We explain the differences between individuals and teams using the experience weighted attraction learning model. (JEL C71, C91, D23, D83, M54)

Low Skilled Immigration and Work-Fertility Tradeoffs among High Skilled US Natives by Delia Furtado and Heinrich Hock. Published in volume 100, issue 2, pages 224-28 of American Economic Review, May 2010

Wholesalers and Retailers in US Trade by Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding and Peter K. Schott. Published in volume 100, issue 2, pages 408-13 of American Economic Review, May 2010

Buying or selling a residential property is one of the most important financial decisions for a large majority of households in the United States. In 2007, 68 percent of households owned their own home, more than a third of national wealth was held in residential real estate, and there were 6.4 million sales of existing homes according to estimates from the Department of Housing and Urban Development.

For most people, buying a house is one of the most significant investment decisions of their lifetimes. Economists have mainly focused on the consumption aspects of this process. For example, a typical model in urban economics might frame the decision of where to live as a discrete choice over a bundle of housing and neighborhood attributes such as location, square footage, schooling options, and crime levels. The investment side of the problem has received considerably less attention, a surprising omission since housing assets comprise approximately two-thirds of the average American household’s financial portfolio, serve an important role in saving for retirement and, as has become increasingly apparent, can be quite risky. This paper views housing markets from an asset-pricing perspective, using finance theory to relate the risk premium of a housing asset (the difference between its expected return and the return for a risk-free investment) to its exposure to risk. As usual in finance, what matters for the risk premium of a housing asset is its exposure to systematic risk, not idiosyncratic risk. In our model, there are two forms of systematic risk to which housing assets are exposed: national risk (which is common to houses everywhere) and local risk (which affects all houses within a given metropolitan area, but nowhere else). Houses are said to be of the same type h if they are located in the same metropolitan area and have the same exposure to systematic risk. Our main conclusions are that (1) houses of every type face a common set of risk prices ( for the national risk and m for the local risk specific to metropolitan area m) that, together with appropriate measures of exposure to risk,

This paper investigates experimentally how a group's structure affects its ethical behavior towards a passive outsider. We analyze one vertical and two horizontal structures (one requiring consensus, one implementing a compromise by averaging proposals). We also control for internal communication. The data support our main predictions: (1) horizontal, averaging structures are more ethical than vertical structures (where subordinates do not feel responsible) and than consensual structures (where responsibility is dynamically diffused); (2) communication makes vertical structures more ethical (subordinates with voice feel responsible); (3) with communication, vertical structures are more ethical than consensual structures (where in-group bias hurts the outsider). (JEL C92, D23, L21, M14)