Working Papers
Capital (Mis)allocation, Incentives
and Productivity
[Abstract]
with Matthias Meier, Alexander Schramm and Alexander Schwemmer
Abstract: We show that short-term managerial incentives amplify capital misallocation. We provide empirical evidence that firms
reallocate capital toward less durable investment projects when managerial pay becomes more short-term oriented following a
change in US accounting rules. Affected firms also apply higher discount factors and experience reductions in TFP. We build and
calibrate a model of firms under agency frictions to quantify the impact of incentives on investment and within-firm misallocation.
A shift from equity to profit-based bonus pay increases managers' return on short-term profits, leading to a reduction in firm scale
and a propagation of high-depreciation capital shares, lowering productivity.
Human Capitalists, Firm Ownership and International Trade
[Abstract]
Awarded the FIW International Economics Conference Best Paper Award 2019, Vienna
and the Walther-Rathenau Best Paper Award [Link]
Abstract: This paper studies firm-related capital ownership as a source of trade-induced top inequality. Using a model of heterogeneous
firms where managers are compensated through incomes and equity ownership, I illustrate the impact of input-trade liberalization on this
form of inequality. Data on the capital ownership of US and UK corporate top earners empirically confirm that trade-induced capital gains
vary more than labor incomes across firms. These capital gains arise from pass-through via equity prices and from compensation adjustments.
The findings show that capital ownership is more pivotal than top incomes when assessing the impact of trade on top inequality.
Publications
Quantifying the Germany Shock: Structural Labor-Market Reforms and Spillovers in a Currency Union
[Abstract], [Media Coverage], [Slides]
with Harald Fadinger and Philipp Herkenhoff
Journal of International Economics, forthcoming
Abstract: We examine the effects of unilateral structural reforms within a currency union. Focusing on the surge of German competitiveness following the introduction of the Euro, we first
provide reduced-form causal evidence supporting the notion that German structural labor-market reforms in the early 2000s led to a crowding-out of manufacturing employment in other Eurozone economies. To assess the impact of this German competitiveness shock, we build a quantitative multi-sector trade model that features downward nominal wage rigidities, endogenous labor supply, unemployment-insurance benefits and international savings. The fixed nominal exchange rate can create binding nominal rigidities in response to a foreign real supply shock - like the one prompted by the German reforms - resulting in significant contraction of manufacturing sectors and increased involuntary unemployment across other Eurozone countries. We consider a number of counterfactual scenarios, such as the impact of German labor-market reforms in the absence of a fixed exchange-rate regime, the role of coordinated reforms within the Eurozone and a higher average inflation rate.
My Home is My Castle - The Benefits of Working from Home During a Pandemic Crisis
with Jean-Victor Alipour and Harald Fadinger
[Abstract], [Media Coverage],
[Working Paper Version]
Journal of Public Economics, Vol. 196, 104373, Apr. 2021
Abstract: This paper studies the impact of working from home (WFH) on work relations and public
health during the COVID-19 pandemic in Germany. Combining administrative data on SARS-CoV-2 infections
and short-time work registrations, firm- and employee-level surveys and cell phone tracking data on
mobility patterns, we find that working from home effectively shields employees from short-time work,
firms from COVID-19 distress and substantially reduces infection risks. Counties with a higher share
of teleworkable jobs experience fewer short-time work registrations and less SARS-CoV-2 cases. At the
firm level, an exogenous increase in the take-up of WFH reduces the probability of filing for short-time
work by up to 72 p.p. and the probability of being very negatively affected by the crisis by up to 75 p.p.
Health benefits of WFH appeared mostly in the early stage of the pandemic and became smaller once tight
confinement rules were implemented. This effect was driven by lower initial mobility levels in counties with
more teleworkable jobs and a subsequent convergence in traffic levels once confinement was implemented. Our results imply
that confinement and incentivizing WFH are substitutive policies to slow the spread of the coronavirus.
Foreign Competition and the Durability of U.S. Firm Investments
with Philippe Fromenteau and Jan Tscheke
[Abstract],
[Media Coverage],
[Working Paper Version]
RAND Journal of Economics, Vol. 50(3), p. 532-567, Fall 2019
Abstract: How does the exposure to product market competition affect the investment horizon of firms? When tougher competition reduces future profitability,
firms have an incentive to shift investments towards more short-term assets. To study this mechanism empirically, we formulate a stylized theoretical framework of
firm investments and derive a within-firm estimator that uses variation across investments with different durabilities. We exploit the Chinese WTO accession as a
competition shock for US firms to estimate the effects of product market competition on the composition of firm investments using expenditures across different assets
within listed US manufacturing companies. We find that firms that experienced tougher competition shifted their expenditures towards investments with a shorter
durability. We find this effect to be larger for firms with lower total factor productivity.
Trade in Tasks and the Organization of Firms
with Dalia Marin and Alexander Tarasov
[Abstract],
[Data and Code],
[Media Coverage],
[Working Paper Version]
European Economic Review, Vol. 107, p. 99-132, Aug. 2018
Abstract: In this paper, we incorporate trade in tasks into Marin and Verdier (2012) to examine how offshoring affects the way firms organize. We show that offshoring of production tasks
and of managerial tasks can lead to more decentralized management and to larger executive wages in open economies. We study the predictions of the model with original firm level data and
find that offshoring firms are 18% more decentralized than non-offshoring firms. We also find that offshoring of managers increases the level of decentralized management in open
industries, but reduces the level of decentralized management in sufficiently closed industries.
Globalization and the Evolution of Corporate Governance
[Abstract], [Data and Code],
[Media Coverage], [Working Paper Version]
European Economic Review, Vol. 102, p. 39-61, Feb. 2018.
Abstract: How does globalization affect the balance of power between managers and firm owners? This paper studies the effect of economic integration on governance
practices within firms. I propose a theory of endogenous corporate governance investments in industry equilibrium with monopolistic competition. Firms can use investments
into better corporate governance as a cheap substitute to performance compensation to mitigate agency problems. International integration alters the demand for managers
in the economy such that firms may reduce their corporate governance investments and offer higher performance payments. This globalization-induced deterioration of
corporate governance in the economy diminishes the welfare gains from globalization. Using data on governance practices in U.S. manufacturing corporations, I provide
empirical evidence that conforms to the model predictions. Firms in industries that experienced substantial trade liberalization between 1990 and 2006 have changed their
governance practices allowing for more managerial slack and offered higher equity payments to their CEOs. These effects are particularly large in relatively dynamic
industries that are characterized by large exit rates.
Shorter Papers
The Costs and Benefits of Home Office during the Covid-19 Pandemic - Evidence from Infections and an Input-Output Model for Germany
with Harald Fadinger
[Abstract],
[Media Coverage],
[Data and Code],
CEPR Covid Economics, Vol. 9, p. 107-134, Apr. 2020
Abstract: We study the impact of working from home on (i) infection risk in German regions and (ii) output using an input-output (IO) model
of the German economy. We find that working from home is very effective in reducing infection risk: regions whose industry structure
allows for a larger fraction of work to be done from home experienced much fewer Covid-19 cases and fatalities. Moreover, confinement
is significantly more costly in terms of induced output loss in regions where the share of workers who can work from home is lower.
When phasing out confinement, home office should be maintained as long as possible, to allow those workers who cannot work from home
to go back to work, while keeping infection risk minimal. Finally, systemic industries (with high multipliers and/or high value added
per worker) should be given priority, especially those where home office is not possible.
Democratization, Contracts and Comparative Advantage
with Felix Samy Soliman
[Abstract], [Working Paper Version]
Economics Letters, Vol. 173, p. 73-77, Dec. 2018.
Abstract: We study how the international spread of democracy shaped the comparative advantage of countries. Using data on the "Third Wave of Democratization"
between 1976 and 2000 we find that democratizing countries shifted their exports towards more contract intensive goods that require a larger portion of
relationship-specific inputs. This shift is observed on the intensive margin (volumes of industry-level exports) as well as the extensive margin of
trade (number of goods a country exports). Using an instrumental variable strategy based on democracy waves, alternative proxy variables and
subsamples suggests that the effects of democratization on trade specialization are causal.