On Monday, October 2, 2023, Huiyu Li, a research advisor at the San Francisco Federal Reserve Bank, joined us to talk about good rents versus bad rents.
Firm price-cost markups may reflect (a) bigger step sizes from quality innovations that confer significant knowledge spillovers onto other firms, and/or (b) higher process efficiency than competing firms. We write down an endogenous growth model in which, compared with the laissez-faire equilibrium, the social planner would generally like to reallocate research resources towards high markup firms in case (a) so as to capitalize on knowledge spillovers but not in case (b). We then exploit unit price variation across firms in French manufacturing to assess the relative strength of these two forces. Viewed through the lens of our model, the French data are consistent with significant variation in innovation step sizes, and hence gains from mitigating R&D misallocation. The policy implication is that, to reach the social optimum, French research subsidies should favor only those high markup firms with “good” rents.
Huiyu Li is a research advisor at the SF Federal Reserve Bank. She joined the Bank in April 2015 after attaining her PhD in Economics at Stanford University. Prior to that, Huiyu grew up in Australia and completed her undergraduate and master’s degrees in Japan. Huiyu researches long-run growth, inflation measurement, and firm dynamics.
Huiyu has published in top academic journals, including the American Economic Review, Review of Economic Studies, Journal of Development, NBER Macroeconomics Annual, Journal of Economic Dynamics and Control, Computational Economics, and Mathematics of Operations Research. Her work has also been presented at leading academic, policy, and industry conferences such as the NBER Summer Institute, the Jackson Hole Symposium, and the NABE Economic Policy Conference. Her work has also been widely cited by media and industry outlets such as Goldman Sachs, the Economist, the Wall Street Journal, Bloomberg, and New York Times.
View Huiyu’s CV and research papers