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Working Paper
Are Supply Networks Efficiently Resilient?
We show that supply networks are inefficiently, and insufficiently, resilient. Upstream firms can expand their production capacity to hedge againstsupply and demand shocks. But the social benefits of such investments arenot internalized due to market power and market incompleteness. Upstreamfirms under-invest in capacity and resilience, passing-on the costs to downstreamfirms, and drive trade excessively towards the spot markets. There isa wedge between the market solution and a constrained optimal benchmark,which persists even without rare and large shocks. Policies designed to incentivize ...
Working Paper
The supply and demand of skilled workers in cities and the role of industry composition
The share of high-skilled workers in U.S. cities is positively correlated with city size, and this correlation strengthened between 1980 and 2010. Furthermore, during the same time period, the U.S. economy experienced a significant structural transformation with regard to industrial composition, most notably in the decline of manufacturing and the rise of high-skilled service industries. To decompose and investigate these trends, this paper develops and estimates a spatial equilibrium model with heterogeneous firms and workers that allows for both industry-specific and skill-specific ...
Journal Article
Hidden value: how consumer learning boosts output
Iphones. Ipads. Wikipedia. Google Maps. Yelp. TripAdvisor. New digital devices, applications, and services offer advice and information at every turn. The technology around us changes fast, so we are continually learning how best to use it. This increased pace of learning enhances the satisfaction we gain from what we buy and increases its value to us over time, even though it may cost the same ? or less. However, this effect of consumer learning on value makes inflation and output growth more difficult to measure. As a result, current statistics may be undervaluing household purchasing power ...
Working Paper
Habit, Production, and the Cross-Section of Stock Returns
Solutions to the equity premium puzzle should inform us about the cross-section of stock returns. An external habit model with heterogeneous firms reproduces numerous stylized facts about both the equity premium and the value premium. The equity premium is large, time-varying, and linked with consumption volatility. The cross-section of expected returns is log-linear in B/M, and the slope matches the data. The explanation for the value premium lies in the interaction between the cross-section of cash flows and the time-varying risk premium. Value firms are temporarily low productivity firms, ...
Discussion Paper
What's Behind Firms' Reported Improvements in Meeting Demand?
According to special question results from our most recent monthly business survey, Fifth District firms reported improvement in their ability to meet customer demand compared to earlier in the year. Moreover, the majority of respondents said they expect to fully meet customer demand in the next 12 months. Although firms have continued to take action to boost production, softening demand itself may be another reason for the reported improvements.