Free For All

Kevin Lewis

May 02, 2022

Robbing Peter to Pay Paul? The Redistribution of Wealth Caused by Rent Control
Kenneth Ahern & Marco Giacoletti
University of Southern California Working Paper, March 2022 

We use the price effects caused by the passage of rent control in St. Paul, Minnesota in 2021, to study the transfer of wealth across income groups. First, we find that rent control caused property values to fall by 6-7%, for an aggregate loss of $1.6 billion. Both owner-occupied and rental properties lost value, but the losses were larger for rental properties, and in neighborhoods with a higher concentration of rentals. Second, leveraging administrative parcel-level data, we find that the tenants who gained the most from rent control had higher incomes and were more likely to be white, while the owners who lost the most had lower incomes and were more likely to be minorities. For properties with high-income owners and low-income tenants, the transfer of wealth was close to zero. Thus, to the extent that rent control is intended to transfer wealth from high-income to low-income households, the realized impact of the law was the opposite of its intention. 

Subscriptions and external links help drive resentful users to alternative and extremist YouTube videos
Annie Chen et al.
Dartmouth College Working Paper, April 2022

Do online platforms facilitate the consumption of potentially harmful content? Despite widespread concerns that YouTube's algorithms send people down "rabbit holes" with recommendations to extremist videos, little systematic evidence exists to support this conjecture. Using paired behavioral and survey data provided by participants recruited from a representative sample (n=1,181), we show that exposure to alternative and extremist channel videos on YouTube is heavily concentrated among a small group of people with high prior levels of gender and racial resentment. These viewers typically subscribe to these channels (causing YouTube to recommend their videos more often) and often follow external links to them. Contrary to the "rabbit holes" narrative, non-subscribers are rarely recommended videos from alternative and extremist channels and seldom follow such recommendations when offered. 

Innovation and Housing Costs
Roger White
Arizona State University Working Paper, January 2022

I examine whether housing cost growth predicts regional innovation. Rising housing costs could boost innovation by providing entrepreneurs more home equity to borrow against. Conversely, higher housing costs could (1) constrain self-funded entrepreneurs who rent housing and/or (2) discourage the in-migration of R&D workers. I examine the net effects of these pressures using a 15-year panel of Florida counties. Using within-county models, I find that a 1% increase in housing costs predicts 0.5% fewer patent applications. I confirm this result in an instrumental variables test that exploits county-level tourist tax policy changes that induce otherwise exogenous variation in housing costs. 

The costs and potential benefits of occupational licensing: A case of real estate license reform
Bobby Chung
Labour Economics, forthcoming

Occupational licensing potentially benefits consumers by screening and training workers but at the cost of lower supply. To evaluate this trade-off, I leverage a quasi-experimental setting in which Illinois required compliance training for new and existing real estate agents. Analyzing multiple data sources (licensee registration, aggregate housing statistics, and a national household survey), I find that the reform caused a one-time spike in agent outflows and a decrease in home sales, with female and new agents being less likely to stay. For the policy intention, I do not find strong evidence that the reform reduced new misconduct incidents. 

Price Discrimination with Fairness Constraints
Maxime Cohen, Adam Elmachtoub & Xiao Lei
Management Science, forthcoming

Price discrimination strategies, which offer different prices to customers based on differences in their valuations, have become common practice. Although it allows sellers to increase their profits, it also raises several concerns in terms of fairness (e.g., by charging higher prices (or denying access) to protected minorities in case they have higher (or lower) valuations than the general population). This topic has received extensive attention from media, industry, and regulatory agencies. In this paper, we consider the problem of setting prices for different groups under fairness constraints. We first propose four definitions: fairness in price, demand, consumer surplus, and no-purchase valuation. We prove that satisfying more than one of these fairness constraints is impossible even under simple settings. We then analyze the pricing strategy of a profit-maximizing seller and the impact of imposing fairness on the seller's profit, consumer surplus, and social welfare. Under a linear demand model, we find that imposing a small amount of price fairness increases social welfare, whereas too much price fairness may result in a lower welfare relative to imposing no fairness. On the other hand, imposing fairness in demand or consumer surplus always decreases social welfare. Finally, no-purchase valuation fairness always increases social welfare. We observe similar patterns under several extensions and for other common demand models numerically. Our results and insights provide a first step in understanding the impact of imposing fairness in the context of discriminatory pricing. 

Do Wall Street Landlords Undermine Renters' Welfare?
Umit Gurun et al.
Review of Financial Studies, forthcoming

We examine the recent rise of institutional investment in the single-family home rental market and its implications for renters' welfare. Using institutional mergers to identify local exogenous variation in institutional landlords' scale and market share, we show that rents increase in neighborhoods where both merging firms owned properties (i.e., overlapped neighborhoods) relative to other nonoverlapped neighborhoods. Meanwhile, the crime rate also significantly decreases in overlapped neighborhoods after mergers. Our findings suggest that while institutional landlords leverage their market power to extract greater surplus from renters, they also improve the quality of rental services by enhancing neighborhood safety. 

The Allocation of Food to Food Banks
Canice Prendergast
Journal of Political Economy, forthcoming

Feeding America allocates donated food to over 200 food banks. In 2005, it transitioned from a queueing mechanism to one where food banks use a specialized currency to bid for food. Food banks chose very different food than they received before. Small food banks acquired 72% more pounds per client than large food banks, at little nutritional cost. This reallocation of food is estimated to have increased its value by 21%, or $115m per annum. Food banks also sourced food much closer, saving an additional $16m per annum. Finally, donations of food rose by over 100 million pounds. 

How Partisanship in Cities Influences Housing Policy
Justin de Benedictis-Kessner, Daniel Jones & Christopher Warshaw
Harvard Working Paper, December 2021

Housing policy is one of the most important areas of local politics. Yet little is known about how local legislatures and executives make housing policy decisions and how their elections shape policy in this important realm. We leverage survey data, housing policy data, and a new data source of 13,645 city council elections and 2,725 mayoral elections in large cities in the United States and a regression discontinuity design to examine partisan divides in housing policy among the mass public as well as the impact of local leaders' partisanship on housing policy. We provide robust evidence that electing mayors from different political parties shapes cities' housing stock. Electing a Democrat as mayor leads to increased multi-family housing production. These effects are concentrated in cities where councils do not have power over zoning appeals. Overall, our paper shows that politics influences local housing policy, and it contributes to a larger literature on local political economy. 

Are Managers Paid for Market Power?
Renjie Bao, Jan De Loecker & Jan Eeckhout
NBER Working Paper, April 2022

To answer the question whether managers are paid for market power, we propose a theory of executive compensation in an economy where firms have market power, and the market for managers is competitive. We identify two distinct channels that contribute to manager pay in the model: market power and firm size. Both increase the profitability of the firm, which makes managers more valuable as it increases their marginal product. Using data on executive compensation from Com- pustat, we quantitatively analyze how market power affects Manager Pay and how it changes over time. We attribute on average 45.8% of Manager Pay to market power, from 38.0% in 1994 to 48.8% in 2019. Over this period, market power accounts for 57.8% of growth. We also find there is a lot of heterogeneity within the distribution of managers. For the top managers, 80.3% of their pay in 2019 is due to market power. Top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so. 

Social Inequality and the Spread of Misinformation
Mohamed Mostagir & James Siderius
Management Science, forthcoming

We study the spread of misinformation in a social network characterized by unequal access to learning resources. Agents use social learning to uncover an unknown state of the world, and a principal strategically injects misinformation into the network to distort this learning process. A subset of agents throughout the network is endowed with knowledge of the true state. This gives rise to a natural definition of inequality: privileged communities have unrestricted access to these agents, whereas marginalized communities do not. We show that the role that this inequality plays in the spread of misinformation is highly complex. For instance, communities who hoard resources and deny them to the larger population can end up exposing themselves to more misinformation. Conversely, although more inequality generally leads to worse outcomes, the prevalence of misinformation in society is nonmonotone in the level of inequality. This implies that policies that decrease inequality without substantially reducing it can leave society more vulnerable to misinformation. 

Price asymmetries in the US airline industry
Yi Jiang, Tingting Que & Miaomiao Yu
Financial Review, forthcoming

We document price asymmetries in the US airline industry. We find evidence that the average airfare increases in response to rising fuel cost but does not decrease in response to declining fuel cost. In searching for the cause of price asymmetries, we find that common ownership, measured by overlapping institutional investors, is associated with greater price asymmetry in the airline industry. To mitigate endogeneity concerns, we exploit the variation in common ownership induced by the financial institution mergers and conduct a difference-in-differences test to establish the causal effects of common ownership on price asymmetry in the airline industry. In addition, airlines in highly concentrated markets exhibit more price asymmetries than those in low concentration markets. Our results support focal price tacit collusion as an important determinant of asymmetric pricing. Furthermore, first-class airfares are shown to decrease more slowly than economy-class airfares in response to fuel cost decreases, which supports consumer search as the mechanism driving asymmetric pricing.


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