Commercial Codes
Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data
Serguey Braguinsky et al.
NBER Working Paper, July 2023
Abstract:
We use the U.S. patent data merged with firm-level datasets to establish new facts about the role of mega firms in generating "novel patents" -- innovations that introduce new combinations of technology components for the first time. While the importance of mega firms in novel patents had been declining until about 2000, it has strongly rebounded since then. The timing of this turnaround coincided with the ascendance of firms that newly became mega firms in the 2000s, and a shift in the technological contents, characterized by increasing integration of Information and Communication Technology (ICT) and non-ICT components. Mega firms also generate a disproportionately large number of "hits" -- novel patents that lead to the largest numbers of follow-on patents (subsequent patents that use the same combinations of technology components as the first novel patent) -- and their hits tend to generate more follow-on patents assigned to other firms when compared to hits generated by non-mega firms. Overall, our findings suggest that mega firms play an increasingly important role in generating new technological trajectories in recent years, especially in combining ICT with non-ICT components.
Policy Decentralization in the Post-Prohibition Era
Andrew Arnold & Holger Sieg
NBER Working Paper, July 2023
Abstract:
We study the decentralization of liquor policies in the Post-Prohibition Era, which is the most famous natural experiment ever conducted with respect to policy decentralization in the U.S. Our empirical analysis exploits a unique feature of this policy change, namely that we observe votes of citizens in public referenda as well as roll call votes of the state legislators affecting the same policy. Our analysis is based on a probabilistic voting model. We show how to identify and estimate a model with a multi-dimensional policy space. These estimates then allow us to map the policy space into an alcohol consumption space. We find that this mapping is highly non-linear. Hence, differences in estimated bliss points in the ideological policy space tend to exaggerate differences in preferences over alcohol consumption. Nevertheless, decentralized policies offer the opportunity to account for heterogeneity in preferences and increase welfare. The optimal decentralized policy increases aggregate welfare by up to 79 percent compared to the optimal uniform policy.
Innovation and the Enforceability of Noncompete Agreements
Matthew Johnson, Michael Lipsitz & Alison Pei
NBER Working Paper, July 2023
Abstract:
Worker mobility across firms can enhance innovation by spreading knowledge, but such mobility may also hinder innovation by making firms reluctant to invest in R&D. A common way that firms limit workers' mobility is with noncompete agreements (NCAs). We examine how the legal enforceability of NCAs affects innovation, as measured by patenting, using data on every state-level NCA enforceability change between 1991-2014. We find that making NCAs easier to enforce ("stricter" enforceability) substantially reduces the rate of patenting: an average-sized increase in NCA enforceability leads a state to have 16-19% fewer citation-weighted patents over the following 10 years. This effect reflects a true loss in innovation rather than a reduction in useless or strategic patents. We then reconcile these findings with contrasting theoretical predictions. Stricter NCA enforceability reduces job mobility and new business formation in innovative industries, suggesting slower knowledge spread. Within publicly-traded firms, stricter NCA enforceability increases investment, but still leads to less innovation, suggesting that any gains from enhanced incentives to invest are more than offset by other ways that NCAs slow down innovation. Finally, using variation in technology classes' exposure to NCA enforceability changes, we show that the economy-wide losses to innovation from strict enforceability are even larger than what our state-level estimates imply.
Financing Competitors: Shadow Banks' Funding and Mortgage Market Competition
Erica Xuewei Jiang
Review of Financial Studies, forthcoming
Abstract:
Using novel shadow bank funding data, I find that shadow banks are funded by the very banks they compete with when originating mortgages. Evidence suggests that banks have market power in the upstream market for shadow banks' funding, which in turn softens mortgage market competition through their strategic behaviors in both markets. I build and calibrate a quantitative model of vertical integration and competition to show that those consumers who would most benefit from shadow bank services are the ones to bear the costs. Secondary market innovation could increase downstream competition by reducing shadow banks' reliance on their competitors.
Temperature and Local Industry Concentration
Jacopo Ponticelli, Qiping Xu & Stefan Zeume
NBER Working Paper, August 2023
Abstract:
We use plant-level data from the US Census of Manufacturers to study the short and long run effects of temperature on manufacturing activity. We document that temperature shocks significantly increase energy costs and lower the productivity of small manufacturing plants, while large plants are mostly unaffected. In US counties that experienced higher increases in average temperatures between the 1980s and the 2010s, these heterogeneous effects have led to higher concentration of manufacturing activity within large plants, and a reallocation of labor from small to large manufacturing establishments. We offer a preliminary discussion of potential mechanisms explaining why large manufacturing firms might be better equipped for long-run adaptation to climate change, including their ability to hedge across locations, easier access to finance, and higher managerial skills.
Public Disclosure and Consumer Financial Protection
Yiwei Dou & Yongoh Roh
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
The U.S. Consumer Financial Protection Bureau has released a database of consumer complaints about banks' financial products to the public since 2013. We find a greater reduction in mortgage applications to banks that receive more mortgage complaints in local markets after the disclosures. The effect is stronger in areas with more sophisticated consumers and higher credit competition, and for banks receiving more severe complaints. The number of monthly mortgage complaints per bank exhibits faster mean reversion after the publication of the database. These findings suggest that the public disclosure of mortgage complaints enhances product market discipline and consumer financial protection.
Unequal Impact of Zestimate on the Housing Market
Runshan Fu et al.
NYU Working Paper, June 2023
Abstract:
We study the impact of Zillow's Zestimate on housing market outcomes and how the impact differs across socio-economic segments. Zestimate is produced by a Machine Learning algorithm using large amounts of data and aims to predict a home's market value at any time. Zestimate can potentially help market participants in the housing market as identifying the value of a home is a non-trivial task. However, inaccurate Zestimate could also lead to incorrect beliefs about property values and therefore suboptimal decisions, which would hinder the selling process. Meanwhile, Zestimate tends to be systematically more accurate for rich neighborhoods than poor neighborhoods, raising concerns that the benefits of Zestimate may accrue largely to the rich, which could widen socio-economic inequality. Using data on Zestimate and housing sales in the United States, we show that Zestimate overall benefits the housing market, as on average it increases both buyer surplus and seller profit. This is primarily because its uncertainty reduction effect allows sellers to be more patient and set higher reservation prices to wait for buyers who truly value the properties, which improves seller-buyer match quality. Moreover, Zestimate actually reduces socio-economic inequality, as our results reveal that both rich and poor neighborhoods benefit from Zestimate but the poor neighborhoods benefit more. This is because poor neighborhoods face greater prior uncertainty and therefore would benefit more from new signals.
The Human Factor in Acquisitions: Cross-industry Labor Mobility and Corporate Diversification
Geoffrey Tate & Liu Yang
Review of Financial Studies, forthcoming
Abstract:
The benefits of internal labor markets are largest when they include industries that utilize similar worker skills, thereby facilitating cross-industry worker reallocation and collaboration. We show that diversifying acquisitions occur more frequently among industry pairs with higher human capital transferability. Such acquisitions result in larger labor productivity gains and are less often undone in subsequent divestitures. Moreover, acquirers retain more high-skill workers and more often transfer workers to jobs in other industries inside the merged firm. Overall, our results link human capital reallocation with the value created by corporate diversification and provide an explanation for seemingly unrelated acquisitions.
When does patent protection spur cumulative research within firms?
Ashish Arora et al.
Journal of Law, Economics, and Organization, forthcoming
Abstract:
We estimate the effect of patent protection on follow-on investments in corporate scientific research. We exploit a new method for identifying an exogenous reduction in the protection a granted patent provides. Using data on public, research-active firms between 1990 and 2015, we find that firms respond to a decrease in patent protection by reducing follow-on research, as measured by a drop in internal citations to an associated scientific article. We study this effect across firms with varying commercialization capabilities and across varying thickness levels of markets for technology. We find that the effect is stronger in technologies where patents are traded less frequently. Our findings are consistent with a stylized model whereby patent protection is a strategic substitute for commercialization capability. Our results imply that stronger patents encourage follow-on research, but also shift the locus of research from big firms toward smaller firms and startups.