Search Results
Working Paper
Costly Information Intermediation as a Natural Monopoly
In this paper, we show that information trade has similar characteristics to a natural monopoly, where competition may be detrimental to efficiency due either to the duplication of direct costs or the slowing down of information dissemination. We present a model with two large populations in which consumers are randomly matched to providers on a period-by-period basis. Despite a moral hazard problem, cooperation can be sustained through an institution that gives incentives to information exchange. We consider different information pricing mechanisms (membership vs. buy and sell) and different ...
Working Paper
Dotcom Price Spiral
We show that during the bubble implied growth rates coming from the underpricing of IPO market explains short term returns on the NASDAQ index. This result remains even if we replace actual underprice for others different instruments for underpricing that are based on predetermined variables and not correlated to market returns. We also do placebo tests to assess the relation between underpricing and NASDAQ returns over other periods. We show that growth proxies that are not contaminated by the booms and busts of the stock market are uncorrelated with the returns on the NASDAQ index in ...
Working Paper
Costly Information Intermediation as a Natural Monopoly
Many markets rely on information intermediation to sustain cooperation between large communities.We identify a key trade-off in costly information intermediation: intermediaries can create trust by incentivizing information exchange, but with too much information acquisition, intermediation becomes expensive, with a resulting high equilibrium default rate and a low fraction of agents buying this information. The particular pricing scheme and the competitive environment affect the direct and indirect costs of information transmission, represented by fees paid by consumers and the expected loss ...
Journal Article
The 1918 Flu and COVID-19 Pandemics: Different Patients, Different Economy
Many observers seeking historical precedent for COVID-19 draw on the 1918 influenza pandemic. In this Commentary, we highlight the differences between the 1918 flu and COVID-19 pandemics in terms of the most significantly affected populations. We also show key differences in the US economy in the late 1910s and now. Not only did the 1918 influenza virus primarily affect significantly younger cohorts, but the US economy’s industry and geographic distributions were notably different at the time compared to today’s. Consequently, caution is needed when using the 1918 influenza pandemic as a ...
Working Paper
Competitors' Stock Price Reaction to Mass Layoff Announcements
Using data on layoff announcements by S&P 500 firms, we show that layoff announcements mostly contain industrywide news. Competitors? stock price reactions are positively correlated with the announcer?s returns. This contagion effect is stronger for competitors whose values depend on growth opportunities. When layoff announcements induce positive stock returns to announcers, competitors with positive R&D see a 1.15% increase in their returns. Conversely, when announcements induce negative reactions to announcers, competitors with high sales growth see a reduction of 1.09% in returns. Our ...
Working Paper
Organizations, Skills, and Wage Inequality
We extend an on-the-job search framework in order to allow firms to hire workers with different skills and skills to interact with firms? total factor productivity (TFP). Our model implies that more productive firms are larger, pay higher wages, and hire more workers at all skill levels and proportionately more at higher skill types, matching key stylized facts. We calibrate the model using five educational attainment levels as proxies for skills and estimate nonparametrically firm-skill output from the wage distributions for different educational levels. We consider two periods in time (1985 ...
Journal Article
Revisiting Wage Growth after the Recession
In this Commentary, we show that realized wage growth since 2015 has mostly been at a rate that would be expected given observed rates of inflation and labor productivity growth. Moreover, labor productivity growth has been in line with its potential over the same period. This picture of the post-recession recovery of wages is very different from the one we observed in an earlier analysis, when all we had were data up through the end of 2015. The reasons underlying the difference are large revisions in labor productivity data and upticks in the inflation rate and labor productivity growth ...
Working Paper
Oligopsonies over the Business Cycle
With a duopsony model, we show how the degree of labor market slack relates to earnings inequality and firm size distribution across local labor markets and the business cycle. In booms, due to the high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving in or out of a recession, there is an “accommodation” phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We ...
Journal Article
The Evolution of the Labor Share across Developed Countries
In most developed countries, the share of output accruing to labor has declined over the last 20 years. However, the underlying reasons for the decrease may have differed in the United States and other developed countries. In this Commentary, we examine some of the explanations economists have proposed for the decline in the labor share and discuss how well these explanations account for the decline across developed countries.
Working Paper
A Spanner in the Works: Restricting Labor Mobility and the Inevitable Capital-Labor Substitution
We model an environment with overlapping generations of labor to show that policies restricting labor mobility increase a firm's monopsony power and labor turnover costs. Subsequently, firms increase capital expenditure, altering their optimal capital-labor ratio. We confirm this by exploiting the statewide adoption of the inevitable disclosure doctrine (IDD), a law intended to protect trade secrets by restricting labor mobility. Following an IDD adoption, local firms increase capital expenditure (capital-labor ratio) by 3.5 percent (5.5 percent). This result is magnified for firms with ...