Not permitted
When Governments Regulate Governments
David Konisky & Manuel Teodoro
American Journal of Political Science, forthcoming
Abstract:
This article advances a political theory of regulation that accounts for the choices of regulators and regulated entities when both are governments. Leading theories of regulation assume that governments regulate profit-maximizing firms: Governments set rules, to which firms respond rationally in ways that constrain their behavior. But often the entities that governments regulate are other governments. We argue that government agencies and private firms often face different compliance costs, and that agencies have greater incentives than firms to appeal regulations through political channels. Simultaneously, the typical enforcement instruments that regulators use to influence firm behavior may be less effective against governments. Our empirical subjects are public and private entities' compliance with the U.S. Clean Air Act and Safe Drinking Water Act. We find that, compared with private firms, governments violate these laws significantly more frequently and are less likely to be penalized for violations.
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Policy Uncertainty and Corporate Investment
Huseyin Gulen & Mihai Ion
Review of Financial Studies, forthcoming
Abstract:
Using a news-based index of policy uncertainty, we document a strong negative relationship between firm-level capital investment and the aggregate level of uncertainty associated with future policy and regulatory outcomes. More importantly, we find evidence that the relation between policy uncertainty and capital investment is not uniform in the cross-section, being significantly stronger for firms with a higher degree of investment irreversibility and for firms that are more dependent on government spending. Our results lend empirical support to the notion that policy uncertainty can depress corporate investment by inducing precautionary delays due to investment irreversibility.
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Jamie Bologna
West Virginia University Working Paper, September 2015
Abstract:
This paper argues that the effect of corruption on competition is dependent on the institutional environment. When institutions are relatively efficient, observed corruption is likely to be associated with less competition. Conversely, in areas with low-quality institutions (e.g., excessively burdensome regulations) corruption may lead to more competition. I employ unique data on competition, corruption, and institutional quality across US states from 1997-2009 and report that a higher level of corruption is associated with more competition in states with low levels of institutional quality. However, as institutional quality improves, the positive effect of corruption decreases in magnitude and becomes negative at high levels of institutional quality.
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Conflicts of Interest and the Realtor Commission Puzzle
Panle Jia Barwick, Parag Pathak & Maisy Wong
NBER Working Paper, August 2015
Abstract:
This paper documents uniformity in real estate commission rates across markets and time using a dataset on realtor commissions for 653,475 residential listings in eastern Massachusetts from 1998-2011. Newly established real estate brokerage offices charging low commissions grow more slowly than comparable entrants with higher commissions. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents. While all agents and offices prefer properties with high commissions, firms and agents with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns that steering reinforces the uniformity of commissions.
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Razing San Francisco: The 1906 Disaster as a Natural Experiment in Urban Redevelopment
James Siodla
Journal of Urban Economics, September 2015, Pages 48-61
Abstract:
Urban developers face frictions in the process of redeveloping land, the timing of which depends on many economic factors. This timing can be disrupted by a large shock that destroys thousands of buildings, which could then have substantial short-run and long-run effects. Studying the impact of an urban disaster, therefore, can provide unique insight into urban dynamics. Exploiting the 1906 San Francisco Fire as an exogenous reduction in the city's building stock, this paper examines residential density across razed and unburned areas between 1900 and 2011. In prominent residential neighborhoods, density increased at least 60 percent in razed areas relative to unburned areas by 1914, and a large density differential still exists today. These outcomes suggest that thriving cities face substantial redevelopment frictions in the form of durable buildings and that large shocks can greatly alter the evolution of urban land-use outcomes over time.
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When Is Social Responsibility Socially Desirable?
Jean-Etienne de Bettignies & David Robinson
NBER Working Paper, July 2015
Abstract:
We study a model in which corporate social responsibility (CSR) arises as a response to inefficient regulation. In our model, firms, governments, and workers interact. Firms generate profits but create negative spillovers that can be attenuated through government regulation, which is set endogenously and may or may not be socially optimal. Governments may choose suboptimal levels of regulation if they face lobbying pressure from companies. Companies can, in turn, hire socially responsible employees who enjoy taking actions to ameliorate the negative spillovers. Because firms can capture part of the rent created by allowing socially responsible employees to correct social ills, in some settings they find it optimal to lobby for inefficient rules and then capture the surplus associated with being "good citizens" in the face of bad regulation. In equilibrium, this means CSR can either increase or decrease social welfare, depending on the costs of political capture.
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How limiting deceptive practices harms consumers
Salvatore Piccolo, Piero Tedeschi & Giovanni Ursino
RAND Journal of Economics, Fall 2015, Pages 611-624
Abstract:
There are two competing sellers of an experience good, one offers high quality, one low. The low-quality seller can engage in deceptive advertising, potentially fooling a buyer into thinking the product is better than it is. Although deceptive advertising might seem to harm the buyer, we show that he could be better off when the low-quality seller can engage in deceptive advertising than not. We characterize the optimal deterrence rule that a regulatory agency seeking to punish deceptive practices should adopt. We show that greater protection against deceptive practices does not necessarily improve the buyer welfare.
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E-Books: A Tale of Digital Disruption
Richard Gilbert
Journal of Economic Perspectives, Summer 2015, Pages 165-184
Abstract:
E-book sales surged after Amazon introduced the Kindle e-reader at the end of 2007 and accounted for about one quarter of all trade book sales by the end of 2013. Amazon's aggressive (low) pricing of e-books led to allegations that e-books were bankrupting brick and mortar book booksellers. Amazon's commanding position as a bookseller also raises concerns about monopoly power, and publishers are concerned about Amazon's power to displace them in the book value chain. I find little evidence that e-books are primarily responsible for the decline of independent booksellers. I also conclude that entry barriers are not sufficient to allow Amazon to set monopoly prices. Publishers are at risk from Amazon's monopsony (buyer) power and so sought "agency" pricing in an effort to raise the price of ebooks, promote retail competition, and reduce Amazon's influence as an e-retailer. (In the agency pricing model, the publisher specifies the retail price with a commission for the retailer. In a traditional, "wholesale" pricing model, publishers sell a book to retailers at a wholesale price and retailers set the retail price.) Although agency pricing was challenged by the Department of Justice, it may yet prevail in some form as an equilibrium pricing model for e-book sales.
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Divided opinion on the Fair Minimum Wage Act of 2013: Random or systematic differences?
Donal O'Neill
Economics Letters, November 2015, Pages 175-178
Abstract:
This paper analyses economists' support for the Fair Minimum Wage Act of 2013. I find systematic differences between those supporting the legislation and those opposing it, with support higher among females, young labor economists and those located further from Chicago.
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Quantifying the Premium Externality of the Uninsured
Stephen (Teng) Sun & Constantine Yannelis
Journal of the European Economic Association, forthcoming
Abstract:
In insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to charge higher premia. Using a novel panel data set and a staggered policy change that introduces exogenous variation in the rate of uninsured drivers at the county level in California, we find that uninsured drivers lead to higher insurance premia: a 1 percentage point increase in the rate of uninsured drivers raises premia by roughly 1%. We calculate the monetary fine on the uninsured that would fully internalize the externality and conclude that actual fines in most US states are inefficiently low.