Kevin Lewis

February 25, 2020

Consumer Protection in an Online World: An Analysis of Occupational Licensing
Chiara Farronato et al.
NBER Working Paper, January 2020


We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for residential home services. We exploit exogenous variation in the time at which licenses are displayed on the platform to identify the causal effects of licensing information on consumer choices. We find that the platform-verified licensing status of a professional is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. We also use variation in regulation stringency across states and occupations to measure the effects of licensing on aggregate market outcomes on the platform. Our results show that more stringent licensing regulations are associated with less competition and higher prices but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again.

Consumer Protection on Kickstarter
Daniel Blaseg, Christian Schulze & Bernd Skiera
Marketing Science, January-February 2020, Pages 211-233


This article investigates consumer protection on Kickstarter - a popular and sizeable, yet largely unregulated reward-based crowdfunding platform. Specifically, the article focuses on Kickstarter campaigns’ use of price advertising claims (PACs) and their failure to honor the promised discounts. Analyses show that between 2009 and 2016, more than 500,000 consumers who backed a wide variety of game or technology campaigns lost on average $45.72 because of broken PAC promises. Whereas 75% of PAC campaigns did not provide the promised discounts, in almost 50% of all cases backers who were promised a discount paid more, not less, than the retail price. In contrast, backers of campaigns that did not promise a discount received larger effective discounts. Analyzing an extensive data set comprising 34,745 Kickstarter campaigns, complete backing histories of more than 400,000 backers, and more than 4 million consumer comments, complaints, and reviews, we show that broken PAC promises pose a substantial problem to consumers, that the problem is persistent across more than 6 years, and that it has not been resolved through self-regulation by market participants thus far.

The Economic Consequences of Data Privacy Regulation: Empirical Evidence from GDPR
Guy Aridor et al.
Columbia University Working Paper, January 2020


This paper studies the effects of the EU’s General Data Protection Regulation (GDPR) on the ability of firms to collect consumer data, identify consumers over time, accrue revenue via online advertising, and predict their behavior. Utilizing a novel dataset by an intermediary that spans much of the online travel industry, we perform a difference-in-differences analysis that exploits the geographic reach of GDPR. We find a 12.5% drop in the intermediary- observed consumers as a result of GDPR, suggesting that a nonnegligible number of consumers exercised the opt-out right enabled by GDPR. At the same time, the remaining consumers are more persistently trackable. This observed pattern is consistent with the hypothesis that privacy-conscious consumers substitute away from less efficient privacy protection (e.g, cookie deletion) to explicit opt out, a process that would reduce noise on remaining consumers and make them more trackable. Further in keeping with this hypothesis, we observe that the average value of the remaining consumers to advertisers has increased, offsetting most of the losses from consumers that opt-out. Our results highlight the externalities that consumer privacy decisions have both on other consumers and for firms.

Stagnation and Scientific Incentives
Jay Bhattacharya & Mikko Packalen
NBER Working Paper, February 2020


New ideas no longer fuel economic growth the way they once did. A popular explanation for stagnation is that good ideas are harder to find, rendering slowdown inevitable. We present a simple model of the lifecycle of scientific ideas that points to changes in scientist incentives as the cause of scientific stagnation. Over the last five decades, citations have become the dominant way to evaluate scientific contributions and scientists. This emphasis on citations in the measurement of scientific productivity shifted scientist rewards and behavior on the margin toward incremental science and away from exploratory projects that are more likely to fail, but which are the fuel for future breakthroughs. As attention given to new ideas decreased, science stagnated. We also explore ways to broaden how scientific productivity is measured and rewarded, involving both academic search engines such as Google Scholar measuring which contributions explore newer ideas and university administrators and funding agencies utilizing these new metrics in research evaluation. We demonstrate empirically that measures of novelty are correlated with but distinct from measures of scientific impact, which suggests that if also novelty metrics were utilized in scientist evaluation, scientists might pursue more innovative, riskier, projects.

Business Complexity and Risk Management: Evidence from Operational Risk Events in U.S. Bank Holding Companies
Anna Chernobai, Ali Ozdagli & Jianlin Wang
Journal of Monetary Economics, forthcoming


Recent regulatory proposals tie a financial institution’s systemic importance to its complexity. However, little is known about how complexity affects banks’ risk management. Using the 1996-1999 deregulations of U.S. banks’ nonbanking activities as a natural experiment, we show that banks’ business complexity increases their operational risk. This result is driven by banks that had been constrained by regulations, compared with other banks and also with nonbank financial institutions that were never subject to these regulations. We provide evidence that managerial failure underlying these events offsets benefits of strategic risk taking.

Previous and Prospective Career Mobility, Client Capture, and Compromised Professional Judgment: The Withholding of Known Relevant Prior Art by Patent Lawyers on Behalf of Their Clients
Mukund Chari, Kevin Steensma & Charles
Connaughton Organization Science, forthcoming


Client capture is the process by which professionals become so dependent on certain clients that their professional judgment is compromised. We explore whether there are systematic differences across professionals in their likelihood of improperly biasing their judgment in the interests of clients on whom they highly depend. To do so, we examine the disclosure of prior art by patent lawyers when representing client patent applications submitted to the U.S. Patent and Trademark Office (USPTO). Lawyers are obligated professionally to disclose all relevant prior art of which they are aware even if, in doing so, their clients receive narrower intellectual property rights. We suggest that patent lawyers are generally more dependent on clients with whom they repeatedly engage and when they have numerous similar clients. We find, however, that the influence of such dependency on lawyers’ withholding prior art is greater when they have entered the legal profession through a regulatory employment revolving door. Specifically, regulatory experience as a USPTO patent examiner provides patent lawyers with unique insight that enables them to compromise their judgment on behalf of clients on whom they depend. Further, patent lawyers who are associates in their law firms are more inclined than are partners to withhold prior art on behalf of clients with whom they repeatedly engage. Because associates’ employment with their professional service firms is relatively insecure, compromising their professional judgment on behalf of clients with whom they repeatedly engage is more alluring in their efforts to enhance future employment prospects.

Aviation Safety: A Whole New World?
Arnold Barnett
Transportation Science, January-February 2020, Pages 84-96


In 2017, over four billion passengers worldwide embarked on air journeys on scheduled flights. Only eight of them were killed in air accidents. Viewed in isolation, this outcome would suggest that the events that produce aviation deaths are on the verge of extinction throughout the world. However, given the rarity of air disasters, year-to-year passenger death tolls are subject to considerable volatility. Here, we examine worldwide data about fatal aviation events on scheduled passenger flights for the decade 2008-2017 in conjunction with similar data for earlier decades. A major difference between this safety study and others is that we work with probabilistic models customized to aviation safety data, with the aim of distinguishing meaningful patterns from random fluctuations. We show that death risk per boarding over 2008-2017 fell by more than half compared with the previous decade, whereas the world’s nations continued to fall into three highly divergent risk categories. Major new developments in recent years include exceptionally strong safety achievements in China - which is slated to be the world’s largest aviation nation within five years - and the Eastern European members of the European Union - which had a fatality-free record in the last decade that constituted the Union’s strongest performance. A troubling aspect of the findings is that the less developed nations did not gain in aviation safety relative to other countries, despite having considerably more room for improvement.

Urban Population and Amenities: The Neoclassical Model of Location
David Albouy & Bryan Stuart
International Economic Review, February 2020, Pages 127-158


We develop a neoclassical general equilibrium model to explain cross‐metro variation in population and density. We provide new methods to estimate traded and nontraded productivities, and elasticities of housing and land supply, using density and land area data. From wage and housing cost indices, the model explains half of U.S. density and population variation and finds that quality of life determines location choices more than trade productivity; productivity and factor substitution in housing matter most, but are weak in nicer areas. Relaxing land use regulations would increase population in the West, raising both quality of life and productivity experienced by residents.

Derivatives Supply and Corporate Hedging: Evidence from the Safe Harbor Reform of 2005
Erasmo Giambona & Ye Wang
Review of Financial Studies, forthcoming


This article analyzes the importance of supply-side fluctuations for corporate hedging. To establish a causal link, we exploit a regulatory change that allows derivatives counterparties to circumvent the Bankruptcy Code’s automatic stay: the Safe Harbor Reform of 2005. Following the reform-induced expansion in the availability of derivatives, fuel hedging by airlines nearing financial distress (those that benefited most from the reform) significantly increased in comparison with financially sound airlines. We find that the hedging propensity similarly increased in a general sample of nonfinancial firms. In line with theory, we also find that operating performance increased for the affected firms.


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