Chaining Supply
The Rise of Star Firms: Intangible Capital and Competition
Meghana Ayyagari, Asli Demirgüç-Kunt & Vojislav Maksimovic
Review of Financial Studies, forthcoming
Abstract:
The large divergence in the returns of top-performing star firms and the rest of the economy is substantially reduced when we account for the mismeasurement of intangible capital. Star firms produce and invest more per dollar in invested capital, have more valuable innovations as measured by the market value of patents, and are as exposed to competitive shocks as nonstars. Star firms have higher markups that are predicted early in their life cycle at a time when they are small. Overall, after we correct for the mismeasurement of intangibles, the evidence points to the superior ability of star firms.
Why Zoning is Too Restrictive
Jack Favilukis & Jaehee Song
University of Colorado Working Paper, August 2023
Abstract:
Hsieh and Moretti (2019) estimate that zoning restrictions lowered aggregate growth by 36%. If restrictions are so costly, why do they exist? We propose a novel theory for why zoning restrictions are more stringent than the social optimum. The more administrative entities -- each making its own zoning decisions -- that a metro is fragmented into, the more restrictive zoning is in the metro. When zoning decisions are made locally, voters choose restrictive zoning due to local congestion externalities but fail to internalize the effects of restrictive zoning on metro-level affordability. Empirically, the HHI of administrative entities within a metro alone explains 18% of the variation in zoning restrictions across the U.S. This theory also provides clear policy advice -- zoning decisions should be at a more global level. Indeed, facing housing affordability crises, several cities, states, and nations have begun to do exactly this.
Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World
Alex Edmans et al.
Management Science, forthcoming
Abstract:
Studying 30 countries, we find that the link between employee satisfaction and stock returns is significantly increasing in a country’s labor market flexibility. This result is consistent with employee satisfaction having greater recruitment, retention, and motivation benefits where firms face fewer hiring and firing constraints and employees have greater ability to respond to satisfaction. Labor market flexibility also increases the link between employee satisfaction and current valuation ratios, future profitability, and future earnings surprises, inconsistent with omitted risk factors and identifying channels through which employee satisfaction may affect stock returns. The findings have implications for the differential profitability of socially responsible investing strategies around the world -- in particular, the importance of considering institutional factors when forming such strategies.
The spillover effects of labor regulations on the structure of earnings and employment: Evidence from occupational licensing
Samuel Dodini
Journal of Public Economics, September 2023
Abstract:
This paper measures how labor regulations affect the structure of earnings and employment in other occupations in the context of occupational licensing. Using a state boundary discontinuity design, I estimate the market spillovers of licensing on other occupations with similar skills, which I classify using hierarchical clustering techniques on skills data from O*NET. I find evidence of negative earnings and employment spillovers, with the largest earnings effects concentrated among women, black, and foreign-born Hispanic workers. These effects lead to greater earnings inequality. The results are most consistent with licensing changing skill- and industry-specific labor demand and with a monopsony model where licensing increases search costs and reduces workers’ outside options.
Expert opinions and negative externalities do not decrease support for anti-price gouging policies
Casey Klofstad & Joseph Uscinski
Research & Politics, September 2023
Abstract:
During disasters, citizens call for “anti-price gouging” policies. However, majorities of economists oppose such policies. For democracy to function, citizens should be responsive to policy-relevant information -- especially from experts. What impact does exposure to the potential negative externalities have on public support for anti-price gouging policies? We hypothesize that if the public were exposed to such information, they would be less supportive of anti-gouging policies. We employ two survey experiments: one administered in Florida (n = 2085), a state prone to hurricane activity, and the second in the United States (n = 2023) at the onset of the COVID-19 pandemic. Both show that the public overwhelmingly supports anti-price gouging policies, regardless of exposure to information about negative externalities, even when it comes from experts.
What Goes Down Must Come Up? Pandemic-Related Misinformation Search Behavior During an Unplanned Facebook Outage
Matt Motta, Juwon Hwang & Dominik Stecula
Health Communication, forthcoming
Abstract:
Pundits and scholars alike suspect that Facebook plays a role in not only exposing Americans to misinformation, but also encouraging them to seek out misinformation from other sources. Whether or not Facebook is responsible for stimulating misinformation search beyond the social networking site, however, is an open question. If Facebook encourages misinformation search behavior, we might expect search volume on other websites to simultaneously decrease when web traffic to Facebook is comparatively low. Here, we exploit a naturally-occurring and exogenous interruption to Facebook’s service to study the site’s impact on misinformation search. Difference-in-difference analyses reveal that minute-by-minute Google searches for pandemic misinformation (e.g., unproven COVID-19 remedies, vaccine conspiracy theories) tended to increase during the outage period, in comparison to a typical day (and vs. a placebo). These findings are less consistent with views that the site stimulates misinformation search, and more consistent with a steady and transferable demand for health misinformation. Our results showcase the importance of examining not only the supply side of misinformation, but also the demand side.
High Risk, Low Reward: A Challenge to the Astronomical Value of Existential Risk Mitigation
David Thorstad
Philosophy & Public Affairs, forthcoming
"Let the astronomical value thesis be the claim that the best available options for reducing existential risk today have astronomical value...Let existential risk pessimism be the view that existential risk this century is very high -- for concreteness, say 20%...In this paper, I use a series of models to draw a counterintuitive conclusion. Across a range of assumptions, existential risk pessimism not only fails to increase the value of existential risk mitigation, but in fact substantially decreases it, so much so that existential risk pessimism threatens to falsify the astronomical value thesis. I suggest that the best way to reconcile existential risk pessimism with the astronomical value thesis relies on a questionable empirical assumption, the time of perils hypothesis that risk is high now, but will soon fall to a very low level."
Stealth Acquisitions and Product Market Competition
John Kepler, Vic Naiker & Christopher Stewart
Journal of Finance, October 2023, Pages 2837-2900
Abstract:
We examine whether and how firms structure their merger and acquisition deals to avoid antitrust scrutiny. There are approximately 40% more mergers and acquisitions (M&As) than expected just below deal value thresholds that trigger antitrust review. These “stealth acquisitions” tend to involve financial and governance contract terms that afford greater scope for negotiating and assigning lower deal values. We also show that the equity values, gross margins, and product prices of acquiring firms and their competitors increase following such acquisitions. Our results suggest that acquirers manipulate M&As to avoid antitrust scrutiny, thereby benefiting their own shareholders but potentially harming other corporate stakeholders.
Human Bias in the Oversight of Firms: Evidence from Workplace Safety Violations
Jonas Heese, Gerardo Perez Cavazos & Andreya Perez Silva
Review of Accounting Studies, forthcoming
Abstract:
We study the effects of mood as a source of human bias on regulators’ oversight and enforcement decisions. We use weather at facilities at the time of an OSHA inspection to proxy for the OSHA compliance officers’ mood. We find that during periods of good mood due to sunny weather, the number of workplace safety violations and dollar penalties assessed by the officer decrease. These effects are more pronounced when OSHA officers have more discretion. In turn, the effect of mood on oversight and enforcement decisions can be mitigated by increased monitoring by the regional OSHA office. Furthermore, our results suggest that there is a slightly higher incidence of workplace accidents after “good mood” inspections. Overall, our findings show that regulators’ mood results in bias in the oversight of firms.
Heterogeneous Real Estate Agents and the Housing Cycle
Sophia Gilbukh & Paul Goldsmith-Pinkham
NBER Working Paper, September 2023
Abstract:
The real estate market is highly intermediated, with 90 percent of buyers and sellers hiring an agent to help them transact a house. However, low barriers to entry and fixed commission rates result in a market where inexperienced intermediaries have a large market share, especially following house price booms. Using rich micro-level data on 8.5 million listings and a novel instrumental variables research design, we first show that houses listed for sale by inexperienced real estate agents have a lower probability of selling, and this effect is strongest during the housing bust. We then study the aggregate implications of the distribution of agents' experience on housing market liquidity by building a dynamic entry and exit model of real estate agents with aggregate shocks. We find that 3.7% more listings would have been sold in a flexible commission equilibrium. It would require a six-fold increase in entry costs for real estate agents to achieve this level of liquidity within the fixed commission framework.
Does Strengthening the Property Rights of Employee-Inventors Spur Innovation? Empirical Evidence on Freedom-to-Create Laws Passed by US States
Shashwat Alok & Krishnamurthy Subramanian
Journal of Law and Economics, May 2023, Pages 369–408
Abstract:
The incompleteness of employment contracts may leave inventors vulnerable to ex post opportunism by their employers, which could curtail their innovative effort. We use passage of freedom-to-create laws by seven US states as a natural experiment to investigate whether laws strengthening the property rights of inventors against employers’ opportunism can foster innovation. We employ a difference-in-differences design that includes a rich set of state, technology, and time fixed effects to compare the quantity and quality of patenting in these seven states vis-à-vis synthetic control states. The laws increased both the number of patents (by 14 percent) and their quality (according to various measures, including citations and the extent of pathbreaking innovation). The increase in innovation was broad, observed for both firm-specific and generic innovation and in firms with and without prior patents.
Patenting inventions or inventing patents? Continuation practice at the USPTO
Cesare Righi & Timothy Simcoe
RAND Journal of Economics, Fall 2023, Pages 416-442
Abstract:
Continuations allow inventors to add new claims to old patents, leading to concerns about unintended infringement and holdup. We study how continuations are used in standard essential patent (SEP) prosecution. Difference in differences estimates suggest that continuation filings increase by 80%–121% after a standard is published. This effect is larger for applicants with licensing-based business models and for patent examiners with a higher allowance rate. Claim language is more similar for SEPs filed after standard publication, and late-filing is positively correlated with litigation. These findings suggest widespread use of continuations to draft patents that are infringed by already-published standards.