The Welfare Effects of Sponsored Product Advertising (Job Market Paper). October 2023.
Awarded Econ Job Market Best Paper by the European Economic Association and UniCredit Foundation
In recent years, many digital retail platforms have significantly expanded their advertising businesses, prominently featuring sponsored products in search results. The welfare effects of sponsored product advertising are theoretically ambiguous: while it may enhance efficiency by enabling sellers to reveal information about their products, it may also worsen search results and raise prices. Using data on Amazon searches, purchases, and advertising auction bids, I estimate an equilibrium model to quantify the welfare effects. The model incorporates consumers' search frictions, sellers' pricing and bidding decisions, and the platform's choice of a commission rate. Counterfactual analysis shows that eliminating sponsored product advertising could benefit consumers and sellers if Amazon's commission rate is held fixed but would harm them if the commission rate were to adjust optimally, with consumer surplus falling by 4.3% and seller profits by 8.4%. Sponsored product advertising tends to be more beneficial in markets with fewer established products and greater quality differentiation.
The Effects of Occupational Licensing Stringency on the Market for Public School Teachers (with Bradley J. Larsen, Ziao Ju, Adam Kapor). NBER Working Paper 28158. September 2022.
Concerned about the low academic ability of public school teachers, in the 1990s and 2000s, some states increased licensing stringency to weed out candidates with low academic ability, while others decreased restrictions in hopes of attracting more competitive candidates. We offer a theoretical model justifying both reactions. Using data from 1991--2007 on licensing requirements and teacher characteristics, we find that stricter licensing requirements, especially those emphasizing academic coursework, increased the left tail of the distribution of college selectivity among secondary school teachers. We find no evidence of disparate effects for high-minority or high-poverty school districts.
Fairness in Incomplete Information Bargaining: Theory and Widespread Evidence from the Field (with Dan Keniston, Bradley J. Larsen, Shengwu Li, J.J. Prescott, and Bernardo S. Silveira). International Economic Review, Forthcoming.
Competitive Bidding in Drug Procurement: Evidence from China (with Shengmao Cao and Lisa Xuejie Yi). American Economic Journal: Economic Policy, Forthcoming.
We study the equilibrium effects of introducing competitive bidding in drug procurement. In 2019, China introduced a competitive bidding program where drug companies bid for a prespecified procurement quantity in nine provinces. Using a difference-in-differences design, we show that the program reduced average drug prices by 47.4%. Generic drugs won most bids and cut prices by 75.0%. We develop an equilibrium model to quantify the trade-off between lower prices and potential choice distortions. Competitive bidding increases consumer welfare if policymakers believe consumers should value branded and bioequivalent generic drugs equally. The program also reduced government expenditure on insurance by 19.8%.
The Welfare Effects of Vertical Integration in China's Movie Industry (with Luming Chen and Lisa Xuejie Yi). American Economic Journal: Microeconomics,16(2). May 2024.
This paper investigates the welfare effects of vertical integration in China's movie industry. We leverage data covering all theaters and 423 popular movies in China during 2014-2018. We find no evidence of integrated movies being foreclosed to rival theaters. Integrated theaters show their movies for longer, allocate more screenings, and charge lower prices. We estimate a model of consumers' demand and theaters' screening decisions. Integrated theaters internalize a substantial fraction of their upstream companies' profits. Vertical integration both mitigates distortions from revenue-sharing contracts and steers demand favoring integrated movies. Overall, vertical integration increases consumer surplus with considerable heterogeneity across markets.
Selection with Variation in Diagnostic Skill: Evidence from Radiologists (with David C. Chan and Matthew Gentzkow). Quarterly Journal of Economics, 137(2). May 2022.
Physicians, judges, teachers, and agents in many other settings differ systematically in the decisions they make when faced with similar cases. Standard approaches to interpreting and exploiting such differences assume they arise solely from variation in preferences. We develop an alternative framework that allows variation in preferences and diagnostic skill and show that both dimensions may be partially identified in standard settings under quasi-random assignment. We apply this framework to study pneumonia diagnoses by radiologists. Diagnosis rates vary widely among radiologists, and descriptive evidence suggests that a large component of this variation is due to differences in diagnostic skill. Our estimated model suggests that radiologists view failing to diagnose a patient with pneumonia as more costly than incorrectly diagnosing one without, and that this leads less skilled radiologists to optimally choose lower diagnostic thresholds. Variation in skill can explain 39% of the variation in diagnostic decisions, and policies that improve skill perform better than uniform decision guidelines. Failing to account for skill variation can lead to highly misleading results in research designs that use agent assignments as instruments.
Trends in the Diffusion of Misinformation on Social Media (with Hunt Allcott and Matthew Gentzkow). Research and Politics, 6(2). April 2019.
In recent years, there has been widespread concern that misinformation on social media is damaging societies and democratic institutions. In response, social media platforms have announced actions to limit the spread of false content. We measure trends in the diffusion of content from 569 fake news websites and 9540 fake news stories on Facebook and Twitter between January 2015 and July 2018. User interactions with false content rose steadily on both Facebook and Twitter through the end of 2016. Since then, however, interactions with false content have fallen sharply on Facebook while continuing to rise on Twitter, with the ratio of Facebook engagements to Twitter shares decreasing by 60%. In comparison, interactions with other news, business, or culture sites have followed similar trends on both platforms. Our results suggest that the relative magnitude of the misinformation problem on Facebook has declined since its peak.
Work in Progress
Bundling and Streaming in Video Entertainment (with Matthew Gentzkow and Ali Yurukoglu).