Essays on the Consequences of Innovative Industries

Abstract

This dissertation develops novel modeling techniques, theoretical insights and empirical estimations in order to uncover a diverse set of downstream consequences from innovative industries. Chapter 1, which is co-authored with Elhanan Helpman, provides a theoretical framework which allows us to analyze the dynamics of industries constituted by a continuum of small firms and a finite number of large multi-product firms. The presence of a competitive fringe of small firms allows us to provide analytical results which are consistent with observed patterns of increased markups and concentration and a decreased labor share. Furthermore, the model predicts an inverted-U relationship between product span and productivity with implications for industry dynamics. Chapter 2 focuses on the response to changes in skill demand precipitated by the proliferation of skill-biased technologies. The main focus is on the spatial winners and losers from rising skill premiums. This chapter highlights the impact that skill acquisition which is biased in favor of local-skill demand can have on spatial inequality and economy-wide productivity. The main takeaway is that there is large scope for a trade-off between static productivity gains from agglomeration and dynamic gains from local signaling. Chapter 3, co-authored with Zoë Hitzig, considers how the rise of new industries might affect the optimal regulation of bilateral contracts. We begin by building a mechanism design framework which theoretically motivates the use of default and immutable laws in the regulation of contracts. We consider a setting with observable but unverifiable information which is common knowledge to two agents which efficiently bargain over their joint surplus. Our mechanism design framework makes clear how the principal optimally uses defaults in order to achieve equity objectives and sets immutable laws to internalize externalities. We then apply this framework to the current debate on the classification of gig-workers in order to highlight the tradeoffs between these two forms of regulation when the regulator cannot achieve first best.