Young Economist Award
2021 Award Recipients (in alphabetical order of author):
Paper: Free and Protected: Trade and Breaks in Long-Term Persistence
Author: Sebastian Ellingsen
Motivation: The spatial distribution of economic activity reflects two main forces: market access and historical persistence. Their importance is clear, both empirically and theoretically. No less important, but much less well understood, is how these forces interact, and in particular under what conditions a change in trade opportunities can break geographic persistence.
In his paper “Free and Protected: Trade and Breaks in Long-Term Persistence,” Sebastian Ellingsen tackles these questions by leveraging a large-scale natural experiment from history. Until 1765, Spain had restricted transatlantic trade to only four ports in its American colonies. These restrictions were then lifted in response to political developments in Europe, so that by the end of the century all major colonial ports could trade with the metropolis directly.
The paper first assembles a rich dataset, based on historical sources as well as geo-referenced wind and terrain data, that enables it to obtain credible estimates of bilateral shipping times between almost 7,000 cells covering the entire Spanish Empire. Time-varying estimates reflecting different policy constraints establish that the reform caused large and highly heterogeneous declines in the cost of international trade.
This panel variation enables the paper to identify with a difference-in-differences design the causal impact of lower trade costs on population growth and the formation of new settlements. The effect is positive and sizable, showing evidence of gains from trade for agricultural commodity exporters. It is larger for places that were more peripheral and had lower initial population density. To this day, their economic geography reflects to a lesser extent persistence of pre-colonial settlement patterns, and to a greater extent access to the coast and thus to export markets.
To further investigate and quantify the mechanisms at play, the paper brings to bear a state-of-the-art quantitative spatial model. It obtains novel, plausibly identified estimates of the structural parameters that quantify dynamic agglomeration and congestion forces. It confirms that greater trade opportunities can break spatial persistence if they are attained earlier than high population density.
In sum, the paper addresses fundamental issues, combining new empirical evidence, a clever identification strategy and a rigorous general-equilibrium model. It derives results on the long-run impact of trade restrictions that can hopefully speak not only to economic history, but also to highly policy-relevant considerations for developing countries that are now rapidly urbanizing, often while facing substantial infrastructural and regulatory barriers to trade.
Paper: Who Are the Credit Constrained Among Unemployed Workers? Answers from Conditional versus Unconditional Income Transfers
Author: Victor Hernandez Martinez and Kaixin Liu
Motivation: Whether unemployed workers are credit constrained, and how much this affects their job search, are crucial questions for the design of unemployment insurance systems. Traditionally, the degree of credit constraints has been measured by the reduction in the search effort of unemployed workers who expect an increase in future income. Search effort declines more if workers are less able to smooth consumption, indicating stronger credit constraints. This paper highlights that search effort also reacts differently if workers differ in the curvature of the utility function or the search cost function. So, the traditional approach might not capture differences in credit constraints. As an alternative, it shows theoretically that one can estimate the internal rate of return if workers face multiple changes in income at different points in the future.
Whether additional income occurs early or late should not matter as long as the internal rate of return is the same. This washes out any reference to the utility function or search cost function. The paper even shows how to use changes in income that are only available conditional on being unemployed, which raises additional issues of moral hazard.
Empirically, it exploits administrative changes in Spain to severance payments, unemployment benefit duration and unemployment benefit levels. These three changes are just sufficient to allow estimation of the internal rate of return. This rate is 3.4% monthly for poorer households, while it is only 2.5% for richer households. 40% of the total labor supply response to future income transfers is due to cost of credit for poorer workers, while this is only 17% for richer workers.
Overall, the paper addresses a policy-relevant question by carefully combining theoretical rigor with a clever and demanding empirical strategy. It offers a technique that can hopefully be extended to richer settings, such as those where workers can save at a given rate of return up to a hard borrowing constraint.
Paper: Female Entrepreneurship and Financial Frictions
Authors: Marta Morazzoni and Andrea Sy
Motivation: Gender gaps have been mostly subsiding over the years, yet they persist and do so across a broad range of social and economic outcomes. One of these is entrepreneurship. Although new businesses are considered a central driver of job creation and economic growth in the U.S. economy, sizable gender imbalances in entrepreneurial rates continue.
In their paper “Female Entrepreneurships, Financial Frictions and Capital Misallocation in the U.S.,” Marta Morazzoni and Andrea Sy ask whether gender gaps in access to financial markets contribute to explaining gender differences in entrepreneurship. Importantly, they also study the macroeconomic implications of these gaps: how they shape the allocation of business talent, productive inputs, and aggregate output.
The paper first exploits a rich U.S. micro data set covering almost 5,000 U.S. entrepreneurs to carefully document two main findings: first, female entrepreneurs have a 10 percent higher likelihood of being denied a business loan; second, female-owned firms have 12 percent higher average product of capital than male-owned firms — a standard indicator of capital misallocation. These findings together suggest that gender disparities in financial frictions may account for a sub-optimal allocation of capital.
To rationalize these results, the paper builds a rich general equilibrium model of entrepreneurial choice where agents are heterogeneous in their wealth, productivity, and gender-specific borrowing constraints, and calibrates it to U.S. data. The calibrated model is then used as a laboratory to compute the aggregate effects of either eliminating gender gaps in credit access — which would raise output by a sizeable 5 percent — or alleviating their consequences using fiscal policies.
In sum, the paper addresses an extremely important topic, offers new empirical evidence from micro-level data cleverly identifying informative moments, and builds a state-of-the-art general equilibrium model to rationalize the evidence and to provide highly relevant policy implications.
Award Committee: Philipp Kircher, Giacomo Ponzetto and Antonella Trigari
Past Award Winners (of the most recent eligibility rules)
Paper: Monetary Policy and Production Networks: An Empirical Investigation
Author: Mishel Ghassibe
Paper: Cyclical Attention to Saving
Author: Alistair Macaulay
Paper: Who Watches the Watchmen? Local News and Police Behavior in the United States
Authors: Nicola Mastrorocco and Arianna Ornaghi
Paper: When Income Effects are Large: Labor Supply Responses and the Value of Welfare Transfers
Author: Giulia Giupponi
Paper: The Aggregate Importance of Intermediate Input Substitutability
Author: Cian Ruane
Paper: The Gains from Reshaping Infrastructure: Evidence from the Division of Germany
Author: Marta Santamaria
Paper: Happily Ever After: Immigration, Natives’ Marriage, and Fertility
Author: Michela Carlana
Paper: Collateral, Misallocation, and Aggregate Productivity: Evidence from the U.S. Housing Boom
Author: Sebastian Doerr
Paper: How Strategic are Political Activists? Evidence From a Natural Field Experiment
Author: Lukas Hensel
Paper: A Kinked-Demand Theory of Price Rigidity
Author: Stéphane Dupraz
Paper: Fiscal Rules and the Selection of Politicians: Evidence from Italian Municipalities
Author: Matteo Gamalerio
Paper: Does Teacher Sorting Across and Within Schools Explain Inequality in Education Outcomes?
Author: Petra Thiemann
Paper: How Do Consumers Respond to Transitory Income Shocks? Reconciling Longitudinal Studies and Natural Experiments
Author: Jeanne Commault
Paper: Financial Intermediation, Resource Allocation, and Macroeconomic Interdependence
Author: Galip Kemal Ozhan
Paper: Lobbying, Inside and Out: How Special Interest Groups Influence Policy Choices
Author: Stephane Wolton