Essays in Behavioral Economics and Innovation

Abstract

This dissertation consists of three essays, two in behavioral economics and one on the economics of innovation.

The first essay, which is joint work with Emily Glassberg Sands, exploits the randomness of weather and the relationship between weather and movie-going to quantify network externalities (i.e., a preference for shared experience) in movie consumption. Instrumenting for early viewership with unanticipated and plausibly exogenous weather shocks captured in LASSO-chosen instrument sets, we find that a shock to opening weekend viewership is doubled over the following five weekends. Our estimated momentum arises almost exclusively at the local level, and varies neither with ex-post movie quality nor with the precision of ex-ante information about movie quality, suggesting the observed momentum is unrelated to learning.

The second essay, which is joint work with Michael Luca and Deepak Malhotra, asks whether higher wages elicit reciprocity and hence higher productivity. In a field experiment with 266 employees, we find that paying above-market wages, per se, does not have an effect on productivity relative to paying market wages (in a one-time job with no future employment opportunities). However, structuring a portion of the wage as a clear and unexpected gift--by offering a raise (with no additional conditions) after the employee has accepted the contract--does lead to higher productivity for the duration of the job. Targeted gifts are more efficient than hiring more workers. However, the mechanism underlying our effect makes this unlikely to explain persistent above-market wages.

Finally, the third essay examines how an incumbent's patent protection acts as an implicit subsidy towards non-infringing substitutes. I analyze whether classes of pharmaceuticals whose first entrant has a longer period of market exclusivity (time between approval and generic entry) see more innovation. Instrumenting for exclusivity using plausibly exogenous delays between patent filing and the start of clinical trials, I find that one extra year of first in class exclusivity increases subsequent entry by 0.2 drugs. The effect is stronger for drugs targeting conditions for which demand is more price-elastic, and for drugs that are lesser advances.