Free rein
It's No Accident: Evaluating the Effectiveness of Vehicle Safety Inspections
Alex Hoagland & Trevor Woolley
Contemporary Economic Policy, forthcoming
Abstract:
An increase in technology means that vehicles are more reliable than in the past. Accordingly, states have begun to discontinue their requirements for vehicle safety inspections. To gauge the effect of such changes, we examine traffic fatality data from 2000 to 2015, with emphasis on New Jersey, which ended safety inspection requirements in 2010. Utilizing a synthetic controls approach, we conclude that ending these requirements did not result in a significant increase in the frequency or intensity of accidents due to car failure, implying that the consumer and government expenditures used for inspections could be reallocated to other areas of travel safety.
Is Aggregate Market Power Increasing? Production Trends Using Financial Statements
James Traina
University of Chicago Working Paper, February 2018
Abstract:
Recent work in macroeconomics argues that firm market power dramatically increased since the 1980s. Using financial statement data, I find that public firm markups increased only modestly over this time period, and are within historical variation. These estimates improve on earlier work by accounting for marketing and management expenses, which I document are a rising share of costs in firm production. Markups are increasing in firm size and vary by sector. Reasonable calibrations accounting for the representativeness of public firms show a flat or even decreasing aggregate markup.
Public Communication and Collusion in the Airline Industry
Gaurab Aryal, Federico Ciliberto & Benjamin Leyden
University of Virginia Working Paper, February 2018
Abstract:
We investigate whether the top management of all legacy U.S. airlines used their quarterly earnings calls as a mode of communication with other airlines to coordinate output reduction (fewer passenger seats) on competitive routes. We build an original and novel dataset on the public communication content from the earnings calls, and use Natural Language Processing techniques from computational linguistics to parse and code the text from earnings calls by airline executives to measure communication. Then we determine if mentioning terms associated with ``capacity discipline'' is a way to sustain collusion on capacity. The estimates show that when all legacy carriers in a market communicate ``capacity discipline,'' it leads to a substantial reduction in the number of seats offered in the market. We find that the effect is driven entirely by legacy carriers, and also that the reduction is larger in smaller markets. Finally, we leverage our high-dimensional text data to develop novel approaches to implement falsification tests and check conditional exogeneity, and confirm that our finding -- legacy airlines use public communication regarding capacity discipline to collude -- is not spurious.
Privacy law as price control
Caleb Fuller
European Journal of Law and Economics, April 2018, Pages 225-250
Abstract:
The median Internet user is concerned about digital advertisers collecting personal information. To address these fears, the European Union passed the Privacy Directive to regulate the common business practice of information collection. This paper investigates the potential effects of this regulation, finding that the law is likely to generate several unintended consequences. Economists and legal scholars acknowledge that personal data serves as the “price” for accessing many digital platforms. I extend this logic to argue that if a regulation enables consumers to stop supplying this information, while continuing to consume the site’s content, it is equivalent to a price control. Next, I discuss unintended consequences that this price control may generate: tie-in sales, investment flight, and altered exchange characteristics. Lastly, I conclude that, just as with traditional price controls, the privacy price control may be a way for government officials to enhance their popularity with the citizenry. In short, my analysis suggests that one of the most well-researched policy interests of economics - the theory of price controls - can shed light on one of economists’ newest interests: digital privacy.
When Do Renters Behave Like Homeowners? High Rent, Price Anxiety, and NIMBYism
Michael Hankinson
American Political Science Review, forthcoming
Abstract:
How does spatial scale affect support for public policy? Does supporting housing citywide but “Not In My Back Yard” (NIMBY) help explain why housing has become increasingly difficult to build in once-affordable cities? I use two original surveys to measure how support for new housing varies between the city scale and neighborhood scale. Together, an exit poll of 1,660 voters during the 2015 San Francisco election and a national survey of over 3,000 respondents provide the first experimental measurements of NIMBYism. While homeowners are sensitive to housing’s proximity, renters typically do not express NIMBYism. However, in high-rent cities, renters demonstrate NIMBYism on par with homeowners, despite continuing to support large increases in the housing supply citywide. These scale-dependent preferences not only help explain the deepening affordability crisis, but show how institutions can undersupply even widely supported public goods. When preferences are scale dependent, the scale of decision-making matters.
The Rise in Household Spending Concentration
Brent Neiman & Joseph Vavra
University of Chicago Working Paper, February 2018
Abstract:
Using detailed scanner data, we document a steady and significant increase in the concentration of household spending across products. However, households are increasingly segmenting and concentrating expenditures on different products, so aggregate product concentration has actually declined even as product concentration within households has risen. While there is some heterogeneity, rising household product concentration is pervasive across geographic locations, product categories, and demographic groups. We show household concentration grows most rapidly in retail chains that introduce the most new products and that households with more concentrated product spending pay more for the products they purchase. These patterns suggest rising market power for suppliers may be associated with increased benefits to consumers as they purchase increasingly differentiated products.
Economic Freedom and Income Levels across U.S. States: A Spatial Panel Data Analysis
Joshua Hall, Donald Lacombe & Timothy Shaughnessy
Contemporary Economic Policy, forthcoming
Abstract:
There is a large literature estimating the effect of economic freedom on economic growth or income levels. Most studies examine the relationship between economic freedom and growth or income levels for countries, while a few examine the relationship for U.S. states. Absent in the state‐level literature is consideration of the presence of spatial spillovers affecting the freedom‐income relationship. Neglecting to account for spatial autocorrelation can bias estimation results and therefore inferences drawn. We find evidence of a spatial pattern in real per‐capita gross state product (GSP) that affects nonspatial estimates of the freedom‐income relationship. Taking into account the direct and indirect effects of economic freedom on real per‐capita GSP, we find a 10% increase in economic freedom is associated with a 5% increase in real per‐capita GSP.
The Impact of Artificial Intelligence on Innovation
Iain Cockburn, Rebecca Henderson & Scott Stern
NBER Working Paper, March 2018
Abstract:
Artificial intelligence may greatly increase the efficiency of the existing economy. But it may have an even larger impact by serving as a new general-purpose “method of invention” that can reshape the nature of the innovation process and the organization of R&D. We distinguish between automation-oriented applications such as robotics and the potential for recent developments in “deep learning” to serve as a general-purpose method of invention, finding strong evidence of a “shift” in the importance of application-oriented learning research since 2009. We suggest that this is likely to lead to a significant substitution away from more routinized labor-intensive research towards research that takes advantage of the interplay between passively generated large datasets and enhanced prediction algorithms. At the same time, the potential commercial rewards from mastering this mode of research are likely to usher in a period of racing, driven by powerful incentives for individual companies to acquire and control critical large datasets and application-specific algorithms. We suggest that policies which encourage transparency and sharing of core datasets across both public and private actors may be critical tools for stimulating research productivity and innovation-oriented competition going forward.
Mergers and Product Quality: Evidence from the Airline Industry
Yongmin Chen & Philip Gayle
International Journal of Industrial Organization, forthcoming
Abstract:
Retrospective studies of horizontal mergers have focused on their price effects, leaving the important question of how mergers affect product quality largely unanswered. This paper empirically investigates this issue for two recent airline mergers. Consistent with the theory that mergers facilitate coordination but diminish competitive pressure for quality improvement, we find that each merger is associated with a quality decrease (increase) in markets where the merging firms had (had no) pre-merger competition with each other, and the quality change can have a U-shaped relationship with pre-merger competition intensity. Consumer gains/losses associated with quality changes, which we monetize, are substantial.
The Exceptionalism of the Open Space Issue in American Politics
William Lowry
Social Science Quarterly, forthcoming
Methods: We test this assertion with econometric analyses of outcomes from over 600 state ballot measures on environmental and energy issues.
Results: We find exceptional support for open space ballot measures in simple comparisons and in fuller models of ballot measure passage. As one example, over 80 percent of the open space measures pass, whereas 50 percent of all the other measures pass.
Demand Interactions in Sharing Economies: Evidence from a Natural Experiment Involving Airbnb and Uber/Lyft
Shunyuan Zhang et al.
Carnegie Mellon University Working Paper, January 2018
Abstract:
The existing research has largely focused on the impact of sharing economy on incumbent industries while ignoring the interactions among sharing economies. In this study, we examine how ride sharing services such as Uber and Lyft affect the demand for home sharing services such as Airbnb. Our identification strategy hinges on a natural experiment where Uber and Lyft exited Austin in May 2016 in response to the introduction of new regulations in Austin that targeted ride sharing services. Applying the Difference-in-Difference approach on a 9-month balanced longitudinal data spanning 7,300 Airbnb properties across 7 US cities, we find that the exit of Uber/Lyft led to a decrease of 9.6% in the Airbnb property demand, which is equivalent to a decrease of $6,482 in the annual revenue to the host of an average property. We further find that the exit of Uber/Lyft reduced the (geographic) demand dispersion of Airbnb. The demand became more concentrated in areas with access to better public transportation services. Moreover, the properties farther from downtown experienced greater decreases in their demand in the absence of Uber/Lyft. The results indicate that Uber and Lyft affect the demand for Airbnb properties primarily by reducing the transportation costs to and from Airbnb properties that otherwise have poor access to transportation services.
Something in Common: Competitive Dissimilarity and Performance of Rivals with Common Shareholders
Brian Connelly et al.
Academy of Management Journal, forthcoming
Abstract:
Economists have long held that bringing firms under the umbrella of a common ownership structure creates monopolistic conditions that reduce competition. We challenge this view by investigating competition between firms in a nuanced manner. We examine the competitive and performance implications of common institutional ownership, which occurs when an institutional investor owns a sizeable number of shares in two publicly traded firms. We argue that rival firms with common ownership structures will engage in dissimilar competitive action repertoires to avoid direct competition with each other. Competing aggressively, but with dissimilar action repertoires, allows rivals to maintain high levels of performance. Competing with dissimilar action repertoires also helps ensure that performance disparity between the two firms remains low. In other words, competitive aggressiveness with dissimilar action repertoires yields an optimal competitive solution for rival firms and their common owners.
Home production, expenditure, and economic geography
Daniel Murphy
Regional Science and Urban Economics, May 2018, Pages 112-126
Abstract:
This paper proposes a new microfoundation for the benefits of urban density. Market production of services is efficient because customers effectively share land and other factors of production, leaving them idle for less time. The paper develops a theory in which market-based sharing causes residents of dense areas to purchase services on the market that their suburban counterparts produce at home. The model predicts that residents of dense areas spend more on local services, home produce less, work more, and pay higher land prices - conditional on residents' productivity and proximity to work. The paper presents evidence that these predictions are consistent with the data.
Does Agency Structure Affect Agency Decision-Making? Implications of the CFPB's Design for Administrative Governance
Roberta Romano
Yale Working Paper, February 2018
Abstract:
An extensive literature has analyzed the accountability of administrative agencies, and in particular, their relationship to Congress. A well-established strand in the literature emphasizes that Congress retains control over agencies by their design, with a focus on the structure and process by which agency decision-making is undertaken. This paper examines the relationship between agency structure and decision-making across four agencies with similar statutory missions but different organizational structures: the Consumer Financial Protection Bureau (“CFPB”), with a uniquely independent and controversial structure, and the Commodity Futures Trading Commission, Consumer Product Safety Commission, and Securities and Exchange Commission with more conventional independent commission structures. It presents data indicating that agency structure influences agency decision-making. More specifically, the statistical analysis is robustly consistent with an agency’s insulation from Congress being related to its choice of regulatory instrument, as the most independent agency in this study, the CFPB, uses significantly less frequently the most publicly accountable regulatory instrument of notice-and-comment rulemaking. The paper concludes with the analysis’ implications for the CFPB’s organization and more broadly for administrative reform proposals and the agency design literature.
Regulation, Public Attitudes, and Private Governance
David Dana & Janice Nadler
Northwestern University Working Paper, February 2018
Abstract:
Corporate adoption of politically contestable practices (e.g., transgender bathrooms; cage-free eggs) are increasingly common. In two studies, we empirically explore the relationship between corporate practices and subsequent public support for legislation mandating such practices. One hypothesis is that public support for new legislation decreases following corporate action because the private sector is perceived to be adequately managing the problem, thus obviating the need for a legislative response. A competing hypothesis is that public support for new legislation increases because people are prompted to recognize the issue in question as one in need of regulation. Our results suggest that announced changes to corporate practices can increase public support for legislation, but the effects differ depending on the political orientation of the perceiver. Legislators might fruitfully integrate corporate endorsements into public information efforts.
The Effect of Retail Competition on Relationship-specific Investments: Evidence from New Car Advertising
Charles Murry
International Journal of Industrial Organization, forthcoming
Abstract:
Longstanding state regulations restrict car manufacturers from terminating relationships with dealers, creating differences in retail competition across brands and markets. I use this variation to identify the causal effect of dealer competition on dealer and manufacturer local market advertising. I find that greater intra-brand dealer competition is associated with lower dealer advertising. US brand manufacturers decrease advertising with an additional same-brand dealer, but there is zero average effect for non-US brand manufacturers. The results are evidence that manufacturers can encourage retail relationship-specific investments by providing downstream market power. I discuss theories of oligopoly and vertical relationships that may explain the results and the relevance of the findings to the effects of state automobile franchise regulation and the recent financial troubles of US car manufacturers.
Unpacking the Effects of Competing Mandates on Agency Performance
Christopher Carrigan
Public Administration Review, forthcoming
Abstract:
Public administration scholars and practitioners uniformly agree that saddling agencies with multiple mandates breeds dysfunction and impedes performance. However, less is known about the mechanisms by which combining purposes has these effects. This study of a broad set of U.S. federal agencies finds support for the conventional wisdom by showing that agencies balancing greater numbers of programs perform worse. The analysis further suggests that such organizations struggle largely because they are more likely to be forced to simultaneously adopt conflicting stances toward program targets. Moreover, when programs force agencies into conflicts in which they are asked to both support and restrain the same target, the resulting uncertainty among personnel regarding agency priorities helps explain why operations are negatively impacted. Thus, it is not simply that accumulating missions impedes agency performance but rather how those competing mandates interact that can define whether an agency will struggle to achieve its objectives.