Capturing Rent
Does Vertical Integration Spur Investment? Casting Actors to Discover Stars during the Hollywood Studio Era
Andrew Hanssen & Alexander Raskovich
Journal of Law and Economics, November 2020, Pages 631-666
Abstract:
The Hollywood studio era of the 1930s and 1940s was remarkable for its abundance of glamorous stars. In this paper, we investigate whether the vertical structure of the Hollywood studios, by ensuring studios’ claims to “star capital,” spurred higher levels of investment in discovering stars than was (or is) achievable under alternate regimes (such as today’s film-by-film contracting). The vertical structure consisted of backward integration into talent through long-term contracts and forward integration into exhibition through ownership of theater chains. The investment involved the experimental casting of novice actors to gauge audience appeal. Collecting data on thousands of actors whose careers span nearly three-quarters of a century and conducting several sets of tests, we find evidence of higher levels of investment in actors working under the vertical structure of the studio era than in actors working under alternate regimes.
How many regulations does it take to get a beer? The geography of beer regulations
Aaron Staples, Dustin Chambers & Trey Malone
Regulation & Governance, forthcoming
Abstract:
Although the influence of regulations on economic outcomes has been well documented, few studies have focused on the geography of regulatory burdens. The regulations confronting any supply chain can vary dramatically across legislative jurisdictions, as U.S. policy is enforced by overlapping federal, state, and local governments. We use a unique data set to explore state‐by‐state regulatory variation in U.S. beer supply chains in 2020. We find that the state‐level rules targeted at the beer supply chain vary between 1,177 and 25,399, with the average state implementing 10,212 formal regulatory restrictions.
State Sponsors of Terrorism Disclosure and SEC Financial Reporting Oversight
Robert Hills, Matthew Kubic & William Mayew
Journal of Accounting and Economics, forthcoming
Abstract:
We examine whether SEC effort to review state sponsors of terrorism (SST) disclosure negatively influences financial reporting oversight. Using comment letter inquiries about SST to measure effort, we find the likelihood that the SEC fails to identify a financial reporting error increases when comment letters reference SST. Consistent with SST disclosure review crowding out financial reporting oversight, comment letters referencing SST are less likely to mention accounting, non-GAAP, and MD&A issues. These effects are unique to SST as we find comment letter references to non-SST issues complement financial reporting oversight. Data obtained through a Freedom of Information Act request reveals a temporal shift in the occupational mix of SEC reviewers towards (away from) lawyers (accountants) that coincides with an increased focus on SST. Path analysis reveals that accountants (lawyers) are more (less) likely to detect errors and comment on financial reporting topics, with an indirect path through SST exacerbating these effects.
The Dynamic Effects of Antitrust Policy on Growth and Welfare
Laurent Cavenaile, Murat Alp Celik & Xu Tian
Journal of Monetary Economics, forthcoming
Abstract:
To study the dynamic effects of antitrust policy on growth and welfare, we develop and estimate the first general equilibrium model with Schumpeterian innovation, oligopolistic product market competition, and endogenous M&A decisions. The estimated model reveals that: (1) Existing policies generate gains in growth and welfare. (2) Strengthening antitrust enforcement could deliver substantially higher gains. (3) The dynamic long-run effects of antitrust policy on social welfare are an order of magnitude larger than the static gains from higher allocative efficiency in production. (4) Current HHI-based antitrust rules leave the majority of anticompetitive acquisitions undetected, highlighting the need for alternative guidelines.
A mathematical model of unintended consequences: Fisher’s geometric model and social evolution
Allen Orr & Lynne Orr
Journal of Bioeconomics, April 2021, Pages 107-119
Abstract:
Biological change and social change are similar. Both involve attempts to alter complex arrangements that have been pieced together through long periods of time. And both run the risk of unintended consequences. In biology, an apparently helpful mutation that confers, say, insecticide resistance in an insect might inadvertently also cause, say, sterility. And in societies, an apparently helpful change to correct a conspicuous problem might inadvertently also cause other, perhaps more serious, problems. Biological and social change also differ in some ways. Biological evolution depends on a random process of mutation whereas social change involves agents who sometimes rationally conceive of ideas directed at fixing a problem. Evolutionary biologists have modeled biological change using Fisher’s so-called geometric model of adaptation. Here we slightly modify Fisher’s model to study social change. We find that, even when agents (e.g., central planners) are skilled enough to perfectly correct the problem that they set out to fix, unintended consequences are so common and severe that half the time society is left worse off than before. Put differently, the median society is no better or worse off after a “perfect” intervention than before.
Real Effects of Information Frictions Within Regulators: Evidence from Workplace Safety Violations
Aneesh Raghunandan & Thomas Ruchti
Carnegie Mellon University Working Paper, April 2021
Abstract:
The Occupational Safety and Health Administration (OSHA) is decentralized, where individual state-level field offices are responsible for undertaking inspections and sharing case information with other offices. Interviews with compliance officers suggest that this information structure leads to within-regulator information frictions. We study whether such frictions affect how overseen firms comply with workplace safety laws. We find evidence of geographic substitution, i.e., firms caught violating in one state subsequently violate less in that state, instead shifting violations elsewhere. Two key channels drive geographic substitution: inspections and punishment. Violations in one state do not trigger proactive OSHA inspections in other states. Moreover, firms face lower monetary penalties when shifting violations across state lines, consistent with greater frictions in the sharing of documentation required to assess severe penalties. Finally, more profitable firms shift violations less and firms with worse governance or culture shift violations more. While prior work highlights how internal information within firms affects corporate misconduct, our findings suggest that internal information within regulators impacts the likelihood and location of corporate misconduct as well.
Quantifying Market Power and Business Dynamism in the Macroeconomy
Jan De Loecker, Jan Eeckhout & Simon Mongey
NBER Working Paper, May 2021
Abstract:
We propose a general equilibrium economy with oligopolistic output markets in which two channels can cause a change in market power: (i) technology, via changes to productivity shocks and the cost of entry, (ii) market structure, via changes to the number of potential competitors. First, we disentangle these narratives by matching time-series on markups, labor reallocation and costs between 1980 and 2016, finding that both channels are necessary to account for the data. Second, we show that changes in technology and market structure over this period yielded positive welfare effects from reallocation and selection, but off-setting negative effects from deadweight loss and overhead. Overall, welfare is 9 percent lower in 2016 than in 1980. Third, the changes we identify replicate cross-sectional patterns in declining business dynamism, declining equilibrium wages and labor force participation, and sales reallocation toward larger, more productive firms.
Concentration in Product Markets
Lanier Benkard, Ali Yurukoglu & Anthony Lee Zhang
NBER Working Paper, April 2021
Abstract:
This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper's main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are “highly concentrated” as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others' home product markets.
Platform, Anonymity, and Illegal Actors: Evidence of Whac-a-Mole Enforcement from Airbnb
Jian Jia & Liad Wagman
Journal of Law and Economics, November 2020, Pages 729-761
Abstract:
Airbnb, a prominent sharing-economy platform, offers dwellings for short-term rent. Despite restrictions, some sellers illegally offer their accommodations, taking advantage of a degree of anonymity proffered by the platform to hide from potential enforcement. We study the extent to which enforcement works in Manhattan, one of the most active short-term rental markets, by testing the effects of two recent enforcement events. We find a negative effect on the number of entire-home listings in Manhattan and positive effects on the prices and occupancies of remaining listings following each enforcement event, which suggests that some illegal listings are withdrawn from the market. We demonstrate evidence suggesting that a portion of withdrawn listings reenter the market under the less enforced listing category of private rooms.
Guaranteed Markets and Corporate Scientific Research
Sharon Belenzon & Larisa Cioaca
NBER Working Paper, April 2021
Abstract:
Firms invest in scientific research to increase their chances of landing lucrative procurement contracts with the U.S. government. This is an important, but understudied channel through which the government encourages corporate research, particularly when other market mechanisms are insufficient. Using data on $2.3 trillion in contracts matched to 4,323 publicly traded manufacturing firms from 1980 through 2015, we estimate the effect of procurement contracts on upstream (scientific publications) and downstream (patents) corporate R&D. We document a positive effect of contracts on publications, and show that the effect is stronger when market incentives are weak. Procurement contracts encourage publications that: (i) are not used in the firm's internal inventions, (ii) spill over to rivals' inventions, and (iii) are not protected by patents. However, the effect has weakened over time, because the U.S. government has emphasized reduced cost and increased efficiency and transparency in contract awards. Following such policy reforms as the Federal Acquisition Streamlining Act of 1994, the share of R&D contracts in all contracts declined from a high of 25 percent in 1998 to 7 percent in 2015, while the share of commercial contracts grew from 6 percent to 14 percent over the same period. Our results imply that the reorientation of government procurement toward commercially proven technologies has contributed to the withdrawal of corporations from participating in scientific research.
Book-or-Drive: The Impact of Ridesharing on the Automobile Industry
Ayush Sengupta, Shu He & Xinxin Li
University of Connecticut Working Paper, March 2021
Abstract:
This paper empirically examines the impact of Uber, an online ridesharing platform, on automobile registrations, a sales performance indicator in the traditional, mature automobile industry in the United States. We leverage the sequential entry of Uber in different locations in a natural experiment setting and use the staggered difference-in-differences (DID) econometric model to estimate this impact. Our dataset includes yearly observations of Uber’s entry and automobile registration that span more than 600 counties from 2010 to 2017. The results suggest that Uber’s entry has an overall negative effect on automobile registrations, and this effect sustains for another year after entry. The negative effect manifests significantly for counties with larger values of GDP, population, and population density but can become insignificant for counties with smaller values. Our results are robust to matching, placebo tests, and the consideration of Uber’s endogenous entry decision, and are reinforced by the analysis of Uber’s search intensity on Google. Our findings have important managerial and policy implications and contribute to the growing stream of research on the social and economic impacts of sharing economy.
The Effects of Disclosure and Enforcement on Payday Lending in Texas
Jialan Wang & Kathleen Burke
NBER Working Paper, May 2021
Abstract:
Inspired by the field experiment in Bertrand and Morse (2011), the state of Texas adopted an information disclosure for consumers taking out payday loans starting in January, 2012. The disclosure compares the cost of payday loans with other credit products, and presents their likelihood of renewal in easy-to-understand terms. Simultaneously, Austin and Dallas implemented stricter supply restrictions through city ordinances. We analyze both types of regulations, and find that the statewide disclosures led to a significant and persistent 13% decline in loan volume in the first six months after implementation. The city ordinances led to a 62% decline in loan volume in Austin and a 20% decline in Dallas, with the timing of the effect driven by the start of enforcement rather than the effective date of regulation. The results show that both behaviorally-motivated disclosures and city-level supply restrictions can have a significant impact on equilibrium loan quantities, with no effect on prices or evidence of evasive income falsification.