Limiting
Big Data in Finance and the Growth of Large Firms
Juliane Begenau, Maryam Farboodi & Laura Veldkamp
NBER Working Paper, April 2018
Abstract:
One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. Large firms, with more economic activity and a longer firm history offer more data to process. As faster processors crunch ever more data – macro announcements, earnings statements, competitors' performance metrics, export demand, etc. – large firms become more valuable targets for this data analysis. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm's cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger.
Can more housing supply solve the affordability crisis? Evidence from a neighborhood choice model
Elliot Anenberg & Edward Kung
Regional Science and Urban Economics, forthcoming
Abstract:
We estimate a neighborhood choice model using 2014 American Community Survey data to investigate the degree to which new housing supply can improve housing affordability. In the model, equilibrium rental rates are determined so that the number of households choosing each neighborhood is equal to the number of housing units in each neighborhood. We use the estimated model to simulate how rental rates would respond to an exogenous increase in the number of housing units in a neighborhood. We find that the rent elasticity is low, and thus marginal reductions in supply constraints alone are unlikely to meaningfully reduce rent burdens. The reason for this result appears to be that rental rates are more closely determined by the level of amenities in a neighborhood — as in a Rosen-Roback spatial equilibrium framework — than by the supply of housing.
New Evidence on the Markup of Prices over Marginal Costs and the Role of Mega-Firms in the US Economy
Robert Hall
NBER Working Paper, May 2018
Abstract:
The markup of price over marginal cost reveals market power. The distinction between marginal and average cost is key. Average cost is easy to measure, but the price/average cost ratio understates the price/marginal cost ratio when fixed costs are present. In particular, in free-entry equilibrium, where revenue equals cost, the price/average cost ratio is always one, while the price/marginal cost ratio may be above one. The idea here is to calculate marginal cost as the ratio of the adjusted expenditure on inputs to the adjusted change in output. The first adjustment is to remove the change in expenditure that arises from the changes in input costs. The second adjustment is to remove the change in output attributed to productivity growth. Application to KLEMS productivity data finds a typical markup ratio of 1.3. Markup ratios grew between 1988 and 2015. For mega-firms, the paper uses employment at firms with 10,000+ workers. Substantial heterogeneity occurs across sectors and in growth rates. There is no evidence that mega-firm-intensive sectors have higher price/marginal cost markups, but some evidence that markups grew in sectors with rising mega-firm intensity.
The Leased Among Us: Precarious Work, Local Regulation, and the Taxi Industry
Jill Esbenshade & Elizabeta Shifrin
Labor Studies Journal, forthcoming
Abstract:
Through a case study of the taxi industry in San Diego, where 89 percent of drivers leased their vehicles as independent contractors (IC), we show how local regulation has enforced precarity. We find that the interaction of policies from various local governmental agencies has actually required lease drivers to operate as ICs and has simultaneously undermined the very control and economic independence that is fundamental to the IC designation. While the literature on precarious employment and IC misclassification tends to emphasize the role of macroeconomic structures, employer action, and federal government policy, this article highlights the role of local regulatory agencies.
Reputation Inflation
Apostolos Filippas, John Horton & Joseph Golden
NYU Working Paper, March 2018
Abstract:
A solution to marketplace information asymmetries is to have trading partners publicly rate each other post-transaction. Many have shown these ratings are effective; we show that their effectiveness deteriorates over time. The problem is that ratings are prone to inflation, with raters feeling pressure to leave "above average'' ratings, which in turn pushes the average higher. This pressure stems from raters' desire to not harm the rated seller. As the potential to harm is what makes ratings effective, reputation systems, as currently designed, sow the seeds of their own irrelevance.
Using Massive Online Choice Experiments to Measure Changes in Well-being
Erik Brynjolfsson, Felix Eggers & Avinash Gannamaneni
NBER Working Paper, April 2018
Abstract:
GDP and derived metrics (e.g., productivity) have been central to understanding economic progress and well-being. In principle, the change in consumer surplus (compensating expenditure) provides a superior, and more direct, measure of the change in well-being, especially for digital goods, but in practice, it has been difficult to measure. We explore the potential of massive online choice experiments to measure consumers’ willingness to accept compensation for losing access to various digital goods and thereby estimate the consumer surplus generated from these goods. We test the robustness of the approach and benchmark it against established methods, including incentive compatible choice experiments that require participants to give up Facebook for a certain period in exchange for compensation. The proposed choice experiments show convergent validity and are massively scalable. Our results indicate that digital goods have created large gains in well-being that are missed by conventional measures of GDP and productivity. By periodically querying a large, representative sample of goods and services, including those which are not priced in existing markets, changes in consumer surplus and other new measures of well-being derived from these online choice experiments have the potential for providing cost-effective supplements to existing national income and product accounts.
From Revolving Doors to Regulatory Capture? Evidence from Patent Examiners
Haris Tabakovic & Thomas Wollmann
NBER Working Paper, May 2018
Abstract:
Many regulatory agency employees are hired by the firms they regulate, creating a “revolving door” between government and the private sector. We study these transitions using detailed data from the US Patent and Trademark Office. We find that patent examiners grant significantly more patents to the firms that later hire them and that much of this leniency extends to prospective employers. These effects are strongest in years when firms are actively hiring, and these relationships hold for the intensive margin of intellectual property protection. Ultimately, this leads the agency to issue lower quality patents, which we measure in citations. Together with other supporting evidence, we argue these results are suggestive of regulatory capture.
The Estimation of Compensating Wage Differentials: Lessons from the Deadliest Catch
Kurt Lavetti
Journal of Business & Economic Statistics, forthcoming
Abstract:
I use longitudinal survey data from commercial fishing deckhands in the Alaskan Bering Sea to provide new insights on empirical methods commonly used to estimate compensating wage differentials and the value of statistical life (VSL). The unique setting exploits intertemporal variation in fatality rates and wages within worker-vessel pairs caused by a combination of weather patterns and policy changes, allowing identification of parameters and biases that it has only been possible to speculate about in more general settings. I show that estimation strategies common in the literature produce biased estimates in this setting, and decompose the bias components due to latent worker, establishment, and job-match heterogeneity. The estimates also remove the confounding effects of endogenous job mobility and dynamic labor market search, narrowing a conceptual gap between search-based hedonic wage theory and its empirical applications. I find that workers' marginal aversion to fatal risk falls as risk levels rise, which suggests complementarities in the benefits of public safety policies.
Experimental validation of connected automated vehicle design among human-driven vehicles
Jin Ge et al.
Transportation Research Part C: Emerging Technologies, June 2018, Pages 335-352
Abstract:
In this paper, we present results regarding the experimental validation of connected automated vehicle design. In order for a connected automated vehicle to integrate well with human-dominated traffic, we propose a class of connected cruise control algorithms with feedback structure originated from human driving behavior. We test the connected cruise controllers using real vehicles under several driving scenarios while utilizing beyond-line-of-sight motion information obtained from neighboring human-driven vehicles via vehicle-to-everything (V2X) communication. We experimentally show that the design is robust against variations in human behavior as well as changes in the topology of the communication network. We demonstrate that both safety and energy efficiency can be significantly improved for the connected automated vehicle as well as for the neighboring human-driven vehicles and that the connected automated vehicle may bring additional societal benefits by mitigating traffic waves.
The marginal congestion of a taxi in New York City
Daniel Mangrum & Alejandro Molnar
Vanderbilt University Working Paper, December 2017
Abstract:
We exploit the partial deregulation of New York City taxi medallions to provide a causal estimate of the impact of taxi supply on congestion. We employ taxi trip records to measure historical street-level speed. We find that the roll-out of newly authorized taxis caused a local 8-9% decrease in speed. We estimate an empirical congestion elasticity curve from heterogeneous changes in speed and taxi supply, counted from aerial orthoimagery. Additionally, we provide novel urban sensor data to document a substantial traffic slowdown since 2013. Most of the slowdown in midtown Manhattan is accounted for by new supply from ridehail applications.
Do Checklists Make a Difference? A Natural Experiment from Food Safety Enforcement
Daniel Ho, Sam Sherman & Phil Wyman
Journal of Empirical Legal Studies, June 2018, Pages 242-277
Abstract:
Inspired by Atul Gawande's bestselling Checklist Manifesto, many commentators have called for checklists to solve complex problems in law and public policy. We study a unique natural experiment to provide the first systematic evidence of checklists in law. In 2005, the Public Health Department of Seattle and King County revised its health code, subjecting half of inspection items to a checklist, with others remaining on a free‐form recall basis. Through in‐depth qualitative analysis, we identify the subset of code items that remained substantively identical across revisions, and then apply difference‐in‐differences to isolate the checklist effect in more than 95,000 inspections from 2001–2009. Contrary to scholarly and popular claims that checklists can improve the administration of law, the checklist has no detectable effect on inspector behavior. Making a violation more salient by elevating it from “noncritical” to “critical” status, however, has a pronounced effect. The benefits of checklists alone are considerably overstated.
An offer you can refuse: The effect of transparency with endogenous conflict of interest
Melis Kartal & James Tremewan
Journal of Public Economics, May 2018, Pages 44-55
Abstract:
We study the effects of transparency on information transmission and decision making theoretically and experimentally. We develop a model in which a decision maker seeks advice from a better-informed adviser whose advice might be swayed by financial incentives. Transparency enables the decision maker to learn whether or not the adviser accepted such an incentive, for example from an “interested” third party. Prior theoretical and experimental research mostly found that transparency is ineffective or harmful to decision makers. Our model predicts that transparency is never harmful and, depending on equilibrium selection, may improve the accuracy of decision makers. In our experiment transparency does indeed improve accuracy, especially if it is mandatory.
The Vertical City: Rent Gradients, Spatial Structure, and Agglomeration Economies
Crocker Liu, Stuart Rosenthal & William Strange
Journal of Urban Economics, forthcoming
Abstract:
Tall commercial buildings dominate city skylines. Nevertheless, despite decades of research on commercial real estate and horizontal patterns of urban development, vertical patterns have been largely ignored. We document that high productivity companies locate higher up, with less productive offices lower down and retail at ground level. These patterns reflect tradeoffs between street access and vertical amenities. Vertical rent gradients are non-monotonic, independent of nearby employment, and large. Doubling zipcode employment is associated with a 10.7% increase in rent, consistent with the presence of agglomeration economies. Moving up one floor has the same effect on rent as adding roughly 3,500 workers to a zipcode.
Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets
Buhui Qiu & Teng Wang
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
This article studies whether knowledge protection affects shareholder value and firms’ investment in knowledge assets using the staggered adoptions and rejections of the inevitable disclosure doctrine (IDD) by U.S. state courts as exogenous changes in the level of knowledge protection. We find positive (negative) abnormal stock returns around the IDD adoption (rejection) day for firms headquartered in the state, and we uncover a positive IDD treatment effect on firms’ investment in knowledge assets. Moreover, the effects on stock returns and knowledge assets investment are stronger in more knowledge-oriented industries and firms. Finally, enhancing knowledge protection does not discourage local entrepreneurial activity.