Industrial organisation

Dany Bahar, 13 December 2019

A key influence on the location decisions of multinationals is thought to be the ‘knowledge–distance trade-off’ – how far apart headquarters are from foreign subsidiaries, and the impact this has on ease of communication between them on issues related to management, monitoring, coordination, troubleshooting, and so on. This column argues that it is differences in time zones as much as the transport costs related to physical distance that play an important role in this trade-off. Human interaction is vital for the transfer of tacit knowledge that underpins economic development.

Yi Huang, Ugo Panizza, Richard Varghese, 04 December 2019

Establishing the presence of a causal link from public debt to economic growth and investment has proved challenging. This column uses data for nearly 550,000 firms in 69 countries to show that government debt affects corporate investment by tightening the credit constraints faced by private firms. Higher levels of public debt increase the correlation between investment and cashflow for firms that are more likely to be credit constrained – i.e. unlisted, small, and young firms – but appear to have no effect on the correlation between cash and investment of listed, well-established, and large firms.

Esteban Rossi-Hansberg, Pierre-Daniel Sarte, Felipe Schwartzman, 29 November 2019

The increasing concentration of high-wage, cognitive non-routine occupations in larger cities in the US has not always benefited workers in other occupations. This column asks whether it is possible to re-allocate occupations across locations and benefit all workers. Drawing conclusions from a spatial equilibrium framework, it finds that a policy of city- and occupation-specific transfers can improve welfare for all workers and also allow the revitalisation of smaller cities. The policy would lead to every occupation having its own affordable and enjoyable hub.

Daron Acemoğlu, Ali Makhdoumi, Azarakhsh Malekian, Asuman Ozdaglar, 18 November 2019

The Cambridge Analytica scandal highlighted the sophisticated ways social media platforms can allow companies to infer information about users and non-users from shared data. This column shows how correlations between platform users’ and non-users’ characteristics mean companies can obtain data at below equilibrium prices, implying welfare inefficiencies for individuals. The authors make some suggestions of regulations that could improve on these data-sharing inefficiencies for users and non-users of the platforms.

Michael Geruso, Timothy J. Layton, Grace McCormack, Mark Shepard, 16 November 2019

Sicker consumers tend to exhibit higher demand for health insurance, which drives up costs. This column argues that this adverse selection takes place along two margins: whether to buy insurance at all and how much coverage to buy, It develops a new framework that incorporates both selection margins, and shows that policies aimed at addressing one margin can often exacerbate selection along the other. It is therefore vital for optimal policy to consider both margins simultaneously. 

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