Knowledge that Transforms

Present-biased preferences engender a demand for commitment. Commitment is a problematic prediction, since we see so little of it. I quantitatively explore the reasons for the “missing” commitment. Extending the procrastination model in Carroll et al. (2009), I show how equilibrium commitment is related to (i) the standard deviation of the opportunity cost of time, (ii) the cost of delay, (iii) the degree of partial naivete, and (iv) the direct cost of commitment. The calibrated model demonstrates that the perceived benefits of commitment are often overwhelmed by the costs of commitment. Demand for commitment is a special case rather than the general case.

We consider estimation of and inference about coefficients on endogenous variables in a linear instrumental variables model where the number of instruments and exogenous control variables are each allowed to be larger than the sample size. We work within an approximately sparse framework that maintains that the signal available in the instruments and control variables may be effectively captured by a small number of the available variables. We provide a LASSO-based method for this setting which provides uniformly valid inference about the coefficients on endogenous variables. We illustrate the method through an application to demand estimation.

Traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk. In practice, choosing an insurance plan is a complicated decision often made without full information. In this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences, information frictions, and hassle costs. Our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates. We study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro-foundations for welfare analysis.

We explore how changes in ownership affect the productivity and profitability of producers. Using detailed data from the Japanese cotton spinning industry at the turn of the last century, we find that acquired firms' production facilities were not on average less physically productive than the plants of the acquiring firms before acquisition. They were much less profitable, however, due to higher inventory levels and lower capacity utilization—differences that reflected problems in managing the uncertainties of demand. After acquisitions, less profitable acquired plants saw drops in inventories and gains in capacity utilization that raised both their productivity and profitability levels.

Organizations are all around us. Culture is trickier—to analyze and even to see. We consider both the effect of management on culture and the effect of culture on performance. We begin by describing an intervention that dramatically improved outcomes and conspicuously included a culture-change component. We then use details from this intervention to describe potential empirical analyses of the association between organizational culture and performance in this and similar settings. Finally, we describe opportunities for theoretical models to explore how and why organizational culture might influence organizational performance.

By operationalizing the notion of creative destruction, Schumpeterian growth theory generates distinctive predictions on important microeconomic aspects of the growth process (competition, firm dynamics, firm size distribution, cross-firm and cross-sector reallocation) which can be confronted using rich micro data. In this process the theory helps reconcile growth with industrial organization and development economics.

We document the presence of multiple and varied constraints to small and medium firm growth. This presents both a practical problem for business training programs and a challenge to academic economists trying to identify mechanisms though which these programs may affect outcomes. External validity needs theory. This pushes researchers to narrowly defined and highly selected sample frames, which limits the potential for clear, generalizable policy prescriptions. Ultimately, larger samples, multi-arm evaluations, process documentation, and narrowly-focused, theory-supported empirical work are all needed, but the complexity of the problem limits what we learn from any single study.

This paper presents Gary Becker's approach to conducting creative, empirically fruitful economic research. It describes the traits and methodology that made him such a productive and influential scholar.

A corrective tax or subsidy is “well-targeted” if it primarily affects choices that are more distorted by market failures. Energy efficiency subsidies are designed to correct multiple distortions: externalities, credit constraints, “landlord-tenant” information asymmetries, imperfect information, and inattention. We show that three important energy efficiency subsidies are primarily taken up by consumers who are wealthier, own their own homes, and are more informed about and attentive to energy costs. This suggests that these subsidies are poorly targeted at the market failures they were designed to address. However, we show that “tagging” can lead to large efficiency gains.

We provide evidence that unemployment insurance affects equilibrium conditions in the labor market, which creates significant “market externalities.” We provide a framework for identification of such equilibrium effects and implement it using the Regional Extension Benefit Program (REBP) in Austria which extended the duration of UI benefits for a large group of eligible workers in selected regions of Austria. We show that non-eligible workers in REBP regions have higher job finding rates, lower unemployment durations, and a lower risk of long-term unemployment. We discuss the implications of our results for optimal UI policy.