Rule Books
Why OMB's Social Welfare Function Is Not Society's Social Welfare Function
Kip Viscusi
Journal of Benefit-Cost Analysis, forthcoming
Abstract:
In 2023, the U.S. Office of Management and Budget (OMB) issued guidance documents that specified new procedures for assessing prospective government regulations (Circular A-4) and economic policies more generally (Circular A-94). These revisions to long-standing guidance were not minor updates but shifted policy analyses from an efficiency-oriented perspective to a redistributive approach. OMB broadened the guidelines for reporting distributional consequences of policies and also specified how policy impacts on different income groups should be weighted. The weights assume that the social welfare function is governed by the sum of identical individual utility functions, each of which exhibits a substantial rate of diminishing marginal utility of income. The resulting weights provide a premium for households below the median income level and a considerable penalty for those at higher income levels. Application of the weights to property losses creates potentially substantial inefficiencies. If based on current empirical evidence on the income elasticity of the value of a statistical life rather than assuming that there is a complete offset of the weights, application of the weights to mortality risk valuation would generate inequities in protection.
Cancel the Deal? An Experimental Study on the Exploitation of Irrational Consumers
Alexander Cappelen, Stefan Meissner & Bertil Tungodden
Management Science, forthcoming
Abstract:
Consumers can sometimes be exploited because they make mistakes in their valuation of products. We present the results from a large-scale experimental study that examines whether third-party spectators from the general population in the United States cancel a voluntary deal where a buyer has made a mistake in the valuation of a product and agreed to pay more for the product than the seller knows it is worth. We find that the majority of the spectators cancel such deals, even when the seller’s involvement is limited to accepting a proposal made by the buyer. A substantial share of these spectators is also willing to fine the seller. However, a large minority of the spectators are willing to uphold the deal even when the seller has proposed the deal and obfuscated the information provided to the buyer. Our results shed new light on when people view market transactions as acceptable and their attitudes to government regulation of businesses.
The Costs of Housing Regulation: Evidence From Generative Regulatory Measurement
Alexander Bartik, Arpit Gupta & Daniel Milo
NYU Working Paper, September 2024
Abstract:
We present a novel method called "generative regulatory measurement'' that uses Large Language Models (LLMs) to interpret statutes and administrative documents. We demonstrate its effectiveness in analyzing municipal zoning codes, achieving 96% accuracy in binary classification tasks and a 0.92 correlation in predicting minimum lot sizes. Applying this method to U.S. zoning regulations, we establish five facts about American zoning: (1) Housing production disproportionately happens in unincorporated areas without municipal zoning codes. (2) Density in the form of multifamily apartments and small lot single family homes is broadly limited. (3) Zoning follows a monocentric pattern with regional variations, with suburban regulations particularly strict in the Northeast. (4) Housing regulations can be clustered into two main principal components, the first of which corresponds to housing complexity and can be interpreted as extracting value in high demand environments. (5) The second principal component associates with exclusionary zoning.
Do Housing Supply Skeptics Learn? Evidence from Economics and Advocacy Treatments
Christopher Elmendorf, Clayton Nall & Stan Oklobdzija
University of California Working Paper, September 2024
Abstract:
Recent research finds that most people want lower housing prices but, contrary to expert consensus, do not believe that more supply would lower prices. This study tests the effects of four informational interventions on Americans’ beliefs about housing markets and associated policy preferences and political actions (writing to state lawmakers). Several of the interventions significantly and positively affected economic understanding and support for land-use liberalization, with standardized effect sizes of 0.15 − 0.3. The most impactful treatment -- an educational video from an advocacy group -- had effects 2-3 times larger than typical economics-information or political-messaging treatments. Learning about housing markets increased support for development among homeowners as much as renters, contrary to the “homevoter hypothesis.” The treatments did not significantly affect the probability of writing to lawmakers, but an off-plan analysis suggests that the advocacy video increased the number of messages asking for more market-rate housing.
NAR Settlement, House Prices, and Consumer Welfare
Greg Buchak et al.
NBER Working Paper, August 2024
Abstract:
Motivated by the recent National Association of Realtors (NAR) settlement, this note examines the effects of reduced real estate agent commissions on home prices, housing turnover, and consumer welfare. Using a calibrated dynamic structural search model of the housing market, we explore how lowering agent commissions might influence market equilibrium. Our analysis highlights the importance of accounting for the dynamic nature of the housing market, consumer heterogeneity, and general equilibrium effects when assessing these outcomes. Contrary to the claims of some media commentators and consumer advocates, our findings suggest that reducing agent fees generally leads to higher house prices. This occurs because lower future transaction costs increase the value of housing as a durable asset. While reduced agent fees typically enhance consumer welfare by lowering the cost of homeownership, we find that most of these benefits are likely to accrue to current homeowners rather than prospective buyers. Furthermore, financially constrained households may see diminished benefits due to the expected rise in home prices. Our analysis also offers insights into the redistributive effects of technological innovations in the housing market aimed at reducing transaction costs.
Local Effects of Bypassing Zoning Regulations
Hector Blanco & Noémie Sportiche
Rutgers Working Paper, July 2024
Abstract:
Prior research shows that restrictive zoning regulations are major drivers of rising housing costs and residential segregation in the United States. In response, a growing number of state and local governments are passing laws to allow for denser housing in strictly zoned localities, despite entrenched opposition from incumbent residents. This paper examines whether incumbent residents' responses undermine the success of these policies by studying new construction permitted under Massachusetts Chapter 40B; one of the longest-standing and most productive examples of a housing policy that bypasses local zoning laws. Exploiting hyperlocal variation in residents' proximity to new 40B buildings, we find that only a subset of larger 40B developments cause property values to decrease, and that this effect is both highly localized and only emerges in the longer term, many years after these developments are proposed. Focusing on these larger developments that are more likely to elicit resident reactions, we find that only a fraction of incumbent residents move out after their approval and that the magnitude of these migration responses is insufficient to undermine policymakers' desegregation goals. We also do not find evidence that incumbent residents become more politically active against future development, as they are no more likely to vote in local or general elections nor are they more likely to vote for repealing Chapter 40B after 40B developments are proposed near their homes.
Cause for Celebration or Concern? Voter Reactions to Rising House Prices
Alexander Reisenbichler & Pascal Koenig
Comparative Political Studies, forthcoming
Abstract:
Little is known about voters’ demands in response to rising house prices. We argue that voters’ house-price perceptions and housing policy preferences depend on countries’ differing economic institutions. In the UK’s liberal welfare and credit regimes, we expect voters to view house-price growth as a comparatively positive sign for the economy and show little demand for policies restraining prices. In Germany’s generous welfare and restrictive credit regimes, we expect voters to view house-price appreciation with more skepticism and demand policies restraining prices. First, through a custom survey, we experimentally demonstrate that British homeowners regard house-price growth as a sign of economic health, while German homeowners and renters from both countries do not. Second, we find that German voters, both homeowners and renters, support policies restraining house prices more so than their British equivalents. Our findings suggest that similar types of voters have different housing attitudes in differing institutional contexts.
Strategic restraint: When do human-capital-intensive companies choose (not) to use noncompete agreements?
Martin Ganco et al.
Strategic Management Journal, forthcoming
Abstract:
Extant work in strategic management has focused on the role of noncompete agreements (NCAs) -- a form of restrictive legal lever used by firms when managing human capital -- and conceptualized them as being advantageous to firms. Challenging this notion, we highlight a novel downside of using NCAs and show how their use by some firms creates differentiation opportunities for rival firms. We analyze a unique survey dataset to examine the heterogeneity in the firms' actual use of NCAs conditional on industry and state. We find that the nonuse of NCAs is more common among firms that rely more heavily on talent and are also not the industry leaders, and such firms are more likely not to use NCAs with the goal of attracting skilled employees.
Hurdles to hops: How self-distribution laws affect craft brewery output
James Harrison & Darrell Glaser
Contemporary Economic Policy, forthcoming
Abstract:
We examine the impact of laws that allow breweries to bypass distributors. We construct a model of heterogeneous firms where some states require pairing with distributors who charge fixed and marginal costs in return for additional market share. The model predicts that states without such requirements have higher output and employment due to greater entry and firm-level production. To test this model, we exploit the adoption of self-distribution laws from 2008 to 2019. We find that states that do not require a distributor have higher brewery output and employment, and that this is primarily driven by a greater entry of breweries.
Effects of mergers and acquisitions on food quality
Wesley Blundell, Stephen Devadoss & Jeff Luckstead
Economics Letters, November 2024
Abstract:
We examine the impact of mergers on product quality in the U.S. agri-food industry. Our difference-in-differences analyses provide evidence that following a one standard deviation increase in merger activity there is a 48.1% decrease in pounds of food recalled and an 18.7% decrease in the total number of recalls. A significant implication of our analysis is that increased concentration increases product quality.
Amazon's Quiet Overhaul of the Trademark System
Jeanne Fromer & Mark McKenna
California Law Review, forthcoming
Abstract:
Amazon's dominance as a platform is widely documented. But one aspect of that dominance has not received sufficient attention-the Amazon Brand Registry's sweeping influence on firm behavior, particularly in relation to the formal trademark system. Amazon's Brand Registry serves as a shadow trademark system that dramatically affects businesses' incentives to seek legal registration of their marks. The result has been a dramatic increase in the number of applications to register, which has swamped the U.S. Patent and Trademark Office and created delays for all applicants, even those that previously would have registered their marks. And the increased value of federal registration has drawn in bad actors who fraudulently register marks that are in use by others on the Amazon platform and use those registrations to extort the true owners. Amazon's policies also create incentives for businesses to adopt different kinds of marks. Specifically, businesses are more likely to claim descriptive or generic terms, advantageously in stylized form or with accompanying images, and to game the scope limitations that would ordinarily attend registration of those marks. And the same Amazon policies have given rise to the phenomenon of "nonsense marks"-strings of letters and numbers that are not recognizable as words or symbols. In the midst of these systemic changes, Amazon has consolidated its own branding practices, focusing on a few core brands and expanding its use of those marks across a wide range of products. In combination, Amazon's business model and Brand Registry have overhauled the American trademark system, and they have done so with very little public recognition of the consequences of Amazon's business approach. Amazon's impact raises profound questions for trademark law, and for law more generally. There have been powerful players before, and other situations in which private dispute resolution procedures have affected parties' behavior. But Amazon's effect on the legal system is unprecedented in scale and scope. What does (and should) it mean that one private party can so significantly affect a legal system? Do we want the trademark system to have to continually adapt to Amazon's rules? If not, how can the law disable Amazon from having such a profound impact? In this regard, we explore the ways in which Amazon's practices might both help and hurt competition, be harmful to the trademark system, and reshape how we think about trademark law at its foundation.
Patent law reform and innovation: An empirical assessment of the last 20 years
Christian Helmers & Brian Love
International Review of Law and Economics, September 2024
Abstract:
We ask whether four of the most important U.S. patent system reforms of the last 20 years -- elimination of presumptive injunctive relief for victorious patent enforcers in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006); creation of the Patent Trial and Appeal Board (PTAB) in the America Invents Act; restriction of software’s eligibility for patent protection in Alice Corp. v. CLS Bank Int’l, 573 U.S. 208 (2014); and limitation of patent enforcers’ choice of forum in TC Heartland, LLC v. Kraft Foods Grp. Brands, LLC, 137 S. Ct. 1514 (2017) -- had a measurable impact on innovation in the U.S. Specifically, we use a sample of publicly traded firms to construct firm-level measures of innovation and exposure to each reform and adopt a variety of difference-in-differences approaches that assesses how innovation-related activities changed post-reform at relatively exposed versus relatively unexposed firms. We find: a positive association between eBay and R&D spending by firms that were relatively more exposed to patent litigation prior to the Court’s decision; a positive association between the introduction of PTAB proceedings and R&D expenditures by firms that innovate in tech classes where PTAB has been most active; a positive association between Alice and R&D spending by software firms; and a positive association between TC Heartland and R&D spending by firms that thereafter could not be sued in the Eastern District of Texas, a court long associated with opportunistic forum shopping.