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Quantifying the market size for cannabis is important given vigorous policy debates about how to intervene in this market. We develop a new approach to measuring the size of the cannabis market using forensic economics. The key insight is that cannabis consumption often requires the use of complementary legal inputs: roll‐your‐own tobacco and rolling papers. The forensic approach specifies how legal and illegal inputs are combined in the production of hand‐rolled cigarettes and cannabis joints. These input relationships, along with market adding‐up conditions, can be used to infer the size of the cannabis market. We provide proof‐of‐concept that this approach can be readily calibrated using: (i) point‐of‐sale data on legal inputs of roll‐your‐own tobacco and rolling papers; (ii) input parameter estimates drawn from a wide‐ranging interdisciplinary evidence base. We implement the approach using data from 2008–9. For those years, the forensic estimates for the UK cannabis market are near double those derived from standard demand‐side approaches. We make precise what drives the measurement gap between methods by establishing the adjustments needed to match estimates from alternative approaches. Our analysis develops an agenda on measurement and data collection that allows for credible cost–benefit analysis of policy interventions in illicit drug markets. [ABSTRACT FROM AUTHOR]

This article presents information on the Langton Papers that are a collection of letters written during the years 1831 to 1838 to Joseph Langton, manager of the Bank of Liverpool. Apart from highlighting the views of a leading banker on some of the monetary problems of the 1830s, the Langton Papers reveal a rift in the management of the Bank of England. They expose the dangers in the use of such phrases as "the Palmer regime" when referring to this period. About half of the Bank directors did not agree with scholar J.H. Palmer's views as to the extent of the Bank's responsibilities during an internal pressure. Given the lack of uniformity amongst contemporary economic theorists, these differences are what one would expect. Scholar George Carr Glyn's proposed solution meant a fundamental change in the structure of the Court and its relationship to the government. As Bank directors, his parliamentary commissioners were to represent and safeguard the public interest: a theme, albeit in a different form, to be discussed again in the 1860s. But this solution could only be useful in the context of a generally accepted meaning to the term public interest when applied to monetary policy. A third point worthy of note is that, in conducting their policy towards the American trade, the Bank directors were conscious of the crisis conditions that policy was sure to produce on both sides of the Atlantic, even though it was carried through by only a bare majority.

Information on both wages and job quality is needed in order to understand the occupational dispersion of wellbeing. We analyse subjective wellbeing in a large UK sample to construct a measure of 'overall reward', the sum of wages and the value of job quality, in 90 different occupations. If only wages are included, then labour market inequality is underestimated: the dispersion of overall rewards is one‐third larger than the dispersion of wages. Our findings are similar, and stronger, in data on US workers. We find a positive correlation between job quality and wages in all specifications, both between individuals in the cross‐section and within individuals in panel data. The gender and ethnic gaps in the labour market are larger than those in wages alone, and the overall rewards to education on the labour market are underestimated by earnings differentials alone. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Maria Cotofan is a research Associate at the CEP. Andrew E. Clark obtained his mSc and PhD from the LSE and is a research Associate at the CEP. Richard layard is the Founder‐Director at the CEP and is the co‐Director of the Centre's programme on Community Wellbeing. [ABSTRACT FROM AUTHOR]

Most economists maintain that the labour market in the USA (and elsewhere) is 'tight' because unemployment rates are low, and the Beveridge curve (the vacancies‐to‐unemployment ratio) is high. They infer from this that there is potential for wage‐push inflation. However, real wages fell rapidly in 2022, and prior to that, real wages had been stagnant for some time. We show that unemployment is not key to understanding wage formation in the USA, and has not been since the Great Recession. Instead, we show that rates of underemployment (the percentage of workers with part‐time hours who would prefer more hours) and the rate of inactivity (the percentage of the civilian adult population who are out of the labour force) reduce wage pressure in the USA. This finding holds in panel data with state and year fixed effects in both annual and quarterly data for the period 1980–2022, and is supportive of a wage curve that fits the data much better than a Phillips curve. The unemployment rate no longer enters significantly negative in wage equations, however specified, in the years since 2008. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Alex Bryson obtained his MSc from the LSE. [ABSTRACT FROM AUTHOR]

We document the spiral of populism in Europe and the direct and indirect role of economic insecurity shocks. Using survey data on individual voting, we make two contributions to the literature. (i) Economic insecurity shocks have a significant impact on the populist vote share, directly as demand for protection, and indirectly through the induced changes in trust and attitudes. (ii) A key consequence of increased economic insecurity is a drop in turnout. The impact of this largely neglected turnout effect is substantial: conditional on voting, when economic insecurity increases, almost 40% of the induced change in the vote for a populist party comes from the turnout channel. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Tommaso Sonno obtained his PhD from the LSE and is a CEP Associate. luigi Guiso obtained his MSc from the LSE and is a fellow at the CEP. [ABSTRACT FROM AUTHOR]

Daylight Saving Time (DST) is a widely adopted practice implemented by over 70 countries to align sunlight with day‐to‐day activities and reduce energy demands. However, we do not have a clear knowledge of how it affects individuals' welfare. Using a regression discontinuity combined with a difference‐in‐differences design, we find that the Spring DST transition causes a significant decline in life satisfaction. By inducing a reallocation of time, the transition into DST deteriorates sleep quality and increases time stress, which in turn affects physical and emotional health. Using an event study approach, we find that such effects persist for about six days after the DST transition. Conversely, we provide evidence that the Autumn DST transition gives rise to a significant increase in life satisfaction. Finally, using a simple cost‐benefit analysis, we discuss the potential benefits of ending DST. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Joan Costa‐Font obtained his MSc from the LSE and is a Professor of Economics at the LSE. Sarah Flèche is an Associate at the CEP, LSE. Ricardo Pagan was a visiting Professor at the LSE from 2014–2019. [ABSTRACT FROM AUTHOR]

This paper investigates the role of firm‐to‐firm relationships in export market dynamics, documenting the following stylized facts for French exporters. First, exporters grow in a foreign market by expanding their customer base; the average French exporter doubles its number of buyers after 8 years. Second, sales to existing customers remain the predominant source of growth in a foreign market, with long‐lasting relationships contributing to most export values. Third, as a mechanism driving firms' growth in a relationship, prices fall as a relationship ages. Fourth, I exploit the Brexit referendum as a quasi‐natural experiment to examine how firm‐to‐firm relationships adjust in response to changes in market access. I find that French exporters with long‐lasting relationships in the UK are less affected by the referendum shock and exhibit higher exchange rate pass‐through. Overall, these findings indicate that long‐lasting relationships represent a crucial margin for export market growth and in shielding exporters from changing market conditions. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Davide Rigo is a Leverhulme Early Career Fellow at the LSE. [ABSTRACT FROM AUTHOR]

This paper studies the impact of political risk on exchange rates. We focus on the Brexit Referendum as it provides a natural experiment where both exchange rate expectations and a time‐varying political risk factor can be measured directly. We build a portfolio model that relates changes in the Leave probability to changes of the British pound's market price, both via expectations and via a political risk factor. We estimate the model for multilateral and bilateral British pound exchange rates. We find that the Leave probability predicts a depreciation of the pound, consistent with the outcome post‐referendum, and that the time‐varying political risk affects exchange rates independently. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Paolo Manasse obtained his MSc and PhD from the LSE. [ABSTRACT FROM AUTHOR]

This paper discusses the historical and social origins of the bifurcation in the political institutions of China and Western Europe. An important factor, recognized in the literature, is that China centralized state institutions very early on, while Europe remained politically fragmented for much longer. These initial differences, however, were amplified by the different social organizations (clans in China, corporate structures in Europe) that spread in these two societies at the turn of the first millennium AD. State institutions interacted with these organizations, and were shaped and influenced by this interaction. The paper discusses the many ways in which corporate organizations contributed to the emergence of representative institutions and gave prominence to the Rule of Law in the early stages of state formation in Europe, and how specific features of lineage organizations contributed to the consolidation of the Imperial regime in China. This publication follows on from the Economica Phillips 2022 lecture presented by Professor Guido Tabellini on 01 December 2022. [ABSTRACT FROM AUTHOR]

While focusing on residual control rights, the property rights theory of the firm overlooks that the legal protection of each party's input shapes its ex post bargaining power. To evaluate this issue, we assume that the property rights on the inputs are selected by a legislator to maximize full investment and, conditional on this goal being reached, minimize inefficient deviations to intermediate investment profiles. Our model delivers three key novel implications. First, the strength of a party's property rights is related negatively to the strength of its residual control rights and determines entirely its ex ante incentives to invest. Second, the legislator tends to protect a firm less when its default payoff under its preferred ownership structure is larger and when its contribution to the relationship is the greatest. Finally, the extent of integration falls weakly with the default payoffs and displays an inverted U‐shaped link with the intensity of the downstream firm's investment activity. Crucially, these predictions are consistent with the relationships between proxies for the strength of the downstream firms' property rights and firms' presence in the value chain, and measures of asset specificity and R&D intensity for 119 countries observed over the 2006–18 period. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Carmine Guerriero completed his MSc at the LSE. [ABSTRACT FROM AUTHOR]

If large firms employ relatively more educated workers, will an increase in market concentration increase income inequality by raising the relative demand for skill? I use Swedish employer–employee data from 1997–2016 and find a strong correlation between firm size and the share of college‐educated ('skilled') workers. An increase in a sector's market concentration is correlated with a higher skilled wage premium and higher relative employment of skilled workers. This is due mainly to the reallocation of workers across firms. I demonstrate how these findings can be explained by a model of heterogeneous firms where productivity and skill intensity are positively correlated. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Anders Akerman completed his BSc and MSc at the LSE. [ABSTRACT FROM AUTHOR]

Widely‐used in‐kind benefits are often rationed across potential participants in social programmes. This poses an operational challenge in implementation with limited public information. One possible solution is to randomize assignment given the available information. However, as this paper shows, neither the purposive targeting of in‐kind benefits nor randomized assignment is likely to yield a competitive equilibrium given private information on diverse personal gains. The paper characterizes equilibrium assignments and the implications for policy and evaluation. The theory is applied to an antipoverty programme providing rationed jobs on rural public works in a poor state of India. Special‐purpose survey data reveal large unexploited gains from allowing tradable assignments. The paper shows that the potential gains exceed those from poverty targeting and stylized cash transfer options. Realizing the scope for poverty reduction by such means will undoubtedly require complementary efforts in reducing the influence of other market and institutional factors creating poverty in the first place, including inequalities in access to credit and knowledge. [ABSTRACT FROM AUTHOR]

Using microdata from 17 OECD countries, this paper documents a negative cross‐country correlation between gender gaps in market hours and wages. We find that the cross‐country differences in market hours are mostly accounted for by female market hours and the size of the sector that produces close substitutes to home production. We quantify the role played by taxes and family care subsidies on the two gender gaps in a multi‐sector model with home production. Higher taxes and lower subsidies reduce the marketization of home production, leading to lower market hours. The effect is largely on women because both home production and the production of its market substitutes are female‐intensive. The larger fall in female market hours reduces relative female labour supply, contributing to a higher female to male wage ratio. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Rachel Ngai is an Associate Professor of Economics at the London School of Economics and Political Science. [ABSTRACT FROM AUTHOR]

How should the government support small and medium‐sized enterprises amid a pandemic crisis while balancing the trade‐off between short‐run stabilization and long‐run allocative efficiency? We develop a two‐sector equilibrium model featuring small businesses with private information on their likely future success and a screening contract. Businesses in the sector adversely affected by a pandemic can apply for government loans to stay afloat. A pro‐allocation government sets a harsh default sanction to deter entrepreneurs with poorer projects, thereby improving long‐run productivity at the cost of persistent unemployment, whereas a pro‐stabilization government sets a lenient default sanction. Interest rate effective lower bound leads to involuntary unemployment in the other open sector and shifts the optimal default sanction to a lenient stance. The rise in firm markups exerts the opposite effect. A high creative destruction wedge polarizes the government's hawkish and dovish stances, and optimal default sanction is more lenient, exacerbating resource misallocation. The model illuminates how credit guarantees might be structured in future crises. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Charles Goodhart, CBE, FBA was the Norman Sosnow Professor of Banking and Finance at the London School of Economics and Political Science until 2002. [ABSTRACT FROM AUTHOR]

This article focuses on the beliefs and practices of Robert Torrens in the field of economics, particularly his views on monetary matters. In the paper of 1826, Torrens' thought was in an intermediate position between its early and final forms. He was still extremely clear about the dangers of convertibility. At the same time he already accepted the need to make the currency fluctuate in response to external pressures as a metallic currency would do, and to provide a better safeguard against over-issue than that provided by the real-bills doctrine. But he did not want a complete parallel between the fluctuations of the paper currency and those of a theoretical metallic one, hence his desire to link the paper to the modal value of gold. Moreover, he still felt that a currency plan should have safeguards against panics, and do more than merely avoid those fluctuations to which a less well-designed scheme of currency would be liable. The 1826 plan would have been an important link in the development of this powerful and original thinker even if it had been short lived. But there is a strong possibility that it stayed with him for some time. This scheme was certainly one to which Torrens devoted considerable care and thought, and it is an interesting link in the development of an important economist.

Scientific-funding bodies are increasingly under pressure to use journal rankings to measure research quality. Hiring and promotion committees routinely hear an equivalent argument: ‘this is important work because it is to be published in prestigious journal X’. But how persuasive is such an argument? This paper examines data on citations to articles published 25 years ago. It finds that it is better to write the best article published in an issue of a medium-quality journal such as the OBES than all four of the worst four articles published in an issue of an elite journal like the AER. Decision-makers need to understand this. [ABSTRACT FROM AUTHOR]

Using a rich sample of firms in 14 EU countries from 2000 to 2016, we confirm increases in productivity dispersion, wage dispersion and superstar firms. Beyond reaffirming an incomplete pass‐through from productivity to wages, we present novel empirical evidence of an even weaker pass‐through in industries dominated by superstar firms. This effect is observed in both the lower and upper parts of the productivity and wage distributions, and is stronger for tradable (versus non‐tradable) sectors and markets with low (versus high) collective bargaining power. These findings point to different mechanisms, consistent with theoretical work and various underlying structural changes in the economy. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Angelos Theodorakopoulos graduated from the LSE with an MSc in 2012. [ABSTRACT FROM AUTHOR]

Global warming is a non‐uniform process across space and time. This opens the door to a heterogeneous relationship between CO2$$ {\mathrm{CO}}_2 $$ and temperature that needs to be explored going beyond the standard analysis based on mean temperature. We revisit this topic through the lens of a new class of factor models for high‐dimensional panel data, called quantile factor models. This technique extracts quantile‐dependent factors from the distributions of temperature across a wide range of stable weather stations in the northern and southern hemispheres over 1959–2018. In particular, we test whether the (detrended) growth rate of CO2$$ {\mathrm{CO}}_2 $$ concentrations helps to predict the underlying factors of the different quantiles of the distribution of (detrended) temperatures in the time dimension. We document that predictive association is greater at the lower and medium quantiles than at the upper quantiles of temperature in all stations, and provide some conjectures about what could be behind this non‐uniformity. These findings complement recent results in the literature documenting steeper trends in lower temperature levels than in other parts of the spatial distribution. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Juan J Dolado graduated from the lSE with an MSc in 1981. [ABSTRACT FROM AUTHOR]

How might fragile states escape a low‐capacity trap in which citizens pay little tax and the government has insufficient revenue to increase enforcement or provide public goods? We argue that governments can escape such traps by regularizing tax collection. When citizens observe taxes being collected in a systematic, non‐arbitrary manner, they are likely to update positively about the procedural performance of the government, increasing their intrinsic motivation to comply. We test this idea in the first door‐to‐door property tax collection campaign in Kananga, Democratic Republic of the Congo, which raised compliance from near zero to 10.3%. Linking pre‐campaign surveys with administrative tax data, we document a strong relationship between citizens' prior perceptions of government performance and property tax payment. Then, exploiting the campaign's random roll‐out, we find that systematic tax collection caused citizens to update positively about the government's procedural performance. Together, these results are consistent with a virtuous cycle of perceived government performance and fiscal capacity. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Jonathan Weigel was an Assistant Professor at the LSE from 2018‐2021. [ABSTRACT FROM AUTHOR]

This paper examines the effect of hiring migrants on firms' imports using a rich employer–employee dataset from the Netherlands for 2010–17. We use an instrumental variables strategy, and find that firms that employ migrants from a high‐income country are more likely to import from that country. Our benchmark specification indicates that a one standard deviation increase in the share of migrant workers from a certain country raises their employer's probability of importing from those workers' origin country by 6.6 percentage points, explaining half of the average probability of importing from a given country. This result is robust to a battery of sensitivity checks, and the effects are driven largely by migrants working in trade intermediaries that import final goods and inputs. Our results suggest that migrants help to erode informational barriers and enable their employers to source goods from abroad. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Aksel Erbahar graduated from the LSE in 2010 with an MSc in Economics. [ABSTRACT FROM AUTHOR]

This paper documents a longitudinal crisis of midlife among the inhabitants of rich nations. Yet middle‐aged citizens in our datasets are close to their peak earnings, have typically experienced little or no illness, reside in some of the safest countries in the world, and live in the most prosperous era in human history. This is paradoxical and troubling. The finding is consistent, however, with the prediction—one little‐known to economists—of Elliott Jaques (1965). Our analysis does not rest on elementary cross‐sectional analysis. Instead, the paper uses panel and through‐time data on, in total, approximately 500,000 individuals. It checks that the key results are not due to cohort effects. Nor do we rely on simple life satisfaction measures. The paper shows that there are approximately quadratic hill‐shaped patterns in data on midlife suicide, sleeping problems, alcohol dependence, concentration difficulties, memory problems, intense job strain, disabling headaches, suicidal feelings, and extreme depression. We believe that the seriousness of this societal problem has not been grasped by the affluent world's policy‐makers. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Andrew Oswald is Professor of Economics and Behavioural Science at the University of Warwick. He was previously a Senior Research Fellow at the LSE. [ABSTRACT FROM AUTHOR]

Deep trade agreements (DTAs) are widespread and have taken the world beyond tariff liberalization in goods trade. As the importance of global supply chains and the services sector has increased across the world, shallow tariff reductions have given way to deeper commitments that address non‐tariff barriers and behind‐the‐border barriers to trade. This paper shows that DTA commitments undertaken since the Uruguay Round have increased trade in goods and trade in services by over half in the long term. Taking reduced‐form trade elasticity estimates to a general equilibrium quantitative model, DTAs contributed over 40% to the welfare gains from trade globally and even more for advanced economies. China, India and the Eastern European bloc benefited the most from trade agreements. While most of the gains in China and India came from tariff reductions, the gains to Eastern Europe came largely from deep commitments during its accession to the EU. Applying the DTA estimates to ex ante analysis of Brexit, the losses to the UK from its departure from the deepest trade agreement in the world would not be offset by new deep trade deals with key non‐EU trade partners. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Swati Dhingra is an Associate Professor of Economics at the LSE. Rebecca Freeman is a Senior Economist at the Bank of England and a Trade Associate at CEP, LSE. Hanwei Huang is a an Assistant Professor at the City University of Hong Kong. He received his PhD in Economics from the LSE. [ABSTRACT FROM AUTHOR]

Equivalencebetween insuring income and what is bought with income is commonly assumed. It seems to be implicitly held that uninsured but replaceable goods will always be replaced if they fail. This does not follow. People may have difficulty coming up with the money to pay for a replacement out of pocket. Also, the income effect of a loss may mean that replacement is not worthwhile. We show that as a result, equivalence breaks down. Both theory and evidence are provided. Implications include a tendency of empirical papers to overestimate risk aversion, a reason why demand for insurance increases with income, and the mistaken attribution of preference inconsistency. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. David de Meza is the Eric Sosnow Professor of Management in the LSE Department of Management. He obtained both his BSc and MSc from the LSE. Diane Reyniers is a Professor of Managerial Economics and Strategy in the Department of Management at the LSE. She obtained both her MSc and PhD from the LSE. [ABSTRACT FROM AUTHOR]

In the presence of low trust in the banking system, liquidity requirements can stimulate bank deposits and financial development by enhancing depositor repayment in bad states. We study an unannounced and unexpected policy that increased the liquid assets of Ethiopian banks by 33% in one quarter of 2011, and present three findings consistent with this hypothesis. First, a panel of depositors shows deposit growth among wealthy individuals. Second, a survey reports higher bank deposits in branches opened after the policy in high‐income cities. Third, bank balance sheets and two sources of bank exposure highlight an increase in deposits, loans and branches. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Nicola Limodio is an Assistant Professor of Finance at Bocconi University. He graduated with a PhD in economics from the LSE in 2017. [ABSTRACT FROM AUTHOR]

Laboratory experiments are a promising tool for studying how competing institutional arrangements perform and what determines preferences between them. Reliance on enforcement by peers versus formal authorities is a key example. That people incur costs to punish free riders is a well‐documented departure from non‐behavioural game‐theoretic predictions, but how robust is peer punishment to informational problems? We report experimental evidence that reluctance to personally impose punishment when choices are reported unreliably may tip the scales towards rule‐based and algorithmic formal enforcement even when observation by the centre is equally prone to error. We provide new and consonant evidence from treatments in which information quality differs for authority versus peers, and confirmatory patterns in both binary decision and quasi‐continuous decision variants. Since the role of formal authority is assumed by a computer in our experiment, our findings are also relevant to the question of willingness to entrust machines to make morally fraught decisions, a choice increasingly confronting humans in the age of artificial intelligence. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Thomas Markussen is a Professor of Economics at the University of Copenhagen. He received his MSc in Comparative Politics from the LSE. [ABSTRACT FROM AUTHOR]

Why are some sectors more volatile than others? This paper uncovers evidence of an empirical regularity in the US economy: upstream sectors that are far removed from final consumers have higher levels of output volatility. The relationship between volatility and upstreamness is not driven by sector size, sector concentration, trade openness or the level of aggregation at which sectors are defined. Rather, the paper shows a stronger link between upstreamness and nominal output volatility, than with indexes of real output volatility. Aggregate exports at the national level also reflect the empirical regularity of higher volatility with upstreamness: Export volatility is higher in economies with trade portfolios dominated by upstream sectors. On average, reducing the upstreamness of exports by 1 also reduces aggregate export volatility by about 10%. The pattern of higher volatility for upstream sectors is explained with a model of demand shock transmission between sectors. [ABSTRACT FROM AUTHOR]

This paper determines the assessment of publications submitted to the UK research evaluation carried out in 2014, the REF, which would have resulted if they had been assessed with the bibliometric algorithm used by the Italian evaluation agency, ANVUR, for its evaluation of the research of Italian universities. We find extremely high correlations between the two assessment approaches. [ABSTRACT FROM AUTHOR]

This paper conducts a comprehensive sources‐of‐growth analysis for the UK market sector, 2000–19, using the latest ONS data, including new estimates of intangible investment, double deflated value‐added, and updated price indices, all constructed bottom‐up from data for 40 industries. The decomposition incorporates contributions from intangible assets, both capitalized and uncapitalized, in national accounts. Our main findings are that first, slowdowns in labour productivity are largest in more intangible‐, knowledge‐, technology‐ and digital‐intensive industries, using numerous definitions. Second, the labour productivity slowdown can be accounted for largely by a slowdown in 'innovation', where innovation is shorthand for contributions of intangible capital deepening and TFP growth. We show that: (a) the level of labour productivity in 2019 was 27 log points (31 percentage points) less than had it continued to grow at its 2000–7 rate; (b) reallocation of labour did not contribute to the slowdown; (c) capitalization of the full range of intangibles accounts for 5% of the slowdown; (d) 35% is accounted for by a slowdown in capital deepening (25% tangible, 10% intangible), and 78% by a slowdown in TFP growth; and (e) less than one‐tenth of the TFP slowdown can be accounted for by exceptionally fast growth pre‐crisis. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Jonathan Haskel graduated from the LSE with an MSc in Economics (1985) and a PhD in Economics (1990). [ABSTRACT FROM AUTHOR]

This paper highlights the role of intangible assets in a property rights model of firm organization with sequential production. Empirical evidence based on foreign direct investment and transaction‐level trade data of Slovenian firms reveals that the strength of intellectual property rights (IPR) protection in the supplier's location affects firms' organizational choices whenever supplier investments are sequential complements. In this case, when a firm must transmit know‐how to each supplier, and more knowledge is accrued as production moves downstream, better IPR institutions lead to lower incidence of vertical integration over outsourcing, principally at more downstream stages. On the other hand, the organizational choice is far less responsive to IPR protection for sequential substitutes. Moreover, we show that improving IPR and contracting institutions (e.g. rule of law) may have the opposite effect on firm boundaries. Our findings conform with a property rights model in which the quality of the IPR regime governs knowledge transmission along the supply chain, ultimately driving firm organization through the suppliers' incentive structure. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Gianmarco Ottaviano was a Prof. within the Dept. of Economics, LSE from 2011–2018. [ABSTRACT FROM AUTHOR]

Has skilled immigration into the UK led to a reduction in the training of native‐born workers? To address this concern, this paper describes a theoretical model where immigration can affect the training of native‐born workers both positively and negatively, and where its effects may differ according to the characteristics of the migrant and of the training firm's sector. It then investigates this issue empirically using UK Labour Force Survey data from 1995 to 2018. At the aggregate level, there is a small positive association between skilled immigration and native training rates. However, a more disaggregated analysis finds that the relationship between immigration and native training depends on the skill level of the immigrant, the skill level of trainees, and the sector into which immigration occurs. In particular, traded goods sectors show a positive association between training of UK‐born workers and both unskilled and skilled immigration. In non‐traded high‐wage sectors, the association between skilled immigration and UK‐born training is negative. These findings highlight the importance of allowing for heterogeneous effects from immigration when formulating policy or when modelling immigration's effects across the wider economy. This paper is part of the Economica 100 Series. Economica, the LSE "house journal" is now 100 years old. To commemorate this achievement, we are publishing 100 papers by former students, as well as current and former faculty. Jonathan Wadsworth received his MSc and PhD from the LSE. [ABSTRACT FROM AUTHOR]

This paper argues that a uniform global tax-like price on carbon emissions, whose revenues each country retains, can provide a focal point for a reciprocal common climate commitment, whereas quantity targets, which do not nearly so readily present such a single focal point, tend to rely ultimately on individual quantity commitments. The paper postulates the conceptually useful allegory of a futuristic 'World Climate Assembly' (WCA) that votes for a single worldwide price on carbon emissions via the basic democratic principle of one person, one vote majority rule. A WCA-like uniform price-tax counters self-interest by incentivizing countries or agents to internalize the externality because each WCA agent's higher abatement cost from a higher emissions price is counterbalanced by that agent's extra benefit from inducing all other WCA agents to simultaneously lower their emissions in response to the higher price. The paper derives fresh insights and new simple formulae that relate each emitter's most-preferred world price of carbon to the world 'social cost of carbon' (SCC), and further relates the WCA-voted world price of carbon to the world SCC. Some implications are discussed. The overall methodology of the paper is a mixture of mostly classical with some behavioural economics. [ABSTRACT FROM AUTHOR]

This paper studies whether an increase in women's intrahousehold bargaining power causes couples to allocate more resources to their child's education, and, if so, what the underlying mechanisms for this might be. We conduct a between‐subject lab experiment with couples and vary the relative bargaining power between spouses. The paper provides two main insights. First, increasing the wife's bargaining power improves gender equality in allocation to children's education. However, it does not increase the amount invested in the child's education. Second, we show that the difference in time preferences between spouses matters for how much the household invests in the child's education. It benefits the child that the most patient spouse has more relative bargaining power. This implies that increasing the wife's bargaining power may reduce the allocation to the child's education if she is the less patient spouse. The results provide new insights into the current debate on female empowerment, and highlight the importance of incorporating a broader set of preferences in the analysis of intrahousehold decision‐making. [ABSTRACT FROM AUTHOR]

Changes in the structure of work and families over the last four decades have increased many labour market inequalities. Growing earnings inequality, adverse labour market 'shocks' for the low‐educated, and geographically concentrated pockets of deprivation are among the most evident of these in Britain. The decade since the financial crisis has brought these inequalities into sharper focus, and the Covid‐19 pandemic has further exacerbated labour market inequality. The object of this paper is to highlight the key role played by poor wage progression for lower‐ and middle‐educated workers in understanding inequality in the labour market and for designing effective policy responses. It is unlikely that we can address all the concerns about low wages, wage progression and earnings inequality through the tax and welfare system alone. The challenge is how best to balance tax and welfare benefit policy with other policies, such as human capital policies, the minimum wage and labour market regulation. The results point to a mix of policies that aim to enhance wage progression for the lower‐educated within a welfare system that supports low‐earning families and provides a minimum wage floor for hourly wages. [ABSTRACT FROM AUTHOR]

Gender differences in self‐confidence could explain women's under‐representation in high‐income occupations and glass‐ceiling effects. We draw lessons from the economic literature via a survey of experts and a Bayesian hierarchical model that aggregates experimental findings over the last 20 years. The experts' survey indicates beliefs that men are overconfident and women underconfident. Yet the literature reveals that both men and women are typically overconfident. Moreover, the model cannot reject the hypothesis that gender differences in self‐confidence are equal to zero. In addition, the estimated pooling factor is low, implying that each study contains little information over a common phenomenon. The discordance can be reconciled if the experts overestimate the pooling factor or have priors that are biased and precise. [ABSTRACT FROM AUTHOR]

This paper provides a general method for analysing the sentiments expressed in the language of judicial rulings. We apply natural language processing tools to the text of US appellate court opinions to extrapolate judges' sentiments (positive/good vs. negative/bad) towards a number of target social groups. We explore descriptively how these sentiments vary over time and across types of judges. In addition, we provide a method for using random assignment of judges in an instrumental variables framework to estimate causal effects of judges' sentiments. In an empirical application, we show that more positive sentiment influences future judges by increasing the likelihood of reversal but also increasing the number of forward citations. [ABSTRACT FROM AUTHOR]

A large literature has documented the persistent effects of historic events. This paper studies the effects of a historical demographic shock, documenting persistent effects that are historically contingent. I exploit military Second World War (WWII) casualties in Austrian municipalities as a natural experiment for a negative population shock, and study the economic consequences until today. In the short run, WWII casualties lead to structural transformation: labour is reallocated from agriculture towards manufacturing. This effect persists for decades. But instead of more economic development in the long run, WWII casualties led to a lower concentration of jobs and lower wages today. A more detailed analysis shows that in high‐casualty municipalities, employment increased predominantly in low‐skill industries within manufacturing, and these municipalities missed out on the transition to the service sector around the turn of the century. [ABSTRACT FROM AUTHOR]

The literature on the effectiveness of macroprudential policy tools is still in its infancy and has so far provided only limited guidance for policy decisions. In recent years, however, increasing efforts have been made to fill this gap. Progress has been made in embedding macroprudential policy in theoretical models. There is increasing empirical work on the effect of some macroprudential tools on a range of target variables, such as quantities and prices of credit, asset prices, and on the amplitude of the financial cycle and financial stability. In this paper we provide a critical review of recent progress in theoretical and empirical research on the effectiveness of macroprudential instruments. [ABSTRACT FROM AUTHOR]

This paper assesses the causal impact of the European Union (EU) cohesion policy, aimed at reducing the regional divide within the EU, on interpersonal income inequality in receiving areas. We leverage a severe contraction of financing, which took place in an Italian region in 2007, and adopt a difference‐in‐discontinuity empirical design to show that the Gini index (of income) at the municipality level goes down because of the end of the policy. The improvement is due to the move of top earners towards the centre of the distribution. The reduction in the Gini indicator is confirmed even if we resort to a region‐level analysis. Our results suggest that from a policy perspective, reducing spatial inequality might come with the cost of worsening inequality across individuals. [ABSTRACT FROM AUTHOR]

By exploiting large‐scale administrative data on income and estimated personal wealth in Norway from 2010 to 2018, this paper establishes the first micro‐level analysis of the difference between the real return on wealth and the real growth rate of total pre‐tax income, across the entire net wealth distribution. We show that for the top 40% of the distribution, the aggregate R−G$$ R-G $$ of 1.8% underestimates its micro counterpart r−g$$ r-g $$, while the opposite happens for the bottom 60%. Moreover, for the bottom 50% of the net wealth distribution, it is indeed the case that r

This paper investigates the occurrence of network‐based appointments and its impact on board diversity. I use data on independent board appointments between 2006 and 2012 in large publicly listed firms in the USA, and exploit directors' CVs to uncover past social connections between candidates and current directors along various dimensions—from employment, education, army and social activities. I first estimate the probability of obtaining a board seat when being socially connected to members of the recruiting board. Using different assumptions to recreate the unobserved pool of candidates, I find that being socially connected to someone on the board increases the chances of obtaining the board seat between 35.8 and 41.1 percentage points, after controlling for a large set of firm and director characteristics together with firm and director fixed effects. I then study the change in board diversity following these appointments. While appointments of new independent directors affect board diversity positively, those that are made through networks are not significantly different. However, this is likely the result of appointing directors from a significantly homogeneous sample of individuals, whether connected or not, and suggests that in order to increase board diversity, efforts should be directed towards increasing diversity in the pool of candidates. [ABSTRACT FROM AUTHOR]

Economists have often viewed the adoption of artificial intelligence (AI) as a standard process innovation where we expect that efficiency will drive adoption in competitive markets. This paper models AI based on recent advances in machine learning that allow firms to engage in better prediction. Focusing on prediction of demand, it is demonstrated that AI adoption is a complement to variable inputs whose levels are altered directly by predictions and whose use is economized by them (that is, labour). It is shown that in a competitive market, this increases the short‐run elasticity of supply and may or may not increase average equilibrium prices. Generically, there are externalities in adoption, with this reducing the profits of non‐adoptees when variable inputs are important, and increasing them otherwise. Thus AI does not operate as a standard process innovation, and its adoption may confer positive externalities on non‐adopting firms. In the long run, AI adoption is shown to lower prices generally and raise consumer surplus in competitive markets. [ABSTRACT FROM AUTHOR]

This paper investigates the role of (perceived or own) norm cost in the relationship between female labour supply and decision power, which we define as the say that women have in major household decisions. We propose a model where female labour supply and decision power are set jointly following a bargaining process. Taking into account the fact that men may lose status when having a working wife, we show that decision power and female labour supply can be negatively correlated. We test the predictions of our model using Indian panel data. We find that the relationship is negative in contexts where the norm cost of having a working wife is high. [ABSTRACT FROM AUTHOR]

This paper quantifies the dynamic macroeconomic effects of tax changes in Germany, allowing for anticipation effects of preannounced tax reforms. Identification is achieved using a narrative approach, which provides information about the timing of tax reforms. An anticipated cut in taxes has a positive effect on output with a peak multiplier of 1.7, not observed until nine quarters after implementation. This positive effect is accompanied by significant negative anticipation effects on output, consumption, investment, hours worked and wages. Our results suggest that policymakers should take anticipation effects into account when implementing fiscal policy measures. [ABSTRACT FROM AUTHOR]

In this paper I discuss how theoretical models in finance and economics are used in ways that make them 'chameleons', and how chameleons devalue the intellectual currency and muddy policy debates. A model becomes a chameleon when it is built on assumptions with dubious connections to the real world but nevertheless has conclusions that are uncritically (or not critically enough) applied to understanding our economy. I discuss how chameleons are created and nurtured by the mistaken notion that one should not judge a model by its assumptions, by the unfounded argument that models should have equal standing until definitive empirical tests are conducted, and by misplaced appeals to 'as if' arguments, mathematical elegance, subtlety, assumptions that are 'standard in the literature', and the need for tractability. [ABSTRACT FROM AUTHOR]

This paper uses UK administrative data to study the long‐term effects of unemployment on earnings. It is the first paper to pinpoint accurately the relative importance of the timing of employment shocks within workers' lives. We find a strong effect of events in the first few years after entry into the labour market: each month of unemployment between ages 18 and 20 causes a permanent income loss of 1.2% per year. This scar effect of youth unemployment is lower when it happens when the worker's age is between 21 and 23, and it disappears altogether in the next three‐year age period. The scar effect is most severe for individuals at the lower end of the ability distribution. [ABSTRACT FROM AUTHOR]

This paper investigates the role of language in determining the substitutability between foreign and native workers. Our identification strategy exploits the linguistic diversity of Switzerland, a country with three main official languages (German, French and Italian) shared by bordering countries. This makes the Swiss labour market very peculiar, since both immigrants and natives may (or may not) share the language spoken in the area of residence. We modify the standard nested‐cell labour demand model to account for the linguistic background of native and immigrant workers. We provide evidence about the central role of language in determining the extent of the imperfect substitutability between native and foreign workers, and their differential specialization in communication‐intensive jobs. [ABSTRACT FROM AUTHOR]

There has been a growing interest in the theory of rational bubbles. Recent theories predict that bubbles are expansionary, but differ in the underlying mechanisms. This paper provides empirical evidence that helps us to assess different theories, and documents four main findings: stock market overvaluation is associated with (i) faster output and input growth, (ii) declining total factor productivity (TFP) growth, (iii) a greater contribution of labour and a declining contribution of TFP for output growth, (iv) an increase in the number of firms. Overall, these findings suggest that bubbly expansions are driven by increased factor accumulation (in particular labour), and not from higher productivity growth. [ABSTRACT FROM AUTHOR]

This paper demonstrates how tax administrations can evaluate future compliance gains from risk‐based tax enforcement that audits all taxpayers above a risk threshold. Expanding tax enforcement in this setting means reducing the audit threshold. The compliance gains from such an expansion consist of a mechanical audit correction effect and a behavioural effect that reflects changes in self‐reporting in the subsequent years. We estimate this behavioural effect in a regression discontinuity analysis with the risk score as the forcing variable. We find that taxpayers at the margin had a significant reduction in self‐reported deductions in the next years' tax filing. The behavioural effect over a three‐year post‐audit period is estimated to be of a magnitude similar to that of the direct adjustment of the audit. This compliance effect does not change when we include the reporting of the spouse. We find that the risk score threshold that maximizes net public revenue from the audits is considerably below current practice. [ABSTRACT FROM AUTHOR]

This paper analyses the effect of trade policy uncertainty in a customs union on export‐platform foreign direct investment (FDI). First, I develop a partial equilibrium framework with heterogeneous firms based on the proximity–concentration trade‐off that involves trade policy uncertainty about trade costs inside a customs union. Second, I derive an empirical equation that I test by exploiting the 2016 Brexit referendum as a natural experiment and using data on manufacturing greenfield FDI projects. The results show that trade policy uncertainty impacted negatively the decisions of firms to invest in export‐platform activities in the UK following the Brexit referendum. Moreover, I find that extra‐EU manufacturing firms preferred EU countries as opposed to the UK for new investments after the 2016 referendum. [ABSTRACT FROM AUTHOR]