Knowledge that Transforms

We study differences in quality in the market for third-party environmental auditors in Gujarat, India. We find that, despite the low overall quality, auditors are heterogeneous and some perform well. We posit that these high-quality auditors survive by using their good name to insulate select client plants from regulatory scrutiny. We find two pieces of evidence broadly consistent with this hypothesis: (i) though estimates are not precise, higher-quality auditors appear to be paid more both in their work as third-party auditors and in their complementary work as consultants; and (ii) plants with high-quality auditors incur fewer costly penalties from the regulator.

We reanalyze Long and Ferrie's data. We find that the association of occupational status across generations was quite similar over time and place. Two significant differences were: (i) American farms in 1880 were far more open to men who had nonfarm backgrounds than were American farms in 1973 or British farms in either century; (ii) of the four cases, the intergenerational correlation was strongest in Britain in 1881. Structural mobility related to, among other things, economic growth and occupational differentiation, affected mobility most in 1970s America.

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between changes in personal and corporate income taxes and develop a new narrative account of federal tax liability changes in these two tax components. We develop an estimator which uses narratively identified tax changes as proxies for structural tax shocks and apply it to quarterly post-WWII data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and on expenditure components.

Expected consumer's surplus rarely represents preferences over price lotteries. Still, I give sufficient conditions for policies which maximize aggregate expected surplus to be interim Pareto Optimal. Besides two standard partial equilibrium conditions, I assume that feasible prices satisfy a single-crossing property; and each consumer's indirect utility satisfies increasing differences in the price and income. I use the result to extend well-known welfare conclusions beyond the knife-edge quasilinear utility case. Since increasing differences puts no upper bound on risk aversion, the result is useful for applications in which risk aversion is important.

In 1990, the US had the sixth highest female labor participation rate among 22 OECD countries. By 2010 its rank had fallen to seventeenth. We find that the expansion of “family-friendly” policies, including parental leave and part-time work entitlements in other OECD countries, explains 29 percent of the decrease in US women's labor force participation relative to these other countries. However, these policies also appear to encourage part-time work and employment in lower level positions: US women are more likely than women in other countries to have full time jobs and to work as managers or professionals.

A central bank's resource constraint bounds the dividends it can distribute by the present value of seignorage, which is a modest share of GDP. This is in spite of the mystique behind a central bank's balance sheet. Moreover, the statutes of the Federal Reserve or the ECB make it difficult for it to redistribute resources across regions. In a simple model of sovereign default, where multiple equilibria arise if debt repudiation lowers fiscal surpluses, the central bank may help to select one equilibrium. The central bank's main lever over fundamentals is to raise inflation, but otherwise the balance sheet gives it little leeway.

Mobile money allows households in Kenya to spread risk more efficiently. In this paper we show that these efficiencies are achieved through deeper financial integration and expanded informal networks. Active networks are more geographically dispersed and support more reciprocal financial arrangements. Consistent with the reported reciprocity, mobile money users report a higher share of transactions as being for credit and insurance purposes.

I illustrate the effect of financial innovation on portfolio risks by using an example with risk-sharing needs and belief disagreements. I consider two types of innovation: product innovation, formalized as an expansion of new financial assets; and process innovation, formalized as a reduction in transaction costs. When belief disagreements are large, both types of innovation increase portfolio risks. Moreover, endogenous financial innovation is directed towards speculative assets that increase portfolio risks.

We propose a social choice rule for aggregating preferences elicited from surveys into a marginal adjustment of policy from the status quo. The mechanism is: (i) symmetric in its treatment of survey respondents; (ii) ordinal, using only the orientation of respondents' indifference surfaces; (iii) local, using only preferences in the neighborhood of current policy; and (iv) what we call “first-order strategy-proof,” making the gains from misreporting preferences second order. The mechanism could be applied to guide policy based on how policy affects responses to subjective well-being surveys.

We provide evidence that increased political influence, arising from CIA interventions during the Cold War, was used to create a larger foreign market for American products. Following CIA interventions, imports from the US increased dramatically, while total exports to the US were unaffected. The surge in imports was concentrated in industries in which the US had a comparative disadvantage, not a comparative advantage. Our analysis is able to rule out decreased trade costs, changing political ideology, and an increase in US loans and grants as alternative explanations. We provide evidence that the increased imports arose through direct purchases of American products by foreign governments.