WEFI

Mirko Draca (Warwick)

Title:  “The New Wave? The Role of Human Capital and STEM Skills in Technology Adoption in the UK”

Which types of human capital influence the adoption of advanced technologies? We study
the skill-biased adoption of information and communication technologies (ICT) across two
waves in the UK. Specifically, we compare the ‘new wave’ of cloud and machine learning /
AI technologies during the 2010s – pre-LLM – with the previous wave of personal computer
adoption in the 1990s and early 2000s. At the area-level we see the emergence of a
distinct STEM-biased adoption effect for the second wave of cloud and machine learning
/ AI technologies (ML/AI), alongside a general skill-biased effect. A one-standard deviation
increase in the baseline share of STEM workers in areas is associated with around 0.3 of a
standard deviation higher adoption of cloud and ML/AI. We find similar effects at the firm
level where we are able to test for the influence of a wide range of skills. In turn, this STEM-
biased adoption pattern has encouraged the concentration of these technologies, leading
to more acute differences between high-tech and low-tech areas and firms. In contrast with
classical technology diffusion, recent cloud and ML/AI adoption in the UK seems more likely
to widen inequalities than reduce them.

Presenter: Mirko Draca (Warwick)

Coauthors: Max Nathan, Viet Nguyen-Tien, Juliana Oliveira-Cunha, Anna Rosso, and Anna Valero

Discussant: Alex He (Maryland)

Video

TBA

Vrinda Mittal (UNC)

Title: Private Capital Markets and Inequality

This paper studies the relationship between the growth in private capital markets and the rise in economic inequalities in the U.S over the last two decades. First, we document that the share of financing raised by early-stage companies from U.S.-based high-net-worth individuals (HNWIs) tripled from 2004 to 2022. Second, exploiting state-level variation in exposure to the expanded federal capital gains tax exemption on qualified small business stock (QSBS), we find that HNWIs’ growing participation in private capital markets increased the income gap between HNWIs and other income earners by 6.0%. Third, we show that this rise in income concentration appears to have been driven by HNWIs’ excess returns on their early-stage investments relative to public stock market returns. Finally, using counterfactual simulations, we find that HNWIs’ excess returns on these investments accounted for 11% and 5% of the growth in the top 1% share of income and wealth, respectively, from 2010 to 2019.

Presenter: Vrinda Mittal (UNC)

Coauthors: Ararat Gocmen and Clara Martinez-Toledano

Discussant: Simon Oh (Columbia)

Video

TBA

Andy Li (University of Amsterdam)

Do Development Financial Institutions Create Impact through Venture Capital Investments?

coauthors Aleks Andonov and Paul Smeets

Discussed by: Martin Aragoneses (Insead)

Abstract

Development Finance Institutions (DFIs) manage assets totaling $23 trillion, yet little research has been conducted on their investment activities and impact. We document that DFIs have increasingly invested in venture capital (VC) over the past three decades, participating as limited partners in one out of every six deals. We collect the mandates of DFIs and identify four main objectives they pursue through VC investments: building a VC ecosystem, supporting entrepreneurship and small and medium-sized enterprises, fostering innovation, and promoting sustainable business practices. We empirically test whether DFIs meet these objectives by addressing market failures, including externalities, information frictions, and coordination challenges. Our findings vary between developed and developing economies. In developing economies, DFIs are more likely to target industries with positive externalities, provide capital to underrepresented fund managers, and improve return transparency. However, they are less likely than conventional VC investors to support young funds or early-stage deals, and their investments have no significant impact on firm growth or innovation. In developed economies, we find little evidence that DFIs address market failures and their impact is even more limited. Overall, our findings suggest that DFIs have significant room to enhance their impact by better addressing market failures, aligning investments with stated mandates, and embracing higher risk in their portfolios.

Video

TBA

Jennifer Kao (UCLA)

“Representation in Product Development: Evidence from Insurance and Clinical Trials” (paper)

coauthor Tamar Oostrom, OSU

Discussed by: Tong Liu (MIT)

Abstract

We investigate the causes and consequences of demographic disparities in product development. In 2000, Medicare extended coverage for clinical trial costs, lowering the cost of participation for elderly enrollees. This policy shifted the rate and direction of clinical research, leading to a 24 percent increase in trials targeting diseases common among the elderly, compared to those affecting younger populations. Trial sponsors expanded the enrollment criteria of trials to include more elderly participants. This policy was also associated with an increase in drug utilization for elderly drugs and a reduction in adverse events.

Video

Katja Kisseleva-Scherenberger (Frankfurt School of Finance & Management)

“With a Little Help from My Family: Informal Startup Financing” (paper)

coauthors Brian K. Baik (Harvard Business School) and Johan Karlsen (Norwegian School of Economics)

Discussed by: Tom Meling (OSU)

Abstract

Using a unique dataset that contains financial information of Norwegian startups and their investors, we depict the characteristics of informal financing, which are startup investments made by family of the entrepreneur. Consistent with theoretical predictions, we document that informal investments are associated with lower returns than external investments, and lower startup risk-taking behavior. On the other hand, firms that receive investments from both informal and external investors exhibit stronger forms of risk taking. Our instrumental variables (IV) regressions further support our findings. Reduced risk-taking behavior is mainly driven from wealthy informal investors, which is consistent with the argument that wealthy investors may be more risk averse. Collectively, our findings empirically illuminate an important source of startup financing that affects startup behavior.

Video

TBA

Apoorv Gupta (Dartmouth)

“Demographics and Technology Diffusion: Evidence from Mobile Payments” (paper)

coauthors Nicolas Crouzet (Northwestern), Pulak Ghosh (India Inst. of Mgmt) and Filippo Mezzanotti (Northwestern)

Discussed by: Boris Vallee (HBS)

Abstract

Using data on the adoption of mobile payment systems in India, we argue that the age composition of the population can impact the diffusion of new technologies. Evidence from a leading Indian bank shows that younger adults tend to prefer mobile payments over traditional cards. In a model of technology adoption, these age-driven differences in attitudes toward technology create stronger adoption incentives for businesses facing younger consumers. We validate this prediction using store-level data on mobile payment adoption by merchants. Our findings suggest that demographics can pose an obstacle to the diffusion of financial innovation.

Video

Daniel Karpati (ESE Rotterdam)

“Self-Employed Mothers: Child Penalties, Maternity Benefits, and Family Health” (paper)

coauthors  Fabrizio Core, ESE Rotterdam.

Discussed by: Elena Simintzi (UNC)
Abstract

We study the effects of motherhood on self-employed women’s business activity, and the moderating role of maternity benefits. Using rich administrative data from the Netherlands, we first document that childbirth reduces the business revenue of self-employed women by about 50% in the quarter of birth and 25% subsequently. We then study the introduction of a flat-rate maternity cash benefit for the self-employed. Exploiting variation in benefit eligibility by birth month, we estimate that mothers eligible for the benefit further reduce their business revenue and income in the first two years after childbirth. The decrease in business income amounts to approximately half of the benefit amount, leading to an overall increase in household income. Eligible mothers likely spend more time with their child, as the use of formal daycare is significantly reduced. Lastly, we assess the effects of benefit eligibility on the well-being of mothers and their children. While we find no impact on household composition or maternal health, the benefit does reduce health expenditures and medicine use among children in their first year after birth, although not in the long run.

Video