Findings

Rents and regulations

Kevin Lewis

October 16, 2017

Tarnishing the Golden and Empire States: Land-Use Restrictions and the U.S. Economic Slowdown
Kyle Herkenhoff, Lee Ohanian & Edward Prescott
NBER Working Paper, September 2017

Absrtact:

This paper studies the impact of state-level land-use restrictions on U.S. economic activity, focusing on how these restrictions have depressed macroeconomic activity since 2000. We use a variety of state-level data sources, together with a general equilibrium spatial model of the United States to systematically construct a panel dataset of state-level land-use restrictions between 1950 and 2014. We show that these restrictions have generally tightened over time, particularly in California and New York. We use the model to analyze how these restrictions affect economic activity and the allocation of workers and capital across states. Counterfactual experiments show that deregulating existing urban land from 2014 regulation levels back to 1980 levels would have increased US GDP and productivity roughly to their current trend levels. California, New York, and the Mid-Atlantic region expand the most in these counterfactuals, drawing population out of the South and the Rustbelt. General equilibrium effects, particularly the reallocation of capital across states, accounts for much of these gains.


The Rise of Market Power and the Macroeconomic Implications
Jan De Loecker & Jan Eeckhout
NBER Working Paper, August 2017

Abstract:

We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms. We then evaluate the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the last 3 decades: 1. decrease in labor share, 2. increase in capital share, 3. decrease in low skill wages, 4. decrease in labor force participation, 5. decrease in labor flows, 6. decrease in migration rates, 7. slowdown in aggregate output.


Is home sharing driving up rents? Evidence from Airbnb in Boston
Keren Horn & Mark Merante
Journal of Housing Economics, December 2017, Pages 14–24

Abstract:

The growth of the sharing economy has received increasing attention from economists. Some researchers have examined how these new business models shape market mechanisms and, in the case of home sharing, economists have examined how the sharing economy affects the hotel industry. There is currently limited evidence on whether home sharing affects the housing market, despite the obvious overlap between these two markets. As a result, policy makers grappling with the effects of the rapid growth of home sharing have inadequate information on which to make reasoned policy decisions. In this paper, we add to the small but growing body of knowledge on how the sharing economy is shaping the housing market by focusing on the short-term effects of the growth of Airbnb in Boston neighborhoods on the rental market, relying on individual rental listings. We examine whether the increasing presence of Airbnb raises asking rents and whether the change in rents may be driven by a decline in the supply of housing offered for rent. We show that a one standard deviation increase in Airbnb listings is associated with an increase in asking rents of 0.4%.


The Real Effects of Mandated Information on Social Responsibility in Financial Reports: Evidence from Mine-Safety Records
Hans Christensen et al.
Journal of Accounting and Economics, forthcoming

Abstract:

We examine the real effects of mandatory-social-responsibility disclosures, which require SEC-registered mine owners to include their mine-safety records in their financial reports. These safety records are already publicly available elsewhere, which allows us to isolate and estimate the incremental real effects of including this information in financial reports. Comparing mines owned by SEC-registered issuers with mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries, and reduces labor productivity. Evidence from stock-market reactions and mutual-fund holdings suggests that increased awareness of safety issues is a likely explanation for the observed real effects.


Information Technology and Industry Concentration
James Bessen
Boston University Working Paper, September 2017

Abstract:

Industry concentration has been rising in the US since 1980. Why? This paper explores the role of proprietary information technology systems (IT), which could increase industry concentration by raising the productivity of top firms relative to others. Using instrumental variable estimates, this paper finds that industry IT system use is strongly associated with the level and growth of industry concentration. The paper also finds that IT system use is associated with greater plant size, greater labor productivity, and greater operating margins for the top four firms in each industry compared to the rest. Successful IT systems appear to play a major role in the recent increases in industry concentration and in profit margins, more so than a general decline in competition.


Older and Slower: The Startup Deficit's Lasting Effects on Aggregate Productivity Growth
Titan Alon et al.
NBER Working Paper, September 2017

Abstract:

We investigate the link between declining firm entry, aging incumbent firms and sluggish U.S. productivity growth. We provide a dynamic decomposition framework to characterize the contributions to industry productivity growth across the firm age distribution and apply this framework to the newly developed Revenue-enhanced Longitudinal Business Database (ReLBD). Overall, several key findings emerge: (i) the relationship between firm age and productivity growth is downward sloping and convex; (ii) the magnitudes are substantial and significant but fade quickly, with nearly 2/3 of the effect disappearing after five years and nearly the entire effect disappearing after ten; (iii) the higher productivity growth of young firms is driven nearly exclusively by the forces of selection and reallocation. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980. Using an instrumental variables strategy we find a consistent pattern across states/MSAs in the U.S. The patterns are broadly consistent with a standard model of firm dynamics with monopolistic competition.


The direction of innovation
Kevin Bryan & Jorge Lemus
Journal of Economic Theory, November 2017, Pages 247-272

Abstract:

How do innovation policies affect the direction of research? Is market-based innovation too radical or too incremental? We construct a novel and tractable model of the direction of innovation. Firms pursue inefficient research directions because they race to discover easy yet less valuable projects and because they work on difficult inventions where they can appropriate a larger portion of the social value. Fixing these inefficiencies requires policy to condition on properties of inventions that could have been discovered but were not. Policies which do not do so, like patents and prizes, may fail to encourage firms to research in the efficient direction, even if they obtain the optimal quantity of R&D.


Dynamic Natural Monopoly Regulation: Time Inconsistency, Moral Hazard, and Political Environments
Ali Yurukoglu & Claire Lim
Journal of Political Economy, forthcoming

Abstract:

This paper quantitatively assesses time inconsistency, moral hazard, and political ideology in monopoly regulation of electricity distribution. We specify and estimate a dynamic model of utility regulation featuring investment and moral hazard. We find under-investment in electricity distribution capital aiming to reduce power outages, and use the estimated model to quantify the value of regulatory commitment in inducing greater investment. Furthermore, more conservative political environments grant higher regulated returns, but have higher rates of electricity loss. Using the estimated model, we quantify how conservative regulators thus mitigate welfare losses due to time inconsistency, but worsen losses from moral hazard.


Online advertising networks and consumer perceptions of privacy
Steven Schmeiser
Applied Economics Letters, forthcoming

Abstract:

I use crowd-sourced ratings of website trustworthiness to investigate how consumers weigh the privacy impact of online advertising technologies. I find that using one additional advertising network is associated with a 0.7% increase in trust score and that using a behavioural network is associated with a 4.6% increase in trust score. These counter-intuitive results support the notion that consumers are unaware of the advertising technologies used by websites and their impact on privacy.


The Accident Externality from Trucking
Lucija Muehlenbachs, Stefan Staubli & Ziyan Chu
NBER Working Paper, September 2017

Abstract:

How much risk does a heavy truck impose on highway safety? To answer this question, we look at the rapid influx of trucks during the shale gas boom in Pennsylvania. Using quasi-experimental variation in truck traffic, we isolate the effect of adding a truck to the road. We find an additional truck raises the risk of a truck accident — and, at an even higher rate, the risk of nontruck accidents. These accidents pose an external cost in cases in which the truck is not found liable, not fully insured, or not directly involved. We show this external cost is capitalized in the insurance market: car insurance premiums of other road users increase when trucks are added to the road.


Examining the Impact of Ridehailing Services on Public Transit Use
Yash Babar & Gordon Burtch
University of Minnesota Working Paper, September 2017

Abstract:

We examine the impact that ridehailing services, such as Uber or Lyft, have had on the utilization of various modes of public transit in the United States via an agency-level analysis. We first evaluate the effects by exploiting the temporally and spatially staggered entry of Uber across the United States to estimate a difference-in-differences model. In doing so, we introduce a novel panel-data matching approach that explicitly seeks to match treated agencies with control agencies that exhibited similar pre-treatment trends in transit utilization over the twenty-four months prior to the arrival of ridehailing services. Our estimates indicate that ridehailing service entry has led to significant reductions in the utilization of road-based, short-haul public transit services, namely city buses, while increasing utilization of rail-based and long-haul transit services, such as subway and commuter rail. We further show that the estimated cannibalization and complementarity effects are attenuated and amplified, respectively, by transit agencies’ pre-existing quality of service. We evaluate the robustness of our results in several ways, such as performing permutation tests and accounting for the entry of multiple ridehailing service operators. For estimates of the city bus impacts, we further consider an alternative, second source of identification, namely a natural experiment in which the Google Maps application incorporated ridehailing services directly into users’ transit / direction recommendations. Here, we show that cities that hosted ridehailing services at the time of the Google Maps change exhibited much larger losses in bus utilization relative to cities that had yet to receive such services, consistent with our main findings. We discuss implications for policymakers and transit operators.


Uber vs. Taxi: A Driver's Eye View
Joshua Angrist, Sydnee Caldwell & Jonathan Hall
NBER Working Paper, September 2017

Abstract:

Ride-hailing drivers pay a proportion of their fares to the ride-hailing platform operator, a commission-based compensation model used by many internet-mediated service providers. To Uber drivers, this commission is known as the Uber fee. By contrast, traditional taxi drivers in most US cities make a fixed payment independent of their earnings, usually a weekly or daily medallion lease, but keep every fare dollar net of expenses. We assess these compensation models from a driver’s point of view using an experiment that offered random samples of Boston Uber drivers opportunities to lease a virtual taxi medallion that eliminates the Uber fee. Some drivers were offered a negative fee. Drivers’ labor supply response to our offers reveals a large intertemporal substitution elasticity, on the order of 1.2. At the same time, our virtual lease program was under-subscribed: many drivers who would have benefitted from buying an inexpensive lease chose to opt out. We use these results to compute the average compensation required to make drivers indifferent between ride-hailing and a traditional taxi compensation contract. The results suggest that ride-hailing drivers gain considerably from the opportunity to drive without leasing.


Uber Über regulation? Regulatory change following the emergence of new technologies in the taxi market
Amit Tzur
Regulation & Governance, forthcoming

Abstract:

Can emerging technologies transform not only markets, but also foster new regulatory change mechanisms? In the context of prevailing theories of regulatory change, this article explores the extent to which an interest-based explanation can account for the regulatory responses toward emerging Transportation Network Companies (TNCs). Based on a primary cross-city analysis of the 40 largest cities in the United States, the study found that although the existence of ex ante interest groups indeed somewhat limited the extent of ex post regulatory acceptance of TNCs, regulators seemed to prefer the newcomers over existing incumbents and approved TNCs in 77.5 percent of the examined cities, rarely pursuing harsh enforcement even when TNCs operated illegally. The research attempts to explain this intriguing phenomenon by extending the interest-based approach to account for the key role played by “technological regulatory entrepreneurs.” The entrepreneurs bridged collective action barriers by becoming the central agent that managed, and reaped the benefits of, the collective action, by lowering the organizational costs and by disseminating information effectively and turning consumers into political campaigners, thus successfully promoting regulatory change.


Impact of Allowing Sunday Alcohol Sales in Georgia on Employment and Hours
Julie Hotchkiss & Yanling Qi
Southern Economic Journal, October 2017, Pages 504–524

Abstract:

Differential timing across counties of the removal of restrictions on Sunday alcohol sales in the state of Georgia is used to determine whether the change had an impact on employment and hours in the beer, wine, and liquor retail sales industry. A triple-difference (DDD) analysis finds significant relative increases in average weekly hours in the treated industry, but no significant impact on employment. We speculate regarding the forces behind the positive DDD result and conclude that the change in regulation likely lowered profits for affected liquor stores. This would explain why store owners were vocal opponents to restriction removal.


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