Exclusivity
Simplicity Creates Inequity: Implications for Fairness, Stereotypes, and Interpretability
Jon Kleinberg & Sendhil Mullainathan
NBER Working Paper, May 2019
Abstract:
Algorithms are increasingly used to aid, or in some cases supplant, human decision-making, particularly for decisions that hinge on predictions. As a result, two additional features in addition to prediction quality have generated interest: (i) to facilitate human interaction and understanding with these algorithms, we desire prediction functions that are in some fashion simple or interpretable; and (ii) because they influence consequential decisions, we also want them to produce equitable allocations. We develop a formal model to explore the relationship between the demands of simplicity and equity. Although the two concepts appear to be motivated by qualitatively distinct goals, we show a fundamental inconsistency between them. Specifically, we formalize a general framework for producing simple prediction functions, and in this framework we establish two basic results. First, every simple prediction function is strictly improvable: there exists a more complex prediction function that is both strictly more efficient and also strictly more equitable. Put another way, using a simple prediction function both reduces utility for disadvantaged groups and reduces overall welfare relative to other options. Second, we show that simple prediction functions necessarily create incentives to use information about individuals' membership in a disadvantaged group — incentives that weren't present before simplification, and that work against these individuals. Thus, simplicity transforms disadvantage into bias against the disadvantaged group. Our results are not only about algorithms but about any process that produces simple models, and as such they connect to the psychology of stereotypes and to an earlier economics literature on statistical discrimination.
The Failure of Free Entry
Germán Gutiérrez & Thomas Philippon
NBER Working Paper, June 2019
Abstract:
We study the entry and exit of firms across U.S. industries over the past 40 years. The elasticity of entry with respect to Tobin’s Q was positive and significant until the late 1990s but declined to zero afterwards. Standard macroeconomic models suggest two potential explanations: rising entry costs or rising returns to scale. We find that neither returns to scale nor technological costs can explain the decline in the Q- elasticity of entry, but lobbying and regulations can. We reconcile conflicting results in the literature and show that regulations drive down the entry and growth of small firms relative to large ones, particularly in industries with high lobbying expenditures. We conclude that lobbying and regulations have caused free entry to fail.
From Good to Bad Concentration? U.S. Industries over the past 30 years
Matias Covarrubias, Germán Gutiérrez & Thomas Philippon
NBER Working Paper, June 2019
Abstract:
We study the evolution of profits, investment and market shares in US industries over the past 40 years. During the 1990’s, and at low levels of initial concentration, we find evidence of efficient con- centration driven by tougher price competition, intangible investment, and increasing productivity of leaders. After 2000, however, the evidence suggests inefficient concentration, decreasing competition and increasing barriers to entry, as leaders become more entrenched and concentration is associated with lower investment, higher prices and lower productivity growth.
What’s in Your Wallet (and What Should the Law Do About It?)
Natasha Sarin
University of Chicago Law Review, forthcoming
Abstract:
In traditional markets, firms can charge prices that are significantly elevated relative to their costs only if there is a market failure. However, this is not true in a two-sided market (like Amazon, Uber, and Mastercard), where firms often subsidize one side of the market and generate revenue from the other. This means consideration of one side of the market in isolation is problematic. The Court embraced this view in Ohio v. American Express, requiring that anticompetitive harm on one side of a two-sided market be weighed against benefits on the other side. Legal scholars denounce this decision, which, practically, will make it much more difficult to wield antitrust as a tool to rein in two-sided markets. This inability is concerning as two-sided markets are growing in importance. Furthermore, the pricing structures used by platforms can be regressive, with those least well-off subsidizing their affluent and financially-sophisticated counterparts. In this Article, I argue that consumer protection, rather than antitrust, is best suited to tame two-sided markets. Consumer protection authority allows for intervention on the grounds that platform users create unavoidable externalities for all consumers. The Consumer Financial Protection Bureau (“CFPB”) has broad power to curtail “unfair, abusive, and deceptive practices.” This authority can be used to restrict practices that decrease consumer welfare, like the anti-steering rules at issue in Ohio v. American Express.
Land Use Regulation and Housing Prices
Desen Lin & Susan Wachter
University of Pennsylvania Working Paper, June 2019
Abstract:
Land use regulations cause local housing supply restrictions and raise local housing prices, as shown in a large empirical literature. If supply is restricted by local regulation, it is likely to cause a spillover of demand to other localities, depending on the regulation in the surrounding jurisdictions, as well as demand. This spillover effect should reduce price rises in the locality imposing regulatory constraints, all else equal. In this paper, we test for home community price effects resulting from regulatory spillovers, which we identify as a general equilibrium effect. We develop a general equilibrium model with household choice on consumption and location and local housing production with empirical implications for which we test. Using property transaction data from 1993 to 2017 in California and a regulatory index compiled from the Wharton Residential Land Use Survey (Gyourko, Saiz and Summers, 2008), we structurally estimate and identify general equilibrium and partial equilibrium effects. Founded on the structural model, we derive an index of relative regulatory restrictiveness that allows us to separate the partial equilibrium effect from the general equilibrium effect in reduced-form analysis. We examine intra- and inter-metro regulatory interdependence and find significant and positive spillover effects of regulation on housing prices.
Does Price Fixing Benefit Corporate Managers?
Tanja Artiga González, Markus Schmid & David Yermack
Management Science, forthcoming
Abstract:
We study the effects of cartel participation on top corporate managers. Although a strong public interest exists in regulating price fixing, we find little evidence that either corporate governance or the legal system holds managers of cartel firms accountable. Instead, managers of cartel firms enjoy greater job security, receive higher cash bonuses, and more aggressively take profits from appreciated stock option awards. Legal sanctions against individual managers are infrequent, with enforcement actions focused on corporations rather than their officers. Managers seem to use concealment strategies actively to limit detection of cartel membership by their boards and auditors.
The Rise and Effects of Homeowners Associations
Wyatt Clarke & Matthew Freedman
Journal of Urban Economics, July 2019, Pages 1-15
Abstract:
In the U.S., nearly 60 percent of recently built single-family houses, and 80 percent of houses in new subdivisions, are part of a homeowners association (HOA). We construct the first near-national map of HOAs using publicly recorded mortgage records for single-family homes. We use these data to document the growth and characteristics of HOAs as well as to examine their relationship with housing prices. We find that houses in HOAs have prices that are on average at least 4 percent, or $13,500, greater than observably similar houses outside of HOAs. The HOA premium correlates with the stringency of local land use regulation, local government spending on public goods, and measures of social attitudes toward race. The data also paint a detailed picture of the people living in HOA neighborhoods, who are on average more affluent and racially segregated than those living in other nearby neighborhoods.
Occupational Licensure and Entrepreneurs: The Case of Tax Preparers in the United States
Kyle Albert, Roman Galperin & Aleksandra Kacperczyk
ILR Review, forthcoming
Abstract:
The authors examine the relationship between entrepreneurship and occupational licensure using data on the universe of more than 700,000 tax preparers in the United States. Prior research suggests that occupational licensure has negative effects on entrepreneurship because it increases the costs of operating a business. By contrast, the authors argue that licensure may allow entrepreneurs to signal quality and enhance their legitimacy. States that require tax preparers to be licensed have higher average rates of entrepreneurship — approximated by tax practice ownership — and, in high-income ZIP codes, more demand for paid preparer services. In the analysis of the introduction of a federal license requirement in tax preparation in 2013, voluntary early adoption of the license by preparers predicts higher chances of survival in the industry. Entrepreneurs are less likely to adopt the license early than are non-entrepreneurs, unless they lack other state-level credentials. Results thus suggest that licensure represents a trade-off for entrepreneurs between the costs of obtaining a license and the benefits of signaling quality and legitimacy.
Antitrust in the Internet Era: The Legacy of United States v. A&P
Timothy Muris & Jonathan Nuechterlein
Review of Industrial Organization, June 2019, Pages 651–681
Abstract:
Critics from both the right and the left claim that modern antitrust doctrine, rooted in consumer welfare, is inadequate to handle the challenges of the twenty-first century economy. They express nostalgia for 1960s antitrust, when the field had no clear objectives and cases were decided on impressionistic notions of “fairness” and good corporate citizenship. This article exposes the intellectual void at the heart of this new populist movement and begins by following Justice Holmes’ tenet that “a page of history is worth a volume of logic.” More than 80 years ago, the A&P grocery chain was a vertically integrated retailer that made use of unprecedented scale and innovation to offer consumers a wider range of products than the competition and at lower prices. Yet A&P’s very success, which came at the expense of smaller and less efficient competitors, triggered a backlash: first from Congress, in the form of the Robinson–Patman Act, and then from the Justice Department, in the form of successful prosecution under the Sherman Act. These attacks on A&P bear an eerie resemblance to attacks today on leading online innovators. Increasingly integrated and efficient retailers — first A&P; then “big box” brick-and-mortar stores; and now online retailers — have challenged traditional retail models by offering consumers lower prices and greater convenience. For decades, critics across the political spectrum have reacted to such disruption by urging Congress, the courts, and the enforcement agencies to stop these American success stories by revising antitrust doctrine to protect small businesses rather than the interests of consumers. Using antitrust law to punish pro-competitive behavior makes no more sense today than it did when the government attacked A&P for offering consumers too good a deal on groceries. In addition, antitrust doctrine does not need an overhaul. It is shaped by many economic perspectives, follows no one “School,” and is flexible enough to address any monopoly abuses in today’s economy. It is also well-calibrated to serve its central function: promoting consumer welfare. It does so not only by prohibiting conduct that harms consumers in the long run, but also by avoiding interference with conduct that might appear problematic to non-economists but that demonstrably benefits consumers over time. Antitrust remains a work in progress, but it is far superior to any alternative that the critics propose.
Stuck in Traffic: Measuring Congestion Externalities with Negative Supply Shocks
Roberto Mosquera
Texas A&M University Working Paper, June 2019
Abstract:
Traffic congestion is one of the most challenging issues of urban agglomeration. Congestion costs are often higher than their socially optimal levels because of a missing market problem: roads are generally not priced. Relatively little is known about the key parameters needed to design an optimal congestion policy. This paper addresses this issue by estimating the effect of an additional vehicle on traffic congestion and documenting the substitution patterns to other transportation modes caused by changes in the number of vehicles in New York City. I exploit an exogenous reduction in for-hire vehicle supply during major Muslim holidays. The estimates indicate that during these holidays the number of active vehicles decreases by 9.1 percent of the total, which decreases congestion by 0.46 minutes per mile. As vehicles leave the streets, the estimates show that the number of for-hire trips decreases, resulting in increased waiting times and people switching to other transportation modes. Welfare increases for those who travel by vehicle because travel time is reduced. However, welfare decreases for those who face increased wait times or switch to a less-preferred transportation mode. A calibration exercise suggests that this reduction of vehicles results in daily net welfare gains between $8 and $13 million.
Understanding Patent “Privateering”: A Quantitative Assessment
Jay Kesan, Anne Layne‐Farrar & David Schwartz
Journal of Empirical Legal Studies, June 2019, Pages 343-380
Abstract:
Since 2011, several papers and articles have speculated about the motivations, activities, and possible anti‐competitive effects of hybrid patent assertion entities (PAEs) or, more pejoratively, “patent privateers.” Most prior work has assumed that privateers are essentially extorting money from firms by making weak infringement claims employing weak patents. Under a more classical law and economics approach, we would expect patent privateers to acquire valuable patents to reduce litigation risk and justify patent enforcement. However, to date, there has been no quantitative analysis on this form of patent holder to support or disprove either of these theoretical viewpoints. This article takes a first step toward filling that gap in the analysis by conducting an empirical assessment of patent lawsuits filed between 2010 and 2013. Although several studies have provided useful analysis on who litigates patents and which patents are more likely to be litigated, we add new variables and insights to the analysis. First, our dataset identifies the business models of the parties involved, including hybrid PAEs. Second, we include data on patent reassignments, which allows us to identify when a hybrid PAE takes (partial) possession of a patent. Third, for making comparisons between litigated and unlitigated patents, our dataset includes a set of unlitigated patents that match our litigated patent dataset on several key variables. In this work, we explore three interesting questions: (1) What patent characteristics predict a patent's acquisition by a hybrid PAE? (2) Do hybrid PAEs acquire patents that are more likely to be litigated? and (3) Does reassignment to a hybrid PAE affect the time when a patent is first asserted in litigation? We find that hybrid PAEs tend to acquire patents in the information technology, surgery, and medical instrument fields more often than patents in other technology areas. Hybrid PAEs also obtain relatively higher‐quality patents than average, but objective quality metrics generally are on par when compared to patents litigated by firms with other business models. Our analysis also suggests that hybrid PAEs prefer patents with a broader scope of protection. Reassigning a patent to a hybrid PAE is generally associated with higher odds that the patents will be litigated. Finally, patents held by hybrid PAEs at some point in their lifespan experience their first litigation later than those never held by a hybrid PAE. In short, our analysis suggests that patent privateers appear to be focused on improving the possibility of successful patent monetization by focusing on acquiring higher‐quality patents with a broader scope of protection, as value and scope are perceived by economists. This research is consistent with the law and economics theory that hybrid PAEs acquire valuable patents and not the extortion theory that they acquire weak patents.
The growth-maximizing level of regulation: Evidence from a panel of international data
Jac Heckelman & Bonnie Wilson
European Journal of Political Economy, forthcoming
Abstract:
Existing evidence suggests that regulation diminishes economic growth. In theory, however, regulation may be either growth-enhancing or diminishing. We therefore empirically revisit the relation between regulation and growth, allowing for both positive and negative effects. In an unbalanced panel of 132 countries over eight time periods, we find evidence of a hump-shape relation between regulation and growth. The estimates imply that for more than 95% of the sample the total effect of regulation on growth is positive. The estimates also imply that about 60% of the sample observations are associated with over-regulation, relative to the growth-maximizing level. Similar findings apply to the (majority) subsample of non-OECD nations in the dataset. However, for the (minority) subsample of OECD nations, both the total and marginal effects of regulation on growth are negative.