Digitization, Prediction, and Market Efficiency: Evidence from Book Publishing Deals

Digitization has given creators direct access to consumers as well as a plethora of new data for suppliers of new products to draw on. We study how this affects market efficiency in the context of book publishing. Using data on about 50,000 license deals over more than 10 years, we identify the effects of digitization from quasi-experimental variation across book types. Consistent with digitization generating additional information for predicting product appeal, we show that the size of license payments more accurately reflects a product’s ex post success, and more so for publishers that invest more in data analytics. These effects cannot be fully explained by changes in bargaining power or in demand. We estimate that efficiency gains are worth between 10% and 18% of publishers’ total investments in book deals. Thus, digitization can have large impacts on the allocation of resources across products of varying qualities in markets in which product appeal has traditionally been difficult to predict ex ante. This paper was accepted by Joshua Gans, business strategy.

On the Macroeconomic Consequences of Over-Optimism

Analyzing International Monetary Fund (IMF) data, we find that overly optimistic growth expectations for a country induce economic contractions a few years later. To isolate the causal effect, we take an instrumental variable approach—exploiting randomness in the country allocation of IMF mission chiefs. We first document that IMF mission chiefs differ in their individual degrees of forecast optimism, yielding quasi-experimental variation in the degree of forecast optimism at the country level. The mechanism appears to run through excessive accumulation of debt (public and private). Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects. (JEL C53, E23, E27, E32, F33, H63)

MEMO: Mass Spectrometry-based Sample Vectorization to Explore Chemodiverse Datasets

In natural products research, chemodiverse extracts coming from multiple organisms are explored for novel bioactive molecules, sometimes over extended periods. Samples are usually analyzed by liquid chromatography coupled with fragmentation mass spectrometry to acquire informative mass spectral ensembles. Such data is then exploited to establish relationships among analytes or samples (e.g. via molecular networking) and annotate metabolites. However, the comparison of samples profiled in different batches is challenging with current metabolomics methods. Indeed, the experimental variation - changes in chromatographical or mass spectrometric conditions - often hinders the direct comparison of the profiled samples. Here we introduce MEMO - MS2 BasEd SaMple VectOrization - a method allowing to cluster large amounts of chemodiverse samples based on their LC-MS/MS profiles in a retention time agnostic manner. This method is particularly suited for heterogeneous and chemodiverse sample sets. MEMO demonstrated similar clustering performance as state-of-the-art metrics taking into account fragmentation spectra. More importantly, such performance was achieved without the requirement of a prior feature alignment step and in a significantly shorter computational time. MEMO thus allows the comparison of vast ensembles of samples, even when analyzed over long periods of time, and on different chromatographic or mass spectrometry platforms. This new addition to the computational metabolomics toolbox should drastically expand the scope of large-scale comparative analysis.

Positive Spillovers from Infrastructure Investment: How Pipeline Expansions Encourage Fuel Switching

This paper studies the role of the U.S. pipeline infrastructure in the country's transition from coal to natural gas energy. I leverage the EPA's Mercury and Air Toxics Standards as a plausibly exogenous intervention, which encouraged many coal plants to convert to natural gas. Combining this quasi-experimental variation with a plant's preexisting proximity to the pipeline network, I isolate implied pipeline connection costs within a dynamic discrete choice model of plant conversions. Key model results indicate that infrastructure-related costs prevent $9 billion in emissions reductions from taking place, suggesting a $2.4 million per mile external benefit of pipeline expansions.

Labor Supply Responses to Learning the Tax and Benefit Schedule

Despite the implications for policy, empirical evidence on the relative importance of factors that shape labor supply responses is missing. This paper helps fill this gap and quantifies the role of information frictions versus other frictions by combining notches in the Norwegian welfare system and quasi-experimental variation in access to information about the slope and location of kinks. While we estimate a frictionless elasticity of 0.3, overall frictions attenuate this elasticity by about 70 percent. We find the information letter increased the earnings elasticity from 0.06 to 0.15, implying that information frictions account for at least 30 percent of total attenuation. (JEL D83, H24, I38, J22, J28, J31)

EXPRESS: Variety Effects in Advertising

Users are often exposed to a sequence of short-lived marketing interventions (e.g., ads) within each usage session in mobile apps. This study examines how an increase in the variety of ads shown in a session affects a user's response to the next ad. The authors leverage the quasi-experimental variation in ad assignment in their data and propose an empirical framework that accounts for different types confounding to isolate the effects of a unit increase in variety. Across a series of models, the authors consistently show that an increase in ad variety in a session results in a higher response rate to the next ad: holding all else fixed, a unit increase in variety of the prior sequence of ads can increase the click-through rate on the next ad by approximately 13\%. The authors then explore the underlying mechanism and document empirical evidence for an attention-based account. The paper offers important managerial implications since it identifies a source of interdependence across ad exposures that is often ignored in the design of advertising auctions. Further, the attention-based mechanism suggests that platforms can incorporate real-time attention measures to help advertisers with targeting dynamics.

Quantitative modeling of fine-scale variations in the Arabidopsis thaliana crossover landscape

In essentially all species where meiotic crossovers have been studied, they occur preferentially in open chromatin, typically near gene promoters and to a lesser extent at the end of genes. Here, in the case of Arabidopsis thaliana, we unveil further trends arising when one considers contextual information, namely summarized epigenetic status, size of underlying genomic regions and degree of divergence between homologs. For instance we find that intergenic recombination rate is reduced if those regions are less than 1.5 kb in size. Furthermore, we propose that the presence of single nucleotide polymorphisms is a factor driving enhanced crossover rate compared to when homologous sequences are identical, in agreement with previous works comparing rates in homozygous and heterozygous blocks. Lastly, by integrating these different factors, we produce a quantitative and predictive model of the recombination landscape that reproduces much of the experimental variation.

The Political Premium of Television Celebrity

This paper studies the electoral consequences of television stardom through the career of Ronald Reagan. I utilize quasi-experimental variation in television reception to estimate the causal effect of celebrity exposure on political support. I find that Reagan’s tenure as the host of a 1950s entertainment television program translated into support for his candidacy, in terms of votes and political donations, nearly two decades after the show’s first airing. Placebo checks suggest that this impact is not driven by unobserved heterogeneity or omitted variable bias. The effect was especially pronounced in the 1976 Republican primary elections relative to the general presidential elections and partially dissipated in locations where Reagan was a known political entity. Using the American National Election Studies (ANES) surveys, I provide evidence on possible mechanisms. Consistent with rational updating, nonpolitical media increased voters’ assessment of Reagan’s character and leadership, personalizing political considerations in elections featuring him. (JEL D72, L82, Z13)

Liquidity Risk and Long-Term Finance: Evidence from a Natural Experiment

Banks in low-income countries face severe liquidity risk due to volatile deposits, which destabilize their funding, and dysfunctional liquidity markets, which induce expensive interbank and central bank lending. Such liquidity risk dissuades the transformation of short-term deposits into long-term loans and deters long-term investment. To validate this mechanism, we exploit a Sharia-compliant levy in Pakistan, which generates unintended and quasi-experimental variation in liquidity risk, with data from the credit registry and firm imports. We find that banks with a stronger exposure to liquidity risk lower their supply of long-term finance, which reduces the long-term investment of connected firms.

Informal Labor and the Efficiency Cost of Social Programs: Evidence from Unemployment Insurance in Brazil

It is widely believed that the presence of a large informal sector increases the efficiency cost of social programs in developing countries. We evaluate such claims for the case of unemployment insurance (UI) by combining an optimal UI framework with comprehensive data from Brazil. Using quasi-experimental variation in potential UI duration, we find clear evidence for the usual moral hazard problem that UI reduces incentives to return to a formal job. Yet, the associated efficiency cost is lower than it is in the United States, and it is lower in labor markets with higher informality within Brazil. This is because formal reemployment rates are lower to begin with where informality is higher, so that a larger share of workers would draw UI benefits absent any moral hazard. In sum, efficiency concerns may actually become more relevant as an economy formalizes. (JEL J65, O15, O17, E26, D82, J46)