Timothy McQuade

Regulating an Experience Good Produced in the Formal Sector of a Developing Country when Consumers Cannot Identify Producers

In developing countries, consumers can buy many goods either in formal markets or in informal markets and decide where to purchase based on the products price and anticipated quality. This pape assumes consumers cannot assess quality prior to purchase and cannot, at reasonable cost, identify who produced the good they are considering. Many products (meats, fruits, vegetables, fish, grains) sold both in formal groceries and, less formally, on the street fit this description. This paper also assumes that producers can adjust quality at a cost and only firms in the formal sector are subject to government regulation. In the long run, producers migrate to the sector that is more profitable. Using this model, we demonstrate how regulations in the formal sector can lead to a quality gap between formal and informal sector goods. Moreover, the paper investigates how changes in regulation affect quality, price, aggregate production, and the number of firms in each sector.

Who Creates New Firms When Local Opportunities Arise

New firm formation is a critical driver of job creation, and an important contributor to the responsiveness of the economy to aggregate shocks. In this paper we examine the characteristics of the individuals who become entrepreneurs when local opportunities arise due to an increase in local demand. We identify local demand shocks by linking fluctuations in global commodity prices to municipality level agricultural endowments in Brazil. We find that the firm creation response is almost entirely driven by young and skilled individuals, as measured by their level of experience, education, and past occupations involving creativity, problem-solving and managerial roles. In contrast, we find no such response within the same municipalities among skilled, yet older individuals, highlighting the importance of lifecycle considerations. These responsive individuals are younger and more skilled than the average entrepreneur in the population. The entrepreneurial response of young individuals is larger in municipalities with better access to finance, and in municipalities with more skilled human capital. These results highlight how the characteristics of the local population can have a significant impact on the entrepreneurial responsiveness of the economy.

Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession

Do household wealth shocks affect employee productivity? We examine this question through the lens of technological innovation, by comparing employees that worked at the same firm and lived in the same metropolitan area, but experienced different housing wealth declines during the 2008 crisis. Following a housing wealth shock, employees are less likely to successfully pursue innovative projects, particularly ones that are high impact, complex, or exploratory in nature. Consistent with employee concerns about financial distress, the effects are more pronounced among those who had little equity in their house before the crisis and among those with fewer outside labor market opportunities. Moreover, run-ups in housing prices before the crisis did not affect employee innovation. The results highlight a “bottom-up” view of innovation, in which individual employees influence the quantity and nature of innovation produced within firms.