Distributional Implications of Unemployment-Reducing Policies

We study the distributional implications that follow from the fact that higher-income households tend to consume higher-quality goods. This is done through a two-sector model in which one sector produces vertically differentiated products, whose skill intensity is an increasing function of quality. The skilled-to-unskilled wage ratio is fixed at a level sufficiently low that some unskilled workers remain unemployed. We show that uniform technological progress increases the unemployment rate, and we consider a number of policy responses to alleviate the “plight of the less-skilled”. Political economy consequences are emphasized, as we assess each policy’s chance of receiving political support. We conclude that a budget-neutral subsidy for the employment of unskilled workers is a viable policy option.

Multidimensional Observational Learning in Social Networks: Theory and Experimental Evidence

The unprecedented growth of social network users in the last decade has resulted in significant increases in the availability of individual-specific information such as holiday pictures, mobile check-ins at restaurants, and information on everyday purchases. Consumers shopping through social network channels are increasingly using this information in making their purchase decisions. We find that social ties impact the magnitude of observational learning. In the case of strangers, the effect of learning is stronger for vertically differentiated products than for horizontally differentiated products; whereas in the case of friends, the effect of learning for vertically differentiated products is similar to that for horizontally differentiated products. Moreover, the type of product impacts the magnitude of observational learning. For horizontally differentiated products, the effect of learning from friends is stronger than that from strangers; whereas for vertically differentiated products, the effect of learning from friends is similar to that from strangers. These findings provide motivation for online retailers to generate alternative strategies for increasing product sales through social networks. For example, online retailers offering horizontally differentiated products have strong incentives to cooperate with social media platforms (e.g., Instagram and Pinterest) in encouraging customers to share their purchase information.

Do Consumers Always Spend more when Coupon Face Value is Larger? The Inverted U-Shaped Effect of Coupon Face Value on Consumer Spending Level

Commonly, a coupon can be applied to one of several vertically differentiated products sold at different prices within the same product line of a brand. With such a product-line coupon, consumers need to decide on the specific product to buy, resulting in different levels of consumer spending. One field data set and four lab experiments demonstrate that the relationship between coupon face value and consumer spending level may not always be intuitively positive; under certain circumstances, it could take an inverted U-shape. The authors develop a threshold-based model to explain the inverted U-shaped effect of coupon face value on consumer spending level and show that this effect occurs when the price level of products is high, when consumers have a strong saving orientation, when they experience low information load from processing a small number of products, when they are inclined to engage in thorough product comparison, or when they have a weak preexisting preference for a specific level of product benefit.