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This edition was written by Sam Boocker, Georgia Nabors, Lorae Stojanovic, and David Wessel.
Fewer homes are sold during housing downturns due, in part, to real estate agent inexperience, find Sophia Gilbukh of Baruch College and Paul Goldsmith-Pinkham of Yale. Less experienced agents – those who are in the 10th percentile of the number of homes sold in the preceding year – are worse at closing sales than their more experienced counterparts in the 90th percentile. During a housing boom, the probability of an inexperienced agent selling a home within one year is 8.2 percentage points lower than the probability of an experienced agent selling a home. During a housing bust, this gap widens to 12 percentage points. The authors also find that inexperienced agents have a larger market share during bust years than in normal and boom years. During a boom, new agents enter the market and increase competition for clients, hindering opportunities for individual agents to accrue experience. This leads to an inexperienced labor force by the next bust. According to the authors, the compensation scheme is to blame: Fixed commissions and low entry costs mean that it is easy for novice agents to get started. Using a model of agents, home buyers, and home sellers, the authors show that replacing fixed commissions with competitive commissions would result in more homes being sold within a year and could reduce the foreclosure rate by 3.4% during housing busts.
Supply chain disruptions during the COVID-19 pandemic sparked a broad debate about the value of global economic integration. Sally Chen and Leanne Zhang of the Bank of International Settlements and Eric Tsang of the Hong Kong Monetary Authority examine how supply chains shifted during the pandemic. Using firm-level data to create networks of global supply chains in over 150 countries by sector, the authors find that the level of interconnectedness between firms declined during pandemic—particularly in highly globalized and decentralized industries such as IT services—and has not yet returned to pre-pandemic levels. The authors show that share prices of firms linked to China and Germany—two countries that implemented lockdowns early in the pandemic—declined by an additional 0.9% and 1.7% compared to returns in other countries, respectively, indicating that global supply chain linkages can magnify cross-country shocks to equity markets.
Apple’s App Tracking Transparency policy, designed to protect user privacy by restricting unauthorized data collection, can also prevent online fraud. Bo Bian of the University of British Columbia, Huan Tang of the University of Pennsylvania, and Michaela Pagel of Washington University find that a 10% increase in a zip code’s share of Apple users is associated with a 3.21% reduction in financial fraud complaints filed with the Consumer Financial Protection Bureau. The authors show that this effect is concentrated to complaints tied to data misuse and breach, suggesting that Apple’s policy reduces data-based financial fraud. The reduction in complaints is larger in areas with a higher concentration of racial minorities, women, or teenagers. Further, financial companies with at least one iOS app are about 1 percentage point less likely to receive fraud complaints after the implementation of Apple’s data protection policies relative to those without apps. The authors conclude that Apple’s policy reduces user vulnerability to data abuse-driven fraud and advocate greater restrictions on the tracking of personal information by other firms as well.
"The historical separation in the United States of banking and commerce was motivated by a desire to prevent conflicts of interest, avoid excessive concentration of economic power, and limit contagion between affiliates—where the failure of a commercial platform leads to impairment of the safety and soundness of the affiliated bank. Big Tech’s involvement in financial services presents many of these historical issues, in addition to novel banking and commerce concerns," says Graham Steele, Assistant Secretary for Financial Institutions at the U.S. Treasury.
"Big Tech firms may have incentives to leverage their existing commercial relationships, consumer data, and other resources to enter new markets, expand their networks and offerings, and scale rapidly to achieve capabilities that other firms do not have and cannot replicate. They may be able to use data advantages, network effects, acquisitions, predatory pricing, and other tactics to gain or entrench their market power to the detriment of competition and, ultimately, consumers."
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