Research
Research
I develop a multi-sector model of innovation and adoption, where the two margins reinforce each other. When complementarities are sufficiently strong, there are multiple equilibria. If complementary sectors coordinate on adopting the frontier technology, TFP increases, innovators earn more and invest more in research; the further research pushes the frontier forward, the greater the gains from coordinating on adoption. Conversely, coordination failures among adopters make research falter and the frontier stall. I develop novel measures of adoption complementarities across US sectors. The estimated complementarities, together with the losses from adopting alone, are strong enough for coordination to fail. The calibrated model implies significant losses from coordination failures: TFP growth would be 0.39 percentage points higher in a counterfactual economy with perfect coordination. Optimal adoption subsidies target sectors whose adoption supports many other sectors and whose losses from adopting alone are small, such as semiconductors, software, and data centers.
Since the 1980s, the United States has experienced a pronounced saving glut of the rich, a large accumulation of assets among the top 1% of earners. We argue that this development partly reflects a shift in the financing of redistributive policies, from inflationary finance in the 1960s and 1970s to debt finance backed by future taxation beginning in the early 1980s. The central insight is that, in the presence of a progressive tax system, a switch from inflationary to debt financing leads to debt accumulation by top earners. We develop a New Keynesian model with borrowers and savers in which redistributive transfers can be either funded or unfunded. Unfunded transfers generate fiscal inflation that erodes the real value of public and private debt, redistributing wealth through asset revaluation effects. Funded transfers, by contrast, are financed through future taxes borne primarily by high-income households, which respond by accumulating claims on both households and the government. Using a structurally estimated version of the model, we find that the shift from unfunded to funded redistribution in 1980s contributed significantly to the subsequent saving glut of the rich.
How do interest rates affect durable-goods markets in general equilibrium? I develop a directed-search model of differentiated durables in which state-dependent failure rates sort ex ante identical buyers and sellers across submarkets. Buyers' optimal policy partitions the state space into action and inaction regions with target quality monotonic in the holding, and market tightness is decreasing in quality. Calibrated to U.S. vehicle microdata, the model predicts that a decline in the interest rate triggers a short-run overshoot of durable expenditure; firms reallocate production toward higher-quality submarkets, and the economy converges to a stationary equilibrium of less frequent, higher-quality purchases.
We study optimal taxation in economies with general equilibrium market clearing, where agents with privately known labor skills and entrepreneurial abilities choose between deterministic labor income and risky firm operation. The government observes labor income and realized dividends but not effort or technology shocks. We formulate the multidimensional screening problem as a lottery-based linear optimization, accounting for global incentive constraints, fixed costs and other non-convexities. Optimal policies exhibit tax breaks, which can render net taxes negative, for agents with intermediate entrepreneurial abilities and labor skills above a threshold. General equilibrium strengthens this effect under decreasing returns, as labor-market clearing requires sufficient entry into entrepreneurship, further increasing subsidies for agents with high worker options. In a calibrated U.S. economy, optimal taxes are lower and can be negative for low-profit realizations. Subsidies rise when risk declines and when the frequency of high-ability entrepreneurs in the population diminishes. Global incentive constraints bind only near the occupational frontier, amplifying tax breaks for marginal entrepreneurs.
Households replace durable goods in response to peers upgrading. Replacement purchases are the market for new products, but, at the same time, innovation makes existing goods obsolete sooner. This loop gives rise to multiplicity: in one equilibrium, replacement is rare and innovation is slow; in the other, replacement is frequent and innovation is fast. Multiplicity requires that durable services fall with the distance between the quality of a buyer's durable and the average quality of peers' durables. Calibrated to the peer response in phone purchases, a cost increase that cuts the seller’s margin by more than half a percent removes the fast equilibrium and lowers growth from 3 to about 1.3 percent a year.
Bank markups have risen substantially, dispersion across banks has increased, and large banks now charge higher markups than smaller institutions. We develop a general equilibrium model in which persistent borrower and depositor relationships endogenously generate heterogeneous bank market power. Banks are dynamic two-sided intermediaries that compete for customers while inheriting partially captive borrower and depositor bases. Relationship capital creates a trade-off between current margins and future franchise value, generating endogenous loan markups and deposit mark-downs that vary across banks. Regulatory constraints and costly external equity make market power on one side of the balance sheet affect pricing on the other, linking deposit markdowns and loan markups. Quantitatively, two-sided bank market power has sizable macroeconomic implications, reducing financial intermediation and lowering aggregate output. Policy-rate changes alter franchise values, leading banks with different customer bases to adjust loan and deposit rates differently.
Europe lags behind the United States in frontier innovation and produces largely with US technologies. We ask whether being the follower is costly for Europe, and what policy should do. In our two-region growth model, researchers sort across regions by ability, and firms choose how intensively to adopt foreign technologies. When research concentrates in one region, spillovers among researchers raise world growth. The follower benefits by adopting the new technologies, but because adoption is costly, it uses few of them. Relative to a near-even split of research, the follower can therefore gain or lose. We calibrate the model to US and European data, and we find that Europe loses about two percent of permanent consumption. Taxing European firms’ adoption of US technology raises European welfare: it lowers the rents US inventors earn on European sales, drawing researchers to Europe.