On the level

Kevin Lewis

March 13, 2019

Low Interest Rates, Market Power, and Productivity Growth
Ernest Liu, Atif Mian & Amir Sufi
NBER Working Paper, January 2019


How does the production side of the economy respond to a low interest rate environment? This study provides a new theoretical result that low interest rates encourage market concentration by giving industry leaders a strategic advantage over followers, and this effect strengthens as the interest rate approaches zero. The model provides a unified explanation for why the fall in long-term interest rates has been associated with rising market concentration, reduced dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth. Support for the model's key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.

Fading Stars
Germán Gutiérrez & Thomas Philippon
NBER Working Paper, February 2019


We study the evolution of super star firms in the U.S. economy over the past 60 years. Contrary to common wisdom, super stars firms have not become larger, have not become more productive, and the contribution of star firms to aggregate U.S. productivity growth has fallen by more than one third since 2000.

Entry Costs and the Macroeconomy
Germán Gutiérrez, Callum Jones & Thomas Philippon
NBER Working Paper, February 2019


We propose a model to identify the causes of rising profits and concentration, and declining entry and investment in the US economy. Our approach combines a rich structural DSGE model with cross-sectional identification from firm and industry data. Using asset prices, our model estimates the realized and anticipated shocks that drive the endogeneity of entry and concentration and recovers shocks to entry costs. We validate our approach by showing that the model-implied entry shocks correlate with independently constructed measures of entry regulation and M&A activities. We conclude that entry costs have risen and that the ensuing decline in competition has depressed consumption by five to ten percent.

Payday-loan bans: Evidence of indirect effects on supply
Stefanie Ramirez
Empirical Economics, March 2019, Pages 1011–1037


In November 2008, Ohio enacted the Short-Term Loan Law which imposed a 28% APR on payday loans, effectively banning the industry. Using licensing records from 2006 to 2010, I examine if there are changes in the supply side of the pawnbroker, precious-metals, small-loan, and second-mortgage lending industries during periods when the ban is effective. Seemingly unrelated regression results show the ban increases the average county-level operating small-loan, second-mortgage, and pawnbroker licensees per million by 156, 43, and 97%, respectively.

Consumer Law Myopia
Andrew Hayashi
University of Virginia Working Paper, February 2019


People make mistakes with debt, partly because the chance to buy now and pay later tempts them to do things that are not in their long-term interest. Lenders sell credit products that exploit this vulnerability. In this Article, I argue that critiques of these products, particularly those that draw insights from behavioral law and economics, have a blind spot: they ignore what the borrowed funds are used for. By evaluating financing transactions in isolation from the underlying purchase, the cost-benefit analysis of consumer financial regulation is truncated and misleading. I show that the same bias that causes someone to take an exploitative loan may also imply that the loan benefits them by causing them to purchase a product or service that they should, but wouldn’t otherwise, buy. I demonstrate the importance of this effect in a study of tax refund anticipation loans. I find that regulation curtailing these loans reduced the use of paid tax preparers and the takeup of the earned income tax credit, which is the second largest federal transfer to low-income households.

Regulators' Disclosure Decisions: Evidence from Bank Enforcement Actions
Anya Kleymenova & Rimmy Tomy
University of Chicago Working Paper, January 2019


Regulatory disclosure requirements induce market discipline and facilitate efficient allocation of resources by increasing firm transparency. At the same time, disclosure increases the visibility of regulatory actions, which influences the behavior of regulators. In this paper, we study the impact of a change in the disclosure regime by using the setting of the 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which required bank regulators to disclose enforcement actions publicly. Using a novel sampling technique to identify enforcement actions in the non-disclosure regime, we find that regulators' incentives change after the introduction of the Act. In the disclosure regime, regulators are more likely to issue enforcement actions, as well as to rely on publicly observable signals to issue enforcement orders, suggesting a response to the increased public scrutiny of their actions. We also find that following an enforcement action, its disclosure leads to a decline in uninsured deposits and improves banks' capital ratios and asset quality.

Private Contracting, Law and Finance
Graeme Acheson, Gareth Campbell & John Turner
Review of Financial Studies, forthcoming


In the late nineteenth century Britain had almost no mandatory shareholder protections, but had very developed financial markets. We argue that private contracting between shareholders and corporations meant that the absence of statutory protections was immaterial. Using approximately 500 articles of association from before 1900, we code the protections offered to shareholders in these private contracts. We find that firms voluntarily offered shareholders many of the protections that were subsequently included in statutory corporate law. We also find that companies offering better protection to shareholders had less concentrated ownership.

Assessing the Gains from E-Commerce
Paul Dolfen et al.
NBER Working Paper, February 2019


E-Commerce represents a rapidly growing share of consumer spending in the U.S. We use transactions-level data on credit and debit cards from Visa, Inc. between 2007 and 2017 to quantify the resulting consumer surplus. We estimate that E-Commerce spending reached 8% of consumption by 2017, yielding consumers the equivalent of a 1% permanent boost to their consumption, or over $1,000 per household. While some of the gains arose from saving travel costs of buying from local merchants, most of the gains stemmed from substituting to online merchants. Higher income cardholders gained more, as did consumers in more densely populated counties.

Do land use restrictions increase restaurant quality and diversity?
Daniel Shoag & Stan Veuger
Journal of Regional Science, forthcoming


There is significant evidence that restrictions on residential land use reduce housing supply, increase house prices, and limit inflows of low‐income households. Local decision‐makers often argue that their efforts are mere attempts to preserve local amenities. We provide evidence that there is some truth to this claim: that residents of cities with more restrictions on land use appear to have access to higher‐quality and more diverse restaurants. In the process, we develop measures of restaurant quality based on organically generated data that, while strongly correlated with expert assessments, are more easily calculated at high frequencies and levels of geographic granularity.

Dynamic Regulatory Distortions: Coal Storage at U.S. Power Plants
Akshaya Jha
Carnegie Mellon University Working Paper, February 2019


Most believe that the largest efficiency gains from introducing market mechanisms to price-regulated industries come from long-run changes in capital investment. The coal storage behavior of U.S. power plants is an ideal empirical setting to assess this claim: coal stockpiles are adjusted frequently and are treated by regulators as working capital. This paper estimates a dynamic, plant-level model of coal procurement, comparing model-based costs across price-regulated versus market-based plants using matched difference-in-differences. I find that regulators provide price-regulated plants with an artificially high rate of return on the money tied up in their coal stockpiles. Due to this, price-regulated plants store 11% more coal than similar market-based plants, resulting in annual productive efficiency losses of 4.8 billion dollars (roughly 4% of retail revenues). My findings suggest that the largest efficiency benefits from introducing market mechanisms to price-regulated industries stem from steady-state differences in capital levels rather than changes in the timing of capital investments.

Patent policy and American innovation after eBay: An empirical examination
Filippo Mezzanotti & Timothy Simcoe
Research Policy, June 2019, Pages 1271-1281


The 2006 Supreme Court ruling in eBay vs. MercExchange removed the presumption of injunctive relief from infringement and marked a sea change in U.S. patent policy. Subsequent legal and policy changes reduced the costs of challenging patent validity and narrowed the scope of patentable subject matter. Proponents of these changes argue that they have made the U.S. patent system more equitable, particularly for sectors such as information technology, where patent ownership is fragmented and innovation highly cumulative. Opponents suggest the same reforms have weakened intellectual property rights and curtailed innovation. After reviewing the legal background and relevant economic theory, we examine patenting, R&D spending, venture capital investment and productivity growth in the wake of the eBay decision. Overall, we find no evidence that changes in patent policy have harmed the American innovation system.


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