Research
Capping Profits for Efficiency [Job Market Paper]
In light of recent concerns over firms' market power, I study the impact of a novel policy---a cap on firms' profit-to-cost ratios---on economic efficiency. I show that this tool, or the equivalent excess-profits tax, mitigates the misallocation of resources across firms due to heterogeneous markups by increasing production, particularly for high-markup firms. Unlike traditional firm-specific interventions that require firm-specific information, this policy reduces markups progressively despite being uniform for all firms, and at every level at which it binds. In a general equilibrium model with oligopolistic competition and CES demand, I show that the optimal cap replicates the effects of firm-specific price controls, restoring allocative efficiency. In a more general framework, a mix of uniform tax rates---excess-profits, profit, and sales tax---implements the social optimum. Policies promoting competition also become more effective, because the cap stops the reallocation of production toward high-markup firms: the optimal entry subsidy delivers 2.3 to 3.3 times larger welfare gains.
Research in Progress
Capping Profits for Redistribution
The Preferential Drivers of Beliefs: How Risk Aversion Affects Meta Self-persuasion