Ruled Out

Kevin Lewis

September 22, 2021

Regulation and income inequality in the United States
Dustin Chambers & Colin O'Reilly
European Journal of Political Economy, forthcoming

Income inequality in the United States has risen over the past several decades. Over the same period, federal regulatory restrictions have increased. An emerging literature shows that regulations can have regressive effects on the distribution of income, exacerbating inequality. The Federal Regulation and State Enterprise (FRASE) index quantifies the regulatory restrictions that apply to each US state by industrial composition. We construct a panel of 50 US states from 1997 to 2015 to test whether states exposed to more federal regulatory restrictions have higher levels of income inequality. The results indicate that a 10 percent increase in federal regulation is associated with an approximate 0.5 percent increase in income inequality as measured by the Gini coefficient. When states are rank-ordered by average Gini coefficient, a 0.5 percent increase in income inequality will typically result in a two-position decline in state ranking. 

The Effect of Relaxing Local Housing Market Regulations on the Number of Recipients of Federal Rental Housing Assistance Programs
Kevin Corinth & Amelia Irvine
University of Chicago Working Paper, August 2021

The majority of U.S. households that qualify for federal rental housing assistance do not receive it. In the absence of an entitlement to housing assistance for all who qualify, an underexplored cause of the shortfall is that higher rents in some areas driven by supply-constraining local regulations drive up program costs, leaving fewer funds available to serve additional families. In this paper, we first show that because the federal government bears the full cost of any incremental increase in market rents in assisted housing units, stringent local regulations can substantially increase the federal cost of covering a fixed number of families. We then simulate the effect of deregulation that reduces home prices to the cost of producing a home in 11 substantially supply-constrained metropolitan areas, which we translate into reduced market rents and ultimately cost savings for federal rental housing assistance programs. We estimate that post-deregulation, the Housing Choice Voucher program and Section 8 Project-based assistance program could save a combined $3.9 billion, which could serve 13 percent (424,000) more families. 

Minimum Quality Regulations and the Demand for Child Care Labor
Umair Ali, Chris Herbst & Christos Makridis
Arizona State University Working Paper, August 2021

Minimum quality regulations are often justified in the child care market because of the presence of information frictions between parents and providers. However, regulations can also have unintended consequences for the quantity and quality of services provided. In this paper, we merge new data on states' child care regulations for maximum classroom group sizes and child-to-staff ratios with the universe of online job postings to study the impact of regulations on the demand for and characteristics of child care labor. Our identification strategy exploits the unprecedented variation in regulatory reform during the COVID-19 pandemic, relying on changes both within states over time and across children's age groups. We find robust evidence that these regulations reduce the number of child care job postings and encourage providers to substitute away from higher-skilled postings, thereby increasing the number of positions that are out-of-compliance with state law. Furthermore, we show that regulations adversely affect mothers' labor force participation. In sum, the results imply that child care regulations may reduce the demand for child care labor, while simultaneously altering the composition of the workforce.

Hype News Diffusion and Risk of Misinformation: The Oz Effect in Healthcare
Zijun (June) Shi, Xiao Liu & Kannan Srinivasan
Journal of Marketing Research, forthcoming

Consumers' choices about health products are heavily influenced by public information, such as news articles, research articles, online customer reviews, online product discussion, and TV shows. Dr. Oz, a celebrity doctor, often makes medical recommendations with limited or marginal scientific evidence. Although reputable news agencies have traditionally acted as gatekeepers of reliable information, they face the intense pressure of "the eyeball game." Customer reviews, despite their authenticity, may come from deceived consumers. Therefore, it remains unclear whether public information sources can correct the misleading health information. In the context of over-the-counter weight loss products, the authors carefully analyze the cascading of information post endorsement. The analysis of extensive textual content with deep-learning methods reveals that legitimate news outlets respond to Dr. Oz's endorsement by generating more news articles about the ingredient; on average, articles after the endorsement contain a higher sentiment, so news agencies seem to amplify rather than rectify the misleading endorsement. The finding highlights a serious concern: the risk of hype news diffusion. Research articles react too slowly to mitigate the problem, and online customer reviews and product discussions provide only marginal corrections. The findings underscore the importance of oversight to mitigate the risk of cascading hype news. 

How Do Restrictions on Advertising Affect Consumer Search?
Lesley Chiou & Catherine Tucker
Management Science, forthcoming

Advertising is often criticized for presenting only partial or selective information about products. This criticism is particularly pronounced for health products, where large asymmetries in information may exist between consumers and firms. This paper explores how government restrictions designed to prevent selective advertising affect the types of information to which consumers are exposed. We exploit a natural experiment in the form of a U.S. Food and Drug Administration (FDA) crackdown that prevented pharmaceutical companies from using selectively chosen information in their Internet search ads. Because companies could not adequately document side effects within the advertising space allowed, they removed their ads. Our results suggest that, after the ads were removed, consumers were more likely to seek information from websites based on user-generated content or websites that focused on medical treatments not regulated by the FDA, such as Canadian pharmacies and sites promoting herbal remedies. 

Measuring the Incentive to Collude: The Vitamin Cartels, 1990-1999
Mitsuru Igami & Takuo Sugaya
Review of Economic Studies, forthcoming

Do mergers help or hinder collusion? This paper studies the stability of the vitamin cartels in the 1990s and presents a repeated-games approach to quantify "coordinated effects" of a merger. We use data and direct evidence from American courts and European agencies to show the collusive incentive of the short-lived vitamin C cartel was likely to be negative when it actually collapsed in 1995, whereas the incentives of the long-lived cartels (vitamins A and E, and beta carotene) were unambiguously positive until the prosecution in 1999. Simulations suggest some mergers could have prolonged the vitamin C cartel, but others could have further destabilized it, because both the direction and magnitude of coordinated effects depend not only on the number of firms but also on their cost asymmetry. 

Returns to Scale in Residential Construction: The Marginal Impact of Building Height
Michael Eriksen & Anthony Orlando
Real Estate Economics, forthcoming

We estimate the marginal cost and break-even rent of developing multifamily apartment buildings in the 50 largest cities in the United States using a novel data set of required construction inputs of standardized assemblies. We find nonlinearities in the marginal cost curve at the fourth and eighth stories that directly impact a developer's returns to scale with respect to height. This curve allows us to identify a developer's maximum willingness to pay for land for each building height, which we then compare to existing single-family land prices to determine whether new multifamily development will occur. The analysis concludes by simulating the impact of height regulations on break-even rents of new supply. We find that height regulation often has large, negative effects on housing affordability, with increasing magnitudes for more expensive land markets.

Quick or Broad Patents? Evidence from U.S. Startups
Deepak Hegde, Alexander Ljungqvist & Manav Raj
Review of Financial Studies, forthcoming

We study the effects of patent scope and review times on startups and externalities on their rivals. We leverage the quasi-random assignment of U.S. patent applications to examiners and find that grant delays reduce a startup's employment and sales growth, chances of survival, access to external capital, and future innovation. Delays also harm the growth, access to external capital, and follow-on innovation of the patentee's rivals, suggesting that quick patents enhance both inventor rewards and generate positive externalities. Broader scope increases a startup's future growth (conditional on survival) and innovation but imposes negative externalities on its rivals' growth and innovation. 

Consumer Consent and Firm Targeting After GDPR: The Case of a Large Telecom Provider
Miguel Godinho de Matos & Idris Adjerid
Management Science, forthcoming

The general data protection regulation (GDPR) represents a dramatic shift in global privacy regulation. We focus on GDPR's enhanced consumer consent requirements that aim to provide transparent and active elicitation of data allowances. We evaluate the effect of enhanced consent on consumer opt-in behavior and on firm behavior and outcomes after consent is solicited. Utilizing an experiment at a large telecommunications provider with operations in Europe, we find that opt-in for different data types and uses increased once GDPR-compliant consent was elicited. However, consumers did not uniformly increase data allowances and continued to generally restrict permissions for more sensitive or tangential uses of their personal information. We also find that sales, the efficacy of marketing communications, and contractual lock-in increased after consumers provided new data allowances. Additional analysis suggests that these gains to the firm emerged because new data allowances enabled them to increase their use of targeted marketing for households that were amenable to these marketing efforts. These results have significant implications for firms and policymakers and suggest that enhanced consent provided via GDPR may be effective for increasing consumer privacy protection while also allowing firms reliant on consumers' personal information to improve outcomes. 

Hedging and Competition
Erasmo Giambona, Anil Kumar & Gordon Phillips
NBER Working Paper, September 2021

We study how risk management through hedging impacts firms and competition among firms in the life insurance industry -- an industry with over 7 Trillion in assets and over 1,000 private and public firms. We show that firms that are likely to face costly external finance increase hedging after staggered state-level financial reform that reduces the costs of hedging. Post reform impacted firms have lower risk and fewer negative income shocks. Product market competition is also impacted. Firms that previously are more likely to face costly external finance, lower price, increase policy sales and increase their market share post reform. The results are consistent with hedging allowing firms that face potential costly financial distress to decrease risk and become more competitive. 

Pedestrian deaths and large vehicles
Justin Tyndall
Economics of Transportation, June-September 2021

Traffic fatalities in the US have been rising among pedestrians even as they fall among motorists. Contemporaneously, the US has undergone a significant shift in consumer preferences for motor vehicles, with larger Sport Utility Vehicles comprising an increased market share. Larger vehicles may pose a risk to pedestrians, increasing the severity of collisions. I use data covering all fatal vehicle collisions in the US and exploit heterogeneity in changing vehicle fleets across metros for identification. Between 2000 and 2019, I estimate that replacing the growth in Sport Utility Vehicles with cars would have averted 1,100 pedestrian deaths. I find no evidence that the shift towards larger vehicles improved aggregate motorist safety. 

The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs
Bernhard Ganglmair, Christian Helmers & Brian J Love
Journal of Law, Economics, and Organization, forthcoming

We analyze the extent to which private defensive litigation insurance deters patent assertion by non-practicing entities (NPEs). We study the effect that a patent-specific defensive insurance product, offered by a leading litigation insurer, had on the litigation behavior of insured patents' owners, all of which are NPEs. We first model the impact of defensive litigation insurance on the behavior of patent enforcers and accused infringers. We show that the availability of defensive litigation insurance can have an effect on how often patent enforcers will assert their patents. We confirm this result empirically showing that the insurance policy had a large, negative effect on the likelihood that a patent included in the policy was subsequently asserted relative to other patents held by the same NPEs and relative to patents held by other NPEs with portfolios that were entirely excluded from the insurance product. Our findings suggest that market-based mechanisms can deter so-called "patent trolling."


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