Knowledge that Transforms

We explore the role of charitable giving as a means of political influence. For philanthropic foundations associated with large US corporations, we present three different identification strategies that consistently point to the use of corporate social responsibility in ways that parallel the strategic use of political action committee (PAC) spending. Our estimates imply that 6.3 percent of corporate charitable giving may be politically motivated, an amount 2.5 times larger than annual PAC contributions and 35 percent of federal lobbying. Absent of disclosure requirements, charitable giving may be a form of corporate political influence undetected by voters and subsidized by taxpayers. (JEL D22, D64, D72, L31)

We study the drivers of financial distress using a large-scale field experiment that offered randomly selected borrowers a combination of (i) immediate payment reductions to target short-run liquidity write-downs to target long-run debt constraints. We identify the separate effects of the payment reductions and interest write-downs using both the experiment and cross-sectional variation in treatment intensity. We find that the interest write-downs significantly improved both financial and labor market outcomes, despite not taking effect for three to five years. In sharp contrast, there were no positive effects of the more immediate payment reductions. These results run counter to the widespread view that financial distress is largely the result of short-run constraints. (JEL G56, K35)

African agricultural markets are characterized by low farmer revenues and high consumer food prices. Many have worried that this wedge is partially driven by imperfect competition among intermediaries. This paper provides experimental evidence from Kenya on intermediary market structure. Randomized cost shocks and demand subsidies are used to identify a structural model of market competition. Estimates reveal that traders act consistently with joint profit maximization and earn median markups of 39 percent. Exogenously induced firm entry has negligible effects on prices, and low take-up of subsidized entry offers implies large fixed costs. We estimate that traders capture 82 percent of total surplus. (JEL L13, O13, Q11, Q12, Q13)

Lemoine and Rudik (2017) argues that it is efficient to delay reducing carbon emissions, due to supposed inertia in the climate system’s response to emissions. This conclusion rests upon misunderstanding the relevant earth system modeling: there is no substantial lag between CO 2 emissions and warming. Applying a representation of the earth system that captures the range of responses seen in complex earth system models invalidates the original article’s implications for climate policy. The least-cost policy path that limits warming to 2°C implies that the carbon price starts high and increases at the interest rate. It cannot rely on climate inertia to delay reducing and allow greater cumulative emissions. (JEL H23, Q54, Q58)

Macro-finance theory implies that trend inflation and the equilibrium real interest rate are fundamental determinants of the yield curve. However, empirical models of the term structure of interest rates generally assume that these fundamentals are constant. We show that accounting for time variation in these underlying long-run trends is crucial for understanding the dynamics of Treasury yields and predicting excess bond returns. We introduce a new arbitrage-free model that captures the key role that long-run trends play in determining interest rates. The model also provides new, more plausible estimates of the term premium and accurate out-of-sample yield forecasts. (JEL E31, E43, E47)

We construct a structural model of on-the-job search in which workers differ in skills along several dimensions and sort themselves into jobs with heterogeneous skill requirements along those same dimensions. Skills are accumulated when used, and depreciate when not used. We estimate the model combining data from O*NET with the NLSY79. We use the model to shed light on the origins and costs of mismatch along heterogeneous skill dimensions. We highlight the deficiencies of relying on a unidimensional model of skill when decomposing the sources of variation in the value of lifetime output between initial conditions and career shocks. (JEL J24, J41, J64)

We show that the vast majority of young married men in Saudi Arabia privately support women working outside the home (WWOH) and substantially underestimate support by other similar men. Correcting these beliefs increases men’s (costly) willingness to help their wives search for jobs. Months later, wives of men whose beliefs were corrected are more likely to have applied and interviewed for a job outside the home. In a recruitment experiment with a local company, randomly informing women about actual support for WWOH leads them to switch from an at-home temporary enumerator job to a higher-paying, outside-the-home version of the job. (JEL D83, J16, J22, O15, Z13)

In Imperial Russia, incorporation required an expensive special concession, yet over 4,000 Russian firms incorporated before 1914. I identify the characteristics of incorporating firms and measure the productivity gains and growth in machine power enjoyed by corporations using newly-constructed factory-level panel data compiled from Russian factory censuses. Factories owned by corporations were larger, more productive, and more mechanized than unincorporated factories. Higher productivity factories were more likely to incorporate and, after incorporating, added machine power and became even more labor productive. Russian firms sought the corporate form’s full set of advantages, not just stock markets access, to obtain scarce long-term financing. (JEL D24, G31, G32, L60, N43, N63)

In this paper, we investigate the economic returns to industrial espionage by linking information from East Germany's foreign intelligence service to sector-specific gaps in total factor productivity (TFP) between West and East Germany. Based on a dataset that comprises the entire flow of information provided by East German informants over the period 1970–1989, we document a significant narrowing of sectoral West-to-East TFP gaps as a result of East Germany's industrial espionage. This central finding holds across a wide range of specifications and is robust to the inclusion of several alternative proxies for technology transfer. We further demonstrate that the economic returns to industrial espionage are primarily driven by relatively few high quality pieces of information and particularly strong in sectors that were closer to the West German technological frontier. Based on our findings, we estimate that the average TFP gap between West and East Germany at the end of the Cold War would have been 6.3 percentage points larger had the East not engaged in industrial espionage.

Foreign currency debt is considered a source of financial instability in emerging markets. We propose a theory in which liability dollarization arises from an insurance motive of domestic savers. Since financial crises are associated to depreciations, savers ask for a risk premium when saving in local currency. This force makes domestic currency debt expensive, and incentivizes borrowers to issue foreign currency debt. Providing ex post support to borrowers can alleviate the effect of the crisis on savers’ income, lowering their demand for insurance, and, surprisingly, it can reduce ex ante incentives to borrow in foreign currency. (JEL E21, E42, E44, F34, G01)