I propose a model in which workers experience fatigue over time and can restore productivity by taking breaks. Optimal schedules feature evenly spaced, full-recovery breaks; when breaks are costless, they should occur frequently, but switching costs make the optimal number finite. The model is embedded in a principal-agent framework with contractual frictions. When employers control the schedule, workers overwork; when workers self-manage, they overrest. Both lead to inefficiencies. These results shed light on the trade-offs in remote work arrangements, especially following COVID-19. The analysis highlights how control rights, incentive design, and recovery constraints interact—and why neither rigid supervision nor full autonomy guarantees efficiency.
We examine the effects of international trade in the presence of a set of domestic distortions giving rise to informality, a prevalent phenomenon in developing countries. In our quantitative model, the informal sector arises from burdensome taxes and regulations that are imperfectly enforced by the government. In equilibrium, smaller, less productive firms face fewer distortions than larger, more productive ones, potentially leading to substantial misallocation. We show that in settings with a large informal sector, the gains from trade are significantly amplified, as reductions in trade barriers imply a reallocation of resources from initially less distorted to more distorted firms. We confirm findings from earlier reduced-form studies that the informal sector mitigates the impact of negative labor demand shocks on unemployment. Nonetheless, the informal sector can exacerbate the adverse real income effects of economic downturns, amplifying misallocation. Last, our research sheds light on the relationship between trade openness and cross-firm wage inequality.
Using newly-linked administrative and commercial data from Virginia spanning 25 years, we study the consequences of incarceration. While previous research has examined labor market outcomes and recidivism, we focus on two of the primary channels through which low-income households build wealth: asset ownership (homes and cars) and human capital formation. To identify causal effects, we use a matched differencein-differences design. In line with much of the literature on the impact of incarceration in the U.S., we find no evidence of scarring effects on labor market outcomes or changes in recidivism beyond the incapacitation period. However, we find that incarceration leads to a persistent reduction in asset accumulation: seven years after sentencing, homeownership has declined by 1.1 percentage points (12.1%) and car ownership by 2.7 percentage points (18.1%). Incarceration also lowers human capital formation, reducing college enrollment by 1.4 percentage points (15.1%).
Market-based environmental regulations are seldom used in low-income countries, where pollution is highest but state capacity is often low. We collaborated with the Gujarat Pollution Control Board (GPCB) to design and experimentally evaluate the world’s first particulate-matter emissions market, which covered industrial plants in a large Indian city. There are three main findings. First, the market functioned well. Treatment plants, randomly assigned to the emissions market, traded permits to become significant net sellers or buyers. After trading, treatment plants held enough permits to cover their emissions 99% of the time, compared with just 66% compliance with standards under the command-and-control status quo. Second, treatment plants reduced pollution emissions, relative to control plants, by 20%–30%. Third, the market reduced abatement costs by an estimated 11%, holding constant emissions. This cost-savings estimate is based on plant-specific marginal cost curves that we estimate from the universe of bids to buy and sell permits in the market. The combination of pollution reductions and low costs imply that the emissions market has mortality benefits that exceed its costs by at least 25 times.
This paper develops and applies new asymptotic theory for estimation and inference in parametric autoregression with function valued cross section curve time series. The study provides a new approach to dynamic panel regression with high dimensional dependent cross section data. Here we deal with the stationary case and provide a full set of results extending those of standard Euclidean space autoregression, showing how function space curve cross section data raises efficiency and reduces bias in estimation and shortens confidence intervals in inference. Methods are developed for high-dimensional covariance kernel estimation that are useful for inference. The findings reveal that function space models with wide-domain and narrow-domain cross section dependence provide insights on the effects of various forms of cross section dependence in discrete dynamic panel models with fixed and interactive fixed effects. The methodology is applicable to panels of high dimensional wide datasets that are now available in many longitudinal studies. An empirical illustration is provided that sheds light on household Engel curves among ageing seniors in Singapore using the Singapore life panel longitudinal dataset.
The growing availability of big data enables firms to predict consumer search outcomes and outside options more accurately than consumers themselves. This paper examines how a firm can utilize such superior information to offer personalized buy-now discounts intended to deter consumer search. However, discounts can also serve as signals of attractive outside options, potentially encouraging rather than discouraging consumer search. We show that, despite the firm’s ability to tailor discounts across a continuum of consumer valuations, the firm-optimal equilibrium features a simple two-tier discount scheme, comprising a uniform positive discount when the consumer outside option is intermediate and no discount when the outside option is low or high. Furthermore, compared to a scenario where the firm lacks superior information, we find that the firm earns lower profits, consumers search more while their welfare remains unchanged, and total welfare declines.
We quantify how pollution affects aggregate productivity and welfare in spatial equilibrium. We show that skilled workers in China emigrate away from polluted cities. These patterns are evident under various empirical specifications, such as when instrumenting for pollution using upwind power plants, or thermal inversions. Pollution changes the spatial distribution of skilled and unskilled workers, and wage returns by location. We quantify the loss in aggregate productivity due to this re-sorting by estimating a spatial equilibrium model. Counterfactual simulations show that reducing pollution increases productivity through spatial re-sorting by approximately as much as the direct health benefits of clean air.
A soft-floor auction asks bidders to accept an opening price to participate in an ascending auction. If no bidder accepts, lower bids are considered using first-price rules. Soft floors are common despite being irrelevant with standard assumptions. When bidders regret losing, soft-floor auctions are more efficient and profitable than standard optimal auctions. Revenue increases as bidders are inclined to accept the opening price to compete in a regret-free ascending auction. Efficiency is improved since having a soft floor allows for a lower hard reserve price, reducing the frequency of no sale. Theory and experiment confirm these motivations from practice.
We analyze a nonlinear pricing model where the seller controls both product pricing (screening) and buyer information about their own values (persuasion).
We prove that the optimal mechanism always consists of finitely many signals and items, even with a continuum of buyer values. The seller optimally pools buyer values and reduces product variety to minimize informational rents.
We show that value pooling is optimal even for finite value distributions if their entropy exceeds a critical threshold. We also provide sufficient conditions under which the optimal menu restricts offering to a single item.
We introduce a new methodology to detect and measure economic activity using geospatial data and apply it to steel production, a major industrial pollution source worldwide. Combining plant output data with geospatial data, such as ambient air pollutants, nighttime lights, and temperature, we train machine learning models to predict plant locations and output. We identify about 40% (70%) of plants missing from the training sample within a 1 km (5 km) radius and achieve R2 above 0.8 for output prediction at a 1 km grid and at the plant level, as well as for both regional and time series validations. Our approach can be adapted to other industries and regions, and used by policymakers and researchers to track and measure industrial activity in near real time.
We study the socially optimal level of illiquidity in an economy populated by households with taste shocks and present bias with naive beliefs. The government chooses mandatory contributions to accounts, each with a different pre-retirement withdrawal penalty. Collected penalties are rebated lump sum. When households have homogeneous present bias, β, the social optimum is well approximated by a single account with an early-withdrawal penalty of 1−β. When households have heterogeneous present bias, the social optimum is well approximated by a two-account system: (i) an account that is completely liquid and (ii) an account that is completely illiquid until retirement.
Recent literature suggests that both stock returns and economic growth are significantly higher under Democratic presidential administrations. This is a puzzle in that persistent differences in stock returns seem unlikely in efficient markets, and it is not obvious why Democrats should do better. Often these kinds of results go away upon further analysis or more data, and this appears to be true in the present case. In this paper the sample is extended to 28 administrations, fromWilson-1 through Biden. While the mean stock return under the Democrats is higher, none of the differences in means is significant at conventional significance levels. There is considerable variation in the mean return across administrations, which results in lack of significance. Similarly, while the mean output growth rate under the Democrats is larger, the difference is not significant. Again, there is considerable variation in output growth across administrations. Results are also presented with the nine administrations between Hayes and Taft added, a total of 37 administrations. While the added data are likely not as good, the conclusion is the same—no significant differences.
While the mechanism design paradigm emphasizes notions of efficiency based on agent preferences, policymakers often focus on alternative objectives. School districts emphasize educational achievement, and transplantation communities focus on patient survival. It is unclear whether choice-based mechanisms perform well when assessed based on these outcomes. This paper evaluates the assignment mechanism for allocating deceased donor kidneys on the basis of patient life-years from transplantation (LYFT). We examine the role of choice in increasing LYFT and compare realized assignments to benchmarks that remove choice. Our model combines choices and outcomes in order to study how selection affects LYFT. We show how to identify and estimate the model using instruments derived from the mechanism. The estimates suggest that the design in use selects patients with better post-transplant survival prospects and matches them well, resulting in an average LYFT of 9.29, which is 1.75 years more than a random assignment. However, the maximum aggregate LYFT is 14.08. Realizing the majority of the gains requires transplanting relatively healthy patients, who would have longer life expectancies even without a transplant. Therefore, a policymaker faces a dilemma between transplanting patients who are sicker and those for whom life will be extended the longest.
The recent artificial intelligence (AI) boom covers a period of rapid innovation and wide adoption of AI intelligence technologies across diverse industries. These developments have fueled an unprecedented frenzy in the Nasdaq, with AI-focused companies experiencing soaring stock prices that raise concerns about speculative bubbles and real-economy consequences. Against this background the present study investigates the formation of speculative bubbles in the Nasdaq stock market with a specific focus on the so-called ‘Magnificent Seven’ (Mag-7) individual stocks during the AI boom, spanning the period January 2017 to January 2025. We apply the real time PSY bubble detection methodology of Phillips et al. (2015a,b), while controlling for market and industry factors for individual stocks. Confidence intervals to assess the degree of speculative behavior in asset price dynamics are calculated using the near-unit root approach of Phillips (2023). The findings reveal the presence of speculative bubbles in the Nasdaq stock market and across all Mag-7 stocks. Nvidia and Microsoft experience the longest speculative periods over January 2017 – December 2021, while Nvidia and Tesla show the fastest rates of explosive behavior. Speculative bubbles persist in the market and in six of the seven stocks (excluding Apple) from December 2022 to January 2025. Near-unit-root inference indicates mildly explosive dynamics for Nvidia and Tesla (2017–2021) and local-to-unity near explosive behavior for all assets in both periods.
We explore the implications of ownership concentration for the recently concluded incentive auction that repurposed spectrum from broadcast TV to mobile broadband usage in the United States. We document significant multilicense ownership of TV stations. We show that in the reverse auction, in which TV stations bid to relinquish their licenses, multilicense owners have an inventive to withhold some TV stations to drive up prices for their remaining TV stations. Using a large-scale valuation and simulation exercise, we find that this strategic supply reduction increases payouts to TV stations by between 13.5 percent and 42.4 percent.