Constrained
Regulatory Fragmentation
Joseph Kalmenovitz, Michelle Lowry & Ekaterina Volkova
Journal of Finance, April 2025, Pages 1081-1126
Abstract:
Regulatory fragmentation occurs when multiple federal agencies oversee a single issue. Using the full text of the Federal Register, the government's official daily publication, we provide the first systematic evidence on the extent and costs of regulatory fragmentation. Fragmentation increases the firm's costs while lowering its productivity, profitability, and growth. Moreover, it deters entry into an industry and increases the propensity of small firms to exit. These effects arise from redundancy and, more prominently, from inconsistencies between government agencies. Our results uncover a new source of regulatory burden, and we show that agency costs among regulators contribute to this burden.
Consumers Believe Legal Products Are Less Effective than Illegal Products
Rachel Gershon, Alicea Lieberman & Sydney Scott
Journal of Marketing Research, forthcoming
Abstract:
This research examines how consumers judge a product’s effectiveness based on its legal status. Across eight pre-registered experiments, we find that consumers tend to believe legal products are less effective than illegal ones. Even when observing identical, objective product outcomes (e.g., equal weight loss from a drug), consumers perceive reduced product benefits from a product described as legal (vs. illegal). We test an account of why this belief occurs. When a product is legal, consumers infer that the government allows broad access to it, which they associate with lower product strength. In contrast, illegal products, which consumers presume are harder to access, are viewed as higher in product strength. This strength inference leads consumers to believe a legal product produces smaller effects than an illegal product—both smaller positive effects (lower efficacy) and smaller negative effects (lower harm). Supporting this theory, the impact of legality on perceived efficacy is eliminated if legal and illegal products are described as equally accessible or equally strong. We further demonstrate that these beliefs influence consumer choice. Given the significant health and economic consequences of illegal product consumption, this research has important implications for consumers, marketers, public health professionals, and policymakers.
The Origins and Evolution of Occupational Licensing in the United States
Nicholas Carollo et al.
NBER Working Paper, March 2025
Abstract:
The analysis of occupational licensing has concentrated largely on its labor market and consumer welfare effects. By contrast, relatively little is known about how occupational licensing laws originated or the key factors in their evolution. In this paper, we study the determinants of U.S. licensing requirements from 1870 to 2020. We begin by developing a model where licensing arises as an endogenous political outcome and use this framework to study how market characteristics and political incentives influence regulators’ choices. Our empirical analysis draws on a novel database tracking the initial enactment of licensing legislation for hundreds of unique occupations, as well as changes to the specific qualifications required to obtain a subset of licenses over time. We first show that, consistent with the predictions of our model, licensing requirements are more common and were adopted earlier for occupations whose tasks plausibly pose some risk to consumers. Second, large, urbanized states are significantly more likely to produce new policies. Third, among occupations regulated before 1940, licensing requirements appeared earlier in states with more practitioners and where incumbent workers likely experienced greater labor market competition. After 1980, state-level factors are more strongly associated with the timing of policy adoption. Finally, political organization, as measured by the establishment of a state professional association, significantly increases the probability of regulation. Together, our findings suggest that both public and private interests have contributed to the diffusion of licensing requirements across states and occupations.
Market Power and the Welfare Effects of Institutional Landlords
Felipe Barbieri & Gregory Dobbels
University of Pennsylvania Working Paper, January 2025
Abstract:
In the last decade, large financial institutions in the United States have purchased hundreds of thousands of homes and converted them to rentals. This paper studies the welfare consequences of institutional ownership of single-family housing. We build an equilibrium model of the housing market with two sectors: rental and homeownership. The model captures two key forces from institutional purchases of homes: changes in rental concentration and reallocation of housing stock across sectors. To estimate the model, we construct a novel dataset of individual homes in metropolitan Atlanta, identifying institutional owners of each house and scraping house-level daily prices, rents, vacancies, web page views, and customer contacts from Zillow. We find that institutional acquisitions increase average renter welfare by $2,760 per year (with rents decreasing by 2.3%). This net benefit reflects two opposing effects: higher concentration raises rents by 3.8%, but higher rental supply lowers rents by 6.1%. On the other hand, the welfare of the average homebuyer decreases by $49,950. On the supply side, institutional acquisitions benefit house sellers but harm the average landlord.
Local Government Accessory Dwelling Unit Policies After State Preemption in California
Christopher Wielga
State and Local Government Review, forthcoming
Abstract:
While local governments retain dominant control over land use in the United States, state governments are increasingly preempting them in this area. This article focuses on how local governments in California responded to preemption on the maximum unit size of accessory dwelling units. Using a survey of local governments from the Tener Center, and reviewing their ordinances, I compare local accessory dwelling unit policies before and after the preemption. I find that local governments responded to state preemptions that created a lower bound of the maximum unit size. Those below this minimum standard largely moved up to comply with it, but those above the standard also moved their policies to be lower than they were prior to the preemption. Local governments also responded to changes in preemptions that precluded minimum lot sizes, suggesting that the governments who brought their maximum size down were indeed responding to the preemption.
Increased (Platform) Competition Reduces (Seller) Competition
Shana Cui
Journal of Industrial Economics, forthcoming
Abstract:
Policymakers have expressed concern that when a dominant online platform acts both as a marketplace and as an active seller, it might disadvantage its rival sellers and thereby harm consumers. I examine whether platform competition might be promoted to protect consumers. Perhaps surprisingly, I find that increased platform competition can reduce seller competition, and thereby harm consumers.
Defensive Hiring and Creative Destruction
Jesús Fernández-Villaverde, Yang Yu & Francesco Zanetti
NBER Working Paper, March 2025
Abstract:
Defensive hiring of researchers by incumbent firms with monopsony power reduces creative destruction. This mechanism helps explain the simultaneous rise in R&D spending and decline in TFP growth in the US economy over recent decades. We develop a simple model highlighting the critical role of the inelastic supply of research labor in enabling this effect. Empirical evidence confirms that the research labor supply in the US is indeed inelastic and supports other model predictions: incumbent R&D spending is negatively correlated with creative destruction and sectoral TFP growth while extending incumbents' lifespan. All these effects are amplified when ideas are harder to find. An extended version of the model quantifies these mechanisms' implications for productivity, innovation, and policy.
Cyberattacks, Operational Disruption, and Investment in Resilience Measures
Terrence August et al.
Management Science, forthcoming
Abstract:
With the increased frequency and magnitude of cyberattacks, policymakers and the private sector search for ways to counter this threat. One of the main initiatives suggested to achieve this goal is sharing cybersecurity-related information. Although the general belief is that information sharing can increase both industry profit and social welfare, it is unclear whether firms would voluntarily share such information. In this paper, we examine the incentives of firms to share cybersecurity-related information, how information sharing impacts investments in cyber resilience, and the aggregate impact on welfare. We find that firms only voluntarily share information in less competitive markets when the impact of the disruption is high. In all other cases, firms elect not to share information, despite potential welfare benefits. To facilitate information sharing, we investigate an exclusionary policy (i.e., sharing must be mutual) and demonstrate market conditions under which this policy incentivizes information sharing. However, when competition is intense, even the exclusionary policy is ineffective because it reduces industry profit. To inform stronger interventions, we examine firms being mandated to disclose their private cyberthreat information. We demonstrate that an opportunity does exist for such disclosure, particularly when the cost of investing in cyber resilience is high. However, policymakers must use caution with such a policy because applying this intervention when investment costs are not high leads to a steep reduction in welfare.