Research

Environmental concerns over growing raw material extraction and waste generation have led many governments, including the United States, to introduce policies intended to reduce the extraction of new materials from the earth and boost material recycling. In the policy sphere, this is referred to as circularity.   This paper develops a quantitative growth model with material use and directed technical change to quantify the costs of circularity policies.  We study the United States goal of 50% recycling by 2030 and find it would require doubling recycling subsidies and cost 0.17% in consumption-equivalent welfare.  However, this policy would also increase virgin extraction. Achieving a substantial reduction in new material extraction itself is very costly.  Returning to 1970 levels of extraction entails a long run consumption cost of 6% and lost growth of 1% per decade. 

Ownership changes are common across firms of all sizes, and they have meaningful impacts on firm performance.  Using a panel of Canadian administrative data we document that sales are an important margin in the firm life cycle, larger than exit rates for employer firms.  Applying an event-study framework, we find that (a) survival rates initially decline post sale, leveling off after three years and (b) conditional on survival, profits are permanently higher.  Embedding ownership changes in a model of firm dynamics, we find that 4.5% of entrants survive due to the option value of sale and that, within ten years from birth, 13% of dispersion in firm size is attributable to realized ownership changes.  Moreover, ownership changes are particularly important for high productivity firms, accounting for one quarter of revenue concentration among the top 1% of businesses.

We study the role of owners in explaining the large dispersion in firm productivity.  Conceptually, we model firm productivity as a combination of owner ability and a fixed business type.  We then leverage the mobility of owners across firms in a comprehensive, administrative dataset in order to separately identify owner- and business- fixed effects.  To do so, we develop novel methodologies to handle settings like ours in which multiple owners can be active at the same firm, and multiple firms can be held by the same owner.  We find that variation in owner effects matters, accounting for a quarter of the total variance in firm productivity.  However, variation in business types matters significantly more, explaining 76% of the total variance.  Strikingly, we find a negative covariance between business and owner productivities, implying that the negative sorting between owners and businesses significantly dampens overall dispersion.

We investigate rates of return to business wealth and total net worth along the wealth distribution in a quantitative model of occupational choice.  While it has long been established that these models are very successful at replicating wealth inequality, we show that they also produce endogenous rates of return to private equity and total net worth that share important properties with their empirical counterparts.  Rates of return to business wealth are high, heterogeneous, negatively correlated with net worth, and persistent.   The financial constraint and heterogeneity in entrepreneurial ability are the key model ingredients producing the observed patterns in returns.

This article investigates the implications of observational learning for firm dynamics.  Because consumers learn through past purchase decisions, monopolistic firms can induce information cascades through prices.  We characterize when cascades arise and argue that the fragile nature of cascades is reflected in firm level data.  We measure fragility using reversals: periods when a firm with historically stable revenues experiences a large, sudden change in earnings.  We document a robust pattern that the frequency of reversals among stable firms declines with age, and show a calibration exercise delivers an untargeted age profile in line with the data.  Finally,  efficiency is discussed.

I combine survey and transaction data to empirically characterize secondary markets for wholly owned businesses in the United States.  While markets are active, with an estimated 2.9% of businesses sold annually, they are also frictional, with the median sale taking between 170 and 200 days.  To quantify the impact of market frictions on business formation, ownership, continuation, and entrepreneurial welfare, I estimate a search and matching model of business ownership and resale using novel data from an online market.  In the estimated model, removing secondary markets reduces output by almost 21%, while firm entry rates rise by 2.5 percentage points, highlighting a trade-off between firm entry and continuation that is absent in models without resale.  I then characterize the planner’s problem and show that buying and selling decisions will generally never be simultaneously efficient.  A transaction tax used to finance a minimum income scheme for entrepreneurs raises welfare by 0.94%.  Finally, I extend the model to include founding risk and find the risky economy is five times more responsive to frictions relative to the benchmark economy.

The labor share may be declining in the data, but it is constant in the neoclassical growth model (NGM).  To assess the quantitative importance of this discrepancy, we compare versions of the NGM featuring constant and declining labor shares, and find little difference in model performance.  Our results derive from strong general equilibrium effects: while a declining labor share mechanically lowers wage growth, the investment response pushes wages back up. Hence, different models deliver nearly identical paths of macro aggregates.  Numerous robustness checks (including a CES production function, different time periods, and calculations of the labor share) reinforce the similarity of performance across model specifications.  We conclude that the NGM is still an appropriate choice to study standard macro aggregates.