Ruled to Death
Constraining Competition with State Mandated Facility Requirements
David Harrington & Jaret Treber
Contemporary Economic Policy, forthcoming
Abstract:
We find that state mandated facility requirements may constrain the size and location of funeral homes. Many states have funeral regulations that require funeral homes to have embalming rooms, chapels, and casket display rooms. Often these facilities go unused, providing no discernible benefit to consumers while imposing unnecessary costs on firms. Using a case study, we present evidence that Arizona's more extensive facility requirements reduce the number of small funeral homes relative to Florida and prevent them from locating in shopping centers. We estimate that eliminating Arizona's cumbersome facility requirements would save consumers approximately 14% on their funeral expenditures.
Restoring vision to consumers and competition to the marketplace: Analyzing the effects of required prescription release
Conor Norris & Edward Timmons
Journal of Regulatory Economics, February 2020, Pages 1–19
Abstract:
Occupational licensing laws can allow professionals to extract rents in the marketplace. In the case of vision services, optometrists have the authority to write prescriptions for contact lenses. Optometrists may choose to conceal this information and force patients to purchase lenses from the professional writing the prescription — resulting in vendor lock-in. In this paper, we investigate the possible effect of the 2004 Fairness to Contact Lens Consumers Act (FCLCA) on the market for vision services by examining state differences in prescription release mandates before 2004. We find that requiring professionals to release prescription information to patients resulted in a 13% reduction in the wages of optometrists. Our results provide some evidence that the FCLCA may have increased consumer welfare by reducing the prices of contact lenses or increasing access to contact lenses.
Urbanization and its Discontents
Edward Glaeser
NBER Working Paper, March 2020
Abstract:
American cities have experienced a remarkable renaissance over the past 40 years, but in recent years, cities have experienced considerable discontent. Anger about high housing prices and gentrification has led to protests. The urban wage premium appears to have disappeared for less skilled workers. The cities of the developing world are growing particularly rapidly, but in those places, the downsides of density are acute. In this essay, I review the causes of urban discontent and present a unified explanation for this unhappiness. Urban resurgence represents private sector success, and the public sector typically only catches up to urban change with a considerable lag. Moreover, as urban machines have been replaced by governments that are more accountable to empowered residents, urban governments do more to protect insiders and less to enable growth. The power of insiders can be seen in the regulatory limits on new construction and new businesses, the slow pace of school reform and the unwillingness to embrace congestion pricing.
State Agency Discretion and Entrepreneurship in Regulated Markets
Jake Grandy & Shon Hiatt
Administrative Science Quarterly, forthcoming
Abstract:
Barriers to entry in regulated markets are frequently conceptualized as static features that must be removed or overcome if new entrants are to successfully enter a market. But government institutions regulating markets often comprise multiple levels that exist in tension with one another due to differing incentives and motivations. We argue that the principal–agent tension between elected officials and agency bureaucrats may render regulatory barriers to entry more malleable, even in the absence of formal policy changes. To test this proposition, we bring the administrative state center stage and examine how regulatory discretion — regulatory agencies’ flexibility to interpret and implement public policies created by elected officials — can influence the market entry of new ventures. Using data on regulatory approval of hydroelectric facilities in the United States from 1978 to 2014, we find that increased state agency discretion improves outcomes for new ventures relative to incumbent firms by freeing regulatory agency officials to interpret and implement policies according to a professional motivation of public service and reducing incumbents’ political influence.
Endogenous Production Networks
Daron Acemoglu & Pablo Azar
Econometrica, January 2020, Pages 33-82
Abstract:
We develop a tractable model of endogenous production networks. Each one of a number of products can be produced by combining labor and an endogenous subset of the other products as inputs. Different combinations of inputs generate (prespecified) levels of productivity and various distortions may affect costs and prices. We establish the existence and uniqueness of an equilibrium and provide comparative static results on how prices and endogenous technology/input choices (and thus the production network) respond to changes in parameters. These results show that improvements in technology (or reductions in distortions) spread throughout the economy via input–output linkages and reduce all prices, and under reasonable restrictions on the menu of production technologies, also lead to a denser production network. Using a dynamic version of the model, we establish that the endogenous evolution of the production network could be a powerful force towards sustained economic growth. At the root of this result is the fact that the arrival of a few new products expands the set of technological possibilities of all existing industries by a large amount — that is, if there are n products, the arrival of one more new product increases the combinations of inputs that each existing product can use from 2^n−1 to 2^n, thus enabling significantly more pronounced cost reductions from choice of input combinations. These cost reductions then spread to other industries via lower input prices and incentivize them to also adopt additional inputs.
The company you keep: Satisfaction with life, economic freedom, and preference-policy mismatch
Lester Hadsell & Adam Jones
Journal of Comparative Economics, forthcoming
Abstract:
We examine the interaction between individual preferences for markets and state-level economic freedom as it relates to Satisfaction with Life (SWL). Fundamental tenets of economic freedom assert that societies free of excessive government involvement are wealthier and, ultimately, happier; individuals who are allowed to pursue self-interest are argued to be more motivated and more productive, and so society as a whole is better off. Though there is substantial empirical evidence that freer societies are wealthier, the evidence connecting economic freedom and happiness is less clear. We explore the relationship between economic freedom and SWL at the individual level. We examine differences between personal preferences for free markets and state policy and how this ‘preference-policy mismatch’ is related to SWL. We then briefly examine the relationship between preference-policy mismatches and individual self-reported voting behavior, including implications for Tiebout sorting. This study is the first to focus on individual economic ideology, i.e. individual level of support for free markets, and SWL in the United States. Combining individual and state level data we offer improvements to prior studies in a number of areas including an enhanced measure of life satisfaction, a richer basis for examining left-right differences than simple political identification, and an examination of the effect of preference-policy mismatches on satisfaction with life. We find significant relationships between SWL and individual support for markets, state-level economic freedom, and preference-policy mismatch. Further, preference-policy mismatch is positively associated with self-reported voting frequency. We find little support for Tiebout sorting.
Can Mergers and Acquisitions Internalize Positive Externalities in Funding Innovation?
Thomas Chemmanur, Ang Li & Mark Liu
University of Kentucky Working Paper, February 2020
Abstract:
Fundamental innovation usually involves huge upfront costs, but the benefits are spread across various sectors of the economy. Given the large costs and limited appropriability of the benefits associated with fundamental innovations, individual firms underinvest in these innovations relative to the socially optimal level. We find that mergers and acquisitions (M&As) can internalize the positive externalities by merging firms from both the user industries and the producer industries of an innovation. Using the US patent citation dataset, we define the user and producer relationship between each pair of industries and between each pair of industry and technological class. We then show that after a merger between an innovation user and an innovation producer, the quantity of innovation output increases, and the increase is driven by targeted technological classes.
Early Disclosure of Invention and Reduced Duplication: An Empirical Test
Sonja Lück et al.
Management Science, forthcoming
Abstract:
Much work on innovation strategy assumes or theorizes that competition in innovation elicits duplication of research and that disclosure decreases such duplication. We validate this empirically using the American Inventors Protection Act (AIPA), three complementary identification strategies, and a new measure of blocked future patent applications. We show that AIPA — intended to reduce duplication, through default disclosure of patent applications 18 months after filing — reduced duplication in the U.S. and European patent systems. The blocking measure provides a clear and micro measure of technological competition that can be aggregated to facilitate the empirical investigation of innovation, firm strategy, and the positive and negative externalities of patenting.
Improving Scientific Judgments in Law and Government: A Field Experiment of Patent Peer Review
Daniel Ho & Lisa Larrimore Ouellette
Journal of Empirical Legal Studies, forthcoming
Abstract:
Many have advocated for the expansion of peer review to improve scientific judgments in law and public policy. One such test case is the patent examination process, with numerous commentators arguing that scientific peer review can solve informational deficits in patent determinations. We present results from a novel randomized field experiment, carried out over the course of three years, in which 336 prominent scientific experts agreed to provide input on U.S. patent applications. Their input was edited for compliance with submission requirements and submitted to the U.S. Patent and Trademark Office (USPTO) by our research team. We show that the intervention caused examiners to (i) increase search efforts and citations to the non-patent (scientific) literature and (ii) grant the application at lower rates in the first instance. However, results were substantially weaker and resource costs substantially higher than anticipated in the literature, highlighting significant challenges and questions of institutional design in bringing scientific expertise into law and government.