We document three new facts about entrepreneurship. First, a majority of male entrepreneurs start a firm in the same or a closely related industry as their fathers' industry of employment. Second, this tendency is correlated with intelligence: higher-IQ entrepreneurs are less likely to follow their fathers. Third, an entrepreneur that starts a firm in the same 5-digit industry as where his father was employed tends to outperform entrepreneurs in the same industry whose fathers did not work in that industry. We consider various explanations for these facts and conclude that "dinner table human capital", where children obtain industry knowledge through their parents, is an important factor behind what type of firm is started and how well it performs.
Misallocation Measures: The Distortion That Ate the Residual -- by John Haltiwanger, Robert Kulick, Chad Syverson
A large literature on misallocation and productivity has arisen in recent years, with Hsieh and Klenow (2009; hereafter HK) as its standard empirical framework. The framework's usefulness and theoretical founding make it a valuable starting point for analyzing misallocations. However, we show that the empirical lynchpin of this approach can be very sensitive to model misspecification. The condition in the HK model that maps from observed production behaviors to the misallocative wedges/distortions holds in a single theoretical case, with strict assumptions required on both the demand and supply sides. We demonstrate that applying the HK methodology when there is any deviation from these assumptions will mean that the "distortions" recovered from the data may not be signs of inefficiency. Rather, they may simply reflect demand shifts or movements of the firm along its marginal cost curve, quite possibly in directions related to higher profits for the business. The framework may then not just spuriously identify inefficiencies; it might be more likely to do so precisely for businesses better in some fundamental way than their competitors. Empirical tests in our data, which allow us to separate price and quantity and as such directly test the model's assumptions, suggest the framework's necessary conditions do not hold. We empirically investigate two of the possible sources of departures from the HK assumptions and implications and find support for both. We also find that measures of distortions that emerge from this approach are in fact strongly positively related with survival, suggesting they embody favorable profit conditions for the business. At the same time, however, once we condition on demand and supply fundamentals, the distortion measure becomes inversely related with survival. This suggests the measure may contain a distortionary component, but it is empirically swamped by other factors.
Statistical Discrimination and Duration Dependence in the Job Finding Rate -- by Gregor Jarosch, Laura Pilossoph
This paper models a frictional labor market where employers endogenously discriminate against the long term unemployed. The estimated model replicates recent experimental evidence which documents that interview invitations for observationally equivalent workers fall sharply as unemployment duration progresses. We use the model to quantitatively assess the consequences of such employer behavior for job finding rates and long term unemployment and find only modest effects given the large decline in callbacks. Interviews lost to duration impact individual job-finding rates solely if they would have led to jobs. We show that such instances are rare when firms discriminate in anticipation of an ultimately unsuccessful application. Discrimination in callbacks is thus largely a response to dynamic selection, with limited consequences for structural duration dependence and long term unemployment.
Bureaucratic Competence and Procurement Outcomes -- by Francesco Decarolis, Leonardo M. Giuffrida, Elisabetta Iossa, Vincenzo Mollisi, Giancarlo Spagnolo
To what extent does a more competent public workforce contribute to better economic outcomes? We analyze this question in the context of the US federal procurement by combining data on office-level competencies, federal workforce characteristics, and procurement performance. Using an instrumental variable strategy, we find that the effects of competence heterogeneity across bureaus are quantitatively important: if all federal bureaus were to obtain NASA's high level of competence (corresponding to the top 10 percent of competence), delays in contract execution would decline by 7.2 million days and price renegotiations would drop by $13.5 billion over the 2010-2015 period analyzed. Cooperation within the office appears to be a key driver of the findings.
The Introduction of Tasers and Police Use of Force: Evidence from the Chicago Police Department -- by Bocar Ba, Jeffrey Grogger
In March 2010, the Chicago Police Department changed its Taser policy, issuing the weapons to patrol officers instead of largely restricting their use to sergeants. We used that policy change to obtain difference-in-difference estimates of how the availability of Tasers affected the types of force employed by police, the total number of use-of-force incidents, injury rates per incident, the total number of injuries, and the race distribution of civilians involved in use-of-force incidents. The policy change initially led to a large increase in the use of Tasers, with limited substitution from other types of force. After a period of re-training, substitution between Tasers and other types of force, both greater and lesser, increased. Police injuries fell, but neither injury rates nor the number of injuries to civilians were affected. There is no evidence that Tasers led to a reduction in police use of firearms.
Do School Spending Cuts Matter? Evidence from the Great Recession -- by C. Kirabo Jackson, Cora Wigger, Heyu Xiong
Audits of public school budgets routinely find evidence of waste. Also, recent evidence finds that when school budgets are strained, public schools can employ cost-saving measures with no ill-effect on students. We theorize that if budget cuts induce schools to eliminate wasteful spending, the effects of spending cuts may be small (and even zero). To explore this empirically, we examine how student performance responded to school spending cuts induced by the Great Recession. We link nationally representative test score and survey data to school spending data and isolate variation in recessionary spending cuts that were unrelated to changes in economic conditions. Consistent with the theory, districts that faced large revenue cuts disproportionately reduced spending on non-core operations. However, they still reduced core operational spending to some extent. A 10 percent school spending cut reduced test scores by about 7.8 percent of a standard deviation. Moreover, a 10 percent spending reduction during all four high-school years was associated with 2.6 percentage points lower graduation rates. While our estimates are smaller than some in the literature, spending cuts do matter.
The growing spread of globalization creates a genuine need for international tax reforms. In this we establish the neutrality of border-tax adjustments of the income tax; the welfare dominance of residence-based over source-based income taxation, albeit at the cost of a larger trade deficit; and the ineffectiveness of non-transitory border taxes as a means for reducing the trade deficit.
This paper provides an equilibrium theory of liquidity traps and the real effects of money. Money provides a safe store of value that prevents interest rates from falling enough during downturns, and the economy enters a persistent slump with depressed investment. This is an equilibrium outcome--prices are flexible, markets clear, and inflation is on target--but it's not efficient. Investment is too high during booms and too low during liquidity traps. Although money has large real effects, monetary policy is ineffective--the zero lower bound is not binding, money is superneutral, and Ricardian equivalence holds. The optimal allocation requires the Friedman rule and a tax/subsidy on capital.
Preventives Versus Treatments Redux: Tighter Bounds on Distortions in Innovation Incentives with an Application to the Global Demand for HIV Pharmaceuticals -- by Michael Kremer, Christopher M. Snyder
Kremer and Snyder (2015) show that demand curves for a preventive and treatment may have different shapes though they target the same disease, biasing the pharmaceutical manufacturer toward developing the lucrative rather than the socially desirable product. This paper tightens the theoretical bounds on the potential deadweight loss from such biases. Using a calibration of the global demand for HIV pharmaceuticals, we demonstrate the dramatically sharper analysis achievable with the new bounds, allowing us to pinpoint potential deadweight loss at 62% of the global gain from curing HIV. We use the calibration to perform policy counterfactuals, assessing welfare effects of government policies such as a subsidy, reference pricing, and price-discrimination ban. The fit of our calibration is good: we find that a hypothetical drug monopolist would price an HIV drug so high that only 4% of the infected population worldwide would purchase, matching actual drug prices and quantities in the early 2000s before subsidies in low-income countries ramped up.
The Impact of International Patent Systems: Evidence from Accession to the European Patent Convention -- by Bronwyn Hall, Christian Helmers
We analyze the impact of accession to the regional patent system established by the European Patent Convention (EPC) on 14 countries that acceded between 2000 and 2008. We look at changes in patenting behavior by domestic and foreign applicants at the national patent offices and the European Patent Office (EPO). Our findings suggest a strong change in patent filing behavior among foreigners seeking patent protection in the accession states, substituting EPO patents for domestic patents immediately. However, there is little evidence that accession increased FDI by patenting foreign companies in accession countries. Moreover, there is no discernible reaction among domestic entities in terms of domestic filings, although we do find some evidence that applicants in accession states increased their propensity to file patents with the EPO post-accession. Inventor-level information suggests that the underlying inventions originate in the accession states
A Sufficient Statistics Approach for Aggregating Firm-Level Experiments -- by David Sraer, David Thesmar
We consider a dynamic economy populated by heterogeneous firms subject to generic capital frictions: adjustment costs, taxes and financing constraints. A random subset of firms in this economy receives an empirical "treatment", which modifies the parameters governing these frictions. An econometrician observes the firm-level response to this treatment, and wishes to calculate how macroeconomic outcomes would change if all firms in the economy were treated. Our paper proposes a simple methodology to estimate this aggregate counterfactual using firm-level evidence only. Our approach takes general equilibrium effects into account, requires neither a structural estimation nor a precise knowledge on the exact nature of the experiment and can be implemented using simple moments of the distribution of revenue-to-capital ratios. We provide a set of sufficient conditions under which these formulas are valid and investigate the robustness of our approach to multiple variations in the aggregation framework.
Social Structure and Conflict: Evidence from Sub-Saharan Africa -- by Jacob Moscona, Nathan Nunn, James A. Robinson
We test the long-standing hypothesis that ethnic groups that are organized around `segmentary lineages' are more prone to conflict and civil war. Ethnographic accounts suggest that in segmentary lineage societies, which are characterized by strong allegiances to distant relatives, individuals are obligated to come to the defense of fellow lineage members when they become involved in conflicts. As a consequence, small disagreements often escalate to larger-scale conflicts involving many individuals. We test for this link between segmentary lineage and conflict across 145 African ethnic groups in sub-Saharan Africa. Using a number of estimation strategies, including an RD design at ethnic boundaries, we find that segmentary lineage societies experience more conflicts and ones that are longer in duration and larger in scale. We also find that the previously-documented relationship between adverse rainfall shocks and conflict within Africa is only found within segmentary lineage societies.