Why do many developing countries adopt industrial policies that favor particular sectors? Can such interventions have positive effects? Ernest Liu attempts to answer this question by characterizing industrial policy in production networks. Market imperfections compound through backward demand linkages, causing upstream sectors to be the sink of imperfections and have the largest size distortions. His key finding is that the distortion in sectoral size is a sufficient statistic for the social value of promoting that sector; thus, there is an incentive for a well-meaning government to subsidize upstream sectors. Furthermore, aggregate effects of sectoral interventions can be simply summarized by the cross-sector covariance between this sufficient statistic and policy spending. He finds a high correlation between the distortion in sectoral size and sectoral policies in South Korea in the 1970s and modern-day China, suggesting that sectoral interventions might have generated positive aggregate effects in these economies.

How large are the social costs of short-staffed courts? In this paper, Karsten Müller studies this question in the context of bankruptcy courts in the United States. Following the 2005 bankruptcy reform "BAPCPA", the caseload of judges in court districts with many consumer bankruptcies dropped sharply. However, the law left the legal framework for business bankruptcies largely unaffected. He shows that interest rate spreads dropped and maturities increased for borrowing corporations headquartered in bankruptcy districts with the highest drop in judge caseload, particularly for firms that are more likely to go bankrupt. A back-of-the-envelope calculation suggests that the US-wide costs of inefficient bankruptcy courts are large, on the order of $670 million a year.