Under control
Creative Destruction: Barriers to Urban Growth and the Great Boston Fire of 1872
Richard Hornbeck & Daniel Keniston
NBER Working Paper, September 2014
Abstract:
Historical city growth, in the United States and worldwide, has required remarkable transformation of outdated durable buildings. Private land-use decisions may generate inefficiencies, however, due to externalities and various rigidities. This paper analyzes new plot-level data in the aftermath of the Great Boston Fire of 1872, estimating substantial economic gains from the created opportunity for widespread reconstruction. An important mechanism appears to be positive externalities from neighbors' reconstruction. Strikingly, gains from this opportunity for urban redevelopment were sufficiently large that increases in land values were comparable to the previous value of all buildings burned.
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Land Use Regulation and Welfare
Matthew Turner, Andrew Haughwout & Wilbert van der Klaauw
Econometrica, July 2014, Pages 1341–1403
Abstract:
We evaluate the effect of land use regulation on the value of land and on welfare. Our estimates are based on a decomposition of the effects of regulation into three components: an own-lot effect, which reflects the cost of regulatory constraints to the owner of a parcel; an external effect, which reflects the value of regulatory constraints on one's neighbors; a supply effect, which reflects the effect of regulated scarcity of developable land. Using this decomposition, we arrive at a novel strategy for estimating a plausibly causal effect of land use regulation on land value and welfare. This strategy exploits cross-border changes in development, prices, and regulation in regions near municipal borders. Our estimates suggest large negative effects of regulation on the value of land and welfare in these regions.
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Does the Revolving Door Affect the SEC’s Enforcement Outcomes?
Ed DeHaan et al.
Stanford Working Paper, March 2014
Abstract:
We investigate the consequences of the “revolving door” for lawyers at the SEC’s enforcement division. If future job opportunities make SEC lawyers exert more enforcement effort to develop and showcase their expertise, then the revolving door phenomenon will promote more aggressive regulatory activity (the “human capital” hypothesis). In contrast, SEC lawyers can relax enforcement efforts in order to develop networking skills and/or curry favor with prospective employers at private law firms (the “rent seeking hypothesis”). We collect data on the career paths of 336 SEC lawyers that span 284 SEC enforcement actions against accounting misrepresentation over the period 1990-2007. We find evidence consistent with the human capital hypothesis. Specifically, enforcement outcomes are more aggressive for lawyers that leave the SEC to join law firms that specialize in defending clients before the SEC. We find no notable difference in enforcement outcomes for lawyers hired by the SEC from private law firms (“inbound revolvers”). Due to data limitations, we are unable to comprehensively analyze every aspect of the revolving door phenomenon, including whether revolving door incentives influence SEC lawyers’ choice of which cases to pursue. Nevertheless, our results provide an important first empirical look into the effects of revolving door incentives on the SEC’s enforcement process.
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Financial Regulation Policy Uncertainty and Credit Spreads in the U.S.
Gabriela Nodari
Journal of Macroeconomics, September 2014, Pages 122–132
Abstract:
This paper investigates the linear and nonlinear effects of financial regulation policy uncertainty shocks on U.S. macroeconomic aggregates within a Vector Autoregressive (VAR) framework. Financial regulation policy uncertainty (FRPU) is quantified with a news-based index developed by Baker et al. (2013). Particular attention is paid to the reaction of corporate credit spreads to FRPU shocks. The linear VAR results suggest that exogenous increases in the FRPU index trigger increases in the cost of external finance as well as a persistent negative impact on the real economy. By using a nonlinear (Smooth-Transition) VAR model, I then show that these effects are asymmetric over the business cycle, i.e., credit spreads are estimated to rise three times more during recessions than in non-recessionary periods. Importantly, in both the linear and nonlinear models, FRPU shocks account for large shares of the variability of unemployment and credit spreads. My findings are supported by various robustness checks.
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Cheating in Contests: Anti-doping Regulatory Problems in Sport
Vijay Mohan & Bharat Hazari
Journal of Sports Economics, forthcoming
Abstract:
We examine the impact of regulation on the doping decisions of athletes in a Tullock contest. The regulatory measures we consider are greater monitoring by sports authorities and a lowering of the prize in the contest. When legal efforts and illegal drugs are substitutes, an increase in anti-doping regulation may, counterintuitively, increase the levels of doping activity by athletes. Anti-doping regulation can also have the undesirable consequence of decreasing legal efforts; in our model, this always occurs when legal efforts and illegal drugs are complements, and under certain circumstances when they are substitutes.
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Weak Versus Strong Net Neutrality
Joshua Gans
NBER Working Paper, May 2014
Abstract:
This paper provides a framework to classify and evaluate the impact of net neutrality regulations on the allocation of consumer attention and the distribution of surplus between consumers, ISPs and content providers. While the model provided largely nests other contributions in the literature, here the focus is on including direct payments from consumers to content providers. With this additional price it is demonstrated that the type of net neutrality regulation (i.e., weak versus strong net neutrality) matters for such regulations to have real effects. In addition, we provide support for the notion that strong net neutrality may stimulate content provider investment while the model concludes that there is unlikely to be any negative impact from such regulation on ISP investment. Counter to many claims, it is argued here that ISP competition may not be a substitute for net neutrality regulation in bringing about these effects.
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Shauhin Talesh
Law & Social Inquiry, forthcoming
Abstract:
This article explores how private organizations influence the content and meaning of consumer protection legislation. I examine why California forced consumers to use a private dispute resolution system that affords consumers fewer rights, while Vermont adopted a state-run disputing structure that affords consumers greater rights. Drawing from historical and new institutional theories, I analyze twenty-five years of legislative history, as well as interviews with drafters of the California and Vermont laws, to show how automobile manufacturers weakened the impact of a powerful California consumer warranty law by creating dispute resolution venues. As these structures became institutionalized in the lemon law field, manufacturers reshaped the meaning of legislation. Unlike California, the political alliances in Vermont and a different developmental path led to a state-run dispute resolution structure. I conclude that how social reform laws are designed and how businesses influence social reform legislation can increase or decrease the achievement of a statute's social reform goals.
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Consumer Inattention and Bill-Shock Regulation
Michael Grubb
Review of Economic Studies, forthcoming
Abstract:
For many goods and services such as electricity, healthcare, cellular-phone service, debit-card transactions, or those sold with loyalty discounts, the price of the next unit of service depends on past usage. As a result, consumers who are inattentive to their past usage but are aware of contract terms may remain uncertain about the price of the next unit. I develop a model of inattentive consumption, derive equilibrium pricing when consumers are inattentive, and evaluate bill-shock regulation requiring firms to disclose information that substitutes for attention. When inattentive consumers are sophisticated but heterogeneous in their expected demand, bill-shock regulation reduces social welfare in fairly-competitive markets, which may be the effect of the FCC's recent bill-shock agreement. If some consumers are attentive while others naively fail to anticipate their own inattention, however, then bill-shock regulation increases social welfare and can benefit consumers. Hence requiring zero-balance alerts in addition to the Federal Reserve's new opt-in rule for debit-card overdraft protection may benefit consumers.
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New Estimates of the Value of a Statistical Life Using Air Bag Regulations as a Quasi-Experiment
Chris Rohlfs, Ryan Sullivan & Thomas Kniesner
American Economic Journal: Economic Policy, forthcoming
Abstract:
Due to Federal regulations, automobile air bag availability was a model-specific discontinuous function of model year for used vehicles in the 1990s and early 2000s. We use the discontinuities and the gradual increase in the supply of air bags to trace out the demand curve for air bags and the implied distribution of the Value of a Statistical Life (VSL) across consumers. Although imprecise, our preferred point estimates indicate that the median VSL is between $9 million and $11 million and that a sizable portion of consumers placed negative values on air bags, probably due to distrust of the technology.
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Christopher Carpenter & Hai Nguyen
Health Economics, forthcoming
Abstract:
We provide new evidence on the effects of increasingly common driver cellphone bans on self-reported overall, handheld, and hands-free cellphone use while driving by studying Ontario, Canada, which instituted a 3-month education campaign in November 2009 followed by a binding driver cellphone ban in February 2010. Using residents of Alberta as a control group in a difference-in-differences framework, we find visual and regression-based evidence that Ontario's cellphone ban significantly reduced overall and handheld cellphone use. We also find that the policies significantly increased hands-free cellphone use. The reductions in overall and handheld use are driven exclusively by women, whereas the increases in hands-free use are much larger for men. Our results provide the first direct evidence that cellphone bans have the unintended effect of inducing substitution to hands-free devices.
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Effects of Intelligent Advanced Warnings on Drivers Negotiating the Dilemma Zone
Leo Gugerty et al.
Human Factors: The Journal of the Human Factors and Ergonomics Society, September 2014, Pages 1021-1035
Objective: We investigated whether intelligent advanced warnings of the end of green traffic signals help drivers negotiate the dilemma zone (DZ) at signalized intersections and sought to identify behavioral mechanisms for any warning-related benefits.
Background: Prior research suggested that warnings of end of green can increase slowing and stopping frequency given the DZ, but drivers may sometimes respond to warnings by speeding up.
Method: In two simulator studies, we compared six types of roadway or in-vehicle warnings with a no-warning control condition. Using multilevel modeling, we tested mediation models of the behavioral mechanisms underlying the effects of warnings.
Results: In both studies, warnings led to more stopping at DZ intersections and milder decelerations when stopping compared with no warning. Drivers’ predominant response to warnings was anticipatory slowing on approaching the intersection, not speeding up. The increased stopping with warning was mediated by increased slowing. In Study 1, anticipatory slowing given warnings generalized to green-light intersections where no warning was given. In Study 2, we found that lane-specific warnings (e.g., LED lights embedded in each lane) sometimes led to fewer unsafe emergency stops than did non-lane-specific roadside warnings.
Conclusion: End-of-green warnings led to safer behavior in the DZ and on the early approach to intersections. The main mechanism for the benefits of warnings was drivers’ increased anticipatory slowing on approaching an intersection. Lane-specific warnings may have some benefits over roadside warnings.
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The Real Product Market Impact of Mergers
Albert Sheen
Journal of Finance, forthcoming
Abstract:
I document sources of value creation in mergers by analyzing novel data on the quality and price of goods sold by merging firms. When two competitors in a product market merge, their products converge in quality, and prices fall relative to the competition. These effects take two to three years to be fully realized and are stronger in mature industries. Prices do not fall, however, when the acquirer is diversifying into a new product market. This direct evidence of real changes induced by merger activity is consistent with consolidation by related merging firms to achieve operational efficiencies and lower costs.
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Philip Garcia, Scott Irwin & Aaron Smith
American Journal of Agricultural Economics, forthcoming
Abstract:
In a well-functioning futures market, the futures price at expiration equals the price of the underlying asset. This condition failed to hold in grain markets for most of 2005-2010, calling into question the ability of these markets to perform their price discovery and risk management functions. During this period, futures contracts expired up to 35% above the cash grain price. We develop a dynamic rational expectations model of commodity storage that explains how these recent convergence failures were generated by the institutional structure of the delivery system. When delivery occurs on a grain futures contract, the firm on the short side of the market provides a delivery instrument (a warehouse receipt or shipping certificate) to the firm on the long side of the market. The firm taking delivery may hold the delivery instrument indefinitely, providing it pays a daily storage rate. The futures exchange sets the maximum allowable storage rate at a fixed value. We show that non-convergence arises in equilibrium when the market price of physical grain storage exceeds the maximum storage rate on delivery instruments. We call the difference between the price of carrying physical grain and the maximum storage rate the wedge, and demonstrate theoretically and empirically that the magnitude of the non-convergence equals the expected present discounted value of a function of future wedges.
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Goods Prices and Availability in Cities
Jessie Handbury & David Weinstein
Review of Economic Studies, forthcoming
Abstract:
This paper uses detailed barcode data on purchase transactions by households in 49 U.S. cities to calculate the first theoretically-founded urban price index. In doing so, we overcome a large number of problems that have plagued spatial price index measurement. We identify two important sources of bias. Heterogeneity bias arises from comparing different goods in different locations, and variety bias arises from not correcting for the fact that some goods are unavailable in some locations. Eliminating heterogeneity bias causes 97 percent of the variance in the price level of food products across cities to disappear relative to a conventional index. Eliminating both biases reverses the common finding that prices tend to be higher in larger cities. Instead, we find that price level for food products falls with city size.
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Who Benefits from Industrial Concentration? Evidence from U.S. Manufacturing
Rigoberto Lopez, Elena Lopez & Carmen Lirón-España
Journal of Industry, Competition and Trade, September 2014, Pages 303-317
Abstract:
This article estimates the impact of industrial concentration on aggregate welfare as well as consumer and producer surpluses taking into account market power and cost efficiency effects. Using a sample of 232 U.S. manufacturing industries, empirical results indicate that an across-the-board increase in concentration would enhance aggregate welfare in 69% of the industries due to widespread efficiency gains, although these accrue mostly to producers and are not passed on to consumers. Further results indicate that greater concentration is likely to enhance aggregate welfare in industries with low or moderate initial concentration that exhibit economies of scale and have greater exposure to international trade. However, consumers benefit only from increased concentration in industries whose initial levels are low and which face more import competition, lower exports and smaller markets. Producers benefit in symmetrically opposite ways, except for the case of low initial levels of concentration. In the absence of government intervention, Pareto improvements wherein everyone benefits from greater concentration are only guaranteed in industries with low levels of initial concentration in which efficiency gains yield price reductions that benefit consumers as well as producers.
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Neighborhood Governments and Their Role in Property Values
Daniel Scheller
Urban Affairs Review, forthcoming
Abstract:
More U.S. citizens live in neighborhoods governed by homeowners (HOAs) or neighborhood associations (NAs) than in any period of American history. Property values are typical association goals. Research fails to consider all types of associations in the examination of the effects of neighborhood governance on property values. In this article, I study the effects of HOAs and NAs on property values. I find that HOAs increase property values, while NAs exert no influence on property values.