Search Results
Discussion Paper
Competition and the Decline of the Rust Belt
The decline of the heavy manufacturing industry in the American ?Rust Belt? is often thought to have begun in the late 1970s, when the United States suffered a significant recession. But theory suggests, and data support, that the Rust Belt?s decline started in the 1950s when the region?s dominant industries faced virtually no product or labor competition and therefore had little incentive to innovate or become more productive. As foreign imports increased and manufacturing shifted to the American South, the Rust Belt?s share of manufacturing jobs and total jobs declined dramatically. ...
Working Paper
The Dynamics of Global Sourcing
This paper studies an import model that incorporates both static crosscountry interdependence and dynamic dependence in firm-level decisions. I find that the benefit of sourcing from one country increases as a firm imports from more countries. Furthermore, using a partial identification approach under the revealed preferences assumption, I provide evidence for the sunk costs of importing, which make establishing relationships with new sellers costlier than maintaining existing ones. The coexistence of cross-country interdependence and sunk costs implies that temporary trade policy changes can ...
Working Paper
Entry, Variable Markups, and Business Cycles
The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms. In response to a decline in entry, incumbent firms' market shares increase, their elasticity of demand falls, and they increase their markups and reduce employment. To quantify the model, I study the relationship ...
Working Paper
Assessing the Common Ownership Hypothesis in the US Banking Industry
The common ownership hypothesis (COH) states that firms with common shareholders, primarily large asset managers, compete less aggressively with each other. The U.S. banking industry is well suited to assess the common ownership hypothesis, because thousands of private banks without common ownership (CO) compete with hundreds of public banks with high and increasing levels of CO. This paper assesses the COH in the banking industry using more comprehensive ownership data than previous studies. In simple comparisons of raw deposit rate averages we document that the deposit rates of public banks ...
Working Paper
An Assignment Model of Knowledge Diffusion and Income Inequality
Randomness in individual discovery tends to spread out productivities in a population, while learning from others keeps productivities together. In combination, these two mechanisms for knowledge accumulation give rise to long-term growth and persistent income inequality. This paper considers a world in which those with more useful knowledge can teach those with less useful knowledge, with competitive markets assigning students to teachers. In equilibrium, students who are able to learn quickly are assigned to teachers with the most productive knowledge. The long-run growth rate of this ...
Journal Article
Measures of global bank complexity
Size and complexity are customarily viewed as contributing to the too-big-to-fail status of financial institutions. Yet there is no standard accepted metric for the complexity of a ?typical? financial firm, much less for a large firm engaged in global finance. This article provides perspective on the issue of complexity by examining the number, types, and geographical spread of global financial institutions? affiliates. The authors show that standard measures of institution size are strongly related to total counts of affiliates in an organization, but are more weakly aligned with other ...
Working Paper
Assessing the Common Ownership Hypothesis in the US Banking Industry
The U.S. banking industry is well suited to assess the common ownership hypothesis (COH), because thousands of private banks without common ownership (CO) compete with hundreds of public banks with high and increasing levels of CO. This paper assesses the COH in the banking industry using more comprehensive ownership data than previous studies. In simple comparisons of raw deposit rate averages we document that (i) private banks do offer substantially more attractive deposit rates than public banks, but (ii) the deposit rates of public banks are similar in markets without CO where a single ...
Working Paper
Estimating the Competitive Effects of Common Ownership
If managers maximize the payoffs of their shareholders rather than firm profits, then it may be anticompetitive for a shareholder to own competing firms. This is because a manager?s objective function may place weight on profits of competitors who are held by the same shareholder. Recent research found evidence that common ownership by diversified institutional investors is anticompetitive by showing that prices in the airline and banking industries are related to generalized versions of the Herfindahl-Hirschman Index (HHI) that account for common ownership. In this paper we propose an ...
Report
Hybrid intermediaries
I introduce the concept of hybrid intermediaries: financial conglomerates that control a multiplicity of entity types active in the ?assembly line? process of modern financial intermediation, a system that has become known as shadow banking. The complex bank holding companies of today are the best example of hybrid intermediaries, but I argue that financial firms from the ?nonbank? space can just as easily evolve into conglomerates with similar organizational structure, thus acquiring the capability to engage in financial intermediation. I document instances of the emergence and growth of ...