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Expanding renewable energy: lessons from Chile | Microeconomic Insights
Effective and economical expansion of renewable energy is one of the most urgent challenges for addressing climate change. Along with the transport sector, the electricity sector generates one of the largest shares of global greenhouse gas emissions. In addition, a significant part of the transport sector is expected to be electrified in the near future. […]
Worker Beliefs About Outside Options | Microeconomic Insights
Firms differ substantially in the wages they pay to similar workers. Standard models of the labor market assume that workers have accurate beliefs about the differences in wages across firms, including in bargaining models and wage posting models with search. While this fundamental assumption remains untested, its violation—in the form of worker misperceptions about the […]
Equilibrium Effects of Pay Transparency | Microeconomic Insights
Francis Bacon coined the famous phrase “knowledge is power.” This simple idea is used to champion pay transparency to empower women and minority workers. Advocates argue that workers don’t know what their employer is willing to pay, and more information about coworker pay allows for renegotiations, which raise up and equalize wages, especially those of […]
The case for scaling auctions when spending on infrastructure | Microeconomic Insights
Hundreds of billions of dollars of public spending each year goes toward funding infrastructure in the US, about 40% of which goes towards building, repairing, and maintaining roads and bridges. Given the level of spending and the economic and social importance of the investment, local transportation authorities have sought to apply efficient mechanisms for […]
Violence Against Women at Work | Microeconomic Insights
The international #MeToo movement demonstrated the prevalence of between-colleague violence, and especially violence against women at work. Yet evidence was lacking on the impacts of workplace violence on perpetrators and victims, how these impacts may depend on power and gender differences, and the impacts on the broader firm. Our research harnesses unique Finnish administrative data […]
Beyond Health: Nonhealth Risk and the Value of Disability Insurance | Microeconomic Insights
In the United States, the Social Security Disability Insurance and Supplemental Security Income programs together provide access to health insurance and $200 billion annually in cash benefits to nearly 13 million Americans. This support is provided primarily as assistance for people who cannot work because of severe health conditions. Some have attributed the expansion of […]
The social safety net as a long-term investment | Microeconomic Insights
Social safety net programs are designed to help people with low incomes meet their food, housing, and healthcare needs. Dating to President Lyndon B. Johnson’s War on Poverty in the US, the objective of these programs is “not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it.” […]
Informality, Consumption Taxes, and Redistribution | Microeconomic Insights
Rich countries achieve significant redistribution via broad-based income taxes, but the income tax base covers only a fraction of the income distribution in developing countries, due in part to enforceability constraints (Jensen, 2022). Instead, developing countries rely primarily on indirect consumption taxes to collect revenue, such as the value-added tax (VAT), which are perceived as […]
Connecting to power: How political connections can reduce innovation | Microeconomic Insights
Recently, researchers and policymakers have become concerned about the growing dominance of large firms, declining business dynamism, and slower productivity growth in the US and other OECD member countries (Decker et al. 2016; De Loecker and Eeckhout 2018). At the same time, political “rent-seeking” has increased (Zingales 2012; Bessen 2016). In the research we summarize […]
Reshaping Global Trade: The Immediate and the Long-Term Effects of Bank Failures | Microeconomic Insights
International trade patterns are highly stable and understood to be shaped by slow-moving forces of comparative advantage such as differences in technologies, endowments, and institutions. In most trade frameworks, transient shocks like financial crises can only have temporary effects. Yet models with multiple equilibria stress that large shocks can dislodge the economy from a given […]
Auctions versus negotiations in the real world | Microeconomic Insights
Asset owners often need to identify and choose between potential contracting partners to monetize their asset’s value. For example, companies that are acquisition targets may have multiple potential acquirers, and research institutions looking to commercialize intellectual property often decide among several interested parties. Many land transactions also look like this. How should an owner go […]
Criminal capital and a life of crime | Microeconomic Insights
What follows will outline how the coca economy might be one specific and persistent factor that leads people towards a criminal life path, and explain how a recent study establishes this for rural Peru. Children are put on a criminal life path when they invest in criminal human capital rather than formal schooling, when the […]
Liberation Technology: Mobile Phones and Political Mobilization in Africa | Microeconomic Insights
Can digital information and communication technology (ICT) foster mass political mobilization? In our 2020 Econometrica piece (Manacorda and Tesei, 2020), we use a variety of georeferenced data for the whole of Africa covering a 15-year span to investigate this question and explore channels of impact. The spread of digital ICT has fed a wave of […]
Achieving Scale Collectively | Microeconomic Insights
Most firms in developing countries employ only a few workers, if any (Hsieh and Olken, 2014). A key policy concern is that their small size may prevent firms from adopting technology: technology is often embodied in large machines, and small firms might not have the scale to justify the investment. As a result, firms may […]
Fighting brands, competition, and consumers | Microeconomic Insights
Understanding fighting brand strategies Johnson and Myatt (2003) developed a model of competition where firms can offer products that vary in quality. They showed that an incumbent monopoly active in a high-quality segment may have an incentive to launch a product in a low-quality segment only after new entry in that segment, and not before. […]
The Long-Run Impact of Immigration on Local and Aggregate Productivity | Microeconomic Insights
Can increases in the size of the population raise productivity? There are ample theoretical reasons to believe that the answer to this question ought to be yes. Most theories of growth predict a positive relationship between innovation incentives and market size, and many models of international trade or development economics highlight the importance of agglomeration […]
Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange | Microeconomic Insights
The Affordable Care Act is one of the most significant health reforms in a generation. In addition to covering 15 million uninsured Americans, substantially expanding government health spending, and setting off a fierce political debate, the ACA is notable for an underappreciated reason: it is a major expansion of market-based health insurance. Traditionally, health insurance […]
What happens when foreign firms expand local employment? | Microeconomic Insights
Data and Statistical Patterns The new study is the first to construct a panel data set linking all firms and workers in the U.S. with foreign ownership information on firms. To do so, we developed a worker-firm panel from the population of annual U.S. Treasury tax filings from 1999 to 2017. For each worker-firm-year combination, […]
How Should R&D Procurement Be Structured? | Microeconomic Insights
Many buyers, such as firms and government agencies, acquire products that are not commercially available — from customized parts for automobiles or airplanes to major weapons systems with novel capabilities. Suppliers who want to compete for these procurement contracts must engage in costly R&D to design and develop the relevant products. Accordingly, the potential suppliers […]
Cash Transfers and Nonlinear Prices | Microeconomic Insights
Cash transfer programs have become increasingly popular in developing countries over the past twenty years. Recently, World Bank researchers have documented a dramatic expansion of such programs to address the Covid-19 crisis. The reason for the popularity of these programs is that they have proved successful at alleviating poverty in both the short run, by […]
Minimum Wages and Racial Inequality | Microeconomic Insights
Last summer’s mass mobilization for racial justice sparked debates around how to combat entrenched racial inequality in the United States. Recent corporate diversity initiatives, while a step in the right direction, are not sufficient to topple structural racism in the economy. One of the most striking dimensions of inequality in the United States is the […]
The long-term benefits of better school lunches | Microeconomic Insights
Although school meal programs have been around since the 1940s in countries such as Finland, Sweden, the UK, and the US, they have been difficult to evaluate. The US school lunch program, for instance, is federal: hence there is little variation across areas, and quasi-experimental approaches to measuring the effects are not easily applied (Hoynes […]
Research lessons for practical school choice policy | Microeconomic Insights
Many cities use centralized school choice systems to assign students to schools. In centralized choice, students submit ranked lists of schools to a centralized authority. The authority then uses some combination of priorities (e.g., test scores or neighborhoods) and random tiebreakers to place each student in at most one school. Centralized choice systems help alleviate […]
Should There Be Vertical Choice in Health Insurance Markets? | Microeconomic Insights
Are consumers on ACA exchanges actually made better off by having a choice between a high-deductible and a low-deductible health plan? Would U.K. citizens be better off if they could opt into accepting a deductible, in exchange for an up-front payment? The research summarized here introduces a framework for exploring such questions theoretically and empirically. […]
Effects of vertical mergers on competition: evidence from the carbonated drinks industry | Microeconomic Insights
The competitive impacts of vertical mergers are a long-standing question in antitrust economics. A recent wave of vertical mergers has reinvigorated the academic and policy debate on enforcement, and the discussion is far from settled. An example of this is that US antitrust authorities presented new vertical merger guidelines in 2020, but the Federal Trade […]
Killer acquisitions | Microeconomic Insights
Innovation matters because it drives economic growth, increases profits, and can often make consumers better off. Innovating firms are sometimes taken over by incumbents, typically while the innovating firm remains in the early stages of product development. Economists have traditionally viewed these deals quite positively as a routine part of overall growth. Established firms which […]
Tackling Youth Unemployment: Evidence from a Labor Market Experiment in Uganda | Microeconomic Insights
Motivation: youth unemployment as a global challenge Young people face a higher risk of unemployment than adults in all countries of the world (ILO 2020). Understanding which active labor market policies are effective at facilitating the transition of youth into remunerative employment is thus critical to ensure global economic and social stability. Nowhere is the […]
Taxation and Innovation in the Twentieth Century | Microeconomic Insights
How sensitive are inventors to changes in tax rates? This is a critical and controversial question in public policy given the centrality of the tax system to the structure of incentives in the real economy. While targeted tax policies, such as R&D tax credits, can spur innovation, our work focuses on whether general personal and […]