Working Paper

"Market Power and Political Connections", with Feng Zhou (TBS) 

Abstract: Do politics drive the rise of market power in the United States? This paper studies the effect of corporate political connections with congressional committee members on market power in the US. For identification, we exploit a congressional procedure (committee exile) that leads to quasi-exogenous variations in a committee member's political influence, and thus in a firm's political connections with committees. We find that, on average, 10% more successful political connections to incumbent committee members increased firm-level markups by 1.09 percentage points for US public firms. The key mechanism is the exemption of increasing costs associated with regulatory burdens, rather than government procurement contracts. Overtime, we observe an increase in political connections among large firms. For sectors with larger increases in the concentration of political power, measured by HHI of political connections or total political expenditures, their market concentration also increased more. Overall, our results reveal political connections as a source of market power and distorted competition.

• Presentations: NBER Megafirms and the Economy Conference (2023), Third Catalan Economic Society Conference (2023), Asia Meeting of the Econometric Society (2023), CICF (2023), SIOE (2023), LACEA-LAMES (2023), Toulouse Business School (2023), CUNEF (2023), UPF (2022, 2023), IE Doctoral Consort (2024), SMU (2024), EIEF (2024), Manchester (2024), UK CMA (2024), IAAE-Xiamen (2024), Journée CREM-CREST-SMART (2024)

"The Geography of Matching"

Abstract: This paper demonstrates how reductions in search frictions impacted spatial sorting in Germany after 2000. I first document that the elasticity of wages to city size decreased by 12% in Germany during this period, consistent with findings by Dauth et al. (2018). Decomposition shows that almost all of the change in the city size wage premium can be accounted for by reduced firm sorting and universally increased matching quality across locations. To explain the findings, I develop a spatial general equilibrium model incorporating two-sided heterogeneity and frictional labor markets, which generates endogenous productivity differentials across cities through strategic complementarity between worker and firm location choices. With random search, workers and firms pool together in larger cities to achieve higher matching quality. The model predicts that lower search costs lead to less spatial sorting, while skill-biased technological change (SBTC) increases sorting. Using this framework, I quantify the effects of SBTC, declining search frictions, and changing amenities on spatial sorting over time. The estimation results indicate that the reduction in search costs explains around half of the rise in matching quality and the entire decrease in the city size wage premium after 2000.  This suggests that policies aimed at lowering search frictions, such as investments in online job search platforms and employment services, could help improve labor market outcomes for workers and firms in all geographic areas, especially smaller cities.

• Presentations: EALE (2023)