• JPE Awards 2021 Lucas Prize

    The Journal of Political Economy has announced the winners of this year's Robert E. Lucas Jr. Prize: Charles I. Jones and Jihee Kim for their paper, "A Schumpeterian Model of Top Income Inequality" (Journal of Political Economy 126 [5]: 1785-1826). 

    The following description of the winning paper was originally published on the Journal of Political Economy website. 

    "This paper pertains to a topic that has received much attention as of late: why is income inequality at the top so high, and why has it risen sharply in the United States, though less so in other countries?  The authors provide an empirical analysis and complement it with a model to understand the facts.

    The authors observe that top income inequality was relatively low and stable between 1960 and 1980 but then rose sharply in the United States, Norway, and the United Kingdom. They argue that rising top income inequality to a great extent reflects rising labor income inequality, where labor income is broadly conceived and includes entrepreneurial income such as "business income." The authors confirm that labor income is well described by a Pareto distribution, that is, that the expected income above some level is in a constant proportion relative to that level (see their fig. 4). The rising income inequality manifests itself in that this proportion has risen between 1980 and 2005.

    For their model, they focus on entrepreneurial activity and the resulting income as the driving force.  They assume that a small share of entrepreneurs can turn their efforts into fast income growth, until they are replaced by competitors via creative destruction. This interplay produces the Pareto distribution and income inequality. They calculate the resulting efforts provided by entrepreneurs. Higher growth prospects and a lower creative destruction rate imply higher efforts as well as higher inequality. In their measurement, they calculate the contribution of each. A numerical approximation shows that the model can well account for the observed changes in income inequality. Ultimately, then, economic forces due to information technology, taxes, and policies related to innovation blocking may explain the varied patterns.

    This important paper is part of a growing literature that helps us more deeply understand the engines of growth, the sources of inequality, and their rich interplay. Policy choices seeking adjustments to one are likely to affect the other. Future research can build on the work by Jones and Kim to provide more detailed guidance."

    The Lucas Prize is awarded biannually for the most interesting paper in the area of Dynamic Economics published in the Journal of Political Economy in the preceding two years. The prize was established in 2016 on the occasion of the celebration of Lucas’s seminal contributions to economics and his Phoenix Prize award.

  • Economist Esteban Rossi-Hansberg to join UChicago faculty as the Glen A. Lloyd Distinguished Service Professor

    Man in suit smilingEconomist Esteban Rossi-Hansberg to join UChicago faculty

    Economist Esteban Rossi-Hansberg has been appointed the Glen A. Lloyd Distinguished Service Professor at the University of Chicago where he will join the faculty of the Kenneth C. Griffin Department of Economics.

    Rossi-Hansberg’s research focuses include international trade, urban and regional economics, and macroeconomics. He was most recently at Princeton as the Theodore A. Wells '29 Professor of Economics and International Affairs and is a Research Associate with the National Bureau of Economic Research (NBER), as well as a Research Fellow with the Center for Economic Policy Research (CEPR).

    Rossi-Hansberg returns to the University of Chicago after receiving his Ph.D. from the University in 2002 and teaching as a Visiting Professor of Economics in the Booth School of Business during 2018-2019. He was a recipient of the 2019 Robert E. Lucas Jr. Prize for his paper, “The Geography of Development" (Journal of Political Economy 126 [3]: 903‒83).

    Rossi-Hansberg’s appointment at UChicago will be effective on July 1.

  • Study suggests the U.S. may undervalue timesaving transportation infrastructure

    For Lyft users, time is money—now, we know how much

    Study suggests the U.S. may undervalue timesaving transportation infrastructure

    How much money is time worth? University of Chicago economists and their collaborators think they have found the answer—$19.38 per hour. It’s a finding with policy implications, according to the economists, because it suggests the U.S. government may currently be underestimating the value of travel time.

    To quantify the value of time, the economists created a field experiment involving 3.7 million users of the Lyft app in 13 cities. By manipulating the price quotes and wait times displayed on the app, the researchers were able to study how much customers were willing to pay for a faster rideshare pickup.

    Released by the Becker Friedman Institute for Economics, the new working paper calculated the $19 figure by modeling the relationship between wait times and prices and extrapolating to find the value of an hour. The average wait time for a ride in the study was 3.08 minutes and the average price was $13.83.

    The broad nature of the experiment, said Prof. John List, allowed the economists to estimate the value of time across different people, choice circumstances and market conditions.

    A pioneer in the use of field experiments in economics, List co-authored the paper with UChicago alumni Ariel Goldschmidt, Ian Muir and Jenny Wang—who now work as data scientists at Lyft—and former UChicago postdoctoral researcher Robert Metcalfe, now at Boston University. V. Kerry Smith, an emeritus professor of economics at Arizona State University, also collaborated on the paper.

    “Our value of time estimate is larger than that which is currently used by the U.S. government, suggesting that society is undervaluing time improvements and subsequently underinvesting public resources in timesaving infrastructure projects and technologies,” said List, the Kenneth C. Griffin Distinguished Service Professor in Economics.

    On the basis of these findings, the study’s authors recommend that policymakers account for differences in the value of time based on location and time of day when estimating the costs and benefits of new public projects, and increase their rule-of-thumb value of time estimate to 75% of the mean wage rate.

    “Time is the ultimate scarce resource, and its value has deep implications for a range of economic phenomena and investment decisions,” the authors wrote. Among these, commute time is especially important because it impacts how people decide where to live.

    Read the full story at news.uchicago.edu


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