Knowledge that Transforms

The pace of job reallocation has declined in the United States in recent decades. We draw insight from canonical models of business dynamics in which reallocation can decline due to (i ) lower dis persion of idiosyncratic shocks faced by businesses, or (ii ) weaker marginal responsiveness of businesses to shocks. We show that shock dispersion has actually risen, while the responsiveness of business-level employment to productivity has weakened. Moreover, declining responsiveness can account for a significant fraction of the decline in the pace of job reallocation, and we find suggestive evidence this has been a drag on aggregate productivity. (JEL D24, E24, E32, J21, J23, J24, L60)

We examine the role of FM radio in mitigating violent conflict. We collect original data on radio broadcasts encouraging defections during the Lord’s Resistance Army (LRA) insurgency. This constitutes the first quantitative evaluation of an active counterinsurgency policy that encourages defections through radio messages. Exploiting random topography-driven variation in radio coverage along with panel variation at the grid-cell level, we identify the causal effect of messaging on violence. Broadcasting defection messages increases defections and reduces fatalities, violence against civilians, and clashes with security forces. Income shocks have opposing effects on both the conflict and the effectiveness of messaging. (JEL D74, L82, O17)

Esther Duflo delivered her Prize Lecture on Sunday 8 December 2019, at the Aula Magna, Stockholm University.

A key question in the literature on motivated reasoning and self-deception is how motivated beliefs are sustained in the presence of feedback. In this paper, we explore dynamic motivated belief patterns after feedback. We establish that positive feedback has a persistent effect on beliefs. Negative feedback, instead, influences beliefs in the short run, but this effect fades over time. We investigate the mechanisms of this dynamic pattern, and provide evidence for an asymmetry in the recall of feedback. Finally, we establish that, in line with theoretical accounts, incentives for belief accuracy mitigate the role of motivated reasoning. (JEL C91, D83, D91)

We estimate the price effect of US import restrictions on washers. The 2012 and 2016 antidumping duties against South Korea and China were accompanied by downward or minor price movements along with production relocation to other export platform countries. With the 2018 tariffs, on nearly all source countries, the price of washers increased nearly 12 percent. Interestingly, the price of dryers—not subject to tariffs—increased by an equivalent amount. Factoring in dryer prices and price increases by domestic brands, the 2018 tariffs on washers imply a tariff elasticity of consumer prices of above one. (JEL F13, F14, F23, L68, 019, P33)

The Bartik instrument is formed by interacting local industry shares and national industry growth rates. We show that the typical use of a Bartik instrument assumes a pooled exposure research design, where the shares measure differential exposure to common shocks, and identification is based on exogeneity of the shares. Next, we show how the Bartik instrument weights each of the exposure designs. Finally, we discuss how to assess the plausibility of the research design. We illustrate our results through two applications: estimating the elasticity of labor supply, and estimating the elasticity of substitution between immigrants and natives. (JEL C51, F14, J15, J22, L60, R23, R32)

This paper analyzes how bounded rationality affects monetary and fiscal policy via an empirically relevant enrichment of the New Keynesian model. It models agents’ partial myopia toward distant atypical events using a new microfounded “cognitive discounting” parameter. Compared to the rational model, (i) there is no forward guidance puzzle; (ii) the Taylor principle changes: with passive monetary policy but enough myopia equilibria are determinate and economies stable; (iii) the zero lower bound is much less costly; (iv) price-level targeting is not optimal; (v) fiscal stimulus is effective; (vi) the model is “ neo-Fisherian” in the long run, Keynesian in the short run. (JEL E12, E31, E43, E52, E62, E70)

Measuring the geographic spillovers from an economic shock remains a challenging econometric problem. In Feyrer, Mansur, and Sacerdote (2017) we study the propagation of positive shocks from the recent boom in oil and gas production in the United States. We regress changes in income per capita on new energy production per capita within increasingly larger geographic circles. James and Smith (2020) proposes instead a single regression of county income per capita on energy production from successively larger donuts around the county. This method controls for production outside of the circle of interest and is likely the appropriate estimation method for estimating the impact of within-county production. Their results suggest that FMS overestimates the impact of new production. We show that we can incorporate similar controls using our basic estimation method and that (unlike James and Smith) these controls do not significantly change our results. To explore these differences, we perform simulation exercises which show that the James-Smith estimation method is biased downward with the heterogeneous population distributions across counties that we observe in the data. (JEL E24, E32, J31, Q35, Q43, R11, R23)

We build an empirical model to attribute delays in mortgage refinancing to psychological costs inhibiting refinancing until incentives are sufficiently strong; and behavior, potentially attributable to information-gathering costs, lowering the probability of household refinancing per unit time at any incentive. We estimate the model on administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households act as if they have high psychological refinancing costs; but older, poorer, and less-educated households refinance with lower probability irrespective of incentives, thereby achieving lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission. (JEL E52, G21, G51, R31)

Publicizing firms’ socially undesirable actions may enhance firms’ incentives to avoid such actions. In 2009, the Occupational Safety and Health Administration (OSHA) began issuing press releases about facilities that violated safety and health regulations. Using quasi-random variation arising from a cutoff rule OSHA followed, I find that publicizing a facility’s violations led other facilities to substantially improve their compliance and experience fewer occupational injuries. OSHA would need to conduct 210 additional inspections to achieve the same improvement in compliance as achieved with a single press release. Evidence suggests that employers improve compliance to avoid costly responses from workers. (JEL J28, J81, K32, L51, M54)