Research

Working Papers 

Variable Markups, Incomplete Pass-Throughs, and R&D Misallocation, October 2024   
with Jean-Felix Brouillette and Emma Rockall [Paper]   
Assumptions about demand influence the positive and normative implications of growth models. In light of the growing evidence of variable markups and positive yet incomplete pass-throughs, we develop an endogenous growth model with a Kimball (1995) demand system. It features differentiated firms engaging in monopolistic competition and making forward-looking investments in R&D to improve their process efficiency. The model succeeds in matching the evidence on markups and pass-throughs by featuring a lower elasticity of demand at lower prices. A novel implication of our model is that market power does not only distort the overall level of innovation, but also the cross-firm allocation of R&D resources. Using firm-level administrative data from France to discipline our model, we find that this R&D misallocation slows down aggregate growth by 0.92 percentage points.

Population and Welfare: Measuring Growth when Life Is Worth Living, August 2024   
with Mark Bils, Chad Jones, and Pete Klenow [Slides] [Paper] [Online Appendix]   
Economic growth is typically measured in per capita terms. A long tradition in philosophy, however, suggests that social welfare may depend on the number of people as well. To illustrate how much this matters quantitatively, we decompose social welfare growth - measured in consumption-equivalent (CE) units - into contributions from rising population and rising per capita consumption. Because of diminishing marginal utility from consumption, population growth is scaled up by a value-of-life factor that empirically averages nearly 3 across countries since 1960. Population increases are therefore a major contributor to growth if one takes a total rather than per capita view. CE welfare growth around the world averages more than 6% per year since 1960 as opposed to 2% per year for consumption growth. Countries such as Mexico and South Africa rise sharply in the growth rankings, whereas China, Germany, and Japan plummet. These results are robust to incorporating richer individual preferences and endogenous fertility using time-use data from the U.S., Mexico, the Netherlands, Japan, South Africa, and South Korea.