Knowledge that Transforms

A central question in the debate over privatized Medicare is whether increased government payments to private Medicare Advantage (MA) plans generate lower premiums for consumers or higher profits for producers. Using difference‑in‑differences variation brought about by a sharp legislative change, we find that MA insurers pass through 45 percent of increased payments in lower premiums and an additional 9 percent in more generous benefits. We show that advantageous selection into MA cannot explain this incomplete pass‑through. Instead, our evidence suggests that market power is important, with premium pass‑through rates of 13 percent in the least competitive markets and 74 percent in the most competitive.

This paper examines whether and how market competition affected the political bias of government-owned newspapers in China from 1981 to 2011. We measure media bias based on coverage of government mouthpiece content ( propaganda) relative to commercial content. We first find that a reform that forced newspaper exits (reduced competition) affected media bias by increasing product specialization, with some papers focusing on propaganda and others on commercial content. Second, lower-level governments produce less-biased content and launch commercial newspapers earlier, eroding higher-level governments’ political goals. Third, bottom-up competition intensifies the politico-economic trade-off, leading to product proliferation and less audience exposure to propaganda.

We analyze bidding data from uniform price auctions of US Treasury bills and notes between July 2009 and October 2013. Primary dealers consistently bid higher yields compared to direct and indirect bidders. We estimate a structural model of bidding that takes into account informational asymmetries introduced by the bidding system employed by the US Treasury. While primary dealers' estimated willingness-to-pay is higher than direct and indirect bidders’, their ability to bid-shade is even higher, leading to higher yield/lower price bids. Total bidder surplus averaged to about three basis points across the sample period along with efficiency losses around two basis points.

We build a model of firm-level innovation, productivity growth, and reallocation featuring endogenous entry and exit. A new and central economic force is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using US Census microdata on firm-level output, R&D, and patenting. The model provides a good fit to the dynamics of firm entry and exit, output, and R&D. Taxing the continued operation of incumbents can lead to sizable gains (of the order of 1.4 percent improvement in welfare) by encouraging exit of less productive firms and freeing up skilled labor to be used for R&D by high-type incumbents. Subsidies to the R&D of incumbents do not achieve this objective because they encourage the survival and expansion of low-type firms.

After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns. Surprisingly, we find that distortions in labor markets, rather than domestic or international capital markets, account for the bulk of these flows. Labor market distortions that indirectly depress investment incentives by lowering equilibrium labor supply explain two-thirds of observed flows, while improvement in these distortions over time accounts for much of Asia's rapid growth.