Knowledge that Transforms

The simplicity of the canonical search and matching model offers many advantages for the purpose of understanding the determinants and dynamics of unemployment. However, the spe cial assumption that a firm is composed of a sin gle worker and employer or that the production technology is linear is limiting. Lars A. Stole and Jeffrey Zwiebel (1996), Asher Wolinsky (2000), and Elhanan Helpman and Oleg Itskhoki (2008) generalize the original model to the case of many workers in a firm with a technology characterized by diminishing returns to labor. They find that all employers pay the same wage in steady state equi librium when only unemployed workers search. I extend their model by allowing for search on the job and show that a unique dispersed wage steady state equilibrium also exists with the prop erty that more productive employers pay more and are larger. Furthermore, inefficient characterizes the single wage equi librium, but employment is lower in the dispersed wage equilibrium because employers face stiffer competition. As a consequence, the dispersed wage equilibria can be more efficient. There is a close relationship between the equi libria of the search and matching model studied in this paper and those of the dynamic monopsony models of Peter A. Diamond (1971), Kenneth Burdett and Kenneth L. Judd (1983), and Burdett and Dale T. Mortensen (1998). The single wage equilibrium is the analogue of the Diamond equi librium while a dispersed wage equilibrium exists when employed workers search for essentially the same reason as in the Burdett-Mortensen model. Namely, there exists a nondegenerate interval of wages and a continuous distribution of vacancies over the interval such that the common

I develop a general theory of monopoly pricing of networks. Platforms use insulating tariffs to avoid coordination failure, implementing any desired allocation. Profit maximization distorts in the spirit of A. Michael Spence (1975) by internalizing only network externalities to marginal users. Thus the empirical and prescriptive content of the popular Jean-Charles Rochet and Jean Tirole (2006) model of two-sided markets turns on the nature of user heterogeneity. I propose a more plausible, yet equally tractable, model of heterogeneity in which users differ in their income or scale. My approach provides a general measure of market power and helps predict the effects of price regulation and mergers. (JEL D42, D85, L14)

Consumer Confusion in the Mortgage Market: Evidence of Less Than a Perfectly Transparent and Competitive Market by Susan E. Woodward and Robert E. Hall. Published in volume 100, issue 2, pages 511-15 of American Economic Review, May 2010

In this paper we investigate the relationship between females among the first hires of start-up companies and business success. Our results show that firms with female first hires have a higher share of female workers at the end of the first year after entry. Further, we find that firms with female first hires are more successful and stay longer in the market. We conclude that our results support the hypothesis that gender-diversity in leading positions is an advantage for start-up firms.

We develop a stylized model that captures the phenomena of decoupling and in an environment where heterogeneous entrepreneurial sectors face financial constraints in their relationship with a common set of lenders. In response to adverse shocks, a financially constrained sector must reduce its borrowing and cut down on production. In particular, as the constrained sector absorbs less and less capital, the real interest rate in the economy declines. Other sectors that compete for the same inputs (including capital) thus experience lower costs, which boosts investment, output, and profits, reflecting the phenomenon of decoupling. As long as the shock is small, the entrepreneurial sector repays what is owed and the lenders' ability to supply funds is unaffected. For large shocks, however, the constrained sector is no longer able to honor its debts in full and lenders experience losses that erode their lending base. This induces them to cut their supply of credit to the rest of the economy, which reduces output and profit for all other entrepreneurial sectors, capturing the phenomenon of recoupling or contagion.

Network effects play a central role in industries such as software and electronics. So far, however, their role in shaping biotechnology innovation has largely been overlooked. Since network effects can make markets vulnerable to monopoly, it is important to know whether and to what extent they operate in biology. We address this issue by a multimethod study of academic and commercial stem cell research. We present statistics showing that researchers focus on a tiny fraction of available lines; that network effects provide the best explanation of this phenomenon; and that these effects are primarily driven by reduced user costs due to learning spillovers. We conclude with a model of network effects in biology research and development. Surprisingly, some winner-take-all outcomes are transient, so that antitrust intervention may not be necessary.

Dating to the classic works of Alonso, Mills, and Muth, the production function for housing has played a central role in urban economics and local public finance. This paper provides a new flexible approach for estimating the housing production function which treats housing quantities and prices as latent variables. The empirical analysis is based on a comprehensive database of recently built properties in Allegheny County, Pennsylvania. We find that the new method proposed in this paper works well in the application and provides reasonable estimates for the underlying production function. (JEL C51, D24, R11, R31)

This paper describes a series of laboratory experiments studying whether the form in which items are displayed at the time of decision affects the dollar value that subjects place on them. Using a Becker-DeGroot auction under three different conditions—(i) text displays, (ii) image displays, and (iii) displays of the actual items—we find that subjects' willingness-to-pay is 40–61 percent larger in the real than in the image and text displays. Furthermore, follow-up experiments suggest the presence of the real item triggers preprogrammed consummatory Pavlovian processes that promote behaviors that lead to contact with appetitive items whenever they are available. (JEL C91, D03, D12, D87)

The accessibility of quality schools and educational resources for children are key engines of upward mobility in the United States, holding the potential to break the cycle of poverty from one generation to the next. Inequalities in economic status tend to be correlated across generations in part because of intergenerational correlations in health and education (Rucker C. Johnson 2009). Residential segregation by race and class that leads to unequal access to quality schools is often cited as a culprit in perpetuating inequality in attainment outcomes. Over the past four decades, three major government interventions have had substantial impacts on the provision of school resources and have narrowed black-white differences in access to dimensions of school quality: i) court-mandated school desegregation, ii) state legislation and legal action aimed to change the distribution and level of school funding, and iii) the expansion of targeted preschool programs for disadvantaged children through Head Start. Court ordered school desegregation has been described as the most controversial and ambitious social experiment of the past 50 years. Human Capital, HealtH OutCOmes, and inequality †