We develop a unified approach to studying cost-price dynamics in the cross-section of firms in order to jointly explain the time series of aggregate inflation and the frequency of price changes, both during normal times and inflation surges. A key novelty is the use of microdata on firms’ prices and production costs to construct an empirical measure of price gaps—the deviation between a firm’s listed and optimal price. Conditional on the path of aggregate cost shocks extracted from the data, a state-dependent pricing model with strategic complementarities accounts well for both the linear cost-price dynamics of the pre-pandemic period and the nonlinear increase in inflation and frequency of price adjustment that followed.
The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides infant formula to low-income households through state-level exclusive supply contracts that cover roughly half of U.S. infants. Although these contracts directly govern purchases by WIC participants, they also affect households that receive no WIC benefits. We study these spillovers using household-level in-store and online transaction data matched to WIC contract changes across states from 2018 to 2025. When a manufacturer becomes the WIC supplier, its market share among non-WIC households rises by roughly 30 percentage points in the regular-size formula segment. The response is concentrated in physical stores, where the new supplier’s market share rises by roughly 50 percentage points, while we find little systematic response online or for bulk-size products. This contrast points to the physical retail environment as a central mechanism. Additional evidence from WIC-authorized retailers and hospital formula-practice data suggests that direct exposure to WIC labels and hospital-provided samples account for relatively little of the spillover. The results show that public procurement can substantially reshape demand among untreated consumers by changing the retail environments in which choices are made.
The enormous gravity-model-of-trade literature has illustrated important advantages of estimation via Poisson Pseudo Maximum Likelihood (PPML). That literature’s prioritization of parameter estimation over hypothesis testing has left questions of testing in the PPML framework underexplored. In this paper we show analytically that scaling the dependent variable can affect the outcome of some joint hypothesis tests, but not others. Likelihood-ratio, model-based Wald, and model-based Lagrange Multiplier test statistics depend on scale, and therefore do not support scale-invariant inference. Wald and Lagrange Multiplier tests constructed with heteroskedasticity-robust sandwich adjustments are invariant to scale. We illustrate these points empirically with an application from the literature on Revealed Comparative Advantage.
Economic development is often conceived as structural transformation and migration out of rural agriculture (Lewis, 1954; Fei & Ranis, 1964). Understanding development therefore requires us to identify how rural economies transform in response to emigration. We study how international migration reshapes domestic economic activity in origin households using a randomized visa lottery that gave Bangladeshi men job opportunities in Malaysia. Winning the lottery raises total household income through remittances, but income earned in Bangladesh declines due to contractions in nonfarm business activity. In contrast, crop income remains stable despite large reductions in agricultural input expenditures, because farming gets delegated through land rental markets. We identify a “supervision constraint” that explains why households divest from nonfarm business activity. The key input that is lost through male migration is not land, labor, or physical capital, but “management capacity”.
This paper proposes a semi-endogenous growth theory that incorporates technology vintages and the endogenous evolution of multiple technological paradigms through innovation. It provides a characterization of both balanced growth equilibrium and transitional dynamics in an environment where new technologies continuously emerge. From a positive perspective, the model rationalizes two distinct empirical patterns. Using two centuries of US patent data, I first document that the age profile of patents has a pronounced hump shape: most contemporary patents build upon technologies that are between 50 and 100 years old. Second, this age profile has remained stable throughout the past century. From a normative standpoint, the theory underscores a misallocation of research effort induced by the tendency among profit-maximizing firms to overinvest in further developing mature technologies. This yields a suboptimally slow development of emerging technologies. According to a calibrated version of the model, correcting such misallocation could generate welfare gains of 7%.
We study efficient dynamic mechanism design with independent private values when agents do not share a common prior over the stochastic environment. Each agent privately observes the kernel governing her own type evolution and may hold arbitrary beliefs about others’ kernels. We include kernels in agents’ type spaces and show that the dynamic team mechanism of Athey and Segal (2013) and the dynamic pivot mechanism of Bergemann and Välimäki (2010) implement the socially efficient allocation in periodic ex-post equilibrium. We further show that kernels need be elicited only at the outset and that these mechanisms induce the efficient private acquisition of kernels.
We develop a mechanism design framework for AI agents whose alignment (preferences) and capabilities (feasible actions and information) are unknown. We want such agents to act on our behalf so mechanisms must incentivize both honesty and obedience. A one-sided imitation structure—capabilities can be concealed but not counterfeited—yields a revelation principle, a characterization of implementable policies via nested cyclical monotonicity, and conditions under which eliciting higher-order beliefs can discipline multiple agents. We apply our framework to stylized examples of (i) sandbagging in which a more capable agent pretends to be less capable; (ii) an alignment–interpretability trade-off, where the two are substitutes in the instrument but complements in value; (iii) discipline via peer scoring; (iv) coupling rewards to induce competition among multiple agents; and (v) scalable oversight and reward shaping.
This paper provides evidence of how the beliefs of investors who step out of the market, or “non-marginal” investors, influence asset prices. Using more than two decades of respondent-level investor surveys, we construct wedge measures that quantify the distance between subjective investor beliefs and option-implied benchmarks. We use self-identified proxies for market participation to document that these wedges correspond with the beliefs of non-marginal investors. Non-marginal investors are generally more pessimistic in their market return forecasts and perceive greater crash risks than the pricing population. Subjective crash beliefs are a key determinant of participation, even when controlling for expected return beliefs. This heterogeneity, in part, explains the negative association between average expected returns estimated from surveys and future realized market returns. In the cross-section, stocks with greater sensitivity to non-marginal beliefs earn lower returns, particularly where disagreement is high. Taken together, the results provide evidence of a composition channel in which belief-driven exit concentrates risk among fewer investors.
Do elections aggregate the private information of office-motivated candidates? Our answer stems from a general result for two-player constant-sum Bayesian games with type-independent payoffs. Under a “completeness” statistical condition, every “identifiable” equilibrium is an ex-post equilibrium. Applied to Downsian elections, the ex-post property implies a sharp bound on information aggregation: equilibrium voter welfare is at best equal to the efficient use of a single candidate’s information. In canonical specifications, politicians may “anti-pander” (overreact to their information), whereas some degree of pandering would be socially beneficial. We discuss other applications of the ex-post result.
Health insurance lowers the out-of-pocket price of healthcare, and it is well-established that this leads to higher utilization of care. This manifestation of “moral hazard” is typ ically viewed as a social cost of insurance. Within a standard model, this paper shows that a consumer’s ability to change her behavior in response to insurance can also play a central role in the ability of insurance to protect her from risk. We provide a theoretical characterization of this channel and quantify its importance empirically. Under stan dard parameterizations and estimates in the literature, we find that insurance-induced healthcare utilization can account for more than half of the total value of risk protection derived from insurance. Preventing consumers from changing their behavior would lower healthcare spending, but also result in a major loss of risk protection, on-net reducing social welfare in some cases. Our results suggest that under-utilization of healthcare may thus be an equally important threat to welfare as over-utilization.
We provide evidence that domestic outsourcing increases young-worker entry into the formal sector. Leveraging a pair of 1993–1994 Brazilian reforms that reduced the relative cost of outsourcing security guards, a triple-differences design shows that the reforms increased formal guard employment by 4% and hiring from unemployment or informality by 7%, while reallocating formal employment from older to younger workers and leaving demographic-adjusted wages unchanged. Census data corroborate the rise in formality, driven by the youngest cohorts. The compositional shift mirrors a general pattern in Brazil’s matched employer–employee records: conditional on total firm size, employers with greater occupation-specific scale hire younger workers, paid less at entry and more likely to be entering formal employment for the first time. The evidence is most consistent with contract firms supplying at scale the capabilities needed to hire productive workers from outside the formal sector—a demand-side channel for increasing formal sector employment.
Evidence that domestic outsourcing lowers pay comes largely from on-site transfers, in which workers move to a contractor but keep the same jobs. Displacement is rarely observed: whether workers lose their jobs, where they go, how earnings evolve. In Brazil’s 1993–1994 pro-outsourcing reforms, which differentially affected security guards, such transfers were rare; firms instead used occupational layoffs, shedding their guards while keeping other workers. Displaced guards’ employment recovered within five years, but many changed occupations and wages stayed about 12% lower. Lifetime losses average 1.2 to 1.5 years of pre-layoff earnings, concentrated among workers from high-wage firms, reflecting lost premia.
We consider the problem of explaining a data generating process (DGP) to a decision maker (DM) who cannot understand it. Explanations are information, not approximations: they are useful because they rule out possible DGPs. If the DM maximizes her average payoff, explanations using OLS are robustly useful, and augmenting them with summary statistics makes them more so. Sampling error can destroy these guarantees, but theoretical assumptions linking that error to the DGP can restore them. If the DM is sufficiently ambiguity averse, explanations that are affine in outcomes are not robustly useful, but certificates reporting lower bounds on outcomes are.
By age 17, a quarter of U.S. students have experienced a peer suicide. Using linked administrative data from South Carolina and a matched difference-in-differences design, we find that exposure to a peer’s self-harm death increases the probability of a self-harm diagnosis by nearly 50% and both the incidence and frequency of mental health visits. Effects on care use and criminal behavior are concentrated among white boys, and responses diverge by prior mental health history: students without a prior diagnosis increase felony offending rather than care-seeking. Deaths from assault and transportation accidents produce no comparable rise in self-harm, consistent with contagion.