Inferring Capital-Labor Substitution from Firm Size Distortions (New draft coming soon)

I propose a novel identification strategy to estimate the elasticity of substitution between capital and labor, taking advantage of a set of size-dependent policies. These policies create a break in the size distribution of French firms. To the extent that firms around the threshold distort their capital-labor ratio, the elasticity of substitution can be recovered from firm-level distorted input choices and the amount of bunching. On the other hand, because firms have an incentive to under-report their size, part of the apparent distortions is only due to evasion. I extend the canonical span of control model with a labor friction and a misreporting margin, and develop formulas to link the elasticity to observed distortions. I merge two comprehensive administrative datasets and use the discrepancies between a self-reported employment count and a more accurate measure that the administration calculates from employees' payroll data. I provide direct evidence for evasion, show that under-reporting surges around the threshold, and accounts for a large fraction of the distortions. I find that firm-level elasticities are close to zero and that the aggregate elasticity in the economy, is around 0.3. Additional channels on the extensive margin are important to reach higher elasticities of substitution. (Paper)

A Unified Law of Mortality: Implications for the Long Run Effects of Early Conditions (with Adriana Lleras-Muney)

How do social and economic conditions experienced early in life affect the evolution of health and mortality rates over the lifetime? To answer this question, we build and estimate a simple dynamic model of health. A key insight of the approach is that if mortality depends on health, then the evolution of mortality rates by age places constraints on the evolution of the underlying distribution of (unobserved) health. Therefore mortality rates can be used to infer how health has evolved over time and across countries. We estimate our model using high quality cohort life tables from the Human Mortality Database. We use the model and the estimated parameters to understand how unexpected shocks, like wars and infectious disease epidemics experienced early in life, affect the age-profile of health and mortality. We also investigate implications for SES gradients and optimal health care expenditures. (Paper)

Work in Progress

The Macroeconomic Effects of Market Structure Distortions (with Ludovic Panon)

This paper builds a quantitative framework to assess the macroeconomic implications of the distortions to market structure created by cartels and by anti-competitive behavior. We analyze these distortions in an extension of the oligopolistic framework of Atkeson and Burstein (2008) which features heterogenous firms and endogenous markups. We find that the direct negative welfare impact of cartels is compounded by an umbrella pricing effect, whereby firms outside of the cartel also raise their prices. We test the predictions of the model by combining exhaustive administrative firm micro-data with a novel dataset on firm- and sector-level collusion cases constructed from textual analysis of the French Competition Authority’s decisions.

The Uncertainty Cost of Wrongful Discharge Laws (with Yanos Zylberberg)

This article estimates the cost of uncertainty for firms and workers related to wrongful-discharge regulations. We collect unique French data on 90,000 litigations after which either the employee or the employer appealed the labor court decision. We then use textual analysis on appelate court decisions to extract case characteristics and qualify the motives behind both verdicts. To isolate exogenous and unexpected variation in the final judgment, we exploit quasi-random judge assignment within the same regional jurisdiction. Combining this unique information with high-quality employer-employee data, we then estimate the effect of these decisions — financial penalties or reinstatement — on employment and firm structure in the short- and longer-run. Decisions for which motives behind second-instance verdicts strongly contradict the first-instance litigations are used to distinguish an ex-post “cash-flow” effect from a forward-looking “uncertainty” effect.

Active and Passive Antitrust Policies (with Semih Üslü)

How does antitrust policy shape business concentration and growth dynamics? We investigate the evolution of the firm size distribution in a macroeconomic model in which heterogeneous firms can grow organically or acquire competitors. We study the effects of antitrust policies under different market structures and with arbitrary initial distributions. In particular, we analyze the impact of threshold-based merger guidelines on concentration levels and productivity growth. We show that passive antitrust policies set the economy on an explosive path characterized by increasing size dispersion. Unless all mergers are blocked past a certain size, the size distribution of firms might not converge.