Regulate at Your Own Risk
How price-gouging regulation undermined COVID-19 mitigation: County-level evidence of unintended consequences
Rik Chakraborti & Gavin Roberts
Public Choice, July 2023, Pages 51-83
Abstract:
Despite long-standing criticisms, restrictions on price increases during emergencies remain widespread in the US. Criticisms most often cite the social costs of the shortages, but, we have found another, as yet unknown, cost: price-gouging regulations increased social contact during the onset of the COVID-19 pandemic. During the pandemic, thirty-four US states declared emergencies, which activated their preexisting price-gouging regulations, and eight others introduced new regulation along with their emergency declarations. Because these states border eight others that also declared emergencies, but had no price-gouging regulations, this created a unique natural experiment. Exploiting the pandemic-induced variation in regulation, and cellphone mobility data, we find that price controls increased visits to, and social contact in, commercial spaces, presumably because the regulation-induced shortages forced consumers to visit more stores and come in contact with more people as they struggled to find what they needed. This, of course, undermines social distancing efforts.
The Logic of NIMBYism: Class, Race, and Stigma in the Making of California's Legal Cannabis Market
Ekaterina (Katya) Moiseeva
Law & Social Inquiry, forthcoming
Abstract:
This article explores how not-in-my-backyard (NIMBY) sentiments affect the implementation of new cannabis laws in California cities. Despite increasing legality and growing social tolerance, the actual status of cannabis remains controversial. Large segments of the population and local authorities remain uncomfortable with the use of cannabis and resist allowing cannabis facilities in their communities. I employ statistical analysis to understand why some jurisdictions move toward more permissive cannabis policies and others do not. The results show that, on average, socially and economically prosperous cities express higher support for cannabis legalization, but cannabis businesses are more likely to receive permits in cities that are socially and economically distressed. The disparity between demand (white middle-class communities) and supply (poor Hispanic communities) demonstrates that stereotypes generated by the war on drugs have not disappeared after the passage of new cannabis laws and continue to perpetuate the marginalization of disadvantaged individuals and places.
Common Institutional Ownership and Product Market Threats
Omesh Kini, Sangho Lee & Mo Shen
Management Science, forthcoming
Abstract:
The common ownership of firms can have anticompetitive effects by incentivizing collusive outcomes that maximize joint surpluses of the commonly held firms or procompetitive effects through enhanced knowledge spillovers. Using a difference-in-differences regression methodology that exploits mergers between financial institutions as exogenous shocks to common ownership, our baseline results suggest that higher common ownership leads to greater product market fluidity (a text-based metric of competition) and generally leads to more product development and higher investments. These findings suggest that, on average, common ownership spurs dynamism in product spaces rather than tacit collusion between cross-held competitors. This is especially true in economic environments in which it is easier to take advantage of knowledge spillovers. However, common ownership can also inhibit product market competition and dynamism, especially in industries more prone to quasi-monopoly outcomes in product spaces. Implementing a one-size-fits-all regulatory policy limiting common ownership may be harmful in industries with strong spillover opportunities.
Acquisitions, product variety, and distribution in the U.S. craft beer industry
Wesley Blundell & Kyle Wilson
Economic Inquiry, forthcoming
Abstract:
Though antitrust authorities have historically focused on prices in merger analyses, there is now growing interest in the impact of mergers on non-price outcomes. In this paper, we examine the effect of horizontal mergers on product variety in the U.S. beer industry. Our difference-in-differences analyses provide evidence that acquired firms increase variety available to consumers by expanding into new markets, while reducing the variety of products sold in their existing markets. Back of the envelope calculations suggest that in aggregate, these acquisitions have a net positive effect on product variety.
Shaming, Stringency, and Shirking: Evidence From Food-Safety Inspections
John Bovay
Virginia Tech Working Paper, June 2023
Abstract:
This paper examines the responses of chicken producers to public disclosure of discrete quality information (or categorization) regarding Salmonella in chicken carcasses. I demonstrate that producers exert effort to attain better categorization and shirk when failing to meet the required thresholds. Public disclosure mitigates this shirking effect. However, some producers shirk even under public disclosure when the threshold for disclosure is too stringent. The results suggest that the most effective quality disclosure policies would either disclose continuous (non-categorical) information or impose fines or other sanctions on producers attaining the poorest quality.
Industry regulation and the comovement of stock returns
Benjamin Blau, Todd Griffith & Ryan Whitby
Journal of Empirical Finance, forthcoming
Abstract:
Existing research highlights that observed levels of comovement among the returns of stocks exceed the levels predicted by theory. We develop and test the hypothesis that the degree of regulation in a particular industry can explain, at least in part, the comovement observed in the data. We find that stocks within industries that are most heavily regulated tend to exhibit the greatest levels of comovement. In a series of difference-in-differences tests, we examine comovement surrounding exogenous implementations of new regulations. Our results show that new regulatory environments for particular industries disproportionately influence the comovement of stocks in those industries.
Airbnb or not Airbnb? That is the question: How Airbnb bans disrupt rental markets
Michael Seiler, Ralph Siebert & Liuming Yang
Real Estate Economics, forthcoming
Abstract:
This study focuses on legislative bans imposed on short-term rentals (STRs) and evaluates their effects on long-term rentals in Irvine, CA. We find that contract rental prices in the long-term rental market decrease by 3.0% within approximately 2 years after the enforcement of STR ordinance. The results are primarily driven by the supply side for long-term rentals. The decline in rents is more pronounced: (1) for long-term rental units that have similar property characteristics as those listed through Airbnb and (2) for those located in geographic areas with greater Airbnb exposure before the ban was enforced.
Laboratory Safety and Research Productivity
Alberto Galasso, Hong Luo & Brooklynn Zhu
NBER Working Paper, June 2023
Abstract:
Are laboratory safety practices a tax on scientific productivity? We examine this question by exploiting the substantial increase in safety regulations at the University of California following the shocking death of a research assistant in 2008. Difference-in-differences analyses show that relative to "dry labs" that use theoretical and computational methods, the publication rates of "wet labs" that conduct experiments using chemical and biological substances did not change significantly after the shock. At the same time, we find that wet labs that used dangerous compounds more frequently before the shock reduced their reliance on flammable materials and unfamiliar hazardous compounds afterward, even though their overall research agenda does not appear to be affected. Our findings suggest that laboratory safety may shape the production of science, but they do not support the claim that safety practices impose a significant tax on research productivity.
The effect of adopting the Next Generation Air Transportation System on air travel performance
Ziyan Chu & Yichen Christy Zhou
Regional Science and Urban Economics, forthcoming
Abstract:
The US Federal Aviation Administration (FAA) has implemented a large-scale multi-year infrastructure program called the Next Generation Air Transportation System (NextGen) to improve air transportation efficiency. To assess its efficacy, we estimate how NextGen projects completed between 2014 and 2017 affected air travel time and delays using an event study approach. We find sizable time savings in air travel time and delays from implementing NextGen. The time savings are more substantial for flights that experience unexpected shocks, such as poor weather and prior delays. In contrast, while NextGen seemed to close the performance gap between the hub and non-hub carriers generated by market power, the effect was short-lived and quickly reversed. Although we also find some small social benefits from carbon emission reductions, we cannot rule out that aggregate carbon emissions may have increased due to a rebound effect.
Ride-Sharing and the Geography of Consumption Industries
Jordan Norris & Heyu Xiong
Economic Journal, forthcoming
Abstract:
Cities are centres of the consumption industries -- establishments offering nightlife, food, recreation, and retail. However, the city's associated consumer value is inseparable from its geography because residents must travel to consume. By exploiting both the staggered entry across cities and the precise geographic boundary of Uber services for credible identification, we show that the introduction of ride-share technology into a city caused large and significant growth in the consumption industries. We provide evidence that the results are driven by an increase in consumer mobility, due to Uber causing a reduction in the economic cost of travel.
Selfish Corporations
Emanuele Colonnelli, Niels Joachim Gormsen & Tim Mcquade
Review of Economic Studies, forthcoming
Abstract:
We study how perceptions of corporate responsibility influence policy preferences and the effectiveness of corporate communication when agents have imperfect memory recall. Using a new large-scale survey of U.S. citizens on their support for corporate bailouts, we first establish that the public demands corporations to behave better within society, a sentiment we label "big business discontent." Using random variation in the order of survey sections and in the exposure to animated videos, we then show that priming respondents to think about corporate responsibility lowers the support for bailouts. This finding suggests that big business discontent influences policy preferences. Furthermore, we find that messages which paint a positive picture of corporate responsibility can "backfire," as doing so brings attention to an aspect on which the public has negative views. In contrast, reframing corporate bailouts in terms of economic trade-offs increases support for the policy. We develop a memory-based model of decision-making and communication to rationalize these findings.
Whistleblowing Bounties and Informational Effects
Lin Nan, Chao Tang & Gaoqing Zhang
Journal of Accounting and Economics, forthcoming
Abstract:
We examine the impact of increasing whistleblowing bounties on whistleblowers' strategy and regulatory efficiency in detecting fraud. Our analysis shows the regulator extracts information about the incidence of fraud from whistleblowers' actions, and the quality of such information depends on the size of whistleblowing bounties. With a larger bounty, upon receiving a whistleblowing report, the quality of the regulator's information about fraud deteriorates, whereas upon observing no whistleblowing, the information quality about no fraud improves. Although the informational improvement upon no whistleblowing has not been widely discussed, we demonstrate it is a key determinant of the optimal whistleblowing program. We show, considering the informational value of whistleblowing and no whistleblowing, the regulator should set the bounty to encourage more whistleblowing when the prior belief of fraud is stronger and the insider is better informed. Our analysis generates policy and empirical implications for designing and studying whistleblowing programs.