Industrial Development
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We investigate the effects of job displacement, as a result of mass-layoffs, on criminal arrests using a novel matched employer-employee-crime dataset in Medellín, Colombia. Job displacement leads to immediate earnings losses, and an increased likelihood of being arrested for both the displaced worker and for other youth in the family. We leverage variation in opportunities for legitimate reemployment and access to consumption credit to investigate the mechanisms underlying this job loss-crime relationship. Workers in booming sectors with more opportunities for legitimate reemployment exhibit weaker criminal responses to job losses. Greater exposure to an expansion in consumption credit also weakens the criminal response to employment shocks
Abstract | pdf | VoxDev | WEF | Ideas for India |VoxEu
Which managerial skills, traits, and practices matter most for productivity? How appropriately are these features priced into wages? Combining two years of daily, line-level production data from a large Indian garment firm with rich survey data on line managers, we find that several key dimensions of managerial quality, like attention, autonomy, and control, are important for learning-by-doing as well as for overall productivity, but are not commensurately rewarded in pay. Counterfactual simulations of our structural model show large gains from screening potential hires via psychometric measurement and training to improve managerial practices.
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Canonical models of crime emphasize economic incentives. However, causal evidence of sorting into criminal occupations in response to individual-level variation in incentives is limited. We link administrative micro-data with the universe of arrests in Medellin over a decade. We exploit exogenous variation in formal-sector employment around a socioeconomic-score cutoff, below which individuals receive benefits if not formally employed, to test whether a higher cost to formal-sector employment induces crime. Re- gression discontinuity estimates show this policy generated reductions in formal-sector employment and a corresponding spike in organized crimes, but no effects on crimes of impulse or opportunity.
Abstract | pdf | VoxDev
Can investing in children who faced adverse events in early childhood help them catch up? We answer this question using two orthogonal sources of variation { resource availability at birth (local rainfall) and cash incentives for school enrollment { to identify the interaction between early endowments and investments in children. We find that adverse rainfall in the year of birth decreases grade attainment, post-secondary enrollment, and employment outcomes. But children whose families were randomized to receive conditional cash transfers experienced a much smaller decline: each additional year of program exposure during childhood mitigated almost 20 percent of the early disadvantage in grade attainment..
Abstract | pdf | Ideas for India
Relational contracts are essential building blocks of the theory of the firm. Yet empirical evidence of the properties of these contracts within firms is limited by the scarcity of records of coworker cooperation. To address this gap, we leverage a unique dataset that tracks transfers between production line managers in Indian ready-made garment factories. We study how managers cope with worker absenteeism on their teams. We first document that worker absenteeism shocks are frequent, often large, weakly correlated across managers, and have substantial negative impacts on team productivity. There are thus gains from sharing workers. We show that managers do indeed respond to shocks by lending and borrowing workers in a manner consistent with relational contracting. But many potentially beneficial transfers are left unrealized, meaning that while relational contracts mitigate some of the adverse impacts of shocks, risk is still imperfectly shared across managers. This is because managers' primary relationships are with a very small subset of potential partners, who tend to be demographically similar and work on spatially contiguous lines. Counterfactual simulations show that there is potential for large gains to the firm from reducing the barriers to forming additional relationships among managers. Even at the high observed levels of worker absenteeism, resolving as much of the worker misallocation problem as possible through these relationships can meaningfully increase productivity.
Abstract | pdf
The health effects of “dirty” (fossil fuel driven) energy production are difficult to measure accurately due to the endogeneity of fuel choice. We exploit an electricity policy in Colombia that generates a price-based trigger for the use of thermal energy sources. Comparing municipalities near high versus low capacity plants, we first document that the activation of this trigger – which increased thermal energy production – led to significantly higher local pollution levels. This change increased cardiovascular-related ER mortality by 56% and respiratory-related morbidity by 9%. Our results translate to a cost of 996 million USD in terms of lives lost and higher healthcare costs
Abstract | pdf | Ideas for India
How do workers and managers sort within the firm? Do the most talented managers match with the most productive workers, or with those who are struggling to perform? We characterize this sorting pattern in six factories of a large garment manufacturer in India. Workers in this firm are organized into production lines, each supervised by a manager. We exploit the high degree of worker mobility across lines, together with worker-level productivity data, to estimate the sorting of workers to managers. We find negative assortative matching (NAM) -that is, better managers tend to match with worse workers, and vice versa. This stands in contrast to our estimates of the produc- tion technology, which reveal that if the firm were to positively sort, productivity would increase by between 1-4%. Coupling these findings with a survey of managers and with data on buyers and orders, we find that NAM is strongest for factories where manage- ment is most worried about falling behind and not meeting deadlines with important buyers. That is, NAM arises, at least in part, because the value of buyer relationships imposes minimum productivity constraints on each production line. Our results em- phasize that suppliers to the global market, concentrated in developing countries, may be beholden to a small set of powerful buyers from developed countries, and as a result, may be driven to \misallocate" managerial skill in service of these relationships, but at the expense of productivity.
Abstract | pdf
Does better monitoring improve firm performance? We study the introduction of a technology that enabled managers to track the progress of drive-thru orders in a large quick-service restaurant chain. Sales increased by 5\%, but impacts diminished to half that within two months. Worker skill dynamics play an important role in explaining this pattern. Managers provided greater training inputs at key workstations, but only a subset provided refresher'' training to counteract skill depreciation. Stores in which managers utilized refresher training intensively pre-technology had more persistent gains, suggesting that managers' attention to skill dynamics is critical to the success of performance monitoring.
Abstract | pdf
We study the role of amenities in increasing demand for underutilized healthcare services. We randomized the price of a high-amenity diagnostic consultation for cataract surgery. Using this variation, we show that providing amenities doubles surgery take-up for patients diagnosed with operable cataracts. We then structurally estimate a model of patient demand to evaluate the importance of two mechanisms for this effect: amenities as quality signals versus sunk cost accounting. Results show that effects are largely driven by the former channel, suggesting that adoption of underutilized services may be increased by providing extra amenities at low prices in early patient interactions.
Abstract | pdf
We assess whether the change in punishment at age 18, mandated by law, 1) has a deterrent effect on arrests, 2) Diminishes, through incapacitation, the crime rate, and 3) explain future changes in school attendance. Based on longitudinal individual data of the arrested population in the Medellin Metropolitan Area, we use both before-after and regression discontinuity design approaches. No deterrent effect was found on index, violent or property crimes, but a deterrence effect was found on crimes related to drug consumption and trafficking. The number of days that arrested individuals take to recidivate is 300, higher for index crimes if they are arrested right after reaching 18 years of age. The change in criminal penalties at 18 years of age does not explain future differences in human capital formation among the population that had been arrested immediately after reaching 18 years of age. This paper suggest that the change in punishment at age 18 increases the relative cost of being arrested and sentenced immediately after rather than before reaching 18. Implications and the structure of criminal legislation in Colombia are discussed.
Abstract | pdf
The skills, personality traits, and the cost of effort of workers partly explain variation in responses to pay incentives. However, the workers' “type” and realized effort are hard to observe and, therefore, hard to contract on for employers. As the demand for routine tasks decreases, personality traits or “soft skills” are increasingly valuable on the labor market. Sophisticated firms have internalized this and increasingly use psychometric tools to screen workers for hiring and promotion decisions. However, screening is costly and imperfect. We study the potential gains from psychometric screening to enable personalized performance pay contract in the context of a digital labor market experiment where such contracts are the norm. To do so, we measured a broad array of personality traits and cognitive skills of 350 workers on Amazon's Mechanical Turk digital labor market. Workers were then hired to perform three different customer service tasks varying in difficulty and skill requirements. We experimentally vary performance pay within worker and within task type which allow us to nonparametrically recover the mapping between realized effort and worker type. We simulate gains for a sophisticated firm capable of screening workers and offer personalized contracts in competition with unsophisticated firms who do not screen and offer a common contract. We use machine learning methods to predict the workers' type from the psychometric data which allows us to characterize which type of workers provides the greatest opportunity for gains in different tasks and to study how noise from the psychometric data erodes gains.
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We estimate the effect of physicians on health outcomes by exploiting a Colombian government program that randomly assigns newly graduated physicians to hospitals across the country. Using administrative data from the program, vital statistics records, and individual records from the mandatory field-specific college graduation exams, we show that more-skilled physicians improve health at birth of infants whose mothers received care in those hospitals during their pregnancy. We show that the mechanisms underlying the results are the time physicians spend with the patient and their success in targeting care toward the most vulnerable patients.
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We introduce a cost-sensitive machine learning framework that can minimize hiring costs under different labor market conditions for firms using machine learning to screen and escalate applicants to interviews. We show that the optimal algorithm depends on the abundance of quality applicants in the market, the interview cost, and the value to the firm of filling vacancies. We provide ways to train the machine learning models in order to provide a fair and nondiscriminatory treatment of all applicants regardless of their identity
Abstract | pdf
Product cycles entail the mass production of new -- and often increasingly complex -- products on a regular basis. How do firms manage these changes? We use granular daily data from a leading automobile manufacturer to study the organizational impacts of introducing new models to the auto assembly line. We show that the numbers of vehicles and parts do not change after a new model is introduced; the main change is a large, discontinuous increase in new parts. The product cycle thus necessitates dealing with new complex problems: we accordingly show that defects increase substantially after the production change, then decrease to prior levels over about three weeks. We next ask how the firm’s organization facilitates this problem-solving. We find that the firm trains and promotes mid-level employees to manage the production of new parts, but waits to back-fill mid-level positions until after defect rates recover. That is, the firm reduces the distance -- in terms of knowledge layers -- between front-line workers, who are dealing with these new tasks, and managers further up the hierarchy, who have the necessary knowledge to solve complex problems. This organizational response is unique to the product cycle: when the firm increases the scale of production of existing models, it adds layers to the hierarchy without increasing average skills, as predicted by canonical models of knowledge-based hierarchies. We develop an extension to this theory that reconciles our novel empirical results on product cycle responses.
Abstract | pdf
Neighborhoods are strong determinants of both economic opportunity and criminal activity. Does improving connectedness between segregated and unequal parts of a city predominantly import opportunity or export crime? We use a spatial general equilibrium framework to model individual decisions of where to work and whether to engage in criminal activity, with spillovers across the criminal and legitimate sectors. We match at the individual level various sources of administrative records from Medell\'in, Colombia, to construct a novel, granular dataset recording the origin and destination of both workers and criminals. We leverage the rollout of a cable car system to identify key parameters of the model, informing how changes in transportation costs causally affect the location and sector choices of workers and criminals. Our counterfactual exercises indicate that, when improving the connectedness of almost any neighborhood, overall criminal activity in the city is reduced, and total welfare is improved.
Works in Progress:
Adhvaryu, A., Nyshadham, A., and Tamayo, J., (2020), Managing Demand Shocks: Evidence from Quick Service Restaurants”
Khanna, G., Medina, C., Nyshadham, A. and Tamayo, J. The Spatial Distributions of Crime and Economic Opportunity
Achyuta A., Morten, R., Nyshadham, A., and Tamayo, J., Behavioral Bidding in a Manufacturing Supply Chain
Guarin, A., Posso, C., Saravia, E., and Tamayo, J., Healing the gender Gap: The Impacts of Randomized first-job on Female physicians
Medina, C.A., Nuñez, J. and Tamayo, J., The Unemployment Subsidy Program in Colombia: An Assessment, Working paper, IDB.
Tamayo, J.A. (2019), The Impact of Peer Effects on Student Outcomes: Evidence from Colombia. [under review]
Competitive Price Discrimination
Abstract | pdf
A competitive two-period membership (subscription) market is analyzed. Two symmetric firms charge a "membership" fee that allows consumers to buy products or services at a given unit price, for both periods. Transactions are not anonymous, and firms price discriminate based on purchase history. Three main features of the tariff structure affect the competition. They are: (i) the length of the membership (long-term vs. short-term); (ii) the ability to price discriminate between "old" and "new" customers with the membership fee and the unit price; and (iii) the incentives to price discriminate between different consumers’ types (low and high-demand/value customers). When firms employ short-term membership, they don’t discriminate with their unit price but only with their membership fee regarding the length of the customer relationship. Instead, with long-term membership, firms have incentives to prevent their old most valuable customers from being "poached" by the competitor. In equilibrium, firms price discriminate with their membership fee and unit price regarding customer purchased-behavior and volume of demand (i.e., second-degree price discrimination). Overall, the number of consumers poached is smaller with long-term subscriptions. Given that poaching erodes welfare and firms are better extracting surplus with short-term memberships, consumers are better off with long-term memberships.
Abstract | pdf
We study competitive two-part tariffs in a model of asymmetric duopoly firms offering (vertically and horizontally) differentiated products. We provide necessary and sufficient conditions for marginal-cost pricing to be in equilibrium, in both the Hotelling and general discrete choice approaches to horizontal differentiation. When firms face symmetric demands but have asymmetric marginal costs, we show that in equilibrium the less-efficient firm sets its marginal price below its own marginal cost and compensates for this loss with the fixed fee, while the more-efficient firm sets its marginal price above its own marginal cost but below its rival's price. A similar pattern holds in a setting where firms have identical marginal costs but asymmetric demands, that is, the inferior firm “cross-subsidizes” between fixed fee and marginal price. When the market shares are determined by Logit with outside option we show that, even in the symmetric model, the equilibrium outcome with two-part tariffs is not efficient.
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We study competition between horizontally differentiated platforms offering exclusive and non-exclusive contracts in a two-sided market. When content providers can choose between exclusive or non-exclusive contracts, content availability does not react to increases in consumer value for content despite increases in subsidies paid to content providers. Introducing nonexclusive in addition to exclusive prices benefits platforms, but may hurt consumers and content providers. Entry of new platforms may increase prices and platform profits. We attribute the results to the reduction in “threat of tipping.” Finally, incumbent platforms can offer exclusive contracts to deter entry
Abstract | pdf
Hydropower generation creates a trade-off between current and future energy production as a firm must choose when to release previously-stored resources. In the Colombian wholesale energy market, suppliers strategically shift production from hydropower to fossil fuels in expectation of severe droughts. We explain these responses showing that the intertemporal opportunity cost of water oppositely affects pricing of a firm’s fossil and hydro generators. As a result, diversifying a supplier’s productiontechnology mix reduces market prices ahead of a drought due to the increased supply of fossil energy. These results highlight a new role for fossil sources in the clean-energy transition.
Other
Londoño, A. F., Tamayo, J. and Velásquez, C.A. (2012), “Monetary Policy and Inflation Targeting Dynamics in Colombia: A FAVAR Approach,” Ensayos sobre Política Económica, 68, June.
Arango, M., Posada, C. E. and Tamayo J. (2011), “Credit Market and Monetary Policy: a Possible Source of Fluctuations and Financial Crisis,” Ensayos sobre Política Económica, 24.
Chapter in Books
Medina, C.A., Nuñez, J. and Tamayo, J. (2011), “The Unemployment Subsidy Program in Colombia: An Assessment,” Veronica Alaimo, Jacqueline Mazza, Carmen Pagés-Serra and Robert LaLonde, Protecting Workers Against Unemployment in Latin America and the Caribbean, IDB.
Medina, C.A. and Tamayo, J. (2011), “An Assessment of How Urban Crime and Victimization Affects Life Satisfaction,” in Dave, Webb and Eduardo, Wills-Herrera (Eds.), Subjective Well-Being and Security, Springer, Social Indicators Research Series, Vol. 46.
Medina, C.A., Posso, C.M. and Tamayo, J. (2012), “Dynamics of Labor Demand in the Colombian Manufacturing Industry 1993-2009: A Panel VAR Approach,” in Luis, E. Arango and Franz, Hamann, (Eds.), El Mercado de Trabajo en Colombia Hechos, Tendencias e Instituciones, Central Bank of Colombia. (Published in Spanish)
Tamayo, J. (2012), “Asymmetries in the Demand for Work in Colombia: The Role of the Business Cycle,” in Luis, E. Arango and Franz, Hamann, (Eds.), El Mercado de Trabajo en Colombia Hechos, Tendencias e Instituciones, Central Bank of Colombia. (Published in Spanish)