Findings

Supply

Kevin Lewis & Peter Augustine Lawler

November 13, 2024

Markups and Inequality
Corina Boar & Virgiliu Midrigan
Review of Economic Studies, forthcoming

Abstract:
We characterize optimal product market policy in an unequal economy in which firm ownership is concentrated and markups increase with firm market shares. We study the problem of a utilitarian regulator who designs revenue-neutral interventions in the product market. We show that optimal policy increases product market concentration. This is because policies that encourage larger producers to expand improve allocative efficiency, increase the demand for labour and equilibrium wages. We derive these results both in a static Mirrleesian setting in which we impose no constraints on the shape of interventions, as well as in a dynamic economy with wealth accumulation. In our dynamic economy optimal policy reduces wealth and income inequality by redistributing market share and profits from medium-sized businesses, which are primarily owned by relatively rich entrepreneurs, to larger diversified corporate firms.


Macro-Level Institutions and Micro-Level Economic Behavior: A Meta-Meta Analysis of 1,126 Studies
Jason Aimone et al.
NBER Working Paper, November 2024

Abstract:
We combine societal-level institutional measures from 51 countries between 1996 and 2017 with individual decision-making outcome data from 1,126 laboratory experiments in six meta-analyses to evaluate the effects of within-country institutional change on pro-social and Nash behavior. We find that government effectiveness and regulatory freedom positively correlate with pro-social behavior. We find that freedom from each of the following components of regulation; interest rate controls, binding minimum wages, worker dismissal protections, conscription, and administrative requirements; are correlated with prosocial behavior and are inversely correlated with Nash behavior. These results suggest the importance of considering spillover effects in pro-social behavior when designing government policy.


The Distaste for Housing Density
Joseph Gyourko & Sean McCulloch
NBER Working Paper, October 2024

Abstract:
We characterize the distribution of suburban homeowners’ preferences for housing unit density. To measure welfare changes under counterfactual increases in density, we first construct a novel house-level measure of exposure to density and identify its price effects in a boundary discontinuity design. On the borders of municipalities with larger minimum lot sizes, lots are 3,000 ft² larger and houses are $40,000 costlier. We exploit the systematic variation in density exposure induced by these discontinuities to estimate price effects. We then connect these estimates to a structural hedonic model of housing choice to retrieve individuals’ preferences for density. Overall, we find an average welfare loss among incumbent homeowners from a 1/2 unit per acre increase in density (which is equivalent to a 0.3 standard deviation in density) of about $9,500, with significantly larger losses under counterfactual increases solely from rental units. There is other noteworthy heterogeneity in these preferences, too. Most households have only a moderate preference over density. The median welfare loss is only 55% of the average, implying a long, left tail of those with more extreme aversions to density. This tail disproportionately contains households in affluent, low density neighborhoods. In sum, our results document an important foundation of the demand for density regulation across U.S. suburbs that we hope serves as a valuable input into future research into the considerable costs of that policy.


Territoriality and the Emergence of Norms During the COVID-19 Pandemic
Patrick Bergemann & Christof Brandtner
American Journal of Sociology, forthcoming

Abstract:
Although social norms are critical for regulating behavior, the emergence of new norms is rarely studied in consequential real-world settings. Thus, the conditions under which norms arise in certain communities but not in others are not well understood. In this article, we propose territoriality as a factor that helps to explain the unequal emergence of norms. When individuals experience a strong sense of territoriality over the physical spaces they inhabit, they feel empowered and justified in regulating others’ behavior within those spaces. To the extent that demand for particular norms is widespread, territoriality can facilitate norm emergence. Using daily, geolocated data from the early months of the COVID-19 pandemic in New York City, we find support for this theory; neighborhoods with higher levels of territoriality were more likely to adopt new health-protecting norms. Our territoriality account sheds light on the relationship between norm emergence, physical space, and neighborhood resilience.


How self-interest and symbolic politics shape the effectiveness of compensation for nearby housing development
Michael Hankinson & Justin de Benedictis-Kessner
Journal of Public Policy, forthcoming

Abstract:
Policy with concentrated costs often faces intense localized opposition. Both private and governmental actors frequently use financial compensation to attempt to overcome this opposition. We measure how effective such compensation is for winning policy support in the arena of housing development. We build a novel survey platform that shows respondents images of their self-reported neighborhood with hypothetical renderings of new housing superimposed on existing structures. Using a sample of nearly 600 Bostonians, we find that compensating residents increases their support for nearby market-rate housing construction. However, compensation does not influence support for affordable housing. We theorize that the inclusion of affordable housing activates symbolic attitudes, decreasing the importance of financial self-interest and thus the effectiveness of compensation. Our findings suggest greater interaction between self-interest and symbolic politics within policy design than previously asserted. Together, this research signals opportunities for coalition building by policy entrepreneurs when facing opposition due to concentrated costs.


Regulatory Similarity
Jason (Pang-Li) Chen & Joseph Kalmenovitz
Journal of Law and Economics, August 2024, Pages 691–730

Abstract:
Using the full text of the Federal Register, the official publication of the US government, we develop a similarity score that compares the regulatory exposure of pairs of companies. A higher score means that the two firms comply with similar regulations by the same regulatory agencies. Existing similarity measures such as industry boundaries, geographic proximity, and product markets account for only one-quarter of the variation in regulatory similarity. Nevertheless, firms with high regulatory similarity comove along key dimensions such as overhead costs, profitability, and investment. Using a supervised machine-learning algorithm, we decompose the similarity into 12 topics and find that it is driven by regulatory issues related to fiscal policy and labor. Each firm has a unique set of peers for each topic, and they all lobby the government on similar topics. Combined, our results uncover economically important links between companies centered around regulatory issues.


Accessory Dwelling Units' Contagion Effects: New Spatial Evidence from Los Angeles
Xiangxin Liu et al.
University of Connecticut Working Paper, September 2024

Abstract:
We utilize several innovative approaches to investigate how adding Accessory Dwelling Units (ADUs) to single family houses impacts the property values of both the subject property and its surrounding properties. First, we use a repeat-sales dataset and construction permit data for the City of Los Angeles, to confirm that ADU additions are associated with lower future selling prices of the nearby properties. Second, a major contribution of our study is our use of a spatial Durbin hedonic model to provide evidence of heterogeneous spatial feedback effects of ADUs, by exploring the direct, indirect, and total house price effects of ADU proximity. Some of these indirect effects are significantly positive (in the range of 2 to 4 percent) and some others are significantly negative (approximately-2 percent) for contiguous properties with the spatial Durbin hedonic model. When some house prices change from their proximity to an ADU, those changes feed back to the subject property prices, which subsequently impact nearby property prices again. These spatial feedback effects are negative in some ZIP Code groups and positive for others, in the City of Los Angeles. The negative externalities associated with ADUs (e.g. traffic, higher density, and aesthetics) are concentrated in areas with higher property prices. Positive feedback effects dominate in ZIP Codes where the neighborhood effects from higher house values nearby dominate the negative effects. Overall, we find evidence that ADUs can have both positive and negative influences on their contiguous neighbors, depending on neighborhood characteristics.


Platform Power Struggle: Spotify and the Major Record Labels
Luis Aguiar, Joel Waldfogel & Axel Zeijen
NBER Working Paper, October 2024

Abstract:
Digitization has facilitated the emergence of large distribution platforms downstream from traditionally powerful suppliers. Digital platforms can carry many suppliers’ products, test the products’ consumer appeal, and choose which products to promote, potentially shifting power from the suppliers to the platforms. We study these forces in the recorded music industry, which was traditionally dominated by a few “major” record labels distributing their products through fragmented radio stations and retailers. Now, the majors receive most of their promotion and distribution through platforms like Spotify, which carry millions of songs from both major and “independent” suppliers. We study Spotify’s use of playlists using data covering 2017-2020. First, Spotify used their expanded playlist capacity to test -- and discover -- proportionately more independent songs to promote on their playlists. Second, at least relative to major-label playlists, Spotify-operated playlists promoted new independent songs more than was indicated by their subsequent success. Third, placement on Spotify new-music playlists has a large causal impact on streams. The independent-label share of new-music promotion rose from 38 percent in late 2017 to 55 percent in early 2020, which helps to explain the reported decline in the share of Spotify royalty payments to major-label suppliers over the same period.


Steering via algorithmic recommendations
Nan Chen & Hsin-Tien Tsai
RAND Journal of Economics, forthcoming

Abstract:
This article studies self-preferencing in algorithmic recommendations on dominant platforms, focusing on Amazon's dual role as platform owner and retailer. We find that products sold by Amazon receive substantially more “Frequently Bought Together” recommendations across popularity deciles. To establish causality, we exploit within-product variation generated by Amazon stockouts. We find that when Amazon is out of stock, identical products sold by third-party sellers face an eight-percentage-point decrease in the probability of receiving a recommendation. The pattern can be explained by the economic incentives of steering but not explained by consumer preference. Furthermore, the steering lowers recommendation efficiency.


The Effects of Policy-Interested Bureaucrats on State and Local Policymaking
Henry Watson
Urban Affairs Review, forthcoming

Abstract:
From 1971 to 2023, 19 states, 24 counties, and 105 cities passed Source-of-Income Anti-Discrimination (SOI) laws, outlawing landlord discrimination against tenants receiving rental assistance. I present a theory of bureaucratic involvement in state and local policymaking, arguing that policy-interested local bureaucratic agencies -- signaled by participation in a national membership organization -- elevate mission-relevant policy problem definitions to the legislative agenda and motivate the passage of legislation. I present results from a Cox Proportional Hazards Model which demonstrates that SOI laws are significantly more likely to be enacted in cities, counties, and states associated with a public agency which is a member of the Council of Large Public Housing Authorities, even compared to jurisdictions associated with non-member Public Housing Authorities of similar sizes.


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