New firm formation is a critical driver of job creation, and an important contributor to the responsiveness of the economy to aggregate shocks. In this paper we examine the characteristics of the individuals who become entrepreneurs when local opportunities arise due to an increase in local demand. We identify local demand shocks by linking fluctuations in global commodity prices to municipality level agricultural endowments in Brazil. We find that the firm creation response is almost entirely driven by young and skilled individuals, as measured by their level of experience, education, and past occupations involving creativity, problem-solving and managerial roles. In contrast, we find no such response within the same municipalities among skilled, yet older individuals, highlighting the importance of lifecycle considerations. These responsive individuals are younger and more skilled than the average entrepreneur in the population. The entrepreneurial response of young individuals is larger in municipalities with better access to finance, and in municipalities with more skilled human capital. These results highlight how the characteristics of the local population can have a significant impact on the entrepreneurial responsiveness of the economy.
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We nonparametrically estimate spillovers of properties financed by the Low Income Housing Tax Credit (LIHTC) onto neighborhood residents by developing a new difference-in-differences style estimator. LIHTC development revitalizes low-income neighborhoods, increasing house prices 6.5%, lowering crime rates, and attracting racially and income diverse populations. LIHTC development in higher income areas causes house price declines of 2.5% and attracts lower income households. Linking these price effects to a hedonic model of preferences, LIHTC developments in low-income areas cause aggregate welfare benefits of $116 million. Affordable housing development acts like a place-based policy and can revitalize low-income communities.
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How can mortgages be redesigned to reduce housing market volatility, consumption volatility, and default? How does mortgage design interact with monetary policy? We answer these questions using a quantitative equilibrium life cycle model with aggregate shocks, long-term mortgages, and an equilibrium housing market, focusing on designs that index payments to monetary policy. Designs that raise mortgage payments in booms and lower them in recessions do better than designs with fixed mortgage payments. The benefits are quantitatively substantial: In a simulated crisis under a monetary regime in which the central bank lowers real interest rates in a bust, house prices fall 2.24 percentage points less, 23 percent fewer households default, and consumption falls by 0.79 percentage points less with ARMs relative to FRMs. Among designs that reduce payments in a bust, we show that those that front-load the payment reductions and concentrate them in recessions outperform designs that spread payment reductions over the life of the mortgage. Front-loading alleviates household liquidity constraints in states where they are most binding, reducing default and stimulating housing demand by new homeowners. To isolate this channel, we compare an FRM with a built-in option to be converted to an ARM with an FRM with an option to be refinanced at the prevailing FRM rate. Under these two contracts, the present value of a lender's loan falls by roughly an equal amount, but the FRM that can be converted to an ARM, which front loads payment reductions, reduces the declines in prices and consumption six times as much, and reduces default three times as much.
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· 2018
The Affordable Care Act (ACA) established health insurance marketplaces where consumers can buy individual coverage. Leveraging novel credit card and bank account micro-data, we identify new enrollees in the California marketplace and measure their health spending and premium payments. Following enrollment, we observe dramatic spikes in individuals' health care consumption. We also document widespread attrition, with more than half of all new enrollees dropping coverage before the end of the plan year. Enrollees who drop out re-time health spending to the months of insurance coverage. This drop-out behavior generates a new type of adverse selection: insurers face high costs relative to the premiums collected when they enroll strategic consumers. We show that the pattern of attrition undermines market stability and can drive insurers to exit, even absent differences in enrollees' underlying health risks. Further, using data on plan price increases, we show that insurers largely shift the costs of attrition to non-drop-out enrollees, whose inertia generates low price sensitivity. Our results suggest that campaigns to improve use of social insurance may be more efficient when they jointly target take-up and attrition.
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· 2017
We investigate how the deterioration of household balance sheets affects worker productivity, and whether such effects mitigate or amplify economic downturns. To do so, we compare the output of innovative workers who experienced different declines in housing wealth, but who were employed at the same firm and lived in the same area at the onset of the 2008 crisis. We find that, following a negative wealth shock, innovative workers become less productive, and generate lower economic value for their firms. Consistent with a debt-related channel, the effects are more pronounced among those with little home equity before the crisis and those with fewer outside labor market opportunities.
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Do household wealth shocks affect employee productivity? We examine this question through the lens of technological innovation, by comparing employees that worked at the same firm and lived in the same metropolitan area, but experienced different housing wealth declines during the 2008 crisis. Following a housing wealth shock, employees are less likely to successfully pursue innovative projects, particularly ones that are high impact, complex, or exploratory in nature. Consistent with employee concerns about financial distress, the effects are more pronounced among those who had little equity in their house before the crisis and among those with fewer outside labor market opportunities. Moreover, run-ups in housing prices before the crisis did not affect employee innovation. The results highlight a “bottom-up” view of innovation, in which individual employees influence the quantity and nature of innovation produced within firms.
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· 2022
Motivated by the public debate regarding corporate responsibility, we construct a memory-based model of decision-making to illustrate how corporate and political communication can impact policy preferences. We test the predictions of our model in a new large-scale survey of U.S. citizens on their support for economic policies such as corporate bailouts. We first establish that the public demands corporations to behave better within society, a sentiment we label "big business discontent." Then, using random variation in the order of survey sections and in the exposure to animated videos, we confirm the key predictions of our model. First, messages that prime respondents to think about policy through the lens of corporate responsibility make people more averse to bailouts, while reframing the issue in terms of economic trade-offs has opposite effects. Second, attempts to paint a positive public image of big business can actually backfire, as they focus attention on an aspect on which the public has well-established negative views.
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We exploit quasi-experimental variation in assignment of rent control to study its impacts on tenants, landlords, and the overall rental market. Leveraging new data tracking individuals' migration, we find rent control increased renters' probabilities of staying at their addresses by nearly 20%. Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase. Using a dynamic, neighborhood choice model, we find rent control offered large benefits to covered tenants. Welfare losses from decreased housing supply could be mitigated if insurance against rent increases were provided as government social insurance, instead of a regulated landlord mandate.
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This paper uses a structural model to show that foreclosures played a crucial role in exacerbating the recent housing bust and to analyze foreclosure mitigation policy. We consider a dynamic search model in which foreclosures freeze the market for non-foreclosures and reduce price and sales volume by eroding lender equity, destroying the credit of potential buyers, and making buyers more selective. These effects cause price-default spirals that amplify an initial shock and help the model fit both national and cross-sectional moments better than a model without foreclosure. When calibrated to the recent bust, the model reveals that the amplification generated by foreclosures is significant: Ruined credit and choosey buyers account for 25.4 percent of the total decline in non-distressed prices and lender losses account for an additional 22.6 percent. For policy, we find that principal reduction is less cost effective than lender equity injections or introducing a single seller that holds foreclosures off the market until demand rebounds. We also show that policies that slow down the pace of foreclosures can be counterproductive.
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