Knowledge that Transforms

Economywide Implications from US Bioenergy Expansion by Mark Gehlhar, Agapi Somwaru, Peter B. Dixon, Maureen T. Rimmer and Ashley R. Winston. Published in volume 100, issue 2, pages 172-77 of American Economic Review, May 2010

Trade and Carbon Taxes by Joshua Elliott, Ian Foster, Samuel Kortum, Todd Munson, Fernando Pérez Cervantes and David Weisbach. Published in volume 100, issue 2, pages 465-69 of American Economic Review, May 2010

Earnings losses of Connecticut workers affected by mass layoff are calculated using administrative data. Estimated reductions are initially more than 30 percent and six years later, as much as 15 percent. The Connecticut estimates are smaller than comparable ones from Pennsylvania administrative data but similar to those from the Panel Study of Income Dynamics (PSID) and Department of Workforce Services (DWS). Earnings reductions in Connecticut and Pennsylvania are concentrated among Unemployment Insurance recipients. An unusually high proportion of Unemployment Insurance beneficiaries in Pennsylvania explains the larger estimated losses relative to other studies. Fixed-effects, random growth, and matching estimators produced similar earnings loss estimates suggesting each is relatively unbiased in this context.

During the 1990s, anti-sweatshop activists campaigned to improve conditions for workers in developing countries. This paper analyzes the impact of anti-sweatshop campaigns in Indonesia on wages and employment. Identification is based on comparing the wage growth of workers in foreign-owned and exporting firms in targeted regions or sectors before and after the initiation of anti-sweatshop campaigns. We find the campaigns led to large real wage increases for targeted enterprises. There were some costs in terms of reduced investment, falling profits, and increased probability of closure for smaller plants, but we fail to find significant effects on employment.

This paper studies how agents with conflicting interests learn to cooperate when the details of cooperation are not common knowledge. It considers a repeated game in which one player has incomplete information about when and how her partner can provide benefits. Initially, monitoring is imperfect and cooperation requires inefficient punishment. As the players' common history grows, the uninformed player can learn to monitor her partner's actions, which allows players to establish more efficient cooperative routines. Because revealing information is costly, it may be optimal not to reveal all the existing information, and efficient equilibria can be path-dependent.

We analyze how contractibility affects contract design. A major concern when designing research agreements is that researchers use their funding to subsidize other projects. We show that, when research activities are not contractible, an option contract is optimal. The financing firm obtains the option to terminate the agreement and, in case of termination, broad property rights. The threat of termination deters researchers from cross-subsidization, and the cost of exercising the termination option deters the financing firm from opportunistic termination. We test this prediction using 580 biotechnology research agreements. Contracts with termination options are more common when research is non-contractible.

In a paper in the March 2004 AER, Justine Hastings concludes that the acquisition of an independent gasoline retailer, Thrifty, by a vertically integrated firm, ARCO, is associated with sizable price increases at competing stations. To better understand the mechanism to which she attributes this effect – which combines vertical integration and rebranding – we attempted but ultimately failed to reproduce the results using alternative data.

The 1960s ushered in a new era in US demographic history characterized by significantly lower fertility rates and smaller family sizes. What catalyzed these changes remains a matter of considerable debate. This paper exploits idiosyncratic variation in the language of "Comstock" statutes, enacted in the late 1800s, to quantify the role of the birth control pill in this transition. Almost 50 years after the contraceptive pill appeared on the US market, this analysis provides new evidence that it accelerated the post-1960 decline in marital fertility.

This paper focuses on the importance of equity markets in facilitating the exit of entrepreneurs investing in technology. Entrepreneurs' willingness to invest and aggregate output is affected in two opposite ways. First, uncertainty about equity price or lack of market liquidity discourages technology adoption. This can explain slow technology adoption and limited participation by venture capitalists in underdeveloped equity markets. Second, fast adoption is a positive signal to imperfectly informed equity market participants. This provides a rational explanation for overpricing technology stocks and overinvestment in developed markets. Fast adoption is most probable at an intermediate quality of information.

Long Run Risks, Credit Markets, and Financial Structure by Harjoat S. Bhamra, Lars-Alexander Kuehn and Ilya A. Strebulaev. Published in volume 100, issue 2, pages 547-51 of American Economic Review, May 2010