Authority figures
Reallocation in the Great Recession: Cleansing or Not?
Lucia Foster, Cheryl Grim & John Haltiwanger
Journal of Labor Economics, January 2016, Pages S293-S331
Abstract:
The high pace of reallocation across producers is pervasive in the US economy. Evidence shows that this high pace of reallocation is closely linked to productivity. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are "cleansing" is an open question. We find that downturns prior to the Great Recession are periods of accelerated reallocation even more productivity enhancing than reallocation in normal times. In the Great Recession, we find that the intensity of reallocation fell rather than rose and that the reallocation that did occur was less productivity enhancing than in prior recessions.
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Enforcement Discretion at the SEC
David Zaring
Texas Law Review, forthcoming
Abstract:
The Dodd-Frank Wall Street Reform Act allowed the Securities & Exchange Commission to bring almost any claim that it can file in federal court to its own Administrative Law Judges. The agency has since taken up this power against a panoply of alleged insider traders and other perpetrators of securities fraud. Many targets of SEC ALJ enforcement actions have sued on equal protection, due process, and separation of powers grounds, seeking to require the agency to sue them in court, if at all. This article evaluates the SEC's new ALJ policy both qualitatively and quantitatively, offering an in-depth perspective on how formal adjudication - the term for the sort of adjudication over which ALJs preside - works today. It argues that the suits challenging the SEC's ALJ routing are without merit; agencies have almost absolute discretion as to who and how they prosecute, and administrative proceedings, which have a long history, do not threaten the Constitution. The controversy illuminates instead dueling traditions in the increasingly intertwined doctrines of corporate and administrative law; the corporate bar expects its judges to do equity, agencies, and their adjudicators, are more inclined to privilege procedural regularity.
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Optimal regulation of illegal goods: The case of massage licensing and prostitution
Amanda Nguyen
University of California Working Paper, November 2015
Abstract:
Despite its illegality, prostitution is a multi-billion dollar industry in the U.S. A growing share of this black market operates covertly behind massage parlor fronts. This paper examines how changes to licensing in the legal market for massage parlors can impact the total size and risk composition of the black market for prostitution, which operates either illegally through escorts or quasi-legally in massage parlors. These changes in market structure and risk consequently determine the net impact of prostitution on sexually transmitted diseases (STDs) and sexual violence. I track the impact of two policy changes in California that resulted in large variation in barriers to entry via massage licensing fees. Using a novel dataset scraped from Internet review websites, I find that lower barriers to entry for massage parlors makes the black market for prostitution larger, but also less risky. This is due to illegal prostitution buyers and suppliers switching to the quasi-legal sector, as well as quasi-legal sex workers facing a reduced wage premium for high-risk behavior. Consequently, the incidence of gonorrhea and rape falls in the general population. I also present evidence that growth in the quasi-legal sector imposes a negative competition externality on purely legal massage firms.
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Optimal Product Variety in Radio Markets
Steven Berry, Alon Eizenberg & Joel Waldfogel
NBER Working Paper, October 2015
Abstract:
A vast theoretical literature shows that inefficient market structures may arise in free entry equilibria. The inefficiency may manifest itself in the number, variety, or quality of products. Previous empirical work demonstrated that excessive entry may obtain in local radio markets. Our paper extends that literature by relaxing the assumption that stations are symmetric, allowing instead for endogenous station differentiation along both horizontal and vertical dimensions. Importantly, we allow station quality to be an unobserved station characteristic. We compute the optimal market structures in local radio markets and find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants (stations and advertisers) would eliminate 50%-60% of the stations observed in equilibrium. In 80%-95% of markets that have high quality stations in the observed equilibrium, welfare could be unambiguously improved by converting one such station into low quality broadcasting. In contrast, it is never unambiguously welfare-enhancing to convert an observed low quality station into a high quality one. This suggests local over-provision of quality in the observed equilibrium, in addition to the finding of excessive entry.
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Are Government Recalls Deterrent? Evidence from the U.S. Auto Industry
Ahmet Colak & Robert Louis Bray
Northwestern University Working Paper, October 2015
Abstract:
The U.S. federal government initiates roughly 40% of all safety-related auto recalls. We investigate whether the government presence in auto recalls incentivize or disincentivizes the auto firms to investigate safety defects. We collect a detailed data set from 1994 to 2015 - comprising 6,933 model years, 13,680 recalls, 957,566 consumer complaints, and 4,282,351 model year-part-quarters. We develop the first microeconometric model of auto recalls as a "dynamic discrete choice game." Accordingly, the automaker and regulator gradually learn an auto part's quality via consumer complaints, and initiate recalls to reduce society's exposure to faulty parts. Our game's state space is large (E200 elements) and not solvable but nonetheless estimatable. Our main result is the following: automakers perceive regulator recalls to be less costly - than their own recalls - on 82.9% of our sample. Our estimates, therefore, suggest that the automakers free ride on the regulator's recall efforts - deferring their recalls when they anticipate that the regulator will intervene.
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James Roberts & Andrew Sweeting
American Economic Journal: Microeconomics, forthcoming
Abstract:
We estimate the value of competition in United States Forest Service (USFS) timber auctions, in the context of the Reagan administration's bailout of firms that faced substantial losses on existing contracts. We use a model with endogenous entry by asymmetric firms, allowing survivors to respond to the exit of bailed-out firms by entering more auctions and for these marginal entrants to have lower values than firms that would choose to enter in any event, a selective entry effect. Observed asymmetries and selective entry contribute to us finding that the bailout may have increased USFS revenues in subsequent auctions quite substantially.
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Do land use regulations stifle residential development? Evidence from California cities
Kristoffer Jackson
Journal of Urban Economics, January 2016, Pages 45-56
Abstract:
This paper estimates the extent to which the supply of new housing is restricted by land use regulations using a panel of California cities from 1970-1995. While land use regulation is found to significantly reduce residential development, estimates from fixed effects regressions are about 50-75% smaller than those from pooled regressions. Using the two-way fixed effects model, the implementation of an additional regulation is found to reduce residential permits by an average of 4%, which comes through reductions in both multifamily and single-family permits. Of the regulations measured, those categorized as zoning and general controls have the strongest effects. The partial effects of individual regulations show that while some significantly reduce development, others have a large positive impact.
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Contracting Externalities and Mandatory Menus in the US Corporate Bankruptcy Code
Antonio Bernardo, Alan Schwartz & Ivo Welch
Journal of Law, Economics, and Organization, forthcoming
Abstract:
Our article offers the first justification for the US bankruptcy code, in which firms are not allowed to commit themselves ex ante in their lending agreements either to (Chapter 7) liquidation or to (Chapter 11) reorganization in case of distress ex post. If fire-sale liquidation imposes negative externalities on their peers, then firms can be collectively better off if they are all forced into a no-opt-out choice (a mandatory "menu"). This is the case even though they would individually want to commit themselves to liquidation, and it is collectively better for them than voluntary contract choice or mandatory liquidation. Our article's innovation is thus to show not when a later choice should be prohibited, but when a later choice should be mandatory. Equivalent analyses could justify when other ex post choices should remain inalienable (not contractible).
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Do Laws Influence the Cost of Real Estate Brokerage Services? A State Fixed Effects Approach
Anupam Nanda, John Clapp & Katherine Pancak
Real Estate Economics, forthcoming
Abstract:
A FTC-DOJ study argues that state laws and regulations may inhibit the unbundling of real estate brokerage services in response to new technology. Our data show that 18 states have changed laws in ways that promote unbundling since 2000. We model brokerage costs as measured by number of agents in a state-level annual panel vector autoregressive framework, a novel way of analyzing wasteful competition. Our findings support a positive relationship between brokerage costs and lagged house price and transactions. We find that change in full-service brokers responds negatively (by well over two percentage points per year) to legal changes facilitating unbundling.
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Nikhil Naik et al.
NBER Working Paper, October 2015
Abstract:
Urban change involves transformations in the physical appearance and the social composition of neighborhoods. Yet, the relationship between the physical and social components of urban change is not well understood due to the lack of comprehensive measures of neighborhood appearance. Here, we introduce a computer vision method to quantify change in physical appearance of streetscapes and generate a dataset of physical change for five large American cities. We combine this dataset with socioeconomic indicators to explore whether demographic and economic changes precede, follow, or co-occur with changes in physical appearance. We find that the strongest predictors of improvement in a neighborhood's physical appearance are population density and share of college-educated adults. Other socioeconomic characteristics, like median income, share of vacant homes, and monthly rent, do not predict improvement in physical appearance. We also find that neighborhood appearances converge to the initial appearances of bordering areas, supporting the Burgess "invasion" theory. In addition, physical appearance is more likely to improve in neighborhoods proximal to the central business district. Finally, we find modest support for "tipping" and "filtering" theories of urban change.