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Please review your session(s) and let us know if you see anything that is
amiss. Before making additions, please do a search to make sure you are
not adding someone who is already scheduled at the same time.
We realize that there are some conflicts with participants. This was unavoidable, and in such cases a co-author will have to present the paper. Changes and corrections should be sent to gwyn.p.loftis@vanderbilt.edu.
All sessions will be equipped with a projector and screen for your
presentation. ASSA will not provide computers.
Jan 02, 2014 5:30 pm, Philadelphia Marriott, Grand Ballroom - Salon H
Econometric Society
Presidential Address
James J. Heckman
(University of Chicago)
The Economics and Econometrics of Human Development
Jan 02, 2014 6:30 pm, Loews Philadelphia Hotel, Regency Ballroom A & B
Association for Social Economics
Opening Plenary Session and Reception
(A1)
Presiding:
Mark D. White
(City University New York)
Capabilities and Social Justice: Why Economics Needs Philosophy
Martha Nussbaum
(University of Chicago)
N/A
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall A1
Agricultural & Applied Economics Association
The Groundwater-Energy Nexus
(Q2)
Presiding:
Krishna Paudel
(Louisiana State University)
Transboundary Allocation of Groundwater for Fracking under Threat of Salt Water Intrusion
Krishna Paudel
(Louisiana State University)
Biswo Poudel
(Louisiana State University)
[View Abstract]
Natural gas production through hydraulic fracturing (specifically horizontal slickwater fracking) since 1998 has brought or is likely to bring economic development in many parts of the U.S. Examples include: Marcellus Shale in New York, Barnett Shale in Texas, Eagle Ford Shale in Texas, Haynesville Shale in Louisiana, Arkansas and Texas, Bakken Shale in North Dakota and Montana, Niobrara shale in the Great plains of U.S., and Utica shale in the northeastern part of the U.S. Hydraulic fracturing has been the subject of much controversy and discussion because of its impact on groundwater quality, groundwater quantity, environmental quality, and health. The impact of hydraulic fracturing has also been linked to human rights (UN Human Right Council) as it can cause both direct and indirect impacts on human lives through its environmental impact.
The Effects of Energy Prices on Groundwater Extraction in Agriculture in the High Plains Aquifer
C.-Y. Cynthia Lin
(University of California-Davis)
Lisa Pfeiffer
(NOAA Fisheries)
[View Abstract]
[Download Preview] Worldwide, about 70 percent of water extracted or diverted for consumptive use goes to agriculture, but in many groundwater basins, this proportion can be as high as 95 to 99 percent. Thus, any investigation into the economics of groundwater must consider the agricultural industry. This paper focuses exclusively on the groundwater used for agriculture. Many of the world's most productive agricultural basins depend on groundwater and have experienced declines in water table levels. Increasing competition for water from cities and environmental needs, as well as concerns about future climate variability and more frequent droughts, have caused policy makers to declare "water crises" and look for ways to decrease the consumptive use of water. Rising energy prices have also posed a concern, as they are an important component of water extraction costs. In this paper we examine the effects of energy prices on groundwater extraction using an econometric model of a farmer's irrigation water pumping decision that accounts for both the intensive and extensive margins.
The Role of Energy Costs in Groundwater Pricing and Investments in Desalination and Wastewater Recycling
James Roumasset
(University of Hawaii)
Christopher Wada
(University of Hawaii)
[View Abstract]
[Download Preview] To meet the growing demand for freshwater, many regions have increased pumping of
groundwater in recent years, resulting in declining groundwater levels worldwide. Induced technical change regarding groundwater substitutes such as desalination and
wastewater recycling is a source of hope for limiting water scarcity. However, because these technologies are energy intensive, optimal implementation also depends on future energy price trends. We provide an operational model for the application to reverse-osmosis seawater desalination. With this foundation, we outline a research agenda for extending the framework to other groundwater substitutes and for adaptation to climate change.
Keywords:Groundwater management, water-energy nexus, dynamic optimization
JEL code:Q25
Discussants:
Nicholas Brozovic
(University of Illinois)
David Zilberman
(University of California-Berkeley)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 202-B
American Economic Association
Assessing the Welfare Impacts of Economic Integration: Evidence from the 19th and 20th Centuries
(F6)
Presiding:
John Brown
(Clark University)
How Large Are the Gains from Economic Integration? Theory and Evidence from United States Agriculture, 1880-2002
Arnaud Costinot
(Massachusetts Institute of Technology)
Dave Donaldson
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] In this paper we develop a new structural approach to measuring the gains from economic integration based on a Ricardian model in which heterogenous factors of production are allocated to multiple local markets based on comparative advantage. We implement our approach using data on crop markets in approximately 1,500 US counties from 1880 to 2002. Central to our empirical analysis is the use of a novel agronomic data source on predicted output by crop for small spatial units. Crucially, this dataset contains information about the productivity of all units for all crops, not just those that are actually being grown. Using this new approach we find that the long-run gains from economic integration among US agricultural markets have been substantial.
The Global Welfare Impact of China: Trade Integration and Technological Change
Julian di Giovanni
(International Monetary Fund)
Andrei Levchenko
(University of Michigan)
Jing Zhang
(University of Michigan)
[View Abstract]
[Download Preview] The paper evaluates the global welfare impact of China's trade integration and technological change in a quantitative Ricardian-Heckscher-Ohlin model implemented on 75 countries. We simulate two alternative productivity growth scenarios: a "balanced" one in which China's productivity grows at the same rate in each sector, and an "unbalanced" one in which China's comparative advantage sectors catch up disporportionally faster to the world productivity frontier. Contary to a well-known conjecture (Samuelson 2004), the large majority of countries in the sample, including the developed ones, experience an order of magnitude larger welfare gains when China's productivity growth is based towards its comparative disadvantage sectors. We demonstrate both analytically and quantitatively that this finding is driven by the inherently multilateral nature of world trade. As a separate but related excercise we quantify the world wide gains from China's trade integration.
The Link Between Fundamentals and Proximate Causes of Development
Wolfgang Keller
(University of Colorado)
Carol H. Shiue
(University of Colorado)
[View Abstract]
The Zollverein was arguably the most important free-trade agreement of the 19th century. This paper investigates the economic impact of the Zollverein on trade in Germany. Although 1834 is the official date of the Zollverein's establishment, member states in fact joined in a non-random sequence over several decades. This was because the benefits of becoming a member increased, both as the size of the union increased, and as membership in the union became increasingly important for accessing foreign markets. Our key innovation in this paper is to incorporate the endogenous effects of accession into an estimate of the economic impact of the Zollverein customs union. We find these effects are important-our estimated effects are several times larger than the simpler estimates that do not take these effects into account. This paper discusses the implications of this for Germany's economic history as for other studies of trade liberalization.
A Factor Augmentation Formulation of the Gains from Trade with an Application to Japan, 1865-1876
Daniel M. Bernhofen
(American University)
John C. Brown
(Clark University)
[View Abstract]
[Download Preview] Following Samuelson's seminal 1939 contribution, existing formulations of the aggregate gains from trade are rooted in the theory of consumer demand. We provide an alternative gains from trade formulation which is rooted in production theory and embeds Ricardo's 1817 formulation of the gains from trade into a multi-factor general equilibrium framework. Without imposing strong assumptions on consumer rationality or requiring necessarily data from the economy's autarky equilibrium, our formulation reveals information about both the magnitude and the components of the aggregate gains from trade. A high quality data set on product and task-specific factor employments in 19th-century Japan permits us to apply this approach to answer the following counterfactual: What factor augmentation would have been necessary to compensate the economy for an overnight suspension of trade in its early trade years of 1865-1876? Over the entire period, we find that trade was revealed to be equivalent to a 5.5% increase in Japan's female labour force, a 3.3% increase in its male labour force and a 3.9% increase in its arable land. Efficiency losses associated with a counterfactual suspension of trade averaged between 6.3 and 7.7 percent of the economy's productive capacity.
Discussants:
Cecilia Fieler
(University of Pennsylvania)
Marius Brülhart
(University of Lausanne)
Sascha O. Becker
(University of Warwick)
Douglas A. Irwin
(Dartmouth College)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 105-B
American Economic Association
Economics of Intergenerational Transfers and Wealth
(J1)
Presiding:
Karen Eggleston
(Stanford University)
Education Policy and Intergenerational Transfers in Equilibrium
Brant Abbott
(University of British Columbia)
Giovanni Gallipoli
(University of British Columbia)
Costas Meghir
(Yale University)
Gianluca Violante
(New York University)
[View Abstract]
[Download Preview] This paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life-cycle, heterogeneous-agent, incomplete-markets model with education, labor supply, and consumption/ saving decisions. Altruistic parents make inter vivos transfers to their children. Labor supply during college, government grants and loans, as well as private loans, complement parental transfers as sources of funding for college education. We find that the current financial aid system in the U.S. improves welfare, and removing it would reduce GDP by two percentage points in the long-run. Any further relaxation of government-sponsored loan limits would have no salient effects. The short-run partial equilibrium effects of expanding tuition grants (especially their need-based component) are sizeable. However, long-run general equilibrium effects are 3-4 times smaller. Every additional dollar of government grants crowds out 20-30 cents of parental transfers.
Intergenerational Wealth Mobility: Evidence from Danish Wealth Records of Three Generations
Simon Halphen Boserup
(University of Copenhagen)
Wojciech Kopczuk
(Columbia University)
Claus Thustrup Kreiner
(University of Copenhagen, CESifo and CEPR)
[View Abstract]
We provide empirical evidence on the intergenerational mobility of wealth using administrative wealth records of three generations of Danes. Our preferred estimate for the intergenerational wealth elasticity (IWE) is 0.2 (and 0.27 when limiting attention to those with positive wealth only). We construct a theoretical framework that allows for understanding the variability of the IWE across time, samples, and countries. Our framework highlights that the IWE can be interpreted as the weighted average of elasticities corresponding to different sources of intergenerational correlation that may in principle vary in importance across different contexts. However, we find that the IWE is surprisingly stable when estimated for different age groups, when using parents-grandparents pairs instead of children and parents, when eliminating bequests, and when explicitly shutting down many of the potential channels behind intergenerational wealth mobility, including income and education. This suggests that parental wealth is a sufficient statistic for the channels that we control for and those that vary across different samples, that is, the effect of these parental characteristics on wealth of children can be summarized by their effect on wealth of parents. By exploiting information for three generations we find that the standard child-parents elasticity severely underestimates the long-term persistence in the formation of wealth across generations. We show that either the true elasticity is significantly underestimated or that grandparental characteristics matter beyond information incorporated in parental characteristics.
Housing Windfalls and Intergenerational Transfers in China
Maria Porter
(Michigan State University)
Albert Park
(Hong Kong University of Science and Technology)
[View Abstract]
In this paper, we study the impact of housing reform and the rapid development of the housing market in China on parental wealth and financial transfers they receive from children. During the 1990s, the Chinese government gave property rights to many urban residents who had been allocated housing by their danwei employers. These unexpected windfalls were substantial in size, and grew with the rapid increase in housing prices over time, significantly impacting the asset holdings and wealth of affected urban residents. We find that these exogenous changes in wealth had a considerable impact on transfers received from adult non-resident children. We also find a non-linear relationship between transfers and recipient wealth, and strong evidence for altruistic transfer motives.
The Intergenerational Impact of Rural Pensions in China: Transfers, Living Arrangements, and Off-Farm Employment of Adult Children
Ang Sun
(Renmin University of China)
Xi Chen
(Yale University)
Karen N. Eggleston
(Stanford University)
[View Abstract]
Rural China offers a unique and important setting for studying the economics of intergenerational transfers, given the rapidity of China's population aging, traditions of filial piety and co-residence, decrease in number of children, and dearth of formal social security, at a relatively low income level. In 2009, China launched a pension program for rural residents, now covering several hundred million Chinese. This study provides some early evidence on the program's intergenerational impact, drawing on data from 3 sources: rich household and social network data from multiple survey waves in rural Guizhou province; a July 2012 detailed household survey in one rural county of Shandong province; and the 2012 nationally representative China Health and Retirement Longitudinal Study (an HRS sister study). Employing regression discontinuity analysis, we find that rural pension receipt impacts intergenerational transfers and the living arrangements of the extended family (allowing both generations greater privacy), as well as the occupational choices and migration decisions of the pensioners' adult children. All adult children--both daughters and sons--are more likely to migrate and take off-farm jobs after the parents' pension receipt. We also utilize the extensive social network data in the Guizhou survey to explore how social networks shape pension take-up and household strategic responses.
Discussants:
Susan M. Dynarski
(University of Michigan)
Costas Meghir
(Yale University)
Xiaobo Zhang
(International Food Policy Research Institute)
Albert Park
(Hong Kong University of Science and Technology)
Jan 03, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon J
American Economic Association
Effects on Preferences Regarding Risk & Ambiguity
(D8)
Presiding:
Luca Rigotti
(University of Pittsburgh)
The Long-Run Impact of Traumatic Experience on Risk Aversion
Young-Il Kim
(Sogang University)
Jungmin Lee
(Sogang University & IZA)
[View Abstract]
[Download Preview] We examine the long-run impact of an early childhood exposure to a traumatic event
on risk attitudes by studying the Korean War. We find that those who spent their
early childhood during the peak of the war remain more risk averse five decades later,
even after controlling for age. Furthermore, within the cohorts, those who resided in
more severely affected provinces are more risk averse. Also by using data from the
World Values Survey and Armed Conflict Data set that spans 51 countries, we confirm
that an early childhood exposure to a major civil war is associated with stronger risk
aversion.
Self Confirming Long Run Biases
Pierpaolo Battigalli
(University of Bocconi)
Fabio Maccheroni
(University of Bocconi)
Massimo Marinacci
(University of Bocconi)
Simone Cerreia-Vioglio
(University of Bocconi)
[View Abstract]
We consider a myopic decision maker with smooth ambiguity averse preferences facing a recurrent decision problem. We study selfconfirming strategies. We show that a long run bias emerges that favors "tested" actions, that is, actions on which information has been collected over time. In so doing we provide, inter alia, a learning foundation for the selfconfirming equilibrium with model uncertainty of Battigalli et al. (2011, IGIER w.p. 428).
The intuition behind our result is that tested actions become "certainty traps": the decision maker observes ex post the consequences of chosen actions, hence he learns to be approximately certain about the risks (probabilities of consequences) implied by tested actions, wheras he remains uncertain about the risks implied by deviations. Ambiguity aversion then implies a bias toward tested actions.
The Legacy of Parental Time Preferences: Investment Behavior, and Children's Lifetime Outcomes
Hans Gronqvist
(Stockholm University)
Lena Lindahl
(Stockholm University)
Bart Golsteyn
(Maastricht University)
[View Abstract]
This paper investigates the relationship between time preferences and lifetime social and economic behavior. We use a Swedish longitudinal dataset that links information from a large survey on children's time preferences at age 13 to administrative registers spanning over five decades. We document how time preferences are related to human capital investments in terms of educational choices and school performance as early as in compulsory school. We then follow the children throughout life, observing their completed education, results on military enlistment tests, fertility decisions, indicators of health, labor market success, and lifetime income. Our results indicate a substantial adverse relationship between high discount rates and school performance, health, labor supply, and lifetime income. Males and high ability children gain significantly more from being future-oriented. These discrepancies are largest regarding outcomes later in life. We also show that the relationship between time preferences and long-run outcomes operates through early human capital investments. Most earlier studies on the relationship between time preferences and outcomes are cross-sectional in nature or follow adult individuals over a short period of time. The strength and novelty of our study lie in the use of a very rich data source. The data enable us to link time preferences during childhood to social and economic outcomes observed for a very long portion of the respondents' lives. We measure time preferences at age 13 and are able to follow individuals for more than five decades. No other data have enabled researchers to analyze the importance of time preferences for such an extended period.
Over-Caution of Large Committees of Experts
Justin Mattias Valasek
(WZB)
Rune Midjord
(University of the Basque Country)
Tomas Rodriguez Barraquer
(Hebrew University)
[View Abstract]
[Download Preview] In this paper, we demonstrate that payoffs linked to a committee member's individual vote may explain over-cautious behavior in committees. A committee of experts must decide whether to approve or reject a proposed innovation on behalf of society. In addition to a payoff linked to the adequateness of the committee's decision, each expert receives a disesteem payoff if he/she voted in favor of an ill-fated innovation. An example is FDA committees, where committee members can be exposed to a disesteem (negative) payoff if they vote to pass a drug that proves to be fatal for some users. We show that no matter how small the disesteem payoffs are, information aggregation fails in large committees: under any majority rule, the committee rejects the innovation almost surely. We then show that this inefficiency can be mitigated by pre-vote information pooling, but only if the decision is take under unanimity: in the presence of disesteem payoffs, committee members will only vote efficiently if they are all responsible for the final decision.
An Evolutionary Justification for Non-Bayesian Beliefs and Overconfidence
Hanzhe Zhang
(University of Chicago)
[View Abstract]
[Download Preview] This paper suggests that the evolutionarily optimal belief of an agent’s intrinsic reproductive ability is systematically different from the posterior belief obtained by the perfect Bayesian updating. In particular, the optimal belief depends on how risk-averse the agent is. Although the perfect Bayesian updating remains evolutionarily optimal for a risk-neutral agent, it is not for any other. Specifically, the belief is always positively biased for a risk-averse agent, and the more risk-averse an agent is, the more positively biased the optimally updated belief is. Such biased beliefs align with experimental findings and also offer an alternative explanation to the empirical puzzle that people across the population appear overconfident by consistently overestimating their personal hereditary traits.
Primary-Market Auctions for Event Tickets: Eliminating the Rents of "Bob the Broker"
Eric Budish
(University of Chicago)
Aditya Bhave
(University of Chicago)
[View Abstract]
Economists have long been puzzled by event-ticket underpricing: underpricing reduces revenue for the performer, and encourages socially wasteful rent-seeking by ticket brokers. Why not use an auction to set price correctly? This paper studies the recent introduction of auctions into the event-ticket market by Ticketmaster. By combining primary-market data from Ticketmaster with secondary-market resale value data from eBay, we show that Ticketmaster's auctions work: the auctions substantially improve price discovery, roughly double performer revenues, and, on average, nearly eliminate the arbitrage profits associated with underpriced tickets. The data thus suggest that auctions can eliminate the speculator rent-seeking that has been associated with this market since the 19th century, and that seems to have exploded in volume in the 21st century.
Jan 03, 2014 8:00 am, Philadelphia Marriott, Meeting Room 305
American Economic Association
Evaluation of Social Programs
(H4)
Presiding:
William Hoyt
(University of Kentucky)
Smallpox and Human Capital Development: 1850-1930
Dara Lee Luca
(University of Missouri and Harvard University)
[View Abstract]
This paper examines the impact of smallpox on economic growth and human capital development in the United States. Smallpox is a serious infectious disease with a long and destructive history - over the centuries it has killed more people than all other infectious diseases combined. The fatality rate of smallpox is over 30 percent and there is still no specific treatment for the disease. The invention of the smallpox vaccine in 1796 hence represented a dramatic turning point. By the mid-19th century, a number of countries had begun to mandate smallpox vaccinations for their populace. In particular, states in the U.S. that are close to the eastern seaboard - and hence more susceptible to smallpox invasions from overseas - made smallpox vaccinations compulsory for the public. Since the decision to get vaccinated may be endogenous and the timing of the mandates was determined primarily by geographical factors, I exploit the staggered implementation of the smallpox vaccination mandates to examine the impact of smallpox reduction. I use historical Census and newly digitized smallpox mortality data from 1850 to 1930 to investigate the following questions. First, I examine the impact of smallpox on mortality, and demonstrate that the vaccination mandates were very effective in reducing mortality rates. Second, I show that the cohorts that were affected by the mandates had higher life expectancy as well as higher literacy rates. One possible mechanisms is that vaccinations increased human capital accumulation by directly increasing health and productivity. It is also possible that human capital investment increased because the number of years that people can earn a return on education rose significantly. Finally, I provide evidence that within-state larger smallpox reductions are associated with faster economic growth, implying that public health interventions could potentially impact society on a macro-scale.
The Power of Hydroelectric Dams: Agglomeration Spillovers
Edson R. Severnini
(Carnegie Mellon University)
[View Abstract]
[Download Preview] How much of the geographic clustering of economic activity is attributable to agglomeration spillovers as opposed to natural advantages? I present evidence on this question using data on the long-run effects of large scale hydroelectric dams built in the U.S. over the 20th century, obtained through a unique comparison between counties with or without dams but with similar hydropower potential. Until mid-century, the availability of cheap local power from hydroelectric dams conveyed an important advantage that attracted industry and population. By the 1950s, however, these advantages were attenuated by improvements in the efficiency of thermal power generation and the advent of high tension transmission lines. Using a novel combination of synthetic control methods and event-study techniques, I show that, on average, dams built before 1950 had substantial short run effects on local population and employment growth, whereas those built after 1950 had no such effects. Moreover, the impact of pre-1950 dams persisted and continued to grow after the advantages of cheap local hydroelectricity were attenuated, suggesting the presence of important agglomeration spillovers. Over a 50 year horizon, I estimate that at least one half of the long run effect of pre-1950 dams is due to spillovers. The estimated short and long run effects are highly robust to alternative procedures for selecting synthetic controls, to controls for confounding factors such as proximity to transportation networks, and to alternative sample restrictions, such as dropping dams built by the Tennessee Valley Authority or removing control counties with environmental regulations. I also find small local agglomeration effects from smaller dam projects, and small spillovers to nearby locations from large dams. Lastly, I find relatively small costs of environmental regulations associated with hydroelectric licensing rules.
Evaluating Long-Term Impacts of Sustained Mass Deworming: South Korea 1969-1995
Taejong Kim
(KDI School of Public Policy and Management)
Jungho Kim
(Ajou University)
Hyeok Jeong
(KDI School of Public Policy and Management)
Sunjin Kim
(KDI School of Public Policy and Management)
[View Abstract]
[Download Preview] South Korea successfully implemented a sustained, nation-wide deworming campaign, jump-started in 1969 with a three-year massive assistance program from the Overseas Technical Cooperation Agency (OTCA), Japan, culminating in the 1995 WHO declaration that the country is essentially worm-free. We propose to study the long-term impacts of this sustained deworming campaign on educational attainment and productivity gains on the part of beneficiaries. For the purpose, we match individual workers from a current longitudinal study of Korean workers from the Korea Labor and Income Panel Study (KLIPS) with the prevailing worm infection rate at the middle school attended by the worker during his/her last year in junior high school attendance, taking advantage of the identification of the middle school attended by the subjects in the KLIPS. A complementary analysis using population census is conducted. The empirical strategy is inspired by the series of investigations by Hoyt Bleakley on the long-term impacts of deworming in the American South. The results suggests that the full exposure to the risk of soil-transmitted helminthes infection during the childhood lowers years of schooling by 1.0~2.4 years, the probability of achieving high school diploma by 20~51%p and adult earning by 5%p. Further, the effect is estimated to be larger for women than for men, which suggests that the STH eradication campaign was more beneficial to the more disadvantaged group of population.
Moving High-Performing Teachers to Low Achieving Schools
Bing-ru Teh
(Mathematica Policy Research Inc.)
Steven Glazerman
(Mathematica Policy Research Inc.)
Ali Protik
(Mathematica Policy Research Inc.)
Julie Bruch
(Mathematica Policy Research Inc.)
Jeffrey Max
(Mathematica Policy Research Inc.)
[View Abstract]
Traditional teacher compensation schemes may create incentives for teachers to seek out students who are the easiest to teach, leaving the most disadvantaged students with the weakest or least experienced teachers. We estimate the impacts of an intervention that attempts to redistribute some of the high-performing teachers in ten school districts by offering a $20,000 transfer bonus to induce these teachers to transfer into and stay for at least two years in one of the lowest-achieving schools in their district. Lowest achieving schools with eligible vacancies were randomly assigned either the opportunity to hire a high-performing teacher (treatment) or to fill their vacancy using their usual methods (control). We examine the effects of this intervention on teacher effectiveness, as measured by differences in student test score growth, and on teacher retention rates during and after the intervention. Finally, we estimate the net benefits of this intervention to schools who successfully hired a high-performing teacher.
John Papp
(Highbridge Capital Management)
Jan 03, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon I
American Economic Association
Fertility Decisions
(J1)
Presiding:
Tom Vogl
(Princeton University)
Land Reform and Sex Selection in China
Douglas Almond
(Columbia University)
Shuang Zhang
(University of Colorada-Boulder)
Honbin Li
(Tsinghua University)
[View Abstract]
[Download Preview] Following the death of Mao in 1976, abandonment of collective farming lifted millions from poverty and heralded sweeping pro-market policies. Did China's excess in male births respond to rural land reform? In newly-available data from over 1,000 counties, a second child following a daughter was 5.5 percent more likely to be a boy after land reform, doubling the prevailing rate of sex selection. We argue that having a son may be a normal good. Larger increases in sex ratios are found in families with more education and in counties with larger output gains from the reform. Proximately, sex selection was achieved in part through prenatal ultrasounds obtained in provincial capitals and increased mortality of female children. The One Child Policy was implemented over the same time period as land reform and is frequently blamed for increased sex ratios during the early 1980s. Our results point to China's watershed economic liberalization as a more likely culprit.
Heat Waves at Conception and Later Life Outcomes
Joshua Wilde
(University of South Florida)
Benedicte Apouey
(Paris School of Economics)
[View Abstract]
[Download Preview] We ask whether children conceived during heat waves have better health and educational outcomes later in life. Using Census data from 22 countries, we show that children conceived during heat waves have higher literacy rates, attain more years of schooling, and lower rates of disability than children conceived during periods of normal temperatures. We then explore several channels through which this effect may occur using a combined AIS, DHS, and MIS data set from sub-Saharan Africa. We find evidence more educated and wealthier women are more likely to conceive a child during a heat wave, implying that part of the effect is explained by selection into conception by different types of parents. We also show that differential reductions in sexual activity during heat waves among higher educated parents could be driving this effect. We also find higher rates of fetal loss for children conceived during heat waves, implying that part of the result may be explained by natural selection.
Parenthood and Productivity of Highly Skilled Labor: Evidence From the Groves of Academe
Matthias Krapf
(University of Zurich)
Heinrich Ursprung
(University of Konstanz)
Christian Zimmermann
(Federal Reserve Bank of St. Louis)
[View Abstract]
[Download Preview] We examine the effect of pregnancy and parenthood on the research productivity of academic economists. Combining the survey responses of nearly 10,000 economists with their publication records as documented in their RePEc accounts, we do not find that motherhood is associated with low research productivity. Nor do we find a statistically significant unconditional effect of a first child on research productivity. Conditional difference-in-differences estimates, however, suggest that the effect of parenthood on research productivity is negative for unmarried women and positive for untenured men. Moreover, becoming a mother before 30 years of age appears to have a detrimental effect on research productivity.
School Cutoff Dates, and the Timing of Births
Hitoshi Shigeoka
(Simon Fraser University)
[View Abstract]
[Download Preview] This paper shows that mothers take into account the long-term academic consequences of their children when they make decisions on the birth timing. Many countries require children to reach a certain age by a specified date in the calendar year in order to start kindergarten/primary school. There is a clear trade-off for parents to time a birth after the school entry cutoff date; births just after cutoff date may benefit children from being older among the school cohort, which is shown to provide the children with academic advantage, while parents have to bear an additional year of child care costs. Using the universe of births during 1974-2010 in Japan, I find that more than 1,800 births per year are shifted roughly a week before the cutoff date to a week following the cutoff date. The overall shifts in births, however, may mask heterogeneous responses of mothers. I find that births by younger mothers, 2nd-born births, and male births are more shifted than births by older mothers, 1st-born births, and female births, respectively. I also find some suggestive evidence that families with high socioeconomic status are more likely to time births after the school entry cutoff date. This study may have implications for growing literature that assumes births around the school entrance cut-off dates are random.
Intergenerational Dynamics and the Fertility Transition
Tom S. Vogl
(Princeton University)
[View Abstract]
Fertility change is distinct from other forms of social and economic change because it directly alters the size and composition of the next generation. This paper studies how the association between a mother's fertility and her daughter's fertility affects aggregate fertility rates over the course of the fertility transition. Microdata from 40 developing countries show that the intergenerational transmission of fertility strengthens during the fertility transition, as the relationship between sibship size and educational attainment flips from positive to negative. As a result, intergenerational transmission becomes an important determinant of aggregate fertility rates in late-transition countries, elevating average fertility by as much as 10%.
The Demographic Consequences of Gender Selection Technology
Qi Li
(Peking University)
Juan Pantano
(Washington University in St. Louis)
[View Abstract]
Over the last several years highly accurate methods of gender selection before conception have been developed. Given that strong preferences for gender variety in offspring have been documented for the U.S., we move beyond bio-ethical and moral considerations and ask what the demographic consequences of gender selection technology could be. Lacking variation across space and time in access to this technology,we estimate a dynamic programming model of fertility decisions with microdata on fertility histories from the National Survey of Family Growth. After recovering preferences for gender variety, we simulate the introduction of this technology. While this technology can reduce fertility by allowing parents efficiently reach their preferred gender mix, it could also increase fertility. This is because without this technology, many parents may opt not to have another baby given the uncertainty about its gender.
Preliminary results suggest that these two effects operate simultaneously, but on net, gender selection technology ends up increasing the total fertility rate by about ten percent in the steady state.
Jan 03, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon L
American Economic Association
Gender Differences
(J1)
Presiding:
Joyce Jacobsen
(Wesleyan University)
How the Design of a Pension System Influences Old Age Poverty and Gender Equity: A Study of Chile's Private Retirement Accounts System
Petra Todd
(University of Pennsylvania)
Clement Joubert
(University of North Carolina-Chapel Hill)
[View Abstract]
[Download Preview] This paper develops and estimates a dynamic model of individual's and couples labor supply and savings decisions to examine how the design of an individual retirement accounts pension system influences retirement decisions, pension accumulations and consumption levels of men and women. Chile has one of the longest-running nationwide private retirement accounts systems, operating since 1980, and its pension system served as a model for many other Latin American countries. In 2008, Chile undertook a major reform of its pension system with a focus on reducing old age poverty and promoting gender equity. Women can be particularly vulnerable to poverty under a private retirements account system, because they typically have less regular labor force participation than men, lower average wages and longer life spans. The pension reform introduced several new features designed to reduce gender gaps in pension accumulations and pension benefits. The behavioral model is estimated using household survey data from the Encuesta de Proteccion Social merged with administrative data on pension contribution. The estimated model is used to simulate the short-term and long-term effects of the 2008 pension reform and to compare with alternative pension system designs.
Math and Gender: Is Math a Route to a High-Powered Career?
Juanna Joensen
(Stockholm School of Economics)
Helena Skyt Nielsen
(Aarhus University)
[View Abstract]
We use Danish register data for the three cohorts of high school students of 1984-86. We exploit exogenous variation from a high school pilot scheme to identify the channels through which advanced high school math causes more favorable career outcomes. The pilot scheme reduced the costs of choosing advanced math - in particular for girls at the top of the math ability distribution - because it allowed for a more flexible combination of math with other courses. Only one out of ten female high school students chooses advanced math without the pilot scheme, and this fraction almost doubled after introduction of the pilot scheme. It is this exogenous cost variation that we exploit in order to understand the potential of advanced math to attract females to high-powered careers. We specifically analyze the causal effect of advanced high school math on earnings. We further explore potential mechanisms by analyzing the causal effect of math on college enrollment and graduation, PhD graduation, field of major, promotion to top-corporate jobs, and choice of sector and industry.
Consistent with earlier work, we find strong evidence of a causal effect of math on earnings for students who are induced to choose math after being exposed to the pilot scheme. Studying marginal treatment effects, we cannot reject that the returns to advanced math are equal across gender for individuals with an identical propensity to choose advanced math. This indicates that there is no gender discrimination in the labor market as to rewarding individuals with similar math ability equally for their advanced math qualifications. This further indicates that the underlying math ability distribution is also equal.
Firm Level Monopsony and the Gender Pay Gap
Douglas Webber
(Temple University)
[View Abstract]
[Download Preview] This study uses linked employer-employee data to estimate the labor supply elasticity facing the rm, separately by gender, for a comprehensive sample of U.S. firms.
Using a dynamic model of labor supply, which identifies the labor supply elasticity tothe firm o of job to job transitions, I find evidence of substantial search frictions in the economy, with females facing a higher level of frictions than males. However, the
majority of the gender gap in labor supply elasticities is driven by across firm sorting rather than within rm differences, a feature predicted in the search theory literature, but which has not been previously documented. On average, I find that males face
a labor supply elasticity 0.15 points higher than females, a differential which leads to 3.3% lower earnings for women (or about 14% of the adjusted gender earnings gap). Roughly 60% of the elasticity differential can be explained by marriage and children
penalties faced by women but not men.
Gender Differences and Dynamics in Competition: The Role of Luck
David Gill
(University of Oxford)
Victoria Prowse
(Cornell University)
[View Abstract]
[Download Preview] In a real effort experiment with repeated competition we find striking differences in how the work effort of men and women responds to previous wins and losses. For women losing per se is detrimental to productivity, but for men a loss impacts negatively on productivity only when the prize at stake is big enough. Responses to luck are more persistent and explain more of the variation in behavior for women, and account for about half of the gender performance gap in our experiment. Our findings shed new light on why women may be less inclined to pursue competition-intensive careers.
To the best of our knowledge, our paper is the first to report how the work effort of men and women responds to the outcome of previous competitions. In each of 10 rounds subjects are paired and informed of the value of the monetary prize that they are competing for. The prize, which can be interpreted as a relative-performance bonus, is awarded to one of the pair members depending on the relative work efforts of the pair members in the "slider task", which involves positioning a number of sliders on a screen, and some element of chance which we control.
In our empirical analysis we explore how effort provision responds to the outcomes of previous rounds of competitive interaction, i.e., previous wins and losses. We use fixed effects dynamic panel data methods and control for permanent individual-level ability, time effects and prize effects. We exploit randomization induced by the experimental design to obtain a number of valid instruments for the variables measuring previous competitive outcomes. We note that the randomness present in the experimental design is critical to our identification strategy: it is this randomness that allows us to estimate the causal effect of previous competitive outcomes on current effort provision.
Are Women “Naturally†Better Credit Risks in Microcredit? Evidence from Field Experiments in Patriarchal and Matrilineal Societies in Bangladesh
Sugato Chakravarty
(Purdue University)
Abu Zafar M. Shahriar
(Monash University)
Zahid Iqbal
(Purdue University)
[View Abstract]
[Download Preview] We use controlled experiments to identify the proximal causes of gender differences in the repayment of microcredit. We recruit male and female subjects from a patriarchal and a matrilineal community in Bangladesh, who live in the same villages, and find that the female subjects have a greater willingness to repay microcredit in every society irrespective of the type of loan. Thus, the observed gender differences in the repayment of microcredit cannot be explained by the different roles that women play in different societies. In other words, women are “naturally†better credit risks than men in microcredit. We confirm that our results are not driven by the common culture and values among our subjects that stem from geographical proximity.
Jan 03, 2014 8:00 am, Philadelphia Marriott, Meeting Room 306
American Economic Association
Health Economics
(I1)
Presiding:
Kathleen Carey
(Boston University)
Health Insurance and the Supply of Entrepreneurs: New Evidence from the Affordable Care Act's Dependent Coverage Mandate
James Benjamin Bailey
(Temple University)
[View Abstract]
[Download Preview] Abstract Is difficulty of purchasing health insurance as an individual or small business a major barrier to entrepreneurship in the United States? I answer this question by taking advantage of the natural experiment provided by the Affordable Care Act’s dependent coverage mandate, which allowed many 19-25 year olds to acquire health insurance independently of their employment. This mandate provides a means to estimate the number of potential entrepreneurs discouraged by the current system of employer-based health insurance. A difference-in-difference strategy finds that the dependent coverage mandate led to a 13-24% increase in self-employment among the treated group. The effect is found to be larger for women and for unincorporated businesses. An instrumental variables strategy finds that those actually receiving health insurance coverage as dependents were much more likely to start businesses.
The Effect of Health Shocks and Health Insurance on Employment and Earnings. Evidence from Chile
Vincent Pohl
(Queen's University)
Christopher Neilson
(Yale University)
Francisco Parro
(Ministerio de Hacienda de Chile)
[View Abstract]
[Download Preview] Absenteeism due to sickness imposes large costs on firms and workers. While firms experience production loss, workers potentially suffer from lost earnings. A large literature in health economics estimates the relationship between individuals' health and their labor market outcomes, but due to endogeneity and measurement issues, a causal relationship is difficult to establish. Similarly, answering the question to what extent more comprehensive health insurance can reduce the negative effects of health shocks on labor market outcomes is hampered by selection issues. In this paper, we exploit accidents and other unpredictable health shocks as sources of identifying variation and avoid these problems. Combining hospital discharge data with administrative earnings data from Chile, we can (a) estimate the causal short-term and long-term effects of health shocks on employment and earnings and (b) investigate if access to high quality health care through more comprehensive health insurance leads to better outcomes conditional on health.
A dynamic model of labor supply and health investment predicts that workers aim to smooth their consumption over time. Negative health shocks reduce the worker's productivity and time endowment and lead to lower earnings and may reduce labor supply to zero. Risk averse individuals can purchase better more expensive insurance that reduces the negative effects of health shocks by providing access to high quality health care in order to reduce the income drop due to health shocks. We exploit the dual health care system in Chile (public and private) and panel data on monthly earnings to test the predictions of this model. Workers' employment and earnings fall by about five percent on average in the month after a health shock and recover only slowly and not completely. These effects are about twice as large for individuals with public health insurance showing that more expensive health insurance improves consumption smoothing.
Peer Effects Among Hospitalized Patients: Evidence from Roommate Assignments.
Olga Yakusheva
(Marquette University)
[View Abstract]
[Download Preview] Background: The tendency of an individual to conform to or be affected by others has been reported for many health variables (mental health, obesity, mortality, etc.) and in a variety of social contexts (family, friends, co-workers, etc.). Examining social spillovers in health among hospital patients holds potential for better understanding and improving patient hospitalization experiences and outcomes.
Goal: This study is an empirical examination of spillovers in health among patients hospitalized in an acute care hospital, using data on quasi-random hospital roommate assignments and a longitudinal measure of the patient's clinical condition. Mechanisms of transmission of social spillovers in health among hospital patients are also explored.
Data and setting: The sample includes 1,392 females and 1,251 males who were discharged from a large urban teaching hospital during 6/1/11-12/31/11 and who had at least one roommate throughout the duration of their entire hospital stay. The clinical condition measure is the Rothman Index, an automatically generated and continuously updated score calculated based on a set of clinical variables using a novel clinically validated algorithm adopted by the study hospital. All data were obtained from the hospital's electronic medical records.
Analysis: The study estimates a standard lagged linear-in-means peer influence model. The focus patient's clinical condition score at discharge (t) is regressed on the average admission clinical condition score (t-1) of his/her roommates weighted by the proportion of stay spent with each roommate, conditional on the patient's own clinical condition at admission (t-1) and a set of controls for the patient's characteristics and room assignments.
Identification: Empirical studies of social spillovers face important identification challenges including unobserved selection bias, endogeneity (or reflection) bias, and bias from shared exposure to common environmental factors. The identifying source of variation in this study is variation in the clinical condition of the patient's roommates. Patients were assigned to rooms based on gender, diagnosis, and care needs. Balancing tests support that, conditional on a set of observable patient characteristics (gender, diagnosis) and room fixed effects, roommate assignments were plausibly exogenous (that is, the patient's clinical condition score at the time of admission was uncorrelated with the admission scores of his/her roommates). Conditional randomization of roommate assignments deals with unobserved selection, and using a pre-exposure measure of the roommate's clinical condition deals with confounding due to reflection and shared exposure to the common environment.
Results: The study finds evidence of social spillovers in health for females - sharing a room with healthier patients lead to a better clinical condition at discharge (close to a half a point higher discharge patient condition score of the focus patient for every 1 standard deviation increase in the average clinical condition score of the roommates). Female patients with healthier roommates also had significantly lower odds of being readmitted back to the hospital after discharge. The study further shows that these effects are unlikely to be the result of indirect spillover effects through rivalry for care; rather, the spillovers appear to operate through psychological pathways. No similar effects were observed for male patients.
Digitizing Doctor Demand: The Impact of Online Reviews on Doctor Choice
Sonal Vats
(Boston University)
Michael Luca
(Harvard Business School)
[View Abstract]
[Download Preview] We present empirical evidence for the impact of patient reviews on consumers’ physician choices. Our study is based on ZocDoc.com—a unique website that integrates patient reviews, and appointment scheduling for physicians on one platform. Using ZocDoc we construct a novel data set consisting of all reviews written for physicians in Manhattan, New York. We then pair these reviews with data on appointments that are booked through ZocDoc, during February-May, 2013. Our data suggest that patient reviews are becoming an important source of reputation for physicians. About 25% of New York primary care physicians are now listed on ZocDoc, and 84% of them have at least 5 reviews. Because ZocDoc displays each physician’s rounded average rating to patients, we can use regression discontinuity to identify the causal impact of patient ratings on patient demand. We find that half a star improvement in ratings, on a scale of 1 to 5 stars, leads to a 10% increase in the likelihood, at the mean, that a doctor will fill an appointment.
Does Employment Reduce Informal Caregiving?
Daifeng He
(College of William and Mary)
Peter McHenry
(College of William and Mary)
[View Abstract]
[Download Preview] This paper examines the causal impact of labor force participation on informal caregiving. To address the endogeneity of labor force participation, we exploit local business cycles and instrument for individual labor force participation with state unemployment rates. Using data from the Survey of Income and Program Participation (SIPP), we find that labor force participation significantly reduces informal caregiving. Among women, working an additional 10 hours per week reduces the probability of providing informal care by 12.5 percentage points and reduces the number of care hours by 32 percent. We also find that the effect of labor force participation is stronger among women with low income and wealth, who are the most important target of many welfare policies that promote labor force participation. Our results imply that demographic trends and work-promoting policies have the unintended consequence of reducing informal caregiving in an aging society that faces rising demand for informal care.
Why Does the Health of Immigrants Deteriorate?
Osea Giuntella
(University of Oxford)
[View Abstract]
[Download Preview] Despite their lower socioeconomic status, Mexican immigrants in the United States have similar or better health outcomes than natives. However, while second-generation Mexicans assimilate socio-economically, their health deteriorates. This phenomenon is commonly known as the ``Hispanic health paradox''. There is an open debate about whether this unhealthy assimilation is explained by selection on health or by the adoption of less healthy lifestyles. This paper uses a unique dataset linking the birth records of two generations of children born in California and Florida (1970--2009), to analyze the mechanisms behind the generational decline observed in birth outcomes. I show that a modest positive selection on health at the time of migration can account for the the initial advantage in birth outcomes of second-generation Mexicans. At the same time, a simple process of regression towards the mean reverses the apparent paradox, predicting a worse deterioration than the one observed in the data. Using a subset of siblings, and holding constant grandmother-fixed effects, I show that the persistence of healthier behaviors (e.g. smoking during pregnancy) among second-generation Mexican mothers can explain more than half of the difference between the model prediction and the observed birth outcomes of third-generation Mexicans.
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 107-B
American Economic Association
Improving Student Performance
(I2)
Presiding:
Kristin Butcher
(Wellesley College)
One Size Does Not Fit All: The Role of Vocational Ability on College Attendance and Labor Market Outcomes
Sergio Urzua
(University of Maryland)
Maria F. Prada
(University of Maryland)
[View Abstract]
In this paper we study the role of a dimension of ability, vocational ability, that has received little attention by economists when analyzing schooling choices and labor market outcomes. We first describe this ability and then analyze its effect on schooling decisions and wages. To analyze its contribution, we estimate a Roy model with factor structure that deals with the endogeneity of schooling and also allows to differentiate tests scores from unobserved abilities. The results indicate that vocational ability has a positive reward on the labor market as all other dimensions of ability. But, in contrast with standard measures of ability, vocational ability reduces the probability of going to college. In particular, the results from the simulation indicate that one standard deviation increase in cognitive ability is associated with an increase of 9 percentage points in the probability of attending 4-year college and 2 percentage points for noncognitive ability, while the same increase in vocational ability reduces the probability in 5 percentage points. The returns to cognitive and noncognitive ability are considerably higher than the returns to vocational (6 and 4 percent respectively compared to 0.5 percent for vocational ability). However we find that that for the highest decile of vocational ability the conditional mean of hourly wages is higher than the alternative, suggesting that for individuals with very high levels of vocational ability but low levels of standard ability (cognitive and noncognitive) not going to college is associated with the highest expected hourly wage.
The Effect of an Individualized Online Practice Tool on Math Performance - Evidence from a Randomized Field Experiment
Carla Haelermans
(Maastricht University)
Joris Ghysels
(Maastricht University)
[View Abstract]
[Download Preview] This paper explores the effect of using an individualized interactive online practice tool on basic math skills of 7th grade students with a randomized field experiment. The results show that practicing with the online tool leads to a substantial and significant increase in math performance growth. On top of that, a positive and significant relation between additional minutes practiced per week and math performance is revealed. The effect is robust to adding student characteristics that influence their practice behavior and to adding usage and attitude towards the tool of the non-randomized teachers. So, the effect holds, despite the fact that there is large heterogeneity in teachers’ usage and attitude towards the practice tool and despite the fact that there is large variation in practice behavior by students. Moreover, there are low implementation barriers, and a cost-benefit analysis indicates that the potential cost savings of this method are very large.
Not Just Test Scores: Parents' Demand Response to School Quality Information
Iftikhar Hussain
(University of Sussex)
[View Abstract]
[Download Preview] There is scant evidence on the effects of providing school quality information, other than test scores, on parents' school choice decisions. This paper investigates the causal effects of a novel measure of quality, school inspection ratings. Using variation in the timing of inspections, I demonstrate that a school's market share, measured by total enrollment, responds to the top and bottom ratings. Next, using data on parents' ranked preferences over local schools, and exploiting the gradual rollout of a policy reform which led to major simplifications in the presentation style of the reports, the paper estimates a random utility model. The results show that there is a strong response to all ratings, not just those at the extreme, suggesting that families discriminate between the majority of schools located in the middle of the quality distribution. These effects are very large relative to parents' response to school test scores.
High School Course Quality and Revealed Information
Jesse Bricker
(Federal Reserve Board)
Hannah Allerdice Bricker
(Unaffiliated)
[View Abstract]
[Download Preview] The quality of a student's high school courses can influence later academic success, including admission to a selective college. Recent evidence suggests that some low-income high school students choose not to attend selective colleges because (a) they mis-estimate their true abilities and (b) their classmates and course options are not sufficiently challenging.
We use student-level high school transcript and test score data from the Chicago Public Schools, along with detailed Census information to investigate how low-income students' high school academic behavior is changed after taking the ACT test. Beginning in the 2000-2001 school year, the state of Illinois mandated that high school juniors take the ACT. This rule change was first used by Goodman (2013) as a behavior-changing mechanism. Goodman shows that this mechanism reveals information to students about how competitive they will be for selective colleges.
By comparing the lower-income students to higher-income students in the time before and after the ACT rule change, we can estimate the impact of revealed information on changes in course quality, course absences, course grades, and other inputs to become competitive for selective colleges.
Educating Bright Students in Urban Schools
Kalena Cortes
(Texas A&M University)
Wael Moussa
(Syracuse University)
Jeffrey Weinstein
(Syracuse University)
[View Abstract]
Our study analyzes the impact of the International Baccalaureate Diploma Programme, a college-preparatory educational program designed for higher-achieving students, on high school academic achievement in Chicago Public Schools. We exploit exogenous variation in the offering of the program across schools over time with a difference-in-differences framework. We estimate a positive effect of the program on the probability of obtaining a B average or better in coursework, with most of the effect accruing to performance in mathematics. Most importantly, the program led to a decrease in the likelihood of high school dropout and an increase in the probability of high school graduation. These findings are especially promising for this urban school district, given its overall disadvantaged student population, which may otherwise constrain access to postsecondary education and impede successful labor market outcomes even for the program's target population of higher-achieving students. The enhanced educational attainment is policy relevant in light of the increases in the high school wage premium and employment gap over the past 30 years.
Rational Addiction and Video Games
Micah Pollak
(Indiana University-Northwest)
[View Abstract]
As video games gain popularity among all age groups, the extent to which video games can and should be considered addictive has become an increasingly important question. I develop a model of rational addiction for video games and apply it to a unique panel dataset collected from the popular online video game Team Fortress 2. I provide evidence of rational addition in video games: past and future consumption play a significant role in determining how much an individual plays today. The micro nature of these data allow me to estimate the model at the individual level and characterize potential addicts in a way consistent with rational addiction. Finally, I extend the model to allow for learning and provide evidence of a skill-playtime feedback loop: by playing today an individual improves his skill which reinforces his decision to play in the future.
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 103-A
American Economic Association
Individual and Employer Responses to Unemployment
(J6)
Presiding:
Laura Kawano
(US Department of Treasury)
How Does Family Income Affect College Enrollment? Evidence from Timing of Parental Layoffs
Nate Hilger
(Harvard University)
[View Abstract]
It is well-known that parental income strongly predicts children's college attainment. However, there remains debate over whether this relationship is driven by parental income or by other factors, and how impacts of parental income vary across stages of childhood. I develop a new research design to estimate the causal effects of parental income during late childhood on children's college outcomes using administrative data on the U.S. population. The design compares outcomes of children whose fathers lose jobs before college decisions with outcomes of children whose fathers lose jobs after college decisions. I find that an unanticipated $1000 decrease in permanent income due to a father's layoff reduces children's enrollment by 0.18%. This impact is precisely estimated and smaller than estimates in prior work that rely on variation in firm closures rather than timing of layoffs. I replicate these larger estimates and show they are driven by selection of workers into closing firms. Causal effects of income during late childhood account for 10-15% of the cross-sectional correlation between income and enrollment. Income losses have even smaller impacts on the lowest-income children, consistent with the fact that these children rely less heavily on parental income to finance college. These findings suggest that relaxing parental liquidity constraints during late childhood will do little to increase enrollment compared to improvements in financial aid, especially for low-income children.
How Income Changes during Unemployment: Evidence from Tax Return Data
Laura Kawano
(US Department of Treasury)
Sara LaLumia
(Williams College)
[View Abstract]
This paper uses tax return data from 1999 to 2009 to provide new estimates of wage losses during unemployment, and to examine how other types of income change during an unemployment spell. Periods of unemployment are associated with significant reductions in wage income, equivalent to approximately 16% of pre-unemployment household-level earnings and 30% of individual-level earnings. Households partially compensate for these wage losses in ways that vary across groups: Spousal earnings increase in the case of married couples, filers more likely to have accrued financial and housing wealth realize greater amounts of capital gains, and older filers take early withdrawals from restricted savings accounts. More generous UI benefits crowd out wage income of unemployed workers, but have mostly small or zero effect on spousal earnings and non-wage income.
Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment
Kory Kroft
(University of Toronto)
Fabian Lange
(McGill University)
Matthew J. Notowidigdo
(University of Chicago)
[View Abstract]
[Download Preview] This paper studies the role of employer behavior in generating "negative duration dependence," the adverse effect of a longer unemployment spell, by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions and find that duration dependence is stronger when the local labor market is tighter. This result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.
A Contribution to the Empirics of Reservation Wages
Alan B Krueger
(Princeton University)
Andreas Mueller
(Columbia University)
[View Abstract]
[Download Preview] This paper provides evidence on the behavior of reservation wages over the spell of unemployment using high-frequency longitudinal data. Using data from our survey of unemployed workers in New Jersey, where workers were interviewed each week for up to 24 weeks, we find that self-reported reservation wages decline at a modest rate over the spell of unemployment, with point estimates ranging from 0.05 to 0.14 percent per week of unemployment. The decline in reservation wages is driven primarily by older individuals and those with personal savings at the start of the survey. The longitudinal nature of the data also allows us to test the relationship between job acceptance and the reservation wage and offered wage, where the reservation wage is measured from a previous interview to avoid bias due to cognitive dissonance. Job offers are more likely to be accepted if the offered wage exceeds the reservation wage, and the reservation wage has more predictive power in this regard than the pre-displacement wage, suggesting the reservation wage contains useful information about workers’ future decisions. In addition, there is a discrete rise in job acceptance when the offered wage exceeds the reservation wage. In comparison to a calibrated job search model, the reservation wage starts out too high and declines too slowly, on average, suggesting that many workers persistently misjudge their prospects or anchor their reservation wage on their previous wage.
Discussants:
Ann Huff Stevens
(University of California-Davis)
Till von Wachter
(University of California-Los Angeles)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 103-C
American Economic Association
Innovation
(O3)
Presiding:
Arthur Diamond
(University of Nebraska-Omaha)
Why do Regions Vary in their Response to Crowdfunding? The Young, Restless, and Creative
Ajay Agrawal
(University of Toronto)
Christian Catalini
(Massachusetts Institute of Technology)
Avi Goldfarb
(University of Toronto)
[View Abstract]
A recent theory conjectures that cross country variation in economic growth may be largely explained by variation in the local stock of a particular type of human capital that drives innovation: the young, restless, and creative. We examine the advent of crowdfunding, which led to a shock in the access to capital for individuals seeking to raise funding to develop innovative projects and ventures. Although the shock occurred uniformly across the U.S., regions varied in their response. Using data from a non-equity-based crowdfunding platform, we report evidence that the regional response to this new access to capital is correlated with the presence of young (20-29 years), creative (university graduates), and restless (unemployed) human capital. Specifically, locations with more unemployed recent graduates attract funding for more projects. Locations with more recent graduates with degrees in the social sciences and humanities raise funding for more arts-related projects. Locations with more recent graduates in engineering and computer science raise funds for more technology-related projects. Looking at the timing of when fund raising campaigns are launched, we find that they are disproportionately launched during college breaks in locations with top colleges.
Retractions
Pierre Azoulay
(Massachusetts Institute of Technology and NBER)
Jeffrey Furman
(Boston University and NBER)
Joshua Krieger
(Massachusetts Institute of Technology)
Fiona Murray
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] To what extent does "false science" impact the rate and direction of scientific change? We examine the impact of more than 1,100 scientific retractions on the citation trajectories of articles that are close neighbors of retracted articles in intellectual space but were published prior to the retraction event. Our results indicate that following retraction and relative to carefully selected controls, related articles experience a lasting five to ten percent decline in the rate at which they are cited. We probe the mechanisms that might underlie these negative spillovers over intellectual space. One view holds that adjacent fields atrophy post-retraction because the shoulders they offer to follow-on researchers have been proven to be shaky or absent. An alternative view holds that scientists avoid the "infected" fields lest their own status suffers through mere association. Two pieces of evidence are consistent with the latter view. First, for-profit citers are much less responsive to the retraction event than are academic citers. Second, the penalty suffered by related articles is much more severe when the associated retracted article includes fraud or misconduct, relative to cases where the retraction occurred because of honest mistakes.
Buy, Keep or Sell: Economic Growth and the Market for Ideas
Ufuk Akcigit
(University of Pennsylvania)
Murat Alp Celik
(University of Pennsylvania)
Jeremy Greenwood
(University of Pennsylvania)
[View Abstract]
An endogenous growth model is developed where each period firms invest in researching and developing new ideas. An idea increases a firm's productivity. By how much depends on how central the idea is to a firm's activity. Ideas can be bought and sold on a market for patents. A firm can sell an idea that is not relevant to its business or buy one if it fails to innovate. The developed model is matched up with stylized facts about the market for patents in the U.S. The analysis attempts to gauge how efficiency in the patent market affects growth.
Invisible Innovators: Historical Evidence from Mechanized Reapers and Cloud Computing
Richard Hunt
(University of Colorado-Boulder)
[View Abstract]
Existing theories of technological innovation posit a split between the incremental innovations produced by large incumbents and the radical innovations produced by entrepreneurial start-ups. This study presents empirical evidence challenging this foundational assumption by demonstrating that entrepreneurs play a leading role, not a subordinate role, in sourcing incremental innovations through secondary inventions and design modifications. In making this argument, I present parallels between two separate instances involving the diffusion of radical innovations: the mechanized reaper (1804 - 1884) and cloud computing services (1960 - 2011). Although these technologies arose in markedly different environments and eras, each instance demonstrates that without the sustained introduction of secondary inventions and design modifications by entrepreneurs, the dominant designs would have remained dormant. Applying the techniques of historical econometrics, this study reveals that among the highest-ranked incremental innovations leading to the commercialization of the mechanized reaper and cloud computing services, nearly 90% were attributable to entrepreneurial start-ups. Paradoxically, however, an entrepreneurial start-up had only a one in fourteen chance of garnering returns from a reaper innovation and a one in nine chance of gains from a cloud computing improvement.
The causal effect of labor unions on innovation
Daniel Bradley
(University of South Florida)
Incheol Kim
(University of South Florida)
Xuan Tian
(Indiana University)
[View Abstract]
[Download Preview] We examine the causal effect of unionization on firm innovation. To establish causality, we use a regression discontinuity design relying on “locally†exogenous variation generated by elections that pass or fail by a small margin of votes. Passing a union election leads to an 8.7% (12.5%) decline in patent quantity (quality) three years after the election. A reduction in R&D expenditures, reduced productivity of current and newly hired inventors, and departures of innovative inventors appear plausible mechanisms through which unionization impedes firm innovation. Our paper provides new insights into the real effects of unionization and has important implications for policy makers when they alter union regulations or labor laws to encourage innovation.
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 201-B
American Economic Association
Macroeconomic Uncertainty and Asset Prices
(G1)
Presiding:
Ivan Shaliastovich
(University of Pennsylvania)
Good and Bad Uncertainty: Macroeconomic and Financial Market Implications
Gill Segal
(University of Pennsylvania)
Ivan Shaliastovich
(University of Pennsylvania)
Amir Yaron
(University of Pennsylvania)
[View Abstract]
[Download Preview] Does macroeconomic uncertainty increase or decrease aggregate growth
and asset prices? To address question, we decompose aggregate uncertainty
of macroeconomic data into `good' and `bad' uncertainty components, which
correspond respectively to the volatility associated with positive and negative
innovations to macroeconomic growth rates. We document that in line with
our theoretical framework, these two types of uncertainty have dierent impact
on the macroeconomy and asset prices. Good uncertainty predicts an increase
in future economic activity, such as consumption, output, and investment, and
is positively related to valuation ratios, while bad uncertainty forecasts a decline
in economic growth and depresses asset prices. Further, we show that the
market price of risk and equity beta to good uncertainty shocks are positive,
while they are negative to bad uncertainty shocks. Hence, both good and bad
uncertainty risks contribute positively to equity risk premia and help explain
the cross section of expected returns beyond cash
ow risk.
One-Sided Risk Shocks
Jesus Fernandez-Villaverde
(University of Pennsylvania)
Pablo Guerron
(Federal Reserve Bank of Philadelphia)
Juan Rubio-Ramirez
(Duke University)
Uncertainty Shocks, Asset Supply and Pricing over the Business Cycle
Francesco Bianchi
(Duke University)
Cosmin Ilut
(Duke University)
Martin Schneider
(Stanford University)
[View Abstract]
[Download Preview] This paper studies a DSGE model with endogenous financial asset supply and
ambiguity averse investors. An increase in uncertainty about financial conditions leads firms to substitute away from debt and reduce shareholder payout in bad times when measured risk premia are high. Regime shifts in volatility generate large low frequency movements in asset prices due to uncertainty premia that are disconnected from the business cycle.
Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments
Scott R. Baker
(Stanford University)
Nicholas Bloom
(Stanford University)
[View Abstract]
[Download Preview] A growing body of evidence suggests that uncertainty is counter cyclical, rising sharply in recessions and falling in booms. But what is the causal relationship between uncertainty and growth? To identify this we construct cross country panel data on stock market levels and volatility as proxies for the first and second moments of business conditions. We then use natural disasters, terrorist attacks and unexpected political shocks as instruments for our stock market proxies of first and second moment shocks. We find that both the first and second moments are highly significant in explaining GDP growth, with second moment shocks accounting for at least a half of the variation in growth. Variations in higher moments of stock market returns appear to have little impact on growth.
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 201-A
American Economic Association
Measuring Systemic Risk
(G2)
Presiding:
René Stulz
(Ohio State University)
Enhanced Stress Testing and Financial Stability
Matthew Pritsker
(Federal Reserve Bank of Boston)
[View Abstract]
[Download Preview] Regulatory stress-testing has become one of the most important tools for determining banks' capital adequacy. In the United States, the current methodology focuses on ensuring the banking system is well capitalized after experiencing losses in one or a few stress scenarios that involve macroeconomic weakness. However, by only focusing on a few scenarios, the current approach does not ensure the banking system is also well capitalized against the wider set of plausible scenarios that could affect the banking system. For example, the 2012 CCAR stress-test ensured banks were well capitalized to a scenario with a weakening economy, low interest rates and inflation. But, the CCAR stress-test approach left unclear how well capitalized the banking system would have been to a stagflation scenario with a weakening economy, rising interest rates and inflation even though such a scenario is plausible. To improve stress testing practices, this paper proposes a framework for modeling systemic risk. The framework is used to identify areas where current stress-testing practices can be improved. Based on the framework, the paper proposes a new approach for systemic risk stress-testing and recapitalization policy that ensures the banking system is well capitalized against a wide set of plausible shocks, but minimizes the costs of achieving this goal through better allocation of equity capital and better sharing of risk.
How Likely is Contagion in Financial Networks?
Paul Glasserman
(Columbia University)
H. Peyton Young
(University of Oxford)
[View Abstract]
[Download Preview] Interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. We estimate the extent to which interconnections increase expected losses and defaults under a wide range of shock distributions. In contrast to most work on financial networks, we assume only minimal information about network structure and rely instead on information about the individual institutions that are the nodes of the network. The key node-level quantities are asset size, leverage, and a financial connectivity measure given by the fraction of a financial institution's liabilities held by other financial institutions. We combine these measures to derive explicit bounds on the potential magnitude of network effects on contagion and loss amplification. Spillover effects are most significant when node sizes are heterogeneous and the originating node is highly leveraged and has high financial connectivity. Our results also highlight the importance of mechanisms that go beyond simple spillover effects to magnify shocks; these include bankruptcy costs, and mark-to-market losses resulting from credit quality deterioration or a loss of confidence. We illustrate the results with data on the European banking system.
Taking the risk out of systemic risk measurement
Levent Guntay
(Federal Deposit Insurance Corporation)
Paul H. Kupiec
(The American Enterprise Institute)
[View Abstract]
[Download Preview] An emerging literature proposes using conditional value at risk (CoVaR) and marginal expected shortfall (MES) to measure financial institution systemic risk. We identify two weaknesses in this literature: (1) it lacks formal statistical hypothesis tests; and, (2) it confounds systemic and systematic risk. We address these weaknesses by introducing a null hypothesis that stock returns are normally distributed. This allows us to separate systemic from systematic risk and construct hypothesis tests for the presence of systemic risk. We calculate the sampling distribution of these new test statistics and apply our tests to daily stock returns data over the period 2006-2007. The null hypothesis is rejected in many instances, consistent with tail dependence and systemic risk but the CoVaR and MES tests often disagree about which firms are potentially systemic. The highly restrictive nature of the null hypothesis and the wide range of firms identified as systemic makes us reluctant to interpret rejections as clear evidence of systemic risk. The introduction of hypothesis testing is our primary contribution, and the results highlight the importance of generalizing the approach to less restrictive stock return processes and to other systemic risk measures derived from return data.
Can Top-down Banking Stress Tests Be Informative?
Pavel S. Kapinos
(Federal Deposit Insurance Corporation)
Oscar A. Mitnik
(Federal Deposit Insurance Corporation)
[View Abstract]
This paper assess the usefulness of top-down approaches to stress testing of banks by evaluating the impact of negative shocks to macroeconomic variables on the income-to-assets ratio of a panel of banks in the U.S. The path of negative shocks used is the same that was used in 2013 by the banking industry as part of the stress tests on large banks, mandated by the Dodd-Frank Act. We show that the relationship between macroeconomic variables and the income-to-assets ratio varies dramatically over the business cycle. Accounting for this variation has important implications for the outcomes of top-down stress tests conducted on individual banks. We also document that the set of macroeconomic variables used by the Federal Reserve for the stress test exercise are highly collinear, and propose a principal components approach for constructing stress-test scenario projections. Finally, properly allowing for bank heterogeneity can be very important.
Discussants:
Sanjiv R. Das
(Santa Clara University)
Mark J. Flannery
(University of Florida)
Albert S. Kyle
(University of Maryland)
Rene M. Stulz
(Ohio State University)
Jan 03, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon B
American Economic Association
Microeconometrics: Theory and Applications
(C2)
Presiding:
Bidisha Mandal
(Washington State University)
Estimation of an Education Production Function under Random Assignment with Selection
Eleanor Choi
(Hanyang University)
Hyungsik Roger Moon
(University of Southern California)
Geert Ridder
(University of Southern California)
[View Abstract]
[Download Preview] This paper estimates an education production function using data on the College Scholastic Ability Test score and high school characteristics from Seoul, Korea, where on entering high school students are randomly assigned to schools within each school district. We derive a school production function by aggregating the individuals' potential outcomes under the random assignment and no cohort effect assumption. We find that the school production function coefficients differ between districts and that the single-sex school effect estimate is much larger than that found in previous studies.
Specification and Estimation of Treatment Models in the Presence of Sample Selection
Angela Vossmeyer
(University of California-Irvine)
[View Abstract]
[Download Preview] This article develops a Bayesian framework for estimating multivariate treatment effect models in the presence of sample selection. Modeling is at the intersection of four areas including treatment effect models, sample selection, endogeneity, and discrete data modeling which presents several statistical and econometric problems. These issues, in conjunction with one another, render standard two-stage estimators inapplicable. Motivated by these difficulties, this paper presents a method of estimation that does not require simulation of the missing outcomes due to incidental truncation or the joint distribution of the potential outcomes which follows from Chib (2007) and Chib, Greenberg and Jeliazkov (2009). This methodology is appealing because it is computationally efficient and can capture a variety of interactions in the system. This framework is applied to a banking study that evaluates the effectiveness of bank recapitalization programs and their ability to resuscitate the banking system. By employing a novel bank-level data set from the Reconstruction Finance Corporation, a major recapitalization program established during the Great Depression, this paper jointly models a bank's decision to apply for a bailout, the federal government's decision to approve or decline the bailout, and the bank's failure or success. Properly incorporating missing data into the model and allowing for treatment response outcomes leads to a more comprehensive evaluation of the impacts of a bank bailout. This analysis addresses questions regarding lender of last resort regulation including whether and to what extent these programs stabilize the economy or simply privatize the gains and nationalize the loses. Overall, this model offers practical estimation tools to unveil new answers to questions involving treatment response data and incidental truncation.
Gender Wage Gap in the United States: An Interactive Fixed Effects Approach
Kusum Mundra
(Rutgers University)
N/A
Treatment Effect Analyses through Orthogonality Conditions Implied by a Fuzzy Regression Discontinuity Design, with Two Empirical Studies
Muzhe Yang
(Lehigh University)
[View Abstract]
[Download Preview] This study proposes a new estimator for estimating a treatment effect in one particular fuzzy regression discontinuity (RD) setting, in which the treatment effect is homogeneous on the support of an assignment variable and the treatment assignment is exogenous conditional on that assignment variable. The estimator is constructed using orthogonality conditions and can be easily implemented by an instrumental variable estimation procedure. We use Monte Carlo experiments to show that the proposed estimator can substantially reduce the bias in estimating the treatment effect caused by misspecifying the regression model of the observed outcome. We also use two empirical studies to demonstrate the advantages of our proposed estimator over alternative estimators. Furthermore, we use the first empirical study to highlight a connection between our proposed estimator and propensity-score matching estimators. The second empirical study emphasizes that the proposed estimator can work in a fuzzy RD setting where the cutoff point is either unknown or not exactly known.
Our proposed estimator depends on the two assumptions aforementioned. As shown by Angrist and Rokkanen (2012), the assumption of a homogeneous treatment effect with respect to the assignment variable allows for identifying a treatment effect away from the cutoff. The assumption of the exogeneity of a treatment conditional on the assignment variable emphasizes a randomization that results from imperfect control over the assignment variable (Lee, 2008). However, for fuzzy RD designs the possibility of nonrandom treatment assignment may not be avoided when we focus on the population near the cutoff, where there can be selection based on potential gain from the treatment. In this case our proposed estimator will fail, and identification of a treatment effect only at the cutoff remains a distinct possibility, although the generalizability of that treatment effect can be questioned by empirical studies focused on public policy evaluations.
Child Care Choices, Cognitive Development, and Kindergarten Enrollment
Bidisha Mandal
(Washington State University)
[View Abstract]
[Download Preview] This study uses longitudinal data from the Early Childhood Longitudinal Study – Birth Cohort, a nationally representative sample of over 10,000 children born in the U.S. in 2001, to study – (i) how market childcare prices and market wages determine choice of childcare settings; (ii) is cognitive development affected by choice of childcare and time spent in different settings: (iii) is there evidence of association between cognitive ability and delayed entry or early enrollment in kindergarten; and, (iv) what are the potential policy implications of delayed and early enrollments in kindergarten, if any? Delayed and early enrollments are calculated by comparing child's birth date and kindergarten cut-off dates in child's state of residence at age five. Childcare expenditures are observed only when parents use paid care services, and mothers' salaries are observed only when they participate in labor market. Market prices and wages are, thus, predicted using suitable selection models. Mother's employment in two-parent households is considered to be endogenous and fathers' employment is assumed to be exogenous. Amount of time spent in different care settings are estimated using a demand system model and censored regression method. We examine two types of households – single-mother households, and two-parent households. Results, so far, indicate that childcare prices and wages do determine the amount of time spent in different childcare settings, which include parental care, paid relative care, unpaid relative care, non-relative care, center care and Head Start. Additionally, child care choices and time spent in different settings in turn affect math and reading scores of pre-kindergartners. We also note that cognitive ability affects delayed enrollment, while market childcare prices affect early enrollment. Our final results will discuss the effectiveness of subsidizing childcare costs, and the impact of skill distribution of kindergarten cohorts on national aggregate achievement gaps.
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 202-A
American Economic Association
Productivity
(O4)
Presiding:
Wayne Gray
(Clark University)
Agricultural Production amidst Conflict: The Effects of Shocks, Uncertainty and Governance of Non-State Armed Actors
Andres Zambrano
(Universidad de los Andes)
Maria Alejandra Arias
(Universidad de los Andes)
Ana Maria Ibañez
(Universidad de los Andes)
[View Abstract]
[Download Preview] This paper examines the effect of conflict on agricultural production of small-farmers. First, we develop an intertemporal model of agricultural production in which the impact of conflict is transmitted through two channels: violent shocks and uncertainty brought by conflict. The model shows how conflict induces sub-optimal agricultural decisions in terms of land use and investment. We test the model using a unique household survey applied to 4.800 households in four micro-regions of Colombia. The survey collects detailed information on households’ economic conditions, incidence of violent shocks, and presence of non-state armed actors. The results show conflict affects agricultural production through different channels. In regions with an intense conflict, households reduce land allocated to perennial crops, increase production of seasonal crops and pasture, and cut back investments. Households seem to learn to live amidst conflict. Recent presence of non-state armed actors induces farmers to cut-back strongly land use on perennial crops, pasture and investments. As presence is more prolonged, farmer increase land use on perennial crops and pasture, and investments rebound. However, total agricultural production might be lower because shocks and presence result in more land being idle land. Households habituate to conflict, yet in a lower equilibrium.
Trade Liberalization, Supply Chains and Productivity
Carol Newman
(Trinity College Dublin)
John Rand
(University of Copenhagen)
Finn Tarp
(UNU-WIDER and University of Copenhagen)
[View Abstract]
[Download Preview] This paper explores the relationship between trade liberalization and productivity focusing on the impact of an expansion in imports on the productivity of domestic firms. The key innovation is that we focus on direct and indirect effects through the supply chain and explore a variety of different channels through which exposure to imports impacts on firm-level productivity, both for firms that import and those that do not. Our identification strategy exploits differences in the effects in competitive and concentrated sectors and in the impact of imports from competitive and concentrated upstream sectors. We use firm level enterprise survey data from Vietnam for the 2002 to 2011 period. We pay particular attention to the differential effects of imports in pre and post trade liberalization. Our results suggest that the main impact if imports on the productivity of domestic firms is through within-sector competition induced efficiency gains through reallocations and within-firm behavioral responses. There is some evidence that some of these gains are transmitted through the supply chain to domestic users of domestic inputs. We find no evidence to suggest that imported intermediates yield productivity spillovers for domestic firms.
How Do Firms Adjust Production Factors to the Cycle? The Role of Rigidities
Gilbert Cette
(Banque de France)
Remy Lecat
(Banque de France)
Ahmed Ould
(Banque de France)
Ahmed Jiddou
(Banque de France)
[View Abstract]
[Download Preview] We study production factor adjustment taking into account factor utilisation in all its dimensions (labour and capital working time, capital capacity utilisation) through a unique survey among French manufacturing firms. This survey also allows us to examine the impact of obstacles to increasing capital operating time on this adjustment path. These obstacles may be regulatory, technical or due to the poor quality of labour relations. This survey, merged with balanced sheet and profit and loss accounts from fiscal reports, yields an unbalanced panel of 6,066 observations over 1993-2010.
Factor utilisation adjusts the most rapidly, first through capital capacity utilisation, then the capital workweek and finally labour working time. The adjustment is slow for the number of employees and even slower for the capital stock. In case of a change in factor volume targets, the three factor utilisation degrees adjust to offset the very slow reaction of factor volumes. Obstacles to increasing the capital operating time lead to a slower adjustment of the capital stock gap through capital capacity utilisation and capital operating time, the short-term adjustment relying more on labour level and utilisation. Regulatory obstacles appear to be the most stringent obstacle, while union or labour opposition mostly constraint adjustment through labour or capital workweek.
Demand Shocks and Productivity: Technology Adoption During the U.S. Ethanol Boom
Danny McGowan
(Bangor University)
Richard Kneller
(University of Nottingham)
[View Abstract]
[Download Preview] We study the causal effect of demand shocks on productivity using an instrumental variable approach. The demand shock we examine leverages reforms to U.S. energy policy that mandated a higher ethanol content of gasoline which subsequently increased demand for corn. Exploiting variation in the demand for corn due to the geographic segmentation of markets we create instruments based on distance and numbers of cattle (as a by-product of ethanol production can be used as an animal feed). To obviate the conflation of productivity and price effects using standard revenue based measures of productivity we use as our outcome physical TFP (yield). We show that the demand shock caused firms to make productivity improvements and provide evidence that this occurred through technology adoption. Other tests reveal that only permanent demand shocks motivate productivity change, suggesting a link between demand uncertainty in the operating environment and investment. We also show that the results are externally valid, invariant to using alternative control groups, and are robust to a battery of robustness, falsification and placebo tests.
Cumulative Innovation, Growth and Welfare-Improving Patent Policy
Edwin L. Lai
(Hong Kong University of Science and Technology)
Davin Chor
(National University of Singapore)
[View Abstract]
[Download Preview] We construct a tractable general equilibrium model of cumulative innovation and growth, in which new ideas strictly improve upon frontier technologies, and productivity improvements are drawn in a stochastic manner. The presence of positive knowledge spillovers implies that the decentralized equilibrium features an allocation of labor to R&D activity that is strictly lower than the social planner's benchmark, which suggests a role for patent policy. We focus on a "non-infringing inventive step" requirement, which stipulates the minimum improvement to the best patented technology that a new idea needs to make for it to be patentable and non-infringing. We establish that there exists a finite required inventive step that maximizes the rate of innovation, as well as a separate optimal required inventive step that maximizes welfare, with the former being strictly greater than the latter. These conclusions are robust to allowing for the availability of an additional instrument in the form of patent length policy.
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 203-B
American Economic Association
Public Finance and Policy
(H1)
Presiding:
Erin Bronchetti
(Swarthmore College)
Post-Retirement Benefit Plans, Leverage, and Real Investment
Sohnke m Bartram
(London Business School and Warwick Business School)
[View Abstract]
[Download Preview] This paper shows that defined benefit pension and health care plans are important for firm leverage and real investment around the world. While consolidating off-balance sheet post-retirement plans typically increases effective leverage by 32%, firms reduce their level of regular debt by only 23 cents for every dollar of projected benefit obligation, yielding overall higher total leverage of plan sponsors by 24% compared to similar firms without post-retirement plan. Substitution rates between regular debt and post-retirement obligations are lower in countries with weaker employment laws and protection, more labor market freedom, pension guarantee funds, stricter rule of law as well as larger private bond market capitalization and private credit. Since post-retirement benefit obligations have more flexible terms than regular debt, they can be used to investigate the effect of financial flexibility on real investment. The results show that post-retirement benefit obligations are positively related to R&D, which generates growth options, and negatively related to capital expenditures, which exercises growth options. Compared to an otherwise similar firm without a post-retirement plan, the average plan sponsor has 5% less capital expenditures and 12% more research and development. The results are robust to other dimensions of financial policy, such as debt maturity, dividends, preferred stock, convertible debt, and leverage that also affect real investment.
The Impact of Longevity Improvements on U.S. Corporate Defined Benefit Pension Plans
Michael Kisser
(Norwegian School of Economics)
John Kiff
(International Monetary Fund)
Erik Oppers
(International Monetary Fund)
Mauricio Soto
(International Monetary Fund)
[View Abstract]
[Download Preview] This paper investigates the relation between life expectancy assumptions and pension liabilities for a large sample of U.S. corporate defined benefit pension plans. We show that longevity assumptions are systematically related to the lagged funding status of a pension plan: under- funded plans make lower life expectancy assumptions. Cross-sectional analysis further reveals that each year of life expectancy increases pension liabilities by around 4-5 percent. The eco- nomic magnitude is substantial: a one-year shock to longevity would more than double the degree of aggregate pension underfunding. Forecasts of future life expectancy typically under- estimate realized improvements, thereby increasing chances of lumpy adjustments to pension liabilities.
The Impact of Numerical Constraints on Fiscal Policy in the EU27
Wolf Heinrich Reuter
(Vienna University of Economics and Business)
[View Abstract]
This paper investigates the effects of (non-)compliance with national numerical fiscal rules on fiscal policy in 11 EU member states with 23 fiscal rules in place from 1990-2013. Introducing a new dataset of legal texts stating the fiscal rules, allows a joint empirical analysis of different types and designs of numerical fiscal rules. Descriptive statistics show that countries tend to comply with fiscal rules more often in the forecasts than in the actual values (fiscal institutions like fiscal councils seem to diminish this effect). But econometric estimations find that the constrained variables tend to move towards their numerical constraint, i.e. decrease if the constraint is violated and increase if not. This effect is not visible when looking at more general fiscal variables (not necessarily the variables constrained by the fiscal rules).
The Effect of Government Spending in Construction on Job Creation: Evidence from Texas
Dakshina G. De Silva
(Lancaster University)
Viplav Saini
(Oberlin College)
[View Abstract]
The highway and bridge construction industry in the US is an important part of the infrastructure sector of the national economy. Annually, the government buys upwards of $70 bn of construction services from this industry. It is therefore a policy-relevant exercise to examine the relationship between a given amount of government spending and job creation at firms in the industry. We provide an estimate of this relationship for the state of Texas during 1999-2006.
The predominant format of disbursal of government funds in this industry is first-price sealed-bid procurement auctions. In order to measure the effect of construction spending on job growth, one needs to track the amounts disbursed at each auction as well as the employment level of the bidder who wins the auction. We compile a unique dataset that allows us to do so. For all road construction firms in Texas during 1999-2006, we collected data on the dollar value of work won by each of them in Texas Department of Transportation (TxDoT) auctions. We matched this to data on their monthly employment levels during this time, using the Texas Workforce Commission's Quarterly Census of Employment and Wages database.
Regressing a firm's monthly employment level on its monthly work commitments--measured by payments received from TxDoT, which we observe--allows us to infer the response of firms (in terms of hiring additional workers) to an increase in their production targets. We find a firm-level employment elasticity of 1.3% in response to an increase in its work commitments.
Presidentialism, Parliamentarism and Fiscal Policy: Evidence from the Local Level in Germany
Thushyanthan Baskaran
(University of Goettingen)
Zohal Hessami
(University of Konstanz)
[View Abstract]
This paper contributes to the literature on the link between political institutions (in particular presidentialism vs. parliamentarism) and fiscal policy with municipal-level panel data from Germany. Historically, the power of the municipal council vs. that of the mayor varied between the German States: southern states had powerful mayors while northern states had powerful councils. In the mid-nineties, however, many northern states switched to the southern system. That is, the northern states changed from an essentially parliamentary to a presidential system for local politics. Using a panel dataset that covers municipalities in two German States - North Rhine-Westphalia (treatment state) and Bavaria (control state) - over the period 1990-2010, we establish with difference-in-difference regressions how this switch to a quasi-presidential system affected municipal spending and taxation. The main contribution of this paper is a credible identification of the causal effect of political institutions: while the previous literature relies primarily on cross-sectional regressions with country-level data, we account for unobserved heterogeneity through the use of subnational and time-varying data.
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 203-A
American Economic Association
Sources of Peer Effects
(D8)
Presiding:
Bruce Sacerdote
(Dartmouth University)
Social Networks and the Decision to Insure
Jing Cai
(University of Michigan)
Alain Janvry
(University of California-Berkeley)
Elisabeth Sadoulet
(University of California-Berkeley)
[View Abstract]
[Download Preview] Using data from a randomized experiment in rural China, this paper studies the influence of social networks on weather insurance adoption and the mechanisms through which social networks operate. To quantify network effects, the experiment provides intensive information sessions about the insurance product to a random subset of farmers. For untreated farmers, the effect of having an additional treated friend on take-up is equivalent to granting a 15% reduction in the insurance premium. By varying the information available about peers' decisions and using randomized default options, the experiment shows that the network effect is driven by the diffusion of insurance knowledge rather than purchase decisions.
Peer Effects in Risk Taking
Amrei Lahno
(University of Munich)
Marta Serra-Garcia
(University of Munich)
[View Abstract]
This paper examines the effect of peers on individual risk taking. In the absence of informational motives, we investigate experimentally why social utility concerns may drive peer effects. We test for two main channels: utility from payoff differences and from conforming to the peer. We show that social utility generates substantial peer effects in risk taking: on average, individuals change over 30% of their risky choices in the presence of a peer. While conformity plays a role, our results suggest that social utility stems mainly from utility from payoff differences, in line with outcome-based social preferences.
Full paper PDF: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2204956
Academic Peer Effects with Different Group Assignment Policies: Residential Tracking versus Random Assignment
Robert Garlick
(Duke University)
[View Abstract]
[Download Preview] I study the relative academic performance of students tracked or randomly assigned to South African university dormitories. This advances the literature on peer effects under different peer group assignment policies and on optimal group design. I find that tracking reduces low-scoring students' GPAs but has little effect on high-scoring students. The net effect is to reduce mean GPA and increase the spread or inequality of GPA. I also directly estimate peer effects using random variation in dormitory peer groups. I find that own and peer characteristics are substitutes in GPA production and that peer effects are considerably stronger within than across race groups. I finally explore whether peer effects estimated under random assignment can predict the effects of tracking. The quantitative predictions are sensitive to model specification choices over which neither economic theory nor model selection tests provide clear guidance.
Understanding Mechanisms Underlying Peer Effects: Evidence from a Field Experiment on Financial Decisions
Leonardo Bursztyn
(University of California-Los Angeles)
Florian Ederer
(University of California-Los Angeles)
Bruno Ferman
(George Washington University)
Noam Yuchtman
(University of California-Berkeley)
[View Abstract]
[Download Preview] Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing his ability to possess the asset. Then, we randomize whether the second member of the pair: (1) receives no information about the first member, or (2) is informed of the first member's desire to purchase the asset and the result of the randomization that determined possession. This allows us to estimate the effects of learning plus possession, and learning alone, relative to a (no information) control group. We find that both social learning and social utility channels have statistically and economically significant effects on investment decisions. Evidence from a follow-up survey reveals that social learning effects are greatest when the first (second) investor is financially sophisticated (financially unsophisticated); investors report updating their beliefs about asset quality after learning about their peer's revealed preference; and, they report motivations consistent with "keeping up with the Joneses" when learning about their peer's possession of the asset. These results can help shed light on the mechanisms underlying herding behavior in financial markets and peer effects in consumption and investment decisions.
Discussants:
Achyuta Adhvaryu
(Yale University)
Kenneth Ahern
(University of Southern California)
Scott Carrell
(University of California-Davis)
John Beshears
(Harvard University)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 201-C
American Economic Association
The Demand for Insurance in Developing Countries
(O1)
Presiding:
Benjamin Olken
(Massachusetts Institute of Technology)
Risk and Investment in Agriculture
Mark Rosenzweig
(Yale University)
Christopher Udry
(Yale University)
[View Abstract]
An understanding of the magnitude and distribution of returns to investments
is an important aspect of economic analysis in many contexts. Most
existing studies, however, have assumed additive errors and provide standard
errors of returns based on single-year estimates that fail to take
into account the variability of profits due to stochastic shocks that
interact with investments. These specifications are inconsistent
with the idea that investments are risky. In this paper we use seven years of investment, rainfall and
profit data from the new set of ICRISAT Indian surveys. We
estimate the effects of planting-stage investments, which take place prior
to the realization of current-period rainfall shocks, on yearly profits in a
framework that permits investment returns to vary with rainfall levels.
Identification exploits the annual forecasts of July-September rainfall
levels issued by the Indian Meteorological Institute. We show that the
forecasts, which can have no direct effects on profits (given governmental
price-setting), influence farmer investments in accord with a simple dynamic
model of risky agriculture. Our estimates show that sampling error alone
accounts for a small fraction of the total error for any single-year
estimate of investment returns and we characterize the true distribution of
coefficient errors given the actual values of parameters describing the
distribution of rainfall. Our estimates also indicate that ICRISAT farmers
on average substantially under-invest for any reasonable values of returns
on riskless investments.
Dynamics of Demand for Index Insurance: Evidence from a Five-Year Panel in Gujarat
Shawn A. Cole
(Harvard University)
Jeremy Tobacman
(University of Pennsylvania)
Daniel Stein
(The World Bank)
[View Abstract]
This paper presents mid-line results from an ongoing, multi-year study of the effect of rain-
fall insurance on farmer investment behavior. Exploiting variation from a randomized
experiment which offered subsidized insurance policies to farmers, we find
farmers covered by rainfall insurance modestly increased investments in cash crops.
Poor, but typically not catastrophic, weather characterized much of the study period.
We find that insured farmers earned more from policy payouts than they spent on
insurance premia, but they also experienced reduced agricultural revenue.
Adverse Selection in the Market for Catastrophic Health Insurance: Some Evidence from India
Abhijit Banerjee
(Massachusetts Institute of Technology)
Esther Duflo
(Massachusetts Institute of Technology)
Richard Hornbeck
(Harvard University)
[View Abstract]
Catastrophic health risks are ubiquitous in developing countries, yet few households are protected from their financial consequences with health insurance. In recent years, governments and private actors have tried to introduce health insurance. Several microfinance institutions have started offering catastrophic health insurance to their clients. To overcome adverse selection, insurance is often mandatory with a new loan or loan renewal. Insurance premium is folded in the interest rate. In a randomized controlled trial, we study the introduction of such a program by a large MFI in Andhra Pradesh, India. We show that health insurance led to large decreases in renewal rate of the microfinance loan in treatment villages (where health insurance was mandatory) than in control villages. Drop out is larger when there are other MFI present in the village, but remain large even without alternative sources of microfinance. With low demand for insurance, bundling with credit thus does not solve any of the problem associated with a voluntary program and may have made households worst off by causing loss in credit access. Faced with this increase in drop out, the MFI made insurance voluntary, and the take up of insurance dropped near zero.
Discussants:
Seema Jayachandran
(Northwestern University)
Tavneet Suri
(Massachusetts Institute of Technology)
Jishnu Das
(World Bank)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 204-B
American Economic Association
The Price Theory of Selection Markets
(D4)
Presiding:
Michael Whinston
(Massachusetts Institute of Technology)
Product Design in Selection Markets
André F. Veiga
(University of Oxford)
Eric Glen Weyl
(University of Chicago)
[View Abstract]
[Download Preview] Insurers choose plan characteristics to selectively attract cheap consumers. In a model with multidimensional heterogeneity, this sorting incentive is proportional to the covariance, among marginal consumers, between marginal willingness-to-pay and cost to the insurer. Standard forms of cost-sharing attract high cost consumers, but lowering the comprehensiveness of a plan repels them. In competitive equilibrium, this covariance over the full population must vanish. A competitive equilibrium with positive insurance is possible when insurance value is sufficiently negatively correlated with cost, unlike in Handel, Hendel and Whinston (2013)’s data, where Rothschild and Stiglitz (1976)’s non-existence result still holds.
Imperfect Competition in Selection Markets
Neale Mahoney
(University of Chicago)
Eric Glen Weyl
(University of Chicago)
[View Abstract]
[Download Preview] Many standard intuitions about the distortions created by market power and selection are reversed when these forces co-exist. Adverse selection may be socially beneficial under monopoly, for example, and market power may be beneficial in the presence of advantageous selection. We develop a simple, but quite general, model of symmetric imperfect competition in selection markets that parameterizes the degree of both market power and selection. We derive basic comparative statics verbally and illustrate them graphically to build intuition. We emphasize the relevance of the most counter-intuitive effects with a calibrated model of the insurance market and empirical results from the credit card industry. Among other policy insights, we show that in selection markets four core principles of the United States Horizontal Merger Guidelines are reversed.
Unraveling versus Unraveling: Competitive Equilibriums and Trade in Insurance Markets
Nathaniel Hendren
(Harvard University)
[View Abstract]
[Download Preview] Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that insurance markets may "unravel". This short paper clarifies the distinction between these two notions of unraveling. I first show that the two concepts are mutually exclusive occurrences. Moreover, under a regularity condition of full support of the type distribution, the two concepts are exhaustive of the set of possible occurrences. Akerlof unraveling characterizes when there are no gains to trade, Rothschild and Stiglitz unraveling shows that the standard notion of competition (pure strategy Nash equilibrium) is inadequate to describe the workings of insurance markets when there are gains to trade.
Information Frictions and the Welfare Consequences of Adverse Selection
Benjamin R. Handel
(University of California-Berkeley)
Jonathan T. Kolstad
(University of Pennsylvania)
Johannes Spinnewijn
(London School of Economics)
[View Abstract]
This paper examines the welfare consequences of adverse selection in an environment where consumers have information frictions in plan choice. Information frictions arise from (i) not having information available or (ii) an inability to easily process information. Information frictions impact consumer choices, but may not represent welfare relevant factors in and of themselves. We empirically investigate these issues with a large micro-level data set that combines administrative claims and choice data with a comprehensive survey on consumer choices. We estimate an individual-level plan choice model with health risk, risk preferences, and information frictions, and study the welfare consequences of adverse selection. We show that (i) information frictions impact the extent of adverse selection and (ii) holding information frictions constant, the welfare impact of adverse selection changes when information frictions are included in the model. This suggests that the welfare impact of policies investigated with models without information frictions may not be sufficient for the true welfare impact of those policies.
Discussants:
Jonathan Levin
(Stanford University)
Liran Einav
(Stanford University)
Amy N. Finkelstein
(Massachusetts Institute of Technology)
Michael Whinston
(Massachusetts Institute of Technology)
Jan 03, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
What's Natural? Key Macroeconomic Parameters after the Great Recession
(E1)
Presiding:
Matthew Shapiro
(University of Michigan)
The Natural Rate of Interest and Its Usefulness for Monetary Policy Making
Robert Barsky
(Federal Reserve Bank of Chicago and University of Michigan)
Alejandro Justiniano
(Federal Reserve Bank of Chicago)
Leonardo Melosi
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] This paper studies the natural rate of interest in the context of quantitative dynamic general equilibrium models. In the modern New Keynesian framework the natural rate of interest--that which would prevail in an otherwise equivalent general equilibrium model with flexible prices, can vary dramatically over time. Further, there is an entire term structure of natural real rates. Taking account of these observations we attempt to reconstruct the history of the natural rate, with particular attention to the Great Recession and implications for policy in a period with a binding zero lower bound.
Natural Rate of Unemployment
Mark Watson
(Princeton University)
[View Abstract]
The natural rate of unemployment is identified in a variety of ways, but two dominate. The first relates the unemployment rate to inflation and leads to the "non-accelerating inflation rate of unemployment" (NAIRU), the unemployment rate that leads to a no-change forecast of inflation in a traditional Phillips curve. The second identifies the natural rate with the low-frequency level of the unemployment rate, which is related to observable factors such as demographic changes, sectoral shifts in the product market, changing incentives for work versus leisure, or other factors. The variability of these factors during the Great Recession and its aftermath (including potential instability or nonlinearity in the Phillips curve) suggests potentially important changes in the value of the natural rate of unemployment. And, because the NAIRU or natural rate serves as the anchor for the unemployment "gap," these changes in the natural rate lead to different interpretations of the current level of the measured unemployment rate for evaluating slack in the labor market, the outlook for future inflation, and for the appropriate policy responses. This paper will empirically investigate recent changes in the natural rate using both of these frameworks.
Natural Rate of Growth
John Fernald
(Federal Reserve Bank of San Francisco)
Charles I Jones
(Stanford University)
[View Abstract]
[Download Preview] What do modern growth theory and empirical evidence suggest about the future of U.S. economic growth? Rising educational attainment and research intensity reveal that up to 75% of growth during the last 50 years may have been due to transition dynamics. Moreover, because of the nonrivalry of ideas, long-run future growth in income per person is arguably tied to population growth, which seems to be slowing around the world. Both of these channels suggest substantially slower U.S. economic growth at some point in the future. Counterbalancing these concerns, at least for awhile, is the rise of China, India, and other emerging economies, which likely implies rapid growth in world researchers for at least the next several decades. Finally, and more speculatively, the shape of the idea production function introduces a fundamental uncertainty into the future of growth. For example, the possibility that artificial intelligence will allow machines to replace workers to some extent could lead to higher growth in the future.
Discussants:
Michael Woodford
(Columbia University)
Robert E. Hall
(Stanford University)
Susanto Basu
(Boston College)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Asset Management and Market Efficiency
(G2)
Presiding:
Christopher Malloy
(Harvard University)
Transparency and Talent Allocation in Money Management
Simon Gervais
(Duke University)
Gunter Strobl
(Frankfurt School of Finance & Management)
[View Abstract]
[Download Preview] We construct and analyze a model of delegated portfolio management in which money managers signal their investment skills via their choice of transparency for their fund. We show that a natural equilibrium is one in which high- and low-skill managers pool in opaque funds, while medium-skill managers separate in transparent funds. In this equilibrium, high-skill managers rely on their eventual performance to separate from low-skill managers over time, saving the monitoring costs associated with transparency. In contrast, medium-skill managers rely on transparency to separate from low-skill managers, especially when it is difficult for investors to tell them apart through performance alone. Low-skill managers prefer mimicking high-skill managers in opaque funds in the hope of replicating their performance and compensation. The model yields several novel empirical predictions that contrast transparent funds (e.g., mutual funds) and opaque funds (e.g., hedge funds).
The People in Your Neighborhood: Social Interactions and Mutual Fund Portfolio Choice
Veronika Pool
(Indiana University)
Noah Stoffman
(Indiana University)
Scott Yonker
(Indiana University)
[View Abstract]
We find that socially connected fund managers have more similar holdings and trades. The portfolio overlap of funds whose managers reside in the same neighborhood is considerably higher than that of funds whose managers live in the same city but in different neighborhoods. These effects are larger when managers are neighbors longer or are of a similar ethnic background, and are not explained by preferences. Valuable information is transmitted through these peer networks: a long-short strategy composed of stocks purchased minus sold by neighboring managers delivers positive risk-adjusted returns. Unlike prior empirical work, our tests disentangle social interaction from community effects.
Peer Effects in Mutual Funds
Jesse Blocher
(Vanderbilt University)
[View Abstract]
[Download Preview] This paper documents temporary abnormal returns in mutual fund performance due to peer effects among mutual funds associated by similar asset holdings. With a network specification of instrumental variables to control for correlated shocks to associated funds, I find that flows to and from peer mutual funds funds account for 1.6% of mutual fund quarterly excess return which reverses 1.1% in the following year. Temporary abnormal returns may explain mutual fund performance persistence in the absence of frictions inhibiting reallocation of investor funds across mutual funds.
Predation versus Cooperation in Mutual Fund Families
Alexander Eisele
(University of Lugano)
Tamara Nefedova
(University of Lugano)
Gianpaolo Parise
(University of Lugano)
[View Abstract]
In this paper we investigate how mutual funds react to the distress of another fund in the same fund family. We test three alternative hypotheses: (1) funds help the distressed fund, (2) funds front-run the distressed fund improving their relative performance in the fund family and, (3) the family coordinates and benefits from front-running the distressed fund. Our results suggest that fund managers front-run their distressed siblings and that this is the outcome of a coordinated strategy. First, we find that funds in the same family exhibit higher risk-adjusted returns when one of the funds in the family is in distress. Second, distressed funds have lower returns for a given outflow when they have a high portfolio overlap with their siblings. Third, consistent with a coordinated strategy on the family level we find that the higher risk-adjusted returns are clustered among the most important funds of the family.
Discussants:
Bruce Carlin
(University of California-Los Angeles)
Kelly Shue
(University of Chicago)
Antti Petajisto
(New York University)
Utpal Bhattacharya
(Indiana University)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom B
American Finance Association
Behavioral Asset Pricing
(G1)
Presiding:
Nicholas Barberis
(Yale University)
No News is News: Do Markets Underreact to Nothing
Stefano Giglio
(University of Chicago)
Kelly Shue
(University of Chicago)
[View Abstract]
As illustrated in the tale of ?the dog that did not bark,? the absence of news and the
passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions.
First Impressions: "System 1" Thinking and the Cross-Section of Stock Returns
Nicholas C. Barberis
(Yale University)
Abhiroop Mukherjee
(Hong Kong University of Science and Technology)
Baolian Wang
(Hong Kong University of Science and Technology)
[View Abstract]
For each stock in the U.S. universe in turn, we take the stock?s distribution of past returns, and compute the value that would be assigned to this distribution by (cumulative) prospect theory. We find that this ?prospect theory value? predicts subsequent returns in the cross-section, with a negative sign. This is particularly true for stocks traded primarily by individual investors and for stocks that are hard to arbitrage. We repeat our tests in 46 international markets, and find a similar pattern in a majority of those markets. Our conjecture is that some investors are influenced in their trading by the quick initial impression of a stock that they form after glancing at a chart of the stock?s historical price movements ? a so-called ?system 1? impression that we quantify as the stock?s prospect theory value. Stocks with high prospect theory values make a positive impression on these investors, who tilt toward them, causing them to be overpriced and to earn low subsequent returns.
Waves in Ship Prices and Investment
Robin Greenwood
(Harvard Business School)
Samuel Hanson
(Harvard Business School)
[View Abstract]
We study the returns to owning dry bulk cargo ships. Ship earnings exhibit a high degree
of mean reversion, driven by industry participants? competitive investment responses to increases in demand. This mean reversion is not fully reflected in ship prices. We show that high current ship earnings are associated with high secondhand ship prices and heightened industry investment, but forecast low future returns. We suggest and estimate a behavioral model that can account for the evidence. In our model, individual firms overestimate their ability to respond to common shocks and underestimate the ability of the competition, leading to excessive industry investment during booms and low subsequent returns on capital. Our model nests both rational expectations at one extreme and Kaldor?s (1938) cobweb theory at the other, in which producers naively set current production quantities based on lagged prices. Formal estimation of our model suggests significant competition neglect in the shippin
Discussants:
Dong Lou
(London School of Economics)
Byoung-Hyoun Hwang
(Purdue University)
Kent Daniel
(Columbia University)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Credit Risk I
(G1)
Presiding:
Ilya Strebulaev
(Stanford University)
CDS Auctions and Informative Biases in CDS Recovery Rates
Sudip Gupta
(New York University)
Rangarajan K. Sundaram
(New York University)
[View Abstract]
Since 2005, recovery rates in the multi-trillion dollar credit default swap (CDS) market have
been determined using a novel and complex auction format. This paper undertakes the first detailed empirical investigation of these auctions. We find that the auction price is significantly biased compared to pre- and post-auction market prices for the same instruments, with the average bias exceeding 20%. Nonetheless, econometric analysis shows that the auction is also significantly informative: information generated in the auction is critical for post-auction market price formation. Bidder behavior and auction outcomes are heavily influenced by "winner's curse" concerns, by a proxy variable that captures the size of bidders' CDS positions entering the auction, and by illiquidity concerns; all these factors contribute substantially to the observed bias. Other factors, such as exercise of monopsonistic market power also appear to matter.
Synthetic or Real? The Equilibrium Effects of Credit Default Swaps on Bond Markets
Martin Oehmke
(Columbia University)
Adam Zawadowski
(Boston University)
[View Abstract]
[Download Preview] We develop a model in which credit default swaps (CDSs) are non-redundant securities, based on the observation that they are more liquid than the underlying reference bonds. The introduction of a CDS has an ambiguous effect on bond prices: The CDS market (i) crowds out long bond investors with relatively frequent trading needs, (ii) reduces short selling of the bond, and (iii) leads to the endogenous emergence of basis traders who take levered hedged positions in the bond and the CDS. The model generates testable predictions on the effects of CDS introduction on bond prices, turnover in bond and CDS markets, and the CDS-bond basis. The model can also be used to assess policy interventions. For example, a ban on naked CDSs may raise the issuer's borrowing costs.
Does the Tail Wag the Dog? The Effect of Credit Default Swaps on Credit Risk
Marti Subrahmanyam
(New York University)
Dragon Tang
(University of Hong Kong)
Sarah Qian Wang
(Warwick University)
[View Abstract]
[Download Preview] We use credit default swaps (CDS) trading data to demonstrate that the credit
risk of reference firms, reflected in rating downgrades and bankruptcies, increases significantly upon the inception of CDS trading, a finding that is robust after controlling for the endogeneity of CDS trading. Additionally, distressed firms are more likely to file for bankruptcy if they are linked to CDS trading. Furthermore, firms with more “no restructuring†contracts than other types of CDS contracts (i.e., contracts that include restructuring) are more adversely affected by CDS trading, and the number of creditors increases after CDS trading begins, exacerbating creditor coordination failure in the resolution of financial distress.
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Institutional Investors' Portfolio Choices
(G1)
Presiding:
Luis Viceira
(Harvard Business School)
Why Do University Endowments Invest So Much In Risky Assets?
Thomas Gilbert
(University of Washington)
Christopher Hrdlicka
(University of Washington)
[View Abstract]
Maintaining a large endowment invested in risky securities requires a university to forego expansion through internal projects. We capture this trade-off by defining a university objective function that balances the demands of altruistic stakeholders to expand against those of self-interested stakeholders to maximize their lifetime payments. We show that a risky and large endowment signals a combination of three university characteristics: low productivity marginal internal projects; self-interested stakeholders resisting productive expansion; or binding constraints on maximum endowment payouts. Our model demonstrates that endowments offer a window into university fundamentals, and it helps explain the empirical heterogeneity in asset allocations and sizes.
Informed Trading and Expected Returns
James Choi
(Yale University)
Li Jin
(Harvard University)
Hongjun Yan
(Yale University)
[View Abstract]
[Download Preview] Does information asymmetry among traders of a firm's stock increase its cost of capital? We first show that institutional traders in the Shanghai Stock Exchange have a strong information advantage. We then show that past aggressiveness of institutional trading in a stock is a good predictor of institutions' current and future information advantage in this stock. Sorting stocks on this predictor and controlling for other known correlates of expected returns, we find that the top quintile's average annualized return in the next month is 10.8% higher than the bottom quintile's, indicating that information asymmetry raises the cost of capital.
Dynamic Portfolio Choice with Frictions
Nicolae Garleanu
(University of California-Berkeley)
Lasse Pedersen
(New York University)
[View Abstract]
[Download Preview] We show that the optimal portfolio can be derived explicitly in a large
class of models with transitory and persistent transaction costs, multiple
signals predicting returns, multiple assets, general correlation structure, time-
varying volatility, and general dynamics. Our tractable continuous-time model
is shown to be the limit of discrete-time models with endogenous transaction
costs due to optimal dealer behavior. Depending on the dealers' inventory
dynamics, we show that transitory transaction costs survive, respectively vanish,
in the limit, corresponding to an optimal portfolio with bounded, respectively
quadratic, variation. Finally, we provide equilibrium implications and illustrate
the model's broader applicability to economics.
Deleveraging Risk
Scott Richardson
(London Business School)
Pedro Saffi
(University of Cambridge)
Kari Sigurdsson
(Reykjavik University)
[View Abstract]
[Download Preview] Deleveraging risk is the risk attributable to the existence of levered positions. When funding liquidity evaporates securities with a greater presence of levered investors experience extreme return realizations as investors unwind their positions. Using unique data from equity lending markets as a proxy for the degree of leverage in a stock, we find large positive returns and reductions in short selling quantities around periods of funding illiquidity. For example, during the Quant crisis, the daily abnormal returns to a portfolio that sells highly-shorted stocks and buys lowly-shorted ones is -166 basis points, in contrast with +11 basis points during “normal†days.
Discussants:
Stephen G. Dimmock
(Nanyang Technological University)
Lauren H. Cohen
(Harvard Business School)
Bryan T. Kelly
(University of Chicago)
Jakub W. Jurek
(Princeton University)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Macro Finance
(G1)
Presiding:
Ralph Koijen
(University of Chicago)
Nominal Bonds, Real Bonds, and Equity
Andrew Ang
(Columbia University)
Maxim Ulrich
(Columbia University)
[View Abstract]
We decompose the term structure of expected equity returns into (1) the real short rate, (2) a
premium for holding real long-term bonds, or the real duration premium, the excess returns of nominal long-term bonds over real bonds which reflects (3) expected inflation and (4) inflation risk, and (5) a real cashflow risk premium, which is the excess return of equity over nominal bonds. All of these risk premiums vary over time. The shape of the unconditional nominal and real bond yield curves are upward sloping due to increasing duration and inflation risk premiums. The average term structures of expected equity returns and equity risk premiums, in contrast, are downward sloping due to the decreasing effect of short-term expected inflation, or trend inflation, across horizons. Around 70% of the variation of expected equity returns at the 10-year horizon is due to variation in the output gap and trend inflation.
Forecasting through the Rear-View Mirror: Data Revisions and Bond Return Predictability
Eric Ghysels
(University of North Carolina)
Casidhe Horan
(University of Michigan)
Emanuel Moench
(Federal Reserve Bank of New York)
[View Abstract]
Real-time macroeconomic data reflect the information available to market participants, whereas final data ? containing revisions and released with a delay ? overstate the information set available to them. We document that the in-sample and out-of-sample Treasury return predictability is significantly diminished when real-time as opposed to revised macroeconomic data are used. In fact, much of the predictive information in macroeconomic time series is due to the data revision and publication lag components.
Rare Booms and Disasters in a Multi-Sector Endowment Economy
Jerry Tsai
(University of Pennsylvania)
Jessica Wachter
(University of Pennsylvania)
[View Abstract]
Why do value stocks have higher expected returns than growth stocks, in spite of having lower risk? Why do these stocks exhibit positive abnormal performance while growth stocks exhibit negative abnormal performance? This paper offers a rare- events based explanation, that can also account for facts about the aggregate market. Patterns in time-series predictability offer independent evidence for the model?s conclusions.
Discussants:
Jules van Binsbergen
(Stanford University)
Lars A. Lochstoer
(Columbia University)
Leonid Kogan
(Massachusetts Institute of Technology)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
Macroeconomics, Deflation and Liquidity
(G1)
Presiding:
Markus Brunnermeier
(Princeton University)
Deflation Risk
Matthias Fleckenstein
(University of California-Los Angeles)
Francis Longstaff
(University of California-Los Angeles)
Hanno Lustig
(University of California-Los Angeles)
[View Abstract]
We study the nature of deflation
risk by extracting the objective distribution of inflation from the market prices of inflation swaps and options. We find that the market expects inflation to average about 2.5 percent over the next 30 years. Despite this, the market places substantial probability weight on deflation scenarios in which prices decline by more than 10 to 20 percent over extended horizons. We find that the market prices the economic tail risk of deflation very similarly to other types of tail risks such as catastrophic insurance losses. In contrast, inflation tail risk has only a relatively small premium. Deflation risk is also significantly linked to measures of financial tail risk such as swap spreads, corporate credit spreads, and the pricing of super senior tranches. These results indicate that systemic financial risk and deflation risk are closely related.
Banks Exposure to Interest Rate Risk and the Transmission of Monetary Policy
Augustin Landier
(University of Toulouse)
David Sraer
(Princeton University)
David Thesmar
(HEC Paris)
[View Abstract]
We show that banks' cash flow exposure to interest rate risk, or income gap, plays a crucial role in their lending behavior following monetary policy shocks. In a first step, we show that the sensitivity of bank profits to interest rates increases significantly with their income gap, even when banks use interest rate derivatives. In a second step, we show that the income gap also predicts the sensitivity of bank lending to interest rates, both for commercial & industrial loans and for mortgages. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile. We conclude that banks' exposure to interest rate risk is an important determinant of the bank-level intensity of the lending channel.
Corporate Cash Hoarding: The Role of Just-in-Time Adoption
Xiaodan Gao
(National University of Singapore)
[View Abstract]
[Download Preview] I explore the role of the Just-in-Time (JIT) inventory system in the increase of cash holdings among U.S. manufacturing firms. I first demonstrate the empirical importance of JIT in shaping cash policy. I then develop a model to analyze the mechanism through which JIT affects cash and quantify its impact. In the model, both cash and inventory can serve as working capital. As firms switch from the traditional system to JIT, they shift resources from inventory to cash to facilitate transactions with suppliers. On average, this switchover accounts for over half of the observed increase in cash.
Funding Liquidity Risk and the Cross-Section of Stock Returns
Jean-Sebastien Fontaine
(Bank of Canada)
Rene Garcia
(EDHEC)
Sermin Gungor
(Bank of Canada)
[View Abstract]
[Download Preview] Intermediaries should transmit funding shocks to the cross-section of returns.
Stocks that experience low returns when funding becomes scarce should exhibit higher illiquidity, higher volatility and ultimately higher risk premium. This paper documents this mechanism empirically. We show that the illiquidity and volatility of individual portfolios are positively associated with the value of funding liquidity, a measure of funding scarcity, while the portfolio returns are negatively correlated. In addition, the cross-section dispersion of illiquidity, volatility, and returns widens when funding conditions deteriorate. We find that this risk is priced. The funding liquidity risk premium explains the cross-section of returns across liquidity-, volatility-, and size-sorted portfolios. Overall, our results provide strong support for the prediction that funding liquidity plays a significant role in the determination of equity liquidity,
volatility, and risk premium.
Discussants:
Cesaire Meh
(Bank of Canada)
Anil Kashyap
(University of Chicago)
Thomas Eisenbach
(Federal Reserve Bank of New York)
Tyler Muir
(Yale University)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Commercial Real Estate
(G1)
Presiding:
Andra Ghent
(Arizona State University)
Real Earnings Management, Liquidity and SEO dynamics: Evidence from United States REITs
Xiaoying Deng
(National University of Singapore)
Seow Eng Ong
(National University of Singapore)
[View Abstract]
[Download Preview] The empirical corporate finance literature claims that information asymmetries would induce market frictions, which reduce the liquidity of the firm’s securities. However, real activities manipulation may reduce the concern given its cash flow consequences. Using REITs as a unique laboratory, we show that managers engage in real earnings management to attract more uninformed trading in order to provide the liquidity services at lower cost during seasoned equity offerings. We find less liquid firms are more likely to manipulate earnings prior equity offerings and uninformed trading is higher following the real earnings management. Firms set the offer price at a smaller discount after engaging in real earnings management and stock returns decline in the long run. The findings are consistent with real option and liquidity explanations for equity offerings.
Using Cash Flow Dynamics to Price Thinly Traded Assets: The Case of Commercial Real Estate
Walter Boudry
(Cornell University)
Crocker Liu
(Cornell University)
Tobias Muhlhofer
(Indiana University)
Walter Torous
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We propose a technique to infer cash flow yields for investment assets whose trades are infrequent, but for which cash flow data is available. We construct a Self-Propagating Rolling-Window Panel VAR framework, adapted from a Dynamic Gordon Growth Model setup. We use this framework to estimate yields and volatility in yields for untraded commercial properties as out-of-sample predictions from our VAR based on these properties’ cash flow data. We find that our predicted cash flow yields closely resemble ex-post realized transaction yields, and that
these predicted yields even outperform appraisals in this respect. We find that this paradigm provides a good representation of commercial real estate yields, and propose that investors can readily apply this algorithm to infer values of untraded investment assets.
What Drives Building-Level Investment Returns?
Serguei Chervachidze
(CBRE Econometric Advisors)
Jeffery Fisher
(Indiana University)
William Wheaton
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] In this paper we examine the drivers of office building-level returns utilizing a large proprietary database of building-level investment returns for office properties from NCREIF. We utilize two stages: first, we start by utilizing panel data regression-based attribution analysis to apportion the relative contribution of building-level investment performance between fixed unique building characteristics, fixed submarket characteristics, dynamically changing local characteristics, market-level rental trends, and national property market as well as economic trends.
We find that fixed property characteristics explain only 20% of variation in building-level NCREIF total returns, market level rental trends account for 13% of variation, while national economic and property market trends explain over 32% of variation. Most significantly, dynamic property and neighborhood effects account for 53% of variation in total property performance. Results are similar for appreciation and income returns. In the second stage, we attempt to explain the variation in property-specific fixed effects from the first stage by modeling these coefficients as a function of a set of set of market, submarket, and property variables. We find that these variables explain a very small share of variation in investment performance due to fixed effects, suggesting that fixed effects capture much more information than our set of characteristics.
Our findings add further insight to the drivers of investment performance in CRE and have a number of implications for devising investment strategies in the sector. One key implication is the inefficiency of a simplistic "theme"Â investment strategy, as it relies on fixed unique market of building characteristics that account for a small share of performance differences and, hence, provide little utility in identifying above-market return opportunities.
Commercial Real Estate, Distress and Capital Recovery: Analysis of the Special Servicer
David Downs
(Virginia Commonwealth University)
Tracy Xu
(University of Denver)
[View Abstract]
[Download Preview] This paper examines the contrasting influence of portfolio lending and securitization in the resolution of distressed commercial real estate. The empirical analysis utilizes a large and unique data set of distressed commercial mortgages for securitized and portfolio loans. The data set is constructed based on the recent financial crisis and includes U.S. and International agents. The main hypotheses address the marginal impact of portfolio versus securitized loans on resolution outcome, time to resolution and capital recovery rates. Conditional on a loan becoming troubled, we find a significantly higher foreclosure rate associated with loans held in a portfolio, compared to those that are securitized. Furthermore, portfolio loans experience shorter time to resolution and higher recover rates in the foreclosure process. Our study is intended to contribute to the growing literature on distressed asset resolution and to provide new perspectives on agents at the nexus of real estate and capital market decisions.
Discussants:
Moussa Diop
(University of Wisconsin)
Rossen Valkanov
(University of California-San Diego)
Xudong An
(San Diego State University)
David T. Brown
(University of Florida)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Urban Development and Dynamics
(R3)
Presiding:
Eleonora Patacchini
(Syracuse University)
Transportation Technologies, Agglomeration, and the Structure of Cities
Jeffrey Brinkman
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] Congestion pricing has long been held up by economists as a panacea for the problems associated with ever increasing traffic congestion in urban areas. In addition, the concept has gained traction as a viable solution among planners, policy makers, and the general public. While congestion costs in urban areas are significant and clearly represent a negative externality, economists also recognize the advantages of density in the form of positive agglomeration externalities. The long-run equilibrium outcomes in economies with multiple correlated, but offsetting, externalities have yet to be fully explored in the literature. To this end, I develop a spatial equilibrium model of urban structure that includes both congestion costs and agglomeration externalities. I then estimate the structural parameters of the model by using a computational solution algorithm and match the spatial distribution of employment, population, land use, land rents, and commute times in the data. Policy simulations based on the estimates suggest that naive optimal congestion pricing can lead to net negative economic outcomes.
The Decline of the Rust Belt: A Dynamic Spatial Equilbrium Analysis
Chamna Yoon
(Baruch College City University of New York)
[View Abstract]
The purpose of this paper is to study the causes, welfare effects, and policy implications of the decline of the Rust Belt. I develop a dynamic spatial equilibrium model which consists of a multi-region, multi-sector economy comprised of overlapping generations of heterogeneous individuals. Using several data sets that cover the time period from 1960--2010, I estimate the structural parameters of the model based on a simulated method of moments estimator. The empirical findings suggest that goods-producing firms located in the Rust Belt had a 13 percent relative productivity advantage in 1960 compared to the rest of the U.S., which shrank to approximately 3 percent by the end of the sample period in 2010. As a consequence, a large fraction of the decline of the Rust Belt can be attributed to the reduction in its location-specific advantage in the goods-producing sector. The transition of the U.S. economy to a service sector economy is a less significant factor. The decline of the Rust Belt generated significant differences in welfare between individuals residing in the Rust Belt and those residing in other areas, particularly for the less educated. Policy experiments show that the inequality in welfare can be significantly reduced by subsidizing labor costs in the Rust Belt or reducing mobility costs.
The Settlement of the United States, 1800 to 2000: The Long Transition Towards Gibrat's Law
Klaus Desmet
(Carlos III)
Jordan Rappaport
(Federal Reserve Bank of Kansas City)
[View Abstract]
[Download Preview] Gibrat's law, the orthogonality of growth to initial levels, is considered a stylized fact of local population growth. But throughout U.S. history, local population growth has significantly deviated from orthogonality. In earlier periods smaller counties strongly converged whereas larger counties moderately diverged. Over time, due to changes in the age composition of locations and net congestion, convergence dissipated and divergence weakened. Gibrat's law gradually emerged without fully attaining it. A simple one-sector model, with entry of new locations, a growth friction, and decreasing net congestion closely matches these and many other observed relationships. Our findings suggest that orthogonal growth is a consequence of reaching a steady state population distribution, rather than an explanation of that distribution.
Driving to Opportunity: Local Wages, Commuting, and Sub-Metropolitan Quality of Life
David Albouy
(University of Michigan)
Bert Lue
(University of Michigan)
[View Abstract]
[Download Preview] In an equilibrium model of residential and workplace choice, we develop a measure of quality of life, incorporating commuting costs and wages based on place of work, to account for residential sorting on unobserved skills within metropolitan areas. Quality-of-life measures estimated for 2071 areas in the United States reveal that quality of life varies as much within metropolitan areas as between them and is highest in denser areas. Households bear significant commuting costs to enjoy the amenities of suburban areas, and are willing to pay significant amounts to live in areas with low crime and well-funded schools.
Discussants:
Ronni Pavan
(University of Rochester)
Giorgio Topa
(Federal Reserve Bank of New York)
Matthew Turner
(University of Toronto)
Jessie Handbury
(University of Pennsylvania)
Jan 03, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon A
Association for Comparative Economic Studies
Exploration of New and Existing Macro Data for the Chinese Economy
(E2)
Presiding:
Carsten Holz
(Stanford University)
The Quality of Chinese GDP Statistics
Carsten Holz
(Stanford University)
[View Abstract]
The quality of China's official statistics is frequently being questioned. From the 1998 'wind of falsification' to China's output performance during the U.S. financial crisis, researchers and the media alike rarely trust Chinese official statistics. This paper reviews past and ongoing suspicions of Chinese GDP data and concludes that there is little (if any) evidence for falsification of Chinese GDP data or for systematic biases in the data. The paper furthermore asks the question of which specific national income accounts data China's National Bureau could possibly falsify without being detected, and provides two significant checks of such potential data falsification.
Chinese Capital Flight: Questions of Data and Policy
Frank Gunter
(Lehigh University)
[View Abstract]
[Download Preview] Since 1985, the foreign debt of the Peoples' Republic of China has
increased at a greater rate then would be explained by changes in the country's current account,
foreign direct investment and reserve holdings. This pattern is consistent with the large-scale
outflow of financial capital, commonly referred to as capital flight. This study provides a range
of estimates for capital flight from the PRC for the period 1984 through 2010 using both
Cuddington's balance of payments and the more inclusive residual measures. These measures are
adjusted to reflect the legitimate assets of the PRC banking industry, mis-invoicing of PRC trade
with its major trading partners (especially Hong Kong), and the failure of official debt data to
capture certain bank transactions. Based on these estimates, 2010 capital flight was about $201
billion while accumulated PRC capital flight since 1984 is approximately $2.1 trillion with over
50% of this total occurring in the most recent six years. Since this capital flight has occurred
during a period of rapid economic growth, appreciating currency, and improved perception of
political stability, the most likely cause is high transaction costs in China’s financial markets.
China's Provincial Capital Stock by Sector: Data and Preliminary Analysis
Yanrui Wu
(University of Western Australia)
[View Abstract]
Many authors have attempted to estimate China's aggregate and provincial capital stock statistics. Some authors have also reported capital stock estimates for industrial sub-sectors at the national level. This paper adds to the existing literature by estimating provincial capital stock at the sub-sector level. It extends the author's own work of the estimates of capital stock for the three sectors (agriculture, industry and services) in Chinese provinces. The raw data are drawn from various statistics yearbooks and reports. These statistics are checked, corrected and reconciled for the final estimation of a capital stock series. In particular great efforts are made to ensure that 1) data from different sources are consistent with each other, 2) official data are adjusted or corrected according to the standard accounting practices and 3) conventional methods are adopted so that benchmark comparison is possible. The data series covers subsectors at the two digit level for China's provincial economies. Preliminary analysis using the estimated data will also be reported. The final capital stock data series together with employment and value-added statistics at the same level will be available for public access.
China's Human Capital Stock
Haizheng Li
(Georgia Institute of Technology)
[View Abstract]
A new panel data set on the estimates of human capital stock in China has been under construction since 2008. The data provide human capital stock estimates at the national level and provincial level from 1985 to 2010. Through 2013, the data have covered 22 provinces in China.
The project is the result of cooperation between the China Center for Human Capital and Labor Market Research (CHLR) at the Central University of Finance and Economics (CUFE) with the participation of a large number of scholars and graduate students from the US, Canada, and China. The updated data are released on annual base with the "China Human Capital Report." The project has been supported by the China NSF, CUFE and other agencies.
The estimation of human capital stock is based on the Jorgenson-Fraumeni life-time income approach. The data provide a comprehensive human capital measure in China beyond the traditional partial measurement based on education. The data show the distribution of human capital across Chinese provinces as well as the dynamics of human capital covering most of the reform era in China. This paper provides detailed description of the data, its rich information on human capital, such as total human capital, per capita human capital, labor force human capital, by urban and rural as well as by gender.
As an illustration of its utility, we use the data to investigate the economic growth convergence among Chinese provinces using this new human capital measurement and compare the results with traditional education-based human capital measurement.
Discussants:
Belton M. Fleisher
(Ohio State University)
Zheng Michael Song
(University of Chicago)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Macro Policy and Financial Stability in the Age of Turbulence
(B5)
Presiding:
Abu Shonchoy
(Institute of Developing Economies)
Understanding Long-Term Japanese Government Bonds' Low Nominal Yields
Tanweer Akram
(Ing Investment Management)
[View Abstract]
[Download Preview] Long-term Japanese government bonds' nominal yields have stayed remarkably low for the past two decades despite elevated government debt ratios and large and persistent fiscal deficits. During these past two decades the Japanese economy has been mired in subdued growth and deflation which in turn has resulted in large and chronic fiscal deficits that has led to elevated and rising ratios of government debt to national income. However, contrary to conventional wisdom, long-term Japanese government bonds' nominal yields have remained low and declined over time during this period. It is argued here that long-term Japanese government bonds' nominal yields have stayed low due to monetary sovereignty, low short-term interest rates, low inflation and indeed persistent deflationary pressures, and tepid growth. Low short-term interest rates, induced by the monetary authorities, have been a key driver of JGBs' low nominal yields, while monetary sovereignty implies that since the Government of Japan has the ability to always service debt issued in its own currency, namely, yen-denominated government bonds, investors need not be excessively concerned about credit risk of a sovereign default. Japan's experience of long-term government bonds' low nominal yields vindicates Keynes' (1930) view that long-term interest rates primarily respond to monetary policy which generally exerts its direct influence on short-term interest rates.
Shadow Banking and Credit Driven Growth in China
Yan Liang
(Willamette University)
[View Abstract]
Credit flow outside of traditional bank lending, or the "shadow banking", has
quadrupled since 2008 and reached $3.2 trillion or 40 percent of GDP at the
beginning of 2013 in China. The shadowing banking system is acclaimed by some
commentators as a welcome supplement to bank lending, which increases access
to credit for those that are shunned from the stateâ€dominated banking system. In
addition, shadow banking institutions, such as trusts, and their issuance of wealth
management products provide a viable venue for households to place their
savings. However, the growth of the shadow banking may pose high risks for
China's financial stability due to the lack of regulations and the opaque underlying
assets of these wealth management products. Furthermore, a large share of
shadow banking credit flows to the property market, leading to the overheating of
property price. This paper will investigate the recent surge of shadow banking in
China and analyze its impacts on China's financial stability and macroeconomic
performance.
Economic Consequences of the TARP
Heather Montgomery
(International Christian University)
[View Abstract]
[Download Preview] This study empirically analyzes the impact of the United States' bank
recapitalization program, the centerpiece of the United States' $700 billion
Troubled Asset Relief Program (TARP), on bank portfolios. Our findings
demonstrate that the program did not achieve the stated policy objective of
stimulating bank lending and, particularly, preventing foreclosures. On the
contrary, we find evidence that recipient banks shrunk their assets, particularly
heavily risk-weighted assets such as loans. This affected loan growth in aggregate
as well as to specific sectors: agriculture, real estate, and, most significantly,
business loans. The cuts in lending were more significant under TARP 2, the
second round of the program. This finding is robust to various empirical
specifications, including two-stage least squares estimation using instrumental
variables. The empirical results suggest that TARP recipients cut back on lending
more than other banks and that the cuts in lending were larger the more capital
the banks received.
Three Sector Balance Approach and the Economic Crisis
Eric Tymoigne
(Lewis and Clark College)
[View Abstract]
Sound national accounting has become an important backbone of Post Keynesian
macroeconomic thinking. An essential part of this accounting framework is the
three sector balance identity that illustrates that not all economic sectors can be
in surplus or deficit at the same time. This identity was used successfully in the US
to detect clues of unsustainable economic growth. When the domestic private
sector became a net borrower it was an important sign that private debt dynamics
were not sustainable. This paper extends the same analysis to other countries to
see if one can draws similar conclusion. Canada and Australia are examined more
carefully.
Discussants:
Abu Shonchoy
(Institute of Developing Economies)
Yuki Takahashi
(State University of New York-Stony Brook)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Congress A
Association for Social Economics
Social Entrepreneurship: Maximizing Impact and Innovation
(L3)
Presiding:
Tonia Warnecke
(Rollins College)
Social Enterprises as Networks of Innovators in the Social Economy
Zohreh Emami
(Alverno College)
[View Abstract]
The literature on social entrepreneurship focuses on changing the dynamic that creates need deprivation by creating value through a variety of ways not exclusively measured through market exchange or government programs. Social entrepreneurial individuals and enterprises close the duality between the profit and non-profit sectors by linking ends and means and exploring novel solutions to social economic problems that go beyond what we have traditionally considered the public and private sectors. Opportunities for problem solving of this sort come about during specific punctuations and waves in history when the prevailing wisdom weakens, revealing the failure of the status quo to solve social economic problems. These punctuations increase opportunities for new ways of thinking and the appetite for accepting new ideas. No one knows for sure how long these punctuations will last, but we do know that these punctuations produce waves of activity that feeds on itself. In the context of the economic turmoil communities have been going through during the current economic crisis, this is an opportunity for social economics to make contributions by exploring innovative ways of alleviating deprivations. Research on innovative social enterprises and on the work of individual social entrepreneurs can thus benefit the development of social economic scholarship. I will examine the relationship between social entrepreneurship/enterprise and social economics by exploring the role of social enterprise and social entrepreneurship in the social economy. Particular emphasis will be accorded to women social entrepreneurs working to bring about change in their communities.
Social Enterprises and the Analysis of Space to Alleviate Financial Constraints
Benjamin Wilson
(University of Missouri-Kansas City)
[View Abstract]
The most common critique of social enterprise is that eventually they must sacrifice their social or environmental objectives under the financial pressure of survival. The objective of this project is to address this critique from a number of perspectives and use spatial analysis of the Greater Kansas City Metropolitan Area to develop an alternative monetary asset structure (AMAS) designed to alleviate the social enterprise sector from the existing financial constraints it currently faces in a monetary production economy. This objective will be pursued through an analysis of money focusing on public banks, complementary currencies, and the Federal Reserves definitions of collateral and a quantitative, qualitative, spatial (SQ2) analysis of the impact on neighborhood vulnerability/stability of social enterprise. In order to develop the SQ2 method of analysis, data will be collected from the neoliberal period (1980-present). The data sets will consist of both attribute and spatial data from the Greater Kansas City area in the social enterprise fields of housing, education, healthcare and the arts as well as socio-economic data from the American Community Survey, Center for Economic Information (UMKC) and the U.S. Census. Using geographic information systems software, these data will be analyzed using a variety of techniques to estimate and identify spatial: autocorrelation, patterns, and diffusion of the variables. This analysis will help to quantify the non-monetary returns of social enterprise. In combination with the findings of the analysis of complementary currencies and the debt instruments of public banks, it will be proposed that the spatial externalities generated by social enterprise can be used as collateral in balance sheet transactions, similar to those conducted by the Federal Reserve in quantitative easing, helping to alleviate the financial constraints on social enterprise and allow economic recovery to drop 'jobless' as its defining adjective.
Workers' Cooperatives: New Strategies for Finance
Daniel Fireside
(Equal Exchange)
Christopher Gunn
(Hobart and William Smith Colleges)
[View Abstract]
The history of workers' cooperatives has been one of social entrepreneurship hampered by lack of capital. This history has recently been changed in several innovative ways, and together they create opportunity for more concrete results from workers' co-ops. This paper investigates these new opportunities.
The most obvious barrier to worker-initiated entrepreneurship is lack of capital that can be used for equity financing. The growing income and wealth disparities in the United States have only exacerbated this problem. A capitalist economy requires capitalists, or substitutes for them. A related barrier to cooperatives seeking financing is that they don't fit the conventional capitalist norm. The relationship between capital and workers is inverted: worker-owners hire capital, and hire and fire managers.
Crowd funding through online social networks may prove to be a way around these barriers, although these networks have not yet become a viable way of raising long-term equity. Several cooperatives of differing scale, however, have recently had notable success by using existing securities laws to raise short- and long-term capital from their networks of supporters, beyond their cooperative membership circle. Companies such as Equal Exchange, Namaste Solar, and Real Pickles have raised millions of dollars in preferred stock offerings to outside investors on terms that enhance employee and farmer ownership, rather than transferring power to the financiers.
This paper will look at these innovations in cooperative financing and discuss whether they represent a sustainable solution to the problem of cooperative financing.
Social Entrepreneurship, Alternative Currencies, and Post-Transactional Civil Society: The Case of the Sunshine Bank
Matthias Klaes
(University of Dundee)
[View Abstract]
As a concept, social entrepreneurship has managed in recent years to capture the imagination of practitioners, policy makers and commentators alike. While this is evidently not the result of it being clearly and rigorously defined (e.g. Bacq and Janssen, 2011), there is a growing recognition that successful social entrepreneurship results from the transformative intersection of social service provision and social activism (Martin and Osberg, 2007). This paper studies the case of a Brighton based Community Interest Company, The Good Life for All, and its piloting of a community reward currency during 2012. While the delivery focus of this pilot as such is non-transformative, the financial context of this delivery, in its trialling of a community currency, is. The case allows us therefore to cast light on the intersection of alternative finance, broadly conceived, and social entrepreneurship. At the heart of this intersection, one finds commitments at various levels among the stakeholders of the pilot to a recasting of market transactions into relational economies that call into question the rhetoric of conventional market exchange, while at the same time being premised on that rhetoric. Put into context, this phenomenon is characteristic of a number of other recent ventures experimenting at the margins of conventional finance, and points to a potential shift in focus of how post-crisis civil society has begun to engages with and transform the financial and monetary sectors as they stands.
Social Entrepreneurship for Students: The Rollins Microfinance Fund
Tonia Warnecke
(Rollins College)
[View Abstract]
As scholarly and practical interest in social entrepreneurship increases, a relevant question is how we can excite future generations of leaders to explore social entrepreneurship while in college or university. This paper details the story of the Rollins Microfinance Fund, the first undergraduate social entrepreneurship-related student organization at Rollins College, Florida. The organization was developed in 2010 by a group of students taking a course titled Globalization and Gender, and since that time the group has become more diverse, now encompassing both graduate and undergraduate students of various disciplines at Rollins. The paper discusses the activities of the group (which focus on loaning money to entrepreneurs in developing countries through Kiva), and lessons the group leaders have learned along the way as they have worked to increase awareness of microfinance throughout the campus community.
Jan 03, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon K
Association of Environmental & Resource Economists
Options for a New International Climate Regime Arising from the Durban Platform for Enhanced Action
(Q5) (Panel Discussion)
Panel Moderator:
Robert Stavins
(Harvard University)
Joseph Aldy
(Harvard University)
Ottmar Edenhofer
(Technical University of Berlin)
Geoffrey Heal
(Columbia University)
Gilbert Metcalf
(Tufts University)
William Pizer
(Duke University)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Congress B
Association of Financial Economists/American Economic Association
Moral Attitudes and Financial Decision-Making
(G3)
Presiding:
Michael Jensen
(Harvard University)
Moral Attitudes and Financial Decision-Making
Jonathan Haidt
(New York University)
David Hirshleifer
(University of California-Irvine)
Siew Hong Teoh
(University of California-Irvine)
[View Abstract]
Behavioral finance has focused primarily on cognitive biases and unconventional preferences over gambles, but financial judgments and decision-making are heavily influenced by moral attitudes about what is appropriate behavior with regard to saving for the future, taking risks, and taking advantage of other individuals. We review here the basic psychology of moral attitudes, including the six fundamental moral foundations that underlie much of human moral attitudes, and distinguish between basic financial norms that align fairly closely to the moral foundations, and financial ideologies that elaborate more adventurously from the foundations. We then critically review existing theory and evidence regarding how moral attitudes affect the behaviors of investors, advisors, managers, firms, and market prices. We also discuss some important financial ideologies that are infused with moral attitudes, such as the anti-greed ethic, growth versus value ethics, the anti-speculation ethic, the entrepreneurial ethic, pro-thrift/anti-lender ethics, anti-short-termism. We also discuss how moral attitudes affect financial regulation, and suggest directions for future research.
The Impact of Cultural Aversion on Economic Exchange: Evidence from Shocks to Sino-Japanese Relations
Raymond Fisman
(Columbia University)
Yasushi Hamao
(University of Southern California)
Yongxiang Wang
(University of Southern California)
[View Abstract]
[Download Preview] We study the impact of cultural aversion on international economic relations by analyzing market reaction to two major adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure decline disproportionately during each event window; Chinese companies with high Japanese exports similarly suffer relative declines. The effect on Japanese companies is
concentrated in industries dominated by Chinese state-owned enterprises, where there is greater incentive and ability to intervene, while the negative impact on Chinese firms is primarily for consumer-focused companies. Our results suggest an important impact of cultural frictions on economic relations, and highlight that institutional context is important for understanding the mechanisms underlying this effect.
Honoring One's Word: CEO Integrity and Accruals Quality
Shane S. Dikolli
(Duke University)
William J. Mayew
(Duke University)
Thomas D. Steffen
(Duke University)
[View Abstract]
[Download Preview] We forward and validate using survey data a linguistically derived measure of CEO integrity by documenting a negative association between CEO use of causation words and employee perceptions of the extent to which their CEOs honor their word. Using causation words from annual shareholder letters, we then create CEO integrity scores for a large archival sample. Accounting accruals capture the CEOs word regarding firm cash flows, and we find that high integrity CEOs report accruals that better map into cash flows. Given that poor accruals quality is costly, we also find boards rationally respond by increasing governance over low-integrity CEOs.
Trust, Consumer Debt, and Household Finance
Danling Jiang
(Florida State University)
Sonya S. Lim
(DePaul University)
[View Abstract]
[Download Preview] Using a large sample of U.S. individuals, we show that trust is an important determinant of
an array of household financial decisions and outcomes including debt management. Individuals
with a higher level of trust are less likely to be in debt, miss payments, file bankruptcy, or go
through foreclosure. Their households have lower financial leverage, higher retirement savings
and assets, and greater net worth. We show a causal impact of trust on financial outcomes by
extracting the component of trust correlated with an individual's early life experiences, and also
by purging out the component of trust correlated with prior economic success. The effect of
trust channels through the beliefs formed in response to the trustworthiness of people one deals
with, as well as through personal values of trust and trustworthiness rooted in the family and
cultural background. Trust has a more pronounced effect among females and those who have
lower education or income. Our further evidence suggests that enhancing individuals' trust, and
to the right amount, can improve household financial well-being.
Discussants:
Harrison Hong
(Princeton University)
Paola Sapienza
(Northwestern University)
Alexander Dyck
(University of Toronto)
Adair Morse
(University of California-Berkeley)
Michael Jensen
(Harvard University)
Jan 03, 2014 8:00 am, Philadelphia Marriott, Meeting Room 401
Econometric Society
Big Data and High-Dimensional Problems
(C3)
Presiding:
Jushan Bai
(Columbia University)
Incidental Endogeneity in High Dimensions
Jianqing Fan
(Princeton University)
[View Abstract]
Most papers on high-dimensional statistics are based on the assumption that none of the regressors are correlated with the regression error, namely, they are exogenous. Yet, incidental endogeneity arises easily in a large pool of regressors in a high-dimensional regression. This causes the inconsistency of the penalized least-squares method and possible false scientific discoveries. A necessary condition for model selection consistency of a very general class of penalized regression methods is given, which allows us to prove formally the inconsistency claim. To cope with the possible incidental endogeneity, we construct a novel penalized focused generalized method of moments (FGMM) criterion function and offer a new optimization algorithm. The FGMM is an extra filter that excludes all incidental endogenous predictors. To establish its asymptotic properties, we first study the variable selection consistency for a general class of penalized regression methods. These results are then used to show that the FGMM possesses the oracle property even in the presence of incidental endogenous predictors, and that the solution is also near globalminimumunder the over-identification assumption. Finally, we also show how the semi-parametric efficiency of estimation can be achieved via a two-step approach.
Program Evaluation with High-Dimensional Data
Victor Chernozhukov
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] In the first part of the paper, we consider estimation and inference on policy relevant treatment effects, such as local average and local quantile treatment effects, in a data-rich environment where there may be many more control variables available than there are observations. In addition to allowing many control variables, the setting we consider allows endogenous receipt of treatment, heterogeneous treatment effects, and function-valued outcomes. To make informative inference possible, we assume that some reduced form predictive relationships are approximately sparse. That is, we require that the relationship between the control variables and the outcome, treatment status, and instrument status can be captured up to a small approximation error using a small number of the control variables whose identities are unknown to the researcher. This condition allows estimation and inference for a wide variety of treatment parameters to proceed after selection of an appropriate set of controls formed by selecting control variables separately for each reduced form relationship and then appropriately combining these reduced form relationships. We provide conditions under which post-selection inference is uniformly valid across a wide-range of models and show that a key condition underlying the uniform validity of post-selection inference allowing for imperfect model selection is the use of approximately unbiased estimating equations. We illustrate the use of the proposed methods with an application to estimating the effect of 401(k) participation on accumulated assets.
In the second part of the paper, we present a generalization of the treatment effect framework to a much richer setting, where possibly a continuum of target parameters is of interest and the Lasso-type or post-Lasso type methods are used to estimate a continuum of high-dimensional nuisance functions. This framework encompasses the
analysis of local treatment effects as a leading special case and also covers a wide variety of classical and modern moment-condition problems in econometrics. We establish a functional central limit theorem for the continuum of the target parameters, and also show that it holds uniformly in a wide range of data-generating processes $P$, with continua of approximately sparse nuisance functions. We also establish validity of the multiplier bootstrap for resampling the first order approximations to the standardized continuum of the estimators, and also establish uniform validity in $P$. We propose a notion of the functional delta method for finding limit distribution and multiplier bootstrap of the smooth functionals of the target parameters that is valid uniformly in $P$. Finally, we establish rate and consistency results for continua of Lasso or post-Lasso type methods for estimating continua of the (nuisance) regression functions, also providing practical, theoretically justified penalty choices. Each of these results is new and could be of independent interest.
Asymptotic Analysis of the Squared Estimation Error in Misspecified Factor Models
Alexei Onatski
(University of Cambridge)
[View Abstract]
[Download Preview] In this paper, we obtain asymptotic approximations to the squared error of the least squares estimator of the common component in large approximate factor models with possibly misspeci…ed number of factors. The approxima- tions are derived under both strong and weak factors asymptotics assuming that the cross-sectional and temporal dimensions of the data are comparable. We develop consistent estimators of these approximations and propose to use them for model comparison and for selection of the number of factors. We show that the estimators of the number of factors that minimize these loss estimators are asymptotically loss e¢ cient in the sense of Shibata (1980), Li (1987), and Shao (1997).
Shrinkage Estimation of High-Dimensional Factor Models with Structural Instabilities
Xu Cheng
(University of Pennsylvania)
Zhipeng Liao
(University of Pennsylvania)
Frank Schorfheide
(University of Pennsylvania)
[View Abstract]
[Download Preview] In high-dimensional factor models, both the factor loadings and the number of factors may change over time. This paper proposes a shrinkage estimator that detects and disentangles these instabilities. The new method simultaneously and consistently estimates the number of pre- and post-break factors, which liberates researchers from sequential testing and achieves uniform control of the family-wise model selection errors over an increasing number of variables. The shrinkage estimator only requires the calculation of principal components and the solution of a convex optimization problem, which makes its computation efficient and accurate. The finite sample performance of the new method is investigated in Monte Carlo simulations. In an empirical application, we study the change in factor loadings and emergence of new factors during the Great Recession.
Jan 03, 2014 8:00 am, Philadelphia Marriott, Meeting Room 402
Econometric Society
Estimation of Industrial Organization Models
(L2)
Presiding:
Che-Lin Su
(University of Chicago)
Relaxing Competition Through Speculation: Committing to a Negative Supply Slope
Pär Holmberg
(Research Institute of Industrial Economics)
Bert Willems
(Tilburg University)
[View Abstract]
[Download Preview] We demonstrate how commodity producers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers first choose a portfolio of call options and then compete in supply functions. In equilibrium firms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.
Estimating Dynamic Discrete-Choice Games of Incomplete Information
Michael Dannen Egesdal
(Harvard University)
Zhenyu Lai
(Harvard University)
Che-Lin Su
(University of Chicago)
[View Abstract]
[Download Preview] We investigate the estimation of models of dynamic discrete-choice games of incomplete information, formulating the maximum-likelihood estimation exercise as a constrained optimization problem which can be solved using state-of-the-art constrained optimization solvers. Under the assumption that only one equilibrium is played in the data, our approach avoids repeatedly solving the dynamic game or finding all equilibria for each candidate vector of the structural parameters. We conduct Monte Carlo experiments to investigate the numerical performance and finite-sample properties of the constrained optimization approach for computing the maximum-likelihood estimator, the two-step pseudo maximum-likelihood estimator and the nested pseudo-likelihood estimator, implemented by both the nested pseudo-likelihood algorithm and a modified nested pseudo-likelihood algorithm.
Identification and Estimation of Heterogeneous Production Functions
Jorge Balat
(Johns Hopkins University)
Yuya Sasaki
(Johns Hopkins University)
[View Abstract]
There is an extensive literature on the estimation of production functions. A common feature in these studies is that, within an industry, all firms are assumed to have the same production technology but face idiosyncratic (Hicks neutral) productivity shocks. Different industries are allowed to have different technologies.
In reality, firms within an industry may have different production technologies depending, for example, on their age, size, history of skill-biased technological changes, or whether they produce for the local market or are engaged in international trade. In fact, the new wave of international trade studies has documented substantial heterogeneity in production technologies at the firm level (see, for example, Bernard and Jensen (1995, 1999) or Melitz (2008)). In this light, we allow for random coefficients for inputs in the production function without specifying their distribution, and show that the coefficients are non-parametrically identified for each firm using short panel data. Sample counterparts of the explicit identifying formulas yield closed-form estimators of the heterogeneous coefficients. We perform Monte Carlo experiments to show how the estimators perform in small samples. Theoretical large sample properties are also discussed. Our identification strategy relies on the structural restrictions similar to those commonly used in the literature on production functions. In other words, we can deal with more general heterogeneous models without materially strengthening existing identifying assumptions. First, the invertibility of the intermediate input choice function is used to proxy the unknown heterogeneous coefficients. Second, the frictions in labor and investment choices are in turn used to disentangle the correlated proxy from endogenous inputs. Third, the assumption that the Hicks neutral technology follows a first-order Markov process disentangles the correlated technology from endogenous capital growths. These three main identifying assumptions together with an empirically testable rank condition establish that all the heterogeneous coefficients are explicitly identified for each firm.
Supply Function Competition and Exporters: Nonparametric Identification and Estimation of Productivity Distributions and Marginal Costs
Ayse Ozgur Pehlivan
(Bilkent University)
Quang Vuong
(New York University)
[View Abstract]
[Download Preview] In this paper we develop a structural model in which exporters are competing in supply functions and study the nonparametric identification and estimation of productivity distributions and marginal costs in this framework. Our model is able to reconcile the existence of multiple sellers, multiple prices, and variable markups that we observe in disaggregated bilateral trade data while also incorporating features such as strategic pricing and incomplete information, which are usually missing in models of exporter behavior. Our identification and estimation methodology makes an important contribution to the empirical share auction literature by showing that the underlying structure is identified nonparametrically even if we do not observe the entire schedules, but only the transaction points instead; whereas the methodology in the literature of empirical share auctions depends heavily on the fact that the entire bid/supply schedule is observed. Moreover, in view of the recent studies in international trade that have shown the sensitivity of the gains from trade estimates to the parametrization of productivity distributions it is important to maintain a flexible structure for productivity distributions and also marginal costs. We apply our model to the German market for manufacturing imports for 1990 using disaggregated bilateral trade data, which consists only of trade values and traded quantities. We recover the destination-source specific productivity distributions and destination-source specific marginal cost functions nonparametrically. Our empirical results do not support the distributional assumptions that are commonly made in the international trade literature such as Fréchet and Pareto. In particular, we find that the productivity distributions are not unimodal; low productivities are more likely to occur as expected, but there is not a single mode. Our results provide important insights about cross country and cross destination differences in productivity distributions, trade costs and markups.
Primary Dealers, Indirect Bidders, and Direct Bidding: A Structural Model of United States Treasury Auctions
Eiichiro Kazumori
(State University of New York)
Leonard Tchuindjo
(United States Treasury and George Washington University)
[View Abstract]
[Download Preview] This paper studies the design of US Treasury auctions focusing on the role of primary dealers that bids on behalf of indirect bidders when making the market. We develop a framework of continuous-time uniform price auctions in general economic environments that allow players short positions, interdependent values, and information asymmetries among primary dealers and indirect bidders and derive a linear equilibrium in closed forms. Primary dealers use information contained in bids to update their estimates and can reduce volatility of auction prices that are important for public debt management. Direct bidding can enhance competition and participation but also can affect the market risk premium.
Discussants:
Ayse Ozgur Pehlivan
(Bilkent University)
Jorge Balat
(Johns Hopkins University)
Che-Lin Su
(University of Chicago)
Pär Holmberg
(Research Institute of Industrial Economics)
Jan 03, 2014 8:00 am, Philadelphia Marriott, Meeting Room 404
Econometric Society
Long Run Changes in Labor Market Outcomes
(J1)
Presiding:
Sephorah Mangin
(Monash University)
The Role of Allocative Efficiency in a Decade of Recovery
Kaiji Chen
(Emory University)
[View Abstract]
[Download Preview] The Chilean economy experienced a decade of sustained growth in aggregate output and productivity after the 1982 financial crisis. This paper analyzes the role of resource allocative efficiency on total factor productivity (TFP) in the manufacturing sector by applying the methodology of Hsieh and Klenow (2009) to the establishment data from the Chilean manufacturing census. We find that a reduction in resource misallocation accounts for about 46 percent of the growth in manufacturing TFP between 1983 and 1996. The improvement in allocative efficiency, moreover, is essentially driven by a reduction in the cross-sectional dispersion of output distortion. In particular, a reduction in the least productive plants' output subsidies is the most important reason for the reduction in resource misallocation during this period. Our evidence suggests that Chile's banking reform during the early and mid-1980s is likely to have played an important role in the observed improvement in allocation.
Factors Affecting College Completion and Student Ability in the United States since 1900
Christopher Michael Herrington
(Arizona State University)
Kevin Donovan
(Arizona State University)
[View Abstract]
[Download Preview] We develop a dynamic lifecycle model to study the increases in college completion and average IQ of college students in cohorts born from 1900 to 1972. We discipline the model by constructing historical data on real college costs from printed government reports covering this time period. We find that increases in college completion of 1900 to 1950 birth cohorts are due primarily to changes in college costs, which generate a large endogenous increase in college enrollment. Additionally, we find strong evidence that cohorts born after 1950 under-predicted sharp increases in the college earnings premium they eventually received. Combined with increasing college costs during this time period, this generates a slowdown in college completion, consistent with empirical evidence for cohorts born after 1950. Lastly, we claim that the rise in average college student IQ cannot be accounted for without a decrease in the variance of ability signals. We attribute the increased precision of ability signals primarily to the rise of standardized testing.
EPL and Capital-Labor Ratios
Alexandre Janiak
(University of Chile)
Etienne Wasmer
(Sciences-Po)
[View Abstract]
Employment protection (EPL) has a well known negative impact on labor flows as well as an ambiguous but often negative effect on employment. In contrast, its impact on capital accumulation and capital-labor ratio is less well understood. The available empirical evidence would suggest a non-monotonic relation between capital-labor ratios and EPL: positive at very low levels of EPL, and then negative. We explore the theoretical effects of EPL on physical capital in a model of a firm facing labor frictions. Under standard assumptions, theory always implies a motononic negative link between capital-labor ratios and EPL. For a positive link to arise, a very specific pattern of complementarity between capital and workers protected by EPL (senior workers, as opposed to unprotected new entrants, or junior workers) has to be assumed. Further, no standard production technology is able to reproduce the inverted U-shape pattern of the data. An extension of the model with specific skills investment is instead able to reproduce the inverted U-shape pattern. EPL protects and therefore induces investments in specific skills. We calibrate the returns to seniority by using estimates from the empirical literature. Under complementarity between capital and specific human capital, physical capital and senior workers having accumulated specific human capital are de facto complement production factors and EPL may increase capital demand at the firm level. The paper concludes that labor market institutions sometimes have a positive role in a second-best environment.
A Theory of Factor Shares
Sephorah Joanne Mangin
(Monash University)
[View Abstract]
[Download Preview] This paper presents a theory of how factor shares are determined. I first develop microfoundations for a unified aggregate production function that incorporates a frictional process of matching workers and firms. Firms with productivities drawn from a Pareto distribution hire capital and compete for workers. Wages are determined by Bertrand competition. In contrast with Houthakker's classic result, the aggregate production function derived here is Cobb-Douglas only in the limit as unemployment goes to zero. In general, the elasticity of substitution between capital and labor is less than one. Factor shares are asymptotically constant when unemployment disappears and also when workers' reservation wage exceeds the minimum firm productivity. In general, factor shares are variable and depend on unemployment and workers' reservation wage, as well as the firm productivity distribution. Using annual data on unemployment and eligibility for unemployment insurance, I calibrate the model and test its quantitative predictions. The theory can explain much of the behavior of factor shares in the U.S. from 1951-2003. The correlation between the data and the model's predictions during this period of over fifty years is 0.69 for the perfect foresight equilibrium and 0.73 when workers are myopic.
Jan 03, 2014 8:00 am, Philadelphia Marriott, Meeting Room 405
Econometric Society
The Real Effects of Financial Markets
(G1)
Presiding:
Franklin Allen
(University of Pennsylvania)
Market Efficiency and Real Efficiency
Itay Goldstein
(University of Pennsylvania)
Liyan Yang
(University of Toronto)
[View Abstract]
We study a model to explore the (dis)connect between market efficiency and real efficiency when firms learn information from the market to guide their investment decisions. Whether the two efficiency concepts are aligned depends crucially on what information is contained in the market. Market efficiency concerns how much information the market reveals about the overall firm value. However, improving real efficiency needs the market to reveal much information that is relevant for investment decisions. As a result, an informationally efficient economy may not operate efficiently from the perspective of real investment. We characterize conditions for this disconnection to happen. Our analysis highlights the delicate link between market efficiency and real efficiency, and it has important implications for financial regulations.
Informational Frictions and Commodity Markets
Michael Sockin
(Princeton University)
Wei Xiong
(Princeton University)
[View Abstract]
[Download Preview] This paper develops a model to analyze information aggregation in commodity markets. Through centralized trading, commodity prices aggregate dispersed information about the strength of the global economy among goods producers whose production has complementarity, and serve as price signals to guide producers' production decisions and commodity demand. Our analysis highlights important feedback effects of informational noise originating from supply shocks and futures market trading on commodity demand and spot prices, which are ignored by existing empirical studies and policy discussions.
Learning from Peers' Stock Prices and Corporate Investment
Thierry Foucault
(HEC, Paris)
Laurent Fresard
(University of Maryland)
[View Abstract]
We show that the stock market valuation of peers matters for Â…firms' Â’investment decisions. In a large sample of fiÂ…rms, corporate investment is positively related to the market valuation of peer Â…firms selling related products. Consistent with a model where managers use the stock prices of peers as a source of information, this relation is stronger when the level of informed trading in a Â…firm'Â’s stock is weak. Also, the link between the investment of a Â…firm and its own stock price is weaker when the level of informed trading in its peersÂ’' stocks is high, or when the demand for its products is more correlated with that of its peersÂ’' products. Furthermore the investment of private Â…firms depends on their peersÂ’' stock prices, but much less so after they go public. Overall, our results provide new insights on how fiÂ…nancial markets affect the real economy.
Financial Market Shocks and the Macroeconomy
Avanidhar Subrahmanyam
(University of California-Los Angeles)
Sheridan Titman
(University of Texas-Austin)
[View Abstract]
[Download Preview] Feedback from stock prices to cash flows occurs because information revealed by firms' stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting where stock prices are affected by fundamental information, observed by some investors, as well as by unobserved shocks to stock market participation. The model is consistent with a number of regularities documented in the macro finance literature and generates new, potentially testable, implications.
Discussants:
Alexi Savov
(New York University)
Thomas Michael Mertens
(New York University)
Wei Jiang
(Columbia University)
Gustavo Manso
(University of California-Berkeley)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall A2
International Banking, Economics & Finance Association
Finance and Development/ International Finance
(G2)
Presiding:
Gillian Garcia
(Gillian Garcia Associates)
Competition, Loan Rates and Information Dispersion in Microcredit Markets
Guillermo Baquero
(European School of Management and Technology, Berlin)
Malika Hamadi
(University of Sassari-Italy)
Andreas Heinen
(Université de Cergy-Pontoise)
[View Abstract]
We study the effects of competition on loan rates in microcredit markets using a new database from rating agencies, covering 379 for-profit and nonprofit micro finance institutions (MFIs) in 67 countries over 2002-2008. First, we find competitive pressures from increased market share of for-profits. Second, we find that nonprofits are relatively insensitive to concentration changes, while they appear to sustain their competitive advantage stemming from proprietary information on borrowers. In contrast, for-profits charge significantly lower rates in less concentrated markets. We show that this effect is consistent with an information dispersion mechanism.
Investment in Relationship-Specific Assets: Does Finance Matter?
Martin Strieborny
(Lund University)
Madina Kukenova
(International Trade Center, Geneva)
[View Abstract]
[Download Preview] Banks promote economic growth by facilitating relationship-specific investment between suppliers and buyers. We motivate this novel channel from banking to real economy by interlinking arguments from both research on relationship-specific assets and signalling role of banks. A supplier would be reluctant to undertake relationship-specific investment if she cannot observe financial stability and planning horizon of buyer. A strong banking sector is well-suited to address these information asymmetries. Empirical results from 28 industries in 90 countries confirm that industries dependent on relationship-specific investment from their suppliers grow disproportionately faster in countries with a strong banking sector.
Finance and Growth: Time Series Evidence on Causality
Oana Peia
(Université de Cergy-Pontoise)
Kasper Roszbach
(Sveriges Riksbank and University of Groningen)
[View Abstract]
[Download Preview] This paper re-examines the empirical relationship between financial and economic development while (i) taking into account their dynamics and (ii) differentiating between stock market and banking sector development. We study the cointegration and causality between finance and growth for 26 countries. Our time series analysis suggests that the evidence in support of a finance-led growth is weak once we take into account the dynamics of financial development and growth. We show that causality patterns depend on whether countries' financial development stems from the stock market or the banking sector. Stock market development tends to cause growth, while a reverse or bi-directional causality is present between banking sector development and output growth. We also bring evidence that causality patterns differ between market-based and bank-based economies suggesting that financial structure influences the causal direction between financial and economic development. Our findings indicate that the relation between financial and economic development is likely to be more complex than suggested in earlier studies.
Trilemma Stability and International Macroeconomic Archetypes
Helen Popper
(Santa Clara University)
Alex Mandilaris
(University of Surrey)
Graham Bird
(University of Surrey)
[View Abstract]
[Download Preview] This paper uses the simple geometry of the classic, open-economy trilemma to introduce a new gauge of the stability of international macroeconomic arrangements. The new stability gauge reflects the simultaneity of a country's choices of exchange rate fixity, financial openness, and monetary sovereignty. So, the new gauge is bounded and correspondingly non-Gaussian. We use the new stability gauge in nonlinear panel estimates to examine the post-Bretton Woods period, and we find that trilemma policy stability is linked to official holdings of foreign exchange reserves in low income countries. We also find that the combination of fixed exchange rates and financial market openness is the most stable arrangement within the trilemma; and middle-income countries have less stable trilemma arrangements than either low or high-income countries. The paper also characterizes international macroeconomic arrangements i
Discussants:
Matt Osborne
(University of Toronto)
Jihad Dagher
(International Monetary Fund)
Gibran Rezavi
(University of Illinois-Chicago)
Andrei Zlate
(Federal Reserve Board)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Democratic Workplace Practices and Employee Ownership
(J5)
Presiding:
Stephen Woodbury
(Michigan State University)
How Did Employee Ownership Firms Weather the Last Two Recessions? Employee Ownership and Employment Stability in the United States.
Fidan Ana Kurtulus
(University of Massachusetts-Amherst)
Douglas Kruse
(Rutgers University)
[View Abstract]
We examine how firms with employee ownership programs weathered the recessions of 2001 and 2008 in terms of employment stability relative to firms without employee ownership programs, and also whether such firms were less likely to lay off workers when faced with negative shocks more broadly. The firm data we use to examine the relationship between employee ownership and employment stability come from two sources: 1) Standard and Poor s Industrial CompuStat database on publicly traded companies, which contains information on firm characteristics including total employment, and 2) Form 5500 pension data collected by the U.S. Department of Labor, which contains detailed information on employee ownership in defined contribution pension plans and Employee Stock Ownership Plans (ESOPs). These data represent a comprehensive sample of publicly-traded firms, which is an improvement over datasets drawn from special surveys suffering from small sample sizes and bias from self-selection of respondents. A further advantage is that we are able to follow firms over time, allowing use of panel methods in our econometric analyses to help control for unobserved firm-specific effects. The findings show strong evidence that employee ownership firms are less likely to reduce employment in the face of economy-wide and firm-specific negative shocks.
The Citizen's Share: The Context for Employee Stock Ownership and Profit Sharing in American History
Joseph Blasi
(Rutgers University)
Richard B. Freeman
(Harvard University)
Douglas Kruse
(Rutgers University)
[View Abstract]
Over the last several decades, contemporary studies of broad-based employee stock ownership and profit sharing have focused on the impact of these practices on company performance and employee attitudes and compensation in the firm. This presentation will discuss insights from our new book (Blassi, Freeman, and Kruse, The Citizen s Share: Putting Ownership Back into Democracy, Yale University Press, 2013) to show that the idea that citizens need to own a meaningful share of the economy has a long and storied heritage in American history. Many of the Founders of the American republic who disagreed on other issues of political theory and practice agreed that broad-based ownership is essential for liberty and the functioning of a democratic republic. We will review the theories behind this viewpoint as they have evolved from the American Revolution to the present, and will provide a history of public policies, including George Washington s first labor policy (on the American cod fishery), Homestead Act, and policies on employee stock ownership and profit sharing from 1900 to present. We will show that these concepts are as much about significant political ideas of accomplishing a property-owning democracy (the term used by John Rawls) as about HR or labor practices within firms. We will ask the question: could the entire economy be updated in order to apply the traditional 18th and 19th century republican ideas of wide property ownership to corporations? We will answer this question by recommending policies that would move the U.S. toward broader ownership and consider whether the social science evidence supports or conflicts with applying broader ownership economy-wide.
Profit Sharing and Workplace Productivity: Does Teamwork Play a Role?
Tony Fang
(Monash University)
Richard Long
(University of Saskatchewan)
[View Abstract]
[Download Preview] The conditions under which profit sharing affects workplace productivity have never been fully understood. This paper uses a three-year panel and a five-year panel of Canadian establishments to examine (1) the link between adoption of an employee profit sharing plan and subsequent productivity growth, and (2) whether this link is affected by various contextual factors, particularly use of work teams. Overall, we find a significant link between adoption of a profit sharing program and subsequent productivity growth in both panels, but only among establishments that utilize employee work teams.
Does Employee Ownership Affect Attitudes and Behaviors? Selection, Status, and Size of Stake
Dan Weltmann
(Rutgers University)
[View Abstract]
[Download Preview] Past research has found employee ownership to be linked to better attitudes and behaviors. This paper explores why that should be the case. We investigate three possible mechanisms: (a) employees who buy stock in their own company may have better attitudes to begin with, which would suggest a selection effect—better attitudes lead to increased ownership; (b) employees who have any amount of employee ownership may have better attitudes, irrespective of how much stock they are granted, which would suggest a status effect—ownership leads to better attitudes—and we explore the existence of thresholds of ownership; and (c) employee attitudes and behaviors may be influenced by the size of their employee ownership stake. We explore these mechanisms in work environments that either have or don’t have high performance work systems. We used a rich database of 40,000 employees from one large multinational company and thirteen other companies. We found evidence for the first two mechanisms, selection and status, and mixed evidence for the third one—size of stake.
Discussants:
Brad Hershbein
(W.E. Upjohn Institute for Employment Research)
Stephen Woodbury
(Michigan State University)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association/International Association for Feminist Economics
Employment Policies for the Modern Era: Understanding Who Has Access to Policies on Care and How they Affect Employment
(J5)
Presiding:
Randy Albelda
(University of Massachusetts-Boston)
Good for Business? The Case of Paid Sick Leave Legislation in Connecticut
Eileen Appelbaum
(Center for Economic and Policy Research)
Ruth Milkman
(City University of New York)
[View Abstract]
In January 2012, Connecticut's paid sick leave law - the first statewide measure of this kind in the United States - went into effect, requiring many of the state's employers to provide employees with one hour of paid sick leave for every forty hours worked. Based on a survey of 250 covered employers along with site visits and in-depth interviews with managers conducted in 2013, this paper assesses the impact of the law on employers in such areas as productivity, profitability, turnover, absenteeism and worker morale. It also explores the ways in which the work of absent employees is covered and how employers cover the cost of compliance with the new law. The results are analyzed against the background of previous literature on the impact of paid family leave and paid sick leave on employers elsewhere in the United States.
Impact of Child Care Policies on Parental Employment
Liana Fox
(Stockholm University)
Wen-Jui Han
(New York University)
Christopher Ruhm
(University of Virginia)
Jane Waldfogel
(Columbia University)
[View Abstract]
Over the past 30 years, female labor force participation has increased rapidly while both federal and state legislation has been passed to encourage work as well as to improve affordability, availability and quality of child care. The combination of these policies (as well as gains in female wages) has made it much more financially beneficial for low-income mothers to enter the labor force. This paper takes advantage of state variations in public childcare spending to examine the effect of these policies on maternal employment and annual hours worked. Utilizing a difference-in-difference approach, this paper examines the likelihood of employment for mothers of young children compared with mothers of school-age and older children. We find that child care subsidies and Head Start have had positive effects on the employment rates of low-educated mothers of young children, with a 3 percentage point increase in subsidy funding leading to a 1 percentage point increase in employment. We find little evidence of impacts of either of these policies on hours worked, conditional on employment. We find no evidence of impacts on paternal employment.
Workplace Flexibility: a Workplace Perk for the Most Valued Workers or Compensation for Those Who Need It Most?
Peter Berg
(Michigan State University)
Heather Boushey
(Center for American Progress)
Sarah Jane Glynn
(Center for American Progress)
[View Abstract]
The United States remains the only advanced economy that does not guarantee workers the right to paid leave from work, in addition to not providing a legal framework through which to request flexible working arrangements. Despite the public attention to paid leave and workplace flexibility, relatively little academic research has systematically explored which workers are more likely to have access to this benefit, in part due to insufficient data on the subject. An efficiency wage or power-oriented theory of the labor market would suggest that the most highly skilled, and thus highly valued, workers would be the most likely to have access to a whole host of paid leave and flexibility benefits. Alternatively, compensating wage differentials theory would argue that workers with the greatest need for paid leave and flexibility, such as those with poorer health or caregiving responsibilities, will be more likely to self-select into jobs where these benefits are offered. Utilizing data released in 2012 as part of the Bureau of Labor Statistics 2011 American Time Use Survey, we use probit modeling to predict which workers are the most likely to have access to paid leave and workplace flexibility offered through their employer.
Discussants:
Heather Boushey
(Center for American Progress)
Elaine McCrate
(University of Vermont-Burlington)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
Organizing Low-Wage Workers
(J5)
Presiding:
Janice Fine
(Rutgers University)
Promoting Economic Justice for Home Care Workers in Washington: From Warfare to Kumbayya
Patrice Mareschal
(Rutgers University)
[View Abstract]
[Download Preview] "Home care workers constitute a large, geographically dispersed, low-wage workforce. Home care workers and their clients are among the poorest and most vulnerable members of society. This research examines the process by which the Service Employees International Union (SEIU) Local 775, along with home care workers, and community groups successfully pressed for social and political changes in the state of Washington. Their victories include establishing a quasi-public employer of record for collective bargaining purposes, organizing 26000 home care workers, achieving substantial improvements in compensation, and giving home care workers and clients a voice in the process through which their services are delivered. Specifically, this research draws on interviews with leaders of SEIU Local 775 in Washington. They discuss issues such as the challenges that they faced, the lessons that the labor movement can learn from their successes, and the impact of unionization on home care attendants. In addition, this research analyzes Local 775 s archival data including publicity materials and the campaign strategy employed to establish a statewide public authority and negotiate a first contract.
In organizing home care workers, the SEIU and its partners used a variety of tactics including policy borrowing and tinkering, a ballot initiative, lobbying, and legislative politics. The keys to success in this case include an emphasis on providing civic education to coalition members, engaging coalition members in political action, and managing perceptions of legitimacy by forming alliances with other social groups. Specifically, the SEIU engaged in symbolic management by framing home care workers demands as public needs, portraying home care workers interests and goals as congruent with those of the community, and assembling broad-based coalitions around shared goals for the community.
"
Organizing and Raising Standards for Restaurant Workers: The ROC Model
Teofilo Reyes
(ROC Restaurant Opportunities Center)
The New York City Carwashero Campaign
Hilary Klein
(Make The Road New York)
Creating a New Union Model: Taxi Drivers in Philadelphia
Ronald Blount
(Taxi Workers Alliance of Pennsylvania)
Farmworker Organizing for the Long Haul and an Introduction to Food Chain Workers' Alliance
Nelson Carrasquillo
(CATA The Farmworkers Support Committee)
Jan 03, 2014 8:00 am, Pennsylvania Convention Center, 106-B
Society of Government Economists
Externalities and the Power of Perceptions for Cash Transfer Programs
(D1)
Presiding:
David Seidenfeld
(American Institutes for Research)
Power of Perceptions: Impacts of Perceived Conditionality in an Unconditional Cash Transfer Program
David Seidenfeld
(American Institutes for Research)
Sudhanshu Handa
(University of North Carolina)
[View Abstract]
Over three dozen countries including the United States now implement large scale cash transfer programs to alleviate poverty. Early programs in Mexico, Brazil, Columbia, Honduras, Turkey, Cambodia, and Nicaragua provided money to poor families conditional on their sending children to school or bringing them to health centers on a regular basis. In more recent years, countries have begun to implement unconditional cash transfer programs. There is an ongoing debate about the impact of conditionality with mixed evidence of their benefit. We take a new approach to this debate by investigating the impact of perceived conditions in an unconditional program. Beliefs vary with respect to the conditions required to receive cash in Zambia's unconditional cash transfer program with 39 percent believing they need to feed their children, 34 percent believing that they need to keep their children clothed, 17 percent believing that they need to attend the health clinic, and 9 percent believing their children need to attend school. We exploit this variation in perceived conditionality to study heterogeneous program impacts over a two year period on several topics such as food security, early childhood development, and material needs, using a large randomized controlled trial of Zambia's cash transfer program. Our sample includes 2,500 households randomly assigned to the treatment or control condition, making it one of the largest cash transfer RCTs in Africa.
This paper will contribute to the debate on conditionality and help policymakers better understand how to design cash transfer programs to target desired outcomes. It investigates how people respond when they believe there are conditions, even if these conditions do not really exist. The research will shed light on the debate about the effectiveness of conditions in a cash transfer program.
The Impact of a Large Scale Poverty Program on Time Discounting
Sudhanshu Handa
(University of North Carolina)
David Seidenfeld
(American Institutes for Research)
[View Abstract]
Time preference is a provocative topic which is thought to influence behavioral choices not just for savings and investment but in a range of other domains as well. Several studies by economists have established a link between wealth and low discount rates. We use a social experiment to test whether the Government of Zambia's cash transfer program affects inter-temporal choice. In the face of credit constraints, a steady and predictable source of income such as what this program and others like it provide can alter individual time discounting by making recipients less myopic and more forward looking, and thus more willing to delay current for future consumption. A cash transfer program may also alter a person's expectations about her future quality of life and make her happier, two conditions that can affect inter-temporal decision-making and the desire to invest in the future. We find that the program impacts time discounting, happiness and future expectations but that the latter do not mediate the effect of the former. This is the first study to investigate the impact of a cash transfer program on inter-temporal choice behavior.
Evaluating Local General Equilibrium Impacts of Zambia's Child Grant Program
Karen Thome
(University of California-Davis)
[View Abstract]
The Zambia Child Grant Program's (CGP) goal is to "reduce extreme poverty and the intergenerational transfer of poverty" in program households (AIR 2011). The CGP is an unconditional cash transfer that targets all households with a child under the age of 5; this is one of several targeting schemes for cash transfer programs currently being piloted in Zambia. We use a local economy-wide impact evaluation (LEWIE) model to simulate local spillovers from the CGP program. By stimulating demand for locally supplied goods and services, cash transfers have productive impacts. These effects are found primarily in households ineligible for the transfers. This finding is not surprising, given that the eligibility criteria for the CGP favor asset and labor-poor households. Beneficiary households receive the direct benefit of the transfer plus a spillover effect of 0.17 Kwacha per Kwacha transferred, while non-beneficiary households earn 0.62 Kw per Kw transferred. The productive impacts vary by sector. The cash transfers stimulate the production of crops by 0.47 transferred. The largest positive effect is on retail, which has a multiplier of 1.91. Increasing demand stimulates these four sectors by putting some upward pressure on prices. The higher the local supply response, the larger the real expansion in the local economy and the smaller the resulting inflation level will be.
Normally impact evolution of cash transfer programs only considers impacts on beneficiary households. Our Zambia CGP simulation uncovers large income and production multipliers in both beneficiary and non-beneficiary households. These results are important to policy-makers who often must choose between supporting a variety of social programs. The tradeoff between local supply response and inflation documented in this study suggests that complementary policies, focusing on production in ineligible as well as eligible households, may increase real income spillovers.
The Impact of Immigration on the Well-Being of Natives
Amelie Constant
(IZA, Temple University and George Washington Unversity)
[View Abstract]
This paper examines the effect of immigration directly on the overall utility of natives. To the best of our knowledge, this is the first paper to explore such nexus. Combining information from the German Socio-Economic Panel dataset with detailed local labor market characteristics for the period 1997 to 2007, we investigate how changes in the spatial concentration of immigrants affect the subjective well-being of the German-born population.
Our results suggest the existence of a robust, positive effect of immigration on natives' well-being. The presence of confounding local labor market characteristics has a negligible impact on the estimates. Furthermore, we find substantial evidence that the effect of immigration on well-being is a function of the assimilation of immigrants in the region. The effect of immigration is higher in regions with an intermediate level of economic assimilation and is essentially zero in areas where immigrants are either least or fully economically integrated. We conduct robustness checks to address the potential endogeneity between subjective well-being and immigration. Our tests indicate that natives are not crowded out by immigrants, and that the sorting of immigrants to regions with higher SWB is weak. This suggests that our main findings are not driven or strongly influenced by reverse causality or selectivity.
Jan 03, 2014 8:00 am, Philadelphia Marriott, Meeting Room 406
Transportation & Public Utilities Group
Pricing Digital Delivery of Services
(L9)
Presiding:
Carolyn Gideon
(Tufts University)
Nonlinear Pricing: Self-Selecting Tariffs and Regulation
James Alleman
(University of Colorado-Boulder)
Edmond Baranes
(Temple University and Centris)
Paul Rappaport
(University Montpellier 1)
[View Abstract]
Today, more than ever in the Information and Communications Technology (ICT) sector, we have a variety of selfâ€selecting packages of plans from which to choose. One must select among the various plans of cellular phone packages, broadband services, and mobile wireless devices "hot spot." What broadband plans for DSL service, how many minutes for cellular service, what level of use for wireless data, etc.3 However, with the push for "competition" and deregulation, the ICT oligopolies have not been subject to price controls. Indeed, pricing regulation of these firms has been neglected. We estimate the loss in consumers' surplus based on existing tariffs versus efficient prices. Given the significant negative welfare effects, we propose that ICT firms should be required to bill their consumers the "best" price structure for their usage ex post, and not require consumers to select a package ex ante. This pricing policy would allow the society to reap the saving and welfare benefits of nonlinear pricing.
A Comparative Study of Regulation and Pricing in Mobile Communications
Jun-Ji Shih
(Academia Sinica)
[View Abstract]
[Download Preview] The purpose of this paper is to study the economic effects of different pricing mechanisms in the UK, France, the Netherlands and Finland. Based on game theory and bargaining theory, this paper attempts to analyze the equilibrium of the retail prices for fixed-to-mobile calls, call origination charges, call termination charges and the division ratio of the retail revenue between fixed and mobile operators, and then compare their levels and the welfare effects under different regimes.
Evolution of Telephone Markets: A Choice Model of Cell and Land Line Telephone Communication
Wesley W. Wilson
(University of Oregon)
[View Abstract]
Over the last 20 years, cell phones have come to dominate the telephone markets. In 1983, the first commercially available cell phone was introduced, and from 1990 through 2011, the world wide market grew from 12.4 million to over 6.4 billion, and now have an 87 percent penetration rate. In this analysis, I examine household telecommunication decisions from 1994 through 2011 In the model, individuals can choose: 1. To not have any telephone service; 2. Landline only; 3. Cell phone only; or 4. Both a cell phone and a landline telephone. I estimate the model with a standard logit model, but also with a mixed logit model that allows for the evolution of product quality over time. I estimate the model for each year of the data, and present estimates of parameters over time. I find significant changes. First, the adoption rates of cell phone only vary dramatically over consumer characteristics e.g., income, age, gender. This gives a litany of results e.g., early in the data, middle age higher income people tended to own cell phones in conjunction with landline phones. However, by the end of the data, the primary cell phone only consumers are young, males, while middle age higher income tend to own both cell and land line phones, while the elderly have a clear preference for land line phones.
Spillovers and Marginal Cost Pricing
Christaan Hogendorn
(Wesleyan University)
[View Abstract]
The study examines the relevant economic concepts of surplus and externalities, paying particular attention to the difference between marginal and inframarginal externalities which have sometimes been confused in the network neutrality debate. I address the three main sources of spillovers that are relevant here: general purpose technology, network effects, and innovation. Examination of these sources establishes three main points about the spillovers: that they are relevant to the Internet, that they are likely to be large, and most important, that there is an inverse relationship between privately appropriable surplus and public benefits through spillovers.
Discussants:
David Gabel
(Queens College)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, P1 Parlor
Union for Radical Political Economists
Heterodox Analysis of the Great Recession
(E3)
Presiding:
James Devine
(Loyola Marymount University)
From the Oil Crisis to the Great Recession: Five Crises of the World Economy
J. A. Tapia Granados
(University of Michigan-Ann Arbor)
[View Abstract]
[Download Preview] This article makes die case that the global economy has gone through five crises since the 1970s to the present. This implies not only that the world economy is a real entity, but also that the usual view that poses national economies as units of economic analysis is an approach with major limitations. The paper discusses the concept of "economic crisis" and provides data indicating that the world economy, not national economies, is the major unit to be analysed when trying to understand the economic reality of our time, and particularly the reality of crises. These crises are discrete, countable phenomena, distinctive states of an entity that can be properly called world economy, or world capitalism. Data on capital formation, on growth of the world output, of monetary aggregates, of unemployment rates and on industrial activity indicate five major "dips" of the global economy, i.e., world recessions, in (i) the mid 1970s, (ii) the early 19SOs, (iii) the early 1990s, (iv) the early 2000s, and (v) the Great Recession that provisionally can be dated 2007-2009. To a large extent business cycle chronologies of national economies such as those produced by the NBER, the OECD, or other institutions are largely consistent with these five crises of the world economy which, obviously, had different manifestations in different nations and economic regions.
Capitalism, Crisis and Class: The United States Economy After 2007-2008 Financial Crisis
Özgür Orhangazi
(Kadir Has University)
Mathieu Dufour
(John Jay College)
[View Abstract]
[Download Preview] The post-1980 era witnessed an increase in the frequency and severity of financial crises around the globe, a majority of which took place in low- and middle-income countries. Studies of the impacts of these crises have identified three broad sets of consequences. First, the burden of crises falls disproportionately on labor in general and low-income segments of society in particular. In the years following financial crises, wages and labor share of income fall, the rate of unemployment increases, the power of labor and labor unions is eroded, and income inequality and rates of poverty increase. Capital as a whole, on the other hand, usually recovers quickly and most of the time gains more ground. Second, the consequences of crises are visible not only through asset and income distribution, but also in government policies. Government policies in most cases favor capital, especially financial capital, at the expense of large masses. In addition, many crises have presented opportunities for further deregulation and liberalization, not only in financial markets but in the rest of the economy as well. Third, in the aftermath of financial crises in low- and middle-income economies, capital inflows may increase as international capital seeks to take advantage of the crisis and acquire domestic financial and nonfinancial assets. The 2007-08 financial crisis in the US provides an opportunity to extend this analysis to a leading high-income country and see if the patterns visible in other crises are also visible in this case. Using the questions and issues typically raised in examinations of low- and middle- income countries, we study the consequences of the 2007-08 US financial crisis and complement the budding literature on the “Great Recessionâ€Â. In particular, we examine the impacts of the crisis on labor and capital, with a focus on distributional effects of the crisis such as changes in income shares of labor and capital and the evolution of inequality and poverty. We also analyze the role of government policies through a study of government taxation and spending policies and examine capital flows patterns.
Flaws in the Marxian Explanations of the Great Recession
Ismael Hossein-zadeh
(Drake University)
[View Abstract]
[Download Preview] Marxist discussions of the relationship between financial and real cycles suffer from three major weaknesses: (a) financial developments are almost always reactions to real sector developments; (b) financial crises can trigger but not cause real sector crises; and (c) the 2008 financial crash played only a triggering, not causal, role in the ensuing Great Recession. I would argue, by contrast, that (a) in the era big finance, finance capital does not necessarily shadow or merely react to industrial capital, it also behaves independently; (b) financial sector crises can be transmitted (through debt deflation) to the real sector; and (c) the 2008 financial crash played not only a triggering but also a causal role in the ensuing Great Crisis.
Income Inequality and the Appalachian Region Before, During and After the Great Recession
John Hisnanick
(US Census Bureau)
[View Abstract]
[Download Preview] In the Appalachian region, median household income is below the United States (US) average, poverty rates are higher, and labor force participation is lower. The most recent economic downturn had, and continues to have, an adverse impact on the incomes of a number of the US households. Using data from the American Community Survey (ACS), this paper investigates the impact of the most recent recession on Appalachian household incomes, relative to the US income distribution.
Everyday Economics: The 2007 Economic Crisis Through Internet Memes
Elizabeth Ramey
(Hobart and William Smith Colleges)
[View Abstract]
The 2007 economic crisis demonstrated clearly that something had gone terribly wrong in the economics profession. With the legitimacy of professional economic knowledge and professional economists in question, what did other forms of economics knowledge and practitioners have to offer in that moment? In this paper, I investigate the evolution of non-professional economic knowledges before and after the economic crisis by examining internet memes as a form of informal economic discourse, and an important vehicle for conveying and transforming popular understandings of economics. Such "economics of the everyman", I argue, exceeded the professional in relevance during this crucial time.
Discussants:
James Devine
(Loyola Marymount University)
Tim Koechlin
(Vassar College)
Michael Perelman
(California State University-Chico)
Jan 03, 2014 8:00 am, Loews Philadelphia Hotel, P2 Parlor
Union for Radical Political Economists
Heterodox International Economics
(F2)
Presiding:
Mehrene Larudee
(Al Quds Bard Honors College)
Neoliberalism With a "State Capitalist" Face: The Case of BRIC Countries
Anna Klimina
(University of Saskatchewan)
[View Abstract]
This paper discusses the nature of state capitalism in emergent markets. It argues that in its present form, a primarily non-democratic and non-transparent state capitalism does not challenge the logic of capital accumulation nor adequately address issues of steadily high income inequality and the alienation of labour. Thus it cannot be viewed as a heterodox alternative to a neoliberal state. The regime of state capitalism could, however, restructure national economies along more progressive lines if the authoritative state, especially when pressed from below, uses its power to promote economic and political democracy. Experiences of BRIC countries are discussed as cases in point.
Macroprudential Regulations and Capital Flows: The Case of Turkey
Bilge Erten
(Columbia University)
Armagan Gezici
(Keene State College)
[View Abstract]
In the wake of the global financial crisis, the combination of low interest rates and slow growth in advanced economies has led to massive capital inflows to emerging markets, including Turkey, where interest rates and growth have been relatively higher. Among countries that adopted various regulations on these capital inflows, Turkey has been cited with its unusual policy mix of low interest rates combined with active reserve requirement management policies. This study provides a quantitative assessment of the effectiveness of these macroprudential regulations. In particular, by utilizing regression and VAR analyses, we test the impact of changes in reserve requirements and interest rates on the composition and maturity of capital flows. Our results show that the active use of macroprudential policies in Turkey increased the monetary policy space significantly and improved the maturity structure of net capital flows, which helped reduce the vulnerabilities associated with financing the large current account deficit.
The Role of Remittance Flow in the Nepalese Economy
Kalpana Khanal
(University of Missouri-Kansas City)
[View Abstract]
Since remittance has been a critical factor for poverty reduction as well as to maintain external sector balance in Nepal over the past decade, it is crucial to examine its role in the Nepalese economy in detail. For this purpose the paper will first examine the recent trends in global remittance flow as well as remittance flow to Nepal. Second, it will contextualize the present migratory phenomenon and its impact on the social and economic situation of rural Nepalese women. Third, it will question the sustainability of remittance flow and recommend alternative employment generation policies for Nepal.
Gender and Decent Work in Manufacturing: The Indonesia Case
Shaianne Osterreich
(Ithaca College)
[View Abstract]
The Decent Work agenda by the International Labour Organization provides a basis by which to monitor and compare countries as they work toward improving the overall quality of employment. It is common for research on decent work to involve country level averages while it is less common to employ the framework to understand industry level challenges and sex disaggregated criteria for decent work. Factors that affect the probability of finding decent for women and men are different, primarily though not exclusively due to gender based occupational segregation. Also, the consequences of failing to make progress on quality employment outcomes are different for men and women. This paper explores these questions from the perspective of industrial level characteristics with an eye toward discovering the links related to FDI, sources of FDI, export orientation, concentration, levels of R&D, and inventory management schemes.
Discussants:
Mehrene Larudee
(Al Quds Bard Honors College)
Firat Demir
(University of Oklahoma)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 413
African Finance & Economics Association
African Economic Growth and Development
(O1)
Presiding:
Gregory Price
(Morehouse College)
The Fundamental Determinants of International Competitiveness in African Countries with Special Reference to the CFA Zone
Julius Agbor
(Stellenbosch University)
Taiwo Olumide
(Centre for the Study of the Economies of Africa)
[View Abstract]
[Download Preview] This study evaluates the competitiveness of African countries. In contrast to the macroeconomic perspective which focuses on the behavior of the real exchange rate, the framework adopted in this study emphasizes the fundamental determinants of a country’s ability to maintain competitive advantage in international markets through high-value production and economies of scale while at the same time raising the standard of living of its citizens. The study reviews existing measures of competitiveness and in the empirical section analyzes the proposed measure – trade weighted relative GDP per capita. The empirical approach estimates OLS, fixed and random effects models explaining the dependent variable by a set of price and non-price factors using a panel dataset of 40 African countries during 1980-2011. The results suggests that CFA franc zone countries aren’t necessarily less competitive than their sub-Saharan African peers and the factors that undermine competitiveness in the franc zone are poor infrastructure, heavy external debt burden, high domestic demand pressures and greater trade openness. Thus, to improve competitiveness, franc zone states must maintain a stable macroeconomic framework, vigorously curb informal cross-border trade with its neighbors while striving to upgrade the quality of its infrastructure and institutions.
Financial Development and Manufactured Exports: The African Experience
Evelyn Wamboye
(Pennsylvania State University-DuBois)
Rajen Mookerjee
(Pennsylvania State University-Monaca)
[View Abstract]
[Download Preview] Using a sample of twenty nine African countries for which adequate time series data are available this paper explores the nexus between financial development and manufactured exports. This particular relationship is especially important in the context of Africa since export diversification away from resources and agriculture is an important part of Africa’s growth strategy. Our results show that in eleven countries financial development causes manufactured exports and manufactured exports causes financial development in seven countries. We then explore reasons for these findings and find that a rich and surprising set of factors explain our findings.
Efficient Public Sector Audit
Gregory Iyke Ibe
(Gregory University)
Moses O. Anuolam
(Gregory University)
A.N. Orisakwe
(Gregory University)
[View Abstract]
National development required significant outlays of increasingly scarce financial resources. Yet, there exists limited understanding of how the success of development Strategies and the contributory roles of various stakeholders can be measured. Within the development literature, much attention has been devoted to developing methodologies for carrying out developmental initiatives. In Nigeria, these methods are designed to aid master strategists and policy makers align their strategies with those of developed economies of the west. Within this context, the fundamental questions are, how has financial reporting systems adapted to changing developmental circumstances in Nigeria, and how has the auditing and allied professionals influenced the process of adaptation?
This paper identifies some of the current development challenges facing Nigeria and spells out the areas in which the auditor can enhance the process of socio-economic development. This is against the background that the auditors and allied professionals play their traditional technical role of financial reporting, as measured by its contribution to national economic and social advancement. It is also aimed at building a rationale and theoretical basis for defining success with respect to development initiatives. Specifically, this paper theoretically develops the pathways through which auditors can complement governments' efforts at meeting the needs of Nigeria's changing development circumstances.
This paper which is presented in four parts develops a general framework for understanding the dynamic nature of development initiatives and some associated challenges, besides examining the main development challenges facing Nigeria today.
Governance, Growth and Development in Selected West African Countries
Akpan Ekpo
(West African Institute for Financial and Economic Management)
[View Abstract]
[Download Preview] In the last fifteen (15) years, most countries in the West African sub-region have experimented democratic governance (representative governance); elections have been held more than once, for example, in Ghana, Senegal, Nigeria, Cote d'Ivoire, Togo, Benin, The Gambia, Liberia and Sierra Leone with marginal violence; most of the elections were adjudged by international and national observers to be free and fair. Some scholars have attributed the satisfactory growth rate (about 7%) and macroeconomic stability to the practice of democratic governance in these countries.
Using panel data, this paper attempts to ascertain empirically whether democratic governance has translated into growth and development in the selected countries. Has democratic governance impacted positively on the standard of living of citizens in the selected countries? What has happened to the quality of education, provision of health, levels of income, employment, among others during the period of democratic governance? It is expected that the results of the paper would assist policy-makers and other stakeholders in making decisions on how democratic governance can enhance economic development.
Analysis of Chinese Investment in the ECOWAS Region
Jane Karonga
(United Nations)
[View Abstract]
The development landscape in ECOWAS is changing, with the emergence of partners from the South or the BRICS as they have become widely known. China has emerged as a salient source of investment in ECOWAS region, but questions remain on the impact and implications of that investment for growth and structural change in ECOWAS countries. This paper discusses trends in Chinese investment in the ECOWAS region, and analyzes its impact on trade, infrastructure, growth and structural change in member countries. It also reviews the investment policies of ECOWAS countries toward Chinese investors, and proposes mechanisms by which member countries can take full advantage of Chinese investment. The growing trade and investments in ECOWAS are often supported by grants or concessional loans from the Chinese government, as part of the country's "Going Global" strategy. This strongly enhanced engagement is partly the outcome of the increased economic role and power of China on the global stage, and partly the result of China's interest in Africa's robust natural resource base to fuel its surging economy
The proposed paper is important because there is an ongoing debate on the impact of Chinese investment in Africa in general, and ECOWAS in particular. Some scholars argue that much of Chinese investment in Africa is directed toward energy and minerals. These are sectors with little or no linkages with the rest of the economy. Other analysts contend that Chinese investment in large-scale infrastructural projects such as roads, dams, and power plants helps spur growth and structural change. Chinese investment is also believed to be an important source of technology and skills for Africa. The paper hopes to contribute to the ongoing debate on Chinese investment in ECOWAS by using data-driven evidence, as well as fixed-effects panel regressions. Moreover, China's impact on African economies and indeed ECOWAS has started to reach beyond narrow infrastructure for-resources deals and now touches upon a wide array of sectors and development issues. For example, the creation of Chinese-operated Special Economic Zones in several ECOWAS countries has the potential to provide a remarkable boost to the manufacturing capacity of many ECOWAS countries. In this context, it is timely to take stock of China-ECOWAS relations and discuss in detail the opportunities and challenges for both sides.
Does Education Influence Clean-Tech Venture Capital and Private Equity Exits in Africa?
Jonathan O. Adongo
(Missouri Southern State University)
[View Abstract]
[Download Preview] Using a novel dataset, I investigate whether education in post-match general partner and portfolio company teams influences clean-tech venture capital and private equity exits in Africa. The evidence suggests that relative to write-offs, the probability of clean-tech initial public offerings increases with an increasing proportion of bachelors degrees but decreases with an increasing proportion of masters degrees and graduates from top-ranked universities. The probability of clean-tech trade sales increases with an increasing proportion of masters or doctoral degrees and graduates from top-ranked universities but decreases with an increasing proportion of bachelors degrees. Finally, the probability of clean-tech secondary sales increases with an increasing proportion of masters degrees and graduates from top-ranked universities but decreases with an increasing proportion of bachelors or doctoral degrees.
Discussants:
Thouraya Triki
(African Development Bank)
David Poyer
(Morehouse College)
Fekru Debebe
(Educational Testing Service)
Malokele Nanivazo
(United Nations University)
Kidaya Ntoko
(City University of New York and Queens College)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall A1
Agricultural & Applied Economics Association
How Innovation and Technology Affect Contract Terms in Farming
(O1)
Presiding:
David Zilberman
(University of California-Berkeley)
The Economics of Contract Farming: A Credit and Investment Perspective
Liang Lu
(University of California-Berkeley)
Xiaoxue Du
(University of California-Berkeley)
David Zilberman
(University of California-Berkeley)
[View Abstract]
[Download Preview] Agribusiness firms introduce new products that require agricultural production and then
processing. Firms have to decide about processing capacity and assure availability of
agricultural feedstock. Some of this is done in-house, and some is secured through contracts.
We investigate the allocation of capital between processing capacity and in-house
production, while the remainder of agricultural inputs is procured through contracts. Our
results show that contract farming will increase with the cost of capital and decline when
agribusiness firm has monopsony power over feedstock producers. Moreover, when supply
of contracted feedstock is uncertain, expected final output will be less than under
certainty and more capital will be allocated to in house production of the feedstock.
Contracting for Energy Crops: Effect of Risk Preferences and Land Quality
Xi Yang
(University of Illinois)
Nick Paulson
(University of Illinois)
Madhu Khanna
(University of Illinois)
[View Abstract]
[Download Preview] This paper examines the effect of heterogeneity in risk preferences and land quality on the extent of vertically integrated production and the share of biomass production under different type of contracts when returns from crops are risky. Our findings suggest that farmers with a lower land quality and a higher degree of risk aversion are willing to lease their land for biomass production. A biorefinery will prefer to be more vertically integrated and grow its own energy crop when biomass yield and price risks are high to avoid paying a high risk premium to risk averse farmers. It will also prefer to be more vertically integrated when the variability in returns to crop production is high and risk averse farmers are more willing to choose leasing land for energy crop production as a safer option. We also found that the biorefinery can earn a higher prot by offering a menu of different types of contracts particularly when risk preferences are highly diversified
Adapting Contract Theory to Fit Contract Farming
Steven Wu
(Purdue University)
[View Abstract]
This paper discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting. Specifically, I will discuss the limitations of current theory, and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists. The lack of methodological development in contract theory within the agricultural economics community has limited the role of agricultural economists in providing research based guidance on important contemporary policy issues. I argue that what is needed is a new class of applied contracting models that are able to capture the higher ordered features of real world agricultural contracts while delivering robust and generalizable comparative statics predictions. Such models would be useful both for making analytical predictions and for providing a foundation for generating testable hypotheses to guide empirical work.
The Transition to Modern Agriculture: Contract Farming in Developing Countries
H. Holly Wang
(Purdue University)
[View Abstract]
[Download Preview] Recent years have seen considerable interest in the impact of contract farming on farmers in developing countries, motivated out of belief that contract farming spurs the transition to modern agriculture. In this paper, we provide a thorough review of the empirical literature on contract farming in both developed and developing countries, paying careful attention to broad implications of this research for economic development. We first find empirical studies consistently support the positive contribution of contract farming to production and supply chain efficiency. We also find that most empirical studies identify a positive and significant effect of contract farming on farmer welfare, yet are often unable to reach consistent conclusions as to significant correlates of contract participation. We support our review with a meta-analysis of the empirical literature to identify study characteristics that are conditionally correlated with particular empirical outcomes. Our meta-analysis indicates that studies using larger, more recent datasets are more likely to report a priori expected empirical results, but that empirical findings are not statistically different across developmental status or agricultural commodities.
Jan 03, 2014 10:15 am, Philadelphia Marriott, Liberty Ballroom
American Economic Association
Capital Controls and Macro-Prudential Policies
(F4)
Presiding:
Mark Spiegel
(Federal Reserve Bank of San Francisco)
Capital Controls: Myth and Reality
Nicolas Magud
(International Monetary Fund)
Kenneth Rogoff
(Harvard University)
Carmen M. Reinhart
(Harvard University)
[View Abstract]
[Download Preview] The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a “success" and (iv) the empirical studies lack a common methodologyâ€â€Âfurthermore these are significantly “over-weighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to “standardize" the results of the close to 40 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies in that the WCCE controls for the differentiated degree of methodological rigor applied in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia, and the more recent controls on outflows in emerging Europe. We find that only under country-specific characteristics capital controls are effective, implying than more often than not, in practice they do not work.
Prudential Policy for Peggers
Stephanie Schmitt-Grohe
(Columbia University)
Martin Uribe
(Columbia University)
[View Abstract]
This paper shows that in a small open economy with downward nominal wage rigidity
pegging the nominal exchange rate creates a pecuniary externality. The externality
causes unemployment, overborrowing, and depressed consumption. Ramsey optimal
capital controls are shown to be prudential in the sense that they tax capital inflows
in good times and subsidize external borrowing in bad times. Under plausible calibrations,
this type of macro prudential policy is shown to lower the average unemployment
rate by 10 percentage points, to reduce average external debt by 10 to 50 percent, and
to increase welfare by 2 to 5 percent of consumption per period.
Capital Controls and Optimal Chinese Monetary Policy
Chun Chang
(Shanghai Advanced Institute of Finance)
Zheng Liu
(Federal Reserve Bank of San Francisco)
Mark Spiegel
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] We examine optimal monetary policy under prevailing Chinese policies
- including capital controls, nominal exchange rate targets, and costly sterilization
of foreign capital inflows. China's combination of capital controls and exchange
rate pegs disrupts its monetary policy, precluding adjustments that could maintain
macroeconomic stability following a set of shocks that mirror its experience during
the global financial crisis. However, comparing different policy regimes in a
consistent DSGE framework, we find that the bulk of welfare gains achieved under
full liberalization can be obtained by liberalizing either the capital account or the
exchange rate.
Capital Controls or Macroprudential Regulation?
Anton Korinek
(Johns Hopkins University and NBER)
Damiano Sandri
(International Monetary Fund)
[View Abstract]
We examine the desirability of capital controls and macroprudential regulation in a small open economy in which there is excessive borrowing due to pecuniary externalities associated with collateral constraints. We find that there is a specific role for both types of instruments: macroprudential regulation that treats domestic and foreign lenders symmetrically is well suited to address externalities associated with asset price volatility. By contrast, capital controls also correct for externalities associated with exchange rate volatility because borrowing from foreigners creates a transfer problem and an associated exchange rate movement that is absent in domestic lending. More generally, it is useful to view capital controls as a specific version of macroprudential regulation rather than as a different category of policy instruments.
Discussants:
Javier Bianchi
(University of Wisconsin-Madison)
Alessandro Rebucci
(Johns Hopkins University)
Xiaodong Zhu
(University of Toronto)
Suman Basu
(International Monetary Fund)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 103-C
American Economic Association
Cognitive and Selection Biases: Implications for Interpreting and Identifying Subjective Well-Being Models
(C1)
Presiding:
James Heckman
(University of Chicago)
Non-Response and Selection Bias in Happiness Data: Evidence from the Surveys of Consumers
Ori Heffetz
(Cornell University)
[View Abstract]
Much of the literature on subjective well-being ("happiness") explores differences across demographic groups and across time, implicitly assuming that the sample of survey respondents analyzed is representative of the population of interest. However, many of the relevant surveys have high nonresponse rates. We show that the results of cross-group comparisons can depend on the difficulty of reaching respondents, calling into question the no-selection-bias assumption.
Ask a Silly Question and Get a Silly Answer? An Experimental Analysis of the Impact of Survey Design on Measures and Models of Subjective Wellbeing
Angus Holford
(University of Essex)
Steve Pudney
(University of Essex)
[View Abstract]
[Download Preview] We analyse the results of experiments on aspects of the design of questionnaire and interview mode in the first four waves (2008-11) of the UK Understanding Society panel survey. The randomised experiments relate to job, health, income, leisure and overall life-satisfaction questions and vary the labeling of response scales, the mode of interviewing and the location of questions within the interview. We find significant evidence of an influence of interview mode and (to a lesser extent) question design on the distribution of reported satisfaction and self-assessed health, particularly for women. Results from the sort of conditional modeling
used to address real research questions are also affected to some extent, but appear less vulnerable to design influences than simple summary statistics.
Loss Aversion in the Macroeconomy: Global Evidence Using Subjective Well-Being Data
Jan-Emmanuel De Neve
(University College London, INSEAD, and LSE Centre for Economic Performance)
Michael Norton
(Harvard Business School)
George Ward
(Centre for Economic Performance)
Femke De Keulenaer
(Gallup Organization)
Bert Van Landeghem
(University of Sheffield , Maastricht University and IZA)
George Kavetsos
(London School of Economics)
[View Abstract]
Are gains and losses in economic growth experienced materially differently? We use subjective well-being measures across three complementary data sets to show that economic downturns are associated with losses in individual and societal well-being that are significantly larger than gains in well-being from equivalent upswings. When accounting for periods of negative growth, our analyses reveal a null relationship between GDP growth (measured in absolute, relative, or log terms) and human well-being. To mirror microeconomic research on prospect theory, we also present analyses with varied reference points and incorporate expectations data. We use the Gallup World Poll data to run multi-level analyses of 154 countries, the BRFSS data to run state-based analyses for a representative US sample of 2.5 million respondents, and the Eurobarometer data to run country-level analyses for a time series that covers multiple economic cycles. Taken together, these results imply an important asymmetry in the way negative growth and positive growth are experienced, with recessions imposing a hefty psychological toll while little or no psychological benefits appear to be gained from further economic growth.
Panel Conditioning and Self-Reported Satisfaction: Evidence from International Panel Data
Bert Van Landeghem
(University of Sheffield, Maastricht University and IZA)
[View Abstract]
[Download Preview] This paper finds that self-reported satisfaction data are subject to panel conditioning or a panel effect, that is, that answers depend on whether one has previously participated in the panel. Using refreshment samples in panel datasets, complemented with several strategies to rule out panel attrition biases, the analysis finds international evidence for a negative and substantial panel effect, that cumulates over the different survey rounds. People rate their happiness lower, ceteris paribus, the longer they are in the panel. This result can have important implications, e.g. for the on-going debate on time trends in subjective well-being. Moreover, research on panel conditioning is still very limited compared to research on panel attrition, and the results might therefore stimulate research into the former for other data gathered through household surveys.
Discussants:
Gabriella Conti
(University of Chicago)
Carol Graham
(Brookings Institution)
James J. Heckman
(University of Chicago)
Arie Kapteyn
(University of Southern California)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon I
American Economic Association
CSMGEP Dissertation Session
(E0)
Presiding:
Marie Mora
(University of Texas-Pan American)
Bias or Behavior? Using Differences between Teacher Reports and Administrative Records to Identify Bias in Teacher Perceptions of Student Behavior
Dania V. Francis
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] Subjective perceptions that teachers form about students' classroom behaviors matter for student academic outcomes. Given this potential impact, it is important to identify any biases in these perceptions that would disadvantage subgroups of students. I use longitudinal data from the Early Childhood Longitudinal Study, Kindergarten Class of 1998-99 in conjunction with longitudinal, student-level data from the North Carolina Education Data Research Center to estimate racial, ethnic, gender and socioeconomic differences in teacher reports of student absenteeism while controlling for administrative records of actual absences. I find consistent evidence that teacher reports of the attendance of low-income students are negatively biased and that math teacher reports of male attendance are positively biased. There is mixed evidence with regard to student race and ethnicity.
Is rising non-teacher pay to blame for falling teacher quality? Lessons from the introduction of the birth control pill
Candace Hamilton Hester
(University of California-Berkeley)
[View Abstract]
[Download Preview] The average quality of teachers declined precipitously between 1960 and 2000, coinciding with a decline in the ratio of pay in teaching as compared to pay in alternative professions: relative pay. The effect of relative pay on the quality of teachers is difficult to measure because teacher pay may be correlated with working conditions, such as the school's neighborhood quality, student behaviors, and other challenges associated with the work environment. To address this concern I exploit state-by-cohort variation in whether women had legal access to the birth control pill in young adulthood. Previous work has shown that young adult pill access improved early career investments by enabling better control of childbirth timing, producing landmark improvements in the alternative professional pay available to high-ability women. This lowered the effective relative teacher pay for high-ability women. I therefore use a measure of young adult pill access as an instrument for relative pay. This instrumental variables approach assumes that the pill rollout is random with respect to state-by-cohort variation in working conditions, thus producing unbiased estimates of the effect of relative pay on the propensity to teach among women who entered the labor market between 1960 and 1975. The primary results indicate that a 10 percent increase in relative pay increases the likelihood of choosing to teach by 5 percentage points. In addition, my results show no significant differences in the labor supply elasticity to teaching by ability suggesting that high-ability women are about equally responsive to relative pay as low-ability women. In culmination, the results reveal that the opportunity cost to teaching produces a significant effect on the average quality of U.S. teachers.
Housing and Monetary Policy
Ejindu Ume
(University of Alabama)
Robert Reed
(University of Alabama)
[View Abstract]
[Download Preview] In recent years, the connection between housing market activity and monetary policy has received a large amount of attention. For example, how does
optimal monetary policy depend on housing market conditions? To address the
importance of housing for wealth accumulation, we study a model in which housing is traded across generations of individuals. Incomplete information leads to
a transactions role for money so that monetary policy can be effectively studied. Moreover, individuals face liquidity risk which interferes with the ability to
accumulate housing wealth. Contrary to the existing literature, we demonstrate
that it is important to disaggregate Â…fixed investment between the residential and
non-residential sectors. In particular, the effects of monetary policy will have
asymmetric effects across the components of the overall capital stock. We conclude with policy experiments studying how optimal monetary policy depends on
housing market fundamentals. In response to adverse supply conditions in the
housing sector, monetary policy should be more aggressive in order to promote
residential investment and the housing stock. However, monetary policy should
be conservative in order to limit exposure to risk if fundamentals favor housing
demand.
A Dynamic Nelson-Siegel Model with Markov Switching
Jared Levant
(University of Alabama)
Jun Ma
(University of Alabama)
[View Abstract]
[Download Preview] In this paper, we estimate the term structure according to a dynamic Nelson-Siegel (DNS) model with regimes that change according to a hidden Markov-switching component embedded in the parameters of the state-space framework. We estimate the model via the Kalman filter and make inferences about the probabilities of the regime states via the Hamilton filter. Allowing for two distinct regimes, our empirical results indicate that significant switching occurs in the conditional volatilities of the latent factors and in the decay parameter of the factor loadings. We find no evidence of switching in the conditional mean or autoregressive coefficient. The switching in the decay parameter is of special interest because of the possible linkage with monetary policy which we confirm in our analysis.
Discussants:
Jose N. Martinez
(University of North Texas)
Juan Carlos Suárez Serrato
(Stanford University)
Javier A. Reyes
(University of Arkansas)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
Discounting for the Long Run
(D8)
Presiding:
Nicholas Stern
(London School of Economics)
Discounting and Growth
Christian Gollier
(Toulouse School of Economics)
[View Abstract]
[Download Preview] In a growing economy, investing in safe projects raises intergenerational inequalities. This deteriorates social welfare because of inequality aversion, as expressed by decreasing marginal utility of consumption. The social discount rate can be interpreted as the minimum rate of return that is necessary to compensate for the increased inequality generated by the investment. For an intuitive precautionary argument, this growth effect is reduced if growth is uncertain. To complete the picture, if the investment raises the collective risk, this discount rate should also contain a risk premium. Recent developments (Weitzman (1998, 2001, 2013), Gollier (2008), Arrow et al. (2013)) converge towards recommending using a smaller discount rate for safe assets maturing later. In this paper, we show that this recommendation applied to the risk free rate relies on the assumption that shocks on the growth rate of consumption exhibit some degree of persistence. We also show that this implies in parallel an increasing term structure for the risk premium. Globally, the risk-adjusted discount rate will have a decreasing term structure only if the asset’s beta is small enough.
Declining Discount Rates
Maureen Cropper
(University of Maryland)
Mark C. Freeman
(Loughborough University)
Ben Groom
(London School of Economics)
William A. Pizer
(Duke University)
[View Abstract]
[Download Preview] We ask whether the US government should replace its current discounting practices with a declining discount rate schedule, as the UK and France have done, or continue to discount the future at a constant exponential rate. We present the theoretical basis for a declining discount rate (DDR) schedule, but focus on how, in practice, a DDR could be estimated for use by policy analysts. We discuss the empirical approaches in the literature and review how the UK and France estimated their DDR schedules. We conclude with advice on how the US might proceed to consider modifying its current discounting practices.
Fat Tails and the Social Cost of Carbon
Martin Weitzman
(Harvard University)
[View Abstract]
[Download Preview] At high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.
On Not Revisiting Official Discount Rates: Institutional Inertia and the Social Cost of Carbon
Cass Sunstein
(University of Chicago)
[View Abstract]
Within the federal government, official decisions are a product of both substantive judgments and institutional constraints. With respect to discounting, current practice is governed by OMB Circular A-4 and the 2010 and 2013 Technical Support Documents of the Interagency Working Group on Social Cost of Carbon. Reconsideration of existing judgments must be subjected to a demanding and time-consuming process of internal review (and potentially to external review as well). Institutional constraints, including the need for consensus, can impose obstacles to efforts to rethink existing practices, especially in an area like discounting, which is at once technical and highly controversial.
Discussants:
Kenneth Arrow
(Stanford University)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 203-B
American Economic Association
Effects of Public Policy Changes
(H4)
Presiding:
Allen Sanderson
(University of Chicago)
Does Federal Disaster Assistance Crowd Out Private Demand for Insurance?
Carolyn Kousky
(Resources for the Future)
Erwann Michel-Kerjan
(University of Pennsylvania)
Paul A. Raschky
(Monash University)
[View Abstract]
[Download Preview] We present the first causal estimates of the effect of federal disaster relief on insurance demand using a unique panel dataset of insurance contracts and disaster aid disbursements. We address endogeneity using instrumental variables that exploit political influence over aid amounts. We find that a $1 increase in average aid grants decreases average insurance coverage by about $6, with
variation depending on aid amount. This crowding out effect is on the intensive, as opposed to the extensive margin; we find no impact on take-up rates. Government loans, as opposed to grants, have no effect on insurance demand on either margin and might thus be a better policy tool.
JEL Codes: D78, D81, G22, Q54
Highway Procurement and the Stimulus Package: Identification and Estimation of Dynamic Auctions with Unobserved Heterogeneity
Jorge Balat
(Johns Hopkins University)
[View Abstract]
In the highway procurement market, if firms' marginal costs are intertemporally linked, the pace at which the government releases new projects over time will have an effect on the prices it pays. This paper investigates the effects of the American Recovery and Reinvestment Act on equilibrium prices paid by the government for highway construction projects using data from California. I develop a structural dynamic auction model that allows for intertemporal links in firms' marginal costs, project level unobserved heterogeneity, and endogenous participation. I show that the model is nonparametrically identified combining ideas from the control function and measurement error literatures. I find that the accelerated pace of the Recovery Act projects imposed a sizable toll on procurement prices, especially on the procurement cost of projects not funded by the stimulus money.
Did the Swine Flu Save Lives? Evidence from Mexico
Trinidad Beleche
(Food and Drug Administration)
Jorge M. Aguero
(University of Connecticut)
[View Abstract]
[Download Preview] Diarrheal diseases are among the top causes of child deaths in developing countries. These diseases can be prevented by the simple act of handwashing with soap. However, the current literature shows that only programs with high monitoring are effective in changing behavior and improving health outcomes. These results have sparked interest in understanding the mechanisms through which changes in behavior can occur. In this paper we exploit the spatial variation in the H1N1 influenza (swine flu) outbreak that occurred in Mexico in 2009, and show that areas with higher incidence of the swine flu experienced larger reductions in the number of diarrhea-caused hospital discharges. In particular, we find that for every 1,000 swine flu cases, there was a decrease of approximately 9 percent in the number of hospital discharges of children under five years of age. We validate the robustness of our difference-in-difference estimates using other cause-specific discharges as well as placebo tests before 2009. We present evidence suggesting that handwashing practices are behind these health improvements. Overall, these findings are consistent with the literature of behavioral economics about the role of shocks on changing people risk perceptions.
Spatial Decentralization and Program Evaluation: Evidence from Women and Children in Indonesia
Mark Pitt
(Brown University)
Nidhiya Menon
(Brandeis University)
[View Abstract]
This paper proposes a novel instrumental variable method for program evaluation that only requires a single cross-section of data on the spatial intensity of programs and outcomes. The instruments are derived from a simple theoretical model of government decision-making in which governments are responsive to the attributes of places and their populations, rather than to the attributes of individuals, in making allocation decision across spaces, and have a social welfare function that is spatially weakly separable, that is, that the budgeting process behaves as if it is multi-stage with respect to administrative districts and sub-districts. The exclusion restrictions based upon multi-stage budgeting are that the sub-district means of individual-level variables and the environmental attributes of sub-districts in competing sub-districts influence program placement in a particular sub-district but not human capital outcomes in that sub-district conditional on program placement. Two sets of competing sub-districts are defined: (1) neighbors, which are means of the variables taken over the sub-districts that are spatially contiguous to sub-district (κ,ℓ), and (2) non-neighbors , which are the means of the variables taken over the sub-districts that are in the same district (district ℓ) as sub-district (κ,ℓ) but are not spatially contiguous to sub-district (κ,ℓ). The spatial instrumental variables model is then estimated and tested by GMM with a single cross-section of Indonesian census data. With spatial decentralization, the Hansen-Sargan J-tests fail to reject the null hypothesis of overidentification for the neighbor set of instrument in every specification (girl's and boy's schooling, recent fertility for at-risk women, and contraceptive use) containing all four government programs investigated (grade school, secondary school, public health clinics, and family planning clinics). Adding the non-neighbor instrument set to the neighbor instrument set permits us to test for the orthogonality of the neighbor instrument set. These tests do not reject the null hypothesis in three out of four cases with the full set of programs. Program effects estimated with the neighbor instruments are very different in magnitude than the OLS estimates.
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 103-A
American Economic Association
Entrepreneurship, Innovation, and Management
(L2)
Presiding:
Nicholas Bloom
(Stanford University and NBER)
A Continuum of Leadership Structures: How Do CEOs See Their Role?
William Mullins
(Massachusetts Institute of Technology)
Antoinette Schoar
(Massachusetts Institute of Technology, NBER, and ideas42)
[View Abstract]
[Download Preview] We survey over 800 CEOs of the largest firms in 22 developing countries and find that family and non-family firms differ not only in their governance and ownership arrangements but also in their management styles, business philosophy, and organizational structure. Firms can be classified into four categories: founder-run firms, family firms with a related CEO, family firms with a professional CEO, and widely held (non-family) firms with a professional CEO. These CEO type classifications have substantial explanatory power that is comparable in magnitude to country and industry fixed effects. Founder CEOs are most likely to maintain high levels of control rights within their firms and adopt a more hierarchical organizational structure and less accountability to shareholders. Instead they display greater accountability to banks, and concern for maintaining firm employment. In contrast, professional CEOs of non-family firms see their role as bringing about organizational change. These CEOs rely on a flatter management structure, empower managers, and feel strong accountability to shareholders. CEOs related to the founder fall between these groups: they profess a similar business philosophy to founders, but still attempt to introduce more "professional" operations. Lastly, family firms run by professional CEOs display a marked tension: while these CEOs have the ambition to bring greater professionalism to the firm, they are often not empowered to do so, since the founding family retains significant decision rights over operations.
The Impact of Global Angel Financing
Joshua Lerner
(Harvard University and NBER)
Antoinette Schoar
(Massachusetts Institute of Technology, NBER, and ideas42)
Karen Wilson
(OECD)
[View Abstract]
The past few years have been the worst of times as well as the best of times for the funding of new high-potential ventures. Traditional sources of entrepreneurial finance in many nations have not fared well. Bank lending to entrepreneurial businesses remains sharply constricted since the financial crisis, due to the hang-over of bad real estate and corporate finance loans, as well as increased regulatory pressures. Venture capital funding remains at levels far below those seen in the late 1990s, which reflects the fact that returns have been very modest since the collapse of the dot.com bubble in 2000. But at the same time, there has been a plethora of innovation in the financing of new ventures. Among the most prominent has been the rise of angel groups and "super-angel" funds. Policymakers in many nations, including the United States, the United Kingdom, France, and Israel have embraced these alternative ways of funding entrepreneurial firms. But these new developments remain relatively poorly understood. In this paper, we look at the question of whether angel investments affect the success and growth of new ventures. We focus on angel groups: these investors are increasingly structured as semi-formal networks of high net worth individuals, often former entrepreneurs, who meet in regular intervals to hear aspiring entrepreneurs pitch their business plans. The angels then decide whether to conduct further due diligence and ultimately whether to invest in some of these deals. Using data from twelve angel groups around the globe, we examine the impact of angel regressions using a regression discontinuity approach, comparing firms just above and just below these firms cut-offs for funding. We examine whether the marginal impact of angel financing differs with the degree of development of the venture market, the legal regime of the nation, and the barriers to establishing entrepreneurial ventures for entrepreneurship.
Management and IT in America
Nicholas Bloom
(Stanford University and NBER)
Erik Brynjolfsson
(Massachusetts Institute of Technology and NBER)
Lucia Foster
(US Census Bureau)
Ron Jarmin
(US Census Bureau)
Itay Saporta-Eksten
(Stanford University)
[View Abstract]
[Download Preview] The Census Bureau recently conducted a survey of management practices in over 30,000 plants across the US, the first large-scale survey of management in America. Analyzing these data reveals several striking results. First, more structured management practices are tightly linked to higher levels of IT intensity in terms of a higher expenditure on IT and more on-line sales. Likewise, more structured management is strongly linked with superior performance: establishments adopting more structured practices for performance monitoring, target setting and incentives enjoy greater productivity and profitability, higher rates of innovation and faster employment growth. Second, there is a substantial dispersion of management practices across the establishments. We find that 18% of establishments have adopted at least 75% of these more structured management practices, while 27% of establishments adopted less than 50% of these. Third, more structured management practices are more likely to be found in establishments that export, who are larger (or are part of bigger firms), and have more educated employees. Establishments in the South and Midwest have more structured practices on average than those in the Northeast and West. Finally, we find adoption of structured management practices has increased between 2005 and 2010 for surviving establishments, particularly for those practices involving data collection and analysis.
The Secular Decline in Business Dynamism in the United States
Ryan Decker
(University of Maryland)
John Haltiwanger
(University of Maryland and NBER)
Ron Jarmin
(US Census Bureau)
Javier Miranda
(US Census Bureau)
[View Abstract]
There is accumulating evidence that the pace of business dynamism (measured by indices of firm volatility or the pace of creative destruction) in the U.S. has fallen over recent decades One key factor underlying this trend is that the share of activity from young businesses has declined over this period. The declining share of young firms stems from decline in the business startup rate. The average annual job creation from business startups has declined from 3.5 percent of employment in the 1980s to 3 percent in the 1990s and 2.6 percent in the post-2000 period. This represents more than a 25 percent decline in the pace of job creation from business startups over a 30-year period. This paper documents these trends and explores potential explanations. We find that although changes in the firm age distribution are an important contributing factor, there are other compositional effects (e.g., the shift away from goods to service industries) that work in the opposite direction. In this paper, we discuss and explore potential explanations of the decline in dynamism and entrepreneurship arising from changes in demographics, technology and the business climate.
Jan 03, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon L
American Economic Association
Experiments and the Economics Classroom
(I2) (Panel Discussion)
Panel Moderator:
Tisha Emerson
(Baylor University)
Sheryl Ball
(Virginia Tech)
Ted Bergstrom
(University of California-Santa Barbara)
Charles Holt
(University of Virginia)
John Morgan
(University of California-Berkeley)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 202-B
American Economic Association
Finance and Asset Markets
(G1)
Presiding:
Caleb Stroup
(Grinnell College)
Financial Instability via Adaptive Learning
Noah Williams
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] This paper develops a simple model in which adaptive learning by investors leads to recurrent booms and busts in asset prices. The model captures aspects of Minsky's "financial instability hypothesis" in which periods of tranquility lead investors to increase their estimates of expected returns and reduce their estimates of return volatility. The changes of beliefs drive up asset prices and hence realized returns. However once agents invest a significant fraction of their wealth in stocks, the economy becomes fragile and so small negative shocks can lead to large declines in prices. I show how this process recurs over time, and discuss the features of the model which drive the boom-bust cycles in asset prices.
"Shooting" the CAPM
Hang Bai
(Ohio State University)
Howard Kung
(University of British Columbia)
Lu Zhang
(Ohio State University)
[View Abstract]
We provide a disaster-based explanation for the failure of the CAPM in the post-Compustat sample as well as its success to explain the value premium in the long sample that includes the Great Depression. In an investment-based asset pricing model embedded with rare disasters, value stocks are more sensitive to disaster shocks than growth stocks. More important, disasters introduce strong nonlinearities in the relation between the pricing kernel and the return on wealth. The nonlinearities allow the model to explain the failure of the CAPM in samples in which disasters are not materialized. However, the CAPM explains the value premium in samples with disasters in the model, consistent with the data.
No News is Good News
Joon Y. Hur
(California State University-Northridge)
Eric M. Leeper
(Indiana University)
Todd B. Walker
(Indiana University)
[View Abstract]
We estimate a standard dynamic stochastic general equilibrium model under three different information structures to assess the importance of these informational assumptions. In the first information structure, agents receive news about future structural shocks, as in Beaudry and Portier (2006) and Schmitt-Grohé and Uribe (2012); in the second structure, agents observe noisy signals about current structural shocks; in the third structure, agents do not observe either news or noise. Data overwhelming support the noise-shock information structure. News (noise) shocks shift spectral power from the lower (higher) end to the higher (lower) end of the spectrum, which forces internal propagation mechanisms to work harder (less hard) in models with news (noise) shocks. That data prefer noise shocks and the reallocation of spectral power to the lower end connects to Granger's (1969) "typical spectral shape" of macroeconomic variables. As a byproduct, the paper develops a novel estimation methodology for models with incomplete information.
Network Effects, Cascades, and CCP Interoperability
Matthew Pritsker
(Federal Reserve Bank of Boston)
Xiaobing Feng
(Shanghai Jiaotong University)
Beom Jun Kim
(SKK University, South Korea)
[View Abstract]
To control counterparty risk, financial regulations such as the Dodd
Frank Act are increasingly requiring standardized derivatives trades
to be cleared by central counterparties (CCPs). It is anticipated that
in the near term future, CCPs across the world will be linked through
interoperability agreements that facilitate risk sharing but also
serve as a conduit for transmitting shocks. This paper theoretically and through simulations studies a network with CCPs that are linked through interoperability
arrangements, and studies the properties of the network that
contribute to cascading failures.
Examining the Effect of Social Network on Prediction Markets through a Controlled Experiment
Liangfei Qiu
(University of Texas-Austin)
Huaxia Rui
(University of Rochester)
Andrew Whinston
(University of Texas-Austin)
[View Abstract]
[Download Preview] This paper examines the effect of a social network on prediction markets using a controlled laboratory experiment that allows us to identify causal relationships between a social network and the performance of an individual participant, as well as the performance of the prediction market as a whole. Through a randomized experiment, we first confirm the theoretical predictions that participants with more social connections are less likely to invest in information acquisition from outside information sources but perform significantly better than other participants in prediction markets. We further show that when the cost of information acquisition is low, a social-network-embedded prediction market outperforms a non-networked prediction market. We also find strong support for peer effects in prediction accuracy among participants. These results have direct managerial implications for the business practice of prediction markets and are critical to understanding how to use social networks to improve the performance of prediction markets.
Jan 03, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon J
American Economic Association
Firms, Uncertainty and the Business Cycle
(E3)
Presiding:
Alessandro Barbarino
(Federal Reserve Board)
On the Cyclicality of Aggregate Idiosyncratic Volatility
Junghoon Lee
(Emory University)
[View Abstract]
A growing macroeconomic literature has documented that uncertainty at the firm level moves countercyclically. It has been common practice that all firms are assumed to have the same sensitivity to aggregate fluctuations, and firm-specific shocks are measured as the difference between the firm-level TFP or output and the common aggregate component such as cross-sectional mean. This paper explores the possibility that firms differ in their cyclical sensitivities, and shows the countercyclicality of idiosyncratic volatility is not empirically robust. The paper then discusses a number of extensions to further investigate the cyclicality of aggregate idiosyncratic volatility.
Entry, Exit, Firm Dynamics, and Aggregate Fluctuations
Berardino Palazzo
(Boston University)
Gian Luca Clementi
(New York University)
[View Abstract]
[Download Preview] Do firm entry and exit play a major role in shaping aggregate dynamics? Our answer is yes. Entry and exit propagate the effects of aggregate shocks. In turn, this results in greater persistence and unconditional variation of aggregate time-series. These are features of the equilibrium allocation in Hopenhayn (1992)'s model of equilibrium industry dynamics, amended to allow for investment in physical capital and aggregate fluctuations. In the aftermath of a positive productivity shock, the number of entrants increases. The new firms are smaller and less productive than the incumbents, as in the data. As the common productivity component reverts to its unconditional mean, the new entrants that survive become more productive over time, keeping aggregate efficiency higher than in a scenario without entry or exit.
Delayed Capital Reallocation
Wei Cui
(Princeton University)
[View Abstract]
[Download Preview] How do firms adjust their balance sheets and reallocate capital stock in response to recurrent productivity or profitability shocks? Why does capital reallocation fluctuate procyclically, while the potential benefits to reallocate appear to be countercyclical? To answer these questions, this paper develops a tractable dynamic general equilibrium model. In the model, firms face idiosyncratic productivity shocks while at the same time are restricted by the illiquidity of capital stock and financing constraints. The model shows that asset illiquidity and financing constraints interact and generate capital reallocation delays. These delays result in cross-sectional productivity dispersion and losses of total factor productivity (TFP), which become more severe during recessions.
Systemic Risk and the Macroeconomy: An Empirical Evaluation
Seth Pruitt
(Federal Reserve Board)
Stefano Giglio
(University of Chicago)
Bryan T. Kelly
(University of Chicago)
Xiao Qiao
(University of Chicago)
[View Abstract]
[Download Preview] We propose a criterion to evaluate the empirical relevance of systemic risk measures based on their ability to predict low quantiles of real macroeconomic aggregates. We also propose and evaluate methodologies for constructing systemic risk indices that capture the joint information content of a large cross-section of systemic risk measures. We construct over 20 measures of systemic risk in the US and Europe extending across several decades. We show that, taken individually, these measures reveal low predictive ability for macroeconomic downturns. However, an index that parsimoniously aggregates individual measures consistently performs well in forecasting downturns both in-sample and out-of-sample.
Optimal Patronage
Mikhail Drugov
(Universidad Carlos III de Madrid)
[View Abstract]
[Download Preview] We study the design of promotions in an organization where agents belong to groups that advance their cause. Examples and applications include political groups, ethnicities, agents motivated by the work in the public sector and corruption. In an overlapping generations model, juniors compete for promotions. Seniors have two kinds of discretion: direct discretion which allows an immediate advancement of their cause and promotion discretion ("patronage") which allows a biasing of the promotion decision in favour of the juniors from their group. We consider two possible goals of the principal, maximizing juniors' efforts and affecting the steady-state composition of the senior level towards the preferred group, and show that patronage may be strictly positive in both of them. We also apply the second setting to the case of corruption.
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 103-B
American Economic Association
Gains from Trade When Firms Matter
(F1)
Presiding:
Pol Antras
(Harvard University)
Together at Last: Trade Costs, Demand Structure, and Welfare
Peter Neary
(University of Oxford)
Monika Mrazova
(University of Surrey)
[View Abstract]
[Download Preview] We show that relaxing the assumption of CES preferences in monopolistic competition has surprising implications when trade is restricted. Integrated and segmented markets behave very differently, the latter typically implying a form of reciprocal dumping. Globalization and lower trade costs have very different effects: the former reduces spending on all existing varieties, the latter switches spending from home to imported varieties; in the plausible case where demands are less convex than CES, globalization raises firm output whereas lower trade costs reduce it. Finally, calibrating gains from trade is harder. Many more parameters need to be calibrated than in the CES case, while import demand elasticities are likely to overestimate the true elasticities, and so underestimate the gains from trade.
Monopolistic Competition and Optimum Product Selection
Gianmarco IP Ottaviano
(London School of Economics)
[View Abstract]
[Download Preview] We analyze the social optimality of the market equilibrium in a monopolistically competitive model with heterogeneous firms, non-separable utility and constant marginal utility of income. We show that non-separability turns out to be relevant only for product variety, with respect to which stronger non-separability leads to smaller market inefficiency. Relative to the uncostrained optimum, in the market equilibrium firm selection is too weak, average firm size is too small, low cost firms are too small and high cost firms are too large. Moreover, product variety is too rich (poor) when varieties are close (far) substitutes, the entry cost is small (large), market size is large (small) and the difference between the highest and the lowest possible marginal cost realizations is small (large). We also show than the unconstrained optimum can be decentralized through differentiated production subsidies across heterogeneous producers financed through lump-sum taxes shared by entrants and consumers. When production subsidies cannot be differentiated and lump-sum transfers from entrants are not viable, the constrained optimum can be decentralized through a common production subsidy financed by a lump-sum tax on consumers.
Welfare and Trade Without Pareto
Keith Head
(University of British Columbia and CEPR)
Thierry Mayer
(Sciences-Po)
Mathias Thoenig
(University of Lausanne and CEPR)
[View Abstract]
[Download Preview] To establish their required macro conditions for the Melitz (2003) model, Arkolakis et al. (2012) use the Pareto distribution.
We explore the consequences of replacing the assumption of Pareto heterogeneity with Log-normal heterogeneity. This case is interesting because it (a) resembles Pareto in some aspects, (b) fits the data better in many applications,
and (c) can be generated under equally plausible processes. The Log-normal is reasonably tractable but its use entails losing certain ``scale-free'' properties conveyed by the Pareto distribution. The consequence is that gains from trade depend on the method of calibration. Under a calibration using macro-data, essentially the same gains from trade can be obtained. However, calibrating based on micro data---namely the size distribution of firm sales in a given market---yields very different gains from trade. In the benchmark case, a symmetric two country model considered by Melitz and Redding (2013), gains from trade can be twice as high under Log-normal.
Missing Gains From Trade?
Marc J. Melitz
(Harvard University)
Stephen J. Redding
(Princeton University)
[View Abstract]
[Download Preview] The theoretical result that there are welfare gains from trade is a central tenet of international economics. In a class of trade models that satisfy a "gravity equation," the welfare gains from trade can be computed using only the open economy domestic trade share and the elasticity of trade with respect to variable trade costs. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from: trade-induced changes in domestic productivity. Using a model of sequential production, in which trade induces a reorganization of production that raises domestic productivity, we show that the welfare gains from trade can become arbitrarily large.
Discussants:
Swati Dhingra
(London School of Economics)
Lorenzo Caliendo
(Yale University)
Jonathan Eaton
(Pennsylvania State University)
Gordon H. Hanson
(University of California-San Diego)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 204-B
American Economic Association
Gender Gaps in Labor Market Outcomes
(J7)
Presiding:
Lise Vesterlund
(University of Pittsburgh)
Gender Identity and Relative Income within Households
Marianne Bertrand
(University of Chicago)
Emir Kamenica
(University of Chicago)
Jessica Pan
(National University of Singapore)
[View Abstract]
We examine causes and consequences of relative income within households. We establish that gender identity { in particular, an aversion to the wife earning more than the husband - impacts marriage formation, the wife's labor force participation, the wife's income conditional on working, satisfaction with the marriage, divorce, and the division of home production. The distribution of the share of household income earned by the wife exhibits a sharp cliff at 0.5, which suggests that a couple is less willing to match if her income exceeds his. Within marriage markets, when a randomly chosen woman becomes more likely to earn more than a randomly chosen man, marriage rates decline. Within couples, if the wife's potential income (based on her demographics) is likely to exceed the husband's, the wife is less likely to be in the labor force and earns less than her potential if she does work. Couples where the wife earns more than the husband are less satisfied with their marriage and are more likely to divorce. Finally, based on time use surveys, the gender gap in non-market work is larger if the wife earns more than the husband.
Preferences and Biases in Education Choices and Labor Market Expectations: Shrinking the Black Box of Gender
Ernesto Reuben
(Columbia University)
Matthew Wiswall
(Arizona State University)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Standard observed characteristics explain only part of the differences between men and women in human capital investments and labor market trajectories. Using survey data on labor market expectations, combined with experimentally derived measures of individuals' competitiveness, this paper investigates whether gender differences in competitiveness play a role in gender differences in perceived labor market outcomes. In a sample of high-ability NYU undergraduates, we first find that, even controlling for risk preferences, performance, and beliefs about relative performance, women are significantly less competitive than men. We find that measured competitiveness is systematically related with expectations about future earnings: Over(under)- competitive individuals have significantly higher (lower) earnings expectations. Conditional on college major, gender differences in competitiveness explain 5-10.5 percent of the perceived gender gap in earnings in our sample. Gender differences in competitiveness, however, are not related with choice of college major.
An Experimental Investigation into Gender Differences in Wage Negotiations
Mary Rigdon
(Rutgers University)
[View Abstract]
[Download Preview] There is a consensus that there is an unexplained gap between male and female wages: even after controlling for a broad range of demographic and industry characteristics, females make less than men. This paper investigates wage discrepancies between males and females through the lens of negotiation behavior. We introduce an experimental bargaining environment — the Demand Ultimatum Game (DUG)—where the receiver makes a demand about how much she would like to receive from the proposer. After viewing the demand, the proposer makes an offer, which the receiver can then accept or reject. The results are stark: females make significantly lower demands than men, resulting in significantly lower earnings. However, this negotiation and earnings gap is mitigated when receivers are given social information about participant decisions from a previous experiment. In one treatment, receivers are informed about the distribution of male demands. In the other treatment, receivers are informed about this distribution as well as the distribution of conditional offers made to these participants. In the social information treatments, females increase their demands relative to the control treatment such that the demands of males and females are not significantly different, eliminating the negotiation gap. This mitigates eventual differences in pay between males and females within the respective treatments, eliminating the earnings gap.
Returns to Elite Higher Education in the Marriage Market: Evidence from Chile
Katja Kaufmann
(Bocconi University)
Matthias Messner
(Bocconi University)
Alex Solis
(Uppsala University)
[View Abstract]
[Download Preview] In this paper we estimate the marriage market returns to being admitted to a higher ranked (i.e. more "elite") university by exploiting unique features of the Chilean university admission system. This system centrally allocates applicants based on their university entrance test score, which allows us to identify causal effects by using a regression discontinuity approach. Moreover, the Chilean context provides us with the necessary data on the long run outcome "partner quality". We find that being admitted to a higher ranked university has substantial returns in terms of partner quality for women, while estimates for men are about half the size and not significantly different from zero.
Discussants:
Matthew Wiswall
(Arizona State University)
Francine D. Blau
(Cornell University)
Catherine Eckel
(Texas A&M University)
Lesley Turner
(University of Maryland)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 201-B
American Economic Association
Housing Bubbles and Beliefs
(E3)
Presiding:
Wei Xiong
(Princeton University)
Understanding Booms and Busts in Housing Markets
Craig Burnside
(Duke University)
Martin Eichenbaum
(Northwestern University)
Sergio Rebelo
(Northwestern University)
[View Abstract]
[Download Preview] Some booms in housing prices are followed by busts. Others are not. It is generally
difficult to find observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of "“social dynamics".” Agents with tighter priors are more likely to convert others to their beliefs. Boom-bust episodes typically occur when skeptical agents happen to be correct. The booms that are not followed by busts typically occur when optimistic agents happen to be correct.
Distant Speculators and Asset Bubbles in the Housing Market
Alexander Chinco
(New York University)
Christopher Mayer
(Columbia University)
[View Abstract]
We investigate the role that out of town second house buyers ("distant speculators")
played in bubble formation in the US residential housing market. Distant speculators
are likely to be more reliant on capital gains rather than dividend consumption for financial
returns as well as less informed about local market conditions. Using transactions level data
that identify the address of both the purchased property and the primary residence of the
buyer, we show that an increase in purchases by distant speculators (but not local speculators)
is strongly correlated with appreciation in both house price and implied-to-actual rent
ratios (IAR)-a proxy for mispricing in the housing market. We develop a simple model
that helps us address the issue of reverse causality. Consistent with this model, we show
that the size of the MSA that out of town second house buyers come from is positively
related to the impact of distant speculators on house price and IAR appreciation rates in
the target MSA suggesting that out of town second house buyers are not simply responding
to unobserved changes in housing values in the target MSA. We conclude by demonstrating
the large impact that distant speculators have on the local economy, with out of town second
house purchases equalling as much as 5% of total output in Las Vegas during the boom.
Housing Dynamics and Extrapolation
Edward Glaeser
(Harvard University)
[View Abstract]
During the recent boom, high prices were often justified through capitalization rate models that used past price growth to predict future price growth. Such extrapolation also seems evident in Case and Shiller's surveys of recent home buyers. In this paper, we ask whether modest amounts of extrapolation can explain some of the most salient and puzzling features of housing markets, including strong momentum of price changes at one year frequencies, mean reversion at lower frequencies and high price change variance. We develop and calibrate a model of housing dynamics based on our previous housing dynamics work that nest both perfect rationality and extrapolative inference. We find that some, but not all, of the puzzling features of housing market dynamics are compatible with extapolative beliefs.
Wall Street and the Housing Bubble
Ing-Haw Cheng
(Dartmouth College)
Sahil Raina
(University of Michigan)
Wei Xiong
(Princeton University)
[View Abstract]
[Download Preview] We analyze whether mid-level managers in securitized finance were aware of a large-scale housing bubble and a looming crisis in 2004-2006 using their personal home transaction data. We find that the average person in our sample neither timed the market nor were cautious in their home transactions, and did not exhibit awareness of problems in overall housing markets. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.
Discussants:
Monika Piazzesi
(Stanford University)
Johannes Stroebel
(New York University)
Harrison Hong
(Princeton University)
Nicholas C. Barberis
(Yale University)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 201-C
American Economic Association
Is Neglect Benign? The Case of United States Housing Finance Policy
(H5)
Presiding:
Robert Shiller
(Yale University)
Why Is Housing Finance Still Stuck in Such a Primitive Stage?
Robert Shiller
(Yale University)
[View Abstract]
[Download Preview] The institutions for financing owner-occupied housing have not progressed as they should, and the financial innovation that has
followed financial crisis of 2007-9 has not been focused on improving the risk management of individual homeowners. This paper attributes the difficulty in advancing our mortgage institutions to the complexity of the risk management problem (one size mortgage does not fit all) coupled with mistrust of the institutional players, as well as lack of general understanding some relevant principles in behavioral economics
Holding Government Unaccountable: The Mortgage Mess, the Press, and the Politics of Inattention
Andrew Caplin
(New York University)
Roy Lowrance
(New York University)
[View Abstract]
[Download Preview] In reviewing the Challenger tragedy, Richard Feynman identified a flawed O-Ring as the proximate cause and NASA's flawed safety culture as a deeper cause. There has been no similar investigation of the mortgage mess, which has been baptized rather than understood. In part, this is due to committed ideological views in the public and press that eliminate the call for expert analysis and reform. Broader and deeper policy problems are identified and illustrated using NASA's past behavior and FHA's ongoing behavior. The problems include PR-based risk assessments and a press that is inexpert and unconcerned with reality. The Columbia tragedy sounds an ominous warning on the future stability of housing finance markets.
Evaluating Policies to Prevent Another Crisis: An Economist's View
Paul Willen
(Federal Reserve Bank of Boston)
[View Abstract]
[Download Preview] In this paper, I evaluate the "crisis consensus," a slate of policies designed to prevent foreclosures and the accompanying losses to investors and homeowners. Many crisis consensus policies were enshrined in law in the Dodd Frank Act, including the requirement that issuers of securities retain risk, regulations on credit rating agencies, a requirement that lenders ensure a borrower's "ability to repay" a mortgage and regulations to protect borrowers during the foreclosure process. Proponents typically justify the crisis consensus by appealing to economic common sense. An example is the requirement that issuers of securities retain "skin-in-the-game"; common sense says that the issuers with skin-in-the-game will devote more care in underwriting leading to smaller losses for investors and fewer foreclosures.
A key point of the paper is that economic common sense actually rejects much of the crisis consensus. For example, if skin
in the game makes securities more valuable, then won't investors pay more for securities where issuers have more skin-in-the-game? If so, why does the government need to require skin-in-the-game? I then turn to more sophisticated arguments for the crisis consensus, including the role of externalities, general equilibrium effects and behavioral factors, reviewing both theoretical arguments and empirical evidence. For the skin-in-the-game example, investors may not internalize the social costs of poorly underwritten mortgages. Alternatively, trade in mortgage related securities, voluntary on the part of both the buyer and and the issuer, may have deleterious general equilibrium effects on the rest of the population. I conclude by arguing that
crisis consensus largely relies on adjusting incentives to prevent people from making bad decisions but policy makers must recognize that bad decisions are inevitable and focus on protecting third-parties from their consequences.
Housing assignment with restrictions: theory and evidence from Stanford campus
Tim Landvoigt
(Stanford University)
Monika Piazzesi
(Stanford University)
Martin Schneider
(Stanford University)
[View Abstract]
[Download Preview] Within narrow geographic areas, housing markets assign movers with different characteristics to indivisible houses that differ by quality. This paper studies housing assignment when a subset of eligible buyers have exclusive access to a subset of houses that form a restricted area. In our leading example, buyers affiliated with Stanford University have exclusive access to houses on campus. Using both a simple comparables approach and nearest neighbor regressions, we document that houses on campus trade at a substantial discount to similar properties off campus. The discount is smaller for higher quality houses. We then interpret the evidence using an assignment model with a continuum of houses in which buyer types differ not only by eligibility but also by the marginal utility of house quality. Houses in the restricted area trade at a discount if the relationship between house quality and buyer type distributions is sufficiently different for the restricted area.
Discussants:
Deborah Lucas
(Massachusetts Institute of Technology)
Joseph Tracy
(Federal Reserve Bank of New York)
Joseph Gyourko
(University of Pennsylvania)
Thomas Cooley
(New York University)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 201-A
American Economic Association
Looking Back at the United States during the Late Nineteenth Century: Lessons from the American Economy during the Time of the Great Migration Era
(J6)
Presiding:
Ethan Lewis
(Dartmouth College)
A Nation of Immigrants: Assimilation and Economic Outcomes in the Age of Mass Migration
Ran Abramitzky
(Stanford University)
Leah Platt Boustan
(University of California-Los Angeles)
Katherine Eriksson
(University of California-Los Angeles)
[View Abstract]
[Download Preview] During the Age of Mass Migration (1850-1913), the US maintained an open border and absorbed 30 million European immigrants. Prior cross-sectional work on this era finds that immigrants held lower-paid occupations than natives upon first arrival but experienced rapid convergence. In newly-assembled panel data, we show that, in fact, immigrants did not face a substantial initial earnings penalty and experienced occupational advancement at the same rate as natives. Cross-sectional patterns are driven by biases from declining arrival cohort quality and departures of negatively-selected return migrants. We show that these findings vary substantially across sending countries and persist in the second generation.
Technical Change and the Relative Demand for Skilled Labor: The United States in Historical Perspective
Lawrence Katz
(Harvard University)
Robert A. Margo
(Boston University)
[View Abstract]
[Download Preview] Drawing almost entirely on evidence from manufacturing, it has often been argued that technical change was predominantly "de-skilling" in the nineteenth century but that beginning in the late nineteenth century and continuing into the early twentieth century the familiar modern pattern of capital-skill complementarity emerged. In this paper we revisit the issue of the historical evolution of capital-skill complementarity and with it, shifts over time in the relative demand for skilled labor. Our paper makes three points. First, although de-skilling in the conventional sense did occur overall in nineteenth century manufacturing, a more nuanced picture is that the occupation distribution "hollowed out": the share of "middle-skill" jobs - artisans - declined while the shares of "high-skill"- white collar, non-production workers and "low-skill"- operatives and laborers increased. Second, unlike the pattern observed in manufacturing, de-skilling did not occur in the aggregate economy; rather, the aggregate shares of low skill jobs decreased, middle skill jobs remained steady, and high skill jobs expanded from 1850 to the early twentieth century. The pattern of monotonic skill upgrading in the aggregate economy continued through much of the twentieth century until the recent period of hollowing out and "polarization" of labor demand since the late 1980s. Third, new archival evidence on wages suggests that the demand for high skill (white collar) workers grew more rapidly than the supply starting well before the Civil War to the end of the nineteenth century. A task-based framework illuminates an essential continuity to the effects of technical change across the two centuries. In both centuries, the diffusion of new capital goods altered the assignment of workers to tasks. Some of these re-allocations displaced skilled labor, while others did the opposite. On net in both centuries, technical change has tended to increase the relative demand for educated labor.
People and Machines: A Look at the Evolving Relationship between Capital and Skill In Manufacturing 1850-1940 Using Immigration Shocks
Jeanne Lafortune
(Pontificia Universidad Catolica de Chile)
Ethan Lewis
(Dartmouth College)
Jose Tessada
(Pontificia Universidad Catolica de Chile)
[View Abstract]
[Download Preview] Workers of the nineteenth and early twentieth century United States were buffeted by shocks derived both from major innovations in manufacturing production technology and large waves of immigration. This paper investigates these phenomena together, in a framework that allows us to study the response of production technology to immigration-induced changes in skill mix. This response reveals the impact technology has on the demand for workers of different skill levels because of the relative complementarity between technology and skills. Using a merge of public-use tabulations of the U.S. Manufacturing Censuses from 1850 and 1940, detailed by industry and county/city, with Census of Population data, we ask how the change in the use of manufacturing technologies in a locality responded to local immigration-induced changes in skill mix. In our study we exploit the fact that the available technologies changed over time and thus look at different period-relevant technologies, from factory production to electrification, taking into account the fact that the adoption and penetration of these technologies responds to the relative availability of workers of different skill levels. Our results show that in urban counties immigration significantly changed the skill ratios, thus modifying the market for workers and firms. We also find that capital stock, output, and average wages responded at the industry and aggregate levels to the immigration induced changes in the skill mix in a manner consistent with the view that technology and skill were substitutes in the nineteenth century. Furthermore, we find initial support for a shift in the production technology around the turn of the century, coincident with the spread of electricity, a result that is in line with the historical view that technology and skill became complements. Finally, we find no evidence that industry mix shifts were an important adjustment mechanism for absorbing immigration-induced skill mix shocks.
Melted in the Pot or Consigned to the Ghetto? The Dynamics of Segregation and Assimilation in Urbanizing America
Allison Shertzer
(University of Pittsburgh)
Randall Walsh
(University of Pittsburgh)
[View Abstract]
Residential segregation by race and ethnicity first emerged in American cities during the urbanization of the late nineteenth and early twentieth centuries. Between 1880 and 1930, the share of the U.S. population living in cities doubled as millions of immigrants from southern and Eastern Europe and black migrants from the rural South arrived in northern urban areas. We present initial results from a newly assembled, fine-resolution spatial dataset on city populations constructed to study the segregation and integration of these groups. At this finer level of detail, we first replicate the findings of previous ward-level analysis regarding the divergent segregation trends of blacks and European ethnic groups in large northern cities. We then provide new evidence on the mechanisms behind this divergence, demonstrating that at the neighborhood level native white population declines accelerated in response to blacks over the period. In contrast, while a similar relationship held for initial waves of immigrant groups such Italians and Russians, the relationship attenuated and disappeared for these groups by 1920 Finally, through a series of cohort analyses, we begin the process of unpacking the process of immigrant assimilation over this important time period.
Discussants:
Richard Hornbeck
(Harvard University)
Darren Lubotsky
(University of Illinois-Urbana-Champaign)
David H. Autor
(Massachusetts Institute of Technology)
Elizabeth U. Cascio
(Dartmouth College)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, Grand Hall
American Economic Association
Macroeconomics Poster Session
(E1) (Poster Session)
Presiding:
Ed Gamber
(Lafayette College)
Multiyear Budgets and Fiscal Performance: Panel Data Evidence
Razvan Vlaicu
(University of Maryland)
[Download Preview] Are Long-Term Inflation Expectations Well Anchored in Brazil, Chile and Mexico?
Michiel De Pooter
(Federal Reserve Board of Governors)
Patrice Robitaille
(Federal Reserve Board of Governors)
Ian Walker
(Federal Reserve Board of Governors)
Michael Zdinak
(Federal Reserve Board of Governors)
[Download Preview] The Role of Source- and Host-Country Characteristics in Female Immigrant Labor Supply
Sebastian Otten
(Ruhr University Bochum)
Julia Bredtmann
(Ruhr University Bochum)
[Download Preview] A Cross-Country Analysis of Health Care Expenditures: Understanding the United States Gap
Alex R. Horenstein
(University of Miami)
Manuel S. Santos
(University of Miami)
[Download Preview] Technological Change in Resource Extraction and Endogenous Growth
Martin Stuermer
(University of Bonn)
Gregor Schwerhoff
(Potsdam Institute for Climate Impact Research)
[Download Preview] Employer Learning, Job Changes, and Wage Dynamics
Seik Kim
(University of Washington)
Emiko Usui
(Nagoya University)
[Download Preview] Lumpy Investment in Sticky Information General Equilibrium
Fabio Verona
(Bank of Finland)
[Download Preview] Agreement Formation in International Public Goods Provision with Heterogeneous Agents
Christine Gutekunst
(Maastricht University)
Kaj Thomsson
(Maastricht University)
[Download Preview] Investment Decisions of the Elderly
Valentina Michelangeli
(Bank of Italy)
[Download Preview] Parental Investments in Children and Business Cycles
Rita Ginja
(Uppsala University)
Efficient Risk Sharing with Limited Commitment and Storage
Sarolta Laczo
(IAE-CSIC and Barcelona GSE)
Arpad Abraham
(European University Institute)
[Download Preview] Culture and Development
Claudia Williamson
(Mississippi State University)
Savings Behavior and Means-Tested Programs
Felix Wellschmied
(University of Bonn)
[Download Preview] How Does Bank Trading Activity Affect Performance? An Investigation Before and After the Financial Crisis
Keke Song
(Dalhousie University)
Nadia Massoud
(York University)
Michael R. King
(University of Western Ontario)
[Download Preview] Basel I, II, and III: A Welfare Analysis using a DSGE Model
Margarita Rubio
(University of Nottingham)
José Carrasco-Gallego
(Universidad Rey Juan Carlos)
[Download Preview] Trend Shocks and Financial Frictions in Small Open Economies' Modeling
Alberto Ortiz bolanos
(EGADE Business School and CEMLA)
Jacob Wishart
(U.S. Department of Transportation)
[Download Preview] Does Financial Integration Increase Welfare? Evidence From International Household-Level Data
Christian Friedrich
(Bank of Canada)
[Download Preview] Election Cycle of Real Exchange Rate in Latin America and East Asia
Sainan Huang
(ESSEC Business School)
Cristina Terra
(Université de Cergy Pontoise)
[Download Preview] The Effects of Macroeconomic Aggregates on Fertility Decisions: Theory and Evidence from the United States Annual Data
Salem Abo-Zaid
(Texas Tech University)
[Download Preview] Historical Energy Price Shocks and their Effects on the Economy
Roger Fouquet
(London School of Economics)
Dirk-Jan van de Ven
(Basque Centre for Climate Change (BC3))
[Download Preview] How Does a Country's Firm or Domestic Region Engage Global Value Chains?
Zhi Wang
(U.S. International Trade Commission)
Bo Meng
(Institute of Developing Economies – JETRO)
Robert Koopman
(U.S. International Trade Commission)
[Download Preview] Labor Supply Substitution and the Ripple Effect of Minimum Wages
Brian J. Phelan
(DePaul University)
[Download Preview] A Theoretically-based Experimental Method to Elicit Women's Intra-household Baragaining Power
Wenbo Zou
(University of California, Davis)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 202-A
American Economic Association
Monetary Policy
(E5)
Presiding:
Eric Sims
(University of Notre Dame)
The Liquidity Premium of Money Like Assets
Stefan Nagel
(Stanford University)
[View Abstract]
The paper presents a theory that links time-variation in liquidity premia of "money-like'" assets to monetary operating policies of central banks. The non-financial sector demands liquid assets and regards deposits as the most convenient way of holding liquidity. Financial institutions that create the deposit liabilities in turn demand liquid assets, which they hold in the form of reserves at the central bank or in the form of Treasury bills and other "money-like" short-maturity assets. The opportunity cost of holding liquidity in the form of central bank reserves is given by spread between the interbank interest rate and the interest rate the central bank pays on reserves (IR-IOR). The model predicts that the liquidity premium priced into "money-like" substitutes of central bank reserves is proportional to IR-IOR, and the magnitude depends on the degree to which the asset can serve as a substitute for reserves. The time-variation of liquidity premia priced into short-term Treasury securities during the past thirty years is consistent with this prediction. Data from countries in which IOR policies differ from those of the Federal Reserve are also consistent with these predictions. These results suggest that monetary policy implementation has a major effect on the level and time-variation of liquidity premia. It also highlights that the supply of liquid assets is endogenous. For example, if the central bank follows an interest-rate target, it supplies reserves perfectly elastically to stay at the target. Shocks to liquidity demand therefore have no effect on the price of liquidity and "shortages'" of "money-like" liquid assets cannot arise. However, frictions that impair the liquidity value of bank deposits for the non-financial sector can lead the price of liquidity to decouple from its usual relationship IR-IOR spread. Empirically, two instances of persistent decoupling emerge: The fall of 1998 and the financial crisis in 2007-08.
Inflation Announcements and Social Dynamics
Kinda Hachem
(University of Chicago)
Jing Cynthia Wu
(University of Chicago)
[View Abstract]
[Download Preview] We investigate the effectiveness of central bank communication when firms have heterogeneous inflation expectations that are updated through social dynamics. The bank's credibility evolves with these dynamics and determines how well its announcements anchor expectations. We show that trying to eliminate high inflation by introducing a low inflation target can lead to short-term overshooting if the introduction is insufficiently gradual. In contrast, combating deflation requires either aggressive announcements that are broadly consistent with price level targeting or QE-type announcements that allow the central bank to stem deflationary expectations without altering its inflation target.
On the Efficiency of Nominal GDP Targeting in a Large Open Economy
M. Udara Peiris
(ICEF, NRU Higher School of Economics)
Matthew D. Hoelle
(Purdue University)
[View Abstract]
[Download Preview] Since 2007 there have been increasing calls to abandon a regime of
Inflation Targeting (IT) in favor of Nominal GDP (NGDP) targeting. One argument in favor of NGDP targeting is that it allows inflation to redistribute resources among bond holders efficiently. Here we
examine this claim in a large open monetary economy and show that, in contrast to IT,
NGDP targeting is in fact (Pareto) efficient in a world with stochastic real uncertainty, and
in the absence of complete insurance markets (only nominally risk free bonds are available).
However this result is ultimately fragile and breaks down once we attempt to deviate from
the simplistic setting necessary for the result to hold.
Capital Flows and the Risk-Taking Channel of Monetary Policy
Valentina Bruno
(American University)
Hyun S. Shin
(Princeton University)
[View Abstract]
We study the dynamics linking monetary policy with bank leverage and show that adjustments in leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. Motivated by the evidence, we formulate a model of the "risk-taking channel" of monetary policy in the international context that rests on the feedback loop between increased leverage of global banks and capital flows amid currency appreciation for capital recipient economies.
Exchange Rate and Price Dynamics in a Small Open Economy – The Role of the Zero Lower Bound and Monetary Policy Regimes
Daniel Kaufmann
(Swiss National Bank)
Gregor Bäurle
(Swiss National Bank)
[View Abstract]
[Download Preview] We analyse nominal exchange rate and price dynamics after risk premium shocks
with short-term interest rates constrained by the zero lower bound (ZLB). In a small open-economy DSGE model, temporary risk premium shocks lead to shifts of the exchange rate and the price level if a central bank targets inflation. These shifts are amplified by the ZLB constraint. Empirical evidence for Switzerland supports the view that the responses of the exchange rate and the price level to a temporary risk premium shock are larger and more persistent if the ZLB is binding. Our theoretical discussion shows that alternative monetary policy rules – such as a price-level target or responding to the exchange rate level – are able to mitigate exchange rate and price fluctuations when the ZLB is binding.
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 107-B
American Economic Association
Revealed Preference Theory and Applications: Recent Developments
(D1)
Presiding:
Bram De Rock
(Université libre de Bruxelles)
Rational Inattention and State Dependent Stochastic Choice
Mark Dean
(Brown University)
[View Abstract]
We develop "revealed preference" tests for models of optimal information acquisition. The tests encompass rational inattention theory as well as sequential signal processing and search. We provide limits on the extent to which attention costs can be recovered from choice data. We experimentally elicit "state dependent" stochastic choice data of the form the tests require. We find that subjects adjust the intensity and focus of their attention in response to incentives. Our tests provide quantitative confirmation that such adjustments are well-modeled as rationally responsive to costs.
Prices versus Preferences: Taste Change and Tobacco Consumption
Abigail Adams
(University of Oxford)
Martin Browning
(University of Oxford)
Ian Crawford
(University of Oxford)
Richard Blundell
(University College London)
[View Abstract]
[Download Preview] For the past four decades, tobacco consumption has been falling. We address the question of how much of this fall is due to the rising price in the relative price of tobacco and how much can be attributed to taste changes. This is important for public policy which seeks the best way to change the consumption of particular goods: taxes or information about health effects. We provide a theoretical and empirical framework for characterising taste change. We develop Afriat Revealed Preference conditions to test for whether a given time series of demands and prices can be rationalised if we allow for taste change on a single good. Our theoretical results are used to develop a quadratic programming procedure to recover the minimal intertemporal (and interpersonal) taste heterogeneity required to rationalise observed choices. We show that any time series of quantities and prices can be rationalised if we allow for taste change in one good. We apply our methods to tobacco consumption from the UK Family Expenditure Survey. Statistically signiÂ…ficant differences by education group are uncovered with more highly educated cohorts experienced a greater shift in their effective tastes for tobacco.
Why Law Breeds Cycles
Alvaro Sandroni
(Northwestern University)
[View Abstract]
This paper relates the axioms of decision theory and the classic tale of Buridan'ass where the availability of options have a paralysing effect.
Sharing Rule Identification for General Collective Consumption Models
Laurens Cherchye
(University of Leuven)
Bram De Rock
(Université libre de Bruxelles)
Arthur Lewbel
(Boston College)
Frederic Vermeulen
(University of Leuven)
[View Abstract]
We propose a method to identify bounds (i.e. set identifica- tion) on the sharing rule for a general collective household consump- tion model. Unlike the effects of distribution factors, it is well known that the level of the sharing rule cannot be uniquely identified without strong assumptions on preferences across households of different com- positions. Our new results show that, though not point identified with- out these assumptions, bounds on the sharing rule can still be obtained. We get these bounds by applying revealed preference restrictions im- plied by the collective model to the household's continuous aggregate demand functions. We obtain informative bounds even if nothing is known about whether each good is public, private, or assignable within the household, though having such information tightens the bounds. An empirical application demonstrates the practical usefulness of our method.
Discussants:
Arthur Lewbel
(Boston College)
Abi Adams
(Oxford University)
Thomas Demuynck
(University of Leuven)
Laurens Cherchye
(University of Leuven)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon F
American Economic Association
Strategies for Achieving Fiscal Balance
(H6) (Panel Discussion)
Panel Moderator:
David Leonhardt
(The New York Times)
Alan Auerbach
(University of California-Berkeley)
Glenn Hubbard
(Columbia University)
Peter R. Orszag
(Citigroup)
Charles Wyplosz
(Graduate Institute, Geneva)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 204-A
American Economic Association
The Analysis of Big Data: New Tools and New Results with Health and Finance Applications
(I1)
Presiding:
Martin Gaynor
(Carnegie Mellon University)
Does Better Medical Care Cost More? An Analysis of Key Trends in Hospital Pricing in the United States
John Van Reenen
(London School of Economics)
Martin S. Gaynor
(Carnegie Mellon University)
Zack Cooper
(Yale University)
[View Abstract]
The U.S. hospital sector is one of the largest industries in America representing 5.4% of GDP. We have severely limited information about the prices hospitals charge to private insurers as these prices are commercially sensitive. The paper is the first to use HCCI, a new national database of 6bn private insurance claims covering 50m patients. We document the variation of prices across hospitals and how these have evolved over time to determine to what extent higher aggregate or hospital specific transaction prices reflect improved treatment or other factors such as market power or cost.
Do Noise Traders Drive Momentum? Evidence from Ticker Lookups
Susan Athey
(Stanford University)
Stefano DellaVigna
(University of California-Berkeley)
[View Abstract]
This paper uses data from internet browsing to show that abnormal volumes of ticker lookups at major finance sites is predictive of abnormal asset returns. Prior studies of this phenomena used Google Trends data, which does not incorporate lookups at major finance sites and is too aggregate and noisy to provide precise identification of the effects of lookups, especially for medium and low-volume stocks. We examine the impact of lookups on returns over time. We further study the relationship between other types of browsing activities, such as visiting trading websites and financial news websites, and ticker lookups, in order to understand what drives ticker lookups, as well as to disentangle which types of traders seem to have the greatest impact on stock prices. We also look at asymmetries between lookups associated with declining or increasing stock prices to further understand investor motivation.
Machine Learning and Econometrics
Hal Varian
(Google)
[View Abstract]
[Download Preview] I examine how machine learning can be used in econometrics and vice versa. I draw on the literatures in both computer science and economics to show how algorithms can be developed that are tuned to the analysis of "Big Data" and consider applications to various kinds of online data.
Selection and Competition in Medicare Advantage
Jonathan Levin
(Stanford University)
Liran Einav
(Stanford University)
Jay Bhattacharya
(Stanford University)
Vilsa Curto
(Stanford University)
[View Abstract]
The Medicare Advantage program now enrolls more than a quarter of Medicare beneficiaries into private insurance plans. The population that enrolls in private plans is healthier, both on risk-adjusted and non-risk-adjusted health measures. However, we find that plans do not have an incentive to distort their bids to improve their risk selection. Instead, the main deterrent to competitive bidding appears to be standard market power considerations. We report preliminary estimates suggesting that plan faces own-bid demand elasticities on the order of -5, implying mark-ups on the order of 20%. In many markets, the biggest source of plan competition appears to be the option to enroll in standard fee-for-service Medicare.
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 203-A
American Economic Association
The Economic Impact of Ambiguity: Theory and Evidence
(D1)
Presiding:
Olivia Mitchell
(University of Pennsylvania)
Ambiguity Aversion and Household Portfolio Choice: Empirical Evidence
Stephen G. Dimmock
(Nanyang Technological University)
Roy Kouwenberg
(Mahidol University)
Olivia S. Mitchell
(University of Pennsylvania)
Kim Peijnenburg
(Bocconi University)
[View Abstract]
[Download Preview] This paper tests the effects of ambiguity aversion on household portfolio choice. We measure ambiguity aversion with custom-designed questions based on Ellsberg urns, using a large representative survey of U.S. households. As theory predicts, ambiguity aversion is negatively associated with stock market participation and with the fraction of wealth allocated to stocks. Moreover, the effect is large: the participation rate is 3.9 percentage points lower among ambiguity averse respondents, compared to ambiguity neutral/seeking respondents. We also find that, conditional on prior stock ownership, ambiguity averse respondents were more likely to sell stocks during the financial crisis.
Making the Anscombe-Aumann Approach to Ambiguity Suited for Descriptive Applications
Stefan Trautmann
(Tilburg University)
Peter Wakker
(Erasmus University)
[View Abstract]
[Download Preview] Ambiguity attitudes have been the focus of many theoretical studies in household financial decision making. More recently, empirical research has started to look at the link between households' ambiguity attitudes and their financial portfolios. Inspired by Ellsberg's classic examples, virtually all of these studies assume universal ambiguity aversion. However, experimental evidence suggests that ambiguity seeking is predominant in situations involving financial losses or unlikely events. Because these situations are common to many household decisions, consideration of domain-specific ambiguity attitudes in descriptive modeling is warranted. The current paper builds on the widely used Anscombe-Aumann framework to provide a descriptive model of ambiguity attitude. We first relax the assumptions of expected utility for risk and backward induction in the Anscombe-Aumann framework. This makes the approach tractable for empirical purposes. We then relax the substantial assumptions of reference independence and universal ambiguity attitude, extending Schmeidler's choquet expected utility model to prospect theory. We give a preference foundation and apply the framework in an experiment.
Measuring Ambiguity Aversion
James Andreoni
(University of California-San Diego)
Charles Sprenger
(Stanford University)
[View Abstract]
Measures of Decision-Making Under Ambiguity
Willingness to Wait under Risk and Ambiguity
Marco Della Seta
(University of Lausanne)
Sebastian Gryglewicz
(Erasmus University Rotterdam)
Peter Kort
(Tilburg University)
[View Abstract]
[Download Preview] Timing of irreversible decisions depends on decision makers' willingness to wait. This paper studies the distinctive effects of risk and ambiguity on this willingness. We analyze a simple optimal stopping problem in which a decision maker observes an uncertain environment and chooses the timing of an irreversible action. We replicate the model in a laboratory experiment that elicits subjects' willingness to wait. Higher risk increases willingness to wait confirming the model's predictions. Higher ambiguity also increases willingness to wait. Because the model predicts that ambiguity decreases willingness to wait if decision makers are ambiguity averse, this finding is inconsistent ambiguity aversion in timing decisions.
Discussants:
Luigi Guiso
(Einaudi Institute for Economics and Finance)
Gharad Bryan
(London School of Economics)
Aldo Rustichini
(University of Minnesota)
Santosh Anagol
(University of Pennsylvania)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 105-B
American Economic Association
The Great Recession's Effect on Well-Being Through Different Prisms
(I3)
Presiding:
Karen Dynan
(Brookings Institution)
The More Things Change, the More They Stay the Same: The Safety Net, Living Arrangements, and Poverty in the Great Recession
Marianne Bitler
(University of California-Irvine)
Hilary W. Hoynes
(University of California-Davis)
[View Abstract]
[Download Preview] Much attention has been given to the large increase in safety net spending, particularly in Unemployment Insurance and Food Stamps, during the Great Recession. In this paper we examine the relationship between poverty, the social and private safety net, and business cycles historically and test whether there has been a significant change in this relationship during the Great Recession. We explore the mediating role played by six core safety net programs-including Food Stamps, cash welfare (AFDC/TANF), the Earned Income Tax Credit, Unemployment Insurance, and disability benefits (Supplemental Security Income and Social Security Disability Income)-in buffering families from negative economic shocks. This analysis yields several important findings. First, the relationship between unemployment and official cash poverty remained remarkably consistent with historical patterns during the Great Recession. However, our more expansive alternative poverty measure shows that, if anything, the cyclicality of poverty has increased in the current period. Second, the safety net programs receiving the most attention through the Great Recession (Food Stamps and UI) exhibit adjustments very consistent with their behavior during previous historical cycles. The most dramatic change in the safety net is the post-welfare reform decline of cash assistance in providing protection for the most disadvantaged. Third, changes in living arrangements are modest and for the most part in line with prior cycles. Thus on balance we find, as our title suggests, that despite the attention to the apparent differences in the responses of the private and social safety nets in the Great Recession, the relationship between cycles and economic well-being are as we would have predicted from the historical patterns.
How Job Displacement Affects Social Security Claiming and Work at Older Ages in the Short and Long Term
Till von Wachter
(University of California-Los Angeles)
[View Abstract]
Employment of older workers has fared markedly different during past recessions. On the one hand, the decline in employment of men near retirement age was occurred to an important degree during the large recessions in 1975 and 1982. In comparison, older workers have fared relatively better in more recent recoveries despite the fact that those recoveries were deemed jobless. This paper uses data from the Current Population Survey to document and contrast the labor supply behavior of workers near retirement age across different recessions from 1966 to 2012. Thereby, it recognizes that older lower educated workers and workers from certain occupations have fared very differently both over the business cycle and during the long-run trend. The paper begins by analyzing differential retirement patterns by education, occupation, and industry. Declines in labor demand reduce employment of older workers if their wages are rigid, possibly because of high replacement rates, habits, or implicit contracts. The paper gives a preliminary assessment of these potential mechanisms by analyzing the response of relative employment of older and younger more and less educated workers to economic shocks.
The Great Recession and Fringe Banking
Sumit Agarwal
(National University of Singapore)
Tal Gross
(Columbia University)
Bhashkar Mazumder
(Federal Reserve Bank of Chicago)
[View Abstract]
In 2008, conventional lenders dramatically and suddenly tightened their lending standards. This paper studies whether, as a result, Americans shifted from conventional banking to payday borrowing. Payday loans are short-term, unsecured loans that involve very high interest rates. We test whether the demand for payday loans increased in 2008 and 2009, as it became more difficult for consumers to find credit in the conventional sector. We also examine which types of consumers became more likely to take out a payday loan and look at heterogeneity among multiple dimensions.
Exploring the Divergence of Consumption and Income Inequality during the Great Recession
Jonathan D. Fisher
(US Census Bureau)
David S. Johnson
(US Census Bureau)
Timothy Smeeding
(University of Wisconsin)
[View Abstract]
[Download Preview] Consumption inequality and income inequality tracked each other from 1985-2006. After that, consumption inequality dropped for the first few years and then rose the last year, while income inequality continued to rise. This paper explores why there was this divergence during the Great Recession? We find that the consumption of those at the top of the income distribution has fallen by more than the consumption of those at the bottom of the income distribution, generating the decrease in consumption inequality. Income inequality increased because the income at those of the top of the income distribution has fallen by less than the income of those at the bottom of the income distribution.
Discussants:
Katherine Abraham
(University of Maryland)
Melvin Stephens, Jr
(University of Michigan)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
Chasing Alpha
(G1)
Presiding:
Andrew Metrick
(Yale University)
Excess Autocorrelation and Mutual Fund Performance
Xi Dong
(INSEAD)
Massimo Massa
(INSEAD)
[View Abstract]
[Download Preview] We develop a new measure to predict mutual fund performance based on the microstructure evidence on stealth trading. We exploit the intuition that strategic stealth trading induces positive autocorrelation in the portfolios of informed investors. The degree of portfolio return autocorrelation of the funds therefore carries information to gauge their skills. We propose an autocorrelation-based measure of mutual fund portfolio returns, termed the excess autocorrelation – the difference between the autocorrelation of actual fund portfolio return and that of the return on a portfolio that invests in the previously disclosed fund holdings. We test our measure using the US mutual fund industry between October, 1998 and December, 2010. The results show that funds with high excess autocorrelation persistently display a net-of-risk performance that ranges between 2 and 3 percent per year. Such performance is predictable up to 12 months ahead. This suggests that the excess autocorrelation predicts fund performance.
How Skilled are Hedge Funds? Evidence from Their Daily Trades
Russell Jame
(University of New South Wales)
[View Abstract]
We examine the trading skill of hedge funds using transaction-level data. After accounting for trading commissions, we find no evidence that the trades of the average hedge fund outperform across holding periods ranging from one month to one year. However, bootstrap simulations indicate that the trading skill of the top 10% of hedge funds cannot be explained by luck. Similarly, we find that the performance of top hedge funds persists and much of this persistence stems from intra-quarter trading skill. Skilled hedge funds tend to be short-term contrarians and their profits are largely concentrated in smaller, more illiquid stocks. Our findings suggest that while the average hedge fund is unskilled, there are a small minority of skilled funds who persistently create value through liquidity provision.
Predicting Mutual Fund Performance: The Win-Loss Record as an Ability Signal
Y. Peter Chung
(University of California-Riverside)
Thomas Kim
(University of California-Riverside)
[View Abstract]
[Download Preview] We hypothesize that there is a low probability for a fund manager to consistently hold many winner stocks unless he has stock picking abilities. We find that the number of stocks contributing to the overall risk-adjusted performance of an actively-managed mutual fund predicts the fund performance very well. A fund that holds a large number of above-median performing stocks in one year generates approximately 2-4% additional risk-adjusted return in the next.
Seasonal Asset Allocation: Evidence From Mutual Fund Flows
Mark J. Kamstra
(York University)
Lisa A. Kramer
(University of Toronto)
Maurice D. Levi
(University of British Columbia)
Russ Wermers
(University of Maryland)
[View Abstract]
We explore U.S. mutual fund flows, finding strong evidence of seasonal reallocation across funds based on fund risk exposure. We show that substantial money moves from U.S. equity to U.S. money market and government bond mutual funds in autumn, then back to equity funds in spring, controlling for the influence of past performance, advertising, liquidity needs, capital gains overhang, and year-end influences on fund flows. We find strong correlation between U.S. mutual fund net flows (and within-fund-family exchanges) and a proxy for variation in investor risk aversion across the seasons. We find similar evidence in Canadian flows, and in flows from Australia where the seasons are six months out of phase relative to Canada and the U.S. While prior evidence regarding the influence of seasonally changing risk aversion on financial markets relies on seasonal patterns in asset returns, we provide the first direct trade-related evidence.�
Discussants:
Sugata Ray
(University of Florida)
Martijn Cremers
(University of Notre Dame)
Dong Lou
(London School of Economics)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Credit Rating Agencies
(G2)
Presiding:
Paolo Fulghieri
(University of North Carolina-Chapel Hill)
Are Credit Ratings Subjective? The Role of Credit Analysts in Determining Ratings
Cesare Fracassi
(University of Texas-Austin)
Stefan Petry
(University of Melbourne)
Geoffrey Tate
(University of North Carolina-Chapel Hill)
[View Abstract]
[Download Preview] Credit ratings affect firms' access to capital and investment choices. We show that the identity of the credit analysts covering a firm significantly affects the firm's rating, comparing ratings for the same firm at the same time across agencies. Analyst effects account for 30% of the within variation in ratings. Moreover, the rating biases of analysts carry through to credit spreads on the rated firms' outstanding debt and the terms offered on new public debt issues. As a result, firms covered by more pessimistic analysts issue less debt, lean more on cash and equity financing, and experience slower revenue growth than firms covered by optimistic analysts. We also find that the quality of ratings varies with observable analyst traits. Analysts with MBAs provide less optimistic and more accurate ratings; however, optimism increases and accuracy decreases with tenure covering the firm, particularly among information-sensitive firms.
Did Going Public Impair Moody's Credit Ratings?
Simi Kedia
(Rutgers University)
Shivaram Rajgopal
(Emory University)
Xing Zhou
(Rutgers University)
[View Abstract]
[Download Preview] We investigate a prominent allegation in congressional hearings that Moody’s loosened its standards for assigning credit ratings after it went public in the year 2000 in an attempt to chase market share and increase revenue. We exploit a difference-in-difference design by benchmarking Moody’s ratings with those assigned by its rival S&P before and after 2000. Consistent with congressional allegations, we find that Moody’s credit ratings for new and outstanding corporate bonds are significantly more favorable to issuers relative to S&P’s after Moody’s initial public offering (IPO) in 2000. The higher ratings assigned by Moody’s after its IPO are more pronounced for clients that are large issuers of structured finance products and operate in the financial industry, consistent with testimonies that easier rating standards originated in the structured finance products group of Moody’s. Moody’s ratings are also more favorable for clients where Moody’s is likely to face larger conflicts of interest: (i) large issuers; (ii) firms that are more likely to benefit from higher ratings, on the margin; and (iii) in industries with greater competition from Fitch. There is little evidence that Moody’s higher ratings, post IPO, are more informative when accuracy is measured as expected default frequencies (EDFs) or as the likelihood of bond defaults. Our findings have implications for incentives created by a public offering for capital market gatekeepers and professional firms.
Does the Market Understand Rating Shopping? Predicting MBS Losses with Initial Yields
Jie He
(University of Georgia)
Jun Qian
(Boston College)
Philip Strahan
(Boston College)
[View Abstract]
We study the effects of rating shopping on the market for MBS. Outside of AAA, realized losses were much higher on single-rated tranches than on those with multiple ratings, and yields predict future losses for single-rated tranches but not for multi-rated ones. These results suggest that single-rated tranches have been "shopped," whereby pessimistic ratings never reach the market. In the AAA market, by contrast, most tranches receive two or three ratings and those ratings almost always agree. The convergence in ratings suggests that rating agencies may have "catered" to investors, who could not purchase a tranche unless it has multiple AAA ratings.
Discussants:
Bo Becker
(Harvard Business School)
Gunter Strobl
(Frankfurt School of Management)
Han Xia
(University of Texas-Dallas)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom B
American Finance Association
New Evidence on Fixed Income Liquidity
(G1)
Presiding:
Ingrid Werner
(Ohio State University)
To Disclose or not to Disclose: Transparency and Liquidity in the Structured Product Market
Nils Friewald
(Vienna University of Economics and Business)
Rainer Jankowitsch
(Vienna University of Economics and Business)
Marti Subrahmanyam
(New York University)
[View Abstract]
[Download Preview] We analyze liquidity effects in the US fixed-income structured product market using new data from the Trade Reporting and Compliance Engine (TRACE) of the Financial Industry Regulatory Authority (FINRA). As of May 16, 2011, virtually all trades in this market have had to be reported, a fact that we use in this study, by including in our dataset transactions up to October 31, 2012. Our main contribution is the analysis of the relation between the measurement of liquidity and the degree of transparency: We compare a wide range of liquidity measures that are based on various information sets using different levels of detail, and provide evidence that transaction cost measures computed at a more aggregate level may still be reasonable proxies for liquidity. This finding is important for all market participants in the context of OTC markets, but particularly for regulators, who need to decide on the level of detail of the transaction data to be disclosed to the market. In addition, we explore the trading activity and transaction costs of the various segments of the structured product market. We find that liquidity is quite diverse, with average costs of a round-trip trade of around 67 bp, and that securities that are mainly institutionally traded, guaranteed by a federal authority, or have low credit risk, tend to be more liquid.
Government Intervention and Strategic Trading in the United States Treasury Market
Paolo Pasquariello
(University of Michigan)
Jennifer Roush
(Federal Reserve Board)
Clara Vega
(Federal Reserve Board)
[View Abstract]
We study the impact of outright (permanent) open market operations (POMOs) by the Federal Reserve Bank of New York (FRBNY) on Treasury market microstructure. POMOs are trades in U.S. Treasury securities aimed at maintaining conditions in the market for bank reserves consistent with the Federal Reserve's target level of the federal funds rate. Using a parsimonious model of speculative trading, we show that so-motivated government intervention improves market liquidity, by an extent depending on the market's information environment. Evidence from a novel sample of all FRBNY's POMOs between 2001 and 2007 indicates that bid-ask spreads of on-the-run Treasury securities decline when POMOs are executed, by an amount increasing in proxies for information heterogeneity among speculators, fundamental volatility, and POMO policy uncertainty, consistent with our model.
Liquidity and Price Impacts of Financial Distress: Evidence from the Market for Defaulted Bonds
Song Han
(Federal Reserve Board)
Ke Wang
(Federal Reserve Board)
[View Abstract]
This paper employs bond transaction data from 2002 and 2011 to investigate the trading activity and price dynamics of defaulted corporate bonds, aiming to shed light on the impact of financial distress on trading liquidity and market efficiency. We find that when new defaults generate supply shocks in the market for defaulted corporate bonds---an over-the-counter market that is commonly viewed as segmented, these supply shocks result in much more significant losses in liquidity and downward price pressures during the 2008-2009 financial crisis than during other periods, partly reflecting the deterioration of the capacities of financial intermediaries to move capital across markets due to their own financial distress. The initial impacts of financial distress reverse partially within a few weeks after default.
Sovereign Credit Risk, Liquidity and ECB Intervention: Deus Ex Machina?
Loriana Pelizzon
(Ca' Foscari University of Venice and Goethe University)
Marti Subrahmanyam
(New York University)
Davide Tomio
(Copenhagen Business School)
Jun Uno
(Waseda University)
[View Abstract]
[Download Preview] This paper explores the interaction between credit risk and liquidity, in the context of the intervention by the European Central Bank (ECB), during the Euro-zone crisis. The laboratory for our investigation is the Italian sovereign bond market, the largest in the Euro-zone. We use a unique data set obtained from the Mercato dei Titoli di Stato (MTS), which provides tick-by-tick trade and quote data from individual broker-dealers. Our database covers the sovereign bonds of most European-zone countries, for the period June 1, 2011 to December 31, 2012, which includes much of the Euro-zone crisis period.
We document a strong and dynamic relationship between changes in Italian sovereign credit risk and liquidity in the secondary bond market, conditional on the level of credit risk, measured by the Italian sovereign credit default swap (CDS) spread. We demonstrate the existence of a threshold of 500 basis points (bp) in the CDS spread, above which there is a structural change in this relationship. Other global systemic factors also affect market liquidity, but the specific credit risk of primary dealers plays only a modest role in affecting market liquidity, especially under conditions of stress.
Moreover, the data indicate that there is a clear structural break following the announcement of the implementation of the Long-Term Refinancing Operations (LTRO) by the European Central Bank (ECB) on December 8, 2012. The improvement in liquidity in the Italian government bond market strongly attenuated the dynamic relationship between credit risk and market liquidity. The only variable that continues to have an impact on market liquidity is the global funding liquidity variable: the Euro-US Dollar cross-currency basis swap, a measure of Eurozone-wide macro-liquidity. Thus, the ECB intervention was successful in ameliorating both credit risk and illiquidity.
Discussants:
Jack Bao
(Ohio State University)
Michael Fleming
(Federal Reserve Bank of New York)
Ben Iverson
(Harvard University)
Antje Berndt
(Carnegie Mellon University)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Optimal Institutions for Behavioral Investors
(G0))
Presiding:
Luigi Zingales
(University of Chicago)
David Laibson
(Harvard University)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Risk Management and Corporate Options
(G3)
Presiding:
Jennifer Carpenter
(New York University)
Real Investment with Financial Hedging
Ilona Babenko
(Arizona State University)
Yuri Tserlukevich
(Arizona State University)
[View Abstract]
This paper analyzes the optimal hedging strategy of a firm in the presence of financing constraints, product market competition, and real options. The hedging ratio is determined by a tradeoff between the costs of financial distress and costs of financing real options. Inability to finance options externally discourages hedging because it reduces the natural correlation between the firm's cash flows and options exercises. The model shows that riskier firms can have lower hedging ratios; hedging ratio decreases in the value of firm's growth options, increases with competition and firm's systematic risk. Overall, our results offer an alternative explanation to the observed hedging policies that does not rely on the cost of hedging.
Liquidity Hoarding and Investment under Uncertainty
Patrick Bolton
(Columbia University)
Neng Wang
(Columbia University)
Jinqiang Yang
(Shanghai University of Finance and Economics)
[View Abstract]
This paper develops a model of real option exercising for a financially
constrained firm. We show that costly external financing induces the firm to hoard liquidity, e.g. cash. Importantly, liquidity hoarding has important effects, both conceptually and quantitatively, on the firm's real option exercising decisions and financing decisions. We find that the standard real options results do not hold when financial constraints are incorporated. For example, firm value may no longer increase with volatility due to the firm's precautionary motive to hoard cash. The marginal value of cash is not necessarily decreasing with liquidity due to the fact that the firm has embedded optionality. Importantly, our paper shows that volatility has both a positive and a negative effect on corporate investment and financing decisions. Our results suggest that we need to be cautious in prescribing real option results based on standard complete-markets frictionless models to MBA students and practitioners
The Determinants of Recovery Rates in the United States Corporate Bond Market
Rainer Jankowitsch
(Vienna University of Economics and Business)
Florian Nagler
(Vienna University of Economics and Business)
Marti Subrahmanyam
(New York University)
[View Abstract]
We analyze the recovery rates of defaulted bonds in the US corporate bond market over the time period 2002 to 2010. Our data set is obtained from the Trade Reporting and Compliance Engine (TRACE) database maintained by the Financial Regulatory Authority (FINRA) and provides us with a complete set of traded prices and volumes around the default events. The analysis of the microstructure of trading activity allows us to estimate reliable market-based recovery rates. We investigate the relation between these recovery rates and a comprehensive set of bond characteristics, firm fundamentals and macroeconomic variables. An important additional contribution is the estimation of the individual bond liquidity and the analysis of its effect on traded prices after default. Our main regression model explains 64% of the total variance in the recovery rates across bonds. We find that the type of default event, the seniority
of the bond, and the industry in which the firm operates are important det
Discussants:
Vijay Yerramilli
(University of Houston)
Vicky Henderson
(University of Oxford)
Jingzhi Huang
(Penn State University)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
The Currency Carry Trade: New Evidence and Theory
(G1)
Presiding:
Chris Telmer
(Carnegie Mellon University)
Currency Carry Trades and Funding Risk
Sara Ferreira Filipe
(University of Luxembourg)
Matti Suominen
(Aalto University)
[View Abstract]
In this paper, we measure currency carry trade funding risk using stock market volatility and crash risk in Japan, the main funding currency country. We show that the measures of funding risk in Japan can explain 42% of the monthly currency carry trade returns during our sample period, 2000-2011. In addition, they explain 46% of the monthly foreign exchange volatility in our sample of ten main currencies, 28% of the speculators' net currency futures positions in Australian dollar versus Japanese yen, skewness in currency returns and currency crashes. We present a theoretical model that is consistent with these findings.
Volatility Risk Premia and Exchange Rate Predictability
Pasquale Della Corte
(Imperial College London)
Tarun Ramadorai
(University of Oxford)
Lucio Sarno
(City University London)
[View Abstract]
[Download Preview] We discover a new currency strategy with highly desirable return and diversification properties, which uses the predictive capability of currency volatility risk premia for currency returns. The volatility risk premium -- the difference between expected realized and model-free implied volatility -- reflects the costs of insuring against currency volatility fluctuations, and the strategy sells high-insurance-cost currencies and buys low-insurance-cost currencies. The returns to the strategy are mainly generated by movements in spot exchange rates rather than interest rate differentials, and the strategy carries a greater weight in the minimum-variance currency strategy portfolio than both carry and momentum. Canonical risk factors cannot price the returns from this strategy, which appear more consistent with time-varying limits to arbitrage.
Growth Risk of Nontraded Industries and Asset Pricing
Ngoc-Khanh Tran
(Washington University-St. Louis)
[View Abstract]
[Download Preview] This paper shows that output fluctuations in nontraded industries are a central risk factor driving asset prices in all countries. This is because nontraded industries entail a growth risk that is mostly non-diversifiable, and constitute the largest component of gross domestic product (GDP) of a country. In interest rate markets, movements in the growth of industries with higher nontradability feed greater risk to the economy, and therefore, stronger downward pressure on the interest rate. Empirically, the effect of an industry's growth volatility on the interest rate increases significantly with its nontradability. In currency markets, this risk factor generates carry trade profits because it induces co-movement of the investor's marginal utility and the exchange rate. Empirically, a carry trade strategy employing currency portfolios sorted on nontraded output growth volatility earns a sizable mean return and Sharpe ratio for US investors.
Trade frictions do not alter these mechanisms, although incomplete markets may reverse carry trade profits.
Commodity Trade and the Carry Trade: A Tale of Two Countries
Robert Ready
(University of Rochester)
Nikolai Roussanov
(University of Pennsylvania)
Colin Ward
(University of Pennsylvania)
[View Abstract]
Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. We provide a general equilibrium model of commodity trade and currency pricing that implies such heterogeneity due to specialization in goods production and frictions in the shipping sector. The model predicts that commodity-producing countries are insulated from global productivity shocks by the limited shipping capacity, which forces the final goods producers to absorb the shocks. As a result, a commodity currency is risky as it tends to depreciate in bad times, yet has higher interest rates on average due to lower precautionary demand, compared to the final good producer. The model's predictions are strongly supported in the data. We show that countries that primarily export basic commodities exhibit systematically high real interest rates while countries that specialize in exporting finished consumption goods typically have lower rates. The resulting c
Discussants:
Matteo Maggiori
(New York University)
Adrien Verdelhan
(Massachusetts Institute of Technology)
Tarek Hassan
(University of Chicago)
Michael Michaux
(University of Southern California)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Washington A
American Real Estate & Urban Economic Association
Mortgages 1
(G2)
Presiding:
Morris Davis
(University of Wisconsin)
The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program
Jared Janowiak
(Freddie Mac)
Lu Ji
(Freddie Mac)
Kadiri Karamon
(Freddie Mac)
Douglas McManus
(Freddie Mac)
Jun Zhu
(Freddie Mac)
[View Abstract]
This paper evaluates the effect of payment reduction on mortgage default within the context of the Home Affordable Refinance Program (HARP). We find that mortgage default is sensitive to payment reduction across univariate, duration, and hazard modeling approaches. A relative risk Cox model of default with timevarying covariates estimates that a 10% reduction in mortgage payment is associated with a 12.1% reduction in monthly default hazard. This finding is robust to the inclusion of empirically important mortgage risk drivers (current LTV and FICO score). A theorem is developed that allows for interpreting monthly default hazard estimates from the perspective of cumulative default.
Equity Extraction and Mortgage Default
Steven Laufer
(Federal Reserve Board)
[View Abstract]
Using a property-level data set of houses in Los Angeles County, I estimate that 30% of the recent surge in mortgage defaults is attributable to early home-buyers who would not have defaulted had they not borrowed against the rising value of their homes during the boom. I develop and estimate a structural model capable of explaining the patterns of both equity extraction and default observed among this group of homeowners. In the model, most of these defaults are attributable to the high loan-to-value ratios generated by this additional borrowing combined with the expectation that house prices would continue to decline. Only 30% are the result of income shocks and liquidity constraints. I use this model to analyze a policy that limits the maximum size of cash-out refinances to 80% of the current house value. I find that this restriction would reduce house prices by 14% and defaults by 28%. Despite the reduced borrowing opportunities, the welfare gain from this policy for new homeowners is equivalent to 3.2% of consumption because of their ability to purchase houses at lower prices.
Household Debt Dynamics: How Do Struggling Homeowners Manage Credit?
Sewin Chan
(New York University)
Andrew Haughwout
(Federal Reserve Bank of New York)
Andrew Hayashi
(New York University)
Wilbert van der Klaauw
(Federal Reserve Bank of New York)
[View Abstract]
When homeowners experience financial difficulties, which bills do they pay and which do they skip? Many households have missed mortgage payments and have experienced large declines in housing wealth since the housing market bust beginning in 2006. But little is known about how those households, faced with falling house values and other financial stresses, have juggled other sources of credit. This paper uses unique data derived from credit reports to explore how homeowners manage credit in the midst of financial difficulties. Traditionally, mortgages have been viewed as the last loan on which borrowers stop payments. We investigate, among other questions, how that conventional wisdom held up during the Great Recession. Matching the Federal Reserve Bank of New York's Consumer Credit Panel with loan-level data from oreLogic's LoanPerformance database, we generate a large sample of individuals that is representative of homeowners with securitized non-prime mortgages and follow them from 2002-2011. The matched data allow us to dynamically estimate a homeowner's home equity using local housing price indices. We find that homeowners experiencing negative shocks to their home equity or experiencing measureable mortgage distress draw more heavily on their consumer lines of credit and open more credit accounts but, inverting the historical payment hierarchy, they also give payment priority to those credit accounts over their primary mortgage.
The Selection and Treatment Effects of Loan Modifications: Evidence from Rejected Modification Applicants
Yan Chang
(Freddie Mac)
Weizheng Xiao
(Freddie Mac)
[View Abstract]
[Download Preview] Evaluating the effectiveness of a modification program involves contrasting the modified loan's credit performance with a counterfactual case of what the loan's performance would have been had there been no modification given. Empirical studies usually employ a pooled sample with modified and non-modified loans, control for the observable credit characteristics, and compare their performance. The effect thus estimated is a combination of treatment effect and selection effect. While the former captures the effectiveness of the modification program, the latter reflects the intrinsic difference between borrowers who apply for loan modification and those who don't, typically not captured by observable variables. Omitting the selection effect leads to biased estimate, possibly over-estimation, of the actual treatment effect of the modification programs. Our paper uses a unique dataset that identifies the borrowers who applied for, but was rejected from a modification, in addition to those who obtained loan modification successfully and those who did not apply for loan modifications. We find significant selection effect that seriously delinquent borrowers who applied for loan modifications, even those rejected for negative credit reasons, still were more likely to selfcure than those who did not apply for loan modifications, after controlling for other credit characteristics. The effect is further substantiated by the fact that those who were rejected for modification are less likely to reach serious delinquency or a default event than those who did not apply. In addition, modified loans also show significant performance improvement over the applied-but-rejected loans, indicating the effectiveness of the modification treatment independent from the selection effect.
Discussants:
Erwan Quintin
(University of Wisconsin)
Wilbert van der Klaauw
(Federal Reserve Bank of New York)
Yongqiang Chu
(University South Carolina)
Kerry Vandell
(University of California-Irvine)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Real Estate and Risk
(G1)
Presiding:
Jay Hartzell
(University of Texas-Austin)
Macroeconomic risk factors and the role of mispriced credit in the returns from international real estate securities
Andrey Pavlov
(Simon Fraser University)
Eva Steiner
(University of Cambridge)
Susan Wachter
(University of Pennsylvania)
[View Abstract]
[Download Preview] We examine the canonical influence of global market, currency and inflation risks on the returns from international real estate securities. In addition, we study how mispricing of credit in the local banking systems is related to the returns from these securities. We analyse a global sample of real estate securities over the period 1999 to 2011 to test our hypotheses. We find support for the anticipated relationships between macroeconomic risk factors and the returns from international real estate securities. Our evidence also supports the expected link between local credit market conditions and the performance of international real estate securities.
Disincentives for Risk-Taking in Mortgage and Other Financial Markets: Adjusting Management Remuneration
Rose Lai
(University of Macau)
Robert Van Order
(George Washington University)
[View Abstract]
[Download Preview] Guaranteed Financial Institutions can structure portfolios with imbedded options to take on excessive risk without paying for it. This provides an incentive to take on higher risk. This paper proposes variants on Contingent Convertible (CoCo) bonds to be mandatorily included in the management remuneration package as a disincentive to taking higher risk. We show how the conversion ratios of the CoCo bonds can affect managers' appetite towards risk-taking and how incentives can be set up to have management make choices consistent with those made under efficient pricing.
The Design of Mortgage-Backed Securities and Servicer Contracts
Robert Mooradian
(Northeastern University)
Pegaret Pichler
(Northwestern University)
[View Abstract]
[Download Preview] We develop a unified model of mortgage and servicer contracts. We show that renegotiating mortgage contracts following default is strictly Pareto improving, if the lender gathers updated borrower information. To align servicer incentives with investor interests, we demonstrate that servicers must hold risk positions in MBSs that include "vertical" components. However, offering incentive compatible contracts is not possible if foreclosure is highly inefficient and servicers do not sufficiently value investment in MBSs. In this case, forming a nondiversified pool to preserve pool-wide information may increase MBS value.
Short Sales and Price Discovery in Real Estate Markets
T.C.C. Lai
(University of Hong Kong)
Siu Kei Wong
(University of Hong Kong)
[View Abstract]
[Download Preview] Indirect real estate (IRE) returns are often shown to lead direct real estate (DRE) returns. Apart from differences in liquidity, transaction costs, and management skills, the DRE market is also less complete - when negative shocks arrive, one can only short IRE (e.g. real estate stocks or REITs) but not DRE. This study investigates whether short sales in the IRE market convey any information to the DRE market. Based on high-frequency (weekly) property price data in Hong Kong during 1999-2011, we found that short sales in the IRE market led DRE returns, even after controlling for the lagged IRE returns in a VAR model. This suggests that short sales contain private information about the real estate market that is not fully reflected in IRE returns. The spillover effect of short sales, however, was weakened after the 2007 global financial crisis because increased uncertainty about the credibility of individual firms made short sales carry more firm specific information than market-wide news.
Discussants:
Tobias Muhlhofer
(University of Texas-Austin)
Alan Crane
(Rice University)
Alexei Tchistyi
(University of California-Berkeley)
Wenlan Qian
(National University of Singapore)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Regulations, Policies, and Housing Dynamics
(E3)
Presiding:
John Duca
(Federal Reserve Bank of Dallas)
Macroprudential and Monetary Policies: Implications for Financial Stability and Welfare
Jose Carrasco-Gallego
(Universidad Rey Juan Carlos)
Margarita Rubio
(University of Nottingham)
[View Abstract]
[Download Preview] In this paper, we analyze the implications of macroprudential and monetary policies for business cycles, welfare, and financial stability. We consider a dynamic stochastic general equilibrium (DSGE) model with housing and collateral constraints. A macroprudential rule on the loan-to-value ratio (LTV), which responds to credit growth, interacts with a traditional Taylor rule for monetary policy. We compute the optimal parameters of these rules both when monetary and macroprudential policies act in a coordinated and in a non-coordinated way. We find that both policies acting together unambiguously improves the stability of the system. In both cases, this interaction is welfare improving for the society, especially in the case of the non-coordinated game. However, there is a trade-off between the agents of the model and savers lose with this new policy. We find though that there is room for an improvement in the efficiency following the Kaldor-Hicks criterion, so that borrowers can compensate the saver's welfare loss.
Shifting Credit Standards and the Boom and Bust in United States House Prices: Time Series Evidence from the Past Three Decades
John Duca
(Federal Reserve Bank of Dallas)
John Muellbauer
(Oxford University)
Anthony Murphy
(Federal Reserve Bank of Dallas)
[View Abstract]
[Download Preview] The U.S. house price boom has been linked to an unsustainable easing of mortgage lending standards. However, time series models of U.S. house prices ignore changes in mortgage lending standards and perform poorly in the 2000s. We incorporate data on mortgage standards for first time buyers into a model of US house prices based on the (inverted) demand for housing services. Our first time buyer loan-to-value series is weakly exogenous. It captures shifts in the supply of mortgage credit and not expectations of future house price appreciation. Using this series, we estimate a U.S. house price equation that yields a stable longrun cointegrating relationship, plausible income and price elasticities and an improved fit. Our findings suggest that swings in credit standards played a major, if not the major, role in driving the recent boom and bust in U.S. house prices.
Clustered Housing Cycles
Ruben Hernandez-Murillo
(Federal Reserve Bank of St. Louis)
Michael Owyang
(Federal Reserve Bank of St. Louis)
Margarita Rubio
(University of Nottingham)
[View Abstract]
Past studies have argued that housing is an important driver of business cycles. Housing markets, however, are highly localized, while business cycles are often measured at the national level. We model a national housing cycle using a panel of cities while also allowing for idiosyncratic departures from the national cycle. These departures occur for clusters of cities that experience simultaneous idiosyncratic housing recessions. We estimate the clustered Markov-switching model proposed in Hamilton and Owyang (2012) using city-level building permits data, a series commonly used at the national level as a business cycle indicator. We find that cities do not form housing regions in the traditional, geographic sense. Instead, similar demand for housing proxied by population growth rate appears to be a more important eterminant of cyclical comovements.
Implications of United States Tax Policy for House Prices and Rents
Kamila Sommer
(Federal Reserve Board)
Paul Sullivan
()
[View Abstract]
[Download Preview] This paper studies the impact of the preferential tax treatment of housing, including the mortgage interest deduction, on equilibrium house prices, rents, and homeownership using a dynamic stochastic life cycle model of housing tenure choice. To analyze the effects of housing tax expenditures on equilibrium outcomes in the housing market, we build a model with a realistic progressive tax system in which owner-occupied housing services are tax-exempt, and mortgage interest payments, property taxes, and landlord's business costs are tax deductible. We simulate the effect of various tax reform proposals on house prices, rents, homeownership, and tax revenue. Through these simulations, we find that when the supply of housing is relatively inelastic, repealing existing tax deductions causes house prices to decline and also increases the homeownership rate.
The mechanism driving this result is that because tax deductions that favor owner occupied housing are capitalized into house prices, eliminating these deductions shifts the relative cost of obtaining housing in favor of ownership. Our results challenge the widely held view that the mortgage interest tax deduction promotes homeownership. Moreover, repealing deductions increases income tax revenue, but simultaneously decreases property tax revenue because house prices decline.
Discussants:
Daniel K. Fetter
(Wellesley College)
John Krainer
(Federal Reserve Bank of San Francisco)
Roland Fuess
(University of St. Gallen)
Don Schlagenhauf
(Florida State University)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon A
Association for Comparative Economic Studies
Firms and Workers, Institutions and Markets in Transition and Emerging Economies
(P2) (Poster Session)
Presiding:
Hartmut Lehmann
(University of Bologna)
The Impact of Local Governance Institutions on Foreign Market Listings: The Case of Chinese Firms
Abigail S Hornstein
(Wesleyan University)
[Download Preview] Corporate Environmental Strategy in Transition Countries
Dietrich Earnhart
(University of Kansas)
[Download Preview] The Impact of Liberalization and Institutions on Financial Volatility in Transition Economies:A GARCH Family Approach
Christopher A. Hartwell
(Moscow School of Management SKOLKOVO)
[Download Preview] Constraints to the Growth of Micro Firms in Northern Myanmar
El-hadj Bah
(University of Auckland)
Geoff Cooper
(University of Auckland)
[Download Preview] Financial Market Diversity and Macroeconomic Stability across Countries and Time
Christian E. Weller
(University of Massachusetts-Boston)
Ghazal Zulfiqar
(University of Massachusetts-Boston)
Financial Integration and its Effects on Economic Growth
Christophe Rault
(Laboratoire d'Economie d'Orleans)
Financial Development and Employment - Evidence from Transition Countries
Susan Steiner
(Leibniz University of Hannover)
Dorthea Schäfer
(DIW Berlin)
Elitism and Return to CPC Membership in China
Yunzhi Hu
(University of Chicago)
Yang Yao
(Peking University)
[Download Preview] Corporate Governance and Performance: Evidence from Russian Non-listed Firms
Carsten Sprenger
(Higher School of Economics Moscow)
Olga Lazareva
(Higher School of Economics Moscow)
Sergey Stepanov
(New Economics School Moscow)
Labor Market Shocks, Propensity to Risk and Labor Market Choices in Ukraine
Norberto Pignatti
(International School of Economics - Tbilisi)
Assessing the Impact of the Maternity Capital Policy in Russia
Fabian Slonimczyk
(Higher School of Economics Moscow)
Anna Yurko
(Higher School of Economics Moscow)
[Download Preview] What Determined the Impact of the 2008-2010 Economic Crisis on Households? Evidence from the Life in Transition Survey II
Elena Nikolova
(EBRD)
Carly Petracco
(EBRD)
Jeromin Zettelmeyer
(EBRD)
The Impact of FDI on Child Labor: Insights from an Empirical Analysis of Sectoral FDI Data and Case Studies
Nadia Doytch
(City University of New York)
Ron Mendoza
(Asian Institute of Management)
Nina Thelen
(United Nations Development Program)
[Download Preview] Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Fiscal and Debt Policies for the Future
(B5)
Presiding:
Philip Arestis
(University of Cambridge)
The Future of Debt and Deficit Policies: Democracy, Technocracy and Public Policymaking
Yiannis Kitromilides
(London Metropolitan University)
[View Abstract]
The paper begins by first defining some terms: what in fact is 'technocracy' and is it compatible with 'democracy' at least in its current widely practiced form of 'representative' democracy? A more detailed re-examination of the concept of 'technocratic' policymaking in a democracy follows. The main argument of the paper is that a new way of thinking about economic policymaking is needed. Although my main point of reference is debt and deficit policies, most of the arguments developed in the paper are of a more general nature. The paper reviews briefly the development of the concept of 'technocracy' and examines the philosophical questions raised by the relationship between expert knowledge and political power. It also considers how economists view the policymaking process and this view is contrasted with the prevailing views in political science. Some additional problems with the economists' policymaking paradigm, based on accounts provided by economists that have actively participated in public policymaking as advisors are noted. The paper makes the case for revising the established policymaking paradigm in economics and offers some ideas on how such a revision might be attempted. In conclusion debt and deficit policies are discussed in relation to the preceding discussion of democracy, technocracy and public policymaking. The arguments of the paper relate to recent experience in Europe. The most critical economic policy issue that the 'technocratic' Prime Ministers have had to deal with was then and remains now the problem of debt and deficits which is the central theme of this session.
Prospects of Future Fiscal and Debt Policies in the United Kingdom
Philip Arestis
(University of Cambridge)
Malcolm Sawyer
(University of Cambridge)
[View Abstract]
This contribution deals with fiscal and debt policies in the UK and their prospects. In doing so, though, there are a number of aspects of fiscal and debt policies that need due analysis and critique, as necessary, before we turn our attention to the UK case. These include the meaning and importance of sustainability, the extent of the budget deficit creating unsustainable public debt and whether this could be detrimental to growth; the importance and the extent to which the inter-temporal budget constraint holds and the question of whether it is consistent with household behaviour. 'Functional finance' and the sustainability of budget deficits to secure high levels of employment is another important consideration. Structural budgets, the measurement of potential output, the impossibility of balanced structural budgets are all important further issues, which are discussed before we turn our attention to the UK fiscal policy aspects. The latter discussion emphasises the importance of fiscal policy in achieving high levels of economic activity, which is enhanced when there is serious co-ordination with monetary policy. This contribution begins, the, with a brief discussion of the sustainability of deficits and debt. We continue by looking at the issue of debt and growth, followed by a comprehensive analysis of the Inter-Temporal Budget Constraint Thesis. The sustainability of deficits and 'functional finance', structural budgets and the impossibility of balanced structural budget are then discussed. Finally, the future of UK public expenditure and debt are dealt with before we summarise and conclude.
Sustainable Future Fiscal and Debt Policies for Spain
Jesus Ferreiro
(University of the Basque Country)
Carmen Gomez
(University of the Basque Country)
Felipe Serrano
(University of the Basque Country)
[View Abstract]
[Download Preview] Opposite to mainstream economics, (Post) Keynesian economics has defended the need of a discretionary fiscal policy that helps to maintain the economic activity at a full employment level, offsetting the cyclical deviations of that level of output. In this sense, it is implicitly assumed that any discretionary management of public finances is, by definition, efficient. The Spanish case shows that public authorities can make an inefficient use of the discretionary room of the fiscal policy, leading to exacerbate the existing macroeconomic and fiscal imbalances, hence the need of rules that constrain the discretionary management of public finances.
Fiscal and Debt Policies for Sustainable United States Growth
Gennaro Zezza
(Universita' di Cassino e del Lazio Meridionale)
[View Abstract]
[Download Preview] In our interpretation, the Great Recession which started in the United States in 2007, and propagated to the rest of the world, was the inevitable outcome of a growth trajectory based on fragile pillars. The concentration of income and wealth, which started rising in the 1980s, along with the stagnation in real wages made it more difficult for the middle class to defend its standard of living, relative to the top decile of the income distribution. This process increased the demand for credit from the household sector, while deregulation of financial markets increased the supply, and the U.S. economy experienced a long period of debt-fueled growth, which broke down first in 2001 with a stock market crash, but at the time fiscal and monetary policy managed to sustain the economy, but without addressing the fundamentals problem, so that private (and foreign) debt kept increasing up to 2006, when a more serious recession started. At present, the long period of low household spending, along with personal bankruptcies, has been effective in reducing private debt relative to income, and, given that the problems we highlight have not been properly addressed yet, growth could start again on the same fragile basis as in the 1990-2006 period. In this paper, adopting the stock-flow consistent approach pioneered by Wynne Godley, we stress the need for fiscal policy to play an active role in (1) modifying the post-tax distribution of income, which along with new regulations of financial markets should reduce the risk of private debt getting out of control again; (2) stimulate environment-friendly investment and technological progress; (3) take action to reduce the U.S. external imbalance, and (4) provide stimulus for sufficient employment growth.
Global Finance, Africa, and Sovereign Debt
Howard Stein
(University of Michigan)
[View Abstract]
In 2007, Ghana became the first HIPC (Highly Indebted Poor Countries) nation to issue sovereign bonds in international markets. Proponents, at the time, celebrated the success of debt relief initiatives and the flexibility of the global financial markets to accommodate the financial needs of a poor African country. Since then other HIPC countries like Tanzania and Zambia have also been able to float new bond issues on international markets often with very heavy oversubscription. In the case of Zambia, there was $12 billion offered for a $750 million bond issue. A number of questions arise from this development including the terms and preconditions, downside risks and alternative options for financing development. How widespread is this option for other poor African countries? Are markets looking south in the wake of the sovereign debt crisis in Europe or does it reflect a change in the operation of global financial markets and a fundamental alteration in the perception of the continent? Will there be a waning of interest once there is recovery in northern markets? Will this allow African countries to escape the onerous conditionality of the International Financial Institutions or is it a sign that neoliberalism has been so institutionalized in African governments that the new source of finance will have little impact in changing the trajectory of development in African? The paper will explore the implications of this new vehicle of finance for both sub-Saharan African countries and global financial markets.
Discussants:
Philip Arestis
(University of Cambridge)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall A2
Association for Evolutionary Economics
Social Entrepreneurship, Social Justice and Development
(B5)
Presiding:
Tonia Warnecke
(Rollins College)
Revolutionizing the Nonprofit Sector through Social Entrepreneurship
Michelle Stecker
(Rollins College)
[View Abstract]
[Download Preview] While nonprofit organizations serve the community in significant ways, their heavy reliance on philanthropic and government funding is increasingly not sustainable, especially in the wake of economic downturns. With over 1.4 million active nonprofits in the United States competing for fewer and fewer dollars, organizations must seek new funding sources. The application of social entrepreneurial principles, including social enterprise activities, can improve the sustainability of the business model of nonprofits while bolstering management capacity and enhancing mission. Increasing numbers of private foundations and funders are aggressively seeking to support social entrepreneurial ideas, yet many nonprofit organizations have been slow to think “outside of the box" to make their organizations sustainable. Confusion exists about the ability and legality of nonprofits to connect social enterprise activities to their overall missions, and there are well-founded fears that embracing new models may be financially risky, provide too many ethical dilemmas, or lead to “mission drift." However, incorporating commercial strategies and activities, such as strategically selling goods and services, embracing a fee-for-service approach, or founding a separate commercial for-profit enterprise or hybrid business, may provide new types of revenue streams that will sustain successful nonprofits in the future. This paper argues that the current funding model of the nonprofit sector should be disrupted in order to achieve a greater level of financial sustainability and mission-driven success.
Social Entrepreneurship Questioning Status Quo: Waste as a Resource
C. McInnis-Bowers
(Rollins College)
Denise Parris
(Florida Southern College)
[View Abstract]
[Download Preview] Progressively there has been an interest in social entrepreneurs’ roles in creating social value, fostering economic development, and advancing environmental sustainability. In institutional economics there is extensive support for entrepreneurship as having a positive impact in economic development and personal well-being. This paper challenges the accepted understanding of social entrepreneurs’ heroic nature and their process of starting a new venture as beginning with passion or recognition a social problem. Through examining the case of Clean the World, a social enterprise, we demonstrate that not all social ventures start with the intention of creating social value, but rather some, as this case, from asking the question: How can I make a profit? We discuss a recently proposed paradigm called effectual entrepreneurship and then illustrate how this paradigm fits the path of Clean the World. They questioned the status quo and focused on the existing or available resources first, rather than identifying opportunities first. Next, we explore how Clean the World fell into social entrepreneurship by ‘accident’ by considering waste a resource. We conclude by offering some suggestions for how to facilitate more of these ‘accidents’ by fostering a culture that questions the status quo.
Social Entrepreneurship and Econ Development in Africa
Geoffrey Schneider
(Bucknell University)
Berhanu Nega
(Bucknell University)
[View Abstract]
[Download Preview] Social entrepreneurship, along with charitable giving and most types of development assistance, is well-intentioned and it often improves the lives of people in poor communities. Increasingly, since the neoliberal revolution in the US and UK and in the economics profession in general, these types of activities have received greater amounts of resources and more focus as a potential solution to market failures and development problems. However, to date, social entrepreneurship has yet to achieve the type of structural transformation necessary for true economic development.
This paper will analyze the impact of social entrepreneurship on economic development, with a special focus on how it has been used in Africa. We will show that social entrepreneurship could play an important role in the development process by facilitating the creation of organic, productive, community-centered organizations that build on local culture and institutions. However, we will also demonstrate the extent to which social entrepreneurship has undermined support for the type of state-led development and democratic reforms that are the pre-conditions necessary for structural transformation and long term, large scale development.
The Clash of Missions: Juxtaposing competing pressures in South Africa's Social Enterprises
Emmanuel Kodzi
(Rollins College)
[View Abstract]
[Download Preview] This study examines the question of how defining the domain of action affects the configuration of processes that allow social enterprises to scale their impact. Financial and other resources are needed to ensure that a social enterprise can fulfill its mission. However, the resource-seeking mandate is also a distraction that adds a layer of complexity to the operations of any social enterprise. By analyzing operating scenarios based on the logic of control versus the logic of empowerment; and the logic of power versus the logic of social embeddedness we examine the process trade-offs that enhance or limit social impact. This study used selected cases in South Africa. Our findings place a premium on efficiency in resolving process trade-offs, because for a given domain of action the focus on value creation diminishes the feedback loop for value capture. We also propose that value chain processes must be controlled to the extent that the enterprise acts as a custodian of community empowerment for its target beneficiaries.
Microfinance and Community
Tonia Warnecke
(Rollins College)
[View Abstract]
Microfinance is one of the most popular examples of social enterprise. In recent decades microfinance activities have proliferated throughout the developing world, and have made some inroads in developed countries as well. Often, microfinance is described as a community-building enterprise given the common group lending and group saving models associated with microfinance operations. While microfinance has helped millions of the 'unbanked' and 'underbanked'-particularly women-gain access to credit and escape dire poverty, this is not the same thing as community-building. This paper investigates the extent to which microfinance is able to build community and sustain individual entrepreneurs' attention to social and solidarity economy given the marginalization of microfinance compared to the formal banking sector, the spread of for-profit microfinance institutions, the inattention paid to the social utility of the entrepreneurs' products, and the lack of built-in mechanisms for 'giving back'. Alternative approaches to microfinance which fundamentally restructure the way it works, specifically considering the issue of community, will be discussed as a possible 'next evolution' of this form of social enterprise.
Discussants:
Richard Dadzie
(University of Hawaii-West Oahu)
Zohreh Emami
(Alverno College)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Congress A
Association for Social Economics
Gender, Law, and Social Economics
(J1)
Presiding:
Ellen Mutari
(Richard Stockton College of New Jersey)
The Legality of Involuntary Motherhood: A Social Economics Approach to Contraception and Power
Janet Spitz
(College of Saint Rose)
[View Abstract]
[Download Preview] Contraceptive coverage in The Affordable Care Act is a vitriolic target. The cause is unclear: abortion aside, prevention of unwanted pregnancies seems non-controversial on its face. High contraceptive costs and limited availability cause some 50% of pregnancies to be unwanted and unplanned in the US alone; results include more poverty, less education, and greater incarceration rates. The 13th Amendment to the United States Constitution abolishes slavery including "involuntary servitude," a clause repeatedly upheld for other applications but which regularly occurs with forced motherhood. Opposition to legal contraception among faculty in major research universities in the US, reveals social and economic comparisons: few publications, weak self-image, and low academic salary combine into ego-defense, where opposition to contraception can thin qualified competition. Strategies which nonconsensually relegate women into a reproductive role may well be deeply buried. Those opposed to making contraception widely available may view themselves as egalitarian, enlightened, and be unaware of their subconscious drive to justify this most basic allocation of dis-advantage to women in contemporary society. Does "Everyone get a fair chance today?" Not where contraception access is intentionally limited. Involuntary servitude as forced motherhood thus emerges as a legal constitutional violation driven by a complexity of social economic pressures and (lack of) personal empowerment among persons whose views on this and other issues are forwarded through academia to next generations of high-status youth whose future holds consequential decision making.
On the Question of Court Activism and Economic Interests in 19th Century Married Women's Property Law
Daniel MacDonald
(California State University-San Bernardino)
[View Abstract]
[Download Preview] Dates of passage of two sets of legislation affecting the property rights of married women in the 19th century are considered from the perspective of state judiciaries. In a content analysis drawing on a dataset of over 200 cases, I find that while most courts did not declare the Married Woman's Property Acts and Earnings Acts unconstitutional, they did qualify the scope of the laws by maintaining the husband's traditional ownership and control rights over the family estate. Additionally, courts maintained the idea of a wife's incompetence as an independent economic agent.
Gender Differences in Time Poverty in Rural Mozambique
Diksha Arora
(University of Utah)
[View Abstract]
[Download Preview] This study examines the nature and extent of time poverty experienced by rural men and women in the subsistence households in Mozambique. The pa- triarchal norms place heavy work obligations on women. They are required to fulfill the needs of the household through a variety of care work and assist the husbands in farming and other cash-generating activities. I use time-use data from a primary household survey conducted in Mozambique. The main findings are that women’s labor allocation to economic activities including subsistence agriculture is comparable to that of men. Moreover, the household chores and care work are women’s responsibility, which they perform with minimal assis- tance from men. I construct a time poverty headcount index separately for men and women; compared to 50% of women who are time poor, only 8% of men face time constraints. The incidence of time poverty among women increases when the burden of simultaneous care work is taken into account. Examination of the determinants of the time poverty show that traditional measures of bar- gaining power like assets and education do not necessarily affect time poverty faced by women.
Female Genital Cutting, Social Norms, and Islamic Law
Quentin Wodon
(World Bank)
[View Abstract]
The incidence of female genital cutting (FGC) varies substantially between countries and communities. This paper suggests that this may be related to the degree of social pressure and otherworldly benefits associated with FGC. Since FGC is only (at most) a recommended practice in Islamic law, social pressure and/or the belief in otherworldly benefits and the decision to undergo FGC are jointly determined. If there is a high (low) degree of participation in FGC in a community, social pressure in favor of FGC and/or belief in otherworldly benefits from the practice are likely to be higher (lower) due in part to that the high (low) degree of participation in FGC. For social pressure or stigma, this is because the more girls undergo FGC, the more easily one can single out and discriminate against girls who do not. In the case of otherworldly benefits, this is because higher participation in FGC makes the belief in such benefits more sustainable independently of whether the belief is warranted or not. After a brief review of the status of FGC in Islamic law and of the evidence on the practice and its determinants, this paper provides a simple model showing that we may have two equilibria: one with high social pressure and/or belief in otherworldly benefits and FGC incidence, and one with low participation rate in FGC and no social pressure and/or belief in otherworldly benefits. The paper then discusses the implications of the model for family law reform in majority Muslim countries.
Jan 03, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon K
Association of Environmental & Resource Economists
Automobiles, Fuel Markets and Energy Efficiency
(Q4)
Presiding:
Antonio Bento
(Cornell University)
Testing a Model of Consumer Vehicle Purchases
Gloria Helfand
(US Environmental Protection Agency)
Ari Kahan
(US Environmental Protection Agency)
David Greene
(Oak Ridge National Laboratory)
Changzheng Liu
(Oak Ridge National Laboratory)
Michael Shelby
(US Environmental Protection Agency)
[View Abstract]
[Download Preview] Consumer vehicle choice models have been estimated and used for a wide variety of policy simulations. Infrequently, though, have predicted responses from these models been tested against actual outcomes. This paper tests a model developed for the U.S. Environmental Protection Agency that is intended to estimate the impacts of changes in vehicle prices and fuel economy. It is a nested logit with a representative consumer and 5 layers: the buy/no buy decision, passenger versus cargo versus ultra-prestige vehicle, vehicle classes, subdivision of those classes into standard and prestige vehicles, and then individual vehicles. It is calibrated to vehicle purchases in model year (MY) 2008. Vehicle changes between MY and 2010 are then used to make predictions, and those predictions are compared to actual outcomes in MY 2010. The research suggests that the model may predict better when its inputs are aggregated than when they are as disaggregated as possible, though further work is needed to assess the model’s predictive abilities.
The Unintended Consequences of Uncoordinated Regulation: Evidence from the Transportation Sector
Kevin Roth
(University of California-Irvine)
[View Abstract]
This paper asks what the optimal choice of instrument is when other agencies are likely to employ complementary policies in an uncoordinated fashion. Equivalence of these policies requires full flexibility in setting standards for feebate rates, which is often not possible. Regulations, like CAFE standards and feebates, are often set for many years at a time by the National Highway Traffic Safety Administration (NHTSA).
The Impact of the Refiners' Discount Program on the South Korean Gasoline Market
Dae-Wook Kim
(Soongsil University)
Jong-Ho Kim
(Pukyong National University)
Junjie Zhang
(University of California-San Diego)
[View Abstract]
Our first empirical question asks how much refiners reduced their wholesale gasoline prices. Similar to some voluntary environmental programs (Khanna and Damon, 1999), the discount of- fered by the refiners was not out of self interests but rather under the pressure of the government. To avoid a harsher regulation on the gasoline market, the refiners participated in the program universally. Although the refiners claimed to offer the same amount of discount, the compliance could differ since there was no enforcement. In addition, refiners used different marketing strate- gies. The market leader SK offered direct cash back to consumers using credit card or membership card. The other refiners lowered their wholesale prices at the same amount. Therefore, we expect that the discount program had a heterogeneous effect on the wholesale gasoline prices because of differing compliance and discount strategies.
Evaluating the Cost-Effectiveness of Rebate Programs for Residential Energy Efficiency Retrofits
Joseph Maher
(University of Maryland)
[View Abstract]
[Download Preview] This paper is among the first cost-effectiveness evaluations of energy efficiency retrofits with household-level data. I use monthly residential electricity billing data, combined with data on observable characteristics of each residence, to assess nine separate retrofit rebate programs. The study takes place in Gainesville, Florida, and compares changes in energy use within a residence before and after an energy saving retrofit intervention (treatment group) with changes in energy use within a similar residence that did not receive improvements (control group). Results indicate that cost-effectiveness of retrofit rebate programs vary widely across retrofit types, and that engineering estimates of energy savings are resonably accurate.
Discussants:
Shanjun Li
(Cornell University)
Ashley Langer
(University of Arizona)
Steve Cicala
(University of Chicago)
Kenneth Gillingham
(Yale University)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 105-A
Chinese Economic Association in North America/American Economic Association
Greater China and the World Economy I
(F6)
Presiding:
ShangJin Wei
(Columbia University)
Trade, Urbanization and Capital Accumulation in a Labor Surplus Economy
Eric W. Bond
(Vanderbilt University)
Raymond Riezman
(University of Iowa)
Ping Wang
(Washington University-St. Louis)
[View Abstract]
Along the global trend of economic development, it is often observed rapid industrial trans- formation accompanied by continual rural-urban migration. In many developing countries there are yet abundant supplies of "surplus labor." We construct a small open, dynamic framework to examine how the existence of this large supply of rural, unskilled labor affects trade, urbanization, capital accumulation, factor returns, sectoral and aggregate output and social welfare, as well as to explore why the processes of urbanization and economic development are rather divergent in different economies. We find that in a surplus-labor economy commonly adopted trade policies may reduce capital accumulation, urbanization and aggregate output. Under reasonable factor intensity assumptions, a reduction in migration barriers enhances capital accumulation, inducing urbanization and increasing aggregate output. Our numerical results indicate that import tariffs in the presence of capital barriers can generate strong intertemporal distortions which delay ur- banization and economic development. Trade and capital barriers are crucial for the presence of abundant rural surplus labor, whereas different trade/investment environments and policies may lead to very divergent processes of urbanization and economic development. While a reasonable migration discounting can generate a large urban-rural wage gap, locational no-arbitrage can cause irresponsiveness of the real unskilled wage in urban areas to parameter and policy changes.
The Structural Behavior of China-US Trade Flows
YinWong Cheung
(City University of Hong Kong)
Menzie Chinn
(University of Wisconsin)
Xingwang Qian
(State University New York-Buffalo)
[View Abstract]
China's trade account surplus is perceived to be a major driver of international imbalances and has been identified as the cause of the global financial crisis of 2008 (Council of Economic Advisers, 2009). The often heard proposed remedy of China should adjust its exchange rate policy to alleviate global imbalances does not get uniform support from estimated trade elasticities; specifically, some estimates of China's import elasticities have a sign that is different from the one predicted by the conventional economic theory. The study by Cheung, Chinn and Qian (2012) illustrates China's trade behavior depends on customs classification, product type, and the ownership structure of the trading entities.
The current exercise focuses on China-US trade, arguably the most often analyzed trade relationship in the global imbalance debate. In addition to aggregate trade data, we study disaggregate data obtained from China's customs office. These data allow us to examine various structural aspects of the China-US trade surplus. For instance, we confirm that, compared with the customs classification of ordinary trade, processing trade accounts for a smaller share of China's surplus over time. Manufactured goods, compared with primary goods, accounts for a larger share of China's surplus over time. Within the manufactures category, the "machinery, electrical equipment" group constitutes an increasing share of surplus. The share of surplus attributed to trade associated with private enterprises is increasing over time, coming at the expense of that of state owned enterprises. Apparently, the share attributed to foreign invested enterprises is stable.
Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China
Chang-Tai Hsieh
(University of Chicago)
Zheng Michael Song
(University of Chicago)
[View Abstract]
Starting in the late 1990s, China undertook a dramatic transformation of the large number of firms under state control. Most small state owned firms were privatized or closed. In contrast, large state owned firms were corporatized and merged into large industrial groups under the control of the Chinese state. Detailed firm level data shows that from 1998 to 2007, labor productivity of state owned firms converged with that of privately owned firms, total factor productivity growth of state owned firms was more than double that of private firms, and capital productivity of state owned firms continue to be lower than that of private firms (and did not change.) Counterfactual experiments suggest that "grasp the large" and "let go of the small" increase Chinese industrial output by about a third.
Sex Ratios and Savings Rates: Some Experimental Evidence
ShangJin Wei
(Columbia University)
Hanming Fang
(University of Pennsylvania and NBER)
Binglin Gong
(Fudan University)
[View Abstract]
While in standard housing economics housing is regarded as an asset and a consumption good, we study in this paper the consequences for housing prices if housing is also a status good. More concretely, if a family's housing wealth relative to others is an important marker for relative status in the marriage market, then competition for marriage partners might motivate people to pursue a bigger and more expensive house/apartment beyond its direct consumption (and financial investment) value. To test the empirical validity of the hypothesis, we have to overcome the usual difficulty of not being able to observe the intensity of status competition. Our innovation is to explore regional variations in the sex ratio for the pre-marital age cohort across China, which likely has triggered variations in the intensity of competition in the marriage market. The empirical evidence appears to support this hypothesis. We estimate that due to the status good feature of housing, a rise in the sex ratio accounts for 30-48% of the rise in real urban housing prices in China during 2003-2009
Discussants:
BeenLon Chen
(Academia Sinica)
Liugang Sheng
(Chinese University of Hong Kong)
Yong Wang
(Hong Kong University of Science and Technology)
Se Yan
(Peking University)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 401
Econometric Society
Advances in Macroeconometrics
(C3)
Presiding:
Barbara Rossi
(Universitat Pompeu Fabra)
Inference in Structural VARs with External Instruments
Mark Watson
(Princeton University)
[View Abstract]
This paper develops methods for inference in structural vector autoregressions in which the structural shocks are identified using external instruments. These external instruments are taken to be correlated with the target shock (e.g., an oil instrument for an oil shock) and to be uncorrelated with other macroeconomic shocks (e.g., the oil instrument is exogenous). We focus on the possibility that the instruments might be weak, in the sense that they have a small correlation with the target shock. We provide weak-instrument asymptotic distributions for various objects of interest in structural VARs, and develop weak-instrument robust methods for inference about structural impulse response functions. In the just-identified case, our proposed confidence intervals for impulse response coefficients are asymptotically weak-instrument UMAU in a sense we make precise. In an empirical application to U.S. data, we find substantial differences between the weak- and strong-instrument confidence intervals.
Alternative Methods for Forecasting with Model Uncertainty
Keisuke Hirano
(University of Arizona)
Jonathan Wright
(Johns Hopkins University)
[View Abstract]
We consider forecasting where there are several potential weak predictors. The researcher wants to select a model (a set of predictors), estimate the parameters, and use this for forecasting. We investigate the local asymptotic mean square prediction error (MSPE) of different forecasting schemes: in-sample(AIC), out-of-sample, and partitioning the data into subsamples for model selection and parameter estimation. We also investigate the effects of bootstrap aggregation on this local asymptotic MSPE. Without bootstrap aggregation, the in-sample scheme generally gives the best forecasts, followed by out-of-sample, with the partitioned sample doing the worst. Bootstrap aggregation does little to improve the accuracy of the in-sample scheme, but greatly assists the alternatives. With bootstrap aggregation, for many values of the localization parameter, the partitioned sample scheme gives the best forecasts, followed by out-of-sample, with the in-sample method doing the worst. The gains from the partitioned sample scheme with bootstrap aggregation seem to be greatest when the number of potential predictors is large.
Forecasting Stock Returns Under Economic Constraints
Davide Pettenuzzo
(Brandeis University)
Allan Timmermann
(University of California-San Diego)
Rossen Valkanov
(University of California-San Diego)
[View Abstract]
[Download Preview] We propose a new approach to imposing economic constraints on time-series forecasts of the equity premium. Economic constraints are used to modify the posterior distribu- tion of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We consider two types of constraints: Non-negative equity premia and bounds on the conditional Sharpe ratio, the latter of which incorporates time- varying volatility in the predictive regression framework. Empirically, we Â…find that economic constraints systematically reduce uncertainty about model parameters, reduce the risk of selecting a poor forecasting model, and improve both statistical and economic measures of out-of-sample forecast performance. The Sharpe ratio constraint, in particular, results in considerable economic gains.
Improving GDP Measurement: A Measurement Error Perspective
S. Boragan Aruoba
(University of Maryland)
Francis Diebold
(University of Pennsylvania)
Jeremy Nalewaik
(Federal Reserve Board)
Frank Schorfheide
(University of Pennsylvania)
Dongho Song
(University of Pennsylvania)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 402
Econometric Society
Dynamics of Medical Treatment and Decision-Making
(I1)
Presiding:
Donna Gilleskie
(University of North Carolina)
Dynamic Sequencing of Drug Treatments for ADHD Patients with Medicaid Coverage
Anna Chorniy
(Clemson University)
[View Abstract]
[Download Preview] Almost 10% of children aged 4-17 had been diagnosed with attention deficit hyperactivity disorder (ADHD) in the U.S. in 2007. While many believe that ADHD drugs are overprescribed, very little is known about the existing prescribing practices, physician learning processes, and the relative efficacies of various ADHD treatment strategies.
The evidence suggests that children diagnosed with ADHD face significant uncertainty regarding efficacy and severity of adverse effects of ADHD medications. Almost half of these children switch therapies during the first six months of treatment. This suggests a considerable amount of experimentation by doctors. I extend Crawford and Shum (2005)'s model to explore the effect of treatment interruptions (drug holidays) in addition to the effects of various drug therapies. Using South Carolina Medicaid claims data for 2003-2012, I estimate a dynamic model of demand for ADHD drugs under uncertainty. In the model, highly heterogeneous patients learn about the efficacy of available treatments through experimenting.
I will evaluate the effect of interruptions in treatment on the overall treatment cost and disease duration, accounting for patient heterogeneity in response to treatment for ADHD. I will explore the potential to develop better guidelines that can improve the quality of drug-patient matches and patients outcomes.
Treatment Choice Dynamics with Insurance Mandates: The Case of IVF
Barton Hamilton
(Washington University-St Louis)
Brian McManus
(University of North Carolina)
Juan Pantano
(Washington University-St. Louis)
[View Abstract]
Public policy towards IVF has focused on mandating insurance coverage of the procedure, which can improve access while also reducing patientsÂ’' incentives to opt for aggressive treatment. We specify a model of individual patients' Â’choices during IVF treatment and exploit a unique dataset of individual patient histories at an IVF clinic, serving a mix of insured and uninsured patients. Using data on treatment choices and outcomes, we estimate the stochastic processes that determine patient success across stages of IVF treatment. These processes, together with specifications of patientsÂ’ preferences over children, delaying treatment, and the disutility of payments, yield a well-specified dynamic optimization problem for choices within and across IVF treatments. We estimate the patientsÂ’' preference parameters via maximum likelihood and then use the estimated model to conduct counterfactual experiments. We explore expansions of insurance coverage and restrictions on patient aggressiveness during treatment. We also simulate the impact of a constitutional personhood amendment and explore the optimality of alternative mandates.
Economic Theory as a Guide for the Specification and Interpretation of Empirical Household Production Functions
Sergey Mityakov
(Clemson University)
Thomas A Mroz
(Clemson University)
N/A
Discussants:
Steve Stern
(University of Virginia)
Hanming Fang
(University of Pennsylvania)
Sokbae (Simon) Lee
(University College London)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 403
Econometric Society
Financial Regulation and Information
(G1)
Presiding:
Itay Goldstein
(University of Pennsylvania)
Subsidizing Price Discovery
Braz Camargo
(Fundação Getúlio Vargas)
Kyungmin Kim
(University of Iowa)
Benjamin R. Lester
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] When markets freeze, not only are gains from trade left unrealized, but the process of information production through prices, or price discovery, is disrupted as well. Though this latter effect has received much less attention than the former, it constitutes an important source of inefficiency during times of crisis. We provide a formal model of price discovery and use it to study a government program designed explicitly to restore the process of information production in frozen markets. This program, which provided buyers with partial insurance against acquiring low-quality assets, reveals a fundamental trade-off for policymakers: while some insurance encourages buyers to bid for assets when they otherwise would not, thus promoting price discovery, too much insurance erodes the informational content of these bids, which hurts price discovery.
Financial Disclosure and Market Transparency with Costly Information Processing
Marco Di Maggio
(Massachusetts Institute of Technology)
Marco Pagano
(Università di Napoli Federico II)
[View Abstract]
[Download Preview] We study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators' trades more visible to hedgers. As a consequence, issuers will oppose both the disclosure of fundamentals and trading transparency. This is socially inefficient if a large fraction of market participants are speculators and hedgers have low processing costs. But in these circumstances, forbidding hedgers' access to the market may dominate mandatory disclosure.
Information Management in Banking Crises
Joel Shapiro
(University of Oxford)
David Skeie
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] In the recent financial crisis and the current sovereign debt crisis, there have been large questions surrounding regulators' ability to provide capital to bail out banks. When this ability is private information for the regulator, the regulator's faces a trade-off: depositors will not run if they believe the regulator will keep their funds safe, while capital injections may encourage banks to take excessive risks. By managing information, the regulator can resolve this trade-off. First, a regulator with a low cost of injecting capital may forbear on bad banks rather than choose its preferred option of bailing them out. This signals toughness and minimizes subsequent risk taking by banks, resolving the moral hazard problem without the need to commit to a "no bailout" policy. Second, a regulator with a high cost of injecting capital may bail out bad banks rather than choose its preferred option of forbearing to increase confidence and prevent future runs. Lastly, we show that informative stress tests are more likely to be performed when regulators have capital for bailouts or when market beliefs are negative.
Cost-Minimizing Intervention in a Market-Based Financial System
Olivier Darmouni
(Princeton University)
[View Abstract]
[Download Preview] Is taxpayer money best spend on supporting the real or the financial sector? When the aggregate net worth of the financial sector is low, limited funding liquidity in financial markets exacerbates credit rationing and depresses real activity. The government can increase real investment by trading directly either in the market for real assets or in financial markets. However, successful interventions are always costly to the taxpayer because participation constraints of the private sector imply that the government overpays for its claims. I show that directly supporting the real sector is always more expensive than intervening in financial markets. Providing financing to financial institutions because it optimally shares downside risk between the public and the private sector.
Discussants:
Vincent Glode
(University of Pennsylvania)
Liyan Yang
(University of Toronto)
Doron Levit
(University of Pennsylvania)
Saki Bigio
(Columbia University)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 204-C
Econometric Society
Improving the Quality of Schools and Teachers
(I2)
Presiding:
Petra Todd
(University of Pennsylvania)
The Long-term Impacts of Primary Education
Raj Chetty
(Harvard University)
[Download Preview] TBA
The Effects of Teach for America on Student College-Going
Caroline Hoxby
(Stanford University)
[View Abstract]
This paper is joint with George Bulman (UCSC) and Jonathan Meer (Texas A&M)
Teach for American (TFA) teachers are inexperienced but drawn from highly selective colleges. The latter quality makes them extremely unusual at the schools in which they teach. At these schools, which serve disadvantaged students, fewer than 1 percent of the other teachers attended similarly selective colleges. We estimate the effect of potential exposure to a TFA teacher using within-school (first) differences. These estimates are confirmed by differences-in-differences estimates where control schools are identified using propensity score methods. We find that TFA teachers have statistically significant, positive intent-to-treat effects on students' preparation for the application process (taking the SAT, taking AP exams, etc.), on the selectivity of the colleges to which students apply, and on students' enrolling in four-year colleges. In terms of effect sizes, TFA teachers' largest effects are on students' enrolling in selective colleges. The results suggest that TFA teachers play a unique role in their schools, informing students about and preparing them for America's most resource-rich postsecondary institutions. This is important because other evidence suggests that low-income students fail to appreciate the full range of their college-going opportunities.
Injecting Successful Charter School Strategies into Traditional Public Schools: Evidence from Houston and Denver
Roland Fryer
(Harvard University)
TBA
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 404
Econometric Society
Micro and Applied Theory: New Modeling Tools and Questions
(D5)
Presiding:
Stephen Morris
(Princeton University)
Contract Negotiation and the Coase Conjecture
Bruno Strulovici
(Northwestern University)
[View Abstract]
[Download Preview] This paper analyzes an explicit protocol of contract negotiation between a principal who has all the bargaining power and an agent with a privately known type, and
provides a foundation for renegotiation-proof contracts in such environments. The model extends the framework of theCoase conjecture to situations in which the
seller and the buyer must determine the quantity or the quality of the good being sold. All equilibria converge to the same type-specific contracts as
renegotiation frictions become negligible. Those contracts are efficient and the principal extractsa strictly positive share of the gain from negotiation.
The Limits of Price Discrimination
Dirk Bergemann
(Yale University)
Ben Brooks
(Princeton University)
Stephen Morris
(Princeton University)
[View Abstract]
[Download Preview] We analyze the welfare consequences of a monopolist having additional information about consumersÂ’tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination".
We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as proÂ…ts under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade.
As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.
Game Theory with Sparsity-Based Bounded Rationality
Xavier Gabaix
(New York University)
[View Abstract]
This paper proposes a way to enrich traditional game theory via an element of bounded rationality. It builds on previous work by the author in the context of one-agent decision problems, but extends it to several players and a defines a "sparse Nash equilibrium", which is a generalization of Nash equilibrium. Each decision maker builds a simplified representation of the world, which includes only a partial understanding of the equilibrium play of the other agents. The agents' desire for simplicity is modeled as "sparsity" in a tractable manner. The paper formulates the model in the concept of one-shot games. It applies the model to a variety of exemplary games: p-beauty contests, matching pennies and traveler's dilemma. The model's predictions are congruent with salient facts of the experimental evidence. Compared to previous successful proposals (e.g., models with different levels of thinking or noisy decision making), the model is particularly tractable and yields simple closed forms where none were available. A sparsity-based approach gives a portable and parsimonious way to inject bounded rationality into models with strategic agents.
Robust Implementation under Complete Information
Rene Saran
(Yale University-NUS College)
[View Abstract]
Game-theoretic solution concepts rely on strong assumptions regarding players' knowledge of each other's rationality and chosen actions. Evidence suggests that people possess (or believe that others possess) ``limited depths of rationality''. We study the implementation problem under complete information while assuming that players are at least 1-rational and at most k-rational. A k-rational player believes that others are (k-1)-rational, and plays a best response to some ``consistent'' conjecture. For all k≥1, we characterize the set of social choice functions (SCFs) that are implementable under at most k-rationality when there are at least three players. Our results show that implementation is sensitive to the players' depths of rationality. However, the set of implementable SCFs does not vary with the upper bound of k on players' rationality as long as k>1. We show that only trivial SCFs are implementable in some environments if players can exhibit any depth of rationality in addition to 1-rationality. In contrast, a larger class of SCFs is implementable if rationality is at least mutual knowledge (i.e., players are at least 2-rational).
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 411
Econometric Society
New Perspectives on Jobless Recoveries
(E1)
Presiding:
Gianluca Violante
(New York University)
What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks
Alessandro Gavazza
(New York University)
Simon Mongey
(New York University)
Gianluca Violante
(New York University)
[View Abstract]
We develop an industry dynamics model with labor market frictions and use it to study the sharp drop in matching efficiency around the Great Recession. We argue that the tightening of financial constraints cut down dramatically recruitment effort in young firms, those most responsible for job creation. We quantify how important this channel is in explaining the shift in the Beveridge curve around 2008-2009. We also show that aggregate TFP shocks have less of an impact on matching efficiency relative to financial shocks because the latter hit disproportionately young firms, while the former are more neutral across firms.
Do Changes in Unemployment Insurance Explain the Emergence of Jobless Recoveries?
Kurt Mitman
(University of Pennsylvania)
Stanislav Rabinovich
(Amherst College)
[View Abstract]
The last three recessions in the United States were followed by jobless recoveries: while labor productivity recovered, unemployment remained high. In this paper we propose and quantitatively confirm a new explanation for this fact, which links the unprecedented generosity of unemployment benefit extensions in the post-1990 recessions to the emergence of jobless recoveries. We construct and calibrate an equilibrium search model that incorporates the observed countercyclical extensions of unemployment benefits enacted in the US. In the model, an extension of unemployment benefits raises the outside option of unemployed workers in wage bargaining, thereby reducing firm profits from hiring and slowing down the recovery of vacancy creation in the aftermath of a recession. We find that the calibrated model incorporating time-varying unemployment benefit extensions is consistent with the observed dynamics of unemployment, in particular the facts that recoveries were not jobless prior to 1990 and became jobless thereafter.
Job Destruction without Job Creation: Structural Transformation in the Overborrowed America
Alessandro Galesi
(CEMFI)
Claudio Michelacci
(CEMFI)
[View Abstract]
In the US economy most of the structural transformation from manufacturing to services occur in recessions. Typically recessions start with a contraction in manufacturing employment followed by an increase in service employment. This pattern has changed in recent recessions in the US. The correlation of manufacturing employment and services employment has increased particularly so in recessions and in US states where households are highly indebted. We argue that this might indicate the existence of an externality from manufacturing employment to services employment. Manufacturing goods are tradable and their demand is determined internationally, services are typically non tradable and their demand is determined locally. So the destruction of jobs in manufacturing leads to fall in the disposable income of households that, in the presence of a financial constraint, force households to contract their demand for services. This leads to job destruction in manufacturing without job creation of jobs in services. We provide several pieces of evidence consistent with this mechanism.
Countercyclical Restructuring and Jobless Recoveries
David Berger
(Northwestern University)
[View Abstract]
In the past three recessions, two major features of the business cycle have changed. First, employment now lags output growth, leading to jobless recov- eries. Second, average labor productivity (ALP) has become acyclical or even countercyclical. This paper proposes a joint explanation for both facts. I develop a quantitative model in which …rms streamline and restructure during recessions. The model captures the idea that …rms grow "fat" during booms but then quickly "restructure" during recessions by laying o¤ their unproductive workers. Firms then enter the recovery with a greater ability to meet expanding demand without hiring additional workers. This model explains 55% of the decline in the procycli- cality of ALP observed in the data and generates a 4 quarters long jobless recovery after the Great Recession.
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 405
Econometric Society
Sovereign Debt Crises
(F3)
Presiding:
Harald Uhlig
(University of Chicago)
Low Altruism, Austerity, and Aversion to Default: Are Countries Converging to the Natural Debt Limit?
Henning Bohn
(University of California-Santa Barbara)
[View Abstract]
[Download Preview] Democracies around the world are making promises to the old at the expense of future generations. I interpret this as reflecting low altruism-a discount rate on children's utility greater than the world interest rate-and I examine the implications in a small open economy with overlapping generations. A focus is on the public sector: The model includes public capital in production and public education as determinant of human capital. I examine to what extent both are crowded out by spending on debt and retiree entitlements. In the model, altruism towards children determines bequests, government debt, and the time-path of consumption. Altruism towards parents influences incentives to default. If altruism is low, voters demand fiscal policies that extract substantial resources from future generations. Public debt rises until debt service requires maximum taxes forever, and an era of austerity ensues: investment in human capital declines to a lower bound, and reduced human capital discourages investment in private and public capital. The threat of default enters as a constraint that may protect future generations.
Slow-Motion Sovereign Debt Crises
Guido Lorenzoni
(Northwestern University)
Ivan Werning
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] The paper studies the potential for self-fulfilling crises in which high yields on sovereign bonds lead to faster debt accumulation and thus to a higher probability of default in the future. The focus is on economies with relatively long debt maturity, for which the problem is not a self-fulfilling run a la Cole-Kehoe, but the anticipation of a slow and steady increase in debt-to-GDP. A crisis in our model is an episode in which yields jump but the government is still able to access capital markets for a while. We assume the dynamics of the government primary deficit follows a simple fiscal rule, we characterize the region of multiplicity for initial debt levels and study how the responsiveness of the fiscal rule affects the region of multiplicity.
Optimal Domestic Sovereign Default
Pablo Nicolas D'Erasmo
(University of Maryland)
Enrique G. Mendoza
(University of Pennsylvania)
[View Abstract]
Infrequent but dramatic episodes of outright default on domestic sovereign debt are an important historical fact that remains unexplained. We propose an incomplete-markets, heterogeneous-agents model in which domestic default can be optimal for a utilitarian government that responds to distributional incentives. The government finances the gap between stochastic expenditures and lump-sum taxes by issuing non–state-contingent debt, but it retains the option to default. The distribution of public debt across private agents is endogenous and interacts with the government's optimal default, debt issuance and tax decisions. Repaying is beneficial because it allows the government to access the debt market and provides a mechanism for households to self insure and smooth consumption, but it also increases the need for future tax revenues. Default is optimal when repaying hurts relatively poor agents more than defaulting hurts relatively rich agents, and this occurs along an equilibrium path when public debt is high enough and its ownership is sufficiently concentrated. Unlike standard models of external sovereign default, the model supports realistic debt-output ratios on average (40%) and before default (60%) at a nontrivial default frequency (8%).
Discussants:
Guido Lorenzoni
(Northwestern University)
Henning Bohn
(University of California-Santa Barbara)
Vincenzo Quadrini
(University of Southern California)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 307
Economic Science Association
Market Design Experiments
(C9)
Presiding:
Jacob Goeree
(University of Zurich)
Chinese College Admissions and School Choice Reforms: Theory and Experiments
Yan Chen
(University of Michigan)
Onur Kesten
(Carnegie Mellon University)
[View Abstract]
[Download Preview] Each year approximately 10 million high school seniors compete for 6 million seats at various universities in China through a centralized admission
system. Within the last decade many provinces in China have transitioned from a `sequential' mechanism to various `parallel' mechanisms. We characterize the Chinese system as one rooted in a parametric family of application-rejection assignment mechanisms, which nest the familiar Boston and Deferred Acceptance (DA) mechanisms as special cases, and span the parallel mechanisms for Chinese college admissions and school choice. Moving from one extreme member toward the other results in systematic changes in incentives and stability properties. We show that the parallel mechanisms are more stable and less manipulable than their sequential predecessor. Furthermore, the parallel mechanisms can also alleviate the pressure families face under the sequential mechanism by keeping more desirable options within their reach without jeopardizing priority at their safety colleges. In the laboratory, participants are most likely to reveal their preferences truthfully under the DA mechanism, followed by the parallel and then the sequential mechanisms. Furthermore, while the DA is significantly more stable than the parallel mechanism, which is more stable than sequential, efficiency comparisons vary across environments.
Opt-In versus Mandated Choice for Deceased Organ Donation: An Experimental Study of Actual Organ Donation Decisions
Alvin E. Roth
(Stanford University)
Judd Kessler
(University of Pennsylvania)
[View Abstract]
We experimentally investigate how individuals respond to an opportunity to change their actual Massachusetts organ donor registration status. Many unregistered individuals join the registry (29%) while almost all registered individuals remain (99%). How individuals are asked impacts the decision. Contrary to a popular hypothesis, a "mandated choice" frame that forces individuals to choose either yes or no does not increase registration rates over an "opt-in" frame in which people check a box to register and leave it blank not to register. A second experiment suggests that "mandated choice" might also discourage next-of-kin from donating the organs of unregistered deceased relatives.
Ascending Prices and Package Bidding: Further Experimental Analysis
John H. Kagel
(Ohio State University)
Yuanchuan Lien
(Hong Kong University of Science & Technology)
Paul Milgrom
(Stanford University)
[View Abstract]
[Download Preview] We explore the performance of multi-round, price-guided combinatorial auctions for a previously untested class of auction profiles; one with synergies resulting from shared fixed costs. These new profiles indicate the importance of prior information (in the form of bidders' "names") in influencing auction efficiency. The experiments also reveal a new and surprising finding about aggressive bidding tactics by local bidders who bid on valueless items driving up their prices, thereby mitigating the "threshold" problem. Comparisons between a combinatorial clock auction (CCA) and a simultaneous ascending auction (SAA) are reported.
Spectrum Auction Design: Simple Auctions for Complex Sales
Martin Bichler
(Technical University Munich)
Jacob K. Goeree
(University of Zurich)
Stefan Mayer
(Technical University Munich)
Pasha Shabalin
(Technical University Munich)
[View Abstract]
[Download Preview] Following the successful PCS Auction conducted by the US Federal Communications Commission in 1994, auctions have replaced traditional ways of allocating valuable radio spectrum. Spectrum auctions have raised hundreds of billion dollars worldwide and have become a role model for market-based approaches in the public and private sectors. The PCS spectrum was sold via a simultaneous multi-round auction, which forces bidders to compete for licenses individually even though they typically value certain combinations. This exposes bidders to risk when they bid aggressively for a desired combination but end up winning an inferior subset. Foreseeing this possibility, bidders may act cautiously with adverse effects for revenue and efficiency. Combinatorial auctions allow for bids on combinations of licenses and thus hold the promise of improved performance. Recently, a number of countries worldwide have switched to the combinatorial clock auction to sell spectrum. This two-stage auction uses a core-selecting payment rule. The number of possible packages a bidder can submit grows exponentially with the number of licenses, which adds complexity to the auction. For larger auctions with dozens of licenses bidders cannot be expected to reveal all their valuations during such an auction. We analyze the impact of two main design choices on efficiency and revenue: simple ``compact'' bid languages versus complex ``fully expressive'' bid languages and simple ``pay-as-bid'' payment rules versus complex ``core-selecting'' payment rules. We consider these design choices both for ascending and sealed-bid formats. We find that simplicity of the bid language has a substantial positive impact on the auction's efficiency and simplicity of the payment rule has as a substantial positive impact on the auction's revenue. The currently popular combinatorial clock auction, which uses a complex bid language and payment rule, scores worst on both dimensions.
Discussants:
Scott Duke Kominers
(University of Chicago)
Eric Glen Weyl
(University of Chicago)
Cary Deck
(University of Arkansas)
Tom Wilkening
(University of Melbourne)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 112-A
Health Economics Research Organization/American Economic Association
Provider Responses to the Design of Medicare Reimbursements
(I1)
Presiding:
Donald Yett
(University of Southern California)
Physician Agency and Competition: Evidence from a Major Change to Medicare Chemotherapy Reimbursement Policy
Mireille Jacobson
(University of California-Irvine and NBER)
Joseph P. Newhouse
(Harvard University and NBER)
Craig Earle
(Cancer Care Ontario)
Tom Chang
(University of Southern California)
[View Abstract]
[Download Preview] We investigate the role of physician agency and competition in determining health care supply and patient outcomes. A 2005 change to Medicare fees had a large, negative impact on physician profit margins for providing chemotherapy treatment. In response to these cuts, physicians increased their provision of chemotherapy and changed the mix of chemotherapy drugs they administered. The increase in treatment improved patient survival. These changes were larger in states that experienced larger decreases in physician profit margins. Finally while physician response was larger in more competitive markets, survival improvements were larger in less competitive markets.
Government Payments and Insurer Benefit Design in Medicare Part D
Colleen Carey
(University of Michigan)
[View Abstract]
[Download Preview] This paper demonstrates health insurers' incentives to design benefits that differentially appeal to profitable enrollees and deter unprofitable enrollees in Medicare Part D. A system of diagnosis-specific payments was meant to neutralize insurer benefit design incentives by paying insurers more for the sick than for the healthy. These diagnosis-specific payments were held steady even as treatment costs for diagnoses rose or fell with the entry of new drugs or the onset of generic competition. As a result, some diagnoses were clearly profitable for insurers, while others were clearly unprofitable. I show that Part D insurers covered drugs that treat the profitable at higher rates and lower copayments than drugs that treat the unprofitable.
Who Benefits When the Government Pays More? Pass Through in the Medicare Advantage Program
Mark Duggan
(University of Pennsylvania)
Boris Vabson
(University of Pennsylvania)
Amanda Starc
(University of Pennsylvania)
[View Abstract]
Nearly 15 million Medicare recipients are currently enrolled in private Medicare Advantage (MA) plans. Many previous studies have estimated the impact of MA enrollment - relative to traditional fee-for-service Medicare - on program expenditures, quality of care, and health outcomes. Surprisingly little work has explored how these effects vary with the generosity of plan reimbursement. In this study, we aim to fill this gap by exploiting a substantial policy-induced increase in the reimbursement of MA plans in MSAs with a population of 250 thousand or more relative to MSAs just below this threshold. Our findings demonstrate that the additional reimbursement leads more plans to enter these markets and to an increase in MA enrollment. However, our findings suggest that less than one-third of the additional reimbursement is passed through to consumers in the form of better coverage. Our results further suggest that this incomplete pass-through is not primarily driven by selection and instead suggest that imperfect competition in the market for MA plans plays a key role. Our results have implications for a key feature of the Affordable Care Act that will reimbursement to MA plans by $92 billion from 2014 to 2019.
Bargaining in the Shadow of a Giant: Medicare's Influence on Private Payment Systems
Jeffrey Clemens
(University of California-San Diego)
Joshua Gottlieb
(University of British Columbia)
[View Abstract]
[Download Preview] We analyze Medicare's influence on private payments for physicians' services. Using a large administrative change in payments for surgical procedures relative to other medical services, we find that private payments follow Medicare's lead. On average, a $1 change in Medicare's relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians' services. We show further that Medicare's price transmission is strongest in markets with large numbers of physicians and low provider consolidation. Transaction and bargaining costs may lead the development of payment systems to suffer from a classic coordination problem. By extension, improvements in Medicare's payment models may have the qualities of public goods.
Discussants:
Sean Nicholson
(Cornell University)
Kurt Lavetti
(Ohio State University)
Yaa Akosa Antwi
(Indiana University-Purdue University-Indianapolis)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 407
History of Economics Society
Market Failure in Context
(B2)
Presiding:
Steven Medema
(University of Colorado-Denver)
The British Tariff Reform Controversy and the Genesis of Welfare Economics, 1903-1912
Nahid Aslanbeigui
(Monmouth University)
Guy Oakes
(Monmouth University)
[View Abstract]
A.C. Pigou developed the first systematic theory of market failure in the English language. Wealth and Welfare (1912), the basis of welfare economics, was forged in the contentious British tariff reform controversy of 1903-1906. Pigou's role in the controversy is not without irony. The origins of Wealth and Welfare lie in Pigou's vigorous defense of free trade against a campaign designed to show that British free enterprise was vulnerable to perilous failures. Our analysis takes the form of a drama in three acts.
The action begins in May 1903, when Joseph Chamberlain challenged the benefits of free trade for the British Empire. Recruited as Chamberlain's chief publicist, W.A.S. Hewins, Director of the LSE, anonymously contributed some sixteen articles to The Times in 1903, extolling the virtues of Chamberlain's tariff reform proposals. A master of sophistry, Hewins deployed an array of seemingly impressive polemics calculated to persuade readers that without Chamberlain's tariffs, the economic structure of the Empire would collapse.
Act II begins with the "Economists' Manifesto," a letter to The Times opposing Chamberlain's proposals and Hewins's articles and signed by thirteen eminent economists as well as Pigou, then only twenty-six. The Manifesto was a dismal public failure. Pilloried in a deluge of letters and editorials, many correspondents charged its authors with abusing their status as academic experts for political purposes.
In Act III, Pigou intervenes independently, reconfiguring the controversy as a debate over economic policy and its proper mode of analysis. Developing arguments that he regarded as indispensable to understand the controversy, he explored the consequences of tariffs by examining their impact on the size, distribution, and stability of the national dividend-the analytical strategy he generalized in Wealth and Welfare shortly thereafter.
Sorting Charles Tiebout: The Construction and Stabilization of Postwar Public Good Theory
Singleton John
(Duke University)
[View Abstract]
[Download Preview] A substantial and diverse literature in economics traces its intellectual roots to Charles Tiebout's 1956 article, "The Pure Theory of Local Expenditure." Its present recognition, frequently attributed to originating the idea of "voting with your feet," however, contrasts sharply with its obscurity during Tiebout's academic career, which was tragically cut short by his passing in 1968. Penned as a qualification to Paul Samuelson's "pure theory," the article failed to influence the stabilization of postwar public good theory, despite Tiebout's engagement with key figures in its construction. Moreover, his death preceded the application of its central mechanism to public, urban, and environmental topics via hedonic, sorting, and computational general equilibrium models. Viewed in this way, the history of Tiebout's article, and thereby the history of public economics, has remarkably little to do with Tiebout himself. Professionally, though, the article reflected Tiebout's lifelong interest in issues of local economies and governance. The social and political context of urban sprawl and political fragmentation that accompanied the rapid growth of metropolitan areas, such as Chicago, Los Angeles, and Seattle, raised novel questions in local public finance for researchers before a knowledge community existed to credit their work. For Tiebout, it stimulated his collaboration with Vincent Ostrom and Robert Warren and later involvement in the burgeoning interdisciplinary field of regional science.
Public Economics, Market Failure and Voluntary Exchange
Marianne Johnson
(University of Wisconsin-Oshkosh)
[View Abstract]
The most significant redirection in modern public economics was the development of Public Choice Analysis. Public choice changed everything because it changed the language and the lineage used to discuss the role of government in the economy. In doing so, Public Choice changed the way public economics - broadly conceived - is taught and practiced.
The core of public economics traditionally addresses two situations of market failure: public goods and externalities. The desirability of government action in these cases hinges on decisions made in the revenue-expenditure process. How this process is envisioned can tell us quite a lot about conceptions and understandings of market failure. Reaching back nearly a century to the European continental public finance tradition, Public Choice scholars revived Voluntary Exchange Theory as a response to market failure. This theory suggests that the revenue-expenditure process should be determined by the same fundamental laws and procedures that govern market prices in the private aspects of the economy. Voluntary exchange became an ideological anchor for Public Choice, despite the oddity of suggesting a market-analogous solution for market failure.
In this paper, I examine the treatment of Voluntary Exchange Theory in Public Choice, as compared to mainstream public economics. Considered are Voluntary Exchange as a theory versus an analogy, the role beliefs about the nature and role of government have on theory-making and theory acceptance, and reactions to failures/inconsistencies/gaps pointed out in voluntary exchange theory conceptions (real or claimed). By exploring these topics, we can see the extent to which the debate over voluntary exchange theory illuminates deeply held and often buried ideological assumptions. One can also see that the nature and extent of market failure in public economics is, on a fundamental level, very closely tied to preconceptions about the economic role of government.
The Economist as Social Physician: Stigler's Thesis Revisited
J. Daniel Hammond
(Wake Forest University)
[View Abstract]
[Download Preview] "My central thesis is that economists exert a minor and scarcely detectable influence on the societies in which they live. The thesis should of course be tested, and the historians of economics are the most qualified to undertake the tests." George J. Stigler, "Do Economists Matter?" Southern Economics Journal, January 1976
George Stigler suggested four test cases of economists' influence on policy: repeal of the Corn Laws in 1846, adoption of full employment policies in the mid-twentieth century, progressive income taxes, and various public regulatory policies. Among the latter were environmental regulations. Stigler's hunch was that when the public becomes concerned about pollution, economists then discover that there are external diseconomies in the production process. He suggested that "problems" conceived outside the community of economists are dressed up by economists in the language of economic theory. As he put his conclusion a few years later in the Tanner Lectures on Human Values: "The main lesson I draw from our experience as preachers is that we are well received in the measure that we preach what the society wishes to hear."
My paper follows Stigler's suggestion by examining economics textbooks for the authors' explanations of what market failure is and their examples of environmental market failures. I compare their attention to environmental market failure with that given to non-environmental market failure such as monopoly and inequitable income distribution. To investigate Stigler's hypothesis, I set textbook treatment of environmental market failure against the background of the contemporaneous popular scientific and political opinion, represented by newspaper editorials, political platforms, and legislative and regulatory initiatives.
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Howe
International Banking, Economics & Finance Association/American Economic Association
Shadow Banking
(E5) (Panel Discussion)
Panel Moderator:
Jeremy Stein
(Federal Reserve Board)
Viral Acharya
(New York University)
Matt Eichner
(Federal Reserve Board)
Gary Gorton
(Yale University)
Arvind Krishnamurthy
(Northwestern University)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 305
International Health Economics Association
Health Insurance Markets and Coverage
(I1)
Presiding:
Laurence Baker
(Stanford University)
The Effect of Restrictive Contracts in the Medicare Advantage Market
Jeffrey S. McCullough
(University of Minnesota)
Roger Feldman
(University of Minnesota)
[View Abstract]
Health care providers and insurers often engage in contracts specifying coverage, prices, and admitting procedures. In competitive markets, the prospect of preferential contracting terms may provide incentives for lower prices; in the absence of competition, these contracts may cause vertical foreclosure. We estimate the effect of restrictive contracts imposed by Geisinger Medical Center, a physician-led health care system, on the Medicare Advantage (MA) market. In 2011, Geisinger stopped accepting patients from MA plans other than its own provider-sponsored plan.
We use public CMS data from 2010 to 2012 and the Pennsylvania Health Care Cost Containment Council (PHC4) state inpatient discharge dataset. We estimate market share logit models as a function of MA plans' premiums, benefits, and restrictive contracts. The unit of analysis was the plan-county over time. The key independent variables were two indicators: one for the effect of restrictive contracts on the market shares of all plans in counties where Geisenger's MA plan operated; and the second for the incremental effect of such contracts on Geisenger's MA plan market share in those counties.
Restrictive contracts statistically significantly reduce competitors' market shares. They do not seem to affect Geisenger's market share. Enrollees leaving other plans opt to return to FFS Medicare or may switch to MA plans that do not offer drug coverage.
Consumers may be worse off when integrated plan-providers implement restrictive contracts. Competitors lose market share, consistent with the claim that the contracts lessen the value of competing plans by reducing access to valued providers. The loss of market share is unlikely due to increased quality in the Geisenger plan. A conservative estimate of the consumer surplus loss for enrollees in competing plans is $14.33 per month.
Drug Coverage and Patient Elasticity: Evidence from the Medicare Part D "Donut Hole"
Robert J. Town
(University of Pennsylvania)
Christina L. Marsh
(University of Georgia)
[View Abstract]
Medicare Part D contains a "donut hole" that may affect consumer behavior. While standard plan enrollees are reimbursed most of their cost of drug expenditures for annual expenses between $100 and $2700, they face a donut hole in which they pay 100% of the drug's cost when their accrued expenditures are between $2,700 and $6,154. Critics of Part D point to the possibility that enrollees may reduce consumption of medicines while they are in the donut hole with adverse consequences for health.
We investigate effects of the donut hole using detailed 2008 claims data from a pharmaceutical benefit company that allows us to separate patient claims by therapeutic class, and branded versus generic drugs. Importantly, by identifying the amount of claims that are occurring within one year, we can also identify when people enter the donut hole.
We propose to use a regression-discontinuity design to analyze the extent to which people on different sides of the donut hole consume different amounts of prescription drugs. We first examine whether people near but on the left side of the donut hole at the end of December spend on drugs relative to people near but on the right side of the donut hole at this point. We also seek to evaluate whether people curtail their spending in the month at which they hit the donut hole. We further evaluate whether people realize that they may hit the donut hole in December – as they would if they were rational dynamic agents with information about expected health status – by investigating the extent to which people on different sides of the donut hole in December spend less in other months. Finally, we separate these regressions by therapeutic class and branded versus generic spending, to evaluate the extent to which there is substitution along these dimensions.
The Effects of Expanding Medicaid on Health Care Use and Clinical Outcomes: Evidence from the Oregon Health Insurance Experiment
Katherine Baicker
(Harvard University)
Sarah L. Taubman
(NBER)
Heidi L. Allen
(Columbia University)
Amy N. Finkelstein
(Massachusetts Institute of Technology)
Oregon Health Study Group
()
[View Abstract]
The Oregon Health Insurance Experiment uses a randomized, controlled study design to evaluate the impact of expanding Medicaid. Here we evaluate the effect of Medicaid on clinical care and outcomes. We find that Medicaid coverage increased the use of health care services, including preventive care; lowered rates of depression; and nearly eliminated catastrophic out of pocket medical expenditures. We find no statistically significant effect of Medicaid on the prevalence, diagnosis, or medication of hypertension or high cholesterol. Medicaid coverage significantly increased the diagnosis of diabetes and use of diabetes medication, but we observe no significant effect on glycated hemoglobin levels or the prevalence of diabetes.
Adverse Selection and an Individual Mandate: When Theory Meets Practice
Martin B. Hackmann
(Yale University)
Jonathan T. Kolstad
(University of Pennsylvania)
Amanda E. Kowalski
(Yale University)
[View Abstract]
We develop a model of selection that incorporates a key element of recent health reforms: an individual mandate. We identify a set of key parameters for welfare analysis, allowing us to model the welfare impact of the actual policy as well as to estimate the socially optimal penalty level. Using data from Massachusetts, we estimate the key parameters of the model. We compare health insurance coverage, premiums, and insurer average health claim expenditures between Massachusetts and other states in the periods before and after the passage of Massachusetts health reform. In the individual market for health insurance, we find that premiums and average costs decreased significantly in response to the individual mandate; consistent with an initially adversely selected insurance market. We are also able to recover an estimated willingness-to-pay for health insurance. Combining demand and cost estimates as sufficient statistics for welfare analysis, we find an annual welfare gain of $335 dollars per person or $71 million annually in Massachusetts as a result of the reduction in adverse selection. We also find evidence for smaller post-reform markups in the individual market, which increased welfare by another $107 dollars per person per year and about $23 million per year overall. To put this in perspective, the total welfare gains were 8.4% of medical expenditures paid by insurers. Our model and empirical estimates suggest an optimal mandate penalty of $2,190. A penalty of this magnitude would increase health insurance to near universal levels. Our estimated optimal penalty is higher than the individual mandate penalty adopted in Massachusetts but close to the penalty implemented under the ACA.
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom C2
International Society for Inventory Research
Macroeconomics of Inventory Management
(E2)
Presiding:
George Alessandria
(Federal Reserve Bank of Philadelphia)
What Drives Aggregate Investment?
Rudiger Bachman
(RWTH Aachen University, NBER, CESifo, and Ifo Institute)
Peter Zorn
(University of Munich and Ifo Institute)
[View Abstract]
Using firm-level survey data for the West German manufacturing sector, this paper
revisits the technology-driven business cycle hypothesis for the case of aggregate
investment. We construct a survey-based measure of technology shocks to gauge their
contribution to short-run investment fluctuations. We estimate an upper bound for the
contribution of technology shocks to the variance of the aggregate investment growth
rate of 19 percent. The larger part of fluctuations in aggregate investment can be
attributed to finance and demand shocks, which we also extract from the survey data.
Beyond Inventory Management: The Bullwhip Effect and the Great Moderation
Michael F. McMahon
(University of Warwick, CEP (LSE), CAMA (ANU))
Boromeus Wanengkirtyo
(University of Warwick)
[View Abstract]
[Download Preview] We resurrect the question if improved business practices contributed to increased macroeconomic stability since the 1980s -- the Great Moderation. While previous studies on the issue are limited to examining inventory management, we analyse the role of better supply chain management on enhancing firms' ability to coordinate their production. By investigating ordering and backordering behavior in the durables manufacturing sector, we find that the improved business practices have significantly dampened order volatility to the sector (the `bullwhip effect'), by around 40-50%. Using the stylized fact that the durables manufacturing sector is responsible for half of the overall Great Moderation, we determine that the contribution of better business practices is quantitatively significant, at 20-25% of the overall Great Moderation.
Liquidity and Welfare
Yi Wen
(Federal Reserve Bank of St. Louis)
[View Abstract]
This paper develops an analytically tractable Bewley model of money featuring capital and
Â…nancial intermediation. It is shown that when money is a vital form of liquidity to meet
uncertain consumption needs, the welfare costs of in‡ation can be extremely large. With log
utility and parameter values that best match both the aggregate money demand curve suggested
by Lucas (2000) and the variance of household consumption, agents in our model are willing
to reduce consumption by 7% 10% (or more) to avoid 10% annual in‡ation. In other words,
raising the U.S. in‡ation target from 2% to 3% amounts to roughly a 0:5 percentage reduction in
aggregate consumption. The astonishingly large welfare costs of in‡ation arise because in‡ation
tightens liquidity constraints by destroying the bu¤er-stock value of money, thus raising the
volatility of consumption at the household level. Such an in‡ation-induced increase in the
idiosyncratic consumption-volatility at the micro level cannot be captured by representative-
agent models or the Bailey triangle. Although the development of a credit and banking system
can reduce the welfare costs of in‡ation by alleviating liquidity constraints, with realistic credit
limits the cost of moderate in‡ation still remains several times larger than estimations based
on the Bailey triangle. Our …nding not only provides a justi…cation for adopting a low in‡ation
target by central banks, but also o¤ers a plausible explanation for the robust positive relationship
between in‡ation and social unrest in developing countries where money is the major form of
household Â…nancial wealth.
Corporate Cash Hoarding: The Role of Just-in-Time Adoption
Xiaodan Gao
(National University of Singapore)
[View Abstract]
I explore the role of the Just-in-Time (JIT) inventory system in the increase of cash holdings among U.S. manufacturing firms. I first demonstrate the empirical importance of JIT in shaping cash policy. I then develop a model to analyze the mechanism through which JIT affects cash and quantify its impact. In the model, both cash and inventory can serve as working capital. As firms switch from the traditional system to JIT, they shift resources from inventory to cash to facilitate transactions with suppliers. On average, this switchover accounts for over half of the observed increase in cash.
Discussants:
Roc Armenter
(Federal Reserve Bank of Philadelphia)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Congress B
International Trade & Finance Association
Round Table on Regionalism
(F1) (Panel Discussion)
Panel Moderator:
Mordechai Kreinin
(Michigan State University)
Alan Deardorff
(University of Michigan)
Ronald Jones
(University of Rochester)
Anne Krueger
(Johns Hopkins University)
Michael Michaely
(Hebrew University)
Michael G. Plummer
(Johns Hopkins University)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
Building a Sustainable Biomedical Research Workforce
(J5)
Presiding:
Bruce Weinberg
(Ohio State University)
Training the Biomedical Workforce: Does Funding Mechanism Matter?
Margaret E. Blume-Kohout
(New Mexico Consortium and MBK Analytics LLC)
Dadhi Adhikari
(University of New Mexico)
[View Abstract]
This paper evaluates universities responses to changes in R&D funding levels with respect to graduate student funding patterns and enrollments, and investigates whether students funding mechanisms (for example, whether they were primarily supported as teaching assistants, research assistants, on fellowships, etc.) influence their decision whether to remain in the U.S. scientific workforce after graduation. Our analysis employs newly available statistical code to implement an alternative ( special regressor ) method for econometric estimation, which allows us to control for potential bias due to unobservable characteristics of students that may influence both their primary funding mechanism in graduate school and their ultimate career goals.
The Biomedical Postdoc: Human Capital Investment or Holding Pattern?
Shulamit Kahn
(Boston University)
Donna K. Ginther
(University of Kansas)
[View Abstract]
Every biomedical PhD must make a choice about whether or not to enter a postdoc, a choice believed to dramatically change the subsequent course of their careers. However, there has been limited research on how careers are actually affected. This research uses data on biomedical PhDs from the 1981-2008 waves of NSF s longitudinal biennial Survey of Doctorate Recipients (SDR) to examine the causal effect of the postdoc on subsequent biomedical careers. OLS results show that ceteris paribus, those who held biomedical postdocs are more likely to be conducting research 10 years past PhD. However, only 27% of people who started in biomedical postdocs are in a tenure track job at the 10 year point compared to 12% of those who did not start in a postdoc. Starting in a postdoc also makes you more likely to be conducting research in non-tenure track academia as well (one of the lowest paying sectors), balanced by being less likely to be in industry and teaching. One large downside of postdocs is that people who start in postdocs get lower salaries than those who bypassed postdocs controlling for years post-PhD, field, cohort, family characteristics and prestige of PhD university and other variables. Although these correlations are suggestive, selection may bias our results since those who enter postdocs are different than those who bypass. Therefore, we use characteristics of graduate students at the time of the PhD and other variables capturing the alternative demand for PhD in biomedicine as instruments for starting in a postdoc in order to isolate the causal impact of postdocs. Instrumenting to solve the selection problem, we find that those who started in postdocs either get equal or lower salaries to similar people who did not start in a postdoc, suggesting that PhD recipients in biomedicine are not obtaining additional human capital from postdocs useful outside academic tenure-track research.
Funding Diversity: Debt and Career Choices of New PhDs
Margaret E. Blume-Kohout
(New Mexico Consortium and MBK Analytics LLC)
John Clack
(Santa Fe Public Schools)
[View Abstract]
Using population survey data on students completing PhDs in biomedical sciences and related fields, 2001-2010, we investigate how students’ primary source of financial support during graduate training impacts their cumulative debt load and early career employment choices. Overall, students acquiring more than $50,000 in graduate school debt are less likely to take jobs in scientific research. However, despite their significantly higher debt loads, underrepresented minorities are no less likely to take research jobs, and they are more likely to work for public sector employers than their non-minority peers. Finally, women more often remain involuntarily unemployed at completion of their PhDs.
Discussants:
Donna K. Ginther
(University of Kansas)
Kaye Husbands Fealing
(National Academies)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Changes in State Right-to-Work and Prevailing Wage Laws
(J3)
Presiding:
Mark Price
(Keystone Research Center)
Sources of Change in Right-to-Work Laws
Matthew Bodah
(University of Rhode Island)
[View Abstract]
[Download Preview] The Sources of Change in Right-to-Work Laws "During the past several years there have been a number of attempts to modify state standards concerning union security agreements. Some of these attempts have succeeded while others have failed. This paper examines legislative changes to right-to-work laws in historical context. The author finds that the union security issue was primarily a local issue in the 19th century, became a national one in the early 20th century, and is today a largely partisan one.
The Effect of Differences in Prevailing Wage Methodologies on the Outcomes of Prevailing Wage Laws
Peter Phillips
(University of Utah)
Fred Kotler
(Cornell University)
[View Abstract]
[Download Preview] The Effect of Differences in Prevailing Wage Methodologies on the Outcomes of Prevailing Wage Laws: On November 13, 2013, Mr. Alex L. Rosaen, Senior Consultant for the Anderson Economic Group (AEG) released a report estimating that Michigan would save $225 million per year or $2.25 billion over ten years in K-12 and higher education capital outlays by repealing the state prevailing wage law. This paper shows why Mr. Rosean’s assumptions are wrong and worse, his method is inappropriate for the task he has set himself. This paper also briefly reviews other research using alternative empirical methods and coming to markedly different conclusions.
The Consequences of State Prevailing Wage Laws for the Costs of Construction and the Racial Composition of the Construction Labor Force
Dale Belman
(Michigan State University)
Russell Ormiston
(Allegheny College)
Ryan Petty
(Roosevelt University)
Scott Littlehale
(Northern California United Brotherhood of Carpenters)
[View Abstract]
Current debates over state prevailing wage laws focus on their effect on construction costs and the racial composition of the construction workforce. This research visits both issues. We examine the effect of prevailing wage laws on the costs of school nationwide and low income housing in California. We find limited evidence that prevailing wage laws affect the latter, but no evidence that schools built in states which require prevailing wages on school are more expensive than schools built in states which do not require payment of prevailing wages. Our research on the effect of state prevailing wage laws on the racial composition of the construction labor force
Discussants:
Stephen Herzenberg
(Keystone Research Center)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association
Leave, Hours and Worker Outcomes
(J5)
Presiding:
Sarah Jane Glynn
(Center for American Progress)
The Effects of Workplace Norms on Female Labor Supply and Childbirth in Japan
Eriko Teramura
(Kokusai Junior College)
[View Abstract]
This study investigates the effects of workplace norms on female labor supply and childbirth in Japan. Japanese female workers tend to be unable to continue working after marriage and childbirth in spite of the introduction of various WLB systems, and around 60-70% of females do not have a job after having their first baby. We examined the correlation between access to various WLB systems, and female labor supply and childbirth. This is based on the concept of Social Norms and Identity Utility defined by Akerlof and Kranton (2010).
We attempt to add our utility model to social norms. These social norms mean the availability of using the WLB systems in their firms. The evaluation of this model depends on social norms, but not individual preference and availability. If we work in an environment where we can easily access the WLB system, individual identity of workers and their behavior can be in harmony. As a result, Identity Utility can be increased.
This study uses panel data of Japanese government statistics collected between 2002 and 2010, with a sample size of over 10,000. The main results of our study are as follows:
1) Housework time has a positive effect on access to the childcare leave system, while working hours has a negative effect. The sign about housework time shows opposite against theoretical hypothesis.
2) Employment status and working hours are the primary determinants of access to WLB systems. The positive correlation between accessibility to WLB systems and childbirth rate indicates that a clear relationship exists between the two.
3) In terms of the Bivariate Probit Model, accessibility to WLB systems has the greatest effect on continuation of work.
This study implies the potential difficulty of using WLB systems within Japanese firms. If WLB systems are easy to access, female workers are better able to keep working. Additionally, further social security systems need to be applied to part-time workers and temporary workers in Japan.
Making Leave Easier: Better Compensation and Daddy-Only Entitlements
Ankita Patnaik
(Cornell University)
[View Abstract]
[Download Preview] In 2006, Quebec enacted a landmark reform to paid parental leave that greatly improved the generosity of entitlements and established a father's non-transferable right to paid leave. Using data from the Employment Insurance Coverage Survey and employing a difference-in-differences setup, I find that the
reform was associated with a striking rise in fathers participation: an increase of 59 percentage points in the probability of a father receiving parental leave benefits. Further, there is evidence of an intra-household flypaper eect via the labeling of leave as 'daddy-only', i.e., the allocation of leave within a household appears to be influenced by the framing of legal rights even when they do not bind. In the case of mothers, the reform was associated with an increase of 14 percentage points in claim rates. The duration of the average maternity leave increased by over half a month under the new program. I find no change in mothers exit rates from the labor market on average but do find the reform to be associated with an increase in the probability of returning to the pre-birth employer, especially for first-time mothers.
Spousal Work Schedules and Maternal Employment
Katie R. Genadek
(University of Minnesota)
[View Abstract]
The decision to enter the labor force for mothers is based on a variety of factors that includes characteristics of spouses. Husband s work schedules, work hours, and flexibility of work time play an important role in this decision to enter the labor force, and additionally, in the decision to work part-time or a set number of hours. The timing of husband s work is especially important for mothers because of time constraints imposed by schools and day care, and the desire to spend time with children. This paper uses detailed time-dairy and work schedules data to investigate the relationship between husband s work schedules and maternal employment. The results show married women with children are less likely to participate in the labor force when their husbands finish work after 6:00pm when compared to husbands that finish work before 6:00pm, even while controlling for simultaneous relationship between husband s work stopping time and wife s labor force participation. These results also hold while controlling for husband s work hours, the start of the work day, work place flexibility and working from home. The results found suggest that day care and after school care timing has a large impact on the employment of women with children.
Discussants:
Heather Boushey
(Center for American Progress)
Ariane Hegewisch
(Institute for Women's Policy Research)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 109-B
National Association for Business Economics/American Economic Association
The Global Economy and Economic Institutions: Transitioning From a Low Interest Rate Environment
(E5) (Panel Discussion)
Panel Moderator:
George Kahn
(Federal Reserve Bank of Kansas City)
Darrell D. Duffie
(Stanford University)
Kristin Forbes
(Massachusetts Institute of Technology)
Andrew G. Haldane
(Bank of England)
Charles I. Plosser
(Federal Reserve Bank of Philadelphia)
Michael Woodford
(Columbia University)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 306
National Economic Association
Business and Financial Issues in Minority Economic Development
(L2)
Presiding:
Wilhelmina Leigh
(Joint Center for Political and Economic Studies)
Predatory Mortgage Lending and Dodd-Frank: Is it Business as Usual?
Sandra Phillips
(Syracuse University)
[View Abstract]
This paper investigates the potential impact of the Dodd-Frank Bill on rectifying predatory lending practices, practices that have had a pernicious impact on minority communities. The Dodd-Frank Wall Street Reform and Consumer Protection Act, the most significant financial reform since the Great Depression, was passed into law in July 2010. As a part of Dodd-Frank, the Consumer Financial Protection Bureau (CFPB) was created to provide "a single point of accountability to assure that markets for consumer financial products work for American consumers...", and it officially opened for business on July 21, 2011. But what has happened to curtail abusive mortgage lending practices since the creation of the CFPB? Have any of the amendments in Dodd-Frank been implemented; or is it a case of business as usual? If provisions have been implemented, are they effective? This paper will assess the provisions in the ACT designed to end abusive lending practices and will evaluate actions taken post-Dodd Frank to determine if the law has had any significant impact on reducing predatory mortgage lending practices that have adversely affected minority communities.
Tribal Casino Investment and State Hold-Up
Larry Chavis
(University of North Carolina-Chapel Hill)
Dominic Parker
(University of Wisconsin)
[View Abstract]
Minority-owned businesses are sometimes deemed to be significantly impacted by economic or investment "hold-up" issues. In some instances, there may be politically related inefficiencies in contracting opportunities that may serve to stymie the growth of minority business enterprises. This paper examines hold-up problems associated with tribally-owned casino investments. The gross receipts from gaming on Indian reservations are over $25 billion dollars and the industry employees over 600,000 Indians and non-Indians. While these benefits are concentrated among a relatively small number of tribes it is nevertheless an important source of capital and employment on many otherwise very poor reservations. Gaming is regulated by states and tribes have compacts with states that allow them to undertake casino style gambling. However US courts have ruled that states can't be forced to negotiate with tribes because of a state's sovereign immunity. Thus tribes face a hold-up problem since they have to make investments in casinos although many of the gaming contracts are of limited duration. Their right to run a casino could be taken away or the amount of revenue that must be shared with the state could increase when the gaming compacts are renewed. This paper reviews the correlation between the level of investment in casinos and the terms of gaming contracts.
Capital Constraints and Industry Mix Implications for African-American Business Success
Lucy J. Reuben
(Duke University)
[View Abstract]
Business entrepreneurship has an important role to play in improving the socio-economic well-being of African-American families and communities. At its best, entrepreneurship is associated with innovation, productivity, economic growth and higher living standards for entrepreneurs and the communities they serve. There exists ample evidence that significant propensity for entrepreneurship exists in African-American communities. Indeed, the most recent available US Economic Census reported a 60.5% increase in the total number of African-American businesses, higher than the 43.7% increase for all minority-owned business and substantially higher than the 17.9% increase for all US businesses. This paper will (1) review evidence that African-American businesses suffer adversely from unequal access to capital market, (2) examine the industrial mix of African-American businesses and (3) discuss the resulting implications for the development of African-American owned businesses, especially regarding prospects for providing employment and economic growth. The paper analyses the participation of African-American owned businesses in key industries as well as the implications of industry mix on revenue generation and hiring potential. Also, the paper explores the role of adverse capital constraints on the industry mix profile of African-American owned businesses. Finally, the paper includes recommendations regarding the findings on industry mix in African-American businesses.
Business Risk and Black-Owned Businesses – How Good Is Our Understanding
John A. Cole
(North Carolina A&T State University)
[View Abstract]
[Download Preview] Why are there not more scalable business firms and employment opportunities located within black communities? If development opportunities exist in the black community, in their states and regions and in the nation as a whole, why are there not more African American-owned firms which are community stabilizers, and reliable employment growth engines? Given a difficult African American history, the finance literature has developed no conceptual platform for addressing a range of these continuously perplexing questions. The purpose of this paper is to begin to conceptualize a model wherein a financial approach might contribute to a sustained policy set to address these issues. We develop a model wherein matched pairs of identical firms experience two sets of circumstances. Initially two identical firms in any matched pair face the same operating conditions and their risk and reward structures are not differentiated. Operating outcomes are identically rewarded in financial markets. In a later period, we introduce a costly and recurrent risk event that may befall one or more matched pairs of firms. When that risk is realized, its costs fall only on one firm in each matched pair. Now insurance and finance costs become prohibitively high or dry up. Some firms become higher cost, and are thereafter unable to be competitive. With persistence distinctly different outcomes feed heuristic behaviors. From this we attempt to extract policy implications.
Discussants:
Willene Johnson
(KOMAZA, Inc.)
Linda Loubert
(Morgan State University)
Valerie Ralston Wilson
(National Urban League)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 304
Omicron Delta Epsilon
Economics of Time Outside the Workplace
(J2)
Presiding:
Joseph Santos
(South Dakota State University)
Economics of Time Outside the Workplace
Daniel S. Hamermesh
(University of Texas-Austin)
[View Abstract]
2014 John R. Commons Award Lecture -- Sponsored by Omicron Delta Epsilon
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 310
Peace Science Society International/American Economic Association
Food, Terror and Conflict
(H8)
Presiding:
Solomon Polachek
(Binghamton University)
Empirical Evidence on the Link between Terrorism and Fertility
Claude Berrebi
(Rand Corporation)
Jordan Ostwald
(Rand Corporation)
[View Abstract]
Empirical Evidence on the Link between Terrorism and Fertility
Conflict, Food Price Shocks, and Food Insecurity: The Experience of Afghan Households
Anna D'Souza
(United States Department of Agriculture)
Dean Jolliffe
(World Bank)
[View Abstract]
Food Insecurity in Vulnerable Populations: Coping with food price shocks in Afghanistan
Aiding Conflict:The Effects of United States Food Aid on Civil War
Nathan Nunn
(Harvard University)
Nancy Qian
(Yale University)
[View Abstract]
Aiding Conflict:The Effects of US Food Aid on Civil War
Voting for Weapons in the United States
Carlos Seiglie
(Rutgers University)
Jun Xiang
(Rutgers University)
Voting for Weapons
Discussants:
David Jaeger
(City University of New York)
Philip Verwimp
(Universite Libre de Bruxelles)
Jan 03, 2014 10:15 am, Pennsylvania Convention Center, 106-B
Society of Government Economists
Government and Health
(H2)
Presiding:
Susan Averett
(Lafayette College)
The Effects of Merit-Based Financial Aid on Drinking in College
Benjamin Cowan
(Washington State University)
[View Abstract]
[Download Preview] We study the effect of state-level merit aid programs (such as Georgia's HOPE scholarship) on alcohol consumption among college students. Such programs have the potential to affect drinking by (1) raising students' disposable income and (2) increasing the incentive to maintain a minimum GPA in college (in order to retain the scholarship). Using two independent datasets, we find that the presence of a merit aid program in one's state leads to an overall increase in drinking among men but not among women. This increase is concentrated among individuals who are above the minimum GPA threshold necessary for the scholarship; individuals who are below the threshold GPA experience no increase in their alcohol use. Our identification strategy is supported by the finding that no change in drinking is observed for non-students in states that adopt merit-aid programs.
Medicaid Expansions and the Labor Supply of Pregnant Women: Explaining the Crowd-out of Private Insurance
Dhaval Dave
(Bentley University and NBER)
Robert Kaestner
(University of Illinois)
Kosali Simon
(Indiana University)
[View Abstract]
Previous research has found that expansions in Medicaid eligibility reduce the chance that intended recipients, including pregnant women, go uninsured, but at the cost of substantial crowd-out of private insurance. Although there is a considerable literature documenting the extent of crowd-out of private insurance, almost no research has examined the mechanism by which this crowd-out occurs. This study tests the hypothesis that crowd-out occurs because availability of public insurance through Medicaid alters individuals' employment decisions since healthcare coverage is no longer tied to labor force participation. This change in employment decisions is likely especially in cases where labor force attachment is relatively weak, as it is among women about to become new mothers. Accordingly, this study examines the effect of Medicaid eligibility expansions on the labor supply of pregnant women, a group for whom Medicaid eligibility expansions in the past 20 years have been substantial. Labor force outcomes for women who have given birth in the past year in the Current Population Survey Annual Demographic File are matched with Medicaid eligibility measures by state and year spanning the years 1985 through 1996, the period that witnessed the largest expansions in Medicaid eligibility for pregnant women. The eligibility measure is based on a national random sample of women 18-39 years of age drawn from the 1989-1997 Current Population Survey (CPS). For several demographic groups classified by age and race, we calculated the proportion of each group that was eligible for Medicaid coverage during pregnancy for each state and year based on that state's eligibility rules. Variation in the eligibility instrument reflects only changes in Medicaid eligibility policies. Controlling for confounding trends, results based on state fixed-effects models indicate that pregnant women's labor supply is quite sensitive to the availability of Medicaid insurance.
The EITC and Employment of People with Disabilities
Reagan Baughman
(University of New Hampshire)
Andrew Houtenville
(University of New Hampshire)
[View Abstract]
The Earned Income Tax Credit (EITC) is unique among income transfer programs in that it is explicitly designed to provide income support while at the same time avoiding labor supply disincentives. Two key design features that promote labor force participation are that the credit is not available to individuals who did not have earned income during the tax year, and that the amount of the credit phases in with each dollar earned (at 40 cents per $1 earned for a filer with two children in 2012) until a maximum benefit ($5,236 for a filer with two children in 2012) is reached. Consistent with this design, there is an abundance of evidence that the EITC has significantly increased labor force participation in the general population, particularly for single mothers.
One understudied group that is characterized by low income, low labor force participation and is of concern to policymakers is the population with disabilities. In order to determine what, if any effect, the EITC has on the employment of people with disabilities, we exploit variation over time in the adoption of state-level earned income tax credits. During the 1980s, states began to add their own supplements, set as fixed percentages of the federal EITC, and ranging from 5 percent to more than 50 percent of the federal credit. By 2009, 23 states had their own EITC, with annual refundable credits ranging from $2,433 in Wisconsin to $150 in Maine, and averaging $945. We will merge state-level EITC parameters onto a pooled cross-section of data from the CPS covering the 1990 to 2012 period. We can therefore estimate panel
The Effects of Family Income on Parental Investment in Children's Health: Evidence from the Earned Income Tax Credit
Susan L. Averett
(Lafayette College)
Yang Wang
(Lafayette College)
[View Abstract]
The Earned Income Tax Credit (EITC) is the largest anti-poverty program in the U.S. In 1993, the EITC benefit levels were changed significantly based on the number of children in the household such that families with two or more children experienced a substantial increase in their incomes. Using data from the National Longitudinal Survey of Youth 1979 and the NLSY79 Child and Young Adult cohorts, we employ a difference-in-differences plus mother fixed-effects framework to examine the effect of this change on child health. We find that, due to the increase in income induced by EITC expansion, children of white married low-educated mothers with two or more children were statistically significantly less likely to be obese/overweight or to have an accident than those of mothers with only one child. Children of white unmarried low-educated mothers of two or more children, on the other hand, experienced increased cognitive stimulation and emotional support provided by their families. For children of black and Hispanic mothers, however, we do not see robust and statistically significant impacts of the policy change on their health. Our results provide new evidence of the effects of family income on child health and therefore have important policy implications.
Discussants:
David Simon
(University of California-Davis)
Laura M. Argys
(University of Colorado-Denver)
Muzhe Yang
(Lehigh University)
Carly Urban
(Montana State University)
Jan 03, 2014 10:15 am, Philadelphia Marriott, Meeting Room 406
Transportation & Public Utilities Group
Topics in Transportation Economics
(L9)
Presiding:
Peter Loeb
(Rutgers University)
Measuring Strategic Firm Interaction in Product-Quality Choices: The Case of Airline Flight Frequency
Jan K. Brueckner
(University of California-Irvine)
Dan Luo
(University of California-Irvine)
[View Abstract]
[Download Preview] This paper investigates strategic interaction among airlines in product-quality choices. Using an instrumental variable approach, the paper estimates flight-frequency reaction functions, which relate an airline's frequency on a route to its own characteristics and to the frequencies of competing airlines. A positive reaction function slope is found in some cases, indicating the presence of strategic interaction in the choice of frequencies. The paper also asks whether multimarket contact generates mutual forbearance in frequency completion, finding no evidence for such an effect.
Impact of Vancouver Airport on Commercial Property Values
Jeffrey Cohen
(University of Hartford)
Michael Brown
(Vancouver Airport Authority)
[View Abstract]
[Download Preview] This paper investigates airport infrastructure investment impacts on commercial property values in the area of the airport. Infrastructure investments of the Vancouver Airport in Canada and the subsequent change in commercial property values (following the investments) in the area of the airport are used in a case study analysis.
International Trade and Transportation
Bruce A. Blonigen
(University of Oregon and NBER)
Wesley W. Wilson
(University of Oregon)
[View Abstract]
Over the last 40 years, there has been an unprecedented growth in trade among countries. The increases in trade have put tremendous pressure on transportation industries, especially shipping and port industries. Maritime trade is synonymous with international trade. An understanding of the determinants of trade is central to understanding maritime trade and integrating trade models with maritime models. This paper provides a synopsis of the trade literature, determinants of trade and relationships with maritime trade.
Transportation Costs and Trade Imbalance: Theory and Evidence
Zijun Luo
(Colgate University)
[View Abstract]
This paper proposes a model of international trade in which transportation costs are affected by trade imbalance. Each country is assumed to have a representative transportation firm that competes with its counterparts for operation in the global market. After solving for transportation firms' optimal pricing strategy, a transportation cost index (TCI) is derived to capture bilateral trade costs. Simulation based on the theoretical model show that larger country incurs a trade deficit while smaller country has a trade surplus under free trade. Empirically, both reduced-form and structural gravity models are estimated. Estimation confirms the findings of the theoretical model. The TCI also fits data better than traditionally used gravity variables in the gravity model.
Discussants:
Anming Ahang
(University of British Columbia)
Kenneth Button
(George Mason University)
B. Starr McMullen
(Oregon State University)
James Peoples
(University of Wisconsin-Milwaukee)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, P1 Parlor
Union for Radical Political Economists
Inequality and Exploitation
(B5)
Presiding:
Gilbert Skillman
(Wesleyan University)
Exploitation and Labor in Economies with Heterogeneous Labor and Agents
Naoki Yoshihara
(Hitotsubashi University)
Roberto Veneziani
(Queen Mary, University of London and University of Massachusetts-Amherst)
[View Abstract]
This paper provides a novel analysis of exploitation and classes in economies with heterogeneous optimising agents and heterogeneous quality in labour inputs. A new definition of exploitation is proposed which emphasises the relational nature of exploitation and the resulting inequalities in the allocation of labour and income. It is shown that, among all of the major approaches, this definition is the only one satisfying two weak axioms that incorporate some key normative intuitions, and it allows one to generalise a number of core insights of exploitation theory. The whole class and exploitation structure of the economy is derived and the Profit-Exploitation Correspondence Principle is proved.
Managers, Growth and Distribution
Amitava Dutt
(University of Notre Dame)
[View Abstract]
[Download Preview] The importance of managers has been emphasized in many recent accounts of the increase in inequality in several countries. This paper uses a simple model of growth and income distribution along post-Keynesian/Kaleckian lines to introduce a third class of managers or supervisors, in addition to capitalists and workers, following a number of contributions old and new. It seeks to analyze what managers do in the economy, what factors determine their income, and how their presence affects the growth and distributional dynamics of the economy, and through what mechanisms.
Temporary Employment and Increasing Earnings Inequality
Hyeon-Kyeong Kim
(University of Massachusetts-Amherst)
Peter Skott
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] Temporary workers make up a sizeable part of the labor force in many countries, including Korea. This paper uses an extension of a standard efficiency wage model to explain the wage gap between temporary and permanent workers. Temporary workers have a chance to become permanent; this possibility - combined with the existence of an employment rent for permanent workers - gives short-term workers an incentive to work hard. Thus, a high wage to permanent workers serves a dual purpose: it affects the effort of both permanent and temporary workers. Applying the model to the Korean experience, we discuss the effects of labor market reforms on inequality.
Appropriation, Domination, and Exploitation
Gilbert Skillman
(Wesleyan University)
[View Abstract]
This paper develops a taxonomy of exploitation pertaining to scenarios in which an individual or group appropriates assets otherwise used in common by members of the greater society. The paper's argument is constructed upon a strategic bargaining model of contested appropriation, devoting particular attention to the role played by domination in exploitative relationships. The motivation behind the analytical focus and method of the argument is contrasted with the axiomatic approach taken by John Roemer, which focuses on the normative implications of unequal ownership of productive assets. In contrast, the argument here is built on the premise that domination is a defining feature of exploitation, and that understanding the role of domination is essential to characterizing the form and degree of exploitation.
Discussants:
Erik Olsen
(University of Missouri-Kansas City)
Ramaa Vasudevan
(Colorado State University)
Daniele Tavani
(Colorado State University)
Frank Thompson
(University of Michigan)
Jan 03, 2014 10:15 am, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists
The Job Guarantee: Exploring the Opportunities
(J2)
Presiding:
Stephanie Kelton
(University of Missouri-Kansas City)
Minsky's Approach to Ending Poverty: Jobs, Not Welfare
L. Randall Wray
(University of Missouri-Kansas City)
[View Abstract]
Private investment strategies together with policies to "improve" the characteristics of poor people have dominated the postwar approach to poverty. And, while the 1950s and 1960s are commonly referred to as the "Golden Age" of U.S. capitalism, important barriers prevented the American economy from sustaining what Minsky characterized as tight full employment. Minsky's fundamental argument is simple: (1) poverty is largely an employment problem; (2) tight full employment improves income at the bottom of the wage spectrum; and (3) a program of direct job creation is necessary to sustain tight full employment. Thus, he argued that a program of direct job creation was "a necessary ingredient of any war against poverty" . As Minsky put it: "The New Deal, with its WPA, NYA, and CCC took workers as they were and generated jobs for them….. The resurrection of WPA and allied projects should be a major weapon of the war on poverty."
Unfortunately, Johnson's Economic Opportunity Act did not provide for this kind of access. Instead, Johnson aimed to improve the skills and knowledge of the impoverished, hoping to "end poverty forever," by offering education and training to those living in or near poverty. By contrast, Minsky viewed full employment as the horse and skill- and educational-enhancement programs as the cart. And he strongly believed that a successful antipoverty campaign required the cart to follow the horse.
Developing a Local Job Guarantee Program to Tackle Regional Economic Inequality
Michael J. Murray
(Bemidji State University)
[View Abstract]
The paper addresses how a local Job Guarantee program can be designed and implemented to address regional economic inequality. The State of Black America 2013 calls for increased employment opportunities as the number one goal to begin closing the inequality gap. The paper builds on this theme at the regional level. The article makes the case that county-level microdata on economic inequality from sources such as the State of Black Kansas City and the American Community Survey can be used to inform policy in the areas of education and jobs. Policy programs such as the Job Guarantee will benefit as it can be specifically designed and targeted to address local economic inequality.
Complementary Currencies, Communities, Cooperation: The Local Job Guarantee
Mathew Forstater
(University of Missouri-Kansas City)
[View Abstract]
Proposals for a Job Guarantee have been put forward as national policies due to the flexibility the federal government has in paying for the program. This flexibility stems from the ability of the Treasury and the Central Bank to work in concert in using fiscal and monetary policies. There are many obstacles, however, to government policies at the federal level, including political, administrative, legislative, and ideological. An alternative route to true full employment at the local level would be to use a complementary currency to pay for community service employment. The paper looks at some of the issues involved in putting such a program in place.
Full Employment in America
William A. Darity, Jr.
(Duke University)
[View Abstract]
The presentation will make the case for establishment of a program of employment assurance in the United States, a program that will eliminate the threat of unemployment for adult Americans. In addition, the presentation will provide a detailed analysis of the logistical aspects of implementation of a federal job guarantee, paying close attention to lessons to be learned from precedents in India and Argentina. Implications for the fiscal deficit and austerity economics also will be examined.
Beyond Full Employment: Modern Money and the Job Guarantee
Pavlina Tcherneva
(Al Quds Bard Honors College)
[View Abstract]
The job of the public sector is not to mimic the behavior of the private sector but to offset it. At the macro-level this is especially true where counter-cyclical spending is concerned. However, the same can be said of employment policy. There is only one sector at the macro-level that can expand employment when the rest of the economy is shedding workers. A counter-cyclical employment policy is then by definition a counter-cyclical spending policy. However, fiscal policies in the postwar era have been conducted in a way that have not only failed to secure full employment but have also contributed to the erosion of the income distribution. The paper discusses how fiscal policy can be reoriented to remedy those deficiencies.
Discussants:
Mathew Forstater
(University of Missouri-Kansas City)
Darrick Hamilton
(New School)
William A. Darity, Jr.
(Duke University)
Edward J. Nell
(New School)
L. Randall Wray
(University of Missouri-Kansas City)
Jan 03, 2014 12:30 pm, Loews Philadelphia Hotel, Commonwealth Hall A1
Agricultural & Applied Economics Association
Healthy Choices in the Supplemental Nutrition Assistance Program (SNAP)
(Q1)
Presiding:
Parke Wilde
(Tufts University)
SNAP and the Food Assistance Safety Net: Merit Goods and Dietary Guidance
Helen Jensen
(Iowa State University)
Parke Wilde
(Tufts University)
[View Abstract]
This paper describes SNAP in the context of the food assistance safety net more generally. It first reviews the evidence on whether the diets of SNAP participants differ from those of low-income non-participants. A key feature of this review is close attention to selection bias, which complicates efforts to measure program impacts using participant-nonparticipant comparisons. The paper then considers the economic relationship between income level and dietary quality. It summarizes recent efforts to align USDA food assistance programs with dietary guidelines and explores how SNAP might be used to better address the needs of the low income population today.
SNAP and Affordable Health Care: The Effect of Chronic Illness on Participation in the Supplemental Nutrition Assistance and Medicaid Programs
Chad Meyerhoefer
(Lehigh University)
Yuriy Pylypchuk
(Georgetown University)
[View Abstract]
[Download Preview] This paper provides empirical evidence on a little-studied but important connection between SNAP and the new Affordable Care Act ("health care reform" or "Obamacare"). Among other changes, this law will allow more people to be eligible for Medicaid. The paper estimates that low-income Americans with serious health conditions are more likely to participate in SNAP and Medicaid together and less likely to participate in SNAP alone. The paper concludes that the new health care law may increase the fraction of SNAP participants with serious health conditions and increase the policy motivation to re-orient SNAP to focus on nutrition and health improvement.
The Healthy Incentives Pilot and Fruit and Vegetable Intake: Interim Results
Jacob Klerman
(Abt Associates Inc.)
Parke Wilde
(Tufts University)
Susan Bartlett
(Abt Associates Inc.)
Lauren Olsho
(Abt Associates Inc.)
[View Abstract]
In response to low consumption of fruits and vegetables by SNAP recipients, the USDA Food and Nutrition Service created the Healthy Incentives Pilot (HIP) to test the efficacy of providing a 30 percent incentive for purchases of fruits and vegetables. Published elasticity estimates imply that a pure price reduction of 30 percent would increase fruit and vegetable consumption by about 20 percent; i.e., about a fifth of a cup per day. This paper considers the applicability of predictions based on a pure price reduction. It then reports interim results of a random assignment evaluation of HIP which find an increase of about a fifth of a cup per day.
Discussants:
Jay Variyam
(USDA Economic Research Service)
Jan 03, 2014 12:30 pm, Philadelphia Marriott, Grand Ballroom - Salons G & H
American Economic Association/American Finance Association
AEA/AFA Joint Luncheon - Fee Event
Presiding:
Robert Stambaugh
(University of Pennsylvania)
Banks as Patient Fixed-Income Investors
Jeremy Stein
(Harvard University)
N/A
Jan 03, 2014 12:30 pm, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Neighborhood Development
(R2)
Presiding:
Yannis Ioannides
(Tufts University)
Gentrification and the Decision to Renovate or Teardown
Henry Munneke
(University of Georgia)
Kiplan Womack
(Pepperdine University)
[View Abstract]
[Download Preview] Within the neighborhood renewal process, property owners and investors attempt to reverse the decline in the quality of the housing stock and/or correct market obsolescence through redevelopment. However, since the existing improvements can be either redeveloped in part (renovations) or in whole (teardowns), a choice must be made between these two processes. While renovations and teardowns have been studied within the gentrification literature as separate phenomena, this study jointly examines these decisions to provide a better understanding of how and where gentrification occurs. The results show support for the notion that renovations and teardowns occur in spatial clusters, but further refine this finding in that they tend to occur in separate spatial clusters. Additionally, the implicit market prices of the structural attributes of properties purchased for major renovations are shown to be equivalent to teardown sales, where the property is valued only for the underlying land.
Tax Incentives and Housing Investment in Low-Income Neighborhoods
Matthew Freedman
(Cornell University)
[View Abstract]
Governments often use tax incentives to encourage residential investment in blighted neighborhoods. Exploiting the lottery structure of Missouri's Neighborhood Preservation Act (NPA), this paper examines how tax incentives to promote housing investment affect communities. Missouri's NPA offers tax credits to homeowners and developers that improve or expand the owner-occupied housing stock in the state's poorer neighborhoods. Due to limits on the amount that can be awarded, the state uses a lottery to determine which applicants receive credits. Taking advantage of the random assignment of NPA tax credits and exploiting detailed property-level data, I find evidence that the program has positive but modest effects on construction activity. While there appear to be some positive spillovers on neighbors' investment behavior, the effects are confined to properties within 50 feet of those receiving credits. Impacts on property values are larger in geographic scope, implying important roles for both neighbor interactions and amenity effects in local housing markets.
Entrepreneurship, Small Businesses, and Urban Growth
Yong Suk Lee
(Williams College)
[View Abstract]
[Download Preview] Entrepreneurship is widely believed to be a main source of economic growth. This paper’s objective is threefold: (1) to estimate the impact of entrepreneurship measured by the birth of businesses on urban employment and income growth; (2) to examine how entrepreneurship supported by government guaranteed loans compares with market entrepreneurship regarding its impact on urban growth; and (3) to examine whether market and government-backed entrepreneurship are complements or substitutes. The study of entrepreneurship and urban growth is hampered by the joint determination of the two. I use the variation in entrepreneurship generated by the homestead exemption levels in state bankruptcy laws in 1975 to examine urban growth between 1993 and 2002. I find that a ten percent increase in the birth of small businesses increases MSA employment by 1 to 1.5% and income by 2.5 to 3.5% after ten years. I next examine whether the federal Small Business Loan program that guarantees loans to entrepreneurs that were unable to finance through the market generates urban growth. I find no growth impact from government-backed entrepreneurship and further find that government-backed entrepreneurship crowds out market entrepreneurship one for one. Nonetheless, a complete assessment of government-backed entrepreneurship requires further examination of equity concerns, such as potential discrimination in small business lending.
Bankruptcy Spillovers between Close Neighbors
Barry Scholnick
(University of Alberta)
[View Abstract]
[Download Preview] We examine bankruptcy spillovers between very close neighbors. Our fine grained location data allows us to use the cross-sectional difference methodology (e.g. Grinblatt, Keloharju, Ikaheimo (2008), Campbell, Giglio, Pathak (2011)) to control for non-random neighborhood sorting and unobservable neighborhood shocks. This approach subtracts characteristics of inner-ring neighbors (14 households on average) from outer-ring neighbors (207 households and 0.2 square kilometers on average) to control for neighborhood level unobservables affecting both rings. We show that inner-ring neighborhood bankruptcies, controlling for outer-ring neighborhood bankruptcies, impacts the individual’s choice of whether or not to default, as well as of the legal mechanism of default.
Discussants:
Ingrid Gould Ellen
(New York University)
Anna Hardman
(Tufts University)
Junfu Zhang
(Clark University)
Lauren Lambie-Hanson
(Federal Reserve Bank of Philadelphia)
Jan 03, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 310
Association of Indian Economics & Financial Studies
International Trade and Finance
(F1)
Presiding:
Chandana Chakraborty
(Montclair State University)
India's Petroleum Demand: Empirical Estimation and Projections for the Future
Pradeep Agarwal
(Institute of Economic Growth)
[View Abstract]
With rapid economic growth, petroleum demand in India has been rising rapidly, making it the fourth largest consumer of crude oil in the world. But most of this crude oil has to be imported, putting inflationary pressure on the economy when oil prices rise. Thus, estimations of crude oil demand and projections for the future should be useful to policy makers in making appropriate supply arrangements for the future. This paper empirically estimates demand relations for crude oil, diesel, and Gasoline for India for the period between 1970–71 and 2010–11 using the ARDL cointegration procedure and uses these estimations to project demand for these products up to 2025. Our projections show that by 2025, demand for crude oil is likely to increase by about 90%, for diesel by about 110%, and for gasoline by about 165% under likely future GDP growth scenarios (averaging 7%). The corresponding annual growth rates are 4.7% for crude oil, 5.4% for diesel and 7.2% for Gasoline. Thus, India needs to (i) improve efficiency in the use of petroleum products, (ii) make concerted efforts to increase use of alternative energy sources such as nuclear, hydro, solar and wind and (iii) augment future supplies through increased exploration and production sharing agreements by Indian oil companies with other countries.
Trade Discontinuities and the Recovery of Margin of Trade
Usha Nair-Reichert
(Georgia Institute of Technology)
[View Abstract]
One of the anomalies in export and import relationships is the fact that firms often exit existing relationships and then reestablish or recover the same relationships after a period of time (or an trade gap). This is puzzling because the trade literature documents hysteresis in trade, the existence of sunk costs associated with entering into trading relationships, and suggests that the advantages of previous exporting experiences dissipate fairly rapidly leading to significant reentry costs. The focus of this study is to understand the dynamics of trade gaps and the heterogeneity in recovery of dormant trading relationships or the recovery margin of trade. Using disaggregated bilateral trade data at the 6-digit HS level for the period 1995 to 2010, we examine 3 aspects of export gaps: the conditional probability, the speed and the intensity of trade recovery. We identify various sources of heterogeneity in trade recovery such as characteristics of export gaps, trade in core products and with core markets, export market diversification, export market competition, product differentiation and continued trade in related products and markets during the gap. The key results indicate that the number of prior export gaps and the length of the export gap unambiguously reduce the probability of trade recovery and size of initial exports at reentry. Conditional on being in an export gap, dormant trading relationships that involves core markets, core products, and where there is more trade in closely related products (proximate trade) have a greater probability of recovery. However, trading in core products appears to have a larger impact on recovery than trading in core markets. The overall share of world trade, export market diversification and competition all increase both the probability of recovery and the speed of recovery. There is also preliminary evidence of considerable heterogeneity with respect to quality upgrading in post-recovery trade and that on average quality upgrading occurs in goods with revealed comparative advantage. An important policy implication is that governments have to be cautious about what type of recovery they promote if they want to move their country’s exports up the value chain.
Quota Expiration and the Geography of United States Textile & Apparel Imports: The Scale Economies and Vertical Integration
Anusa Datta
(Philadelphia University)
Mikhail Kouliavtsev
(Austin State University)
[View Abstract]
The phasing out and the ultimate expiration of quotas removes a single major distorting factor in the economic geography and trade in textile and apparel products. The resulting realignment of trade provides a unique opportunity to test the significance of increasing returns to scale and vertical linkage hypothesis predicted by new trade theories and economic geography models, along with the traditional comparative advantage and distance arguments. Our empirical results show that low wages remain a significant determinant of US apparel imports – providing support for comparative advantage. Imports from quota constrained country-product pairs show a significant increase following the elimination of quotas. The estimate increased from an average of 2.98 between 1995 and 2003 to 3.86 between 2004 and 2007. The estimate shows the biggest jump in 2004 to 4.22. We test for scale economies using two different measures: the relative GDP of exporting country i to the US and the exporting country's share of world apparel production. We find that scale economies are significant in both specifications. Moreover scale economies become increasingly important as quotas are phased out and finally terminated. Backward linkages for the apparel industry is measured by country i's share of world textile production. Evidence for the backward linkages is less clear. Finally, Asia shows the biggest gains from the elimination of quotas, followed by the Caribbean Basin countries. The net losers are Africa, Western Europe and Oceania. Surprisingly, Latin American and NAFTA (Mexico and Canada) show insignificant results along with Eastern Europe.
Comparative Advantage as a Source of Exporters Pricing Power: Evidence from China & India
Sushanta K. Mallick
(Queen Mary University of London)
Helena F. Marques
(University of Belearic Islands)
[View Abstract]
[Download Preview] The literature on ERPT has not considered product-level comparative advantage (CA) as a source of heterogeneous firm productivity. However, a firm's production choice may determine its productivity level and also its pricing decision as both the degree of market power and the fixed costs of exporting vary across products. This paper empirically analyses the export pricing behaviour of Chinese and Indian exporters while considering these countries' degree of international competitiveness in different commodity groups. Previous pass-through estimates that did not take product-level competitiveness into account could be biased as the degree of pricing power due to changing product-level competitiveness could be correlated with the exchange rate variations. We use 6-digit product-level data across different export destinations over the period 1994-2007 to compute China and India's product-level CA, showing that pass-through tends to be more incomplete when the industries increasingly specialize in exporting. However, export prices increase with export specialization. This is because a stronger presence in export markets allows both higher market power and lower fixed costs of exporting, but in this case the former effect prevails over the latter. Export prices of India are sensitive to the volatility of the trade-weighted real effective exchange rate (REER), indicating heterogeneity in prices to maintain competitiveness, while the nominal currency volatility for China has insignificant explanatory power given a fixed currency system.
An Empirical Investigation of Purchasing Power Parity (PPP): The Case of Chinese Yuan
Bansi Sawhney
(University of Baltimore)
Faith Mangir
(Selcuk University)
Kishore Kulkarni
(Metropolitan State University-Denver)
[View Abstract]
This study applies unit-root tests to investigate the Purchasing Power Parity (PPP) for China's real exchange rate vis-a-vis the USA over the period 2000-2012.
Along with traditional unit root tests, we use the procedure developed by Zivot and Andrews and Lee-Strazicich to endogenously determine possible structural breaks. The results indicate that PPP hypothesis in China holds under a fixed ("pegged") exchange regime. But it does not hold in the long run under the managed floating exchange rate regime. The finding confirms that the exchange rate regime affects the validity of PPP.
Globalization & the Evolution of Indian Financial Markets
Renu Kallianpur
(AXA Advisors)
Saul Meikes
(University of Iowa)
[View Abstract]
The first step toward Globalization was taken in India in the 1990's (beginning in 1991) when the government embarked on an economic liberalization plan. The effect of this so called Big Bang announcement was felt in various sectors of the economy: manufacturing, agriculture and most of all the financial markets. The financial markets in India had a latent demand for their products and as foreign direct investments began to increase in India, more sophisticated financial instruments became popular among the middle classes, a newly emerging and powerful force in India.
New regulations were set into motion by India's central bank, the Reserve Bank of India (RBI), to control the flow of these vast amounts of money coming from domestic as well as foreign investors. In the past few years, the RBI has had a hard time maintaining the balance between GDP growth down to 5% in 2012, the lowest rate in a decade, and an inflation rate which is still stubbornly high at 7%. Unless the rate of inflation comes down to a more reasonable, the central bank cannot afford to significantly cut interest rates to stimulate growth without simultaneously re-fueling inflation, although the RBI did cut rates three times this past year while contradicting its action with statements of warnings on inflation.
The Primary equity market, however, remains subdued. Its recovery depends on improvement in macroeconomic fundamentals, continued fiscal consolidation and revival of global growth. Global financial and market conditions have improved recently due to monetary stimulus and liquidity support, in various areas of the world according to an IMF report. High interest rates affect the financial instruments in India, by making the fixed deposits more attractive to Indians, rather than some of the more newly developed instruments such as swaps, options and derivatives which carry a high level of risk and volatility. On the other hand, the Indian financial market is composed mainly of Foreign Direct Investment, alternative investment options, banking and insurance, pension markets and asset management.
Before the liberalization process, the financial markets in India were characterized by controls over the pricing of financial assets, restrictions on transactions, barriers to entry and high transaction costs. After the mid 90's, financial markets in India were more integrated, both domestically and globally through the integration of the money markets, the government securities market and the foreign exchange market.
Recent global development in Europe, the U.S. and the aggressive action of the Bank of Japan Global in financial markets are now pricing in the impact of large fiscal and monetary stimuli. If a sustained dollar appreciation occurs the Indian markets will be adversely impacted through the exchange rate channel the European and emerging market and developing economies'(EMDE's) equity markets. However, while resource mobilization through public issues in the IPO's market remained muted, mutual funds posted a pick-up led by private sector mutual funds in 2012-13. Various reform measures, inter alia, postponement of GAAR (General Anti Avoidance Rules) by two years, partial deregulation of diesel prices, liberalized FDI limits for certain sectors, rise in FII limits in corporate debt and G-sec market and announcement of a fiscal consolidation path, further boosted the confidence of global investors in the Indian economy.
Our paper will test to see if on the domestic front, the slow recovery envisaged in 2013-14 may undermine the nascent strength of the financial markets. A potential recovery is already at odds with macro-financial indicators as is evident from sub-par corporate earnings, deteriorating current balance account, deteriorating asset quality and stretched leverage in certain sectors, especially power and construction. Sustained commitment to reforms and policy action, on the other hand could considerably lower this risk, but at the expense of fiscal consolidation, also far from tamed.
Some of the financial institutions that will be analyzed in this paper are: Reserve bank of India, Commercial Banks, Development finance institutions, Non-banking finance companies (NBFC), Venture capital companies, mutual funds and insurance institutions. The research is based on considerable data mining from the RBI, IMF, World Bank, and OECD, aside from other publications.
Discussants:
Sweta Saxena
(International Monetary Fund)
Valerie Cerra
(International Monetary Fund)
Banani Nandi
(Shannon Laboratories and AT&T)
Jyoti Khanna
(Colgate University)
Ramya Ghosh
(Drexel University)
Keshab Bhattarai
(University of Hull)
Jan 03, 2014 12:30 pm, Pennsylvania Convention Center, 109-B
Chinese Economists Society
Exploration of New and Existing Data for the Chinese Economy: Food, Health, and Economic Well Being
(O5)
Presiding:
Zheng Song
(University of Chicago)
Matching China's Agricultural Supply and Demand Data
W.C.M. van Veen
(VU University-Amsterdam)
J. Huang
(Center for Chinese Agricultural Policy)
H. Qiu
(Center for Chinese Agricultural Policy)
Scott S. Rozelle
(Stanford University)
M.A. Keyser
(VU University-Amsterdam)
[View Abstract]
[Download Preview] Over the past decades the gaps between official agricultural and production and consumption data have increased, which leads to ever growing concerns about the quality of these data. For example, while according to official statistics China's rice and wheat production continues to rise and per capita consumption declines, China had to import millions of tons of wheat and rice in 2012 to fulfill its domestic demand. Similar concerns are raised regarding livestock products, since China's official meat production is about four times the level of official meat consumption! Exploring the reasons behind these gaps and creating a consistent agricultural supply and demand data set is not only important for policy makers but also for researchers of China's agricultural economy. Based on earlier work in analyzing China's agricultural production, consumption and trade, we analyze China's grain and meat balances for all years since 2005. Compared with existing studies, it has the distinct feature that it gives an overall review of the supply and demand balances, and does not just focus on grain or meat alone. This is important given the links between grain and meat balances via the animal feed requirements. After discussing possible explanations of the gaps between China's agricultural supply and demand, the paper constructs an adjusted supply and demand balance sheet for major agricultural products from 2005 to 2012, which can be used as reference for other studies on China's agricultural economy.
Datasets and Statistics on Health and Medical Care in China
Quilin Chen
(China Academy of Social Sciences)
Zhuo (Adam) Chen
(China Health Policy and Management Society)
[View Abstract]
Several secular trends, including an aging population, growing healthcare expenditure, and the ongoing healthcare reform, have led to increasing attention to China's health sector among economists. However, the existing data and statistics on health and medical care in China have been less extensively examined than their counterpart on general economy.
The proposed research intend to review existing data and statistics on health and medical care in China in terms of availability, comparability, accuracy, potential usefulness for research, as well as strengths and caveats that researchers need to be mindful of. We intend to examine both macro data, e.g., national or provincial aggregate data published by official statistical agencies, and micro data, e.g., survey data sponsored by national and international agencies. An example of a micro dataset is the China Health and Nutrition Survey, which has been extensively used by researchers interested in China's health issues. However, it has been noted that the imputed income measures may be inadequate. A list of such assessments and recommendations will be made. The research team will include researchers from both within and outside of China with expertise on both health and economics.
The Regional Determinants of Food Safety in China: Evidence from the Popular Media
Nicholas Holtkamp
(Ohio State University)
Peng Liu
(Renmin University of China)
William McGuire
(University of Washington-Tacoma)
[View Abstract]
[Download Preview] China’s food safety system is characterized by widespread under-enforcement of regulations punctuated by high-profile food safety scandals. While there has been a wave of public and scholarly interest, official data on food safety are scarce, and some fundamental questions remain unanswered. Our analysis attempts to overcome this problem using a unique data set compiling media reports on food safety incidents at the provincial level between 2004 and 2011. Preliminary results indicate food safety problems are most acute in poor provinces, where regulators are understaffed and underfunded. Food safety problems also increase with the rate of urbanization, which may reflect the increased complexity of urban food systems. Finally, we find that food safety is sensitive to government expenditures, suggesting that increasing the allocation of fiscal resources to regulatory agencies may be effective in combating China’s food safety crisis.
Data for Studying Earnings, the Distribution of Household Income and Poverty in China
Bjorn Gustafsson
(University of Gothenburg and IZA)
Li Shi
(Beijing Normal University and IZA)
Hiroshi Sato
(Hitotsubashi University)
[View Abstract]
[Download Preview] This paper discusses data used in publishing statistics on earnings, the distribution of household income and poverty in China by National Bureau of Statistics (NBS) which is widely used by policy makers, international agencies and researchers. Different from many other countries China has up to now had a dual system of household surveys with one rural system and one urban system. This has some consequences which we discuss together with some other challenges for such official data on wages, income and poverty. Researchers have since the end of the 80s been active in the construction of some larger data bases aiming to map earnings, household income and poverty which are also presented in the paper.
Discussants:
Kazuyuki Motohashi
(University of Tokyo)
Miaojie Yu
(CCER Peking University)
Jan 03, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 406
Cliometrics Society
Spatial Allocation of Conflict, Individuals, and Economic Activity
(N7)
Presiding:
Mary Hansen
(American University)
Railroads and the Regional Concentration of Industry in Germany 1861 to 1882
Theresa Gutberlet
(Rensselaer Polytechnic Institute)
[View Abstract]
[Download Preview] This paper investigates the impact of the railroad boom on the regional concentration of manufacturing in Germany. The fast pace of mechanization during this period suggests that economies of scale and agglomeration provided incentives for firms to concentrate production in a few locations.
Therefore, the dramatic reduction in transportation costs could have led to industrial growth in central regions and de-industrialization in the periphery. Preliminary results show that improvements in market access did indeed have a negative impact on manufacturing growth in regions wit below median per capita manufacturing employment, but for regions above this mark the impact was positive. This means that the railroad boom did not support the dispersion of industry but instead contributed to the geographic concentration of industrialization.
Segregation (Forever?): Measuring the Short- and Long-Term Consequences of Segregation
John Parman
(College of William and Mary)
Trevon D. Logan
(Ohio State University and NBER)
[View Abstract]
[Download Preview] We develop a new measure of residential segregation based on individual-level data. We exploit complete census manuscript files to derive a measure of segregation based upon the racial similarity of next door neighbors. Our measure overcomes several of the shortcomings of traditional segregation indices and allows for a much richer view of the variation in segregation patterns across time and space. With our new measure, we can distinguish between the effects of increasing the racial homogeneity of a location and of increasing the tendency to segregate within a location given a particular racial composition. We provide estimates of how our new measure relates to traditional segregation measures and historical factors. We also show how the segregation measure is related to the health outcomes of African Americans through the late-nineteenth and twentieth centuries. We conclude with a discussion of how this measure can be used in a variety of ways to improve and extend the analysis of segregation and its effects.
Military Conflict and the Economic Rise of Urban Europe
Mark Dincecco
(University of Michigan)
Massimiliano Onorato
(IMT Institute for Advanced Studies)
[View Abstract]
[Download Preview] We present new city-level evidence about the military origins of Europe's economic "backbone," the prosperous urban belt that runs from the Low Countries to northern Italy. Military conflict was a defining feature of pre-industrial Europe. The destructive effects of conflict were worse in the countryside, leading rural inhabitants to relocate behind urban fortifications. Conflict-related city population growth in turn had long-run economic consequences. Using GIS software, we construct a novel conflict exposure measure that computes city distances from nearly 300 major conflicts from 1000 to 1799. We find a significant, positive, and robust relationship between conflict exposure and historical city population growth. Next, we use luminosity data to construct a novel measure of current city-level economic activity. We show evidence that the economic legacy of historical conflict exposure endures to the present day.
Murder and the Black Market: Prohibition's Impact on Homicide Rates in American Cities
Brendan Livingston
(Rowan University)
[View Abstract]
[Download Preview] I investigate the effect of banning the sale of alcohol on murders during the state prohibition movement of the early 20th century. To account for the variation in the timing of alcohol prohibition legislation, I have constructed a panel data set of 48 cities with yearly observations from 1914 to 1925. Unlike measuring homicides at the state and national level, cities do not suffer from selection bias. Cities were involuntarily required to enforce prohibition by state and national legislators instead of voluntarily entering into prohibition. To account for the growth of both the legalized market for alcohol and black market for alcohol I use yearly observations of intoxication arrests for each city. I find that homicides increase under prohibition when keeping the number of intoxication arrests in the city constant. However, the overall net effect of legislation varies depending on the reduction of intoxication arrests in a city.
Discussants:
John C. Brown
(Clark University)
Allison Shertzer
(University of Pittsburgh)
Hugh Rockoff
(Rutgers University)
Chris Vickers
(Northwestern University)
Jan 03, 2014 12:30 pm, Loews Philadelphia Hotel, Commonwealth Hall A2
International Banking, Economics & Finance Association
Market Pricing and Credit Spreads
(G1)
Presiding:
Anastasios Malliaris
(Loyola University)
Hedging Costs vs. Counterparty Risk: What Explains the Pricing of Structured Products during the 2007-2009 Financial Crisis?
Stefan Petry
(University of Melbourne)
[View Abstract]
[Download Preview] I examine the effect of Lehman Brothers' bankruptcy on the prices of exchange traded structured index products during the financial crisis of 2007-2009. I document a significant drop in their premia, as well as an asymmetric widening of their bid-ask spreads in the post September 2008 period. The effect is most pronounced in structured products on indices that are difficult to hedge. The results suggest that market maker hedging costs have become a major trading cost component of structured products following the default of Lehman Brothers. Issuer credit risk does not explain the drop in the premia.
Liquidity Premium in CDS Markets
Merlin Kuate Kamga
(Goethe University-Frankfurt)
Christian Wilde
(Goethe University-Frankfurt)
[View Abstract]
[Download Preview] We develop a state-space model to decompose bid and ask quotes of CDS into two components, fair default premium and liquidity premium. This approach gives a better estimate of the default premium than mid quotes, and it allows to disentangle and compare the liquidity premium earned by the protection buyer and the protection seller. In contrast to other studies, our model is structurally much simpler, while it also allows for correlation between liquidity and default premia, as supported by empirical evidence. The model is implemented and applied to a large data set of 118 CDS for a period ranging from 2004 to 2010. The model-generated output variables are analyzed in a difference-in-difference framework to determine how the default premium as well as the liquidity premium of protection buyers and sellers evolved during different periods of the financial crisis and to which extent they differ for financial institutions compared to non-financials.
Effect of Market Structure and the Regulatory Franchise in Reputation Dependent Industries
Abigail Brown
(US Government Accountability Office)
[View Abstract]
Many practitioners and academics alike assume that the value of reputation is so important to reputation-dependent industries such as credit rating agencies and auditors that they would never put their reputation at risk to collude with a client. However, both the current global financial crisis and the accounting scandals at the beginning of the decade seem to call this assumption into question: even if none of the failures were profit-driven, only one failure of the many led to a firm collapse. This paper explores this assumption by modelling a monopolist certifier, whose certificate of viability is required for capital-constrained entrepreneurs to take their projects to the capital markets for funding. Results suggest that the monopolist will sell fraudulent certificates of viability to at least some fraction of the non-viable projects in at least some periods.
Conditional Euro Area Sovereign Default Risk
Andre Lucas
(VU University-Amsterdam)
Bernd Schwaab
(European Central Bank)
Xin Zhang
(Sveriges Riksbank)
[View Abstract]
[Download Preview] We propose an empirical framework to assess the likelihood of joint and conditional sovereign default from observed CDS prices. Our model is based on a dynamic skewed-t distribution that captures all salient features of the data, including skewed and heavy tailed changes in the price of CDS protection against sovereign default, as well as dynamic volatilities and correlations that ensure that uncertainty and risk dependence can increase in times of stress. We apply the framework to euro area sovereign CDS spreads during the euro area debt crisis. Our results reveal significant time-variation in distress dependence and spill-over effects for sovereign default risk. We investigate market perceptions of joint and conditional sovereign risk around announcements of Eurosystem asset purchases programs, and document a strong impact on joint risk.
Discussants:
Jose Berrospide
(Federal Reserve Board)
Chen Zhou
(De Nederlandsche Bank)
Hector Perez-Saiz
(Bank of Canada)
Eiichiro Kazumori
(University at Buffalo)
Jan 03, 2014 12:30 pm, Pennsylvania Convention Center, 107-B
Middle East Economic Association/American Economic Association
How to Transform the Arab Spring into Economic Spring? Challenges and Opportunities
(O5) (Panel Discussion)
Panel Moderator:
Hassan Aly
(Ohio State University)
Mustapha Nabli
(Central Bank of Tunisia)
The Economic Conditions in Tunisia-Current and Future
Gouda AbdElKhalek
(Cairo University)
The Economic Conditions in Egypt- Current and Future
Shantayanan Devarajan
(World Bank)
Economic Conditions in the Arab Countries in Transition-Challenges and opportunities
Mahmoud El-Gamal
(Rice University)
The Future of Islamic Economics in the Arab Countries in Transition
Raed Safadi
(OECD)
Syria's Future: The Road to Self-Healing
Jan 03, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 305
National Association of Economic Educators
Determinants of Student Achievement in High School and Undergraduate Economics and Personal Finance Classrooms
(A2)
Presiding:
Andrew Hill
(Federal Reserve Bank of Philadelphia)
Does Student Engagement Affect Student Achievement in High School Economics Classes?
Jody Hoff
(Federal Reserve Bank of San Francisco)
Jane Lopus
(California State University-East Bay)
[View Abstract]
[Download Preview] Our research design involves a comparison between a traditional model of high school economics instruction and the use of the International Economic Summit (IES) program. We hypothesize that the IES program will result in more student engagement across behavioral, affective, and cognitive dimensions. Our data were collected from a sample of 748 students and 16 teachers in high school economics classes in California from fall 2011 through spring 2012. Thirteen of the teachers used the IES in their classes and three control teachers did not use the IES. Students completed pre and post class surveys that allow us to capture measures of student engagement, and teachers completed a post-class survey that allows us to capture measures of teacher engagement. Students also took pre and post tests (based on the TEL) that allow us to investigate correlations between student and teacher engagement and student achievement. We are able to control for standard demographic factors such as gender, race and ethnicity, parent education, and teacher and school quality. Our preliminary analysis of the pre-class data show that control groups and experimental (IES) groups differed significantly along measures of engagement. Student engagement (but not the IES) is found to be significantly related to student achievement. The next step may be to promote curricula, materials, and teaching approaches that encourage engagement in high school economics classes.
A Picture is Worth a Thousand Words (At Least): The Effective Use of Visuals in the Economics Classroom
Jose J. Vazquez
(University of Illinois-Urbana-Champaign)
Eric P. Chiang
(Florida Atlantic University)
[View Abstract]
Much attention has been devoted to improving teaching pedagogy both in and outside the economics classroom; yet, one area that is generally lagging in academia is the effective use of visuals. Instructors traditionally use visuals in two ways: First, when they assign students written sections of the textbook before coming to the lecture, and then in class when they use the all-too-common approach of placing a concise set of notes onto PowerPoint slides. Yet evidence from both cognitive and brain science suggested major limitations with both techniques, because they both rely mostly on written text as the core visual strategy. And considerable body of research exists on the benefits of multimedia presentations over text. Research in multimedia learning has led to the following conclusions: People have separate audio and visual channels; these channels have limited capacity; and learning involves the active selection, organization, and integration of the information presented via the auditory and visual channels. In other words, students learn better from words and pictures than from words alone. This paper addresses these issues using a two-fold approach. First, we compare the efficacy of multimedia learning modules with traditional textbooks for a few topics of an introductory microeconomics course. Students were randomly assigned into one of three groups. One group received the multimedia learning module presentations, and the other two groups received the presentations via one of two versions of written text. All students then completed the same set of assessment questions. By comparing student performance between each group, our results provide evidence that students receiving the multimedia learning modules performed significantly better than students having access to only text-based presentations.
Teacher Characteristics and Student Achievement in Economics: Evidence from the 2006 NAEP
Erin A. Yetter
(Federal Reserve Bank of St. Louis)
[View Abstract]
In this paper, the author examines the effects of professional development, teacher certification, and role model effects on student achievement in K-12 economics as measured by the 2006 National Assessment of Educational Progress (NAEP) Economics exam.
Teacher Preparation and Student Achievement in a High School Personal Finance: Evidence from
Rebecca Chambers
(University of Delaware)
Andrew T. Hill
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] This paper examines the effects of teacher training on student achievment in the "Keys to Financial Success" high school personal finance course offered to students in high schools throughout Delaware, New Jersey, and Pennsylvania. This study relies on pre- and post-test data collected in two academic years from thousands of high school students taught by teachers trained by the Federal Reserve Bank of Philadelphia and the University of Delaware Center for Economic Education and Entrepreneurship. Preliminary evidence reveals that students whose teachers have more formal training in economics and personal finance perform better on the 50-question "Keys to Financial Success" personal finance achievement exam.
Discussants:
Mary Suiter
(Federal Reserve Bank of St. Louis)
Rebecca Chambers
(University of Delaware)
Elizabeth Breitbach
(University of South Carolina)
Stephen Buckles
(Vanderbilt University)
Jan 03, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 304
Omicron Delta Epsilon/American Economic Association
Omicron Delta Epsilon Graduate Student Session
(Y9)
Presiding:
Kathryn Nantz
(Fairfield University)
Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods
Bibek Adhikari
(Tulane University)
James Alm
(Tulane University)
[View Abstract]
Tax reforms are often motivated by their potential to affect economic growth. However, their actual impacts on growth are difficult to determine. In this paper, we analyze the impact of flat tax reform on economic growth using a novel data-driven empirical method, “synthetic controlâ€Â. We identify the 8 Eastern and Central European countries that adopted flat tax systems between 1994 and 2005: Estonia, Latvia, Russia, Slovak Republic, Ukraine, Georgia, Romania, and Turkmenistan. We then compare the difference in GDP per capita and GDP per capita growth rates before and after the reform for the “treated†(e.g., tax reform) country to a convex combination of similar but “untreated†(e.g., no tax reform) countries, while accounting for the time-varying impact of unobservable heterogeneity. We find positive impacts of tax reform in most, but not all, countries.
A Nonparametric Approach to Multifactor Modeling
Michael Gallagher
(Fordham University)
[View Abstract]
[Download Preview] Recent literature has started to explore the use of nonparametric methods to estimate alphas and betas in the conditional CAPM and conditional multifactor models. This paper explores two of the most recent contributions and proposes a third method. Nonparametric estimation of factor modeling involves choosing techniques which are different both technically and in application, but common in the nonparametric literature. The methodology does not impose any functional form on how alphas [pricing errors] or betas [factor loadings] evolve over time. Local data is used in estimations, but of crucial significance is the bandwidth selection or optimal window size. Clearly, observations further away from time t are less relevant in estimating time t alphas and betas, so if we are too far away from time t we potentially have a very large bias. However, if too small a bandwidth is selected, the estimate could be quite noisy, leading to a large variance. A popular technique in the literature is the leave-one-out-cross-validation method which is completely data driven. The researcher may use simulations to illustrate how the optimal window size varies with changes in the underlying unobservable state variables. Another bandwidth selection procedure often used in the literature is the plug-in method. The plug-in method however, relies on choosing an unknown parameter in estimating the optimal window size, while the leave-one-out method is completely data driven. This paper explores the effectiveness of these two methods and proposes a nonparametric estimation of multifactor models using a cross validated local polynomial regression method. Local polynomial regression has emerged as a leading approach to nonparametric estimations of regression functions. Using a completely data driven approach to the joint determination of polynomial order and bandwidth eliminates the ad-hoc approach to determining polynomial order which may not be optimal.
Is Shopping at Walmart an Inferior Good? Evidence
Mandie R. Weinandt
(University of South Dakota)
[View Abstract]
[Download Preview] We test the relative income elasticity of shopping at Walmart and Target using quarterly data from 1997-2010. We seek to isolate the effects of income changes by controlling for price level, retail space, and measures of time. In contrast to Basker (2011), we find that the income elasticity of Walmart shopping , while lower than Target’s, is positive, indicating that shopping at both stores is normal rather than inferior.
Discussants:
Michael Gallagher
(Fordham University)
Bibek Adhikari
(Tulane University)
Mandie R. Weinandt
(University of South Dakota)
Jan 03, 2014 12:30 pm, Pennsylvania Convention Center, 106-B
Society of Government Economists
Education Policy in Developing Countries
(I2)
Presiding:
Quentin Wodon
(World Bank)
Heterogeneity in Impacts of School Characteristics on Student Learning in Developing Countries: Evidence from Vietnamese and Peruvian Panel Data
Paul Glewwe
(University of Minnesota)
Sofya Krutikova
(University of Oxford)
Caine Rolleston
(University of Oxford)
[View Abstract]
[Download Preview] This paper attempts to explain the gaps in learning outcomes between "advantaged" and "disadvantaged" primary school children in two developing countries, Peru and Vietnam, by assessing the contribution of four distinct factors that could explain these gaps: a) The child and household characteristics that increase learning, such as parental education, are higher among the more advantaged groups; b) The impacts of the child and household characteristics that increase learning are stronger for advantaged children; c) More advantaged children "sort" into better schools; and d) Learning increases due to school characteristics are higher for advantaged children (relative to disadvantaged children) within schools. Preliminary results indicate that the first and third factors explain most of the gap in Vietnam, while the fourth factor explains most of the gap in Peru.
Double for Nothing? The Effects of Unconditional Teacher Salary Increases on Performance
Joppe de Ree
(World Bank)
Karthik Muralidharan
(University of California-San Diego)
Menno Pradhan
(VU University Amsterdam)
Halsey Rogers
(World Bank)
[View Abstract]
Does paying teachers more make them more effective in the classroom? This paper presents results from a large randomized field experiment in Indonesia that evaluates the effects of teacher certification – which includes a permanent doubling of pay – on teachers’ knowledge, effort, and student learning outcomes. To our knowledge, this is the first RCT of the effects an unconditional salary increase in education and the first of its size—involving more than 3000 teachers and 80,000 students—in any field. We find that the program significantly improved teacher job satisfaction, reduced the incidence of and hours worked on outside jobs, and reduced self-reported financial stress. Nevertheless, the doubling in pay led to no improvements in either teacher skills, measures of teacher effort, or student learning outcomes, suggesting that the salary increase was mostly a transfer to teachers with no discernible short- or medium-term impact on student outcomes. It appears that if the reform is to improve student learning, it will need to operate through other channels, such as skill upgrading by teachers not yet eligible for salary increases or improvement in the quality of applicants to the teaching profession.
Female Labor Income Share and Household Consumption Choices: Comparing Cross-sectional and Panel Estimates
Quentin Wodon
(World Bank)
Minh Cong Nguyen
(World Bank)
[View Abstract]
If women and men differ in their consumption preferences, the person who controls household resources through access to labor and other sources of income may affect a wide range of household decisions, including investments in the human capital of children. Yet testing whether the female labor income share in a household affects consumption patterns using cross-sectional data is problematic due to the risk of omitted variable bias. This paper uses a nationally representative panel household survey for Vietnam to show that while cross-sectional estimation suggests that a higher female labor income share results in higher shares of household consumption allocated to food and human capital investments, the effect vanishes with panel data.
Harry Patrinos
(World Bank)
Jan 03, 2014 12:30 pm, Loews Philadelphia Hotel, Washington A
Union for Radical Political Economists
David Gordon Memorial Lecture
(B5)
Presiding:
Fred Moseley
(Mount Holyoke College)
Reflections on 50 Years of Radical Political Economy
Tom Weisskopf
(University of Michigan)
[View Abstract]
[Download Preview] The Union for Radical Political Economics was founded almost 50 years ago, and one of the foremost practitioners of radical political economy in North America was the late David M. Gordon. In this address in his honor, I will draw on personal experience as well as many other sources of information to examine the evolution of radical political economy over the past five decades. This is a period during which the overall political climate in the United States shifted increasingly to the Right. I will explore the ways in which this political shift, as well as new developments within mainstream economics, have altered the focus of much of radical political economics as well as the activities of many of its practitioners.
Discussants:
Nancy Folbre
(University of Massachusetts-Amherst)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall A1
Agricultural & Applied Economics Association
How Farmland Appreciation and Wealth Are Affecting Agriculture
(Q1)
Presiding:
Jennifer Ifft
(USDA Economic Research Service)
How Do Investments in Farmland Compare to Investments in Stocks?
Michael Boehlje
(Purdue University)
Timothy Baker
(Purdue University)
Michael Langemeier
(Purdue University)
[View Abstract]
[Download Preview] Using the fundamental and well-documented growth stock model of asset valuation to frame the analysis, this study will assess the financial performance of investments in farmland compared to investments in stocks. Specifically, the price to earnings (P/E) ratio, a metric commonly used in financial markets to assess the relationship between asset price and the earnings generated by a company, will be compared for farmland and stocks. The premise is that earnings are a fundamental determinant of the value of an asset or investment, and that abnormally low or high P/E ratios indicate that there is a potential disconnect between the fundamental drivers of value and asset prices. Current P/E ratios for farmland are abnormally high from both a historical perspective as well as in comparison to similar ratios in the equity markets in general (both historically and currently), suggesting the potential of overvaluation of farmland based on the fundamentals. Econometric estimates of the impact of different measures of expected and unexpected inflation on farmland values will also be summarized to obtain insights into whether farmland is an attractive inflation hedge, which might provide a potential explanation for the potential disconnect between farmland prices and earnings. Finally, implications for future financial vulnerabilities for farmers and the agricultural sector will be presented.
Linking the Price of Agricultural Land to Use Values and Amenities
Todd Kuethe
(USDA Economic Research Service)
Jennifer Ifft
(USDA Economic Research Service)
Allison Borchers
(USDA Economic Research Service)
[View Abstract]
In many areas throughout the U.S., the market value for agricultural land exceeds its use in agricultural production. A long strand of literature attributes this deviation to the option value of land development to commercial or residential use near urban areas (Anderson, 2012; Tsoodle, et al, 2007; Anderson and Griffing, 2001), yet Kuethe, et al. (2011) show that this phenomenon occurs in rural areas. In rural areas, the deviation between market and use values is likely the result of factors beyond land conversion, such as recreation demand, mineral extraction, or other natural amenities. The USDA's June Area Survey (JAS), which annually samples approximately 10,000 randomly selected 1-square mile segments nationwide, collects plot-level rental rates which provide an accurate measure of agricultural use value of farmland acreage. The survey also collects farmer-reported market values of operated acres. Zakrzewicz, et al. (2012) show that these farmer-reported values accurately reflect transaction values, as well as lender-reported values, on aggregate. The divergence between market values and agricultural use value is measured by the ratio of farmer-reported market values divided by capitalized rental rates (reported rental rate divided by a discount rate). When the ratio equals 1.0, it suggests that survey respondents' estimate of market values is equal to the implied agricultural use value. JAS responses are geographically referenced, and as a result, we are able to explore the part of the price not captured by agricultural use values as it relates to other land use activities and natural amenities.
Do Wealth Gains from Land Appreciation Cause Farmers to Expand Acreage or Buy Land?
Jeremy Weber
(USDA Economic Research Service)
Nigel Key
(USDA Economic Research Service)
[View Abstract]
[Download Preview] Writing in the wake of the dramatic increase in farmland values in the 1970s, Plaxico and Kletke (1979) and Lowenberg-DeBoer and Boehlje (1986) argued that capital gains from farmland appreciation encourage farms to become larger. Presumably a farmer would expand if greater equity allows him to borrow more or borrow at a lower rate. The decline in borrowing costs could also change the cost of owning versus renting land, thereby affecting land tenure. Yet, no study has empirically examined the link between farmland values, farm wealth, and farm decisions. To identify the response to changes in wealth, we exploit an increase in land appreciation over two periods. From 1997 to 2002 the average value of farm real estate increased by 20 percent in real terms; in the following period, 2002 to 2007, it appreciated by 44 percent. As prices increased, farmers who owned more of their land had a larger wealth gain than operators of similar farms who rented more of their land. Linking farms surveyed in the 1997, 2002, and 2007 Censuses of Agriculture allows us to observe farm-level changes in acres harvested and acres owned. We find that wealth gains from land appreciation caused farms to buy more land. Because older farmers own more of the land in the farm, our findings indicate that unexpected increases in land values slow the transfer of land ownership from older to younger farmers. The estimated effect on acres harvested, in contrast, suggests that marginal changes in paper wealth have no systematic effect on the organization of production among continuing crop farms.
Discussants:
Joseph Glauber
(USDA Economic Research Service)
Nathan Kauffman
(Federal Reserve Bank of Kansas City-Omaha Branch)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon L
American Economic Association
Behavioral Responses to Taxation
(H2)
Presiding:
Nathaniel Hendren
(Harvard University)
Do In-Work Tax Credits Serve as a Safety Net?
Marianne Bitler
(University of California-Irvine and NBER)
Hilary W. Hoynes
(University of California-Davis and NBER)
Elira Kuka
(University of California-Davis)
[View Abstract]
[Download Preview] The cash and near cash safety net in the U.S. has undergone a dramatic transformation in the past fifteen years. Federal welfare reform has led to the “elimination of welfare as we know it†and several tax reforms have substantially increased the role of “in-workâ€' assistance. In 2010, we spent more than 5 dollars on the Earned Income Tax Credit (EITC) for every dollar spent on cash benefits through Temporary Assistance for Needy Families (TANF), whereas in 1994 on the eve of federal welfare reform these programs were about equal in size. In this paper, we evaluate and test whether the EITC satisfies a defining feature of a safety net program—that it responds to economic need. In particular, we explore how EITC participation and expenditures change with the business cycle. The fact that the EITC requires earned income leads to a theoretical ambiguity in the cyclical responsiveness of the credit. We use administrative IRS data to examine the relationship between business cycles and the EITC program. Our empirical strategy relies on exploiting differences in the timing and severity of economic cycles across states. The results show that higher unemployment rates lead to higher EITC recipients and total dollar amounts of credits for married couples. On the other hand, the effect of business cycles on the EITC is insignificant for single individuals, whether measured by recipients or expenditures. In sum, our results show that the EITC serves as an automatic stabilizer for married couples with children but not for the majority of recipients—single parents with children. The patterns we identify are consistent with the predictions of static labor supply theory, and with expectations about how economic shocks are likely to affect one versus two-earner households.
The EITC Goes to College: Evidence Based on Income Tax Data and Policy Nonlinearities
Dayanand S. Manoli
(University of Texas-Austin)
Nick Turner
(US Department of Treasury)
[View Abstract]
This paper presents new evidence on the effects of disposable
income (cash-on-hand) on college enrollment decisions. We use
population-level, administrative data from United States income tax
returns to estimate the effects of refundable tax credits, most notably
the Earned Income Tax Credit (EITC), on college enrollment. The sample
includes over 15 million dependent children during their senior year of
high school from 2001-2010. We use a Regression Kink Design to estimate
the effects of tax refunds on enrollment. This research design exploits
kinks in the schedule of refundable credits by income and relates the
change in the slope of the refund-income profile to a corresponding change
in the slope of enrollment-income profile. We present nonparametric
graphical evidence illustrating changes in the probability of enrolling in
college at the same earnings levels that correspond to the kinks in the
refundable credit schedule. Regression results indicate that a $1,000
increase in tax refunds around the first kink in the EITC schedule leads
to an increase in college enrollment by 1-2 percentage points (5-10
percent).
Mansion Tax: The Effect of Transfer Taxes on Residential Real Estate Market
Wojciech Kopczuk
(Columbia University)
David Munroe
(Columbia University)
[View Abstract]
[Download Preview] Houses and apartments sold in New York and New Jersey at prices above $1 million are subject to the so-called 1% "mansion tax" imposed on the full value of the transaction. This policy generates a discontinuity (a "notch") in the overall tax liability. We rely on this and other discontinuities to analyze implications of transfer taxes in the real estate market. Using administrative records of property sales, we find robust evidence of substantial bunching and show that the incidence of this tax for transactions local to the discontinuity falls on sellers, may exceed the value of the tax, and is not explained by tax evasion (although supply-side quality adjustments may play a role). Above the notch, the volume of missing transactions exceeds those bunching below the notch. Interpreting our results in the context of an equilibrium bargaining model, we find that the market unravels in the neighborhood of the notch: its presence provides strong incentive for buyers and sellers near the threshold not to transact. Finally, we show that the presence of the tax affects how the market operates away from the threshold---taxation increases price reductions during the search process and in the bargaining stage and weakens the relationship between listing and sale prices. We interpret these results as demonstrating that taxation affects the ultimate allocation in this search market.
The Policy Elasticity
Nathaniel Hendren
(Harvard University)
[View Abstract]
[Download Preview] This paper provides a general framework for estimating the welfare impact of government policy
changes towards taxes, transfers, and publicly provided goods. The results show that the behavioral
response required for welfare measurement is the causal impact of each agent's response to the policy
on the government's budget. A decomposition of this response into income and substitution effects
is not required. Because the desired elasticities vary with the policy in question, I term them policy
elasticities. I also provide an additivity condition that yields a natural definition of the marginal
costs of public funds as the welfare cost of policies that raise government revenue. Finally, I use
the model, along with causal estimates from previous literature, to study the welfare impact of a
policy that increases the generosity of the earned income tax credit financed by an increase in the
top marginal income tax rate. I show existing causal estimates suggest additional redistribution is
desirable if and only if providing an additional $0.44 to an EITC-eligible single mother (earning
less than $40,000) is preferred to providing an additional $1 to a person subject to the top marginal
tax rate (earning more than $400,000).
Discussants:
Hilary W. Hoynes
(University of California-Davis)
Dayanand S. Manoli
(University of Texas-Austin)
Wojciech Kopczuk
(Columbia University)
Nathaniel Hendren
(Harvard University)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
Chairman Bernanke Presentation
(E5))
Presiding:
William Nordhaus
(Yale University)
Ben Bernanke
(Federal Reserve Board)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon B
American Economic Association
Climate
(Q5)
Presiding:
Lynne Lewis
(Bates College)
Discounting or Ideology? Sources of Opposition to Climate Change-Related Action
Matthew A. Shapiro
(Illinois Institute of Technology)
Toby Bolsen
(Georgia State University)
Jason Reifler
(Georgia State University)
[View Abstract]
[Download Preview] Two distinct factors complicate efforts to take action to address the threat of climate change: 1) skepticism in some segments of the public as to whether average surface level temperatures are increasing, and 2) more widespread beliefs that the effects of climate change are distant, and therefore a low national priority. In other words, opposition to collective corrective measures and individual-level action may be driven either by an outright rejection of risks or by the significant temporal distance until those risks are realized. In this paper, we examine how people respond to appeals that vary both the nature of the outcomes associated with climate change continuing unabated and the time elapsed until those effects are realized. By varying the time horizon associated with global climate change, we aim to better understand the mechanisms that lead to discounting future risks caused by climate change. The large size of our sample (n=801) allows us to further explore the impact of political ideology, which is a paramount driver for action on climate change, at least in the United States. These findings provide valuable insight into what sort of communication to the public promotes individual and collective action to combat climate change.
Jewish Persecutions and Weather Shocks: 1100-1800
Noel D. Johnson
(George Mason University)
Warren Anderson
(University of Michigan-Dearborn)
Mark Koyama
(George Mason University)
[View Abstract]
[Download Preview] What factors caused the persecution of minorities in medieval and early modern Europe? We build a model that predicts that minority communities were more likely to be expropriated in the wake of negative income shocks. Using panel data consisting of 1,366 city-level persecutions of Jews from 936 European cities between 1100 and 1800, we test whether persecutions were more likely in colder growing seasons. A one standard deviation decrease in average growing season temperature increased the probability of a persecution between one-half and one percentage points (relative to a baseline probability of two percent). This effect was strongest in regions with poor soil quality or located within weak states. We argue that long-run decline in violence against Jews between 1500 and 1800 is partly attributable to increases in fiscal and legal capacity across many European states.
Economic Implications of Agricultural Drought on the Texas Economy
Jadwiga R. Ziolkowska
(University of Texas-Austin)
Bridget R. Scanlon
(University of Texas-Austin)
Brad D. Wolaver
(University of Texas-Austin)
[View Abstract]
In 2011, almost 90% of the areas in Texas were classified in exceptional drought conditions (NDMC, 2013). As a result, many sectors in the Texas economy have suffered tremendous economic losses, especially agriculture. With almost 12 million head of livestock and 130 million acres of crop land, Texas ranks number one among the US states in the value of livestock, poultry, and their products, and number three in terms of the total value of agricultural products sold in the country (USDA, 2011).
The 2011 drought in Texas caused an estimated $7.6 billion loss in the agricultural sector, with livestock, cotton, and grain production being the most affected (Combs, 2012; Fannin, 2012; Guerrero, 2012).
This paper analyzes economic implications of the 2011 Texas agricultural drought on the state economy. By using an input-output and social accounting matrix model, direct effects have been estimated on animal, cotton, sorghum, wheat, corn, hay and timber production, as well as indirect effects on other related sectors. In addition, induced effects for consumers have also been estimated.
The results of the analysis indicate that the 2011 drought caused economic losses of $16.9 billion in the entire Texas economy and increased the unemployment by 166,895. The agricultural sector alone lost 106,000 jobs. Cotton farming lost 91% of its production value (compared to the 2010 base year) while the animal sector lost $3.7 billion in production (32% compared to 2010). The decreased production yields and the limited market supply directly influence market prices for those products, which creates additional effects on export quantities and domestic consumption prices.
This topic has a high potential to stimulate discussions on the areas and sectors that are most susceptible to market shocks, like drought, and the resulting economic implications. Furthermore, the analysis may be helpful in designing policies to mitigate impacts of future droughts.
Can Incentives for Green Investments Reduce the Transition Costs Towards a Low-Carbon Economy?
Julie Rozenberg
(CIRED)
Adrien Vogt-Schilb
(CIRED)
Stéphane Hallegatte
(World Bank)
[View Abstract]
[Download Preview] This paper compares the temporal profile of efforts to curb greenhouse gas emissions induced by two mitigation strategies: a regulation of all emissions with a carbon price and a regulation of emissions embedded in new capital only, using capital-based instruments such as investment regulation, differentiation of capital costs, or a carbon tax with temporary subsidies on brown capital. A Ramsey model is built with two types of capital: brown capital that produces a negative externality and green capital that does not. Abatement is obtained through structural change (green capital accumulation) and possibly through under-utilization of brown capital. Capital-based instruments and the carbon price lead to the same long-term balanced growth path, but they differ during the transition phase. The carbon price maximizes social welfare but may cause temporary under-utilization of brown capital, hurting the owners of brown capital and the workers who depend on it. Capital-based instruments cause larger intertemporal welfare loss, but they maintain the full utilization of brown capital, smooth efforts over time, and cause lower immediate utility loss.
Green industrial policies including such capital-based instruments may thus be
used to increase the political acceptability of a carbon price. More generally, the carbon price informs on the policy effect on intertemporal welfare but is not a good indicator to estimate the impact of the policy on instantaneous output, consumption, and utility.
A Dynamic Forest Sector in a General Equilibrium Framework
Xiaohui Tian
(Ohio State University)
Brent Sohngen
(Ohio State University)
Ron Sands
(USDA Economic Research Service)
[View Abstract]
This paper develops a dynamic forest sector in a Computable General Equilibrium (CGE) model. There are three reasons why it is important to model a dynamic forest sector in CGE. The first reason lies in the role of forestry in the global carbon cycles. Forest sequestration could potentially be a significant component in climate change mitigation, which will have important implications for future carbon pricing. The second reason is the potential impact of forestry on energy prices due to the increasing use of woody biomass as a source of energy. This could influence future energy prices and therefore other sectors of the economy. The last reason stems from the deficiency in land in use analysis, especially in forestland use analysis, for integrated assessment modeling (IAM), a standard tool used to analyze the effects of climate change and climate change policies on the economy. The economic/biological link on the land use side in these models, however, has been under-developed for years and the limitations trace directly to the inability of these models to account for the dynamics of forest management. This paper addresses this critical gap by illustrating how to introduce a dynamic forestry sector into a CGE model with rational expectations in all the sectors in the economy. The forestry sector is land-based and embodies different age classes. Land use decisions are endogenously made by timber producers so that forestland can be converted to alternative uses or new land can be incorporated into timber production. Currently, the model has been solved in a stylized general equilibrium framework. With the parameters in baseline calibrated, various carbon policy and timber yield scenarios are compared and discussed and international trade component is expected to be added in future.
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 203-B
American Economic Association
Cognitive Human Capital, Growth and Wealth – Perspectives of Economics and Psychology
(J2)
Presiding:
Heiner Rindermann
(Chemnitz University of Technology and Southern Illinois University)
Human Capital and National Institutional Quality: Are TIMSS, PISA, and IQ Robust Predictors?
Garett Jones
(George Mason University)
Niklas Potrafke
(LMU-ifo)
[View Abstract]
[Download Preview] Which measures of human capital are the best predictors of good institutions: Quality measures such as cognitive skill scores or average years of education? Using a new institutional quality measure, the International Property Rights Index (IPRI), we find that average years of education is rarely statistically significant across specifications while cognitive skill measures are significant, robust, and large in magnitude. We use two databases of cognitive skills: estimates of national average IQ from Lynn and coauthors (2002, 2006, 2010) and estimates of cognitive ability based on PISA and TIMSS scores estimated by Rindermann et al. (2009). The Rindermann cognitive ability scores estimate mean performance as well as performance at the 5th and 95th percentiles of the national population. Performance at the 95th percentile is the most robust predictor of institutional quality while the 5th percentile is less robust. National average IQ and the 95th percentile of cognitive ability are both robust predictors of overall institutional quality controlling for years of education, legal system, GDP per capita, and geography dummies. These results are consistent with the hypothesis that the cognitive performance of national elites is important in shaping institutional quality.
The Psychology Approach to Macroeconomics
Heiner Rindermann
(Chemnitz University of Technology)
[View Abstract]
[Download Preview] Human capital research, the use of psychological attributes to explain economically productive behavior, started in the late 1950s in economics. In macroeconomic studies educational measures predict economic growth. Not until 2002 did psychologists present internationally comparable cognitive human capital measures - country means in psychometric IQ tests (Lynn & Vanhanen, 2002). The measures were criticized for low reliability, low validity and ideological bias. However, the data were continuously improved (Lynn & Vanhanen, 2012) and studies have shown the robust predictive validity of IQ measures, e.g. for wealth, growth, corruption, democracy and criminality (e.g. Jones, 2012; Meisenberg, 2012; Potrafke, 2012; Rindermann, 2008). Alternatively, student assessment test results (PIRLS, PISA, TIMSS) can be used as cognitive human capital measures or both sources can be combined (Rindermann & Thompson, 2011). In economic research, student assessment measures are preferred (Hunt & Woessmann, 2008). Personality attributes (Heckman & Kautz, 2012) are hardly comparable across nations. However, discipline predicts greater wealth (Rindermann & Ceci, 2009).
There are not only differences in the use of various (but highly correlated) measures and terms (skills vs. ability) but also in applied methods: regressions vs. path analyses, unstandardized coefficients vs. standardized coefficients, predicting growth vs. wealth. Rindermann and Thompson (2011) developed a theory of cognitive capitalism which postulates that the average national cognitive level and in particular the level of an intellectual elite have a positive impact on the rate of technological innovation, the quality of institutions and administration, the extent of economic freedom and by these factors on economic growth and wealth.
The most hotly disputed elements of this research agenda are possible determinants explaining differences in and development of national cognitive competence (Hunt, 2012). Discussed factors range from education to culture, health to genes, geography to politics. The paper will describe important measures of educational policy to improve competence.
The Importance of State Human Capital
Eric Hanushek
(Stanford University)
Jens Ruhose
(ifo Institute Munich)
Ludger Woessmann
(University of Munich-ifo)
[View Abstract]
[Download Preview] While many U.S. states emphasize the role of human capital for their economic development, little direct information linking education to growth and incomes is available. This paper begins by developing new detailed measures of state human capital based on information about the school attainment and cognitive skills of state natives, internal migrants, and immigrants in the current state workforce. We combine census micro data on school attainment with cognitive skills constructed from state (or country) of origin achievement test scores. Achievement scores are adjusted to allow for selectivity in the quality of migrants. These new human capital measures are used in a development accounting framework calibrated with standard production parameters. Differences in human capital account for 20-30 percent of today’s variation in GDP per capita across states. The contribution of human capital is almost evenly split between school attainment and cognitive skills.
Mediators of the IQ Effect on Economic Growth
Gerhard Meisenberg
(Ross University)
[View Abstract]
[Download Preview] Several studies have demonstrated that measures of intelligence, either in the form of IQ scores or scores on scholastic achievement tests, predict economic growth. This effect is seen especially in growth regressions that include initial per-capita GDP as a co-predictor, and it persists when measures of exposure to formal education (years in school, highest degree) are controlled. However, the mechanisms through which higher intelligence favors economic growth are not known.
The present study replicates earlier findings by showing that school achievement (measured as scores on TIMSS, PISA and other international assessments) and IQ are about equally predictive of economic growth. It shows that this effect is also present in subsamples of high- and low-income countries.
Possible mediators of the IQ effect on economic growth were then investigated with path models predicting log-transformed per capita GDP in 2009. Log-transformed per-capita GDP in 1975 and ex-communist status were the only exogenous variables. IQ, schooling and corruption were used as intermediate variables, and several other variables were modeled as possible mediators of the IQ effect on lgGDP2009.
In the complete sample, the IQ effect is partially mediated by higher life expectancy and lower infectious disease burden, lower fertility, higher savings rate, higher investment and lower consumption rates. In the subsample of low-income countries, significant mediators of the IQ effect include low fertility, low infectious disease burden, low Gini index, and high technological competitiveness. In high-income countries, IQ favors economic growth by reducing Gini index and crime rate. In the total sample and the subsample of high-income countries, high IQ antagonizes economic growth to some extent through increased social security expenses.
What Do Achievement Tests and IQ Tests Measure: Identification Problems in Measuring Intelligence
James J. Heckman
(University of Chicago)
Tim Kautz
(University of Chicago)
[View Abstract]
This paper presents a framework for measuring intelligence and other psychological traits. Our framework recognizes that all psychological traits are measured using performance on some kind of task. In general task performance depends on multiple psychological traits, incentives, and effort.
We show that when measuring intelligence it is important to standardize for other psychological traits and effort. We analyze several data sets to investigate the role of effort and personality traits in determining cognitive test scores. Measures of personality and effort explain 20%-30% of the variation in achievement test scores of children. Personality traits explain less of the variation in measures of IQ than in measures of achievement tests, because achievement tests depend on knowledge acquired through persistence. Effort is more predictive of the cognitive measures for younger children than older children. Personality traits and effort explain a substantial part of cognitive test score gaps between races.
This study sheds light on the interpretation of what achievement and intelligence tests measure. Achievement tests and grades are determined to an important extent by personality and motivation and high stakes testing in schools reflects motivation and personality traits as much as acquired knowledge.
Discussants:
Susan M. Collins
(University of Michigan)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 203-A
American Economic Association
Economics of Charitable Giving and Volunteering
(H4)
Presiding:
James Andreoni
(University of California-San Diego and NBER)
Holier Than Thou? Social Motivations for Religious Giving
James Andreoni
(University of California-San Diego and NBER)
Matthew Goldman
(University of California-San Diego)
Marta Maras
(Università Bocconi)
[View Abstract]
Previous laboratory and field experiments suggests increased levels of generosity when donor identities are revealed. We add to this by studying a unique "natural" field experiment. We explore a panel of religious donors tracking 1,597 households over 335 weeks from 1994-2000 in Zagreb, Croatia. Donations were solicited at each Sunday mass in order to fund the construction of a new church. Individual donations were publicly announced for the first 117 weeks, posted on a publicly visible board for the next 106 weeks, and finally announced in cumulative total for the final 112 weeks. Under exogeneity of these treatment shifts, we find strong statistically significant effects for the impact of both forms of public announcement in both a fixed effects regression and a discontinuity framework. Public announcement more than doubles the baseline rate of donations and the already-elevated rate of donations in holiday weeks. Additionally, we find that within-period, across-subject variation in donation behavior is highly correlated among those living on the same street. This indicates that geographic neighbors are an important part of a donor's reference space. However, especially large donations seem to have a discouraging effect on same-week neighbor donations, perhaps indicating that some households are induced to demure rather than compete with such an ostentatious reference point.
Does Giving to Charity Lead to Better Health?
Baris Yoruk
(State University of New York-Albany)
[View Abstract]
[Download Preview] In the United States, charitable contributions can be deducted from taxable income making the price of giving inversely related to the marginal tax rate. The existing literature documents that charitable giving is very responsive to tax subsidies, but often ignores the spillover effects of such policies. On the other hand, a growing body of literature documents that giving to others reduces the stress and strengthens the immune system, which results in better health and longer life expectancy. These findings imply that tax subsidies for charitable giving may have positive spillover effects on health. This paper investigates this hypothesis using data from Center on Philanthropy Panel Study (COPPS), the philanthropy module of the Panel Study Income Dynamics (PSID). Understanding the spillover effects of charitable subsidies on health is quite important given the existing literature that links health status to several important economic outcomes. The results show that charitable subsidies have positive spillover effects on health. In particular, the implied cross-price elasticity of health index with respect to giving is -0.13. These results are robust to potential endogeneity of income and highlight the positive externalities created by tax subsidies for charitable giving.
Are Men More Responsive to the Price of Giving Than Women?
John A. List
(University of Chicago and NBER)
Michael K. Price
(Georgia State University and NBER)
[View Abstract]
There is a growing body of work exploring gender differences across a variety of contexts. We extend this line of inquiry and explore gender differences in the effectiveness of a commonly employed fund-raising strategy - matching gifts - using a natural field experiment. Our results show that while women are more likely to give, men are more responsive to matching gifts and changes in the match rate. Whereas rates of giving nearly double for men provided a matching gift, such gifts have no impact on giving for women. Moreover, we find that conditioned on giving, men tend to provide larger average donations than women. Such differences are consonant with DellVigna et al. (2012) who show that the distribution of altruism is more disperse for men than women. As such, one would expect men to be more sensitive to changes in the price of giving.
Why Do People Volunteer? An Experimental Analysis of Preferences for Time Donations
Jonathan Meer
(Texas A&M University)
Alexander Brown
(Texas A&M University)
Forrest Williams
(Texas A&M University)
[View Abstract]
We conduct a laboratory experiment to test if there are differences in behavior when subjects can donate either time or money to charity. Our subjects perform an effort task to earn money. In one condition they can have their efforts accrue to a charity instead of themselves. In other conditions subjects may only earn money for their private account but then donate it to a charity. We vary the timing and availability of donation opportunities in the monetary donation settings to test the impact of subtle solicitation pressure. We find that subjects with a more opportunities to donate will donate more often and in larger amounts. Further, subjects giving effort to charity give far more than subjects who give monetary donations -between two and ve times as much, on average. We posit that this difference is driven by different warm glow from the two donation types.
Discussants:
Alexander Brown
(Texas A&M University)
Jonathan Meer
(Texas A&M University)
Baris Yoruk
(State University of New York-Albany)
Michael K. Price
(Georgia State University and NBER)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 202-B
American Economic Association
Employment Structure and Inequality
(J2)
Presiding:
Francine Blau
(Cornell University)
The Great Reversal in the Demand for Skill and Cognitive Tasks
Paul Beaudry
(University of British Columbia)
David A. Green
(University of British Columbia)
Benjamin M. Sand
(York University)
[View Abstract]
[Download Preview] What explains the current low rate of employment in the US? While there has been substantial debate over this question in recent years, we believe that considerable added insight can be derived by focusing on changes in the labor market at the turn of the century. In particular, we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together. In order to understand these patterns, we offer a simple extension to the standard skill biased technical change model that views cognitive tasks as a stock rather than a flow. We show how such a model can explain the trends in the data that we present, and offers a novel interpretation of the current employment situation in the US.
Labour Market Polarization, Urbanization and Skill-Biased Consumption
Joanne Lindley
(University of Surrey)
Stephen Machin
(University College London and London School of Economics)
[View Abstract]
We study spatial changes in labour market inequality for states and cities using US Census and American Community Survey data and for regions and cities using UK Labour Force Survey data. We report evidence of significant spatial variations in education employment shares and in the college wage premium in both countries, and show that the pattern of shifts through time has resulted in increased spatial persistence. Because relative supply of college versus high school educated has also risen faster at the spatial level in places with higher initial supply levels, we also report a strong persistence in spatial relative demand. These relative demand increases are bigger in more technologically advanced places that have experienced faster increases in R&D and computer usage, and where union decline has been fastest. Finally, we show that the increased concentration of more educated workers into particular spatial locations and rising spatial wage inequality are important features of labour market polarization, as they have resulted in faster employment growth in high skill occupations, but also higher demand for low wage workers in low skill occupations. Overall, our spatial analysis complements research findings from labour economics on wage inequality trends and from urban economics on agglomeration effects connected to education and technology.
A Theory of Dual Job Search and Sex-Based Occupational Clustering
Alan Benson
(University of Minnesota)
[View Abstract]
[Download Preview] I present a model of couples' job search whereby men segregate into occupations that are geographically clustered (such as nuclear engineers) and women sort into occupations that are geographically dispersed (such as jobs in health, business support, or education) in advance of marriage and in anticipation of future co-location problems. Using the Decennial Census, I calculate a measure of geographic clustering-the share of members in that occupation that would need to relocate for that occupation to have the same employment-to-population ratio in all US metropolitan areas. Results confirm men segregate into geographically-clustered occupations, and that these occupations involve more-frequent early career relocations for both sexes. I also find that the minority of the men and women who depart from this equilibrium experience later marriage, higher divorce, and lower earnings. Results are consistent the theory that marriage and mobility expectations foment a self-fulfilling pattern of occupational segregation with individual departures deterred by earnings and marriage penalties.
Occupational Concentration, Wages, and Growing Wage Inequality
Elizabeth Handwerker
(Bureau of Labor Statistics)
James R. Spletzer
(US Census Bureau)
[View Abstract]
[Download Preview] Using the microdata of the Occupational Employment Statistics, we document strong relationships between occupational concentration and wages that matter for growing wage inequality. Broadly speaking, workers in more occupationally concentrated establishments are paid less, even within the same occupation, industry, state, and establishment size. The fraction of workers in an establishment who are employed in typically high or low-wage occupations are strong predictors of wages, even after controlling for occupation and observable establishment characteristics. These relationships between occupational concentration and wages are particularly important for workers in typically low-wage occuaptions, and by some measures, occupational concentration has been growing over time. Vhanges in occupational concentration can explain a large fraction of growth in wage inequality between 2000 and 2011 (for workers in the lower 95% of the wage distribution). Including measures of occupational concentration, we can explain 52% of wage inequality growth for these workers (63% of wage inequality growth between establishments); excluding these measures, we can explain only 36% of wage inequality growth (46% of wage inequality growth between establishments). We discuss whether the growth in occupational concentration we measure can be considered "contracting out."
Discussants:
Thomas DeLeire
(University of Wisonsin-Madison)
Sergio Firpo
(Sao Paolo School of Economics)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 204-A
American Economic Association
Energy, Environment, and Local Economic Spillovers
(Q4)
Presiding:
Don Fullerton
(University of Illinois)
The Effects of Fracking on Welfare: Evidence from Property Values
Janet M. Currie
(Princeton University)
John Deutch
(Massachusetts Institute of Technology)
Michael Greenstone
(Massachusetts Institute of Technology)
Alexander Bartik
(Massachusetts Institute of Technology)
[View Abstract]
This paper uses detailed data from several states to determine the local impacts of recently developed hydraulic fracturing techniques (i.e., "fracking") to recover natural gas on infant health, property values, and local economic activity. We conduct the analysis with a new data file that contains the longitude and latitude of all fracked wells, the street address of all new mothers, the street address of houses and their values, and local measures of economic activity. These data will be merged with information on which households rely on well water that may potentially be contaminated through the fracking process and which ones rely on public water supplies that are cleaned in the normal process of water delivery.
Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America
Hunt Allcott
(New York University)
Daniel Keniston
(Yale University)
[View Abstract]
The rise in oil and gas prices and drilling activity in the past decade has caused economists and policymakers to reconsider whether natural resource production benefits producer economies or instead creates a "Natural Resource Curse." We use confidential establishment-level data from the US Census of Manufactures and Longitudinal Business Database to estimate the effects of expansions and contractions of the oil and gas sector on growth since the early 1970s. Our approach combines cross-county variation in oil and gas supply with large time series variation in production activity. Oil and gas booms increase growth rates in producer counties by 60 to 80 percent relative to non-producer counties, and a necessary condition for the resource curse is satisfied: local wages increase by 0.3 to 0.5 percentage points per year during a boom. Nevertheless, manufacturing growth is positively associated with natural resource booms. Manufacturing employment and output both rise, while productivity does not, suggesting that at least in the rural counties we study, manufacturing firms benefit from increases in local demand.
Demand Shocks, Supply Chains, and Implications for Local Economies: Evidence from the Auto Industry
James Sallee
(University of Chicago)
Reed Walker
(University of California-Berkeley)
[View Abstract]
This paper explores the short-run implications of relative shifts in product demand for labor markets characterized by "million dollar plants". In doing so, we develop a new approach to quantifying and estimating demand spillovers in local labor markets by exploiting exogenous, plant-level changes in product demand and estimating the plant-specific impact on nearby and related economic activity. The empirical setting surrounds automotive industry which is one of the most heavily co-agglomerated industry groups in the United States. Parts suppliers tend to co-locate with production plants due to the "just-in-time", low-inventory production processes typical of the auto industry. The automotive industry also experiences large swings in demand that are driven by the interaction between the price of gasoline and the existing capital stock at a production plant (e.g. the type of car produced). When the price of gasoline goes up, relative demand shifts from low to high mile-per-gallon (MPG) vehicles and production responds. We use this plant-specific, relative shift in product demand as a source of identifying variation. We then use various measures of economic distance to examine localized production spillovers, either through the automotive supply chain and/or spillovers to non-tradable goods and services.
We have three primary findings. First, we find that a 10% increase in gas price leads to a 4% relative difference in auto employment in high versus low MPG plants. Second, downstream production shocks propagate towards nearby upstream auto parts suppliers (in a relative sense). This allows us to estimate a short-run supply-chain multiplier for the auto industry: 1 job lost in auto production leads to 1.07 jobs lost in nearby auto suppliers. Third, short run shifts in production have large effects on local communities. We find evidence of demand spillovers into non-automotive sectors (e.g. non-tradable) and also increases in the local unemployment rate of a county.
Can State Level Renewable Portfolio Standards Reduce Emissions and Foster Local Economic Booms?
Antonio M. Bento
(Cornell University)
Daniel Kaffine
(Colorado School of Mines)
Teevrat Garg
(Cornell University)
[View Abstract]
Recently 29 states have adopted Renewable Portfolio Standards (RPS) that require a fraction of total electricity to be generated from renewable sources. Presumably RPS reduce GHG emissions, foster the extraction and use of renewables, and promote local economic "green" booms. Yet, knowledge of the effectiveness of RPS remains limited. We develop a simple analytical and numerical general equilibrium model with multiple jurisdictions and renewable technologies to evaluate the effectiveness of RPS. Our focus is on the impacts of the RPS on (1) the amount of renewables and fossil fuels used in electricity production, (2) GHG emissions, and (3) local booms from renewable rents. Each jurisdiction is endowed with different quantities of various renewables, and capital is mobile across jurisdictions.
Earlier work that examined the effects of environmental mandates relied on a single jurisdiction/technology framework and emphasized two key channels of adjustment, an output effect and a substitution effect. In our context, the output effect corresponds to the decrease in capital used in fossil production, while the substitution effect corresponds to the increase in capital used in renewable production. With multiple jurisdictions and technologies two other important effects come in to play: a capital-mobility effect as capital moves across jurisdictions, and a technology-substitution effect as technology- specific standards induce capital movement between alternative renewable technologies.
We highlight three key results. First, the output effect grows relative to the substitution effect as the pre-existing standard increases, implying larger emission reductions in states with high pre-existing standards. Second, we find that the capital-mobility effect can be positive or negative depending on the relative magnitudes of the output and substitution effects, enhancing or diminishing local economic booms from changes in rents to the renewable endowment. Third, the technology-substitution effect reduces the production from other renewable sources and limits overall emissions reductions and local resources booms.
Discussants:
Christopher Timmins
(Duke University)
Nathaniel Baum-Snow
(Brown University)
David H. Autor
(Massachusetts Institute of Technology)
Don Fullerton
(University of Illinois)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 107-B
American Economic Association
Housing
(R2)
Presiding:
Lynn Fisher
(University of North Carolina-Chapel Hill)
The Impact of Housing Markets on Consumer Debt: Credit Report Evidence from 1999 to 2012
Meta Brown
(Federal Reserve Bank of New York)
Sarah Stein
(Federal Reserve Bank of New York)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] We investigate the impact of large swings in the housing market on non-mortgage borrowing, including student, credit card, auto, and home equity debts. For this purpose, we use CoreLogic geographic house price variation, matched with consumer liabilities from the Equifax-sourced FRBNY Consumer Credit Panel. The length of our panel allow us to study the consumer debt portfolio response to house price changes during a boom and bust cycle of historic magnitude, as well as more ordinary times. In first-differenced instrumental variables estimation, we find that, during 1999-2001, homeowners substituted out of non-housing debt and into home equity-based debt at a rate of roughly 50 cents on the dollar in response to house prices increases. During the housing boom of 2002-2006, however, homeowners abandoned the practice of substituting into less costly debt as equity grows, and instead increased obligations across the board. From 2007-2012, sample homeowners experienced a 23 percent average house price decline, and withdrew from home equity debt without adding to non-housing debt. We observe substantial heterogeneity in this pattern: substitution in both 1999-2001 and 2007-2012 is close to dollar-for-dollar for prime borrowers, while the decidedly non-prime borrow more modestly, show no evidence of substitution in any period, and shed large amounts of all types of debt from 2007-2012. Evidence is suggestive of portfolio-based, demand-driven debt changes for older and prime borrowers, and supply-driven debt changes with extensive default for younger and non-prime borrowers. Finally, difference in differences and FD-IV estimates are consistent with both (a) a 2012 relative debt overhang of at least $1200 on average, despite little remaining home equity advantage, for homeowners who experienced a more pronounced boom and bust cycle, and (b) some substitution out of home equity debt into student loans in response to recent house price declines.
Endogenous Sources of Volatility in Housing Markets: The Joint Buyer-Seller Problem
Elliot Anenberg
(Federal Reserve Board)
Patrick Bayer
(Duke University)
[View Abstract]
[Download Preview] This paper presents new empirical evidence that the internal movement - selling one home and buying another - by existing homeowners within a metropolitan housing market is especially volatile and much more pro-cyclical than external volume. We develop a dynamic search equilibrium framework that show that the strong pro-cyclicality of internal movement is driven by the cost of simultaneously holding two homes, which varies endogenously over the market cycle. Estimating the model with data on prices, volume, time-on-market, and internal moves drawn from Los Angeles from 1988-2008, counterfactual simulations show that frictions related to the joint buyer-seller problem: (i) substantially amplify booms and busts in the housing market, (ii) create counter-cyclical build-ups of mismatch of existing owners with their homes, and (iii) generate externalities that induce significant welfare loss and excess price volatility.
Segmented Housing Search
Johannes Stroebel
(University of Chicago)
Monika Piazzesi
(Stanford University)
Martin Schneider
(Stanford University)
[View Abstract]
[Download Preview] This paper considers house trading and valuation in heterogeneous but interconnected housing markets. We use a novel data set on search behavior from the popular real estate website Trulia.com to document stylized facts on buyer search patterns. We then build a quantitative model of housing market search that can account for the joint distribution of turnover, inventory, time on market and search patterns in the San Francisco Bay Area. We use the model to infer the distribution of searcher preferences as well as the matching technology. We show that more expensive neighbourhoods are searched by smaller clienteles who also tend tomove less often. As a result, expensive houses trade at much lower liquidity discounts than cheap houses.
Inside a Bubble and Crash: Evidence from the Valuation of Amenities
Ronan C. Lyons
(Balliol College and Oxford University)
[View Abstract]
[Download Preview] Recent economic history underscores the importance of housing market cycles in modern economies. While a growing body of research has examined links between housing and the wider economy, much less attention has been paid to the internal mechanics of this inherently spatial market. In particular, it is not known whether housing bubbles are characterized by an extended spread of prices, reflecting a concern on the part of buyers to "lock in" access to amenities in fixed supply, or instead whether "property ladder" effects push up the relative price of low-amenity housing. To investigate this hypothesis, this paper combines information on 25 location-specific amenities with a new and detailed dataset of 1.2 million property listings in Ireland, from 2006, the height of a real estate bubble, to 2012, by which stage prices had fallen by more than a half.
Theoretically, while expectations are central to housing market cycles, they are hard to measure and have rarely been studied in connection with location-specific amenities. Recently, examining the decade-long boom in U.S. house prices and using 1996 as a counterfactual, Glaeser et al. (2012) find evidence that "buyers during the boom overestimated the long-run value of positive local attributes".
If expectations of amenity-specific capital gains do exist, they should be greatest during the bubble and of least concern in the crash. This would be reflected in pro-cyclical amenity prices, i.e. the relative price of amenities falling between bubble and crash periods. Alternatively, a pervasive need to "get on the ladder" in the frenzy of a bubble would pushing up demand for low-amenity real estate and thus amenity valuations will be smaller in the bubble than in the crash. The evidence from the majority of amenities is that the Irish housing bubble was characterized by "property ladder" effects, rather than "lock-in" concerns.
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 204-B
American Economic Association
Intellectual Property Rights and Innovation
(O3)
Presiding:
Heidi Williams
(Massachusetts Institute of Technology)
Individualism and the Creation of Knowledge
Daron Acemoglu
(Massachusetts Institute of Technology)
Ufuk Akcigit
(University of Pennsylvania)
Murat Alp Celik
(University of Pennsylvania)
N/A
The Impact of Chinese Imports on Innovation, IT, and Productivity
Nicholas Bloom
(Stanford University)
Mirko Draca
(University of Warwick)
John Van Reenen
(London School of Economics)
[View Abstract]
[Download Preview] We examine the impact of Chinese import competition on broad measures of technical change - patenting, IT, R&D, TFP and management practices using new panel data across twelve European countries from 1996-2007. In particular, we establish that the absolute volume of innovation increases within the firms most affected by Chinese imports. We correct for endogeneity using the removal of product-specific quotas following China's entry into the World Trade Organization. Chinese import competition led to increased technical change within firms and reallocated employment between firms towards more technologically advanced firms. These within and between effects were about equal in magnitude, and account for about 15% of European technology upgrading over 2000-2007 (and even more when allowing for offshoring to China). Rising Chinese import competition also led to falls in employment, profits, prices and the share of unskilled workers. By contrast, import competition from developed countries had no effect on innovation. We develop a simple trapped factor model that is consistent with these empirical findings.
Do Fixed Patent Terms Distort Innovation? Evidence from Cancer Clinical Trials
Eric Budish
(University of Chicago)
Benjamin Roin
(Harvard University)
Heidi L. Williams
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Patents award innovators a fixed period of market exclusivity, e.g., 20 years in the United States. Yet, since in many industries firms file patents at the time of discovery ("invention") rather than first sale ("commercialization"), effective patent terms vary: inventions that commercialize at the time of invention receive a full patent term, whereas inventions that have a long time lag between invention and commercialization receive substantially reduced - or in extreme cases, zero - effective patent terms. We present a simple model formalizing how this variation may inefficiently distort research and development (R&D). We then explore this distortion empirically in the context of cancer R&D, where clinical trials are shorter - and hence, effective patent terms longer - for drugs targeting late-stage cancer patients, relative to drugs targeting early-stage cancer patients or cancer prevention. Using a newly constructed data set on cancer clinical trial investments, we provide several sources of evidence consistent with fixed patent terms distorting cancer R&D. Back-of-the-envelope calculations suggest that the number of life-years at stake is large. We discuss three specific policy levers that could eliminate this distortion - patent design, targeted R&D subsidies, and surrogate (non-mortality) clinical trial endpoints - and provide empirical evidence that surrogate endpoints can be effective in practice.
The Use and Misuse of Patent Data
Joshua Lerner
(Harvard Business School)
Amit Seru
(University of Chicago)
[View Abstract]
In the past several years, there have appeared an increasing number of papers in the finance, accounting, and strategy literature which make use of patent data. In many cases, the papers have used these data to shed fresh insights onto important problems. But in other cases, the interpretation of the results has been marred by a failure to understand some of the peculiarities of patents and patent data. This paper is an attempt to rectify this omission. The paper proceeds in three parts. First, we briefly describe the patent application process, highlighting the key features that can make the analysis of patent data problem. Next, we describe the features of the key databases used for patent research, paying most attention to the original and most recent incarnations of the NBER Patent Citation database. Finally, we highlight a few traps for the unwary, which can lead to problematic inferences from patent data.
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 103-C
American Economic Association
Military Manpower Economics
(H5)
Presiding:
Martin Feldstein
(Harvard University)
Hidden Costs of War in Iraq and Afghanistan: The Mortality of Recent Veterans
Michael Yankovich
(US Military Academy)
[View Abstract]
This paper documents a substantial increase in the one-year post discharge mortality of recent veterans. As a result, the mortality impacts of service in the U.S. Army during the wars in Afghanistan and Iraq through the end of 2010 are understated by approximately 10%, which is equivalent to about 370 deaths. Approximately 91% of the change in post-service mortality after the war began appears to be due to the effect of exposure to high rates of mortality while in-service. Changes in soldier demographics do not explain the observed increase in veteran mortality.
USING SKILL CHANNELING EXPERIMENTS TO IDENTIFY THE LONG TERM EFFECTS OF MILITARY ACQUIRED SKILLS: PRELIMINARY EVIDENCE FROM THE ENLISTMENT BONUS EXPERIMENT
Ryan Sullivan
(Naval Postgraduate School)
Coady Wing
(University of Illinois-Chicago)
[View Abstract]
[Download Preview] This paper presents some preliminary results for a broad based study designed to measure the medium- and long-term economic and health outcomes for veterans as a result of an enlistment bonus experiment conducted by Rand in the early 1980s. The original design of the experiment was relatively straightforward – some recruiting areas provided higher enlistment bonuses for combat occupations while other control areas retained the same enlistment bonuses as before the experiment. We use a standard difference-in-differences (DID) identification strategy with a detailed panel dataset provided by the Defense Manpower Data Center (DMDC) to analyze the treatment effects across a large database of military recruits. We find the higher enlistment bonus incentives available to the treatment groups from the experiment did very little to attract a different pool of enlistees or to materially change the characteristics of the enlistees. Furthermore, we find the higher enlistment bonuses did not generate substantial market expansion effects. We do find, however, that the experiments had a “skill channeling†effect on enlistees in the treatment zones (i.e. high quality recruits were more likely to enlist in combat occupations as a result of the higher enlistment bonuses). In general, we find high quality enlistees in the treatment areas were more likely to marry and have at least one dependent in comparison to those in the control areas. High quality enlistees were also more likely to have faster promotion rates in comparison to those in the control areas.
The Long-Term Consequences of Combat
Laura Armey
(Naval Postgraduate School)
Peter Berck
(University of California-Berkeley)
Jonathan Lipow
(Naval Postgraduate School)
[View Abstract]
In this paper, we exploit a unique data set with roughly 600,000 individual observations on US Army personnel who were serving at the time of the initial operations in Iraq and Afghanistan. The data combines material from the US Army's DEERS dataset (birthdate, religion, gender, ethnicity), the US Army Master Personnel file (AFQT, educational attainment, awards, entry, exit dates, promotion, MOS), the US Army CTS (combat deployment information), VA data on GI Bill participation, the SSA's death file, and IRS data on income, dependents, marriage, retirement contributions, and home ownership. During this period, many units were tapped for participation in combat operations, while other similar units remained behind in the continental US, Europe, and Korea. Soldiers control their expected exposure to combat through their choice of military occupation specialty (MOS), but have little or no control of their realized exposure to combat relative to that expected exposure. This creates natural experiments that make it possible to identify some of the long term consequences of participation in combat, including its impact on income, family status, education, and mortality. In addition to these general aggregate level results, we estimate whether the long term impact of combat differs for officers and enlisted personnel, soldiers of different genders or racial groups, and for soldiers who self-select for combat oriented professions relative to those who self-selected for support or service support roles.
Assessing Military Compensation Reform using an Estimated Dynamic Model of Active and Reserve Retention and Cost
Beth Asch
(RAND Corporation)
James Hosek
(RAND Corporation)
Michael Mattock
(RAND Corporation)
[View Abstract]
This research develops and estimates a stochastic dynamic model of active and reserve military retention and uses the estimates to simulate the retention and cost effects of alternative proposals to reform the military compensation system, particularly the retirement system. We model the decision to stay in the active component, leave active duty and either join the reserve component or become a civilian without reserve service where the reserve and civilian decisions are modeled as a nested choice. Individuals are assumed to be heterogeneous in their taste for active and reserve service and their annual decisions are subject to random shocks. We estimate the model parameters for each service, active and reserve, and for enlisted personnel and for officers. We use the model estimates to conduct a variety of policy analyses. Specifically, we simulate the effects of moving to a new military retirement system that would vest earlier than the current 20-year retirement system and would include both a defined benefit and defined contribution component. Sustaining military force size and experience mix would also involve increasing current compensation. The policies we consider are highly relevant to deliberations of the recently formed Military Compensation and Retirement Modernization Commission currently debating how to reform the military compensation system to improve effectiveness and reduce cost. Notably, our simulations provide estimates of the effects of reform alternatives on retention, cost, and outlays in both the steady state and in the transition to the steady state.
Discussants:
Laura Armey
(Naval Postgraduate School)
Beth Asch
(RAND Corporation)
Michael Yankovich
(US Military Academy)
Ryan Sullivan
(Naval Postgraduate School)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 103-A
American Economic Association
Neuroeconomics of Stochastic Choice
(D8)
Presiding:
David Laibson
(Harvard University)
An Optimizing Neuroeconomic Model of Discrete Choice
Michael Woodford
(Columbia University)
TBA
Benefits of Neuroeconomic Modeling: New Policy Interventions and Predictors of Choice
Ian Krajbich
(University of Zurich)
Bastiaan Oud
(University of Zurich)
Ernst Fehr
(University of Zurich)
[View Abstract]
From its inception, neuroeconomics has promised to use knowledge from neuroscience and psychology to improve models of economic decision making. Here we deliver on this promise by introducing a biologically-plausible (drift-diffusion) model of decision making that is able to predict behavior, with fixed parameters, in random groups of individuals across very different tasks. The model also goes beyond the traditional economic approach because it is able to predict not only choices but response times as well. But why should economists care about modeling response times? For one, as predicted by the model, we consistently observe that people spend too much time on irrelevant choices for which they are nearly indifferent. In a world of time constraints, time spent on unimportant decisions represents an opportunity cost, namely time not spent on more important decisions. To help subjects overcome this inefficient allocation of time, we designed an intervention that puts a time limit on subjects' choices. This simple intervention substantially improved subjects' welfare in a time-constrained choice experiment. Second, the precise relationship between response times and choice probabilities implies that response times can be used to predict indifference points and the strength of preferences. We demonstrate this ability using data from an Ultimatum Game experiment. Overall, we show that better understanding the process by which people make decisions can explain the basis for stochastic choice behavior and help us do both normative and positive economics.
A Neuronal Theory of the Decision Process
Camillo Padoa-Schioppa
(Washington University-St. Louis)
Aldo Rustichini
(University of Minnesota)
TBA
Discussants:
Stephen Morris
(Princeton University)
Andrew Caplin
(New York University)
Paul Glimcher
(New York University)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 202-A
American Economic Association
New Directions and Opportunities for Research on Consumption with the PSID
(A1)
Presiding:
David Johnson
(US Census Bureau)
Household Debt and the Weak Recovery of Consumption: Evidence from the Panel Study of Income Dynamics
Karen Dynan
(Brookings Institution)
[View Abstract]
U.S. consumer spending has seen a lackluster recovery in the wake of the Great Recession. While the factors traditionally thought to determine consumption and borrowing decisions-such as income and wealth-probably explain much of the weak performance of consumer spending from 2008 to 2012, casual observation, intuition, and some recent empirical work suggest that the high level of household debt may also be playing a special role. This paper will add to a burgeoning literature that explores how, why, and to what degree household debt has been influencing the recent economic recovery. It will use data from the Panel Study of Income Dynamics (including newly released data from the 2011 wave) to examine the degree to which household debt held back consumption during the recession and early recovery. It will also explore the channels underlying the relationship. In particular, it will look for evidence that high-debt households had relatively weak consumption because they were more likely to be cut off from further credit or unable to refinance their homes into mortgages with lower monthly payments than their counterparts with less debt. The findings will bear on whether additional policy measures aimed at high-debt households (such as debt forgiveness programs or more aggressive efforts to refinance under-water households) would have hastened the economic recovery.
What Do We Know about Consumption Inequality? Some Evidence Using the New PSID Consumption Measure
Orazio Attanasio
(University of College London)
Luigi Pistaferri
(Stanford University)
[View Abstract]
In this paper we present measures of consumption inequality with the goal of providing some fresh evidence on the important issue of how trends in consumption inequality have evolved over time in the US. The first measure uses the re-designed 1998-2008 PSID data. Starting with the 1999 wave, the PSID has started collection of a larger array of information on consumption components, besides food (one of the few items consistently present in the survey before 1999). Based on the fact that these data appear to match NIPA aggregate better than the CEX, we propose imputing consumption to the PSID families observed in the years before 1999 using the more comprehensive consumption data available from 1999 onward. The main advantage of this procedure is that we have a direct way of testing whether trends in consumption inequality are replicated by the imputation procedure at least for the period for which we have data on both (in-sample verification). The second procedure extends Blundell, Pistaferri and Preston (2008) to multiple goods. We have an overidentified way of imputing consumption, so can choose "optimally" the imputed consumption value. The input equations can be estimated in the CEX, as in Blundell, Pistaferri and Preston (2008), or from the 1998-2008 redesigned. The second approach again allows to verify the in-sample goodness of fit of trends in the variance of consumption.
In both cases, the justification for the extrapolation we perform is a theoretical relationship that links the observed variables to what we want to estimate in a way that is consistent with a model of demand. Within a typical demand system, the allocation of total resources spent in a given period over different commodities depends on relative prices, taste shifters (such as demographic variables), and total expenditure. One can think of inverting this relationships to infer total expenditure. Our first approach does this in an ad-hoc fashion, which can be interpreted as an approximation of a demand system. The second approach, instead, explicitly estimates and uses a demand system.
Health, Human Capital, and Lifecycle Labor Supply
Charles Hokayem
(US Census Bureau)
James P. Ziliak
(University of Kentucky)
[View Abstract]
[Download Preview] We use new PSID data on consumption and health to estimate a structural life cycle labor supply model that incorporates endogenous health capital with human capital learning-by-doing. The individual chooses medical consumption, nonmedical consumption, and hours worked to maximize uncertain lifetime utility subject to a budget constraint, a healthy time constraint, and production functions for human capital and health capital. Health affects utility directly, as well as indirectly via future wages by interrupting current labor supply and on-the-job human capital accumulation. The interaction between health and human capital in this way has not been addressed in the consumption, labor or health literatures. Moreover, we admit time nonseparabilities in the budget via endogeneous human capital formation and health capital formation, along with within-period nonseparability between consumption, leisure, and health in preferences. We find strong evidence that consumption and leisure are direct substitutes in preferences, and consumption and leisure are each utility complements with good health. In addition, the estimates suggest an important role of learning by doing on future wages, as well as substantively important differences in the effect of poor health on future wages by race. However, the health production models reveal that leisure hours and medical out-of-pocket spending seem to have little to no effect on health consistent with "flat of the curve" medicine.
Estimates of Annual Consumption Expenditures and Its Major Subcomponents in the PSID in Comparison to the CE
Patricia Andreski
(University of Michigan)
Geng Li
(Federal Reserve Board)
Zahid Samancioglu
(University of Michigan)
Robert F. Schoeni
(University of Michigan)
[View Abstract]
The PSID expanded the series of survey questions on household consumption expenditures in 1999 and again in 2005. This paper presents details of these recently collected consumption data and calculates estimates of annual consumption expenditures based on these data for each year 1999 through 2011. Moreover, estimates for aggregate consumption expenditures and major subcomponents are compared between the PSID and the most commonly used household survey for empirical studies of consumption, i.e., the Consumer Expenditure Survey. Estimates of total household consumption expenditures compare favorably with estimates based on the Consumer Expenditure Survey although differences exist for some subcomponents of spending. Using the PSID we then estimate associations between consumption expenditures and selected economic and demographic variables including income, wealth, age, education, and race/ethnicity says. These associations are compared with associations estimated using the CE to determine the extent to which the two data sources provide confirming evidence. We conclude with a discussion of research and policy analyses that can now be addressed with the expanded consumption data.
Discussants:
Richard Blundell
(University College London)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon I
American Economic Association
Psychological Factors in Household Finance
(D1)
Presiding:
Julian Jamison
(Consumer Financial Protection Bureau)
Anchoring: Evidence From Real World Choices in the Payday Lending Market
Paige Skiba
(Vanderbilt University)
[View Abstract]
Anchoring is a behavioral bias well documented in the laboratory. I use real-world choices on payday loans to test for this bias in an important credit market. I find that salient anchors, which are arguably irrelevant to a borrower's credit needs, are powerful determinants of loan sizes. These anchors cause borrowers to borrow more than they need to meet their liquidity needs and are a factor in the costly roll-over cycles that characterize the industry.
Multi-Domain Allocation of Attention in Household Finance
Victor Stango
(University of California-Davis)
Jonathan Zinman
(Dartmouth College)
[View Abstract]
Research on limited attention in household finance often focuses on a single domain, ignoring how increased attention in one domain can reduce attention available in others. Similarly, little is known about how individuals vary in their overall "stock" or capacity of attention. We examine both of these issues using administrative and survey data that allow us to examine how attention varies across and within individuals on multiple margins: deposit balances and overdrafts, credit card debt allocation, late and missed payments, shopping for better credit card terms, and others. The findings have important implications for modeling, policy and firm strategy.
Non-Cognitive Abilities and Financial Decisions
Camelia Kuhnen
(Northwestern University)
Brian Melzer
(Northwestern University)
[View Abstract]
Research on household financial decisions has largely focused on the importance of cognitive abilities in decision-making, emphasizing for example that IQ and math ability predict stock market participation and the avoidance of financial mistakes. This paper takes a broader perspective by exploring the role of non-cognitive abilities in household borrowing and default decisions. Within the fields of labor and education economics, non-cognitive traits such as self-efficacy - the perceived ability to control one's future outcomes - predict substantial differences in school achievement and employment outcomes. Using longitudinal household survey data, we show that an individual's self-efficacy during childhood also predicts substantial differences in future delinquency on debt and bill payments. The effect of self-efficacy on delinquency is both substantial and robust; a one standard deviation increase in self-efficacy corresponds to a 15-20% decrease in the likelihood of delinquency, and this effect is not explained by differences in gender, race, cognitive ability, educational attainment and income (contemporaneous or past). We also find that measures of impulsivity and impaired emotional control during childhood are strong predictors of poor financial status later in life, including bankruptcy, even after controlling for labor market and schooling achievements. Moreover, household financial outcomes are significantly better for individuals who grew up in supportive family environments.
Minimum Payments and Debt Paydown in Consumer Credit Cards
Jialan Wang
(Consumer Financial Protection Bureau)
Ben Keys
(University of Chicago)
[View Abstract]
[Download Preview] How do consumers decide how much to repay on their credit cards each month? This paper examines the drivers of payment behavior using the OCC-CFPB credit card panel, which includes the monthly account activity of a large fraction of consumers in the United States from 2008-2012. First, we classify observed consumer payment behavior into several broad categories, including full payment, minimum payment, and constant payment. We find that payment behavior is persistent across these categories, and that fico scores, but not income, are a significant predictor of payment behavior. We then evaluate the impact of two types of changes to credit card statements: 1) a 36-month payment disclosure mandated by the CARD Act in 2010 and 2) kinks and changes in minimum payment formulas implemented by individual issuers. We find that minimum payment floor increases and disclosures lead 1-5% of consumers to move from paying small fractions of their balance to paying their full balance, and vice versa. Low-balance consumers tend to move from paying less than 30% of their balances to full balances, while high-balance consumers do the opposite. The CARD Act’s non-amortization warning shifted consumers from low to full payments, while the 36-month repayment calculation had the opposite effect
Discussants:
Matt Levy
(London School of Economics)
Devin G. Pope
(University of Chicago)
Ben Keys
(University of Chicago)
Marieke Bos
(Swedish Institute for Social Research)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 201-C
American Economic Association
Public Policy and the Design of Medicare Part D
(I1)
Presiding:
Amy Finkelstein
(Massachusetts Institute of Technology)
The Response of Drug Expenditures to Non-Linear Contract Design: Evidence from Medicare Part D
Liran Einav
(Stanford University)
Amy N. Finkelstein
(Massachusetts Institute of Technology)
Paul Schrimpf
(University of British Columbia)
[View Abstract]
[Download Preview] We study the demand response to non-linear price schedules using data on insurance contracts and prescription drug purchases in Medicare Part D. Consistent with a static response of drug use to price, we document bunching of annual drug spending as individuals enter the famous "donut hole," where insurance becomes discontinuously much less generous on the margin. Consistent with a dynamic response to price, we document a response of drug use to the future out-of-pocket price by using variation in beneficiary birth month which generates variation in contract duration during the first year of eligibility. Motivated by these two facts, we develop and estimate a dynamic model of drug use during the coverage year that allows us to quantify and explore the effects of alternative contract designs on drug expenditures. For example, our estimates suggest that "filling" the donut hole, as required under the Affordable Care Act, will increase annual drug spending by $180 per beneficiary, or about 10%. Moreover, almost half of this increase is "anticipatory," coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole. We also describe the nature of the utilization response and its heterogeneity across individuals and types of drugs.
Plan Switching and Inertia in Medicare Part D: Evidence from Administrative Data
Joachim Winter
(University of Munich)
Florian Heiss
(University of Dusseldorf)
Daniel McFadden
(University of California-Berkeley)
[View Abstract]
The recent trend towards giving consumers more choice about their health plans has invited research on how good they actually are at making these decisions. The introduction of Medicare Part D is an important example. Several studies analyze enrollment and initial plan choices, with mixed results..
Initial plan choice is only one aspect of consumer choice in Medicare Part D. Once enrolled, consumers stay in Medicare Part D for many years, and experience changes in their health and prescriptions drug needs. On the supply side, the menu of plans offered also changes from year to year. Moreover, recent reforms implement changes in the copayment and coverage structure of Medicare Part D plans such as the gradual abolishment of the infamous coverage gap. If consumers fail to make optimal switching choices, the welfare cost to them can be large. There is however also the possibility that plan choices improve over time as enrollees learn.
In this paper, we use administrative data on Medicare Part D claims for 2006 through 2010 to study plan switching behavior. The analysis builds on the ex ante measures of plan choice quality we constructed in earlier work. Importantly, these measures take into account the enrollees' uncertainty about their health and prescription drug needs in the coming year. In the present paper, we adapt our earlier model of plan choice to the switching situation. We compute implicit switching costs and relate them to enrollee characteristics. We also study whether and to what extent such events as health shocks and changes in plan features and in the menu of available plans trigger plan switching. We relate our findings to the literature on the effects of consumer inertia and lock-in on firm behavior and discuss policy implications.
Choice Inconsistencies and Utilization Distortions Arising from Consumer Perceptions of the Part D Donut Hole
Jason Abaluck
(Yale University)
Jonathan Gruber
(Massachusetts Institute of Technology)
Ashley Swanson
(Massachusetts Institute of Technology)
[View Abstract]
Medicare Part D plans have particular salient aspects of coverage, such as whether they cover the Part D "donut hole". But these value of these aspects vary across consumers depending on their predicted distribution of drug spending. We find that in both plan choice and drug utilization consumers pay attention to whether prescription drug plans cover the donut hole, but not whether that coverage is likely to matter for the individual
Medicare Part D: Are Insurers Gaming the Low-Income Subsidy Design?
Francesco Decarolis
(Boston University)
[View Abstract]
In Medicare Part D, low income individuals receive a subsidy for enrollment into insurance plans. This paper studies how premiums are distorted by the combined effects of this subsidy and the default assignment mechanism of low income enrollees into plans. Removing this distortion could reduce the cost of the program without worsening consumer welfare. Using data from the the first five years of the program, instrumental variable estimates indicate a positive effect of this distortion on the premium growth, with the majority of the increase associated with the premium component directly paid by Medicare.
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 201-B
American Economic Association
Recessions and Recoveries
(E3)
Presiding:
Justin Wolfers
(University of Michigan)
Recovery from Financial Crises: Evidence from 100 Episodes
Carmen M. Reinhart
(Harvard University)
Kenneth Rogoff
(Harvard University)
[View Abstract]
[Download Preview] We examine the evolution of real per capita GDP around 100 systemic banking crises. Part of the costs of these crises owes to the protracted nature of recovery. On average, it takes about eight years to reach the pre-crisis level of income; the median is more than 6 years. Five to six years after the onset of crisis, only Germany and the US (out of 12 systemic cases) have reached their 2007-2008 peak in real income. Forty three percent of the 100 episodes recorded double dips. Post-war business cycles are not the relevant comparator for the recent crises in advanced economies.
The Effect of Interest Rate and Collateral Value Shocks on Household Spending
Atif Main
(Princeton University)
Amir Sufi
(University of Chicago)
[View Abstract]
We propose a new methodology for estimating the financial and real effects of interest rate and asset price shocks through the household balance sheet channel. Our methodology utilizes cross-sectional heterogeneity across U.S. zip codes in exposure to these shocks. We identify the impact of these shocks using instrumental variables and the non-linearity (in time) of these shocks. We implement our methodology using quarterly zip code level data on new auto purchases, consumer credit, and mortgage refinancing from 2000 to 2012. We estimate a strong financial and real effect of house price shocks during both normal and the zero lower bound periods. The effect of interest rate shocks on refinancing is strong throughout, but a significant real effect of interest rate shocks only shows up during the zero lower bound period.
Why Has U.S. Policy Uncertainty Risen Since 1960?
Scott R. Baker
(Stanford University)
Nicholas Bloom
(Stanford University)
Brandice Canes-Wrone
(Princeton University)
Steven J. Davis
(University of Chicago)
Jonathan Rodden
(Stanford University)
[View Abstract]
[Download Preview] We consider two classes of explanations for the rise in policy-related economic uncertainty in the United States since 1960. The first stresses growth in government spending, taxes, and regulations. A second stresses increased political polarization and its implications for the policy-making process and policy choices.
The Role of Policy in the Great Recession and the Weak Recovery
John B. Taylor
(Stanford University)
[View Abstract]
[Download Preview] This paper reports on recent research showing that the severe recession of 2007-2009 and the weak recovery have been due to poor economic policies and the failure to implement good policies during the past decade. In comparison with the previous two decades of better economic performance, monetary policy, fiscal policy, and regulatory policy became more discretionary, more interventionist and less predictable. At best these policies led to growth spurts, but were followed by retrenchments, averaging to poor performance. The paper also considers alternative views—that the equilibrium interest rate declined during the decade and that the seriousness of financial crisis caused the slow recovery.
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon J
American Economic Association
Research in Economic Education
(A2)
Presiding:
Gail Hoyt
(University of Kentucky)
Do Graduate Students' Preferences for Course Delivery Differ from Undergraduate Students?
John Mann
(Michigan State University)
Shida Henneberry
(Oklahoma State University)
[View Abstract]
In this study, the preferences of graduate and undergraduate students are compared regarding their respective choices of: 1) online versus face-to-face (F2F) course delivery given a number of different course attributes; and 2) more specific technological attributes of online courses. Additionally, we examine each group's preferences for learning and communication in the context of how these might impact the selection of the method of course delivery. Data for this study is from a November 2010 survey of all students at Oklahoma State University's Stillwater campus (more than 20,000 students). Preliminary results indicate that undergraduate students have a higher preference for online versus F2F courses relative to graduate students; however, graduate students are willing to pay about 50-70% more for college courses than undergraduates (regardless of manner of course delivery). While both groups have similar preferences for general categories of online course attributes (e.g., recorded lectures versus class notes), graduate students express preferences for longer lectures (recorded F2F lectures) as compared to undergraduate students who prefer shorter, customized lectures (10-20 minute topic discussions). Finally, both groups have very similar preferences for learning and communication, and we do not find a significant difference between the two groups in how their preferences impact their respective selection of course delivery method.
15 Years of Research on Graduate Education in Economics: What Have We Learned?
Wendy Stock
(Montana State University)
John Siegfried
(Vanderbilt University)
[View Abstract]
[Download Preview] This paper summarizes 15 years of research on graduate education in economics in the U.S. We examine all stages of the process, beginning with the undergraduate origins of eventual economics PhDs and their matriculation decisions. We investigate attrition and time-to-degree outcomes. For PhD completers, we examine their job market outcomes and their career paths over the first five and ten years of their careers.
Incorporating Community-Based Learning into a Course on the Economics of Poverty
Nicole B. Simpson
(Colgate University)
Steven Bednar
(Elon University)
[View Abstract]
[Download Preview] Community based learning (CBL) is an integrative pedagogical technique that connects classroom work with meaningful community involvement and exchange. Community organizations and students mutually benefit from the CBL experience both by meeting course objectives and addressing community-identified goals. Importantly, CBL is a type of experiential learning; it is not community service nor is it an internship. In this paper, we will discuss how we have incorporated a community based research project into a course on the Economics of Poverty in which groups of students work with local non-profit agencies on academic projects during the semester. In addition to providing advice on how to create and manage CBL projects, the paper includes a thorough cost-benefit analysis of this pedagogical approach, including detailed student feedback that suggests that the CBL experience enhanced their learning.
Cooperative Learning: Can It Off-Set Some of the Costs of Large Enrollment Classes?
Tisha Emerson
(Baylor University)
Linda Carter
(Baylor University)
KimMarie McGoldrick
(University of Richmond)
[View Abstract]
The costs of large enrollment courses to student learning, engagement and interaction as well as to student evaluations of faculty are well documented. However, with rising educational costs and research expectations for faculty, reliance on large enrollment courses is on the rise in American universities. In this study, we examine the potential for cooperative learning activities to offset some of the costs of large enrollment courses. We use a quasi-experimental research design to examine a variety of outcomes (grades, interaction, interest in subject) for students enrolled in principles of microeconomics. Course content including subject coverage, in- class problems and assessment instruments for all course sections are identical except for the nature of the treatment which arises in the form of the think-pair-share cooperative problem-solving process employed for in-class problems. Data is collected from one instructor teaching both small and large enrollment classes, each of which includes sections for control and the treatment approaches. We find that while large enrollment sections attain lower levels of achievement (as measured by course score) than those with smaller enrollments, this effect is at least partially mitigated by the cooperative learning treatment. Most other outcomes, however, are insensitive to the treatment.
Discussants:
Stephen Wu
(Hamilton College)
Paul W. Grimes
(Pittsburg State University)
Sam Allgood
(University of Nebraska-Lincoln)
William Bosshardt
(Florida Atlantic University)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 201-A
American Economic Association
Teaching the Euro Crisis
(F3)
Presiding:
Maurice Obstfeld
(University of California-Berkeley)
Finance at Center Stage: Some Lessons of the Euro Crisis
Maurice M. Obstfeld
(University of California-Berkeley)
[View Abstract]
[Download Preview] Because of recent economic crises, financial fragility has regained prominence in both the theory and practice of macroeconomic policy. Consistent with macroeconomic paradigms prevalent at the time, the original architecture of the euro zone assumed that safeguards against inflation and excessive government deficits would suffice to guarantee macroeconomic stability. Recent events, in both Europe and the industrial world at large, have challenged this assumption. After reviewing the roots of the euro crisis in financial market developments, this essay draws some conclusions for the reform of euro area institutions. The euro area is moving quickly to correct one flaw in the Maastricht treaty, the vesting of all financial supervisory functions with national authorities. However, the sheer size of bank balance sheets suggest that the euro area must also confront a financial/fiscal trilemma: countries in the euro zone can no longer enjoy all three of financial integration with other member states, financial stability, and fiscal independence, because the costs of banking rescues may now go beyond national fiscal capacities. Thus, plans to reform the euro zone architecture must combine centralized supervision with some centralized fiscal backstop to finance bank resolution in situations of insolvency.
The Euro Crisis: A Crash Course
Markus K. Brunnermeier
(Princeton University)
Ricardo Reis
(Columbia University)
[View Abstract]
This paper explains the Euro crisis. It starts by stressing the important role of international of capital flows. A key element of the crisis is that most European banks rely heavily on less stable short-term wholesale funding. A sudden stop of this funding flows leads to fire-sales and a credit crunch. This is worsened by the "diabolic loop" between sovereign and banking risk. The paper addresses various liquidity policy measures and argues that insolvency issues are not addressed since fiscal authorities and monetary authority play a game of chicken about who should absorb the losses.
Political Credit Cycles: The Case of the Euro Zone
Jesus Fernandez-Villaverde
(University of Pennsylvania)
Luis Garicano
(London School of Economics)
Tano Santos
(Columbia University)
[View Abstract]
[Download Preview] We study the mechanisms through which the entry into the Euro delayed, rather than advanced, key economic reforms in the Euro zone periphery and led to the deterioration of important institutions in these countries. We show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident. We analyze empirically the interrelation between the financial boom and the reform process in Greece, Spain, Ireland, and Portugal and, by way of contrast, in Germany, a country that did experience a reform process after the creation of the Euro.
Discussants:
Ricardo Reis
(Columbia University)
Tano Santos
(Columbia University)
Markus K. Brunnermeier
(Princeton University)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 103-B
American Economic Association
Trade and Inequality
(F1)
Presiding:
Gene Grossman
(Princeton University)
Matching and Sorting in the Global Economy
Gene M. Grossman
(Princeton University)
Elhanan Helpman
(Harvard University)
Philipp Kircher
(London School of Economics)
[View Abstract]
[Download Preview] We develop a neoclassical trade model with heterogeneous factors of production. We consider a world with two factors, "managers" and "worker", each with a given distribution of ability levels. Production combines a manager of some type with a group of workers. The productivity of a unit depends on the types of the two factors, with complementarity between the two. We examine the sorting of factors to sectors and the matching of factors within sectors, and we use to model to study the determinants of the trade pattern and the effects of trade on the wage and salary distributions and on measured productivity. Finally, we extend the model to include search frictions and consider the distribution of unemployment rates.
Measuring the Unequal Gains from Trade
Pablo D. Fajgelbaum
(University of California-Los Angeles)
Amit K. Khandelwal
(Columbia University)
[View Abstract]
[Download Preview] Individuals that consume different baskets of goods are differentially affected by the relative price changes caused by trade. We develop a methodology to measure the unequal gains from trade across consumers for many countries over time. The approach is based on aggregate statistics and model parameters that can be estimated from bilateral trade data. It exploits that changes in aggregate expenditures reflect changes in the relative prices of high- versus low-income elastic goods, resulting in different welfare implications across consumers. We estimate the model and find that the unequalizing effects of trade vary considerably across countries depending on their pattern of specialization and that of their trade partners. In the majority of countries that we analyze, consumers at the 90th percentile of the expenditure distribution gain relatively more from trade than consumers at the 10th percentile. The gains from trade are typically U-shaped with individual income, but in some countries that specialize in low-income elastic goods, such as India, or that are proximate to producers of high-income elastic goods, such as Mexico, the gains from trade are monotonically increasing with individual income. We also find pro-poor welfare changes in most countries in recent decades, a period of rapid increase in China's exports.
Firm-to-Firm Trade: Imports, Exports, and the Labor Market
Samuel Kortum
(Yale University)
Jonathan Eaton
(Pennsylvania State University)
Francis Kramarz
(CREST)
Raul Sampognaro
(CREST)
[View Abstract]
We build a model of fim-to-firm trade, combining elements of Melitz (2003), Chaney (2008), and Oberfield (2013). Firm production combines the output of a number of tasks with a firm-specific efficiency level. Each task can be performed by the firm's employees or by an intermediate input purchased by the firm. The intermediates available to a firm are determined by a matching process, with the firm replacing its own workers to perform a particular task if a cheap enough intermediate is available. The distribution of prices for intermediates is itself determined by the distribution of costs of the other firms which produce them. At the firm level, the model generates predictions for imports, exports, and the share of intermediates. At the aggregate level, firm-to-firm trade determines bilateral trade shares as well as labor's share of output in each country.
Trade Policy and Wage Inequality: A Structural Analysis with Occupational and Sectoral Mobility
John McLaren
(University of Virginia)
Erhan Artuc
(World Bank)
[View Abstract]
[Download Preview] A number of authors have argued that a worker's occupation of employment is at least as important as the worker's industry of employment in determining whether the worker will be hurt or helped by international trade. We investigate the role of occupational mobility on the effects of trade shocks on wage inequality in a dynamic, structural econometric model of worker adjustment. Each worker in our specification can switch either industry, occupation, or both, paying a time-varying cost to do so in a rational-expectations optimizing environment. We also specify a novel model of offshoring based on task-by-task comparative advantage that collapses to a very simple form for simulation. We find that the costs of switching industry and occupation are both high, and of similar magnitude. In simulations we find that a worker's industry of employment is much more important than either the worker's occupation or skill class in determining whether or not she is harmed by a *trade* shock, but occupation is crucial in determining who is harmed by an *offshoring* shock.
Discussants:
Ann Harrison
(University of Pennsylvania)
Thomas Sampson
(London School of Economics)
Rafael Dix-Carneiro
(University of Maryland)
Justin Pierce
(Federal Reserve Board)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 105-B
American Economic Association
Women and Development
(J16)
Presiding:
Alicia Adsera
(Princeton University)
How Do Intrahousehold Dynamics Change When Assets Are Transferred to Women? Evidence from BRAC's
Agnes Quisumbing
(International Food Policy Research Institute)
Shalini Roy
(International Food Policy Research Institute)
Narayan Das
(BRAC)
Jinnat Ara
(BRAC)
Rozina Haque
(BRAC)
[View Abstract]
[Download Preview] Growing evidence shows that the distribution of individuals' ownership and control of assets within a household can have important implications for women’s empowerment and children’s well-being. Interventions that target assets to specific individuals can shift these intrahousehold dynamics, yet little evidence exists from rigorous evaluations. We study BRAC’s Challenging the Frontiers of Poverty Reduction—Targeting the Ultra Poor (CFPR-TUP) program in Bangladesh, which targets asset transfer (primarily livestock) and training to rural women in poor households. Previous research has shown large, significant positive program impacts at the household level. In this paper, we examine intrahousehold impacts using mixed methods. We focus on the Specially Targeted Ultra-Poor (STUP) component of the program, which targets households selected following a randomized controlled trial design. Adding a new round of data collection with quantitative sex-disaggregated information and qualitative exploration, we exploit the randomized design to assess intrahousehold impacts of STUP. Our analysis confirms that the program significantly increases household ownership of various assets but has complex effects on the targeted women. Quantitative estimates show increases in women’s sole and joint ownership of or control over transferred assets such as livestock, but a much greater increase in men’s sole ownership over nearly all other assets (including agricultural and nonagricultural productive assets, land, and consumer durables). These findings suggest that while the transferred assets tend to remain with women, new investments from mobilized resources are controlled by men. Moreover, the program reduces women’s mobility outside the home and their control over income, consistent with the transferred asset’s requiring maintenance at home. Qualitative findings are consistent with these quantitative results, but women’s contribution to their households is perceived as increasing their confidence and social capital, which they themselves value. Therefore, while provision of assets and training to women has ambiguous effects on women’s empowerment in terms of tangible assets and decisionmaking, women take intangibles into account and largely perceive positive (though still mixed) effects. The analysis shows that asset transfer targeted to women can increase women’s ownership of and control over the transferred asset itself but may not necessarily increase women’s intrahousehold bargaining position. Moreover, it reveals that outcomes valued by individuals may not always be tangible, highlighting the complexity of assessing whether interventions improve women’s empowerment.
What's Yours is Mine and What's Mine is Mine: Experimental Study of Cultural Norms and Asymmetric Information between Spouses
Carolina Castilla
(Colgate University)
[View Abstract]
[Download Preview] In this paper I examine the causes of income hiding in India. Hiding of income had become an increasingly relevant concern when designing development policy as empirical studies continue to observe this behavior. In this paper I develop a model that allows me to derive empirically testable hypotheses to explain whether bargaining power affects income hiding. The model results indicate that there exists a strictly positive threshold level of bargaining power that needs to be overcome in order to induce revelation of unobserved resources. This hypothesis is tested through a field experiment in India where individuals in established marriages were asked to play several rounds of an ultimatum game where bargaining power and information were experimentally varied. Results indicate men are more cooperative than women: they are both more likely to reveal unobserved resources and to allocate them towards the household account. However, a spouse that chooses to conceal contributes significantly less towards the household account relative to spouses in the private information treatment.
Race and Marriage in the Labor Market: A Discrimination Audit Study in a Developing Country
Eva O. Arceo-Gomez
(Centro de Investigacion y Docencia Economicas)
Raymindo M. Campos-Vazquez
(El Colegio de Mexico)
[View Abstract]
[Download Preview] In Mexico, as in most Latin American countries with indigenous populations, it is commonly believed that European phenotypes are preferred to mestizo or indigenous phenotypes. However, it is hard to test for such racial biases in the labor market using official statistics since race can only be inferred from native language. The experiment consisted on sending fictitious resumes responding to job advertisements with randomized information of the applicants. The resumes included photographs representing three distinct phenotypes: white, mestizo and indigenous. We find that indigenous looking females are discriminated against, but the effect is not present for males. We also found that the effect is magnified for those ads that exhibited strict gender preferences from the outset.
The Effect of Adoption of Pro-Women Domestic Violence Policy on Dowry Violence: Evidence from India
Susmita Roy Das
(University of Canterbury)
[View Abstract]
In 2005, the government of India enacted the Protection of Women from Domestic Violence Act (PWDVA) with the aim of reducing the cost of reporting dowry violence. Under PWDVA a woman can register a police complaint against the husband not only on grounds of physical abuse but also on the basis of financial and emotional abuse. This paper first develops a game theoretic model of domestic violence, where husbands have private information about their inclination to be violent and wives have private information about their inclination to falsely charge the husband of domestic abuse; then solves for the perfect Bayesian equilibrium of the game. The model suggests that although the fraction of reported cases of domestic violence is higher in the post-policy period, the effect of the policy on dowry deaths and non-fatal beatings is ambiguous. Finally, the paper tests the predictions of the model using the exogenous variation in the reporting cost of domestic abuse following law adoption using the sample of Indian districts spanning 2001-2012. The paper uses the fraction of seats won by a female candidate in a district in a close election as an instrument for female leadership in the district. Female leadership has been shown to influence whether the police act after the complaint is lodged in the Indian context. Preliminary results show that even though reporting rate of harassment for dowry has significantly increased in the post-policy period, so has dowry-related murder rate. However, there is no significant increase of dowry-related murder rate in regions with higher female leadership in the post-policy period. Simultaneously there is no significant increase of reporting of dowry violence in districts with higher female leadership. This suggests that probably the police are more likely to act following a complaint of domestic violence if the district has a female leader.
Discussants:
Sheetal Sekhri
(University of Virginia)
Manisha Shah
(University of California-Los Angeles)
Lori Beaman
(Northwestern University)
Anita Alves Pena
(Colorado State University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Capital Structure Theory
(G3)
Presiding:
Barney Hartman-Glaser
(University of California-Los Angeles)
Building up Financial Flexibility
Vladimir Vladimirov
(University of Amsterdam)
Roman Inderst
(Goethe University)
[View Abstract]
[Download Preview] We ask how firms should build up financial flexibility by initially choosing high or low target leverage. This depends on whether additional financing is raised at competitive terms, as then there will be a problem of either overinvestment or underinvestment. The role of the initial (or target) capital structure is that it affects the "outside options" of both insiders and outside investors. Our novel insights stem from characterizing how this creates countervailing incentives (to those typically analyzed) when firms face a problem of asymmetric information in new financing rounds. Our theory also entails implications for start-up and venture capital financing.
Deleveraging Via Asset Sales: Agency Costs, Taxes, and Government Policies
Johann Reindl
(Universitat of Wien)
[View Abstract]
[Download Preview] Do equityholders of a financially distressed firm have an incentive to buy back debt to achieve a more sustainable leverage ratio and avoid costly bankruptcy? I develop a dynamic structural model incorporating a dynamic game to determine conditions under which a firm would voluntarily do so. It allows me to assess the impact of debt overhang and asset substitution on the restructuring decision and the holdout problem. I find that as long as the total firm value increases through the debt repurchase, equityholders benefit from it, as well. In a dynamic setting, the debt overhang problem takes the form of too early restructuring. Taxes on cancellation of debt income and government subsidies to debtholders can destroy equityholders' incentives; so does low liquidity in the market for the firm's assets; an asset purchase program fosters them. Finally, via threatening not to tender, debtholders can appropriate a large share of the firm's restructuring gains. However, they cannot stop equity
Dynamic Corporate Liquidity
Boris Nikolov
(University of Rochester)
Lukas Schmid
(Duke University)
Roberto Steri
(Duke University)
[View Abstract]
[Download Preview] When external finance is costly, liquid funds provide corporations with instruments to absorb and react to shocks. Making optimal use of liquid funds means transferring them to times and states where they are most valuable. We examine the determinants of corporate liquidity management in a dynamic model where stochastic investment opportunities and cash shortfalls provide liquidity needs. Firms can transfer liquidity across time using cash and across states drawing on credit lines subject to debt capacity constraints. We generate empirical and quantitative predictions by means of calibration. Small and constrained firms use cash to provide liquidity to fund investment opportunities, while large and unconstrained firms manage their liquidity needs by means of credit lines. In the time series, equity issuances are used to replenish cash balances, and credit lines to fund unanticipated investment opportunities. We find strong support for our predictions in the data. Overall, the model pro
Discussants:
Adriano Rampini
(Duke University)
Mark M. Westerfied
(University of Washington)
Tyler Muir
(Yale University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Regency Ballroom B
American Finance Association
Cultural Roots of Finance
(G0)
Presiding:
Luigi Guiso
(Einaudi Institute for Economics and Finance)
Banks and Development: Jewish Communities in the Italian Renaissance and Current Economic Performance
Luigi Pascali
(Universitat Pompeu Fabra)
[View Abstract]
Are differences in local banking development long-lasting? Do they affect long-term economic performance? I answer these questions by relying on an historical development that occurred in Italian cities during the 15th century. A sudden change in the Catholic doctrine had driven the Jews toward money lending. Cities that were hosting Jewish communities developed complex banking institutions for two reasons: first, the Jews were the only people in Italy who were allowed to lend for a profit and, second, the Franciscan reaction to Jewish usury led to the creation of charity lending institutions, the Monti di Piet?, that have survived until today and have become the basis of the Italian banking system. Using Jewish demography in 1500 as an instrument, I provide evidence of (1) an extraordinary persistence in the level of banking development across Italian cities (2) large effects of current local banking development on per-capita income. Additional firm-level analyses suggest that well-fu
Finance and the Preservation of Wealth
Nicola Gennaioli
(University of Bocconi)
Andrei Shleifer
(Harvard University, Department of Economics)
Robert W. Vishny
(University of Chicago)
[View Abstract]
[Download Preview] We introduce the model of asset management developed in Gennaioli, Shleifer, and Vishny (2012) into a Solow-style neoclassical growth model with diminishing returns to capital. Savers rely on trusted intermediaries to manage their wealth (claims on capital stock), who can charge fees above costs to trusting investors. In this model, the size of the financial sector rises with aggregate wealth, and wealth grows relative to GDP. As a consequence, the ratio of financial income to GDP rises over time, even though fees for given financial services decline. Because the size of the financial sector fluctuates with changes in investor trust, the model can account for the sharp decline of finance in the Great Depression, as well as its slow recovery afterwards. Entry by financial intermediaries as wealth increased in recent years may have further deepened investor trust and encouraged growth of financial income.
The Historical Roots of Firm Access to Finance: Evidence from the African Slave Trade
Lamar Pierce
(Washington University-St. Louis)
Jason Snyder
(University of California-Los Angeles)
[View Abstract]
[Download Preview] This paper shows that access to finance is the crucial factor in explaining the link between the historical African slave trade and current GDP. We show: (1) The slave trade is strongly linked to current firm access to finance; (2) Among all the business obstacles a firm faces, the slave trade affects only access to finance; and (3) The slave trade erodes access to both formal credit and the trade credit thought to be its substitute. The results suggest a causal link between culture and finance that helps explain the pivotal role of both trust and finance in economic development.
Discussants:
Tarek Hassan
(University of Chicago)
Thomas Philippon
(New York University)
Eric D. Hilt
(Wellesley College and NBER)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Economics of Commodity Markets
(G1)
Presiding:
Wei Xiong
(Princeton University)
New Evidence on the Financialization of Commodity Markets
Brian Henderson
(George Washington University)
Neil Pearson
(University of Illinois-Urbana Champaign)
Li Wang
(University of Illinois at Urbana-Champaign)
[View Abstract]
Following the recent, dramatic increase in commodity investments by financial institutions, academics, practitioners, and regulators have engaged in a heated debate over whether financial investors? trades and holdings have affected commodity prices and their return dynamics. This paper examines the price impact of ?financial? commodity investments on the commodities futures markets using a novel dataset of Commodity-Linked Notes (CLNs). The investor flows into CLNs are passed through to the futures markets by the hedging trades executed by CLN issuers. These hedging trades, which reflect the demands of the CLN investors, are plausibly exogenous to the contemporaneous and subsequent price movements, allowing us to identify the price impact of the hedging trades. We find that the investor flows cause significant price changes in the underlying futures markets, and therefore provide direct evidence of the impact of ?financial? investment on commodity futures prices.
A Model of Financialization of Commodities
Suleyman Basak
(London Business School)
Anna Pavlova
(London Business School)
[View Abstract]
[Download Preview] A sharp increase in the popularity of commodity investing in the past decade has triggered an unprecedented inflow of institutional funds into commodity futures markets. Such financialization of commodities coincided with significant booms and busts in commodity markets, raising concerns of policymakers. In this paper, we explore the effects of financialization in a model that features institutional investors alongside traditional futures markets participants. The institutional investors care about their performance relative to a commodity index. We find that if a commodity futures is included in the index, supply and demand shocks specific to that commodity spill over to all other commodity futures markets. In contrast, supply and demand shocks to a nonindex commodity affect just that commodity market alone. Moreover, prices and volatilities of all commodity futures go up, but more so for the index futures than for nonindex ones. Furthermore, financialization -- the presence of institutional investors -- leads to an increase in correlations amongst commodity futures as well as in equity-commodity correlations. Consistent with empirical evidence, the increases in the correlations between index commodities exceed those for nonindex ones. We model explicitly demand shocks which allows us to disentangle the effects of financialization from the effects of demand and supply (fundamentals). Within a plausible numerical illustration we find that financialization accounts for 11% to 17% of commodity futures prices and the rest is attributable to fundamentals.
Risk Premia in Gold Leasing Markets
Anh Le
(University of North Carolina)
Haoxiang Zhu
(Massachusetts Institute of Technology)
[View Abstract]
Gold has been used as money throughout history and remains today as an important global reserve currency. Unlike interest rates of major fiat currencies, gold lease rates -- interests paid in gold for borrowing gold -- are rarely studied. Using one- to twelve-month gold lease rates, we find that the term structure of gold lease rates is upward sloping, implying positive risk premia on average. Moreover, risk premia on gold loans are highly time varying, leading to a strong rejection of the expectation hypothesis. By contrast, we cannot reject the expectation hypothesis using comparable U.S. dollar interest rate data. Our evidence reveals fundamental differences between gold lease rates and interest rates of fiat currencies.
Commodity-Based Consumption Tracking Portfolio and the Cross-section of Average Stock Returns
Kewei Hou
(Ohio State University)
Marta Szymanowska
(Erasmus University)
[View Abstract]
We find that the projection of consumption growth on commodity futures returns tracks the part of consumption that is priced in the cross-section of US stock returns. When consumption betas are estimated using the commodity-based consumption tracking portfolio, the Consumption CAPM (CCAPM) produces a significant risk premiums between 50bp and 1% per year depending on the empirical specification. In contrast, we fail to find significant risk premiums when the CCAPM is estimated using either non-traded consumption growth or stock- and bond-based consumption tracking portfolios. Our results are robust to using either portfolios or individual stocks in the asset pricing tests and to controlling for firm-level return predictors such as size, book-to-market, and past returns.
Discussants:
Ing-Haw Cheng
(Dartmouth College)
Steven D. Baker
(Carnegie Mellon University)
Motohiro Yogo
(Federal Reserve Bank of Minneapolis)
Alexi Savov
(New York University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Hedge Funds
(G2)
Presiding:
Stefan Nagel
(Stanford University)
Tail Risk and Hedge Fund Returns
Hao Jiang
(Erasmus University)
Bryan T. Kelly
(University of Chicago)
[View Abstract]
[Download Preview] We document large, persistent exposures of hedge funds to downside tail risk. For
instance, the hardest hit hedge funds in the 1998 crisis also suffered predictably worse returns than their peers in 2007-2008. Using the conditional tail risk measure derived by Kelly (2012), we find that tail risk is a key driver of hedge fund returns in both the time series and cross-section. A positive one standard deviation shock to tail risk is associated with a contemporaneous decline of 2.88% per year in the value of the aggregate hedge fund portfolio. In the cross-section, funds that lose value during high tail risk episodes earn average annual returns nearly 6% higher than funds that are tail risk-hedged, controlling for commonly used hedge fund factors. These results are consistent with the notion that a significant component of hedge fund returns can be viewed as compensation for selling disaster insurance.
Do Hedge Funds Provide Liquidity? Evidence from their Trades
Francesco Franzoni
(University of Lugano)
Alberto Plazzi
(University of Lugano)
[View Abstract]
[Download Preview] The paper provides significant evidence of limits of arbitrage in the hedge fund sector. Using unique data on institutional transactions, we show
that the price impact of hedge fund trades increases when aggregate conditions deteriorate.
The finding is consistent with arbitrageurs' withdrawal from liquidity provision following a tightening in funding liquidity.
Compared to other institutions, hedge funds display the largest sensitivity of trading costs to aggregate conditions. We pin down this effect to a subset of hedge funds that are more exposed to funding constraints because of their leverage, lack of share restrictions, asset illiquidity, low reputational capital, and trading style. Value-based trading strategies demand liquidity in bad times, whereas momentum strategies provide liquidity.
Lastly, a decrease in hedge fund trading intensity predicts a widening of the bid-ask spread at the stock-level, while other institutions' trading activity does not seem to matter for market liquidity.
Indirect Incentives of Hedge Fund Managers
Jongha Lim
(University of Missouri)
Berk A. Sensoy
(Ohio State University)
Michael Weisbach
(Ohio State University)
[View Abstract]
[Download Preview] Indirect incentives exist in the money management industry when good current performance increases future inflows of new capital, leading to higher future fees. We quantify the magnitude of indirect performance incentives for hedge fund managers. Flows respond quickly and strongly to performance; lagged performance has a monotonically decreasing impact on flows as lags increase up to two years. Conservative estimates indicate that indirect incentives for the average fund are four times as large as direct incentives from incentive fees and returns to managers? own investment in the fund. For new funds, indirect incentives are seven times as large as direct incentives. Combining direct and indirect incentives, for each dollar generated for their investors in a given year, managers receive close to another dollar in direct performance fees plus the present value of future fees over the expected life of the fund. Older and capacity constrained funds have considerably weaker relations betwe
Hedge Fund Innovation
Arjen Siegmann
(VU University Amsterdam)
Denitsa Stefanova
(VU University Amsterdam)
Marcin Zamojski
(VU University Amsterdam)
[View Abstract]
[Download Preview] We study first-mover advantages in the hedge fund industry by clustering hedge funds based on the type of assets and instruments they trade in, sector and investment focus, and fund details. We find that early entry in a cluster is associated with higher excess returns, longer survival, higher incentive fees and lower management fees compared to funds that arrive later. Moreover, the latest entrants have a high loading on the returns of the innovators, but with lower incentive fees, and higher management fees. Cross-sectional regressions show that the out-performance of innovating funds are declining with age. The results are robust to different parameters of clustering and backfill-bias, and are not driven by the possible existence of flagship and follow-on funds. Our results show that the reported characteristics of hedge funds can be used to infer strategy-related information and suggest that specific first-mover advantages exist in the hedge fund industry
Discussants:
Jakub W. Jurek
(Princeton University)
Lasse Pedersen
(Copenhagen Business School)
Jonathan B. Berk
(Stanford University)
Itzhak Ben-David
(Ohio State University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Market Microstructure Theory
(G1)
Presiding:
Dimitri Vayanos
(London School of Economics)
Trading and Information Diffusion in Over-the-Counter Markets
Ana Babus
(Imperial College London)
Peter Kondor
(Central European University)
[View Abstract]
[Download Preview] We model trading and information diffusion in OTC markets, when dealers with private information can engage in many bilateral transactions at the same time, they trade strategically, and dealers' strategies are represented as quantity-price schedules. We show that information diffusion is effective, but not informationally efficient. While each bilateral price partially aggregates the private information of all the dealers in one round of trading, prices can be more informative even within the constraints imposed by our environment. This is not a result of dealers' market power, but arises from the interaction between decentralization and differences in dealers' valuation of the asset. Furthermore, dealers with more trading partners are ex post better informed, tend to trade and intermediate more, earn more profit per transaction, set smaller effective spreads, and trade at less dispersed prices. We also revisit alternative explanations behind the disruption of OTC markets in the recent financial crisis.
Speed, Fragmentation, and Asset Prices
Emiliano Pagnotta
(New York University)
[View Abstract]
[Download Preview] We study the consequences of trading fragmentation and speed on liquidity and asset prices. Trading venues invest in speed-enhancing technologies and price trading services to attract investors. Investors trade due to preference shocks. We show how the resulting market organization affects asset liquidity and the composition of par- ticipating investors. In a consolidated market, speed investments raise liquidity and prices. When markets fragment, liquidity and asset prices can move in opposite direc- tions. We also show how mechanisms that protect execution prices, such as the SEC’s trade-through rule, can decrease price levels and trading volume relative to unregulated markets. Our results suggest that recent regulatory reforms in secondary markets may have unintended negative consequences for public corporations.
News Trading and Speed
Thierry Foucault
(HEC Paris)
Johan Hombert
(HEC Paris)
Ioanid Rosu
(HEC Paris)
[View Abstract]
Informed trading can take two forms: (i) trading on more accurate information or (ii) trading on public information faster than other investors. The latter is increasingly important due to technological advances. To disentangle the effects of accuracy and speed, we derive the optimal dynamic trading strategy of an informed investor when he reacts to news (i) at the same speed or (ii) faster than other market participants, holding information precision constant. With a speed advantage, the informed investor's order flow is much more volatile, accounts for a much bigger fraction of trading volume, and forecasts very short run price changes. We use the model to analyze the effects of high frequency news traders on liquidity, volatility, price discovery, short-run price dynamics and provide empirical predictions about the determinants of their activity.
Smooth Trading with Overconfidence and Market Power
Albert S. Kyle
(University of Maryland)
Anna Obizhaeva
(University of Maryland)
Yajun Wang
(University of Maryland)
[View Abstract]
[Download Preview] This paper presents a continuous time model of oligopolistic trading among symmetric traders who agree to disagree concerning the precision of continuous flows of private information. Although traders do not share a common prior, they apply Bayes law consistently. If there is enough disagreement among traders, an equilibrium exists in which prices reveal the average of all traders' signals immediately, but prices do not follow a martingale and traders trade on their information slowly. Each trader believes that price is a linear function of his inventory, the derivative of his inventory, and an average of other traders' private information. The speed with which traders adjust inventories results from a trade-off between incentives to slow down trading to reduce market impact costs in an imperfectly resilient market and incentives to speed up trading to profit from perishable information with limited half-life. Trading modest quantities much faster than consistent with equilibrium strat
Discussants:
Pierre-Olivier Weill
(University of California-Los Angeles)
Jennifer Huang
(University of Texas-Austin)
Albert S. Kyle
(University of Maryland)
Marzena Joanna Rostek
(University of Wisconsin-Madison)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
New Approaches to Finance
(G1)
Presiding:
Kent Daniel
(Columbia University)
Sparse Dynamic Programming and Aggregate Fluctuations
Xavier Gabaix
(New York University)
[View Abstract]
[Download Preview] This paper proposes a way to model boundedly rational dynamic programming in a parsimonious and tractable way. It first illustrates the approach via a boundedly rational version of the consumption-saving life cycle problem. The consumer can pay attention to the variables such as the interest rate and his income, or replace them, in his mental model, by their average values -- this way using a "sparse" model of the world. Endogenously, the consumer pays little attention to the interest rate but pays keen attention to his income. This helps resolve some extant puzzles in consumption behavior, especially the tenuous link between interest rates and consumption growth. The model is then applied to a Merton-style portfolio choice problem. This problem is usually quite complex and formidable. We see how a sparse agent will handle the problem, and will have a simpler solution to it: the agent may for instance pay limited or no attention to the varying equity premium and hedging demand terms. Finally, the paper studies the impact of bounded rationality on macroeconomic outcomes, in a prototypical DSGE model with one variable, capital. We find that in general equilibrium, bounded rationality leads to more persistent shocks, and to larger aggregate fluctuations.
Trading, Profits, and Volatility in a Dynamic Information Network Model
Johan Walden
(University of California-Berkeley)
[View Abstract]
We introduce a dynamic noisy rational expectations model, in which information diffuses through a general network of agents. In equilibrium, agents' trading behavior and profitability are determined by their position in the network. Agents who are more closely connected have more similar period-by-period trades, and an agent's profitability is determined by how central the agent is, using a centrality measure that is closely related to so-called Katz centrality. The model generates rich dynamics of aggregate trading volume and volatility, beyond what can be generated by heterogeneous preferences in a symmetric setting. Casual observations suggest that price and volume dynamics of small stocks in the market may be especially well explained by such asymmetric information diffusion. The model could potentially be used to study individual investor behavior and performance, and to analyze endogenous network formation in financial markets.
Notes on Bonds: Liquidity at All Costs in the Great Recession
David Musto
(University of Pennsylvania)
Greg Nini
(University of Pennsylvania)
Krista Schwarz
(University of Pennsylvania)
[View Abstract]
We relate market stress to asset pricing by analyzing a large and systematic discrepancy among off-the-run Treasury securities: for months during the crisis, bond prices traded far below otherwise identical notes, over five percent below at the peak, and orders of magnitude below what we find concurrent special repo rates to explain. This low lending revenue from holding the note begs the question why its current holders would not trade it for cheaper yet identical cash flows. To answer this question we look at the relative liquidity of the securities and the cross section of investors. Our data on Treasury security trading show that notes are more liquid than bonds, and insurers? transactions reveal that their note demand grows with their need for liquidity.
Discussants:
Nicholas C. Barberis
(Yale University)
Peter Kondor
(Central European University)
Pierre Collin-Dufresne
(Columbia University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Washington A
American Real Estate & Urban Economic Association
Housing Markets and Consumer Preferences
(R2)
Presiding:
Ed Olsen
(University of Virginia)
Peer Effects in the Demand for Housing Quality
Eleonora Patacchini
(Syracuse University)
Giuseppe Venanzoni
(Sapienza University)
N/A
Incidence and Price Discrimination: Evidence from Housing Vouchers
Robert Collinson
(Department of Housing and Urban Development)
Peter Ganong
(Harvard University)
[View Abstract]
[Download Preview] What is the incidence of housing vouchers? In a frictionless, price-taking equilibrium, increased generosity of a narrowly-targeted subsidy causes increases in unit quality. However, search frictions may limit quality improvements and subsidies may accrue to landlords through price discrimination.
Analyzing a 2005 formula change for Housing Choice Vouchers, we estimate that a $1 increase in the county-wide price ceiling raised same-address voucher rents by 13-20 cents. For tenants who moved, quality improvements were minimal. Second, we find that a Dallas pilot which replaced a metro-wide price ceiling with ZIP-code-specific ceilings improved tenants’ chosen neighborhood quality by 0.2 standard deviations.
Using Hedonic and Quasi-Experimental Methods in (Dis)Amenity Valuation with Housing Data: The Case of Communication Antennas
Glenn Blomquist
(University of Kentucky)
Stephen Locke
(University of Kentucky)
[View Abstract]
[Download Preview] The purpose of this paper is to apply hedonic and quasi-experimental methods to measure the value of any disamenity caused by communication antennas. Spatial fixed effects are used to control for unobservable characteristics that can influence where both residents and antennas are located. Panel data techniques are used to address both time invariant and time varying unobservables and account for possible changes in the hedonic price function after construction
of a nearby antenna. In contrast to estimates based on a cross-section hedonic without fixed effects, our estimates indicate that houses near communication antennas sell for less than comparable houses located farther away. A specification that considers distance to the nearest communication antennas as well as density shows that both are critical in determining the impact of localized disamenities on residential property values. Estimates from a repeat sales specification that relaxes the assumption of time-invariant housing characteristics was estimated and provides estimates similar to the cross section specification with fixed effects. A generalized difference-in-difference estimator was also estimated, but effects were statistically insignificant. One reason might be the difficulty in establishing treatment and control groups when properties are affected by multiple antennas. Multiple Listing Service data for more than 141,000 sales during the 2000-2011 period for areas in Central Kentucky are augmented by Federal Communications Commission Antenna Structure Registration data that give antenna characteristics, date of construction, date of dismantling, and latitude and longitude. The best estimate of the disamenity value associated with communication antennas suggests that a house within 1,000 feet of the nearest antenna when it is sold will sell for 0.54% ($992) less than a similar house that is 4,500 feet from the nearest antenna. This implies an aggregate reduction in sales price of approximately $2.29 million dollars for properties located within 1000 feet of a communication antenna.
Revealed Private Information, Transaction Prices and the Demand for Storm Mitigation Features in Single-Family Housing
Dean Gatzlaff
(Florida State University)
Kathleen McCullough
(Florida State University)
Lori Medders
(Florida State University)
Charles Nyce
(Florida State University)
[View Abstract]
This paper examines the effect of revealed storm mitigation information (observed and unobserved) on the transaction prices of single-family homes. Merging a dataset that contains information on each single-family property in the Miami region, including transaction prices over a 20-year period, with a database of wind storm inspected properties from Citizens Property Insurance Corporation, we look at whether hurricane storm mitigation features identified by the insurance inspection program are priced by the market. Our results support the idea that certified mitigation features, observed and unobserved, are valued and that the newly revealed information is rapidly priced at levels consistent with the capitalized value associated with the resulting reduction in insurance premiums due to the certification. Please note that substantial theoretical and empirical work is scheduled this summer to revise and complete this preliminary draft.
Discussants:
Judy Geyer
(Abt Associates)
Michael Eriksen
(University of Georgia)
Christopher Parmeter
(University of Miami)
Jaren Pope
(Brigham Young University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Mortgages 2
(G2)
Presiding:
Stuart Gabriel
(University of California-Los Angeles)
Underwriting Standards, Loan Products and Performance
Marsha Courchane
(Charles River Associates)
Leonard Kiefer
(Freddie Mac)
Peter Zorn
(Freddie Mac)
[View Abstract]
[Download Preview] The mortgage market crisis of the past decade led to many changes in the structure of the industry and in the products being offered to borrowers. Many studies have chronicled the rise and fall of the subprime empire, and many have assessed the impacts on borrowers and neighborhoods from the high level of delinquencies that have occurred. One immediate reaction to the crisis included a significant Congressional response aimed at tighter regulation of the mortgage industry. Among other actions this entailed passage of the Dodd Frank bill, with its focus on consumer protection and mortgage product offerings.
In response to the mortgage crisis, lenders tightened underwriting standards across the board, and virtually eliminated from their offerings products with little or no documentation of income and assets, products with negative amortization options, and products that might meet the needs of non-traditional or non-prime borrowers. As standards have tightened, the market shares of the government insured products or those that meet the credit standards of the government enterprises have grown to over 90% of the market. The curtailment of non-prime mortgage offerings has raised concerns that access to credit for targeted borrowers who were underserved by the prime market has been severely limited.
The aim of this paper is to develop an automated underwriting model that accounts for the shifts in underwriting standards over time, benchmarks performance to that of marginal borrowers over the decade, and which can be used to set risk tolerance thresholds that can be applied to products offered by mainstream lenders to target population borrowers, while still achieving acceptable performance for a given risk profile.
House-Price Expectations, Alternative Mortgage Products, and Default
Jan K. Brueckner
(University of California-Irvine)
Paul Calem
(Federal Reserve Bank of Philadelphia)
Leonard Nakamura
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] Rapid house-price depreciation and rising unemployment were the main drivers of the huge increase in mortgage default during the downturn years of 2007 to 2010. However, mortgage default was also partly driven by an increased reliance on alternative mortgage products such as pay-option ARMs and interest-only mortgages, which allow the borrower to defer principal amortization. The goal of this paper is to better understand the forces that spurred use of alternative mortgages during the housing boom and the resulting impact on default patterns, relying on a unifying conceptual framework to guide the empirical work.
The conceptual framework allows borrowers to choose the extent of mortgage “backloading,†the postponement of loan repayment through various mechanisms that constitutes a main feature of alternative mortgages. The model shows that, when future house-price expectations become more favorable, reducing default concerns, mortgage choices shift toward alternative contracts. This prediction is confirmed by empirical evidence showing that an increase in past house-price appreciation, which captures more favorable expectations for the future, raises the market share of alternative mortgages. In addition, using a proportional-hazard default model, the paper tests the fundamental presumption that backloaded mortgages are more likely to default, finding support for this view.
Time Preferences and Mortgage Default
Yongheng Deng
(National University of Singapore)
Jia He
(National University of Singapore)
[View Abstract]
[Download Preview] Recent financial crisis calls for a better understanding of the increasing mortgage defaults and corresponding foreclosures. Previous studies using option-based mortgage default models predict that borrowers should exercise the default option immediately whenever the market value of the mortgage exceeds the value of the underlying property. However, empirical evidence shows that a substantial number of borrowers are less likely default as 'ruthlessly' as the option theory predicts. Why do some borrowers not terminate their mortgages even when their option is deeply in the money?
This paper presents an alternative theoretical model to analyze this irrational default behaviour and support these existing empirical works theoretically. It has been documented that implicit or explicit transaction costs have played important role in borrowers’ default decision. We hypothesize that borrowers’ time preferences for the contingent costs are heterogeneous. As a result, borrowers with present-biased preference can overweigh the immediate costs coupled with their default decision, and they may procrastinate in their decision of default. Under extreme circumstances, some present-biased borrowers may never default during the life of their mortgage contract. The empirical results strongly support the importance of time preference in explaining heterogeneous mortgage default behaviour. Borrowers’ heterogeneous time preferences for the contingent costs of default may help to better understand mortgage default behaviour, and will assist in the creation of better policies to deal with the issue of foreclosure crisis, such as mortgage modification and mortgage contract design.
Housing Defaults When House Prices are Uncertain
Morris Davis
(University of Wisconsin)
Erwan Quintin
(University of Wisconsin)
[View Abstract]
We document that during the 2000-2006 house price boom and subsequent 2006-2010 bust, self-assessed house prices in 20 different metro areas do not rise nearly as rapidly during the boom or decline as severely in the bust as the Case-Shiller-Weiss house price indexes. In addition, we document that in all 20 metro areas, self-assessed house prices peak about 2 years later than the peak in the Case-Shiller-Weiss house price data. We argue this evidence is consistent with homeowners extracting a signal on the unobserved but true value of their home from publicly available data. We then specify and solve a dynamic infinite-horizon model where homeowners face this signal extraction problem. In our model, homeowners decide each period whether or not to stay in their house, sell their house, or default. Each period, homeowners observe a noisy signal of their house price and must infer from this signal the true but unobserved value of their home. We use simulations of the model to show that homeowners optimally "smooth" their self-appraised house values relative to the noisy public signal of house prices. In addition, we show that uncertainty about the true value of their home leads homeowners to default much less frequently that predicted by standard models in which homeowners observe a perfectly accurate value of their home each period.
Discussants:
Steve Oliner
(University of California-Los Angeles)
Danny Ben Shahar
(Technion - Israel Institute of Technology)
Peter Zorn
(Freddie Mac)
Edward Kung
(University of California-Los Angeles)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Securitization and Mortgage Markets
(G3)
Presiding:
Nancy Wallace
(University of California-Berkeley)
Advantages and Disadvantages of Securitization: Evidence from Commercial Mortgages
Andra Ghent
(University of California-San Diego)
Rossen Valkanov
(University of California-San Diego)
[View Abstract]
How do securitized loans differ from loans held on lenders' balance sheets? To investigate this question, we assemble a unique dataset of commercial mortgages with information on loan characteristics at origination and subsequent performance. The size of a loan strongly predicts the likelihood of securitization revealing risk-sharing as a key motivation for securitization. Loans that require substantial monitoring by the lender are less likely to be securitized. Although, overall, securitized loans do not default more after controlling for observable loan characteristics, they get resolved less quickly. Finally, we find evidence of poorer performance of securitized loans in particular subsamples.
Real Estate Risk and Hedge Fund Returns
Brent Ambrose
(Pennsylvania State University)
Charles Cao
(Pennsylvania State University)
Walter D'Lima
(Pennsylvania State University)
[View Abstract]
Although the performance of hedge funds across a wide range of investment strategies is well documented, we explore a new investment dimension relating hedge fund exposure to the real estate market. Using fund level data from 1994 to 2012 from a major hedge fund data vendor, we identify 1,238 hedge funds as having significant exposure to direct or securitized real estate investments. We document that funds with significant real estate exposure have lower incentive fees, similar account liquidity, lower leverage, and higher high water mark levels. Compared to hedge funds that have exposure to securitized real estate, funds that have exposure to direct real estate have higher leverage, longer redemption periods, lower high water marks, and lower minimum investment requirements. Finally, we test for the economic impact of real estate exposure and show that funds with significant real estate investment significantly underperform funds that do not have real estate exposure.
Sponsor-Underwriter Affiliation and Performance of Private Label Mortgage Backed Securities
Peng Liu
(Cornell University)
Lan Shi
(Peking University)
[View Abstract]
[Download Preview] Securitization of mortgage loans involves multiple financial intermediaries. Among them, loan originators, deal sponsors, and security underwriters are the key economic players. Using data on non-agency mortgage-backed securities, we find that i) deals in which underwriters and sponsors are affiliated (vertically integrated) have higher delinquency rates than those in which they are unaffiliated, and ii) the poorer performance of vertical integration is true both when investment banks act as sponsors and when sponsors/lenders act as underwriters. The effect is robust to controlling for security level characteristics, suggesting that the poorer performance is beyond what is observable or priced in the deal. The results are also robust to the inclusion of underwriter fixed effects, suggesting it is the incentive effect that drives the result. In addition, the results are robust to the inclusion of the relation between sponsors and originators. This evidence is inconsistent with the information advantage associated with vertical integration and points to poorer incentives associated with vertical integration. While the literature documents that securitization weakens lenders' screening incentives, our findings suggest that an important factor affecting the performance of mortgage backed securities is the moral hazard on the part of sponsors and underwriters.
Bid-Ask Spreads and the Pricing of Securitizations: 144a vs. Registered Securitizations
Burton Hollifield
(Carnegie Mellon University)
Artem Neklyudov
(Carnegie Mellon University)
Chester Spatt
(Carnegie Mellon University)
[View Abstract]
[Download Preview] Traditionally, various types of securitizations have traded in opaque markets. During May 2011 the Financial Industry Regulatory Authority (FINRA) began to collect transaction data from broker-dealers (without any public dissemination) as an initial step towards increasing transparency and enhancing its understanding of these markets. Securitization markets are highly fragmented and require transaction matching methods to construct bid-ask spreads. We study the relationship between bid-ask spreads and transaction characteristics, such as the size of the underlying trade and the path by which trade execution and intermediation occurs. Retail-sized transactions lead to relatively wide spreads because of the absence of competition, while institutionally-sized transactions often result in much tighter spreads. We study the contrast between Registered instruments that are freely tradable and Rule 144a instruments with much more limited disclosures that can only be purchased by sophisticated investors.
We study the structure of the dealer network and how that influences the nature of bid-ask spreads. Some dealers are relatively central in the network and trade with many other dealers, while many others are more peripheral. Central dealers receive relatively lower spreads than peripheral dealers. This could reflect greater competition and reduced bargaining power of central dealers or lower costs for the transactions which they intermediate. The order flow is more evenly divided among dealers and the customer spreads are relatively smaller for central dealers in Rule 144a than in Registered instruments.
Discussants:
Richard Stanton
(University of California-Berkeley)
Alexei Tchistyi
(University of California-Berkeley)
Cindy Soo
(University of Pennsylvania)
Tim Landvoigt
(Stanford University)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon A
Association for Comparative Economic Studies/American Economic Association
The Effects of Large Shocks and Institutional Change on Employment: Evidence from the United States, China and Russia
(J4)
Presiding:
Michael Burda
(Humboldt University Berlin)
Large Shocks, Employment Adjustments, and Finance Constraints: The Case of Small Businesses in the US
David Brown
(US Census Bureau)
John S. Earle
(George Mason University)
[View Abstract]
We study the response of employment to output shocks and the extent to which these adjustments are affected by the availability of external finance. We hypothesize that greater availability of finance may affect employment adjustments asymmetrically, cushioning the reaction to negative shocks while strengthening the ability to expand when conditions warrant. We test the hypothesis using data on a complete list of Small Business Administration loans linked to univeral data on US employers. The data allow us to identify adjustment to shocks at the firm-level as well as for narrowly defined regions and industries.
Labor Regulation and Enterprise Employment in China
Albert Park
(Hong Kong University of Science and Technology)
John Giles
(World Bank)
Yang Du
(Chinese Academy of Social Sciences)
[View Abstract]
Using data from a national survey of Chinese manufacturing firms conducted in 2009, we analyze the impact of implementation of China's 2008 Labor Contract Law on the employment of production workers. We find that cities with lax prior enforcement of labor regulations experienced a greater increase in enforcement after 2008 and slower employment growth, and that this finding is robust to inclusion of a rich set of city-level controls and the use of alternative measures of enforcement effort. Although firms affected by the global economic crisis did not report less strict enforcement of the new Law, there is evidence that their employment adjustment was less sensitive to enforcement of labor regulations than firms not affected by the crisis.
The Collapse of the Centrally Planned Economy and Employment Policies at the Firm Level: Evidence from Personnel Data of a Russian Manufacturing Firm
Thomas Dohmen
(University of Bonn)
Hartmut Lehmann
(University of Bologna)
Anzelika Zaiceva
(University of Modena and Reggio Emilia)
[View Abstract]
Using unique personnel data form a Russian manufacturing firm that cover the whole span of the transition period (1990 – 2010) we investigate how the firm dealt with the collapse of the centrally planned economy. In Soviet times the firm was part of the Military Industrial Complex; the reforms set in motion by the Yeltsin government in the wake of the August Coup of 1991 slashed subsidies going to firms of the Military Industrial Complex, including our firm. As a consequence the firms had to convert its production into civilian goods, a process that took several years but was concluded successfully. In the paper we investigate how this conversion and the restructuring following privatization in 1992 affected employment levels and the employment structure within the firm. As we have data through 2010 we are able to look not only at short-run effects of employment policies in early transition but also at long-run outcomes of these policies.
Minimum wages, unemployment and informality: Evidence from panel data on Russian regions
Alexander Muravyev
(St. Petersburg University)
Aleksey Oshchepkov
(Higher School of Economics Moscow)
[View Abstract]
[Download Preview] This paper revisits labor market effects of the minimum wage by taking advantage of a unique institutional setting and rich data from Russia covering 89 regions over 10 years, from 2001 to 2010. Our empirical analysis draws on the methodology introduced by Neumark and Wascher, in which labor market outcomes at the regional level are related to the relative minimum wage (captured by the Kaitz index) in a panel setting. We find that the minimum wage raises unemployment among young workers aged 15 to 24. In contrast, there is no evidence of disemployment effects of the minimum wage for workers aged 25-72, including women. In addition, minimum wage hikes are associated with an increase in informal employment.
Discussants:
Belton M. Fleisher
(Ohio State University)
Michael Burda
(Humboldt University Berlin)
Fabian Slonimczyk
(Higher School of Economics Moscow)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 407
Association for Economic & Development Studies in Bangladesh
Food Price Shocks, Health and Minority Groups
(O1)
Presiding:
Mahmudul Anam
(York University)
The Effects of Intrauterine Malnutrition on Birth and Fertility Outcomes: Evidence from the 1974 Bangladesh Famine
Rey Hernández-Julián
(Metropolitan State College of Denver)
Hani Mansour
(University of Colorado-Denver)
Christina Peters
(Metropolitan State College of Denver)
[View Abstract]
[Download Preview] This paper uses the Bangladesh famine of 1974 as a natural experiment to estimate the impact of intrauterine malnutrition on sex of the child and infant mortality. In addition, we estimate the impact of malnutrition on post-famine pregnancy outcomes. Using the 1996 Matlab Health and Socioeconomic Survey (MHSS), we find that women who were pregnant during the famine were less likely to have male children. Moreover, children who were in utero during the most severe period of the Bangladesh famine were 32 percent more likely to die within one month of birth compared to their siblings who were not in utero during the famine. Finally, controlling for pre-famine fertility, we find that women who were pregnant during the Famine experienced a higher number of stillbirths in the post-Famine years. This increase appears to be driven by an excess number of male stillbirths.
Household Exposure to Food Price Shocks in Rural Bangladesh
Hanan Jacoby
(World Bank)
Basab Dasgupta
(World bank)
[View Abstract]
Recent food price volatility has led to concern about the exposure of the rural poor in Bangladesh. Yet, improved terms of trade for agriculture should also lead to higher rural wages, which benefit the poor. Our evidence shows that rural wages in Bangladesh did indeed respond positively to higher crop prices over the last decade. Moreover, a general equilibrium consistent welfare index that accounts for such wage gains shows that the burden of higher food prices, far from falling hardest on the poor, is closer to being distributionally neutral.
Credit Constraints, Present Bias and Investment in Health: Evidence from Micropayments for Clean Water in Dhaka
Raymond Guiteras
(University of Maryland)
David Levine
(University of California-Berkeley)
Thomas Polley
(Duke University)
Brian Quistorff
(University of Maryland)
[View Abstract]
[Download Preview] Low rates of adoption of and low willingness to pay for preventative health technologies pose an ongoing puzzle. In the case of water-borne disease, the burden is high both in terms of poor health and cost of treatment. Inexpensive preventative technologies are available, but willingness to pay (WTP) for products such as chlorine treatment or ceramic filters has been observed to be low in a number of contexts.
In this paper, we investigate whether time payments (micro-loans or dedicated micro-savings) can increase WTP for a high-quality ceramic water filter among 400 households in slums of Dhaka, Bangladesh, where water quality is poor and the burden of water-borne disease high. We use a modified Becker-Degroot-Marschak mechanism to elicit WTP for the filter under a variety of payment plans. Crucially, we obtain valuations from each household across all payment plans, which (a) increases power and (b) allows us to investigate the mechanisms behind differences in WTP across plans.
We find that time payments significantly increase WTP: median WTP under a lump-sum, up-front payment is USD 9.30, versus USD 17 with a simple 6-month loan and USD 20 for an up to 12-month loan. Similarly, coverage can be greatly increased: at an unsubsidized price of USD 28 (50% subsidy price of USD 14), coverage is 12% (27%) under a lump-sum but as high as 45% (71%) given time payments.
Many explanations are consistent with these reduced-form results. In ongoing work, we use our rich within-household WTP data, the design of the payment plans, and a simple structural model of time preference to investigate the mechanisms at work behind these large differences in WTP. In particular, we measure the relative importance of credit constraints, time-preferences and the risk associated with a new technology.
Religion, Minority Status and Trust: Evidence from a Field Experiment
Gautam Gupta
(Jadavpur University)
Minhaj Mahmud
(Bangladesh Institute of Development Studies)
Pushkar Maitra
(Monash University)
Santanu Mitra
(Women's Polytechnic-Kolkata)
Ananta Neelim
(Monash University)
[View Abstract]
[Download Preview] This paper reports the results from a field experiment conducted in Bangladesh and in West Bengal (India). These two regions are similar in terms of socio-economic characteristics, ethnicity and language but have different religious composition. Using this variation we examine whether identity based on religion or the relative status that it generates within the population affects behavior. We find that in both locations individuals belonging to the minority group exhibit positive in-group bias in trust, while individuals belonging to the majority group in both countries show positive out-group bias in trustworthiness. Behavior is therefore driven by relative status. Differences in the behavior of religious and non-religious individuals can explain the observed patterns.
Discussants:
Takashi Kurosaki
(Hitotsubashi University)
Yasuyuki Sawada
(University of Tokyo)
Christopher Udry
(Yale University)
Arif Mamun
(Mathematica Policy Research)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Redressing Economic and Social Inequalities
(B5)
Presiding:
James Galbraith
(University of Texas-Austin)
Work Time, Gender and Inequality: Implications for Policy
Janice Peterson
(California State University-Fresno)
Barbara Wiens-Tuers
(Pennsylvania State University-Altoona)
[View Abstract]
The number of hours people spend in paid work can significantly impact the quality of their lives in many ways, including their ability to achieve both financial security and work-life balance. Work time is socially constructed through cultural norms, public policy, organizational practices, and negotiations within and between households and work places, and thus strongly reflects the social relations of gender. Because work time is unevenly distributed it shapes opportunities across different groups in society, both reflecting and reinforcing existing forms of inequality. This paper examines the distribution of work time for women in the United States and the implications of current work time patterns for policies designed to promote gender equality. Work place "flexibility" is seen by many as a way to promote gender equality by facilitating the ability of women to participate in paid work while maintaining families. Yet, "flexibility" takes on different meanings in the context of an increasingly bifurcated distribution of work time, where some workers (particularly salaried workers in professional, managerial and technical occupations) face increasing work hours and/or work intensity, while other workers (particularly hourly workers in service occupations) face decreasing work hours and/or increasing variability of work hours. This paper seeks to clarify the implications of these trends for the on-going policy discussion concerning work place flexibility and gender inequality.
Energy Impoverishment: Addressing Capitalism's New Driver of Inequality
Lynne Chester
(University of Sydney)
[View Abstract]
[Download Preview] A rapidly growing number of households are suffering energy impoverishment caused by escalating electricity prices, low income and poor housing energy efficiency. Many households are suffering considerable hardship to pay energy bills. This manifestation of inequality has followed the global restructuring of electricity sectors and its incidence has become widespread across Europe, the UK, US, New Zealand and Australia. Current policy measures generally resemble ‘retrospective compensation’ rather than addressing the root cause of the problem. This paper argues for a new policy approach that reconfigures electricity price formation in order to address this increasingly embedded social phenomenon.
Access to Justice as a Form of Inequality
Anton Olenik
(Memorial University, Newfoundland)
[View Abstract]
[Download Preview] This paper discusses three approaches to the issue of access to justice, namely the neoclassical economic theory, critical sociology and the concept of the power triad. Economic approaches highlight the most visible aspect of the problem, namely, inflated legal fees. Critical sociology focuses on the symbolic power of labeling. The concept of the power triad serves to explain the problematic access to justice in terms of a particular technique of domination, access control. The theoretical discourse of access to justice is confronted with the public discourse. 642 texts published in three major newspapers, the Times, the New York Times and the Globe and Mail over the period from July 1985 to March 2013 were content-analyzed using both qualitative and quantitative techniques. The outcomes of the content analysis confirm the lack of public acknowledgement that there is a serious problem with access to justice, especially as far as the most invisible techniques of domination are concerned.
Regulatory Capture in the Credit Ratings Industry: Implications for Public Credit Rating
Susan Schroeder
(University of Sydney)
[View Abstract]
Regulatory capture is a suspected culprit in the run-up to the Global Financial Crisis (GFC). However, the recent regulatory reforms (e.g., Dodd-Frank and Basel III) appear to be better suited for confronting regulatory failure rather than capture. This paper analyses the disjuncture by examining the key regulatory reforms that pertain to the private credit ratings industry. The extent to which rating agencies engaged in regulatory capture in the run-up to the GFC is discussed so as to identify the forms of capture (e.g., political, process and cognitive) for deeper scrutiny. That scrutiny involves an examination of the normative specifications of interests underlying the regulation of this industry (in the United States), and, moreover, how government's support amongst the interests shifted with the new regulations. The inequalities in the balance of interests ought to clarify the inherent distribution of power, and explain how regulatory capture becomes possible in this industry. The implications are then drawn for the effectiveness of recent regulatory reforms for countering the incentives that encourage various forms of regulatory capture. The paper ends by suggesting that a public credit rating agency be designed to minimize capture under the current regulatory environment.
Fringe Banking: Case Study of Pay Day Loan Industry in Tennessee
Sherry D. Kasper
(Maryville College)
[View Abstract]
Since the mid-1990s the Alternative Financial Services (AFS) industry, or fringe banks, grew 10% annually to a $100+ billion business, serving the financial needs of the 10-20% of the US unbanked. The 2009 Consumer Financial Protection Bureau provides immediate federal regulatory power to oversee this industry. The policies developed by this agency depend greatly on their understanding of fringe banking. To aid in this understanding, this paper will draw on the institutional analysis of John Commons later updated by Allan Schmid in his "situation, structure, performance paradigm" to describe the growth of the payday loan industry in Tennessee. Initially, the paper will describe the relevant laws. Second, it will provide descriptive statistics about changing patterns of segmentation between mainstream financial institutions and fringe banks. It will conclude with an analysis of the impact of fringe banking on consumers and society and offer relevant policy recommendations based on the analysis.
Discussants:
Ellen Mutari
(Richard Stockton College)
Christopher Brown
(Arkansas State University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Howe
Association for Social Economics/Association for Evolutionary Economics
Overcoming Causes of Income Inequality and Fostering Economic and Social Stability
(D6)
Presiding:
Nancy Folbre
(University of Massachusetts-Amherst)
Death by a Thousand Cuts: Financial Innovation and Income Inequality
William Redmond
(Indiana State University)
[View Abstract]
[Download Preview] The term financial innovation typically conjures images of complex, opaque securities engineered by investment bankers and involving huge sums of money. More generally however, a financial innovation is simply a new way of apportioning money, credit or risk. These need not be complex or opaque and may involve small amounts. The present paper focuses on such smaller financial innovations and their effects on members of the lower and lower-middle classes. A prime example is payday loans, which were relatively scarce a decade or so ago but are now widespread in the US. These involve usurious interest rates; many customers roll them over from one period to the next, thus accumulating large debts.
Other examples include state-sponsored lotteries, subprime mortgages, credit card late charges and overdraft fees. All of these expenses, and many more, fall differentially heavily on the lower and lower-middle classes as opposed to the upper and upper-middle classes, who seldom use them. Indeed, the upper and upper-middle groups benefit by way of ownerships or stockholdings of the innovating businesses, as well as lower school taxes. That is, these innovations generate a transfer of wealth from the poorer to the richer. While no single innovation likely makes a significant difference in income inequality they can--cumulatively--cost a household thousands of dollars a year over many years, across millions of households. From a sociological standpoint, it should be noted that many activities, such as temporary loans and gambling, were formerly within the province of friends, family and neighbors.
Rising Income Inequality and Family Functioning: Macroeconomic Effects of Changes in Family Structure and Relationship to Employment
Heather Boushey
(Center for American Progress)
[View Abstract]
A half century ago, it was common for children to live in families with two parents, and for one of the parents to be a full- or at least part-time stay-at-home caregiver. This was true across the income distribution, although always more common among higher income families. The majority of American families no longer look like this. Children are now more likely to grow up in families with two parents, both working outside the home, or with only one working parent. However, families across the income distribution have experienced changes in family structure and employment in strikingly different ways, with diverse implications for the economy overall.
Families are important to the overall economy in two ways, both of which have been affected by rising inequality in recent years. First, they create economic demand, as families are one of the most important units of consumption. Second, families produce and reproduce people. Families are where workers rest and eat and prepare for the next workday, where the next generations of workers are raised and educated, and where the old and the sick are cared for. If families cannot support these functions, it negatively affects the nation's stock and flow of human capital, with outcomes for economic growth that may be immediate as this affects workers currently in the labor force or in the future if this affects the next generations of workers.
This paper will:
• Lay out hypotheses about how the rise income inequality has affected families across the income distribution in terms of consumption and human capital;
• Determine which hypotheses are testable and provide preliminary analysis.
The Impact of Paid Parental Leave on Income Inequality in the United States
Steve Pressman
(Monmouth University)
Robert Scott
(Monmouth University)
[View Abstract]
[Download Preview] Except for the United States, every developed nation in the world provides paid parental leave to new parents. The generosity of the program varies from the stingy (6 weeks of leave at 90% of regular pay in the UK) to the more generous (100% of earnings for around a year or more in Norway and Sweden). This paper will model the impact of a paid parental leave program on income inequality in the United States. Our particular focus will be on the impact of such a program on families with young children (2 years old and under). The paper will use the Canadian and/or UK paid parental leave program as a benchmark, add the benefits from paid leave and take account of any behavioral changes resulting in income losses due to the program. This will let us measure the distributional effects of such a program for US families. We will also look at the impact of this on family living standards in ways that do not get captured by standard inequality measures. For example, having a parent at home reduces work-related expenses (in particular, child care). This has not only short-term effects, it also has long-term effects on family living standards if households do not need to resort to borrowing money when one parent remains at home for some period of time to take care of a new baby but receives no income. The effects on young children are perhaps the greatest benefit of paid parental leave, and these benefits multiply as children get older.
Finding a Positive Vision for State Capitalism
Anna Klimina
(University of Saskatchewan)
[View Abstract]
This paper discusses the beneficial role that state capitalism could play in moving market economies toward greater equality of income and opportunity. The present rise of state capitalism in emergent markets is often interpreted as a nationalistic reaction to the fiscal weakening of the state through the considerable loss of surplus to either home-grown bourgeoisie or international corporations. The government's intention is thus to reorient capital accumulation to advance nation's economic strength and to secure government's position. This study argues that state capitalism can be much more than that; such an authoritative position as the largest appropriator and distributor of economic surplus offers the state a much greater opportunity than in private capitalist countries, especially if pressed from below, to use economic surplus to advance progressive reproduction of social economy and to design and nurture institutions that promote effective economic democracy.
Using Russia's state capitalist economy as an illustration, this paper specifies requisite policies for progressive transformations through state capitalism. It argues that a comprehensive restructuring of state-owned companies, not through privatization, but through broadening property ownership to include various forms of shared ownership and worker participation, is required to achieve more equitable power distribution and to attenuate the steadily high income inequality and the alienation of labour. Furthermore, to secure more equitable sharing of surplus, new property outside the workplace should be created through state-guaranteed protection of jobs and social benefits. State capitalism can thus become the agent of both economic and political democratization, and its own social control.
Discussants:
Deborah M. Figart
(Richard Stockton College of New Jersey)
David Zalewski
(Providence College)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon K
Association of Environmental & Resource Economists
Uncertainty, Risk, and Discounting in Climate Policy
(Q4)
Presiding:
Thomas Sterner
(University of Gothenburg)
Optimally Climate Sensitive Policy
Svenn Jensen
(University of California-Berkeley)
Christian Traeger
(University of California-Berkeley)
[View Abstract]
[Download Preview] The equilibrium response of the global temperature to greenhouse gas emissions is highly uncertain. We derive the optimal climate policy under uncertainty, acknowledging Bayesian uncertainty, passive and active learning, and temperature stochasticity. Our analysis employs a stochastic dynamic programming implementation of the integrated assessment model DICE (Nordhaus, 2008). We find that the stochasticity of temperatures induces precautionary savings, while Bayesian uncertainty over the climate’s sensitivity to greenhouse gas emissions increases the optimal present day carbon tax by approximately 25%. Currently, the scientific community does not agree on the correct Bayesian prior or even its expected value. We therefore re-evaluate optimal policy using a model of smooth ambiguity aversion, acknowledging low confidence into the Bayesian prior. We find that neither ambiguity, nor the anticipation of learning change the optimal policy.
Expecting a Black Swan and Getting a Dragon: Rational Responses to Ignorance
Gernot Wagner
(Environmental Defense Fund and Columbia University)
Richard Zeckhauser
(Harvard University)
[View Abstract]
[Download Preview] Climate change is beset with deep uncertainties. That is particularly true for estimates of one of the key parameters: equilibrium climate sensitivity—how eventual temperatures react as atmospheric carbon dioxide concentrations double. We introduce peakedness of the climate sensitivity distribution as a way to interpret the IPCC’s latest move to remove 3°C (5.4°F) as the “most likely†value for the climate sensitivity parameter.
Increased uncertainty as represented by decreased peakedness around an average climate sensitivity value increases willingness to pay to avoid climate change, entirely without relying on ‘fat tails’ or extreme values.
W.U.I. On Fire: Risk Salience in the Colorado Front Range
Randall Walsh
(University of Pittsburgh)
Shawn McCoy
(University of Pittsburgh)
[View Abstract]
Our work thus far is preliminary and we focus exclusively on severewildfire occurrences in Boulder County, CO; we are in the process of extending our results to the entire COFR. While the data construction elements of the task are onerous, the empirical analysis is straight forward. After carefully geo-coding each property, its "viewshed"is computed and then intersected with the fire perimeter data to determine the extent ofeachhousehold'sviewshedthatiscomprisedofburn scars. The hedonic data is then used to estimate various treatment effects associated with view and proximity to each fire. To control for the fact that households in the COFR tend to inherently value high fire risk landscapes relative to low-fire risk landscapes, our hedonic analysis is undertaken in a difference-in-differencesframework (we will also explore repeat sales specifications)
Discounting under Disagreement
Antonio Millner
(London School of Economics)
Geoffrey Heal
(Columbia University)
[View Abstract]
To investigate how heterogeneous time preferences affectthe PRTPthat should be used for welfare analysis, we consider a model in which a group of time consistent agents has access to a common productive resource stockwhose output provides their consumption needs. The agents disagree about the appropriatePRTPto use when choosing a consumption policy, and thusdelegate the management of the resource to a social planner who allocates consumptionefficiently across individuals and over time. We show that the planner's optimal policy isequivalent to that of a representative agent with a non-constant PRTP. Therepresentative agent's time preferences depend on the distribution of time preferences inthe group, on the agents' tolerance for consumption fluctuations, and on the productivityof the resource. We provethat therepresentative agent's utility discount rate coincides with that ofthe individual with the lowest ratein the long run, and under plausibleconditionsis monotonically declining. In the workhorsecase of iso-elastic felicity functions,and Gammadistributed rates of impatience, analytic solutions are possible, andthe representative agent has hyperbolic time preferences. We demonstrate the time dependence of the group's discount rate in models of renewable and exhaustible resource management
Discussants:
Geoffrey Heal
(Columbia University)
Howard Kunreuther
(University of Pennsylvania)
Nicholas Flores
(University of Colorado)
Thomas Sterner
(University of Gothenburg)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Congress B
Association of Financial Economists/American Finance Association
Credit Ratings, Creditor Protection and Compliance
(G3)
Presiding:
Kose John
(New York University)
The Value of Uninformative Credit Ratings
Jess Cornaggia
(Indiana University)
Kimberly Cornaggia
(American University)
Timothy Simin
(Pennsylvania State University)
[View Abstract]
We test the hypothesis that financial institutions and other regulated institutional investors benefit from relatively uninformative credit ratings. Using credit ratings that are not relevant for regulatory compliance as a benchmark, we show that Moody's certifies riskier bonds as investment grade. This arbitrary line is most consequential for reserve requirements and has other important implications for the allocation of regulated capital. Certification of marginal bonds allows regulated investors to mitigate the regulatory costs associated with yield chasing. This evidence supports an efficient market explanation – mitigating the costs of regulatory compliance – for the well-documented evidence that Moody's credit ratings are less informative than those produced by smaller rating agencies.
Credit Access and Credit Performance after Consumer Bankruptcy Filing: New Evidence
Julapa Jagtiani
(Federal Reserve Bank of Philadelphia)
Wenli Li
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] This paper brings a unique data set to shed new light on the credit availability and credit performance of consumer bankruptcy filers after their bankruptcy filing. In particular, our new data allow us to distinguish between Chapter 7 and Chapter 13 bankruptcy filings, to observe changes in credit demand and supply explicitly, to differentiate existing and new credit accounts, and to oberve the performance of each account directly. The paper has three main findings. First, despite speedy recovery in their risk scores after bankruptcy filing, most filers have much reduced access to the unsecured credit market. Additionally, Chapter 13 bankruptcy filers are much less likely to receive new credit cards than Chapter 7 filers even after controlling for borrower characteristics and local economic environment. Second, the reduction in credit access stems mainly from the supply side as consumer inquiries recover significantly after the filing while credit limits remain low more than one year after the filing. Finally, for Chapter 7 filers, credit card, auto loan, and first mortgage performance improves after the filing. For Chapter 13 filers, however, performance on all three types of loans continues to suffer after the filing.
Improved Creditor Protection and Verifiability in the United States
Erasmo Giambona
(University of Amsterdam)
Florencio Lopez-de-Silanes
(EDHEC Business School)
Rafael Matta
(University of Amsterdam)
[View Abstract]
[Download Preview] The dissatisfaction with the U.S. bankruptcy law is largely due to its excessive focus on distribution rather than efficiency issues. The existence of dispersed creditors and different classes of debt make out-of-court restructuring harder and often result in rejections of reorganization plans in Chapter 11. In these cases, creditors' recovery values crucially depend on the level of verifiability of assets in place in court, the strategic uncertainty among lenders, and the debtor's uncertainty about the outcome of out-of-court renegotiations. Building on the work by Diamond (2004) and Ayotte and Gaon (2011), we develop a model that incorporates these three sources of uncertainty and examines the effect of verifiability on bankruptcy filing and firm financing. We show that higher verifiability increases both the probability of Chapter 11 filings and debt capacity. The model also predicts the effect on debt capacity to be increasing in verifiability. We test these predictions exploring an exogenous variation in one of several forms verifiability, namely, the ability of courts to price assets in place. We use the natural experiment provided by a Supreme Court ruling in 1999 stating that shareholders in Chapter 11 must auction their equity interest whenever they propose a restructuring plan contributing cash to the firm but violating creditor absolute priority. This change effectively precludes shareholders from making cash contributions below the market value of the assets, and thus substantially increasing asset verifiability. Our results strongly support our predictions. Chapter 11 filings for affected firms more than doubled after the Supreme Court ruling (from 0.63% to 1.73%), while control firms remained largely unaffected. The positive market reaction surrounding this event is also increasing in verifiability. Results are robust to various specifications and tests. Our theory and empirical work help clarify and quantify some of the channels by which creditor protection increases firm value.
Economic Effects of SOX Section 404 Compliance: A Corporate Insider Perspective
Cindy Alexander
(Securities and Exchange Commission)
Scott Bauguess
(Securities and Exchange Commission)
Gennaro Bernile
(Singapore Management University)
Alex Lee
(University of Southern California)
Jennifer Marietta-Westberg
(Securities and Exchange Commission)
[View Abstract]
We use survey responses from 2,901 corporate insiders to assess the costs and benefits of compliance with Section 404 of the Sarbanes-Oxley Act. The majority of respondents recognize compliance benefits, suggesting that Section 404 requirements are effective, but they do not perceive these benefits to outweigh the costs, on average. This is particularly true among smaller companies where the start-up costs are proportionately larger. However, the perceived efficiency of compliance increases with auditor attestations, years of compliance experience, and after the remediation of a material weakness. Finally, the perceived effects of compliance depend largely on firm complexity, but are mostly unrelated to firm governance structure.
Discussants:
Victoria Ivashina
(Harvard University)
Edith Hotchkiss
(Boston College)
Stefano Rossi
(Purdue University)
Dalida Kadyrzhanova
(University of Maryland)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 310
Association of Indian Economics & Financial Studies
Growth & Socio-Economic Policy
(O1)
Presiding:
Amitrajeet Batabyal
(Rochester Institute of Technology)
Innovation, Decentralization, and Planning in Multiregion Model of Schumpeterian Economic Growth
Amitrajeet Batabyal
(Rochester Institute of Technology)
Peter Nijkamp
(VU University-Amsterdam)
[View Abstract]
[Download Preview] We study innovation and the resulting Schumpeterian economic growth that this innovation gives rise to in a model with heterogeneous regions. For each region where our analysis leads to six findings. First, we define the balanced growth path (BGP) allocations and the equilibrium of interest. Second, we stipulate the form of the innovation possibilities frontier that is consistent with balanced economic growth. Third, we derive the growth rate of the region in the decentralized equilibrium and show that there are no transitional dynamics. Fourth, we solve the social planner's problem and derive the Pareto optimal growth rate for the region. Fifth, we compare the two preceding growth rates and discuss the circumstances in which there is either too much or too little innovation in both the region and in the aggregate economy of regions. Finally, we conclude and then offer suggestions for extending the research described here.
Political Connections, Entrepreneurship and Social Network Investment
Raja Kali
(University of Arkansas)
Nisvan Erkal
(University of Melbourne)
[View Abstract]
The recent literature on politically connected firms documents that connections between firms and politicians or political parties are both globally widespread and contribute value to such firms. However, there is little research on how entrepreneurs without direct political access cope with the grabbing hand of government. For entrepreneurs, the source of political inuence is usually their social network. We develop a general model linking entrepreneurship, social networks, and political inuence. The practices and patterns that motivate our model are widespread in many emerging economies in Asia, Latin America, and the Middle East. One of the best documented examples in the academic literature comes from Jordan. We justify our modeling assumptions by discussing in detail how "wasta" works in Jordan and its impact on the business climate. The model unravels the economic forces behind the trade-offs entrepreneurs face in such environments and how entrepreneurial choices are altered by changes in the environment on the path to economic development, such as deregulation, market development, and economic growth.
Causes of Banking Crisis: Deregulation, Credit Booms & Asset Bubbles, Then & Now
Saktinil Roy
(Athabasca University)
David M. Kemme
(University of Memphis)
[View Abstract]
We examine similarities in the run-up to banking crises using two essential criteria for their predictability: i) the percentage of a specified number of years prior to a crisis correctly called; and ii) the percentage of true alarms of total alarms for a crisis. Using panel logit models we find that a banking crisis will be sparked by the collapse of a real asset bubble. While such bubbles are associated with popular stories of a new era and an increasingly deregulated financial system, in most cases, this would occur even in the absence of sustained surges of capital inflow, accumulation of public debt, central banks' low interest rate policies, or structural shocks retarding growth. We also find that a protracted increase in income inequality in the US and other countries helped to inflate the recent housing bubble.
Stationary & Parameter Constancy in the Demand for Money Function: The Case of India
Elias Grivoyannis
(Yeshiva University)
[View Abstract]
The ultimate objective of this paper is to verify how much of the economic growth in India is a response to [domestic] monetary policy initiatives and how much to other [domestic and foreign] economic factors. The emphasis in this version of the paper, though, would be on the econometric properties of India's monetary policy parameters during the last twenty years, for the following reason.
Cointegrated relationships could be characterized by a structural change. Parameter change tests enable us to verify (in the Chow test) or identify (in the Hansen test) the point of such change. When structural stability and parameter constancy persist before and after a breaking point then economic functions are meaningful and econometric models operational. When cointegrated relationships, though, are characterized by a plethora of sequential structural changes, one at a time, with short intervals of structural stability and parameter constancy between breaking points, then the descriptive ability of economic functions become questionable and the reliability of econometric models problematic. In this paper I will verify the existence of such cases by investigating the behavior of cointegration statistics and parameter estimates of the demand for money in India over the past twenty years.
Expansionary monetary policy could increase economic activity and growth in per capita GDP. The effectiveness, though, of monetary policy depends on the stability of money demand. Empirical evidence should indicate that the parameters in the demand for money are relatively constant.
Breaking Through: Domestic Violence in India
Aparna Mathur
(American Enterprise Institute)
Sita Natraj Slavov
(American Enterprise Institute)
[View Abstract]
Violence against women takes place in all countries and all cultures. However, the problem is particularly severe in India. As per a 2012 survey by Thomson Reuters Foundation, India has been ranked as the worst country (among twenty) to be a woman. Further, UNICEF's "Global Report Card on Adolescents 2012" shows that 57 percent of boys and 53 percent of girls, in the 15-19 age group in India, feel that wife beating is acceptable. This is troubling since research suggests that women who justify wife beating are also more likely to report being subject to domestic violence. Data from the National Crime Records Bureau (NCRB), which is an agency that collects data on crime in India, suggests that a crime against a woman is committed every 3 minutes, a woman is raped every 29 minutes, a dowry death occurs every 77 minutes and one case of cruelty committed by either the husband or the relative of the victim occurs every nine minutes.
One of the most comprehensive, nationally representative data sources on domestic violence in India is the National Family Health Survey (NFHS), an initiative of the Indian government that was first launched in 1992-1993. While the focus of the survey has been on family welfare, maternal and child health, and nutrition, a second (NFHS-2) and third (NFHS-3) round of the survey, launched in 1998-1999 and 2005-2006 have increasingly added questions relating to wife beating and domestic abuse, in general. NFHS-3, in particular, has the most extensive set of questions on wife beating. As per this survey, 37 percent of ever-married women have experienced spousal physical or sexual violence, and 16 percent have experienced spousal emotional violence. Spousal violence tends to occur early in the marriage, with 62 percent of women with any experience of domestic violence, reporting
The Drivers of GHG Emissions Intensity Improvements in Major Economies: Analysis of Trends 1995-2009
Madanmohan Ghosh
(Environment Canada)
Thomas Rutherford
(Wisconsin Institute for Discovery)
[View Abstract]
This paper analyzes the trends in greenhouse gas (GHG) emissions intensity over the period 1995-2009, in a mix of developing and developed economies that account for almost two thirds of global emissions. In doing so, the paper distinguishes between the demand-based emissions (DBEs) and production-based emissions (PBEs). Several studies find that while PBEs in the developed economies during the last two decades have stabilized, the DBEs are on the rise. Understanding the relative influence of various factors that have shaped the different patterns of emissions growth can provide us with important policy insights for controlling GHG emissions. The paper undertakes a decomposition exercise to understand the variations/fluctuations in both PBEs and DBEs intensities due to changes in technology and changes in composition of aggregate production and final consumption. The main findings of this paper are that technological change has been the key driver of emissions intensity improvements in both production and consumption. Emissions intensity improvements in consumption activities have been slower than those in final consumption particularly in EU 27. Changes in the composition of aggregate production and demand have relatively smaller contribution in overall intensity improvement. Structural shifts in the economy have somewhat negatively contributed to emissions intensity improvements in Canada and China. In India, structural shifts in both production and consumption activities have contributed significantly to emissions intensity improvements. Changes in regional composition of final consumption have worked against overall emissions intensity improvements, particularly in the developed economies of Canada, European Union (EU 27) and United States.
Key Words: GHG emissions intensity, Demand-based emissions, embodied emissions, convergence.
JEL Classification No: D58; Q56; O13.
Discussants:
Shailendra Gajanan
(University of Pittsburgh-Bradford)
Bansi Sawhney
(University of Baltimore)
Anusa Datta
(Philadelphia University)
Manas Chatterjee
(Binghamton University)
Nabamita Dutta
(University of Wisconsin-La Crosse)
Chaitram Talele
(Columbia State College)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 109-B
Chinese Economists Society
The Sustainability of the Chinese Growth Model
(O4)
Presiding:
Tony Fang
(Monash University)
Unraveling Paradoxes of China's Trade Imbalances after the Global Financial Crisis
Moussa Fall
(University of the Mediterranean)
Eric Giardin
(University of the Mediterranean)
Robert F. Owen
(University of Nantes)
[View Abstract]
[Download Preview] An important debate concerns the extent to which trade imbalances with China may actually be responsive in the desired direction to RMB exchange rate adjustments and to movements in domestic Chinese economic activity. In particular a paradoxical fall in imports following real RMB appreciation has often been detected in empirical work. This paper offers econometric analysis which identifies factors which can largely account for such paradoxical patterns in China’s external adjustment in recent years. Structural changes inside China’s economy in addition to entry into WTO are handled with a Markov-regime switching econometric approach which offers a number of critical insights regarding the structural breaks in trade elasticities. We use quarterly data over the longest available sample, spanning three decades, and correct for mismeasurement and improper seasonal adjustment of the data. We show that in resolving paradoxes, it is essential to disentangle nominal exchange rate from relative-price movements. While China’s exports were not driven by nominal effective exchange rate movements before WTO, such exchange rate movements became effective in moving Chinese exports, thereafter. In contrast, while relative price movements have been present all along, their impact has been sharply amplified after WTO entry. With respect to imports, the “perverse†impact of real exchange rate appreciation on imports appears to be solely driven in the long run by relative prices. In contrast, a nominal exchange rate appreciation appears able, over some specific periods, to generate the predicted rise in imports.
On the Relevance of Exports for Regional Output Growth in China
Christian Dreger
(DIW Berlin)
Yanqun Zhang
(Chinese Academy of Social Sciences)
[View Abstract]
[Download Preview] Despite high economic growth during the last decades, China remains vulnerable to shocks arising from industrial states. The advanced economies determine Chinese export performance, with subsequent effects on output growth. This paper examines to which extent GDP growth in China is export driven. According to the export led growth hypothesis, exports can contribute to GDP to a higher degree than expected from the national accounts identity, as a rise in productivity may be involved. The latter is due to knowledge spillovers, economies of scale or positive externalities to the non tradable sector. But gains cannot be taken for granted. For example, low skilled workers can limit knowledge spillovers. In a panel of 28 Chinese provinces, series are splitted into com-mon and idiosyncratic components, the latter being stationary. The results indicate coin-tegration between the common components of GDP, the capital stock and exports. Exports increase GDP by more than their impact from the national accounts. While ex-ports and capital are weakly exogenous, GDP responds to deviations from the long run. An adjustment pattern is detected for almost all regions, except of some provinces in the Western periphery.
Is Government Spending a Free Lunch?: Evidence from China
Xin Wang
(Federal Reserve Bank of St. Louis)
Yi Wen
(Federal Reserve Bank of St. Louis)
[View Abstract]
Keynesian theory argues that fiscal spending can have a multiplier greater than one on aggregate income if resources remain idle or underutilized as the result of market (coor-dination) failures. This doctrine has been firmly embraced by the Chinese government since officials believe that the principle should also apply to developing countries where market failures are believed to be the norm. As a large developing country with high household savings, a large pool of rural labour force, and a wide range of market fail-ures, China offers a unique opportunity to test the notion that government expenditures can have a fiscal multiplier larger than 1. Perhaps even more important is China's ex-tensive use of government spending as a major policy tool to stimulate the economy over the past. Based on panel data from 29 Chinese provinces, it is shown that the fiscal mul-tiplier exceeds 1. A theoretical model with market failures is provided to underpin the empirical findings. Despite large multipliers, however, the analysis also suggests that government spending may not necessarily come as a free lunch. The benefits might be largely offset by the cost of subsequent boom-bust cycles, especially if government purchases are financed by credit expansion and money creation.
Government-Engineered Growth and Productivity Performance in China
Carlo Milana
(Birkbeck College, University of London)
Harry X. Wu
(Hitotsubashi University, Tokyo)
[View Abstract]
Productivity analysis in the neoclassical growth accounting framework is subject to strong institutional and behavioural assumptions that are inappropriate for transition economies. In China agents operate under distortions and frictions created by govern-ment interventions and institutional deficiencies. An index-number approach based on Afriat's methodology is developed to address allocative inefficiency and data problems in the Chinese economy. This tool allows a decomposition of TFP growth into changes in technology, scale economies, and allocative efficiency. After a test for data con-sistency in aggregation and a correction for changes in efficiency, our TFP estimates appear to be less erratic and volatile than those obtained by traditional methods. The decomposition of TFP changes suggests that not only is technical progress relatively low in China, but the output growth itself occurs under persistent cost-increasing dise-conomies.
China's Growth, Stability, and the Use of International Reserves
Joshua Aizenman
(University of Southern California and NBER)
Yothin Jinjarak
(University of London)
Nancy Marion
(Dartmouth College)
[View Abstract]
[Download Preview] Despite the possible significant opportunity cost of hoarding international reserves, their demand by emerging markets has increased rapidly in the last two decades. Further-more, this demand has been quite insensitive to the opportunity cost of reserves. China provides a prime case study of the possible gains and limitations of hoarding and using international reserves. This paper illustrates that Chinese hoarding and using interna-tional reserves contributed to the overall stability of Chinese growth in past decades, yet the global crisis of the late 2000s and the maturing of China into a global player opt to change the policies that led to the rapid accumulation of reserves in the early 2000s. These policy changes will help in facilitating the transition of China into softer lending, from double digit growth rates, into respected but lower growth rate. International re-serves will keep playing a role in buffering the stability of Chinese growth, but at more modest levels of reserves/GDP.
Discussants:
Jarko Fidrmuc
(Zeppelin University Friedrichshagen)
Iikka Korhonen
(Bank of Finland)
Alessandro Rebucci
(Inter-American Development Bank)
Zheng Michael Song
(University of Chicago)
Jaejoon Woo
(International Monetary Fund)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 406
Cliometrics Society
Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective
(N2)
Presiding:
William Collins
(Vanderbilt University and NBER)
Corporate Governance and the Establishment of Manufacturing Enterprises in New England
Eric D. Hilt
(Wellesley College and NBER)
[View Abstract]
America's industrialization began in New England with textile factories, and throughout the nineteenth century manufacturing enterprises flourished in those states. A particularly striking feature of New England's industrialization is that its manufacturing firms were frequently organized as corporations. Indeed, during the first half of the nineteenth century manufacturing corporations were much more widespread in New England than elsewhere. Considerable scholarship has analyzed the history of particular firms and industries in New England, but much of this work has neglected the legal and organizational foundations of these enterprises. Why did so many of New England's entrepreneurs choose the corporate form? How were their corporations actually governed? How did they balance the interests of the managers who operated the firms against those of the investors who owned shares? Were some governance structures more successful in particular industries, or in firms of a particular scale? Answers to these questions are of particular importance because they may reveal the role that the law played in fostering economic development and industrialization in New England (see, for example, Handlin and Handlin, 1969; and Hurst, 1956).
Economies of Scale in Nineteenth Century American Manufacturing Revisited: A Resolution of the Entrepreneurial Labor Input Problem
Robert A. Margo
(Boston University and NBER)
[View Abstract]
[Download Preview] In a famous paper, Kenneth Sokoloff argued that the labor input of entrepreneurs was generally not included in the count of workers in manufacturing establishments in the early censuses of manufacturing. According to Sokoloff, this biased downward econometric estimates of economies of scale if left uncorrected. As a fix Sokoloff proposed a particular “rule of thumb†imputation for the entrepreneurial
labor input.
Using establishment level manufacturing data from the 1850-80 censuses and textual
evidence I argue that, contrary to Sokoloff’s claim, the census did generally include the labor of entrepreneurs if it was economically relevant to do so, and therefore Sokoloff’s imputation is not warranted for these census years. However, I also find that the census did understate the labor input in small relative to
large establishments as Sokoloff asserted, but for a very different reason. The census purported to collect data on the average labor input but, in fact, the data most likely measure the typical number of workers present. For very small establishments the reported figures on the typical number of workers are biased downwards relative to a true average but this is not the case for large establishments. As a result, the early censuses of manufacturing did overstate labor productivity in small relative to large establishments but the size of the bias is smaller than alleged by Sokoloff.
How Does Governance Matter? An Examination of the Long-Term Evolution of Bank Boards in the United States, 1800-1933
Howard Bodenhorn
(Clemson University and NBER)
Eugene White
(Rutgers University and NBER)
[View Abstract]
The early emergence of the business corporation is a defining feature of US economic history; corporations appeared across the country in a wide range of industries (Wright 2011). A second notable feature was the wide extent of share ownership. Shareholding extended well beyond the economic elite. With par values as low as $25, banks, turnpikes, bridges, and canal companies divided their capitals into shares at prices attractive to the middling sorts. And the middling sorts snapped them up (Wright 1999; Wright 2000). By the 1840s bank shareholder lists included local merchants, artisans, farmers, and widows; court-appointed guardians held and voted corporate shares on behalf of orphans and minors.
Discussants:
Carola Frydman
(Boston University and NBER)
William Collins
(Vanderbilt University and NBER)
Matthew Jaremski
(Colgate University and NBER)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 401
Econometric Society
Banks, Sovereign Risk and Currency Wars
(F5)
Presiding:
Satyajit Chatterjee
(Federal Reserve Bank of Philadelphia)
Sovereign Risk and Bank Balance Sheets: The Role of Macroprudential Policies
Emine Boz
(International Monetary Fund)
Pablo Nicolas D'Erasmo
(University of Maryland)
Bora Durdu
(Federal Reserve Bank)
[View Abstract]
This paper explores the role of bank balance sheets, sovereign
default risk, and capital adequacy requirements in amplifying
aggregate fluctuations. The paper, first, proposes a unified model
of defaultable sovereign debt and bank balance sheets to capture
regularities on bank credit to firms, banks' holdings of sovereign
bonds, and the behavior of sovereign debt and default. The model
captures the procyclical bank credit and countercyclical bank
holdings of sovereign bonds. Since the sovereign defaults
indiscriminately, bank losses due to a default hampers its lending
to firms, thereby, generating an endogenous cost of default. The
paper then conducts counterfactual policy experiments in line with
Basel III. Our preliminary findings suggest that the introduction
of leverage ratios is superior to increasing the capital
requirement on risk weighted assets where sovereign bonds are
assigned a zero weight.
Sovereign Risk and Financial Risk
Simon Gilchrist
(Boston University)
Vivian Yue
(Federal Reserve Board)
Egon Zakrajsek
(Federal Reserve Bank)
[View Abstract]
This paper studies the relationship between sovereign bond spreads, local economic activity, and global financial risk. We examine the extent to which movements in sovereign spreads are determined by local risk factors, such as fluctuations in exchange rates and local stock market returns, versus global risk factors that arguably proxy for risk-attitudes that prevail in U.S. financial markets. To measure global risk factors we rely on the global financial excess bond premium constructed using the data on over 100 banks in the world. The excess bond premium is a measure of distress for global financial intermediaries and comoves closely with conditions in world financial markets. Our results indicate that a substantial portion of the comovement among sovereign spreads can be accounted for by changes in such global risk factors. Next, we construct a general equilibrium model of sovereign debt and default to rationalize the empirical findings. The model includes a risk-averse global investor, optimal default, and endogenous debt dynamics for multiple countries. The sovereign default and bond prices depend on the borrower's economic conditions as well as the lender's risk aversion and riskiness of his portfolio. The distribution of sovereign debt across countries is endogenous and interacts with the lender's portfolio. We quantitatively examine the link between the financial risk that the lender faces and the distribution of sovereign risk. The model shows that the interaction between sovereign risk and financial risk is important in accounting for the relation between sovereign spreads and global risk factor.
Capital Account Intervention and Currency Wars
Anton Korinek
(Johns Hopkins University and International Monetary Fund)
[View Abstract]
[Download Preview] Capital account intervention generates international spillover effects that have recently raised concerns about global currency wars. This paper analyzes the welfare effects and the desirability of global coordination of such policy measures. We find that if controls are designed to correct for domestic externalities, the resulting equilibrium is nonetheless Pareto efficient, i.e. a global planner would impose the same measures and there is no role for global coordination. We illustrate this for a range of externalities that have recently been invoked as reasons for imposing capital controls: learning externalities, aggregate demand externalities in a liquidity trap, and pecuniary externalities arising from financial constraints. On the other hand, if controls are designed to manipulate a country's terms-of-trade or if policymakers face an imperfect set of instruments, such as targeting problems or costly enforcement, then multilateral coordination is desirable in order to mitigate the inefficiencies arising from such imperfections.
Discussants:
Vivian Yue
(Federal Reserve Board)
Anton Korinek
(Johns Hopkins University and International Monetary Fund)
Javier Bianchi
(University of Wisconsin)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 402
Econometric Society
Cross Sectional Asset Pricing
(G1)
Presiding:
Zhanhui Chen
(Nanyang Technological University)
Risk Aversion Sensitive Real Business Cycles
Zhanhui Chen
(Nanyang Technological University)
Ilan Cooper
(Norwegian Business School)
Paul Ehling
(Norwegian Business School)
Costas Xiouros
(University of Cyprus)
[View Abstract]
We build a risk aversion sensitive RBC model through endogenous state-contingent technology choices. With plausible parameter values, the risk averse agent optimally chooses productivity which is amplified and moves counter to the exogenous technology shock to smooth consumption across states. Such an amplification mechanism creates more volatile output, investment, and equity returns. In equilibrium, we find a high price of risk, a low and smooth risk-free rate, and a sizable unlevered equity premium. Various preference specifications, including CRRA, recursive preferences, and external habit, reasonably match moments of asset prices and business cycle statistics once we allow for state-contingent technology choices.
"Shooting" the CAPM
Lu Zhang
(Ohio State University)
[View Abstract]
We provide a disaster-based explanation for the failure of the CAPM in the post-Compustat sample as well as its success to explain the value premium in the long sample that includes the Great Depression. In an investment-based asset pricing model embedded with rare disasters, value stocks are more sensitive to disaster shocks than growth stocks. More important, disasters introduce strong nonlinearities in the relation between the pricing kernel and the return on wealth. The nonlinearities allow the model to explain the failure of the CAPM in samples in which disasters are not materialized. However, the CAPM explains the value premium in samples with disasters in the model, consistent with the data.
Product Variety and Asset Pricing
Florin Bidian
(Georgia State University)
Ajay Subramanian
(Georgia State University)
Baozhong Yang
(Georgia State University)
[View Abstract]
[Download Preview] We build a general-equilibrium asset pricing model of a production economy with multiple, imperfectly substitutable products. We derive closed-form analytical characterizations of the unique equilibrium and the corresponding pricing kernel in the basic single-sector and multi-sector versions of the model. The incorporation of heterogeneous products, whose mass can vary over time, has a significant impact on the equity premium and the risk-free rate. We employ the asset Euler equations derived from the representative agent's portfolio choice problem to estimate the risk aversion and discount rate parameters using the Generalized Method of Moments (GMM). The single-sector model reconciles the equity premium and risk-free rate for a relative risk aversion less than 5 and a quarterly discount rate of around 0.85. The more realistic multi-sector model, which incorporates intra- and inter-sector product substitutabilities, generates the observed equity premium and risk-free rate for relative risk aversion levels less than 2 and discount rates exceeding 0.9. Overall, our study highlights the importance of incorporating the multiplicity of imperfectly substitutable consumption goods in asset pricing models.
A Rating-Based Sovereign Credit Risk Model: Theory and Evidence
Haitao Li
(University of Michigan)
Tao Li
(City University of Hong Kong)
Xuewei Yang
(Nanjing University)
[View Abstract]
[Download Preview] We develop a rating-based continuous-time model of sovereign credit risk with closed-form solutions for a wide range of credit derivatives. In our model, rating transition follows a continuous-time Markov chain, and countries with the same credit rating share a similar level of default risk. A parsimonious version of our model, with only 16 parameters, as well as one common and one country-specific factor, can simultaneously capture the term structure of CDS spreads of 34 in-sample and 34 out-of-sample countries well. On average, the common factor explains more than 60% of the variations of the CDS spreads of both the in-sample and out-of-sample countries, and 80% of the variations of the common factor is
explained by the CBOE VIX index, the 5-year US Treasury rate, and the CDX NA IG Index.
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 403
Econometric Society
Estimation of Education Models
(J1)
Presiding:
Christopher Taber
(University of Wisconsin-Madison)
The Option Value of Human Capital
Donghoon Lee
(Federal Reserve Bank of New York)
Sang Yoon (Tim) Lee
(University of Mannheim)
Yongseok Shin
(Washington University-St. Louis)
[View Abstract]
We study college enrollment and completion decisions in the presence of risk in individuals' returns to college. Although the human capital acquired through education is irreversible (i.e., it cannot be decumulated or sold off), college education comes with two inherent options: (i) college students may drop out after obtaining additional information on their post-graduation wages and (ii) college graduates may take jobs that do not require a college degree, effectively protecting themselves from the left tail of the returns-to-college distribution. These two options may dominate standard risk aversion considerations so that enrollment may in fact increase in the face of larger risk. We calibrate our model to the U.S. data on education and labor market outcomes in the 1980s and show that these option values are important for explaining the ensuing trends in college enrollment and dropout rates, while
remaining consistent with the observed wage distribution conditional on education attainment. We also decompose the relative contributions of the first and second moments of the returns-to-college distribution to the trends in education decisions and labor market outcomes and quantify the realized wage gains of a marginal enrollee.
Changes Across Cohorts in Wage Returns to Schooling and Early Work Experiences: Distinguishing Price and Composition Effects
Jared Ashworth
(Duke University)
V. Joseph Hotz
(Duke University)
Arnaud Maurel
(Duke University)
Tyler Ransom
(Duke University)
[View Abstract]
This paper investigates the evolution over the last three decades in the wage returns to schooling and early work experience. We isolate changes in skill prices from changes in composition by estimating, using data from the National Longitudinal Survey of Youth 1979 and 1997 cohorts, a dynamic model of schooling and work decisions. Importantly, this allows us to account for the endogenous nature of the changes in educational and accumulated work experience across the two cohorts. Our preliminary results point to the existence of significant composition effects.
Parental Reputation
Chao Fu
(University of Wisconsin-Madison)
Juan Pantano
(Washington University in St. Louis)
[View Abstract]
The role of parenting, traditionally the object of study of developmental psychologists has been garnering increasing attention by economists. It is becoming more common to model parent-child interactions with the tools of game theory. However, empirical work that takes these game-theoretic models to the data is in its infancy. In this paper we formulate and estimate a reputation game between a parent who threatens punishment upon bad school performance and her multiple children who choose costly study effort to reduce their punishment odds. These children don't know whether their parent is inherently lenient or harsh but can update their initial priors using the history of play. This gives rise to reputation incentives that drive parental behavior and generate non-trivial dynamics in study effort and punishment strategies . We leverage longitudinal data from the NLSY-C to estimate the game. The NLSY-C provides us with multiple histories of play. In particular, we observe measures of school performance and eventual punishments for each sibling within these households over time. We use the estimated model to quantify the role asymmetric information plays in these parent-child interactions. In particular, we compute school performance under a hypothetical world in which parental type is known to be "soft" or "lenient". In addition, the estimated model sheds more light on some of the findings in the literature on birth order effects in school performance.
Ability Tracking, School and Parental Effort, and Student Achievement: A Structural Model and Estimation
Chao Fu
(University of Wisconsin-Madison)
Nirav Mehta
(University of Western Ontario)
[View Abstract]
We develop and estimate an equilibrium model of ability tracking. In the model, a school chooses how to allocate students into tracks based on their ability and chooses track-specific inputs. Parents choose parental effort in response. We estimate the model using data from the ECLS-K. We use the estimated model to first examine the effects of disallowing tracking on school and parental inputs and student achievement. We then examine how policies that change proficiency standards affect equilibrium tracking, school inputs, parental effort and student achievement.
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 404
Econometric Society
Evaluating Health Insurance Reform
(H5)
Presiding:
Hanming Fang
(University of Pennsylvania)
Equilibria in Health Exchanges: Adverse Selection vs. Re-Classification Risk
Benjamin R. Handel
(University of California-Berkeley)
Igal Hendel
(Northwestern University)
Michael Whinston
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper studies equilibrium and welfare in a class of regulated health insurance markets known as exchanges. We use detailed health plan choice and utilization data to model individual-level (i) projected health risk and (ii) risk preferences. We combine the estimated distributions of risk and risk preferences with a model of competitive insurance markets to predict allocations and prices under di¤erent counterfactual regulations and several equilibrium solution concepts. We investigate the welfare implications of di¤erent pricing regulations, with a focus on (i) adverse selection and (ii) premium re-classi…cation risk.
We Â…find that market unravelling from adverse selection is substantial under the proposed pricing rules in the Affordable Care Act (ACA), implying limited coverage for individuals beyond the lowest tier (Bronze) health plan. Though adverse selection can be attenuated by allowing (partial) pricing of health status, the welfare loss from re-classiÂ…cation risk is substantially higher than the gains of increasing coverage. We compute the subsidies / tax penalties required to induce different levels of participation in the exchanges.
Equilibrium Labor Market Search and Health Insurance Reform
Naoki Aizawa
(University of Pennsylvania)
Hanming Fang
(University of Pennsylvania)
[View Abstract]
[Download Preview] We present and empirically implement an equilibrium labor market search model where risk averse workers facing medical expenditure shocks are matched with firms making health insurance coverage decisions. Our model delivers a rich set of predictions that can account for a wide variety of phenomenon observed in the data including the correlations among rm sizes, wages, health insurance offering rates, turnover rates and workers' health compositions. We estimate our model by Generalized Method of Moments using a combination of micro data sources including Survey of Income and Program Participation (SIPP), Medical Expenditure Panel Survey (MEPS) and Robert Wood Johnson Foundation Employer Health Insurance Survey. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and find that it would reduce the uninsured rate among the workers in our estimation sample from 20.12% to 7.27%. We also examine a variety of alternative policies to understand the roles of different components of the ACA in contributing to these equilibrium changes. Interestingly, we find that the uninsured rate will be even lower (at 6.44%) if the employer mandate in the ACA is eliminated.
Adverse Selection and an Individual Mandate: When Theory Meets Practice
Martin B. Hackmann
(Yale University)
Jonathan T. Kolstad
(University of Pennsylvania)
Amanda E. Kowalski
(Yale University)
[View Abstract]
[Download Preview] An individual mandate that requires each person to have health insurance or pay a penalty is a key element of both the national Aordable Care Act (ACA) of 2010 and the Massachusetts health reform of 2006. One rationale for such a mandate is that it addresses adverse (or advan- tageous) selection. We develop a model of selection that incorporates an individual mandate. We identify a set of key parameters for welfare analysis, allowing us to model the welfare impact of the actual policy as well as to estimate the socially optimal penalty level. Using data from Massachusetts, we estimate the key parameters of the model. We compare health insurance coverage, premiums, and insurer average health claim expenditures between Massachusetts and other states in the periods before and after the passage of Massachusetts health reform. In the individual market for health insurance, we nd that premiums and average costs decreased signicantly in response to the individual mandate; consistent with an initially adversely se- lected insurance market. We are also able to recover an estimated willingness-to-pay for health insurance. Combining demand and cost estimates as sucient statistics for welfare analysis, we nd an annual welfare gain of $335 dollars per person or $71 million annually in Massachusetts as a result of the reduction in adverse selection. We also nd evidence for smaller post-reform markups in the individual market, which increased welfare by another $107 dollars per person per year and about $23 million per year overall. To put this in perspective, the total welfare gains were 8.4% of medical expenditures paid by insurers. Our model and empirical estimates suggest an optimal mandate penalty of $2,190. A penalty of this magnitude would increase health insurance to near universal levels. Our estimated optimal penalty is higher than the individual mandate penalty adopted in Massachusetts
Cross-Subsidization in Employer-Based Health Insurance and the Effect of Tax Subsidy Reform
Svetlana Pashchenko
(Uppsala University)
Ponpoje Porapakkarm
(University of Macau)
[View Abstract]
[Download Preview] A major source of insurance coverage for non-elderly adults in the US is employer-based health insurance market. Every participant of this market gets a tax subsidy since premiums are excluded from taxable income. However, people have different incentives to participate in the employer-based pool - since premiums are independent of individual risk, high-risk individuals receive implicit cross-subsidies from low-risk individuals. In this paper we explore several ways to reform the tax subsidy by taking this implicit cross-subsidization into account. We construct a general equilibrium heterogeneous agents model and calibrate it using the Medical Expenditure Panel Survey Dataset. We find that even though the complete elimination of the tax subsidy leads to the unraveling of the employer-based pool, there is still room for substantial savings by targeting the tax subsidy. More specifically, the same level of risk-sharing in the employer-based market can be achieved at one third of the current costs if i) the tax subsidy is targeted only towards low-risk people who have weak incentives to participate in the pool, and ii) employer-based insurance premiums become age-adjusted. To improve welfare outcome of this reform the tax subsidy should also be extended to low-income individuals.
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 411
Econometric Society
Industrial Organization: Theory and Applications
(L1)
Presiding:
Mariano Tappata
(University of British Columbia)
Strategic Responses to Used-Goods Markets: Airbus and Boeing since 1997
Myongjin Kim
(Boston University)
[View Abstract]
[Download Preview] This paper examines the relationship between innovation, production, and used-good markets, then evaluates government subsidies to Airbus and Boeing, which have recently been ruled illegal by the WTO. This research sheds new light on the crucial role of innovation as a competitive tool against used-good markets. Moreover, this paper shows that a production or research and development subsidy reduction leads to a delay in firms' innovation; in the aircraft manufacturing industry, a production subsidy reduction has a bigger negative impact on innovation than subsidy reduction in research and development. Finally, this paper finds that, though it reduces innovation and production, the cut in the government subsidies has a minor effect on consumer welfare due to the presence of active used-goods markets.
Multidimensional Quality Sorting Between Online and Offline Auctions: The Role of Attribute Transparency
Jafar M. Olimov
(Ohio State University)
Brian E Roe
(Ohio State University)
[View Abstract]
[Download Preview] We analyze how sellers of used construction equipment sort products between online and offline auctions based on the quality and transparency of different machine attributes. Mechanics collect attribute-specific quality data from a random sample of machines offered in both online and offline auctions within a single regional market. Sellers are more likely to offer machines online if quality is high for attributes whose integrity can be measured via photo (e.g., general appearance) and are more likely to offer machines offline if quality is high for attributes whose integrity is more reliably evaluated in person (e.g., engine). Quality averaged across all attributes is unrelated to auction choice, meaning standard tests of adverse selection can mask the subtle but significant effects of asymmetric information in this market. These findings correspond with predictions from our novel model of platform choice, which builds from standard signaling models and accommodates multiple quality dimensions with auction-specific quality transparency. We confirm several additional predictions from this model for our sample market.
Entry Deterrence and Strategic Alliances: Evidence from a Dynamic Structural Econometric Model
Philip Garland Gayle
(Kansas State University)
Xin Xie
(Kansas State University)
[View Abstract]
[Download Preview] Researchers have written extensively on the impact that strategic alliances between airlines have on airfare, but little is known of the market entry deterrent impact of strategic alliances. Using a structural econometric model, this paper examines the market entry deterrent impact of codesharing, a form of strategic alliance, between incumbent carriers in domestic air travel markets. We find that a specific type of codesharing between market incumbents has a market entry deterrent effect to Southwest Airlines, but not other potential entrants. We quantify the extent to which market incumbents' codesharing influences market entry cost of potential entrants.
Price Discrimination 2.0: Opaque Bookings in the Hotel Industry
Mariano Emilio Tappata
(University of British Columbia)
[View Abstract]
[Download Preview] The emergence of opaque selling (i.e. when some product characteristics are only revealed to the customer after payment) has motivated a growing theoretical literature and industry debate. Little progress however has been done to empirically characterize this mechanism. In this paper we use a unique dataset from the lodging industry and establish the main stylized facts of opaque selling. The data includes matched transactions from opaque and semi--opaque platforms to their exact counterpart booking in the transparent market. Our results suggest that selling channels constitute the main tool for price discrimination by hotels. Consumers obtain a 47 percent discount when booking through a fully opaque platform. This discount drops to 37 percent when the booking is done through a semi--opaque platform. We find little evidence of price discrimination within a platform and no evidence of opaque selling being used as a last--minute resource to dispose unsold inventory by hotels. As suggested from the theory, discounts are proportionally larger for higher quality hotels.
Discussants:
Jafar M. Olimov
(Ohio State University)
Mariano Emilio Tappata
(University of British Columbia)
Myongjin Kim
(Boston University)
Xin Xie
(Kansas State University)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 405
Econometric Society
International Trade: Theory
(F1)
Presiding:
Ana Fieler
(University of Pennsylvania)
Inattentive Importers
Kunal Dasgupta
(University of Toronto)
Jordi Mondria
(University of Toronto)
[View Abstract]
[Download Preview] Importers rarely observe the price of every good in every market because of information
frictions. In this paper, we aim to explain how the presence of such frictions shape the pattern
of trade across countries. To this end, we introduce rationally inattentive importers in a multicountry,
multi-good Ricardian trade model. We derive a gravity-like equation linking bilateral
trade flows and the cost of processing information faced by importers. In this setting, a
reduction in conventional trade costs has large effects on trade flows as importers re-optimize
information processing across countries. The model explains a number of findings in the
literature related to the response of trade flows to various trade barriers.
Trade Preferences and Political Conflicts Associated with Trade Liberalization
Soohyun (Catherine) Oh
(KIEP)
Seung-Gyu (Andrew) Sim
(University of Tokyo)
Shoya Ishimaru
(University of Tokyo)
[View Abstract]
[Download Preview] This paper analyzes ex ante trade preferences and the source of potential political conflicts regarding trade liberalization, by developing a dynamic extension of the traditional Heckscher-Ohlin model with imperfect labor mobility. Tracking overall dynamic paths from an arbitrary state to the post-reform steady state under rational expectation, we demonstrate ex ante trade preferences associated with trade liberalization and the implied patterns of potential political conflict crucially depend on not only factor endowment but also initial sectoral allocation of workers. That the latter can affect whether bilateral free trade agreements are welcomed (opposed) by the majority of workers as well as investors in a capital-abundant (labor-abundant) country is inconsistent with the welfare prediction by Stolper and Samuelson (1941). Our simulation experiments further reveal that preannounced and delayed implementation, although they cannot make Pareto improvement in either country, can nevertheless facilitate a bilateral free trade agreement by partially redistributing short-run transitional gains and losses so as to persuade the losers in the labor-abundant country to support the reform without affecting the beneficiaries' trade preferences.
A Model of Trade with Ricardian Comparative Advantage and Intra-Sectoral Firm Heterogeneity
Haichao Fan
(Hong Kong University of Science and Technology)
Edwin L. Lai
(Hong Kong University of Science and Technology)
Han (Steffan) Qi
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] In this paper, we incorporate Ricardian comparative advantage into a multi-sector version of Melitz's (2003) model to explain the pattern of international specialization and trade. The model is able to capture the existence of inter-industry trade and intra-industry trade in a single unified framework. Trade liberalization can lead to a "reverse-Melitz outcome" in the two-way trade sectors in which the country has the strongest comparative disadvantage, if the country is sufficiently large or its tariff reduction is sufficiently asymmetric compared with its trading partners. In this case, the productivity cutoff for survival is lowered while the exporting cutoff increases in the face of trade liberalization, leading to reductions in real wage in terms of these goods. This is because the inter-sectoral resource allocation (IRA) effect together with the unilateral liberalization (UL) effect dominate the Melitz selection effect in these sectors. Analyses of data of Chinese manufacturing sectors confirm our hypotheses. Our model can be extended to capture the effect that, in the comparative advantage sector, it is possible that firms that sell domestically have higher average productivity than firms that do not, as documented by Lu (2010) and others.
Discussants:
Treb Allen
(Northwestern University)
Steven J. Matusz
(Michigan State University)
Dan Lu
(University of Rochester)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 204-C
Econometric Society
JBES Invited Session
(C1)
Presiding:
Shakeeb Khan
(Duke University)
Comparing Predictive Accuracy, Twenty Years Later: A Personal Perspective on the Use and Abuse of Diebold-Mariano Tests
Francis Diebold
(University of Pennsylvania)
TBA
Central Bank Macroeconomic Forecasting during the Financial Crisis: The European Central Bank and Federal Reserve Bank of New York Experiences
Eric Ghysels
(University of North Carolina)
TBA
Discussants:
Jonathan Wright
(Johns Hopkins University)
Lutz Kilian
(University of Michigan)
Allan Timmermann
(University of California-San Diego)
Simone Manganelli
(European Central Bank)
Andrew Patton
(Duke University)
Quang Vuong
(New York University)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 307
Economic Science Association
Experiments in Economic Development
(C9)
Presiding:
Pauline Grosjean
(University of New South Wales)
Institutional Quality, Culture, and Norms of Cooperation: Evidence from a Behavioral Field Experiment
Pauline Grosjean
(University of New South Wales)
Alessandra Cassar
(University of San Francisco)
Giovanna d'Adda
(University of Birmingham)
[View Abstract]
[Download Preview] We design an experiment to examine the causal effect of legal institutional quality on informal norms of cooperation, and study the interaction of institutions and culture in sustaining economic exchange. 346 subjects in Italy and Kosovo play a market game under different and randomly allocated institutional treatments, which generate different incentives to behave honestly, preceded and followed by a non-contractible and non-enforceable trust game. Significant increases in individual trust and trustworthiness follow exposure to 'better' institutions. A reduction by one percentage point in the probability of facing a dishonest partner in the market game, which is induced by the quality of legal institutions, increases trust by 7 to 11%, and trustworthiness by 13 to 19%. This suggests that moral norms of cooperative behavior can follow improvements in formal institutional quality. Cultural origin, initial trust and trustworthiness influence opportunistic behavior in markets, but only in the absence of strong formal institutions.
Trust and Social Collateral: Empirical Evidence
Tanya S. Rosenblat
(Iowa State University)
Dean Karlan
(Yale University)
Markus M. Mobius
(Iowa State University, NBER and Microsoft Research)
Adam Szeidl
(Central European University)
[View Abstract]
This paper uses a microfinance field experiment in four communities in Peru to measure the relative importance of social networks and prices for borrowing. Our design randomizes the interest rate on loans provided by a microfinance agency, as a function of the social distance between the borrower and the cosigner. This design effectively varies the relative price (interest rate differential) of having a direct friend versus an indirect friend as a cosigner. After loans are processed, a second randomization relieves some cosigners from their responsibility. These experiments yield three main results. (1) As emphasized by sociologists, connections are highly valuable: having a friend cosigner is equivalent to 18 per cent of the face value of a 6 month loan. (2) While networks are important, agents do respond to price incentives and switch to a non-friend cosigner when the interest differential is large. (3) Relieving responsibility of the cosigner reduces repayment for direct friends but has no effect otherwise, suggesting that different social mechanisms operate between friends and strangers: Non-friends cosign known high types, while friends also accept low types because of social collateral or altruism.
Health Providers and Patients in Kenya: An Evaluation of Motivations, Interactions and Reports on Sub-Par Behaviors
Danila Serra
(Southern Methodist University)
Isaac Mbiti
(Southern Methodist University)
[View Abstract]
There is a growing recognition of the importance of accountability in ensuring the efficient provision of public services. Given the widespread proliferation of complain boxes at public facilities and the growing number of mobile reporting platforms, there is considerable optimism that citizen monitoring can improve public service delivery in developing countries. There is however limited evidence on how to best design patient reporting platforms in order to induce service recipients to use them while making sure that providers perceive them as an effective social enforcement mechanism. This project aims to assess the effectiveness of citizen reporting in the Kenyan health sector by evaluating both patients' willingness to impose formal or informal sanctions on service providers when receiving what they perceive sub-par service, and providers' responsiveness to the possibility of receiving such sanctions from patients. We simulate various features of a reporting system in a specially designed laboratory-in-the-field experiment that we conduct on a sample of public and private dispensaries and health centers in Nairobi, involving actual health providers and their patients. By combining experimental data with facility-level and patient-level survey data we relate behavior in the games with actual health outcomes, such as patients' satisfaction and providers' absence from work. The project will provide insights on how to best design crowd-sourcing or patient reporting platforms to maximize patients' use and providers' responsiveness.
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 305
Economists for Peace & Security
Security Economics
(Y9) (Panel Discussion)
Panel Moderator:
Richard Kaufman
(Bethesda Research Institute)
Linda Bilmes
(Harvard University)
Michael Lind
(New America Foundation)
Cyrus Bina
(University of Minnesota-Morris)
Heather Hurlburt
(National Security Network)
William Hartung
(Center for International Policy)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 112-A
Health Economics Research Organization
Physician Market Structure and Its Effects on Prices, Quality, and Medical Technology Diffusion
(I1)
Presiding:
Mark Pauly
(University of Pennsylvania and NBER)
Market Power and Provider Consolidation in Physician Market
Samuel Kleiner
(Cornell University and NBER)
Sean Lyons
(Cornell University)
William White
(Cornell University)
[View Abstract]
Because the United States relies largely on markets for health care delivery and financing, analysis of market power in the health care sector is of general interest to policy makers. Recent studies have indicated that provider consolidation has been a major contributing factor to increases in the cost of health care. In particular, there is a large literature showing that increased concentration in hospital markets can lead to higher prices for hospital care. However, although spending on physician services accounts for nearly 20% of health care expenditures and there are increasing concerns about physician practice consolidation and the effects of provider coordination resulting from the formation of Accountable Care Organizations (ACOs) under the Affordable Care Act (ACA), there has been little comparable systematic analysis of market power in physician markets. By linking a 20% sample of Medicare beneficiaries that we use to infer patient preferences to a unique dataset that includes information on private payers' allowed prices for physician services for the year 2009, our study applies and estimates a model of option demand for physician services. We use our estimates to analyze the extent of market power possessed by physicians in a mid-sized metropolitan area and simulate the potential impact of further physician practice consolidation on the price of physician services. Preliminary results suggest the presence of market power for specialist physicians, and that the degree of market power possessed by physicians varies by specialty.
Effects of Physician Practice Consolidation on Physician Prices and Quality
Anne Royalty
(Indiana University-Purdue University-Indianapolis)
Laurence Baker
(Stanford University)
M. Kate Bundorf
(Stanford University)
[View Abstract]
Anecdotal reports suggest considerable consolidation in physician markets in the U.S. in recent years and health reforms may prompt further consolidation. Economic theory predicts that consolidation in physician markets increases the market power of physicians in price negotiations, increasing prices for their services. We study relationships between physician market power and prices paid for physician services by private insurers paying doctors on a fee-for-service basis in the U.S. over the period 2001-2010. We create measures of physician practice concentration, separately by specialty, by county using Medicare claims data that reports tax identification numbers for physician practices and data from a large consulting firm that tracks the size of physician practices. We match this with data from the Truven Health MarketScan® Research Databases on allowed fee-for-service payment amounts negotiated by insurers and physicians for common services. We conduct panel data regression analyses to estimate the relationship between physician practice HHIs and prices. Regressions include area and year fixed effects, and control for many potential confounders. We also estimate instrumental variables models, using states' laws and enforcement of non-compete arrangements as an instrument for practice size and concentration. We find that as physician practices grow larger and more concentrated, prices for physician services increase substantially. The next phase of the project will explore whether or not these price increases are accompanied by improved quality of care.
Medical Technology Diffusion and Physician Market Structure
Pinar Karaca-Mandic
(University of Minnesota)
Robert J. Town
(University of Pennsylvania)
[View Abstract]
Over the last 50 years, innovation in medical technology has been a key driver improving life expectancy. However, a large body of research has documented significant variation in the timing, intensity and appropriateness of the use of medical care across regions, hospitals, physicians and patients. In most circumstances, physicians are the key agent in determining whether a patient receives a given medical technology, but physician adoption of medical technology is not well understood. Of particular interest is the impact of physician market structure on technology adoption. In this paper, we study the diffusion of drug eluting coronary artery stents which became available mid-2003 in the Medicare population. Our study population includes all Medicare beneficiaries undergoing a percutaneous coronary intervention during 2003-2004. Linking Medicare claims to physician demographic data from the American Medical Association and to hospital characteristics from the American Hospital Association Survey, we estimate the role of competition among physicians on the decision to use drug eluting stents while controlling for patient, physician and hospital characteristics. We account for the endogeneity of physician competition by exploiting exogenous variation in the distance between patient and physician location. Our findings reveal that physicians who face more competition are more likely to use the drug eluting stents. This finding provides the first empirical evidence, based on generalizable data, on the theoretically ambiguous relationship between competition and technology adoption in the context of a medical technology.
Discussants:
Amitabh Chandra
(Harvard University and NBER)
Jonathan S. Skinner
(Dartmouth College)
Martin S. Gaynor
(Carnegie Mellon University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall A2
International Banking, Economics & Finance Association
Financial Intermediation and Bank Risk Taking
(G2)
Presiding:
Benton Gup
(University of Alabama)
Inside Debt and Bank Risk
Sjoerd Van Bekkum
(Erasmus School of Economics)
[View Abstract]
[Download Preview] Inside debt compensation held by top officers of U.S. banks is negatively related to risk and risk-taking. The evidence reveals a robust and strongly negative relation between end-of-2006 inside debt and 2007-2009 bank-specific risk exposures in terms of lost stock market value, volatility, tail risk, and the probability of financial distress. Banks with managers having large inside debt holdings are characterized by better-quality assets, more conservative balance sheet management, and a stronger tendency towards traditional banking activities. The results suggest that debt-based compensation limits bank risk and risk-taking by encouraging more conservative decision-making.
Real Effects of Investment Banking Relationships: Evidence from the Financial Crisis
David Oesch
(University of St Gallen)
Dustin Schuette
(University of St Gallen)
Ingo Walter
(New York University)
[View Abstract]
[Download Preview] In this paper, we investigate the real effects triggered by the failure of four major investment banks during the financial crisis. We find that firms with a pre-crisis underwriting relationship with a troubled investment bank exhibit a significantly lower amount of post-crisis investment and capital issuance compared to firms that were not affiliated with a troubled investment bank. The effect varies systematically with the nature and the strength of the investment banking relationship. Our results are robust to various modifications and extensions of our empirical setup and generally inconsistent with alternative non-relationship based explanations.
Bank Lines of Credit for SMEs: Cash Substitution or Funding Source?
Carsteb Hubensack
(University of Muenster)
Andreas Pfingsten
(University of Muenster)
Andrea Schertler
(Leuphana University, Germany)
[View Abstract]
We investigate whether SMEs could use credit lines, firstly, in their cash management and, secondly, as a funding source. Since the medium-size bank that provided our unique sample has the right to recall these lines and charges considerably high rates for using them, we argue that these lines are suitable for managing short-term liquidity needs. From our findings on how the line terms (line availability, line limit, and charged line rate) depend on an SME's liquidity-at-risk, the duration of its relationship with the bank, and its limit overdrafts, we conclude that these lines, although they are recallable, fulfill both purposes.
The Transmission of Real Estate Shocks through Multinational Banks
Ata Can Bertay
(Tilburg University)
[View Abstract]
[Download Preview] This paper investigates the credit supply of banks in response to domestic and foreign real estate price changes. Using a large international dataset of multinational banks, we find evidence of a significant transmission of domestic real estate shocks into lending abroad. A 1% decrease in real estate prices in home country, in particular, leads to a 0.2-0.3% decrease in credit growth in the foreign subsidiary. This response, however, is asymmetric: only negative house price changes are transmitted. Stricter regulation of activities of parent banks can reduce this effect, indicating a role for regulation in alleviating the transmission of real estate shocks. Further, the analysis of the impact of real estate shocks on foreign subsidiary funding indicates that shocks are transmitted through changes in long-term debt funding and equity.
Discussants:
Tara Rice
(Federal Reserve Board)
Karolin Kirschenmann
(Aalto University)
Lucy Chernykh
(Clemson University)
Ralph De Haas
(European Bank for Reconstruction and Development)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Congress A
International Trade & Finance Association
International Trade and Finance
(F1)
Presiding:
Georg Schaur
(University of Tennessee)
Quantifying Upstreamness in East Asia: Insights from a Coasian Model of Production Staging
Thibault Fally
(University of Colorado-Boulder)
[View Abstract]
We adapt recent work by Kikuchi et al. (2012) to study production chains in a multi-country, general equilibrium setting. A continuum of sequential production stages is allocated optimally - given marginal costs of production and transaction costs - across a discrete number of firms. The firms locate optimally - given trade costs, factor prices, and the location of other rms in the value chain. We use the model to explore measures of relative position in supply chains, both within and across countries - exploiting a novel input-output data set that tracks shipments over four dimensions in East Asia. We first extend and apply index measures that have been used to measure upstreamness and the number of stages embodied in production. Our results reveal substantial integration into international production networks over the period. We calibrate the theoretical
model to fit key moments in the data, exploring relationships between structural parameters and observed outcomes. We also use the model to conduct counterfactual exercises, changing structural parameters in the model in order to explore their effects on economic outcomes, including the international organization of production chains and welfare.
How Much Do Official Price Indexes Tell Us About Inflation?
Jessie Handbury
(University of Pennsylvania)
David E. Weinstein
(Columbia University)
Tsutomu Watanabe
(University of Tokyo)
[View Abstract]
[Download Preview] Official price indexes, such as the CPI, are imperfect indicators of inflation calculated using ad hoc price formulae different from the theoretically well-founded inflation indexes favored by economists. This paper provides the first estimate of how accurately the CPI informs us about “true†inflation. We use the largest price and quantity dataset ever employed in economics to build a Törnqvist inflation index for Japan between 19891988 and 2010. Our comparison of this true inflation index with the CPI indicates that the CPI bias is not constant but depends on the level of inflation. We show the informativeness of the CPI rises with inflation. When measured inflation is low (less than 2.4% per year) the CPI is a poor predictor of true inflation even over 12-month periods. Outside this range, the CPI is a much better measure of inflation. We find that the U.S. PCE Deflator methodology is superior to the Japanese CPI methodology but still exhibits substantial measurement error and biases rendering it a problematic predictor of inflation in low inflation regimes as well.
Cherries for Sale: Export Networks and the Incidence of Cross-Border M&A Activity
Nicholas Sly
(University of Oregon)
Bruce A. Blonigen
(University of Oregon)
Lionel Fontagne
(Paris School of Economics, European University Institute and Banque de France)
Farid Toubal
(Ecole Normale Superieure at Cachan, Paris School of Economics and CEPII)
[View Abstract]
This paper develops a model of cross-border M&A activity that features firm-level productivity shocks and endogenous export activity. We show that foreign firms will be relatively more attracted to targets in the domestic country that had high productivity levels several years prior to acquisition, but then suffered a negative productivity shock (i.e., "cherries for sale"). With high ex ante productivity levels, target firms are able to invest in large export networks that are valuable to foreign multinationals because of locational differences and trade costs. Subsequently, domestic firms that experience reductions in productivity no longer find their established network as valuable to serve independently, increasing the surplus generated by a foreign acquisition. From the theory we derive a dynamic panel binary choice empirical model that uses predetermined export activity and the evolution of target firm productivity over time to predict cross-border M&A activity. Administrative data from French firms across 1999-2006 provide strong evidence that both the established export networks and productivity losses among target firms promote takeover by foreign multinationals.
Growth and Trade: A Structural Approach
Yoto Yotov
(Drexel University)
James E. Anderson
(Boston College)
Mario Larch
(University of Bayreuth)
[View Abstract]
We build and quantify a structural general equilibrium model of growth and trade. Trade affects growth through changes in consumer prices and in producer prices, which in turn stimulate or impede physical capital accumulation. Growth affects trade directly, through changes in country size, and indirectly, by altering trade costs in the world. These additional changes in trade costs may further influence growth. Our theoretical framework translates into a simple and intuitive econometric system that is easy to implement empirically. We demonstrate by estimating the model and we use the estimates to perform a series of counterfactual experiments. As a result, we offer evidence for strong causal relationships between growth and trade and we decompose and quantify the various competing channels through which trade affects growth and through which growth impacts trade. The model offers itself to a series of extensions.
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Advances in Strategic Human Resource Management Theory and Practice
(J5)
Presiding:
Morris Kleiner
(University of Minnesota)
The Triple Theory of HRM and Business Performance
David Lewin
(University of California-Los Angeles)
[View Abstract]
This paper proposes a triple theory of HRM and business performance in which (1) core empployees, (2) peripheral employees, and (3) customer labor comprise a tripod. Core employees are claimed by many researchers and practitioners to be managed as assets on which their is a positive econmic return. By contrast, peripheral employees are managed for labor cost control while in recent years customers appear to be performing more "labor services" for companies. This paper integrates these three perspectives with special emphasis on the customer dimension.
Divergent Strategies in the World Auto Industry: Choice between Lean vs. Mass Production
John Paul MacDuffie
(University of Pennsylvania)
Fritz Pil
(University of Pittsburgh)
[View Abstract]
Based on survey evidence from auto manufacturing plants around the world, the paper describes and documents different strategic choices made over the last twenty years by auto companies with respect to the lean production model pioneered by Toyota vs. the mass production model originally pioneered by Ford. Surprisingly, the mass production model has turned out to have more staying-power than many observers of the auto industry orginally predicted. A major explanation regards product variety; that is, lean production tends to be used in plants producing a wider variety of styles and customer options while mass production tends to be used in companies that can diversify different product lines and customer options across discrete plants. Implications for HRM systems and employee relations practices are described.
Talent Strategies: The Link between Business Strategy and Hiring Choices
Peter Cappelli
(University of Pennsylvania)
[View Abstract]
The paper examines how variations in the nature of talent hired into companies is related to the different business strategies they pursue. The topic of organizational competencies is at the heart of contemporary research in strategic management. So far researchers have focused on the movement of individual experts across companies, such as lawyers and scientists. Utilizing a new and detailed data set, this paper broadens existing research by examining all hiring decisions made by a large group of companies and how their approaches to talent acquisition reflect different strategic approaches to business development.
Does Human Resource Management Increase Firm Performance by Labor Exploitation?
Bruce Kaufman
(Georgia State University)
[View Abstract]
This paper provides a new "two faces" theoretical perspective on strategic HRM (SHRM). SHRM focuses on increasing firm performance through deployment of alternative human resource systems and practices. As widely discussed in the literature, increasing firm performance means finding new ways to generate and capture rents created by the firm's employees. Generating rents is typically portrayed as taking place by boosting employee productivity through improved motivation, skills, and opportunities, such as with high performance work practices. However, SHRM also notes that firms must somehow protect these rents both from duplication by competitors and appropriation by employees. The latter occurs, for example, when new employee skills and motivations are general in nature which allows workers to shop them around in the market and capture the value. Hence, numerous SHRM studies counsel companies to make new skills and HR practices differentiated and firm specific in an effort to restrict employee mobility and impede poaching by competitor organizations. However, what they do not realize or acknowledge is that this strategy of labor immobilization and skill specificity -- to the degree it is successful -- also creates conditions of labor market monopsony. In monopsony, firms are able to pay workers less than their marginal product and, hence, capture rents through labor exploitation. Thus, this presentation highlights that SHRM has both a positive face -- to the degree it increases rents through higher productivity of labor -- but also a darker face -- to the degree it uses HRM practices to immobilize labor and extract rents through a disguised form of monopolistic exploitation.
Discussants:
Rafael Gomez
(University of Toronto)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association
Gender, Race, and the Labor Market
(J5)
Presiding:
Stephen Woodbury
(Michigan State University)
Do Hispanic Workers Face Wage Penalties in the United States Labor Market?
Peter McHenry
(College of William and Mary)
Melissa McInerney
(College of William and Mary)
[View Abstract]
[Download Preview] We incorporate controls for cost of living in updated estimates of Hispanic-white wage gaps for men and women using the National Longitudinal Survey of Youth 1997 (NLSY97). Conditional on pre-market skills (i.e., years of education and AFQT score) and cost of living, Hispanic men earn significantly lower hourly wages than non-Hispanic white men. The gap is concentrated among men with relatively low levels of education—high school degree or less. Conditional on pre-market skills, Hispanic women earn significantly higher wages than non-Hispanic white women, but the difference disappears after controlling for cost of living. We also show that non-immigrant Hispanics in the NLSY97 are rather representative of non-immigrant Hispanics in the U.S. overall (measured with the larger American Community Survey). However, immigrant Hispanics in the NLSY97 have higher levels of education and wages than the immigrant Hispanics in the ACS, even after restricting to those ACS respondents who have been in the U.S. since 1997. Researchers should take this limitation into account when extrapolating results for Hispanic immigrants in the NLSY97 to the Hispanic population as a whole.
Food for Thought: Gender Wage Gaps in United States Agriculture
Catherine Y. Co
(University of Nebraska-Omaha)
Ira N. Gang
(Rutgers University)
Myeong-Su Yun
(Tulane University)
[View Abstract]
We analyze wage gaps among U.S. crop workers by gender, nativity, and immigration status, paying special attention to whether workers are compensated by time worked (hourly rate) or by quantity produced (piece rate). The literature shows that piece rate pay is closely related to workers productivity which, in turn, is related to workers observed characteristics such as education and experience and gender. Incentive effects (e.g., work effort) vary across compensation methods and workers react to incentives differently. These incentive effects may cause workers to differ in their choice of compensation type. We account for this possibility by jointly estimating earnings equations with selection equations, and we use decomposition methods to estimate the contributions of gender, nativity, legal status, and compensation mechanism to wage gaps among crop works in the United States. We are interested in whether unauthorized workers are more likely to be in piece rate jobs (because their expected tenures are shorter and their attachment to the US labor market is more tenuous) as well as whether, among unauthorized workers, women are more likely than men may be paid piece rates.
Using Spatial Econometric Techniques to Analyze the Joint Employment Decisions of Spouses
Charlene M. Kalenkoski
(Texas Tech University)
Donald J. Lacombe
(West Virginia University)
[View Abstract]
We use spatial econometric techniques and Current Population Survey data on dual earner couples to examine the intra-household allocation of employment hours. Specifically, we examine how a husband's employment hours affect his wife's employment hours and vice versa. We also estimate own- and cross-wage elasticities of employment hours. The key assumption of our analysis is that spouses are spatial neighbors to each other. This technique obviates the need for instruments for husband's and wives' employment time because the relationship between spouses is modeled using a spatial weight matrix, which indicates the neighbor relationship between spouses, taking into account the endogeneity of employment. Spatial econometric models, when properly interpreted, provide a scalar summary measure of the spillover effects of changes in explanatory variables, like the wage, on the dependent variable, giving us the ability to estimate the spillovers (i.e., cross-wage elasticities) from these changes. We compare our results to others in the literature that rely on instrumental variables and other techniques.
Gender and the STEM Trajectory: Evidence from the NLSY97
Jeffrey Smith
(University of Michigan)
Ophira Vishkin
(University of Michigan)
[View Abstract]
How do men and women choose to pursue careers in science, technology, engineering, and math (STEM), and how do their paths to these careers differ? Using high school transcript, college major, and early career data from the 1997 cohort of the National Longitudinal Survey of Youth (NLSY97), we present evidence on the high volume of major changes to and from STEM fields. We also present and discuss the influences of demographics and college quality on enrollment in a four-year college, STEM major declaration, and graduation in a STEM field. Our data show young men are more likely than young women to ever declare a STEM majors, and substantially more likely to ever declare a natural science, math, or engineering STEM major. Young men are also more likely to complete a STEM degree if they graduate. Finally, we present decompositions of the effects of gender, race, parental education, and local education levels on each stage leading toward the completion of a STEM degree.
Discussants:
Catherine Y. Co
(University of Nebraska)
Melissa McInerney
(College of William and Mary)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association/International Association for Feminist Economics
International Perspectives on Gender in the Workplace, Session I
(J5)
Presiding:
Elaine McCrate
(University of Vermont)
Childbirth and Labor Participation: The Effect of Child Care Leave Law using Natural Experiments, Evidence from Japan
Nobuko Nagase
(Ochanomizu University)
Eriko Teramura
(Kokusai Junior College)
Mana Yamaya
(Ochanomizu University)
[View Abstract]
This study uses panel data of Japanese government collected for the age group of 20 to 34 in 2002, followed up each year up to 2010. The initial sample size was 14,150 for females and the follow up rate was over 80 percent to 90 percent each year. It was known from published governmental data from retrospective questioning, that around 40 percent of Japanese women quit their regular employment position upon marriage and another 40 percent upon their first child birth, and such percentage stayed around the same throughout 90's and early 2000's. The child care leave law was implemented in 1992, that gave job protected leave till the child is one. The motivation behind the law was to reduce the opportunity cost of children and to increase fertility as well as labor participation. The rule was strengthened several times in 1995, 1998, 2001, 2005, 2007,and 2009, such as the increase in replacement of salaries by the employment insurance, or the increase in the maximum length of the leave upon certain conditions. We found that the law change in the leave law to mandate short hour working option in 2009 and the mandate to firms to publicly announce the action plan in 2008 statistically significantly increased fertility among working women in 2009 and 2010 to the treated group of firms with 101 employees. We also found that "definite want to have a child" significantly increased among childless women of the treated group. On the other hand, short hour option mandate did not have significant effect on the return to pre-birth employer, but the return to pre-birth employer steadily increased from 2005 and 2007 to 2010. Paper will be sent upon request to the author, nagase.nobuko@ocha.ac.jp.
Gender-Specific Inequality of Paid and Unpaid Work: Institutional Factors in Switzerland
Ruedi Epple
(University of Fribourg)
Martin Glasser
(University of Fribourg)
Sarah Kersten
(University of Fribourg)
Michael Nollert
(University of Fribourg)
Sebastian Schief
(University of Fribourg)
[View Abstract]
Even though Switzerland is often classified as one of the top countries in international comparisons of gender equality (e.g. UNDP 2010, World Economic Forum 2010), the persistence of gender inequalities remains obvious. It is most clearly visible in the gender division of productive and reproductive work. Women shoulder the larger share of unpaid housework and family work while men dedicate most of their time to paid work. Such findings should not hide the fact that there are considerable regional disparities among Swiss cantons. Previous research by Elisabeth Bühler shows comparatively low gender inequality in urban areas of the French speaking part, most significantly in Geneva. Gender inequality within Switzerland is strongest in rural cantons in Central Switzerland. It is important to understand how and why cantons differ in the extent of the gender time gap. In a first stage, we address the how-question with an index and in a second stage the why-question with a QCA analysis. To explain the cantonal differences, we use QCA analysis. This method is particularly appropriate if we expect conjunctural causation, i.e. if the conditions do not increase or decrease inequality by themselves but only in configurations. Two QCAs were run, one for overall gender time divide and one for the gender time divide among parents. The results for both indicate a consistent effect of large public sector size and high welfare spending. Both conditions act to reduce the gender time divide. The results also indicate that which of the two factors is more important crucially depends on the context as defined by economy, social structure, culture, and politics. We also contend that the results for the overall and for parents' gender time divide largely overlap.
From Sexual to Psychological Harassment: One Step Forward, Twenty-Five Years Back for Women's Equality at Work?
Rachel Cox
(Université du Québec à Montréal)
[View Abstract]
In 2004, adoption of legislation guaranteeing a work environment free from psychological harassment in Québec appeared to be a victory for all employees, especially for women. Psychological harassment, defined as "...any vexatious behaviour in the form of repeated and hostile or unwanted conduct, verbal comments, actions or gestures, that affects an employee's dignity or psychological or physical integrity and that results in a harmful work environment for the employee" (Québec Labor Standards Act), is a gendered phenomenon. Unequal power relationships are central to the notion of psychological harassment, just as they are to sexual harassment and racial harassment. Recourse in case of psychological harassment is potentially one more tool in women's struggle for equality in the workplace. However, in the eight years since the law went into effect, in non-unionized workplaces, psychological harassment complaints have for all intents and purposes replaced human rights complaints of harassment at work. There is also a dearth of Québec Human Rights Tribunal decisions on discriminatory harassment at work in unionized workplaces. This paper asks: what does it mean when sexual or racial harassment or other kinds of discriminatory harassment at work is framed as psychological harassment? I argue that when sexual and racial harassment are framed as questions of psychological harassment, the debate is diverted from the question of equality in a labor market marked by persistent systemic discrimination, to one of the individual's dignity in a given supposedly gender- and race-neutral workplace. Psychological harassment lends itself to an individual analysis of a situation of harassment and thus tends to obscure its more systemic effects.
Older Women and Work in the United States: Prospects for Health, Wealth and Happiness?
Ariane Hegewisch
(Institute for Women's Policy Research)
[View Abstract]
The aging of the baby boomer generation, falling birth rates among the generations that followed, and improved health and longevity have resulted in an absolute and proportionate swelling of the older population. While demographic change in the U.S. is less severe than in other OECD countries, as elsewhere, the potential fiscal impact of changes in the balance between the economically active and inactive population has resulted in a focus on policies targeted at extending the working life.
Because of gender differences in longevity, women are the majority of those aged 55 years and older; because of the gendered division of labor, women are the minority of the older workforce. Thus, any attempts to increase labor force participation among the mature workforce are particularly relevant to women, while at the same time women s historically lower rates of economic activity and lower earnings make them less likely than men to have built up sufficient retirement income to live free of poverty. While research and data show that older women and men face distinct challenges in employment and retirement, much research and policy recommendation lack a gender specific analysis, leading to weaker policy development. Drawing on public data sets and a review of the literature, this paper will provide a gender analysis of economic activity among the population 55 and older, and of the potential for an extension of working life beyond the traditional retirement age. The paper will focus on lower paid growth occupations in health, retail and social care. It will review potential barriers to an extension of working lives resulting from own health, discrimination, and pension statutes, and will examine gender differences in retirement preparedness, particularly in relation to changes in marital status and the growing racial /ethnic diversity of the older population.
Discussants:
Elaine McCrate
(University of Vermont)
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 105-A
Middle East Economic Association
Development Issues in Some MENA Countries
(O1)
Presiding:
Gouda Abdelkhalek
(Cairo University)
Iraq's Economy: Ten Years after the Invasion
Joseph Sassoon
(Georgetown University)
[View Abstract]
The paper will examine Iraq's economy ten years after the invasion. Devastated by the First Gulf war, and systematically weakened by the sanctions, the country faced the horrendous results of the invasion and the civil war. In spite of all this, Iraq is today a wealthy country: oil production is reaching new highs and with oil prices hovering over $100, its reserves are reaching almost $100 billion. The paper addresses the question of how the current semi-authoritarian government of Nuri al-Maliki is running the economic management of the country; how numerous billionaires are being created while the country is reeling from a devastated infrastructure and brain drain continues unabated. Oil policy has become critical not only as facet of economic policy but a major contest in the political negotiations between the central government and Kurdistan. Finally, the paper examines whether a new entrepreneurship class is emerging in the country.
The Geography of AKP Votes in Turkey
Alpay Filiztekin
(Sabanci University)
Ozan Bakis
(Sabanci University)
[View Abstract]
[Download Preview] The ruling Justice and Development Party (AKP) in Turkey won three elections in a row by increasing its share of votes in each election. The political studies claim that this is mostly due to a transformation marked by the reshuffling of party preferences in favor of right-wing parties at the expense of the center–right. Yet, AKP has also shown a remarkably good performance in terms of economic development. In 2002, after a severe economic crisis the newly formed AKP managed to establish macroeconomic stability with very high growth rates. Furthermore, AKP government emphasized the importance of growing regional inequality and implemented policies to reverse it. Indeed, some early micro-studies find significant evidence of economic voting, albeit not as a strong predictor of its success as ideological orientation of voters. In this paper, using province and district level data, we are investigating support for AKP in successive elections. Particularly, we are examining geographic patterning and its evolution over time by employing spatial statistics and Markov chains which will allow us a deeper probing of regional and contextual elements. In studies based on micro-data space and context are implicit. We argue that voters make decisions within a context which has composites of structural (socio-economic) and spatial influences with multiple layers. Hence, regional heterogeneity in Turkey and local differences may have strong implications for voting.
The Welfare Implications of Services Liberalization in a Developing Country: Evidence from Tunisia
Nizar Jouini
(African Development Bank)
Nooman Rebei
(International Monetary Fund)
[View Abstract]
[Download Preview] We propose an integrated method based on a two-sector small open economy dynamic and stochastic general equilibrium model to estimate non-tariff barriers and quantify the impact of services liberalization. The major component of trade barriers is explicitly modeled through the Introduction of entry-sunk costs. Hence, liberalization is treated assuming a government's policy decision aimed at reducing those costs. Then, we estimate the model using Bayesian techniques for Tunisia and the Euro Area. The paper presents a precise quantitative evaluation of services trade barriers as the difference between entry-sunk costs in Tunisia versus the Euro Area. We find significant welfare benefits in addition to aggregate and sectoral growth gains the Tunisian economy could attain following services liberalization. Surprisingly, the goods sector is the one that benefits the most from services liberalization in the short- and long-term horizons.
Determinants of Regime Change and Successful Revolutions - Lessons for the Arab Spring
Rahel Schomaker
(FOEV Speyer)
[View Abstract]
[Download Preview] In our paper, we will identify – theoretically and empirically – which factors matter when it comes to "successful" regime change and/or transformation processes from dictatorship and a state-centered economic system towards democracy and a market economy. Based on experiences in Middle and Eastern Europe, and South-East Asia, we identify in how far the transition process is determined by "good governance" – strictly speaking, the institutional quality – in a country, and which role other, more specific factors as socio-economic or religious determinants in a country play, and we provide empirical evidence for our hypothesis that institutional quality, the absence of pressing demographic factors, or religious path-dependencies are of pivotal importance to avoid a failure of the revolution. We close our paper with policy recommendations for measures within the ongoing transformation process in the context of the "Arab Spring", with focussing on the countries Egypt and Tunisia.
Middle Class and Pro-Poor Growth in Egypt The Missing Connection
Abeer Rashdan
(Cairo University)
[View Abstract]
[Download Preview] Assessing whether distributional changes are “pro-poor†has become increasingly widespread in academic and policy circles. Based on the methodology of Ravallion and Chen (2003), Kakwani and Pernia (2000) and Kakwani et al. (2003) using a grouped data, the paper generates the three indices to test whether distributional changes were indeed pro-poor during the period (1990-2008). Another issue is whether pro-poor judgments should be correlative with the size of middle class. The paper presents the evolution of middle class in Egypt using different threshold. Middle class in Egypt has followed the path of bulging in size under certain threshold even if growth was not pro-poor growth.
Discussants:
Ibrahim Elbadawy
(Dubai Economic Council)
Mahmoud Al-Iriani
(Dubai Economic Council)
Karima Korayem
(Cairo University)
A. Suut Dogruel
(Marmara University)
Ahmet Faruk Aysan
(Central Bank of the Republic of Turkey)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 413
National Association for Business Economics
Dimensions of the United States and Global Economic Outlook
(E6) (Panel Discussion)
Panel Moderator:
Jack Kleinhenz
(National Retail Federation)
Cecila Hermansson
(Swedbank)
Parul Jain
(Baruch College and MacroFin Analytics)
Jack Kleinhenz
(National Retail Federation)
Robert E Eisenbeis
(Cumberland Advisors)
Mark Vitner
(Wells Fargo)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Regency Ballroom C2
National Association of Forensic Economics
Topics in Forensic Economics I – Estimating Earnings
(K1)
Presiding:
Kurt Krueger
(John Ward Economics)
Mean vs. Median Statistical Earnings: ACS vs. CPS
Lawrence Spizman
(State University of New York-Oswego)
[View Abstract]
[Download Preview] Reviewing the two main sources for establishing earnings and determining which is more appropriate.
Constructing Age-Earnings Profiles Useful for Predicting Future Earnings
Carl G. Brooking
(Millsaps College)
Blakely Fox Fender
(Millsaps College)
[View Abstract]
Economists generally agree that the most accurate portrayal of the life cycle of earnings is based on longitudinal data. However, age-earnings profiles based on this longitudinal data are not terribly useful for the forensic economist charged with the task of predicting future earnings.
Should the Earnings of Full-Time Year-Round Workers Be Used to Estimate the Life-Time Earnings of Children?
James D. Rodgers
(Pennsylvania State University)
[View Abstract]
[Download Preview] When the need arises in litigation for the forensic economist to estimate the lifetime earnings of a child, there is no record of earnings on which a credible lifetime earnings estimate can be based. Hence, the estimate (or set of estimates) must necessarily be based on statistical data on earnings. The forensic economist must make a number of (often interrelated) choices about the child’s future, including the following: (1) future educational attainment and/or occupation, (2) length of working life, (3) the money earnings data that will be matched with assumed level(s) of educational attainment and/or occupation, and (4) the method for estimating employer-provided fringe benefits. This paper focuses on (3) and looks at the issue of whether the data for full-time year-round workers is the most appropriate for providing lifetime earnings estimates.
Discussants:
Michael Nieswiadomy
(University of North Texas)
Scott Gilbert
(Southern Illinois University-Carbondale)
David Jones
(Economic Consulting Services, LLC)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 306
National Economic Association
Innovations in Innovation and Entrepreneurship
(O3)
Presiding:
Keoka Grayson
(Hobart and William Smith Colleges)
Bad International Relations but More Science? Soviet Technological Spillovers and the Boycott of the 1980 Moscow Olympics
Maksym Ivanya
(International Monetary Fund)
[View Abstract]
We use the boycott of the Summer Olympic Games in Moscow in 1980 to identify a causal effect of political events on the magnitude and direction of knowledge creation in the economy. We show that Soviet inventors who patent in the U.S. prior to 1980 experience a rise in patents obtained in other countries not observing the boycott, namely East Germany, after the boycott is announced and that there is increased inventive activity in the classes with greater inventive in the U.S. in East Germany following the boycott. We also identify spillovers through greater participation of Soviet inventors on East German patent teams.
Our results suggest that political decisions may have far-reaching, unintended consequences on economic activity through knowledge production.
The Patent and Commercialization Gap in Pink and Black
Lisa D. Cook
(Michigan State University)
[View Abstract]
Previous studies have found large gender and racial diff erences in commercialization of invention. Using novel data that permit enhanced identi fication of women and African American inventors, we find that gender and racial di fferences in commercial activity related to invention are lower than once thought. This is despite relatively lower patent activity among women and African Americans. Further, among determinants of commercialization, the evidence suggests that advanced training in engineering is correlated with better commercialization outcomes for women and African Americans than for U.S. inventors as a whole, for whom advanced training in life sciences is more important.
Eponymous Entrepreneurs
Aaron Chatterji
(Duke University)
Sharon Belenzon
(Duke University)
[View Abstract]
Many of the most significant challenges for new ventures relate to reducing information asymmetries about the underlying quality of the owner and the firm to attract customers, suppliers, and investors. In that spirit, we explore a highly visible choice that all entrepreneurs must make: selecting a name for their venture. We seek to explain why entrepreneurs would choose to name their firm after themselves (eponymy) and whether empirical patterns in naming are most consistent with theoretical models of signaling or social identity. Using data on over 485,000 firms from Europe and the United States, we find eponymy is associated with higher profits, higher return on assets, and fewer ownership changes. Our results are particularly pronounced for young firms, for firms that operate in industries in which owner-specific skills are more important and contractibility is more difficult, and for owners with rare names. We consider several alternative explanations related to family businesses, ethnic names, and name switching. Our analysis suggests observed patterns in eponymy are most consistent with signaling and that firm names may contain valuable information about the underlying distribution of owner and firm quality.
Innovation in Entrepreneurial Firms: Killer Apps in the iPhone Ecosystem
Pai-Ling Yin
(Massachusetts Institute of Technology)
Jason Davis
(Massachusetts Institute of Technology)
Yulia Muzyrya
(University of Michigan)
[View Abstract]
[Download Preview] The mobile applications (apps) industry has exhibited rapid entry and growth in the midst of a recession. Since Schumpeter (1943), entrepreneurs have been identified as a source of innovations. We study new ventures in the iPhone application ecosystem, examining how the development of “killer apps†(whether a software application appears in the top grossing rank on iTunes) varies by market, firm, and app characteristics. We find that opposing innovation processes are successful in different markets. We propose supply and demand-side sources to explain the heterogeneity in successful mechanisms.
Discussants:
Bruce A. Weinberg
(Ohio State University)
Pai-Ling Yin
(Massachusetts Institute of Technology)
Michael Roach
(Duke University)
Jan 03, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 304
Society for the Advancement of Behavioral Economics/American Economic Association
Human Reciprocity and Its Evolution
(C7) (Panel Discussion)
Panel Moderator:
Charlotte Phelps
(Temple University)
David Sloan Wilson
(Binghamton University)
The Evolution of Group-Advantageous Traits
Larry Samuelson
(Yale University)
Repeated Games; Evolutionary Foundations of Economic Behavior
Samuel Bowles
(Santa Fe Institute & University of Siena)
Discussion of issues raised by other panelists and audience
Herbert Gintis
(Santa Fe Institute & University of Siena)
Discussion of issues raised by other panelists and audience
Jan 03, 2014 2:30 pm, Pennsylvania Convention Center, 106-B
Society of Government Economists
Information Rigidity in Survey Expectations
(D8)
Presiding:
Olivier Coibion
(University of Texas-Austin)
Information Rigidity in Macroeconomic Forecasts: An International Empirical Investigation
Xuguang Sheng
(American University)
Jonathan Wallen
(American University)
[View Abstract]
Using the Consensus Forecasts at the micro level, we investigate information rigidities in professional forecasts of inflation and GDP across the G7 countries. By developing a new measure of information rigidity, we find that professional forecasters update their information sets every three to four months. From this new measure, we identify a set of stylized facts: information rigidities vary across forecasting horizons, individuals, countries, and time. To explain the state dependency in information rigidity, we explore potential determinants: uncertainty, news, and economic policy. We find that professional forecasters are less inattentive in periods with high economic uncertainty, market volatility, and surprising news. Furthermore, policy makers may decrease information rigidity through better communication of economic policy.
Imperfect Information and Inflation Expectations: Evidence from Microdata
Lena Draeger
(University of Hamburg)
Michael Lamla
(ETH Zurich)
[View Abstract]
[Download Preview] We investigate the updating behavior of individual consumers regarding their short- and long-run inflation expectations. Utilizing the University of Michigan Survey of Consumer's rotating panel microstructure, we can identify whether individuals adjust their inflation expectations over a period of six months. We thus construct the share of consumers with updated inflation expectations. From this, we find evidence that the updating frequency has been underestimated in the literature analyzing aggregate survey expectations. Furthermore, looking at the possible determinants of an update of inflation expectations, we find support for imperfect information models since updates are more likely in periods of high inflation volatility or if consumers observe news on price changes. Moreover, individual expectations are found to be more accurate after an update and forecast accuracy is affected by inflation volatility measures and news regarding inflation. Finally, the updating frequency is found to significantly move spreads in bond markets.
Information Rigidities in Economic Growth Forecasts: Evidence from a Large International Panel
Jonas Dovern
(University of Heidelberg)
Ulrich Fritsche
(University Hamburg)
Prakash Loungani
(International Monetary Fund)
Natalia Tamirisa
(International Monetary Fund)
[View Abstract]
[Download Preview] We examine the behavior of forecasts for real GDP growth using a large panel of individual forecasts from 36 advanced and emerging economies during 1989-2010. Our main findings are as follows. First, we show that the degree of rigidity in average growth forecasts is substantially higher than that in individual forecasts. Second, an analysis of the frequency of forecast updating at the individual level does not support the validity of the sticky information model (Mankiw and Reis, 2002) for describing the dynamics of professional growth forecasts. Instead, the empirical evidence is more in line with implications of “noisy†information models (Woodford, 2002; Sims, 2003). Third, we find that the level of information rigidity in emerging economies does not differ substantially from the level observed for advanced economies.
Five Facts (and Some Theory) about Expectations
Philippe Andrade
(Banque de France)
Richard Crump
(Federal Reserve Bank of New York)
Stefano Eusepi
(Federal Reserve Bank of New York)
Emanuel Moench
(Federal Reserve Bank of New York)
[View Abstract]
We study a unique collection of monthly individual forecasts of output growth, inflation, and the Federal Funds rate from the Blue Chip Financial Forecasts survey since 1983. The primary new feature of our data set is that we compile information on survey forecasts from one-quarter ahead to as far as ten years-ahead. Using these data we establish five facts about the formation of macroeconomic expectations: (1) forecasters disagree at all horizons including the very long run; (2) this long-term disagreement is strongly time varying; and (3) the shape of the term structure of disagreement, that is, the disagreement as a function of the forecast horizon, differs across variables. We combine these three new observations about disagreement among forecasters with two well-established facts about the average of individual forecasts (the consensus): (4) individual and consensus forecast errors are predictable; (5) it is difficult to beat the consensus forecast. We compare these five facts to a set of well-known models of expectations formation that feature agents with imperfect information. We argue that none of these models can replicate all five facts. We discuss the theoretical properties sufficient for models of expectations formation to match these five facts. We propose a simple model that embeds these features and confront it with our survey data.
Discussants:
Paul Hubert
(OFCE-Sciences PO)
Benjamin K. Johannsen
(Federal Reserve Board)
Tara Sinclair
(George Washington University)
MIn Wei
(Federal Reserve Board)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, P1 Parlor
Union for Radical Political Economists/International Association for Feminist Economics
Gender and Household Decisions and Divisions
(D1)
Presiding:
Alicia Giron
(Universidad Nacional Autonoma de Mexico)
Elder care and the household division of labor and income: Bringing the gender contract into the comparison of welfare states
Sevinc Rende
(Isik University)
[View Abstract]
[Download Preview] Welfare states encourage the practices of mutual responsibility and obligation to other citizens and as a result foster social cohesion. In this paper, I investigate the relationship between the inter-generational and gender contracts sorted the type of the welfare regime. Using the Gender and Generations Survey, I explore the nexus of the household divisions of tasks and finances and the opinions expressed regarding the responsibilities for elderly care in Norway, France and Russia, representing Nordic, Christian Democratic and post-transition welfare regimes, respectively. The results suggest some of the implications of the austerity programs now being applied in Europe and offer some pointers for the design of equitable and efficient welfare systems in countries without a mature welfare regime.
Financial Planning as Gendered Intra-Household Production Process
John R. Moreau
(University of Missouri-Kansas City)
[View Abstract]
Feminist Economics has developed models of relationships among members of the household that incorporate both conflict and cooperation. By specifying multiple economic roles that may be performed by different members of the household, feminist economics allows for theorizing about the role of gender in the production of financial plans. Reframing planning as an act of production instead of consumption emphasizes the active role of household members in creating and carrying out their financial plans. Different risk tolerances between men and women can significantly affect financial outcomes. Men and women demonstrate varying degrees of financial literacy, a key influence on the capability to make and execute financial plans. Finally, social construction of gender roles and differential socialization can have an impact on the financial planning process.
Technology Adoption, Risk, and Intrahousehold Bargaining in Subsistence Agriculture
Chris Slootmaker
(Colorado State University)
[View Abstract]
[Download Preview] Leveraging unique data from four villages in Southern Ghana, we present and test a theoretical model where agents in a two-person agricultural household make individual portfolio allocations while looking forward to an intrahousehold bargaining process. The specific context is that of subsistence agriculture where individuals within households farm separate plots but also share resources. Still, our model allows connections to other contexts approaching the question of portfolio choice in general and can be extended as such.
Motivated by empirical findings that unequal access to household resources by individual members impedes investment, we show how an institution of gender bias determines allocations between spouses and feeds back onto investment strategies, ultimately affecting policy efficacy and welfare outcomes over time. In doing so, we portray the household as a simultaneous site of cooperation and conflict and offer a theoretical framework that reflects various aspects of gender inequality in this setting. Specifically, as individuals have separate spheres of influence over the household asset base they adopt heterogeneous portfolio strategies and have relatedly different means of coping with negative economic shocks. In this way, individual risk management strategies diverge from that of the a representative agent and affect prospects for growth in a risky environment.
As agent expectations over the returns from bargaining alter their investment strategies, and asset choices affect one's position at the bargaining table, household members are consequently linked over time, placing the institution of gender at the center of the household's technology adoption problem. Individuals exercise agency in maximizing their own objectives yet this agency is necessarily bounded by the social institution determining resource shares. In the end, egalitarian households are more able to adopt risky technologies and realize gains from related policies. While gender equality is obviously an end in itself, we ultimately show that it is also a relevant means for the complementary end of economic development.
The Gendered Nature of Intra-Household Decision Making In and Across Europe
Katharina Mader
(Vienna University and University of Massachusetts-Amherst)
Alyssa Schneebaum
(Vienna University and University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] Until recently, economists treated households as though their members had congruent interests and a joint utility function, ignoring complexities within the household. Feminist economists therefore encourage opening the "black box" of the household and putting the focus of the analysis of the private sphere on individuals instead of households. We employ the 2010 EU-SILC data to test for differences in household decision-making on several financial decisions (everyday purchasing, savings and debt, and spending on children). We ask: How does the household decision-making power of men and women compare, both within and across European countries? We would expect women in countries with more opportunities for independence to have more decision making-power in the household. We explore the relationship between macroeconomic structures such as women's labor market success and the microeconomic outcome of household decision-making power.
Discussants:
Alicia Giron
(Universidad Nacional Autonoma de Mexico)
Joyce Jacobsen
(Wesleyan University)
Jan 03, 2014 2:30 pm, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists
Value and Exploitation in Marxian Theory
(B5)
Presiding:
Susan Feiner
(University of Southern Maine)
Productive and Unproductive Labor in Marxian Theory: Rethinking the Distinction through the Value Theory of Labor
Antonio Callari
(Franklin and Marshall College)
[View Abstract]
This paper will explore the question of productive and unproductive labor through the lenses of the concept of "value" as a social (capitalist class process) construction. The paper will review and criticize existing concepts of productive/unproductive labor as being too wedded to a concept of "value" as a property of "labor" in itself. It will explore the analytical conditions and political implications of the productive/unproductive distinction in light of Marx's criticism of the Classicals' (Smith's Ricardo's) naturalist concept of value.
Exploitation as Capabilities Inequality
Faruk Eray Düzenli
(St Mary's College of Maryland)
[View Abstract]
This paper discusses whether various Marxist conceptions of exploitation can be construed as capabilities inequality. Exploitation is defined as workers' lack of control of the production process; as laborers inability to appropriate the surplus they performed; and as unequal ownership of means of production. As such, exploitation as capitalist/managerial control/supervision would violate capabilities equality as "work is not a truly human mode of functioning". Exploitation as the exclusion of surplus producers from its appropriation violates capabilities equality as they do not have the capability not only to appropriate but also to distribute the surplus, which are exclusively accorded to nonâ€producers.
Money, Demand and Value: How Changes in Demand Affect the Monetary Expression of Value in Marx
David Kristjanson-Gural
(Bucknell University)
[View Abstract]
[Download Preview] I first review how demand affects value and exchange value in a post-structuralist framework and how the monetary expression of value is defined using this approach. I then develop a macro model of simple reproduction and use it to illustrate how a change in aggregate demand from one period to the next redistributes value between periods. Finally, I critique two existing attempts to define the monetary expression of value – the monetary expression of labor-time (MELT) developed by Foley and the labor expression of money offered by Fine, Lapavitsas and Saad-Filho. I end by discussing implications for further research.
Single System Value Theory and the New Interpretation: A Unified Approach
Erik Olsen
(University of Missouri-Kansas City)
[View Abstract]
Marxian value theorists have responded in various ways to the neo-Ricardian critique of the labor theory of value. Two different approaches, the Single System approach and the Dumenil-Foley New Interpretation, have endured and gained varying degrees of acceptance as viable responses to this critique. This paper compares and contrasts these two approaches. It defines a set of core propositions and results common to both the Single System and New Interpretation that form one consistent approach. It also shows that many criticisms aimed at the individual contributions do not hold for this more general approach.
Discussants:
Fred Moseley
(Mount Holyoke College)
Bruce Roberts
(University of Southern Maine)
Jan 03, 2014 4:45 pm, Philadelphia Marriott, Grand Ballroom - Salons G & H
American Economic Association
Richard T. Ely Lecture
Presiding:
William Nordhaus
(Yale University)
Retirement Security in an Aging Population
James Poterba
(Massachusetts Institute of Technology and NBER)
[Download Preview] N/A
Jan 03, 2014 5:00 pm, Loews Philadelphia Hotel, Regency Ballroom B
Agricultural & Applied Economics Association
TW Schultz Memorial Lecture and Reception (Free for all ASSA Attendees)
Michael Kremer
(Harvard University)
Jan 03, 2014 8:00 pm, Philadelphia Marriott, Liberty Ballroom
American Economic Association
Music Festival
(Y9)
Presiding:
Stephen Wu
(Hamilton College)
Jazz Quintet
Daniel Berkowitz
(University of Pittsburgh)
Ed Gamber
(Lafayette College)
William Horrace
(Syracuse University)
Alan Spearot
(University of California-Santa Cruz)
Stephen Wu
(Hamilton College)
[Download Preview] n/a
Jan 04, 2014 7:45 am, Loews Philadelphia Hotel, Howe
Association for Social Economics
ASE Presidential Breakfast
Presiding:
Mark D. White
(College of Staten Island/City University of New York)
Jonathan B. Wight
(University of Richmond)
Economics Within a Pluralist Ethical Tradition
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, P1 Parlor
Agricultural & Applied Economics Association
Micro Foundations of the Glass Ceiling: Gender and Finance in Rural Settings
(J1)
Presiding:
Valentina Hartarska
(Auburn University)
Let's Talk About the Money: Spousal Communication, Expenditures and Farm Production
Joyce Chen
(Ohio State University)
LaPorchia Collins
(Ohio State University)
[View Abstract]
[Download Preview] There is a burgeoning literature highlighting asymmetric information among household members. However, little is known about the source of the asymmetry and its effect on efficiency. Using a unique survey of Ghanaian households, we examine the accuracy of spousal cross-reports and the effect of discrepancies on farm production. We find that information problems pertain to scale, the quantity of resources, and scope, the distribution of resources, as well as allocation decisions on the margin (Engel curves). Moreover, we find that information asymmetries lead to inefficiency in production, and the effect is equivalent to about 15% of the variation across households.
Are Women Better Bankers to the Poor? Evidence from Rural Microfinance Institutions
Valentina Hartarska
(Auburn University)
Roy Mersland
(Agder University)
Denis Nadolnyak
(Auburn University)
[View Abstract]
[Download Preview] Microfinance Institutions (MFIs) provide financial services to the poor, and resemble banks and non-profits. They explicitly target women because more women than men are poor especially in rural areas. While on the level of the MFIs’ clients, self-help groups have demonstrated that poor women manage money better than men, little is known about how female CEOs manage their institutions. Since studies show that female CEOs in some financial institutions deliver better results than male CEOs, we ask if MFIs with women CEOs are better at serving the poor without jeopardizing financial sustainability. We first adapt the banking approach to managerial efficiency to account for the outreach and sustainability goals of the MFIs. We use panel data from 250 MFIs from across the world for the period 1998-2011 to estimate the technical efficiency in MFIs. Next, we evaluate if our outreach efficiency differs by the gender of the CEO and find that, in rural markets, MFIs with female CEOs have 12-14 percent points higher outreach efficiency. Our results suggest that promoting gender diversity at the top of the MFIs is likely to have social and financial benefits.
Women's Management Strategies and Growth in Rural Female-Owned Family Business
Maria Marshall
(Purdue University)
Whitney Peake
(University of North Texas)
[View Abstract]
[Download Preview] Prior research indicates not only that family businesses have fewer management controls in place and are more likely to have non-economic goals for their firm but also that female-controlled businesses tend to underperform compared to male-controlled businesses. In this article, we analyze the performance effects of management controls and goals for the business across both male and female-controlled farm and rural family businesses. The results suggest that female-controlled farm and rural family businesses do not underperform their male counterparts in terms of objective or subjective assessments of performance. This is an important finding, given the mixed results across the family business literature regarding the impacts of gender on performance. Our results do indicate, however, that management controls and strategies and goals for the firm influence objective and subjective performance differently across male and female-controlled farm and rural family businesses.
Discussants:
Mary Ahearn
(USDA Economic Research Service)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 109-B
American Economic Association
Academic and Market Power in Scholarly Publishing
(O3)
Presiding:
Erik Brynjolfsson
(Massachusetts Institute of Technology)
The Effect of a Free On-Line Repository on the Diffusion of Scholarly Ideas
Heekyung Hellen Kim
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This study investigates the impact of a free on-line repository of research articles on the diffusion of their ideas measured by the citation counts. The key questions that this paper answers are as following: 1) does a free on-line repository of research articles increase the diffusion of their scholarly ideas measured by their citations?; 2) who benefits from the free access? By using a dataset from the Social Science Research Network (SSRN), an open repository of research articles, and employing a natural experiment that allows the effect of SSRN-posting separate from other confounding factors such as quality differentials, early exposure, low search cost, and promotion effect, this study identifies the causal effect of SSRNposting on the citation counts. The natural experiment in this study is that a select group of articles already published in a journal before posting on SSRN is posted on SSRN at a time chosen by their authors' affiliated organizations or SSRN, not by their authors. Using a difference-in-difference method and comparing the citation profiles of the articles before and after the posting time on SSRN against a group of control articles published in the same journal and issue, I estimated that the SSRN-posting increases the citation approximately by 10%. This boost is more pronounced for the research articles published in low-tiered journals authored by the scholars affiliated with top institutes. In the demand side, the scholars in the developing countries appear to get more benefits from the free access to the articles posted on SSRN than those in the developed countries because the citing authors are from developing countries more than developed
Can Open Access Break Incumbents' Grip on the Market for Academic Journals?
Mark J. McCabe
(University of Michigan)
Christopher Snyder
(Dartmouth College)
[View Abstract]
Establishing the prestige of a new journal is difficult, a barrier to entry contributing to incumbents' market power. New technologies may provide entrants with offsetting advantages, facilitating competition. Particularly promising is open access, whereby articles are made freely available via the Internet, offsetting lost subscription revenue with higher author fees. This promise has been bolstered by previous empirical studies, which find a tremendous citation boost from open access. We argue that previous results were biased by omitted time and selection effects. Circumventing these biases using a rich panel of citations to hundreds of journals over several decades, we find that open access offers no citation advantage over fee access and Internet access offers only a modest advantage over print, casting doubt on whether technological solutions alone can unseat incumbent publishers.
Moneyball for Academics: Network Analysis for Predicting Research Impact
Chaithanya Bandi
(Massachusetts Institute of Technology)
Dimitris Bertsimas
(Massachusetts Institute of Technology)
Erik Brynjolfsson
(Massachusetts Institute of Technology)
Shachar Reichman
(Massachusetts Institute of Technology)
John Siberholz
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] How are scholars ranked for promotion, tenure and honors? How can we improve the quantitative tools available for decision makers when making such decisions? Can we predict the academic impact of scholars and papers at early stages using quantitative tools?
Current academic decisions (hiring, tenure, prizes) are mostly very subjective. In the era of Big Data, a solid quantitative set of measurements should be used to support this decision process.
This paper presents a method for predicting the probability of a paper being in the most cited papers using only data available at the time of publication. We find that highly cited papers have different structural properties and that these centrality measures are associated with increased odds of being in the top percentile of citation count.
The paper also presents a method for predicting the future impact of researchers, using information available early in their careers. This model integrates information about changes in a young researcher's role in the citation network and co-authorship network and demonstrates how this improves predictions of their future impact.
These results show that the use of quantitative methods can complement the qualitative decision-making process in academia and improve the prediction of academic impact.
Exit versus Voice in Driving Open Access
Joshua S. Gans
(University of Toronto)
[View Abstract]
[Download Preview] At several junctures, academics have used boycotts to change pricing and other practices of publishing platforms. While such boycotts have been studied with respect to ordinary good markets, they have not been applied in a rigorous fashion to two or multi-sided markets. This paper does that by considering competing journals and the ability of coordinated (but non-binding) actions from agents on one side to influence platform policies or practices on the other. Several strategies are compared including exit, leaving a platform and voice, changing actions and investments in a platform. It is demonstrated that the effectiveness of boycotts can be mitigated and may be counterproductive depending on the extent of platform market power in the form of locked-in consumers or assets.
Discussants:
Ted Bergstrom
(University of California-Santa Barbara)
Stefano DellaVigna
(University of California- Berkeley)
Scott Stern
(Massachusetts Institute of Technology)
David Card
(University of California-Berkeley)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 112-B
American Economic Association
Assessment of Economic and Financial Knowledge: An International Perspective
(A1)
Presiding:
Carlos Asarta
(University of Delaware)
Adaptation and Validation of the TUCE for Assessing the Economic Understanding of Students in Germany
Manuel Foerster
(Johannes Gutenberg University Mainz)
Olga Zlatkin-Troitschanskaia
(Johannes Gutenberg University Mainz)
Sebastian Brueckner
(Johannes Gutenberg University Mainz)
Manuela Hansen
(Johannes Gutenberg University Mainz)
[View Abstract]
[Download Preview] In Germany, cross-institutional assessment of student learning in higher education is becoming an increasingly important research area. This is particularly true for the field of business and economics, which is the most popular field of study among beginning and advanced students (Federal Statistical Office, 2012). Nevertheless, there is still no German-language instrument that meets academic requirements for assessing understanding and learning in economics (Kuhn & Zlatkin-Troitschanskaia, 2011). Previous research approaches have mainly focused on target groups outside higher education (e.g. PISA) (PISA & OECD, 2009).
Funded by the German Federal Ministry of Education and Research, the project WiwiKom strives to remedy this research deficit (http://www.wiwi-kompetenz.de/eng/). One of the project goals is to adapt the Test of Understanding in College Economics (TUCE, Walstad, Watts & Rebeck, 2007), designed by the National Council of Economic Education, for the German language and cultural area, and consequently, to critically evaluate the suitability of the test for assessing student learning in economics in Germany. To this end, the TUCE was translated in cooperation with professional translators and was validated through content analyses employing expert interviews and through response process analyses employing thinking-aloud interviews. Experts from various economic disciplines were both interviewed directly on the content of the test items and were surveyed online about the items' curricular representativeness and relevance. Curricular validity was further ensured by analyzing module manuals from 57 business and economics faculties at universities and universities of applied sciences, including the largest in Germany and the ones that participated in the survey. (Validation through curricular analyses and through expert interviews and conduction of the surveys are carried out in cooperation with the team of "stage 7" of the German National Education Panel Study (NEPS). (In total, all 60 items were adapted from the English original and were subsumed in a booklet design in the form of nested Youden squares (Frey, Hartig & Rupp, 2009).) In fall 2012 (September to December), the TUCE items were tested in a first field study with about 1000 students from 24 business and economics faculties throughout Germany.
Financial Literacy of Korean High School Students
Jinsoo Hahn
(Gyeongin National University of Education)
Kyungho Jang
(Inha University)
Hyung Joon Park
(Sungshin Women's University)
[View Abstract]
[Download Preview] Understanding the factors that determine financial literacy and their effects can help policymakers and researchers design and implement effective interventions for youth. To this end, this study examines what factors influence the level of financial literacy possessed by Korean high school students. This study further investigates the effects of socioeconomic status, economic attitude and financial attitude on financial literacy and financial behavior using structural equation models, in which endogeneity among latent variables are incorporated. The results of structural models share common and different findings with those of descriptive statistics and simple regression models. First, student’s intention to select economics is the most influential factor of both economic attitude and financial attitude, with GPA the second influential one. Second, economic attitude is more influential than financial attitude in determining financial literacy. Third, the effect of financial attitude on financial literacy changes dramatically depending on the assumptions. The descriptive statistics show that financial attitude has positive effects on financial literacy, while its effects become insignificant in the simple regression model and the benchmark model. However, if we incorporate the enodogeneity of financial attitude explicitly among latent variables, the effects become negative and significant. Finally, financial literacy has positive effects on financial behavior in all models. These findings imply that economic or financial education plays an important role in changing students’ financial behavior such as saving money for the future.
Analyzing High School Student Achievement in Economics Over Time
William Walstad
(University of Nebraska-Lincoln)
[View Abstract]
[Download Preview] This paper presents results from the analysis of test scores from the 2006 and 2012 National Assessment of Educational Progress (NAEP) in economics administered to high school students in grade 12. The paper describes the NAEP testing and sampling procedures used to obtain test data in both years. Test scores are compared across time using the scale score for the entire test and also scale scores for subsection of the test on the market, national, and international economies. Further analysis is conducted item-by-item using the publicly-released test items from 2012 to compare those results with ones obtained for the same items given in 2006. Both the analysis with scale scores and scores obtained by aggregating scores from individual items are consistent in showing no significant change in high school student achievement in economics over time. Further analysis also shows no significant change in scale scores over time in most cases when comparisons are made using student characteristics. The concluding section discusses whether this general outcome of no change in student achievement in economics should be view as a positive or negative development and suggests topic for future research.
Discussants:
Wendy Stock
(Montana State University)
Paul W. Grimes
(Pittsburg State University)
William Bosshardt
(Florida Atlantic University)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 204-A
American Economic Association
Banking Supervision and Regulation
(G2)
Presiding:
Jason Wu
(Federal Reserve Board)
Bank Regulation and Supervision in 180 Countries from 1999 to 2011
James R. Barth
(University of Auburn)
Gerard Caprio, Jr.
(Williams College)
Ross Levine
(University of California-Berkeley)
[View Abstract]
[Download Preview] In this paper and the associated online database, we provide new data and measures of bank regulatory and supervisory policies in 180 countries from 1999 to 2011. The data include and the measures are based upon responses to hundreds of questions, including information on permissible bank activities, capital requirements, the powers of official supervisory agencies, information disclosure requirements, external governance mechanisms, deposit insurance, barriers to entry, and loan provisioning. The dataset also provides information on the organization of regulatory agencies and the size, structure, and performance of banking systems. Since the underlying surveys are large and complex, we construct summary indices of key bank regulatory and supervisory policies to facilitate cross-country comparisons and analyses of changes in banking policies over time.
Bank Regulation and Supervision in the Context of the Global Crisis
Martin Cihak
(World Bank)
Asli Demirguc-Kunt
(World Bank)
Maria Soledad Martinez Peria
(World Bank)
Amin Mohseni-Cheraghlou
(World Bank)
[View Abstract]
This paper provides novel evidence on regulatory and supervisory practices around the world in the context of the global financial crisis, using data from a new World Bank survey covering 143 countries. Analyzing differences between crisis and non-crisis countries, the authors find that crisis countries had less stringent and more complex definitions of capital, exhibited lower actual capital ratios, faced fewer restrictions on non-bank activities, were less strict in the regulatory treatment of bad loans, were less able to demand banks to adjust their equity, provisions or compensation schemes, and had greater disclosure requirements but weaker incentives for private agents to monitor banks. Comparing regulatory and supervisory practices before and after the global crisis, there is evidence of few changes. While capital ratios increased, bank governance and resolution regimes were strenghtened, private sector incentives to monitor banks deteriorated.
Microprudential Regulation in a Dynamic Model of Banking
Gianni De Nicolo
(International Monetary Fund)
Andrea Gamba
(Warwick Business School)
Marcella Lucchetta
(University Ca' Foscari of Venice)
[View Abstract]
[Download Preview] This paper studies the quantitative impact of microprudential bank regulations on bank lend- ing and value metrics of efficiency and welfare in a dynamic model of banks that are financed by debt and equity, undertake maturity transformation, are exposed to credit and liquidity risks, and face financing frictions. We show that: (a) there exists an inverted U–shaped relationship between bank lending, welfare, and capital requirements; (b) liquidity requirements unambiguously reduce lending, efficiency and welfare; and (c) resolution policies contingent on observed capital, such as prompt corrective action, dominate in efficiency and welfare terms (non–contingent) capital and liquidity requirements.
The Effects of Supervision on Bank Performance: Evidence from Discontinuous Examination Frequencies
Marcelo Rezende
(Federal Reserve Board)
Jason J. Wu
(Federal Reserve Board)
[View Abstract]
[Download Preview] Previous research has found little evidence that banking supervision improves bank performance, possibly because supervision is endogenous to performance. This paper estimates causal effects of supervision on performance using discontinuities in the minimum frequency of examinations imposed by regulation. The bank asset size threshold at which these discontinuities occur changes over time, providing important variations both across banks and across time for identification. In particular, the time varying threshold allows us to remove confounding factors that may be present at certain asset sizes. We find that more frequent examinations increase profits and decrease loan losses and delinquencies. This is consistent with the hypothesis that regulators limit the risks that banks are exposed to and, consequently, limit their losses on risky assets. Our findings suggest that banking supervision improves bank performance.
Discussants:
Clas Wihlborg
(Chapman University)
Franklin Allen
(University of Pennsylvania)
Jean-Charles Rochet
(University of Zurich)
Patrick deFontnouvelle
(Federal Reserve Bank of Boston)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 108-B
American Economic Association
Crime & Corruption
(K4)
Presiding:
Dale Cloninger
(University of Houston-Clear Lake)
Inside the War on Drugs: Effectiveness and Unintended Consequences of a Large Illicit Crop Eradication Program In Colombia
Maria Acevedo
(Harvard University)
Alberto Abadie
(Harvard University)
Maurice Kugler
(United Nations Development Programs)
Juan Vargas
(Universidad del Rosario)
[View Abstract]
[Download Preview] This article reports the results of an econometric evaluation of the effects of Plan Colombia, the largest US aid package ever received by a country in the western hemisphere.
We assess how the aerial spraying of illegal crops affects both the size of the land cultivated with coca bushes as well as the dynamics of localized violence in the context of Colombia’s armed conflict. In particular, we show that the marginal effect of spraying of one acre of coca reduces the cultivated area by about 11 percent of an acre. Since aerial spraying may shift coca crops to neighboring municipalities, this results should be interpreted as a local effect. In addition, since the same coca fields are often sprayed multiple times, this figure constitutes a lower bound of the mean eradicating effect of aerial spraying, To study the impact on conflict dynamics, we examine both the short term
and the long-term effects of crop spraying. Our results suggest that guerrilla-led
violence increases both in the short and the long term. We interpret this result as evidence that the guerrilla tries to hold on violently to the control of an asset that is of first order importance for their survival.
Corruption in Procurement and Shadow Campaign Financing: Evidence from Russia
Maxim Mironov
(IE Business School, Madrid)
Ekatherina V. Zhuravskaya
(Paris School of Economics)
[View Abstract]
[Download Preview] Using objective micro-level data on tunneling for the population of large Russian firms, we document pervasive corruption in public procurement. Corruption exhibits political cycle: firms with procurement revenue provide shadow financing for regional elections. Using variation in quality of tax inspectors as a source of variation in tunneling, we show that political connections are not the only mechanism driving this relationship. Correlation between tunneling around elections and procurement yields locality-level measure of corruption. Using it, we reject the ``efficient greasing" hypothesis by showing that in more corrupt localities procurement contracts are allocated to inefficient firms and, therefore, corruption undermines welfare.
Birthdays, Schooling, and Crime: New Evidence on the Dropout-Crime Nexus
Songman Kang
(Duke University)
Philip Cook
(Duke University)
[View Abstract]
[Download Preview] Based on administrative data for five cohorts of public school children in North Carolina, we demonstrate that those born just after the cut date for starting school are likely to outperform those born just before in reading and math in middle school, and are less likely to be involved in juvenile delinquency. On the other hand, those born after the cut date are more likely to drop out of high school before graduation and commit a felony offense by age 19. We also present suggestive evidence that the higher dropout rate is due to the fact that youths born after the cut date have longer exposure to the legal possibility of dropping out. The "crime" and "dropout" differences are strong but somewhat muted by the fact that youths born just before the cut date are substantially more likely to be held back in school. We document considerable heterogeneity in educational and criminal outcomes by sex, race and other indicators of socioeconomic disadvantage.
Segregation and Crime
Hans Gronqvist
(Stockholm University)
Susan Niknami
(Stockholm University)
Olof Aslund
(IFAU)
Per-Olof Robling
(Stockholm University)
[View Abstract]
The question of whether minority segregation breads criminal activity is a central topic in the public debate in many countries. Investigations of this question are complicated by the fact that individuals are not randomly allocated to neighborhoods. We circumvent this problem by studying refugee immigrants who were plausibly exogenously assigned to their first locality of residence by Swedish authorities. Our analysis draws on population wide administrative data for the period 1985-2008, containing information on all convictions in criminal trials. These data have been merged to a broad set of standard individual characteristics. We study children who were placed together with their parents in different localities and follow the children as they age observing their encounters with the criminal justice system.
Admission is Free Only if Your Dad is Rich! Distributional Effects of Corruption in Schools in Developing Countries
Shahe Emran
(Columbia University)
Asadul Islam
(Monash University)
Forhad Shilpi
(World Bank)
[View Abstract]
[Download Preview] This paper provides a theoretical and empirical analysis of potential unequal burden of bribery in schools on poor households in developing countries. The standard model implies that the rich are more likely to pay bribes, i.e., bribes are progressive at the extensive margin, because the probability of punishment for bribe taking by a teacher is the same irrespective of income of the household. This model is, however, not appropriate in the context of a developing country lacking in rule of law, where the law is enforced selectively in favor of rich, and thus the ability to punish a corrupt teacher depends on a household's economic status. We build a model consistent with the reality in developing countries, and show that bribery is likely to be regressive at the extensive margin in this case. The conditions required for progressivity at the intensive margin are also quite stringent, requiring a utility function with more curvature than implied by a log function. A significant part of the available empirical evidence, however, finds bribes in developing countries to be progressive. We argue that this conflict is largely due to the identification challenges arising from ability and preference heterogeneity. Using ten year average rainfall variations as instrument for household income in rural Bangladesh, we find that corruption is doubly regressive: (i) the poor are more likely to pay bribes (income elasticity [-0.73, -1]), and (ii) among the bribe payers, the poor pay a higher share of their income. The IV results for intensive margin are in contrast to the OLS estimate that shows bribes to be increasing with household income, substantiating the worry about spurious progressive effects. The results imply that `free schooling' is free only for the rich, and corruption makes the playing field skewed
against the poor.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 103-A
American Economic Association
Economics of Digital Advertising
(M3)
Presiding:
Justin Rao
(Microsoft Research)
Social Networks, Personalized Advertising, and Privacy Controls
Catherine Tucker
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper investigates how internet users' perception of control over their personal information affects how likely they are to click on online advertising. The paper uses data from a randomized field experiment that examined the relative effectiveness of personalizing ad copy using posted personal information on a social networking website. The website gave users more control over their personally identifiable information in the middle of the field test. The website did not change how advertisers used data to target and personalize ads. After this policy change, users were twice as likely to click on personalized ads. There was no comparable change in the effectiveness of ads that did not make explicit that they used private information when targeting. The increase in effectiveness was larger for ads that used more unique private information to personalize their message.
Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment
Chris Nosko
(University of Chicago)
Thomas Blake
(eBay Research Labs)
Steven Tadelis
(University of California-Berkeley and eBay Research Labs)
[View Abstract]
[Download Preview] Internet advertising has been the fastest growing advertising channel in recent years with paid advertisements on search platforms (e.g., Google and Bing) comprising the bulk of this revenue. We present results from a series of large-scale field experiments done at eBay that are designed to detect the causal effectiveness of paid search advertisements. Results show that brand-keyword ads have no short-term benefits, and that returns from all other keywords are a fraction of conventional estimates. We find that new and infrequent users are positively influenced by ads but that existing loyal users whose purchasing behavior is not influenced by paid search account for most of the advertising expenses, resulting in average returns that are negative. We discuss substitution to other channels and implications for advertising decisions in large firms.
Designing Large Advertising Markets Where Agents Have Heterogeneous Objectives: A Structural Empirical Approach
Susan Athey
(Harvard University, Microsoft Research, and Keystone Strategy)
Denis Nekipelov
(University of California-Berkeley and Microsoft Research)
[View Abstract]
Sponsored search advertising attracts hundreds of thousands of advertisers, many with dozens or even thousands of campaigns, leading to tens of millions of distinct keyword bids. Advertiser objectives are heterogeneous. Some advertisers primarily focus on making immediate sales that are referred by clicks, while others want to promote their brand with a top-position placement. Some advertisers optimize their search subject to budget constraints, while others do not. In addition, the data reveals heterogeneity in the frequency of bid changes, with some advertisers changing bids daily and others updating them only every few weeks or months. Only some of the heterogeneity can be explained by the value of the particular keyword advertising opportunity. Our paper builds a structural model where advertisers may have different objectives. We estimate the model using a Bayesian approach, uncovering for each advertiser the posterior probability that the advertiser is one of a pre-specified number of objective types, as well as posterior distributions over the parameters of those objective functions. We relate the estimated objective functions to advertiser characteristics such as size, industry, and use of advertising agencies. We also estimate the implied costs of changing bids. Finally, we develop a scalable algorithm for computing counterfactual responses to changes in the environment (such as changes in pricing algorithms), where each bidder has beliefs about the objective functions of opponents consistent with our estimates. Using this model, we calculate the estimated posterior distribution of outcomes for different types bidders and the advertising platform following counterfactual changes to the market design.
On the Near Impossibility of Measuring the Returns to Advertising
Randall A. Lewis
(Google, Inc.)
Justin M. Rao
(Microsoft Research)
[View Abstract]
[Download Preview] Classical theories assume the firm has access to reliable signals to measure the causal impact of choice variables on profit. For advertising expenditure we show, using twenty-five online field experiments with major U.S. retailers and brokerages (\$2.8 million expenditure), that this assumption typically does not hold. Evidence from the randomized trials is very weak because individual-level sales are incredibly volatile relative to the per capita cost of a campaign---a ``small'' impact on a noisy dependent variable can generate positive returns. A calibrated statistical argument shows that the required sample size for an experiment to generate informative confidence intervals is typically in excess of ten million person-weeks. This also implies that selection bias unaccounted for by observational methods only needs to explain a tiny fraction of sales variation to severely bias observational estimates. We discuss how weak informational feedback has shaped the current marketplace and the impact of technological advances moving forward.
Discussants:
Michael Grubb
(Boston College)
Garrett Johnson
(Rochester University)
David Reiley
(Google, Inc.)
Tyler Williams
(Amazon)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 204-C
American Economic Association
Economics of Revolutions
(D7)
Presiding:
Daron Acemoglu
(Massachusetts Institute of Technology)
Isolated Capital Cities and Misgovernance: Theory and Evidence
Filipe Campante
(Harvard University)
Quoc-Anh Do
(Science-Po)
Bernardo Guimaraes
(Sao Paulo FGV)
[View Abstract]
[Download Preview] Motivated by a novel stylized fact - countries with isolated capital cities display worse quality of governance - we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less effective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.
Incumbency Advantages in Non-Democracies
Georgy Egorov
(Northwestern University)
Konstantin Sonin
(Higher School of Economics-Moscow)
[View Abstract]
Many nondemocratic countries held regular or semi-regular elections, often plagued with fraud. We build a simple one-period model, where the dictator faces a threat of revolution and acts strategically to limit its scope. The dictator decides on whether or not to repress, whether or not to have elections, and if he decides to have elections, determines the extent of the vote fraud. Elections, even fraudulent, convey information about the real number of supporters for the regime. If the regime is sufficiently confident, making this information public makes citizens less likely to protest. In equilibrium, the strongest dictators have elections, which may involve fraud even if the dictator could have achieved the majority without it. The weakest dictators repress, while the "intermediate" dictators neither allow elections, nor repress. Higher costs of protests for citizens make both elections and repressions more attractive options for the dictator; higher costs of repression makes them less likely and elections more likely. In contrast, lower cost of repression reduces the need for elections as means of projecting dictator's strength.
Revolutions and Business Cycles
Lance Kent
(College of William and Mary)
Toan Phan
(University of North Carolina-Chapel Hill)
[View Abstract]
[Download Preview] This paper develops an empirical macroeconomic framework to analyze the relationship between major political disruptions and business cycles of a country. We combine a new dataset of political revolutions (mass domestic political campaigns to remove dictators and juntas) across the world since 1960, with coup data and traditional macro data (of output, investment, trade, inflation and exchange rate). We then build a panel vector-autoregression model with two novel ingredients: (1) political disruptions and (2) an estimated probability of such disruptions. We find that both terms have statistically and economically significant impacts on business cycles. Interestingly, the impacts of the second term dominate those of the first, both statistically and economically. This suggests that our measure of political risk captures an important source of time-varying uncertainty and volatility in many countries.
Patronage Networks and the Balance of Power in Egypt's Arab Spring
Daron Acemoglu
(Massachusetts Institute of Technology)
Tarek Hassan
(University of Chicago)
Ahmed Tahoun
(London Business School)
[View Abstract]
A key question for Egypt's long-term economic and political prospects of is whether the "rent-seeking coalition" consisting of a network of National Democratic Party (NDP) members and military officers has been truly uprooted by the fall of Mubarak's regime. One possibility is that this network, having shed the Mubarak family, will re-create itself, centering this time on high-ranking members of the military or on the Muslim Brotherhood. We investigate this possibility by examining the behavior of firms and the perceptions of financial investors in the Egyptian stock market. We classify companies on the Egyptian stock exchange into four groups: unconnected, connected to NDP, connected to the military, and connected to the Muslim Brotherhood. Following a well-established empirical strategy (Fisman [17]), we study cumulative abnormal returns after crucial dates (such as the fall of the regime or major crackdowns on demonstrators). In addition, we are also compiling data on the hiring and firing of network members from company boards and investigating to what extent the fortunes of religiously motivated investors ("Shariah-based" funds) are tied to the political success of the Muslim Brotherhood.
Discussants:
Remi Jedwab
(George Washington University)
Carlo Prato
(Georgetown University and Princeton University)
Filipe Campante
(Harvard University)
Erik Meyersson
(Stockholm School of Economics)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 105-B
American Economic Association
Financial and Labor Market Frictions
(E3)
Presiding:
Vincenzo Quadrini
(University of Southern California)
Aggregate Implications of Financial and Labor Market Frictions
Andrea Caggese
(Universitat Pompeu Fabra)
Ander Perez
(Universitat Pompeu Fabra)
[View Abstract]
This paper develops a model with both financial and labor market frictions, and jointly analyzes the precautionary behavior of firms and households. Financial frictions generate costly bankruptcy risk for firms and limited insurance against unemployment risk for workers. We solve and simulate a calibrated version of the model and show that the precautionary decisions of households and firms interact with each other to significantly amplify the effect of financial factors on aggregate output and unemployment, even in the absence of price and wage rigidity. This result can be interpreted as a negative demand externality. Firms fire workers to maximize profits, but do not internalize the negative effect of the increase in unemployment on households. Households consume less to increase precautionary saving, but do not internalize the negative impact of their decision on firms' profits and default risk. The importance of this externality is quantitatively large. We calibrate an economy with moderate default risk in firms and a very small risk aversion and precautionary behavior of households, obtaining an equilibrium unemployment level of 6.5%. Increasing risk aversion to more realistic levels increases equilibrium unemployment up to 11.1%. The same increase in risk aversion applied to an economy with more severe firm financing frictions increases unemployment from 7.7% to 21.6%. Finally, we conduct policy experiments and analyze to what extent firing costs and unemployment benefits reduce the impact of this negative externality.
Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions
Andres Fernandez
(Inter American Development Bank)
Adam Gulan
(Bank of Finland)
[View Abstract]
[Download Preview] Countercyclical country interest rates have been shown to be an important characteristic of business cycles in emerging markets. In this paper we provide a microfounded rationale for this pattern by linking interest rate spreads to the dynamics of corporate leverage. For this purpose we embed a financial accelerator into a business cycle model of a small open economy and estimate it on a novel panel dataset for emerging economies that merges macroeconomic and financial data.
The model accounts well for the empirically observed countercyclicality of interest rates and leverage, as well as for other other stylized facts.
Learning Leverage Shocks and the Great Recession
Patrick Pintus
(Aix-Marseille University)
Jacek Suda
(Banque de France)
[View Abstract]
[Download Preview] This paper develops a simple business-cycle model in which financial shocks have large macroeconomic effects when private agents are gradually learning their uncertain environment. When agents update their beliefs about the parameters that govern the unobserved process driving financial shocks to the leverage ratio, the responses of output and other aggregates under adaptive learning are significantly larger than under rational expectations. In our benchmark case calibrated using US data on leverage, debt-to-GDP and land value-to-GDP ratios for 1996Q1-2008Q4, learning amplifies leverage shocks by a factor of about three, relative to rational expectations. When fed with actual leverage innovations observed over that period, the learning model predicts a sizeable recession in 2008-10, while its rational expectations counterpart predicts a counter-factual expansion. In addition, we show that procyclical leverage reinforces the amplification due to learning and, accordingly, that macro-prudential policies enforcing countercyclical leverage dampen the effects of leverage shocks.
Unemployment Fluctuations in a Small Open-Economy Model with Segmented Labour Markets: The Case of Canada
Yahong Zhang
(Bank of Canada)
[View Abstract]
[Download Preview] The recent financial crisis and subsequent recession have spurred great interest in the sources of unemployment fluctuations. Previous studies predominantly assume a single economy-wide labour market, and therefore abstract from differences across sector-specific labour markets in the economy. In Canada, such differences are substantial. From 1991 to 2010, employment in the tradable sector is almost three times as volatile as that in the non-tradable sector, and wages are about twice as volatile. To capture the labour market differences at the sectoral level, I introduce a segmented labour market structure to a medium-scale dynamic stochastic general equilibrium model with financial and labour market frictions and estimate the model using Canadian data from 1991 to 2010. I find that, in the long run, unemployment fluctuations are mainly driven by the shocks to firms' net worth and production technology in the non-tradable sector and the shocks to the foreign interest rate. In the short run, however, it is the shocks to firms' net worth in the tradable sector that account for about 50 per cent of unemployment fluctuations. I also find that inclusion of the recent financial crisis data in the estimation is crucial for assessing the effects of the financial wealth shocks.
A General Equilibrium Model with Banks and Default on Loans
Tamon Takamura
(Bank of Canada)
[View Abstract]
[Download Preview] During the recent financial crisis in the U.S., banks reduced new business lending amidst concerns about borrowers' ability to repay. At the same time, firms facing higher borrowing costs alongside a worsening economic outlook reduced investment. To explain these aggregate business cycle patterns, I develop a model with households, banks and firms. I assume that a bank's ability to raise deposits is constrained by a limited commitment problem and that, furthermore, loans to firms involve default risk. In this environment, changes in loan rates affect the size of the business sector. I explore how banks influence the behavior of households and firms and find that both productivity and financial shocks lead to counter-cyclical default and interest rate spreads. I examine the implications of a government capital injection designed to mitigate the effect of negative productivity and financial shocks in the spirit of the Troubled Asset Relief Program (TARP). I find that the stabilizing effect of such policy interventions hinges on the source of the shock. In particular, a capital injection is less effective against aggregate productivity shocks because easing banks' lending stance only weakly stimulates firms' demand for loans when aggregate productivity falls. In contrast, a capital injection can counteract the adverse effect of financial shocks on the supply of loans. Finally, I measure aggregate productivity and financial shocks to evaluate the role of each in the business cycle. I find that the contribution of aggregate productivity shocks in aggregate output and investment is large until mid-2008. Financial shocks explain 65% of the fall in investment and 55% of the fall in output in the first quarter of 2009.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 103-B
American Economic Association
Financial Frictions, Business Cycles and Investment Dynamics
(E2)
Presiding:
Matthias Kehrig
(University of Texas-Austin)
The Financial Soundness of United States Firms 1926-2011: Financial Frictions and Business Cycles
Andrew Atkeson
(University of California-Los Angeles)
Andrea Eisfeldt
(University of California-Los Angeles)
Pierre-Olivier Weill
(University of California-Los Angeles)
[View Abstract]
We address the role of financial frictions in US business cycles. We argue that firms' "financial soundness" is a useful state variable for measuring the current and historical impact of financial frictions on firms' investment, employment, and financing decisions. We define a measure of "soundness" to be a measure which jointly describes both leverage (how much a firm's assets are worth relative to its liabilities), and risk (how large is this capital cushion relative to the risk of the assets). We develop a new measure of financial soundness which relies only on equity return data, and we examine the history of US firms' financial soundness from 1926 to 2010 using our measure. We find that firms' financial soundness during September and October of 2008 hit a low not seen since the 1930's, supporting chairman Bernanke's view that this recession was different than other modern downturns. Importantly, we show that most of the decline in financial soundness was due to an increase in asset risk, and not to an increase in leverage. This finding has important implications since both traditional models of the impact of financial frictions on the macroeconomy, as well as recent models of intermediary capital, emphasize the role of leverage alone. We argue that a more comprehensive measure of the distance to insolvency which incorporates risk is what matters for managerial decision making. When this distance is low, either because leverage is or volatility is high, the firm's equity cushion is smaller, bankruptcy costs are more likely, debt overhang is more severe, and risk shifting is more likely.
Corporate Investment Over the Business Cycle
Thomas Dangl
(Vienna University of Technology)
Youchang Wu
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] While rm-level capital growth rates exhibit positive spikes, and rise as fast as they fall, the average capital growth rate across rms exhibits negative spikes, and declines faster than it recovers. We develop a dynamic model of investment that reconciles these empirical patterns. The model features costly reversibility, cyclical macroeconomic shocks, and uncertainty about the state of the economy. A firm's optimal capacity is more sensitive to bad signals in good times than to good signals in bad times. The endogenous distribution of rms relative to their optimal capacities leads to sharp decline and slow recovery at the aggregate level.
Multi-Unit Firms and Investment Dynamics
Matthias Kehrig
(University of Texas-Austin)
Nicolas Vincent
(HEC Montreal)
[View Abstract]
[Download Preview] Using confidential Census data on U.S. manufacturing plants, we document that most of the dispersion in investment rates across plants occurs within firms instead of across firms. Between- firm dispersion is almost acyclical, but within-firm dispersion is strongly procyclical. To investigate the role of firms in the allocation of capital in the economy, we build a multi-plant model of the firm with frictions at both levels of aggregation. We show that external financing constraints at the level of the firm can have important implications for plant-level investment dynamics. Finally, we present empirical evidence supporting the predictions of the model.
Uncertainty, Financial Frictions, and Investment Dynamics
Simon Gilchrist
(Boston University)
Jae W. Sim
(Federal Reserve Board)
Egon Zakrajsek
(Federal Reserve Board)
[View Abstract]
This paper analyzes - both empirically and theoretically - how fluctuations in uncertainty interact with financial market imperfections in determining economic outcomes. In a standard bond-contracting framework, an increase in uncertainty benefits equity holders at the expense of bondholders, and to the extent that firms face significant frictions in financial markets, increased uncertainty implies a higher cost of capital and hence a decline in investment. The reduction in credit supply also hampers the efficient reallocation of capital and causes an endogenous decline in total factor productivity (TFP) that amplifies the economic downturn. Using both aggregate time-series and firm-level data, we find strong evidence supporting the notion that financial frictions play a major role in shaping the uncertainty-investment nexus. We then develop a tractable general equilibrium model in which individual firms face time-varying uncertainty and imperfect capital markets when issuing risky bonds and equity to finance investment projects. We calibrate the uncertainty process using micro-level estimates of shocks to the firms' profits and show that the combination of uncertainty shocks and financial frictions can generate fluctuations in economic activity that are observationally equivalent to the TFP-driven business cycles.
Discussants:
Francois Gourio
(Boston University)
Luke Taylor
(University of Pennsylvania)
Liu Yang
(University of Maryland)
Berardino Palazzo
(Boston University)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
Financial Globalization
(G1) (Panel Discussion)
Panel Moderator:
Ernesto Zedillo
(Yale University)
Andrew G. Haldane
(Bank of England)
Hans-Werner Sinn
(Ifo Institute for Economic Research)
Simon Johnson
(Massachusetts Institute of Technology)
Maurice M. Obstfeld
(University of California-Berkeley)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 203-A
American Economic Association
Gender Gaps: Occupations and Family Responsibilities
(J3)
Presiding:
Wayne Grove
(Le Moyne College)
Gender Gaps in Performance: Evidence from Young Lawyers
Rosa Ferrer
(Universitat Pompeu Fabra)
Ghazala Azmat
(Queen Mary, University of London)
[View Abstract]
[Download Preview] This paper documents and studies the gender gap in performance among associate lawyers in the United States. Unlike most high-skilled professions, the legal profession has widely used objective methods to measure and reward lawyers’ productivity: the number of hours billed to clients and the amount of new client revenue generated. We find clear evidence of a gender gap in annual performance with respect to both measures. Male lawyers bill ten-percent more hours and bring in more than twice the new client revenue compared with female lawyers. We demonstrate that the differential impact across genders in the presence of young children and differences in aspirations to become a law-firm partner account for a large share of the difference in performance. These performance gaps have important consequences for gender gaps in earnings. While individual and firm characteristics explain up to 50 percent of the earnings gap, the inclusion of performance measures explains a substantial share of the remainder.
How much of the persistent gender gaps in income and wages are due to unequal family responsibilities?
Nikolay Angelov
(Uppsala University)
Per Johansson
(Uppsala University and IZA)
Erica Lindahl
(Uppsala University)
[View Abstract]
[Download Preview] We compare the income and wage trajectories of women in relation to their male partners before and after parenthood. Focusing on the within-couple gap allows us to control for both observed and unobserved attributes of the spouse and to estimate both short- and long-term effects of entering parenthood. Our main finding is that 15 years after the first child was born, the male-female gender gaps in income and wages have increased with 28 and 10 percentage points, respectively. In line with a collective labor supply model, the magnitude of these effects depends on counterfactual relative incomes or wages within the family, i.e., on the relative earnings trajectory in absence of children.
Family Friendly Occupations and the United States Gender Wage Gap
Michael Coelli
(University of Melbourne)
[View Abstract]
[Download Preview] A consistent finding in US labor market research is that wages are lower in
predominantly female occupations. The roles of a number of specific occupational characteristics that may be of benefit to individuals juggling labor market and child-rearing responsibilities in explaining this relationship are investigated. These occupation level characteristics include the proportion of employees working part-time, the average hours of work among full-time workers and the average commuting time to work. The relationship between average occupation commuting time and wages is examined in detail. These characteristics can explain a significant portion of the lower wages paid in female-dominated occupations.
Dynamics of the Gender Gap in the Workplace: An Econometric Case Study of a Large Japanese Firm
Takao Kato
(Colgate University)
Daiji Kawaguchi
(Hitotsubashi University)
Hideo Owan
(University of Tokyo)
[View Abstract]
This paper provides new evidence on the nature and causes of the gender pay gap using confidential personnel records from a large Japanese chemical manufacturing firm. Controlling only for the human capital variables that are typically included in the Standard wage function results in a substantial gender pay gap-16% for unmarried and 31% for married workers. However, additionally controlling for job level, skill grade, hours worked, and number of dependents almost eliminates the "unexplained" gender pay gap. We estimate various models of promotion rates and additionally find that (i) there is a statistically and economically significant correlation between hours worked and the odds of promotion for women but not for men; (ii) maternity carries a substantial career penalty (up to a 20-30 percentage-point fall in future earnings), especially for college graduate women; and (iii) the maternity penalty can be avoided by promptly returning from parental leave and not reducing work hours after returning. As such, our evidence points to the importance of women's ability to signal their commitment to work (or the level of family support they receive)-through working long hours and taking shorter parental leave-for their career advancement.
Discussants:
Per Johansson
(Uppsala University and IZA)
Ghazala Azmat
(Queen Mary, University of London)
Takao Kato
(Colgate University)
Dora Gicheva
(University of North Carolina-Greensboro)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 305
American Economic Association
Immigration
(J1)
Presiding:
Jeffrey Groen
(US Bureau of Labor Statistics)
Effectiveness of State Immigration Laws on Employment Outcomes of Natives
Sarah Bohn
(Public Policy Institute of California)
Magnus Lofstrom
(Public Policy Institute of California)
Steven Raphael
(University of California-Berkeley)
[View Abstract]
We examine the impact of state level legislations against the hiring of unauthorized immigrants on employment opportunities among low-skilled legal immigrants. Our focus is on the role of E-Verify mandates and specifically test for effects of the 2007 Legal Arizona Workers Act (LAWA) on employment outcomes of low-skilled native and legal immigrants in Arizona. We use the synthetic control method developed by Abadie, Diamond and Hainmueller (2010) to select a group of states against which the employment trends of Arizona can be compared. Preliminary results suggest that along with achieving some of its intended goals, such as reducing the unauthorized population, the Legal Arizona Workers Act does not appear to have improved labor market outcomes of competing legal low-skilled workers.
Immigrants, Social Security, and the Adequacy of Wealth
David Love
(Williams College)
Lucie Schmidt
(Williams College)
Purvi Sevak
(Mathematica Policy Research and Hunter College)
[View Abstract]
Immigrants have much lower levels of annuitized wealth through Social Security than the native born. Consequently, they should be compensating by accumulating more private wealth. In this project we will investigate immigrant-native differentials in annualized comprehensive wealth, a measure of household resources that converts total financial and non-financial assets, plus annuitized assets such as Social Security and defined-benefit pensions, into an expected annual amount of wealth per person in retirement. We will examine how the comprehensive wealth of immigrants compares to that of the native-born, and the extent to which immigrants accumulate greater private wealth to account for lower Social Security benefits. We will also explore spend-down trajectories in retirement to see whether immigrants draw down wealth less quickly to compensate for lower levels of annuitized wealth through Social Security. Finally, we will examine the extent to which common features of a life-cycle model can explain differences in these trajectories.
H-1Bs: How Do They Stack Up to United States Born Workers?
Magnus Lofstrom
(Public Policy Institute of California)
Joseph Hayes
(Public Policy Institute of California)
[View Abstract]
Combining unique individual level H-1B data from U.S. Citizenship and Immigration Services (USCIS) and data from the 2009 American Community Survey, we analyze earnings differences between H-1B visa holders and US born workers in STEM occupations. The data indicate that H-1Bs are younger and more skilled, as measured by education, than US born workers in the same occupations. We fail to find support for the notion that H-1Bs are paid less than observationally similar US born workers; in fact, they appear to have higher earnings in some key STEM occupations, including information technology.
Flight of the H-1B: Estimates of Job Mobility Patterns for Skilled Guest Workers, 2003-2011
Briggs Depew
(Louisiana State University)
Peter Norlander
(University of California-Los Angeles)
Todd Sorensen
(University of California-Riverside)
[View Abstract]
[Download Preview] We offer evidence that the elasticity of supply of labor to firms employing large numbers of skilled workers on visas in the U.S. is finite, although within the range of other estimates. Using a unique dataset of payroll records of workers at six Indian IT firms who worked in the United States from 2003-2011, we are also able to estimate return elasticities for workers' return to India, and for the first time, are able to precisely estimate the relationship between the elasticity and the business cycle because of the fine-grained nature of the data. Adopting a Manning (2003) search frictions model to identify the elasticity of supply to the firm, we estimate potential firm wage-setting power by examining the decision of individual workers to terminate employment. We conclude that wage-setting power fluctuates with the business cycle, and that workers are more likely to return to India in times of high unemployment, but are less likely to separate from employment. We discuss how labor market frictions offer plausible explanations for some of the phenomena seen in the guest worker technology labor market.
Does Past Unauthorized Immigrant Status Result in a Wage Penalty for Legalized Immigrants?
Bilesha Weeraratne
(Princeton University)
Douglas Massey
(Princeton University)
[View Abstract]
[Download Preview] Unauthorized immigrants are an important concern in the current immigration policy agenda. The most recent policy on unauthorized immigrants is the Deferred Deportation Action for Childhood Arrivals (DDA), which protects certain unauthorized immigrants who were brought to the US at a young age, from removal/deportation action, and provides them with authorization for employment for two years and a potential path to citizenship. It is estimated that about 1.7 million unauthorized immigrants will benefit from this initiative. But will these immigrants have to endure lower wages after legalization than a similar immigrant with no history of unauthorized immigrant activity? This question is important to understand the labor market assimilation implications of this new policy directive.
In this context, this study investigates if past unauthorized immigrant status results in a wage penalty for legal permanent residents in the US? The analysis is based on longitudinal data from the New Immigrant Survey (NIS), which contains rare information about prior unauthorized immigrant statuses held by current legal immigrants. The methodology is a Hausman Taylor model and the identification of the model is based on the indicator variable for past unauthorized immigrant status.
This paper contributes to existing literature by focusing on the wage penalty due to past unauthorized immigrants status using recent data that is more applicable in the current context and overcomes the limitations of previous literature by using longitudinal data consisting of both authorized and unauthorized immigrants instead of using two disparate data sources.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 202-B
American Economic Association
Labor Markets
(J0)
Presiding:
Susan Averett
(Lafayette College)
Explaining the Spread of Temporary Jobs and Its Impact on Labour Turnover
Olivier Charlot
(University of Cergy-Pontoise)
Pierre Cahuc
(CREST-ENSAE and Ecole Polytechnique)
Franck Malherbet
(Université de Rouen)
[View Abstract]
[Download Preview] This paper provides a simple model which explains the choice between permanent and temporary jobs. This model, which incorporates important features of actual employment protection legislations neglected by the economic literature so far, reproduces the main stylized facts about entries into permanent and temporary jobs observed in Continental European countries. We show that the stringency of legal constraints on the termination of permanent jobs has a strong positive impact on the turnover of temporary jobs. We also Â…nd that job protection has very small effects on total employment but induces large substitution of temporary jobs for
permanent jobs which signiÂ…cantly reduces aggregate production.
Wages, Applications, and Skills
Ioana Marinescu
(University of Chicago)
Ronald Wolthoff
(University of Toronto)
[View Abstract]
[Download Preview] Do firms that post higher wages attract more and better applicants? Using data from the popular employment website CareerBuilder.com, we document that, indeed, higher wages attract more educated and experienced applicants. Surprisingly, higher wages are associated with fewer applications, and this is robust to controlling for detailed occupation and industry fixed effects. However, within specific job titles, a 10% higher wage is associated with 7.4% more applications. These results are consistent with a directed search model in which skills are two-dimensional and highly job specific. The model has additional testable implications about wages and unemployment across skill levels.
Inherited Trust and Economic Success of Second Generation Immigrants
Martin Ljunge
(Research Institute of Industrial Economics)
[View Abstract]
This paper finds significant private returns from trust. Individuals with high trust earn more. Trust drives more income from earnings and self-employment, increases labor supply, reduces time in unemployment and retirement, and promotes human capital accumulation. Second generation immigrants in a broad set of European countries with ancestry from across the world are examined. Individuals are studied within country using variation in trust across ancestral countries using the epidemiological approach. Importantly, for the purposes of this study, inherited trust is not affected by the economic success of an individual born and residing in a different country. Using this component of individual trust that is not endogenous to the setting in which the individual lives provides a clear direction of causality from trust to economic outcomes.
The ancestral country's level of development and institutions such as corruption, rule of law, and political stability, are accounted for separately and jointly. Not only are the additional ancestral influences insignificant, but the point estimate on inherited trust is virtually unchanged and it remains strongly significant. Parental characteristics and ancestral country beliefs are also accounted for. Taken together, the evidence paints a wide-ranging picture of how trust promotes economic success of individuals. Trust encourages investment in education, more work, less time in retirement and unemployment. These channels promote higher income fueled by more labor earnings and entrepreneurial income. The findings on private returns provide evidence for mechanisms through which trust creates growth beyond social returns from trust. The results suggest policy put more emphasis on promoting trust.
Labor Market Polarization Over the Business Cycle
Christopher L. Foote
(Federal Reserve Bank of Boston)
Richard W. Ryan
(University of Michigan)
[View Abstract]
[Download Preview] During the last few decades, labor markets in advanced economies have become "polarized" as relative labor demand grows for high- and low-skill workers while it declines for middle-skill workers. This paper explores how polarization has interacted with the U.S. business cycle since the late 1970s. Consistent with previous work, the authors find that recessions are strongly synchronized across workers with different skills. Even high-skill workers favored by polarization suffer during recessions; this is particularly true during the last two downturns. Additionally, there is no evidence that polarization is driving the recent drop in the job-finding rate that has caused an adverse shift in the Beveridge curve. With this synchronization in mind, the authors then investigate the labor-market transitions of unemployed workers during recessions. When job-finding rates fall in recessions, middle-skill workers appear no more apt to leave the labor force or take low- or high-skill jobs than they are during booms. All in all, the results imply that current distress in the U.S. labor market extends far beyond middle-skill workers, and that recessions in general do not induce reallocation of middle-skill workers to jobs with better long-term outlooks.
Experience, Skill Composition, and the Persistence of Unemployment Fluctuations
Aspen Gorry
(American Enterprise Institute and University of California-Santa Cruz)
David Munro
(University of California-Santa Cruz)
[View Abstract]
[Download Preview] Standard models are unable to generate the persistence in unemployment fluctuations found in the data. This paper constructs a job search model consistent with age patterns of unemployment outcomes to quantitatively assess potential explanations for persistence. Changes in the composition of workers across experience groups with different unemployment rates generate persistent unemployment fluctuations. This paper also assesses the role a thin market externality in generating persistence as in Pissarides (1992). While the externality adds to the level of persistence, it cannot generate the levels of persistence observed in the data without compositional changes in the distribution of workers across groups.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 201-B
American Economic Association
Macro Development with Micro Data
(O4)
Presiding:
Peter Klenow
(Stanford University)
Macro-Perspectives on Asset Grants Programs: Occupational and Wealth Mobility
Francisco J. Buera
(University of California-Los Angeles)
Joseph P. Kaboski
(University of Notre Dame)
Yongseok Shin
(Washington University-St. Louis)
[View Abstract]
Several developing countries have recently introduced poverty programs targeting asset grants and occupational training towards the poorest of the poor. The hope is to increase income, occupational mobility, and asset accumulation. Recent microevaluations (e.g. Bandiera et al., 2013; Banerjee et al., 2011; Morduch et al., 2011) have uncovered both success and failure along these dimensions, depending on the country studied. We use a quantitative macroeconomic theory calibrated to micro data from the countries in these studies to interpret the heterogeneous results, and to analyze predictions for the longer term and potential general equilibrium impacts of such programs.
Agricultural Productivity Differences Across Countries
Douglas Gollin
(Oxford University)
David Lagakos
(University of California-San Diego)
Michael E. Waugh
(New York University)
[View Abstract]
[Download Preview] Recent studies argue that cross-country labor productivity differences are much larger in agriculture than in the aggregate non-agriculture sector. A concern over these calculations is the possibility that the data are contaminated by measurement problems including, for example, the price data used to create national accounts aggregates. In this paper we re-examine the agricultural productivity data using new international evidence from disaggregate micro sources. We find that for the world's staple grains -- maize, rice and wheat -- the quantity of output per unit of land reported in aggregate data sources is largely consistent with micro evidence. We find a similar consistency between aggregate and micro sources for the quantity of land per worker in agriculture. Putting these together, we conclude that differences in agricultural output per worker across countries are indeed enormous, at least for staple grains.
Modeling and Measuring Motives for Saving: Early Experimental Evidence from Uganda
Joseph P. Kaboski
(University of Notre Dame)
Molly Lipscomb
(University of Virginia)
Virgiliu Midrigan
(New York University)
[View Abstract]
[Download Preview] The reasons for household saving in developing countries are crucial for the aggregate consequences of increasing access to credit: precautionary saving models imply only transient increases in the level and ability to smooth consumption, while models with entrepreneurial self-financing motives imply longer run positive impacts. The different models of micro behavior imply different household responses to the exogenous introduction of formal savings accounts, asset-financing lines of credit, and cash lines of credit in terms of consumption, investment, take up and, of course, saving. The proposed paper will present preliminary evidence from the 400 household pilot portion of a field experiment project in Uganda.
Discussants:
Dean Karlan
(Yale University)
Diego Restuccia
(University of Toronto)
Pascaline Dupas
(Stanford University)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon B
American Economic Association
Marriage, Divorce, and Female Labor Force Participation
(D1)
Presiding:
Richard Blundell
(University College London)
Why Marriage Became Unstable: A Quantitative Analysis
Raquel Fernandez
(New York University)
Joyce Cheng Wong
(International Monetary Fund)
TBA
Marry Your Like: Assortative Mating and Income Inequality
Jeremy Greenwood
(University of Pennsylvania)
Nezih Guner
(Univeristat Autonoma de Barcelona)
Georgi Kocharkov
(University of Konstanz)
Cezar Santos
(University of Mannheim)
TBA
Labor Supply, Wealth Dynamics, and Marriage Decisions
Maurizio Mazzocco
(University of California-Los Angeles)
Claudia Ruiz
(World Bank)
Shintaro Yamaguchi
(McMaster University)
[View Abstract]
Using the Panel Study of Income Dynamics (PSID), we provide evidence that labor supply, household production, and marital decisions are linked. We then develop and estimate a model that has the ability to generate the patterns observed in the data. Using the estimated model we first show that it is important to consider the link between labor supply, household production, and marriage choices to understand household behavior and its response to policy changes. We then use the model to evaluate the effect of the Earned Income Tax Credit (EITC) and other subsidy programs on individual decisions.
Discussants:
Richard Blundell
(University College London)
Aloysius Siow
(University of Toronto)
Alessandra Voena
(University of Chicago)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 204-B
American Economic Association
Measurement and Impacts of Uncertainty
(D8)
Presiding:
Nicholas Bloom
(Stanford University)
Measuring Economic Policy Uncertainty
Scott R. Baker
(Stanford University)
Nicholas Bloom
(Stanford University, Centre for Economic Performance and NBER)
Steven J. Davis
(University of Chicago, NBER and American Enterprise Institute)
[View Abstract]
[Download Preview] We develop a new index of economic policy uncertainty (EPU) based on a range of indicators, including the frequency of newspaper references to policy uncertainty. Our index spikes near tight presidential elections, after the Gulf wars, the 9/11 attack, the Lehman bankruptcy, and during the 2011 debt ceiling debate. Several pieces of evidence – including a human audit of 5,000 newspaper articles – indicate that our EPU index offers a good proxy for movements in policy-related economic uncertainty over time. Using micro data, we investigate the effects of EPU on investment and hiring, finding negative effects for firms heavily exposed to government contracts. At the macro level, positive innovations in our EPU index foreshadow declines in investment, output and employment in VAR models. Extending our measurement efforts back to 1900, we find that EPU rose dramatically in the Great Depression, but only from 1932 onwards when Hoover and then Roosevelt initiated a period of intense policy activism. We also find a secular rise in policy uncertainty since the 1960s, coincident with government fiscal and regulatory expansion.
Volatility and Pass-Through
David Berger
(Northwestern University)
Joseph Vavra
(University of Chicago)
[View Abstract]
Time-variation in microdata matters empirically for aggregate dynamics: using confidential BLS data we document a robust positive relationship between aggregate exchange rate pass-through and the dispersion of item-level price changes. Furthermore, we find large time-variation in microeconomic dispersion. Ignoring this variation causes huge, time-varying bias when estimating pass-through. For example, constant pass-through specifications are overstated by 50 percent during the mid-1990s and understated by 200 percent during the 2008 trade-collapse. This purely empirical result arises naturally if items differ in their "responsiveness" to cost shocks. More responsive items should have greater price change dispersion and pass-through. We formally estimate price-setting models with alternative forms of heterogeneity and show only heterogeneous responsiveness explains our results. Interestingly, our evidence does not support "uncertainty" shocks as an explanation for countercyclical dispersion but does suggest promising alternatives.
Trade Collapse and Policy Uncertainty in the Great Recession
Jeronimo Carballo
(University of Maryland)
Kyle Handley
(University of Michigan)
Nuno Limao
(University of Maryland)
[View Abstract]
[Download Preview] The 2008 crisis and economic downturn triggered the largest worldwide trade contraction since WWII. Standard models are unable to fully account for either the depth of this "great trade collapse" or its relatively fast reversal. The crisis also generated widespread fear of a global trade war. We examine if the resulting change in policy uncertainty initially deepened the collapse and then helped reverse it, when the worst fears of protection were not realized. To do so, we provide the first anatomy of the dynamics of U.S. exports at the firm level before, during and after the collapse. Among other things we find that about 40% of the drop in U.S. export value during the collapse is due to a net exit of firms from trading. We then develop a dynamic model with sunk costs of entry into foreign markets where heterogeneous firms face demand uncertainty arising from foreign policy and economic conditions. We construct measures of demand uncertainty that vary over time, countries and industries to estimate their impact on U.S. firms' export entry and exit decisions. Uncertainty had a significant impact on the magnitude of the collapse of U.S. exports and the subsequent uncertainty reduction contributed to the fast recovery. These effects were strongest for goods where the importer had higher market power and no free trade agreement with the U.S., which provides evidence for the role of institutions such as trade agreements in mitigating the impact of policy uncertainty.
Measuring Uncertainty
Kyle Jurado
(Columbia University)
Sydney C. Ludvigson
(New York University and NBER)
Serena Ng
(Columbia University)
[View Abstract]
[Download Preview] This paper exploits a data rich environment to
provide direct econometric estimates of time-varying macro uncertainty,
defined as the common variation in the unforecastable component of a large
number of economic indicators. Our estimates display significant independent
variations from popular uncertainty proxies, suggesting that much of their
variation is not driven by uncertainty. Quantitatively important uncertainty
episodes appear far more infrequently than indicated by popular uncertainty
proxies, but when they do occur, they have larger and more persistent
correlations with real activity. Our estimates provide a benchmark to
evaluate theories for which uncertainty shocks play a role in business
cycles.
The Effect of Uncertainty on Investment, Hiring, and R&D: Causal Evidence from Equity Options
Luke C.D. Stein
(Arizona State University)
Charles C.Y. Wang
(Harvard Business School)
[View Abstract]
[Download Preview] There is wide debate over the impact of uncertainty on firm behavior, due to the difficulty both of measuring uncertainty and of identifying causality. This paper takes three steps that attempt to address these challenges. First, we develop an instrumental variables strategy that exploits firms’ differential exposure to energy and currency prices and volatility. For example, airlines are negatively affected by high oil prices while oil refiners benefit from them, but both are sensitive to oil price volatility; retailers, in comparison, are not particularly sensitive to either the level or volatility of oil prices. Second, we use the expected volatility of stock prices as implied by equity options to obtain forward-looking measures of uncertainty over firms’ business conditions. Finally, we examine how uncertainty affects a range of outcomes: capital investment, hiring, research and development, and advertising. We find that uncertainty depresses capital investment, hiring, and advertising, but encourages R&D spending. This perhaps-surprising result for R&D is consistent with a theoretical literature emphasizing that long investment lags create valuable real put options which offset the effects of call options lost when projects are started. Aggregating across our panel of Compustat firms, we find that rising uncertainty accounts for roughly a third of the fall in capital investment and hiring that occurred in 2008–10.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 103-C
American Economic Association
Measuring and Incentivizing Teacher Performance
(I2)
Presiding:
Scott Imberman
(Michigan State University)
The Effect of Incentive Award Receipt on Teacher Performance
Scott Andrew Imberman
(Michigan State University)
Michael F. Lovenheim
(Cornell University)
[View Abstract]
Using administrative data on 3rd through 8th grade teachers from the Houston Independent School District (HISD), we examine how teacher performance responds to the receipt of cash payments for high value-added scores. The system is structured as a series of rank-order tournaments, with teachers needing to exceed certain thresholds to receive the award. This setup permits a regression discontinuity design to estimate the impact of winning an award on teachers' future value-added. We find significant improvements for teachers that exceed the high (top quartile) award threshold but no impact on the low (median) threshold, although teachers who did not win an award in a subject the prior year are positively affected by the median award. The top quartile effects also decrease with experience: we find large effects for teachers with less than 6 years of experience but no impact for those with more than 12. Finally, teachers who win the top award respond positively to both the award itself and its monetary value. Overall, our estimates suggest there are sizable impacts of award receipt on future performance that is most evident for those teachers winning the most exclusive award.
Sending Value-Added into Tailspin: A Study of Measurement Error and Nonrandom Sorting
Cassandra Guarino
(Indiana University)
Eun Hye Ham
(Michigan State University)
Mark D. Reckase
(Michigan State University)
Brian Stacy
(Michigan State University)
Jeffrey M. Wooldridge
(Michigan State University)
[View Abstract]
[Download Preview] As a result of federal efforts to hold individual teachers accountable for student learning based on their students' test results, the use of value-added models of teacher performance as a component of teacher evaluation has been spreading rapidly. Work by Kane and Staiger (2008) and Chetty, Friedman, and Rockoff (2011) has, to some degree, assuaged fears about bias in these models. Given the pressures of accountability systems, policymakers have forged ahead in implementing and attaching stakes to test-based measures. Using them to reward teachers at the top and sanction those at the bottom seems a relatively attainable goal.
However, the question of whether we can "get the tails of the distribution right" has not been adequately resolved. Studies of the intertemporal correlations of value-added for individual teachers suggest a fair amount of fluctuation from year to year with regard to who falls in the bottom or top ten or twenty percent (e.g., Newton et al., 2010; Aaronson, Barrow & Sander, 2007). Moreover, the intertemporal stability of value-added measures may vary according to the types of students teachers serve (Stacy et al., draft).
The issue of measurement error in student test scores and its link to imprecision in teacher value-added has not been adequately explored. Our study sounds a warning note that identifying teachers at the top and bottom of the scale may be less straightforward than previously thought.
We produce simulation evidence on the performance of various value-added estimators in the presence and absence of measurement error and show that under certain conditions measurement error can induce a visible bias in estimation. Included in the set of estimators that we consider are estimators that explicitly "correct" for this problem. In fact, these correction techniques may exacerbate rather than mitigate the problem of diagnosing teachers in the tails of the distribution.
Identifying Effective Teachers during the Hiring Process
Brian Jacob
(University of Michigan)
Benjamin Lindy
(Teach for America)
Jonah Rockoff
(Columbia University)
[View Abstract]
We study the relationship between a host of non-traditional teacher characteristics collected during a typical hiring process in the District of Columbia Public Schools (DCPS) and subsequent teacher effectiveness in raising student achievement. In 2010-11, the DCPS developed a new teacher selection system. Roughly 2,500 individuals applied in Spring 2011, 500 of which the district plans to hire.
In addition to providing standard information such as educational background, credentials, prior experience, and teacher exam scores, all applicants were required to complete a test of content knowledge for teaching, Haberman Star Teacher Pre-Screener, and an essay about how they would respond to common teaching scenarios. Most candidates also participate in face-to-face interviews and "auditioned" in front of actual DC classrooms during the Spring. Other districts have started to experiment with teacher selection systems similar to the one developed by DCPS. For example, the New York City, Atlanta and Chicago public schools require candidates to respond to essays that are similar to those asked by DCPS while Houston has used the Haberman Star Teacher Pre-Screener in the past, and Chicago has developed a customized online "fit" assessment.
Following the approach taken by the authors in prior work (Rockoff et al. 2011), we regress teacher outcomes on the set of teacher characteristics and control variables. We examine how predictive these characteristics are of teacher absences, classroom observation scores and final evaluation ratings for all teachers, along with value-added measures for the subset of teachers in tested grades and subjects. Our findings will provide useful information to school districts across the country that will help them identify teachers who are likely to be effective during the hiring process.
When Incentives Matter Too Much: Explaining Significant Responses to Irrelevant Information
Thomas Ahn
(University of Kentucky)
Jacob L. Vigdor
(Duke University)
[View Abstract]
[Download Preview] When economic agents have access to both a continuous variable and a discrete signal based on that variable, theory suggests that the signal should have no bearing on behavior conditional on the variable itself. Numerous empirical studies, many based on the regression discontinuity design, have contradicted this basic prediction. We examine one such scenario, involving the educational accountability system implemented in North Carolina public schools until 2009. Results are consistent with a model of learning and imperfect information. Importantly, seemingly irrational responses are least common in schools led by highly experienced principals.
Discussants:
Cory Koedel
(University of Missouri)
Kirabo Jackson
(Northwestern University)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 107-B
American Economic Association
Racial Disparities
(J1)
Presiding:
Kevin Lang
(Boston University)
Isolating Mechanisms for the Racial Divide in Education and the Labor Market:Evidence from Interracial Families
Peter Arcidiacono
(Duke University)
Andrew Beauchamp
(Boston College)
Marie Hull
(Duke University)
Seth Sanders
(Duke University)
[View Abstract]
[Download Preview] Differences between blacks and whites in test scores and labor market outcomes are stark. While much catch-up occurred following the Civil-rights era, convergence has slowed. We examine how outcome gaps change when controlling for a large set of covariates, including maternal race. Identification comes from families where the race of the mother di ffers from the race of the child. Including a set of explanatory variables leaves no significant outcome gaps for black and Hispanic boys and maternal race is the most important variable in explaining outcome gaps. The estimates show two distinct patterns. First, there are no significant differences in test scores, grades, college graduation, and wages between black and white males with white mothers.
Second, large differences persist between these groups and black males with black mothers. The patterns hold despite black students with white mothers coming from families with significantly worse demographics than white students. The patterns are insensitive to alternative measures of own-race, using skin tone instead of own race, and including school fixed effects. Our results suggest that discrimination is not occurring based on skin color itself but through other channels such as language or access to resources.
Racial and Ethnic Infant Mortality Gaps and the Role of SES
Todd Elder
(Michigan State University)
John Goddeeris
(Michigan State University)
Steven Haider
(Michigan State University)
[View Abstract]
[Download Preview] We assess the extent to which socioeconomic status (SES) gaps are associated with race and ethnic gaps in a fundamental measure of population health: the rate at which infants die. Using micro-level Vital Statistics data from 2000 to 2004, we examine how gaps with non-Hispanic whites in the infant mortality rate (IMR) and its subcomponents are associated with background characteristics. We find important differences across groups. Among high-IMR groups, the black and Puerto Rican, but not the Native American, gaps largely reflected disadvantageous birth weight distributions. Moreover, the Native America, but not the black and Puerto Rican, IMR gap was largely predicted by background characteristics. As found in previous studies, the Mexican IMR is much lower than would be expected given their background characteristics. Despite these differences, we find that the gaps have much in common. The same three background characteristics are associated with much of the mortality gaps across groups: maternal marital status, education, and age. Moreover, across all groups, gaps in conditional neonatal mortality are quite small, and gaps in conditional post-neonatal mortality tend to be predictable.
We then provide several additional analyses to shed light on the potential link of the mortality gaps to (SES). The low Mexican IMR can be predicted by a common finding among many groups: foreign-born mothers experience low IMRs. Using Census Data, we also show that the three characteristics that predict much of the differences between groups (maternal marital status, education and age) are each strongly related to income and poverty. For example, if whites had the distribution of these three characteristics found among high-mortality groups, the mortality gap would decline by about 1.9 in each case. This estimate represents asubstantial fraction of the white IMR (5.4).
Power to Bias? The Effect of Attorney Empowerment in Voir Dire on Jury Prejudice and Race
Jee-Yeon K. Lehmann
(University of Houston)
Jeremy Blair Smith
(Analysis Group)
[View Abstract]
[Download Preview] We assess the impact of granting attorneys greater freedom in the jury selection (voir dire) process on the predispositions and race of the seated jurors. Giving attorneys more power in the voir dire process may allow them to 1) more easily dismiss jurors whom they wish to strike on a priori grounds; 2) acquire information that enables them to identify favorably-inclined jurors more precisely; or both. Attorneys who are more skilled can better leverage their increased power to retain the jurors they prefer. We show theoretically that, since defense attorneys tend to prefer non-white jurors a priori, the interaction of empowerment and defense attorney skill should produce juries with a greater proportion of non-whites if only the first mechanism is operative, but need not have this effect if the second is operative. We find empirically that skilled and empowered attorneys can indeed stack juries by retaining jurors predisposed to their side at a greater rate. However, we find that empowerment and skill have small and insignificant impacts on the racial composition of the seated jury. In the context of our model, this result implies that, for at least some of the trials in our dataset, attorneys leveraged empowerment in voir dire to learn more about potential jurors, rather than simply to strike more effectively by relying on racial stereotypes. Our findings provide strong evidence that extensive voir dire involving attorneys can lead to the seating of biased juries when opposing counsels are unequally skilled, yet the presence of this bias may not be detected in the observable characteristics of seated juries.
The Black-White Education-Scaled Test-Score Gap in Grades K-7
Timothy N. Bond
(Purdue University)
Kevin Lang
(Boston University)
[View Abstract]
[Download Preview] In this paper, we seek to address the problem of measuring the black-white test gap given that test scores are reported with ordinal, rather than interval scales. We address this ordinality by rescaling test scores to match the average eventual educational attainment of students with a given test score in a given grade. We show that measurement error in test scores causes this approach to underestimate the black-white test score gap and use an instrumental variables procedure to adjust the gap. Without accounting for measurement error, the test gap in the Peabody Individual Achievements Tests in the Children of the National Longitudinal Survey of Youth grows rapidly in the early school years, particularly in reading, under this scale. However after correcting for the measurement error, the education-scaled gap is large, exceeds the actual black-white education gap and is roughly constant. Based on their performance on a kindergarten reading test, but without correcting for measurement error, blacks are expected to complete .2 years less of schooling than whites. This gap rises to .58 years by second grade. After applying our correction the gap remains constant from kindergarten through seventh grade at around .7 years of education. The gap is slightly larger but still constant when considering math scores in addition to reading. Looking at the gap in terms of the mean log income associated with years of education, this skills difference predicts blacks will earn 10% less than whites due to lower future educational attainment. Strikingly, the gap in all grades is fully explained by a small number of measures of socioeconomic background. We discuss the interpretation of scales tied to adult outcomes.
Discussants:
Lisa B Kahn
(Yale University)
Johannes Schmieder
(Boston University)
Patrick Bayer
(Duke University)
Flavio Cunha
(University of Pennsylvania)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 202-A
American Economic Association
Taxation
(H2)
Presiding:
Sara LaLumia
(Williams College)
Women at work: the impact of welfare and fiscal policies in a dynamic labor supply model
Martino Tasso
(Bank of Italy)
Maria Rosaria Marino
(Bank of Italy)
Marzia Romanelli
(Bank of Italy)
[View Abstract]
[Download Preview] We build and estimate a structural dynamic life-cycle model of household labor-supply, saving, fertility and consumption behavior. The model features several sources of heterogeneity in the characteristics of the household members and it incorporates most of the fiscal rules which have an effect on the net incomes of the agents. The parameters of the model are estimated using Italian cross-sectional and longitudinal data for the 2004-2010 period,
in order to shed a light on the causes of the low labor force participation rate among married women in this country. We use the estimated model to simulate a few counterfactual fiscal and welfare policies
Who Participates in Tax Avoidance?
Annette Alstadsæter
(University of Oslo)
Martin Jacob
(WHU-Otto Beisheim School of Management)
[View Abstract]
[Download Preview] Recent empirical studies suggest that there is substantial heterogeneity in the uptake of incentives to participate in tax avoidance strategies across individuals. Both access to evasion and potential punishment upon detection explain why not everyone evades taxes (Kleven, Knudsen, Kreiner, Pedersen, and Saez, 2011). Yet, these explanations do not necessarily hold for legal tax avoidance that carries no risk of penalty. Still, very little is known about whether participation in illegal tax evasion and legal tax avoidance are driven by the same factors. A question stands as to why not all individuals participate in legal tax avoidance.
Three conditions are required for a taxpayer to participate in legal tax avoidance. We categorize these conditions as incentive, access, and awareness. First, the taxpayer must have an incentive to participate in tax avoidance. That is, the tax benefit from tax avoidance must outweigh its costs. Second, the taxpayer needs access to tax-minimizing strategies. For example, employees generally have less opportunity to shift income across tax bases than owner-managers of closely held corporations. Finally, the taxpayer must have awareness of the tax code, of the incentive to minimize taxes, and of the opportunities available to do so.
Using rich Swedish administrative panel data with a unique link between corporate and individual tax returns, we analyze individual participation in legal tax planning around the 2006 Swedish tax reform. Our results suggest that closely held corporations are utilized to facilitate income shifting across tax bases to reduce the individual's overall tax burden. We find that both tax incentives and awareness of tax incentives impact the decision to access income-shifting opportunities. Our results show that factors explaining participation in legal tax avoidance substantially differ from those explaining participation in illegal tax evasion.
Optimal Taxation of Junk Food
Harry Tsang
(University of North Dakota)
Firouz Gahvari
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] This paper uses the Quadratic Almost Ideal Demand System (Quaids) model of Banks, Blundell, and Lewbel to 1) estimate a household demand model for food and 2) analyze how incorporating health considerations affects the optimal design of taxes on food consumption. Standard economic theory argues that consumer preferences are sovereign. However research on nutrition education finds that nutrition knowledge is not sufficiently widespread. Moreover, nutrition knowledge is correlated with education levels. Therefore government policies to promote a healthy diet are motivated by the notion of paternalism. Data on household consumption is from the Diary Survey component of the Consumer Expenditure Survey. The demand model is estimated separately for high-educated households and low-educated households. The optimal tax regime is calculated twice to examine how health considerations affect the design of taxes. The preferences of all households are respected in the first set of tax calculations. The tax regime is only concerned with optimal tax considerations. However the second set of tax calculations only respects the preferences of high-educated households. The tax regime is now also motivated by health considerations.
Can Small Incentives Have Large Effects? The Impact of Taxes versus Bonuses on Disposable Bag Use
Tatiana Alexandra Homonoff
(Princeton University)
[View Abstract]
[Download Preview] Financial incentives are an important policy tool for encouraging prosocial behavior. However, evidence on the effect of very small financial incentives is mixed. Drawing on an original data set, I investigate the effect of a five-cent shopping bag tax imposed in the Washington Metropolitan Area. Despite the small size of the incentive, I find that the tax decreased the fraction of customers using a disposable bag by a substantial amount. In contrast, a similar policy that offered customers a five-cent bonus for reusable bag use generated virtually no effect on behavior. This pattern is consistent with a model of loss aversion and underscores the importance of the form a financial incentive takes -- a tax versus a bonus -- when designing policies aimed at shaping consumer behavior.
A Boost in the Paycheck: Survey Evidence on Workers' Response to the 2011 Payroll Tax Cuts
Grant Graziani
(NBER)
Wilbert van der Klaauw
(Federal Reserve Bank of New York)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] This paper presents new survey evidence on workers' response to the 2011 payroll tax cuts. While workers intended to spend 10-18 percent of their tax cut income, they reported actually spending 28-43 percent of the funds. This is higher than estimates from studies of recent tax cuts, and arguably a consequence of the design of the 2011 tax cut. The shift to greater consumption than intended is largely unexplained by present-bias or unanticipated shocks, and is likely a consequence of mental accounting. We also use data from a complementary survey to understand the heterogeneous tax cut response.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 201-C
American Economic Association
The Impact of Health Insurance Expansions on Other Social Safety Net Programs
(H5)
Presiding:
Amy Finkelstein
(Massachusetts Institute of Technology)
The Impact of Medicaid on Labor Force Activity and Program Participation: Evidence from the Oregon Health Insurance Experiment
Katherine Baicker
(Harvard University)
Amy N. Finkelstein
(Massachusetts Institute of Technology)
Sarah L. Taubman
(NBER)
Jae Song
(Social Security Administration)
[View Abstract]
[Download Preview] In 2008, a group of uninsured low-income adults in Oregon was selected by lottery for the chance to apply for Medicaid. Using this randomized design and 2009 administrative data, we find no significant effect of Medicaid on employment or earnings. Our 95 percent confidence intervals allow us to reject that Medicaid causes a decline in employment of more than 4.4 percentage points, or an increase of more than 1.2 percentage points. Medicaid increases food stamps receipt, but has little, if any, impact on receipt of other measured government benefits, including SSDI.
Disability Insurance and Healthcare Reform: Evidence from Massachusetts
Nicole Maestas
(RAND)
Kathleen Mullen
(RAND)
Alexander Strand
(Social Security Administration)
[View Abstract]
[Download Preview] As health insurance becomes available outside of the employment relationship as a result of the Affordable Care Act (ACA), the cost of applying for Social Security Disability Insurance (SSDI)—potentially going without health insurance coverage during a waiting period totaling 29 months from disability onset—will decline for many people with employer-sponsored health insurance. At the same time, the value of SSDI and Supplemental Security Income (SSI) participation will decline for individuals who otherwise lacked access to health insurance. We study the 2006 Massachusetts healthcare reform to estimate the potential effects of the ACA on SSDI and SSI applications.
The Impact of Supplemental Rehabilitation Services on the Labor Market Activity of SSDI Beneficiaries
Robert Weathers
(Social Security Administration)
Michelle Stegman
(Social Security Administration)
[View Abstract]
We use data from a social experiment to estimate the impact of supplemental rehabilitation services provided to newly entitled Social Security Disability Insurance (SSDI) beneficiaries on their labor market activity and earnings.
Discussants:
David H. Autor
(Massachusetts Institute of Technology)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 203-B
American Economic Association
Trade and Firm Dynamics
(F1)
Presiding:
Joel Rodrigue
(Vanderbilt University)
Dynamic Selection and the New Gains from Trade with Heterogeneous Firms
Thomas Sampson
(London School of Economics)
[View Abstract]
[Download Preview] This paper develops an open economy growth model in which firm heterogeneity increases the gains from trade. Technology spillovers from incumbent firms to entrants cause the productivity threshold for firm survival to grow over time as competition becomes tougher. By raising the profits of exporters, trade increases the entry rate and generates a dynamic selection effect that leads to higher growth. The gains from trade can be decomposed into: static gains that equal the total gains from trade in an economy without technology spillovers, and; dynamic gains that are strictly positive. Since trade raises growth through selection, not scale effects, the positive growth effect of trade vanishes when firms are homogeneous. Thus, firm heterogeneity creates a new source of dynamic gains from trade. Calibrating the model using U.S. data implies that dynamic selection approximately triples the gains from trade.
When Foreign Rivals are Coming to Town: Firm Responses to Multinational Investment News
Cathy Ge Bao
(George Washington University)
Maggie Chen
(George Washington University)
[View Abstract]
[Download Preview] How do domestic firms respond to the threat of foreign competition? This paper constructs a unique database of foreign investment news in 2001-2007 based on over 35,000 newspapers, trade press, magazines, newswires, and other forms of media in 200 countries and investigates the responses of domestic firms to the threat of new multinational investment. The analysis shows that domestic firms respond significantly to foreign investment news by increasing productivity, R&D, labor training, patent applications, product diversification, and advertising expense. The degree of response increases with the size of threats, the influence of news, and the amount of information on the credibility and the target market of investments. Further, the response exhibits substantial heterogeneity across domestic firms, observed primarily at the left and right tails of the productivity distribution, and top global competitors identified by investing multinationals respond only with greater local advertising effort. Across industries, firms are found to increase innovation in the presence of downstream FDI news. The main findings are robust to placebo tests and IV analysis that explore detailed characteristics---such as the timing and location, the primary market, and the substance---of each news.
Firm Size Distortions and the Productivity Distribution: Evidence from France
Luis Garicano
(London School of Economics)
Claire LeLarge
(INSEE and CREST)
John Van Reenen
(London School of Economics and NBER)
[View Abstract]
[Download Preview] We show how size-contingent laws can be used to identify the equilibrium and welfare effects of labor regulation. Our framework incorporates such regulations into the Lucas (1978) model and applies this to France where many labor laws start to bind on firms with exactly 50 or more employees. Using data on the population of firms between 2002 and 2007 period, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. With flexible wages, the deadweight loss of the regulation is below 1% of GDP, but when wages are downwardly rigid welfare losses exceed 5%. We also show, regardless of wage flexibility, that the main losers from the regulation are workers (and to a lesser extent large firms) and the main winners are small firms.
Deregulation, Misallocation, and Size: Evidence from India
Laura Alfaro
(Harvard Business School & NBER)
Anusha Chari
(University of North Carolina-Chapel Hill & NBER)
[View Abstract]
[Download Preview] This paper examines the impact of the deregulation of compulsory industrial licensing in India on firm-size dynamics and the reallocation of resources within industries over time. Following deregulation, we find that the extent of resource misallocation declines and a considerable thickening of the left-hand tail of the firm-size distribution suggesting a significant increase in the number of small firms. However, the dominance and growth of large incumbents remains unchallenged. Quantile regressions reveal that the distributional effects of deregulation on firm size are significantly non-linear. The size distribution we observe -- namely, a large number of small firms and a small number of large firms-can be characterized as the "missing middle" in Indian manufacturing and suggests that small firms may continue to face constraints in their attempts to grow.
Firm-Level Comparative Advantage
Federico Trionfetti
(Aix-Marseille University)
Matthieu Crozet
(Paris School of Economics-Paris I and CEPII)
[View Abstract]
[Download Preview] We build a HO model with firm heterogeneity in factor intensity. The key variables are the relative factor intensity (the factor intensity of a firm relative to the factor intensity of the average firm) and the relative marginal cost (the marginal cost of a firm relative to the marginal cost of the average firm). A firm is intensive in a factor if it makes a more intensive use of this factor than the average firm of the same industry and country. Consider any two firms with identical relative factor intensity, but belonging to different countries and industries. The firm that is intensive in the factor intensively used in its industry and of which its country is relatively well-endowed has a comparative cost advantage (lower relative marginal cost) over the other firm. For example, for any two firms whose capital intensity is, say, one percent above (below) the respective country-industry average, the relative marginal cost of the firm in the capital-intensive industry of the capital abundant country is lower (higher) than that of the other firm. Because of the comparative advantage, the firm will also have higher relative sales. The statement above is the natural generalization of the HO theorem to an environment with heterogeneous firms. In the HO theorem, the comparative advantage of countries gives rise to differences in the relative size of industry output (international specialization). In the statement above, the comparative advantage of firms gives rise to differences in the relative size of firm output (relative sales). Our empirical analysis, conducted using data for a large panel of European firms, supports this prediction. These theoretical and empirical results provide a novel approach to the verification of the Heckscher-Ohlin theory and new evidence on its validity.
Jan 04, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon F
American Economic Association
Understanding Economic and Financial Crises
(E6)
Presiding:
Henning Bohn
(University of California-Santa Barbara)
Crunch Time: Fiscal Crises and the Role of Monetary Policy
David Greenlaw
(Morgan Stanley)
James D. Hamilton
(University of California-San Diego)
Peter Hooper
(Deutsche Bank)
Frederic S. Mishkin
(Columbia University)
[View Abstract]
[Download Preview] Countries with high debt loads are vulnerable to an adverse feedback loop in which doubts by lenders lead to higher sovereign interest rates which in turn make the debt problems more severe. We analyze the recent experience of advanced economies using both econometric methods and case studies and conclude that countries with debt above 80% of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics. Such feedback is left out of current long-term U.S. budget projections and could make it much more difficult for the U.S. to maintain a sustainable budget course. A potential fiscal crunch also puts fundamental limits on what monetary policy is able to achieve. In simulations of the Federal Reserve's balance sheet, we find that under our baseline assumptions, in 2017-18 the Fed will be running sizable income losses on its portfolio net of operating and other expenses and therefore for a time will be unable to make remittances to the U.S. Treasury. Under alternative scenarios that allow for an emergence of fiscal concerns, the Fed's net losses would be more substantial.
Can the United States inflate away its fiscal problems?
Jens Hilscher
(Brandeis University)
Alon Raviv
(Brandeis University)
Ricardo Reis
(Columbia University)
[View Abstract]
We present a method for measuring by how much can higher inflation loosen the intertemporal budget constraint of the government. We start by theoretically characterizing the main channels through which inflation can lower the fiscal burden, and how they depend on whether the change in inflation is temporary or permanent, expected or unexpected, likely or unlikely. Empirically, we use data on inflation options to extract risk neutral measures for inflation at different horizons, and we combine these with detailed data on private holdings of government debt and seignorage revenues over time. Combining theory and evidence, we conclude that it is unlikely that inflation over the next decade will alleviate the U.S. fiscal burden significantly, unlike what happened after World War II.
Half a Decade After Subprime: Recession and Recovery Revisited
Carmen M. Reinhart
(Harvard University)
Kenneth Rogoff
(Harvard University)
[View Abstract]
[Download Preview] We examine the evolution of real per capita GDP around 100 systemic banking crises. Part of the costs of these crises owes to the protracted nature of recovery. On average, it takes about eight years to reach the pre-crisis level of income; the median is more than six years. Five to six years after the onset of crisis, only Germany and the US (out of 12 systemic cases) have reached their 2007-2008 peak in real income. Forty three percent of the 100 episodes recorded double dips. Post-war business cycles are not the relevant comparator for the recent crises in advanced economies.
In Defense of Early Warning Signals
Matthieu Bussiere
(Banque de France)
[View Abstract]
The 2008 financial crisis has rekindled interest in the issue of early warning signals (EWS) of financial distress. It has also triggered renewed interest in the literature on currency crises, with many countries, especially among emerging market economies, experiencing severe exchange market pressure. While several policy institutions are in the process of developing new early warning systems, there is a lot of skepticism on the ability to predict currency crises or, more generally, any type of financial crises. This skepticism stems from the alleged poor out-of-sample performance of leading models, but also from a more fundamental objection, according to which it is by definition impossible to predict crises - what can be referred to as a new "impossibility theorem". Moreover, another criticism of early warning systems is that they may contribute to the phenomenon they are supposed to fight (the self-fulfilling prophecies view). The objective of this paper is to challenge this skeptical view. To this aim, the paper discusses the general conditions under which the "impossibility theorem" may fail and self-fulfilling prophecies can be avoided, stemming e.g. from political economy arguments. The ability of a simple currency crisis model to provide useful information on economic vulnerabilities is illustrated by testing its out-of-sample performance in a panel of emerging market economies following the collapse of Lehman Brothers.
Discussants:
John B. Taylor
(Stanford University)
John Leahy
(New York University)
Olivier Blanchard
(International Monetary Fund)
Andrew Berg
(International Monetary Fund)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Credit Risk II
(G2)
Presiding:
Monika Piazzesi
(Stanford University)
Dynamic Debt Runs and the Market for Variable Rate Demand Obligations
Bin Wei
(Federal Reserve Board)
Vivian Yue
(Federal Reserve Board)
[View Abstract]
A variable rate demand obligation (VRDO) is a tax-emept municipal bond whose interest rate resets on a periodic basis. In addition, its bondholders have a "tender" option to liquidate their positions at par, exposing the issuer to possible runs. The VRDO market experienced large-scale runs in 2008 during the financial crisis, which contributed to the largest municipal bankruptcy in history by Jefferson County in Alabama. In this paper we develop a dynamic model of VRDO and runs. In the model both the interest rate and the decision of creditors to run are endogenously determined in closed form. We show that a higher pre-specified maximum interest rate or a higher liquidity premium reduces the likelihood of run. We structurally estimate the model using the method of simulated maximum likelihood. The structural estimation allows us to compute the model-implied likelihood of run, to quantitatively assess different roles of liquidity and credit components, and to examine different contribut
Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle
Hui Chen
(Massachusetts Institute of Technology)
Zhiguo He
(University of Chicago)
Konstantin Milbradt
(Massachusetts Institute of Technology)
Rui Cui
(University of Chicago)
[View Abstract]
[Download Preview] We introduce procyclical liquidity frictions into a structural model of corporate bond pricing with countercyclical macroeconomic fundamentals. When calibrated to the historical moments of default probabilities and empirical measures of bond liquidity, our model matches the observed credit spreads of corporate bonds as well as measures of non-default components including Bond-CDS spreads and bid-ask spreads. Our calibration focuses on both cross-sectional matching across credit ratings, and time-series matching over business cycle. A novel structural decomposition scheme is proposed to capture the interaction between liquidity and default in corporate bond pricing. We use this framework to quantitatively evaluate the effects of liquidity-provision policies during recession, and identify important economic forces that the previous reduced-form approach overlooked before.
Liquidity Premium in the Eye of the Beholder: An Analysis of the Clientele Effect in the Corporate Bond Market
Jingzhi Huang
(Pennsylvania State University)
Zhenzhen Sun
(Siena College)
Tong Yao
(University of Iowa)
Tong Yu
(University of Rhode Island)
[View Abstract]
[Download Preview] This paper examines how liquidity and the heterogeneous liquidity preferences of investors interact to affect asset pricing. We use insurance firms' corporate bond holdings and measures of corporate bond illiquidity to quantify investors' liquidity preference. We find a wide dispersion of liquidity preference across investors. Such liquidity preferences persist over time and, importantly, are related to characteristics associated with investment horizons. Further, we find empirical evidence for the effect of liquidity clientele on bond pricing--the liquidity premium is substantially attenuated among corporate bonds heavily held by investors with a penchant for illiquidity.
On Bounding Credit Event Risk Premia
Jennie Bai
(Federal Reserve Bank of New York)
Pierre Collin-Dufresne
(Columbia University)
Robert Goldstein
(University of Minnesota)
Jean Helwege
(University of South Carolina)
[View Abstract]
Reduced form models of default that attribute a large fraction of credit spreads as
compensation for credit event risk typically preclude the most plausible economic justification for such risk to be priced, namely, a "contagious'' response of the market portfolio during the credit event. When this channel is introduced within a general equilibrium framework for an economy comprised of a large number of firms, credit event risk premia have an upper bound of just a few basis points, and are dwarfed by the contagion premium. We provide empirical evidence that supports the view that credit event risk premia are miniscule.
Discussants:
Wei Xiong
(Princeton University)
David Lando
(Copenhagen Business School)
Pierre Collin-Dufresne
(Columbia University)
Tim McQuade
(Harvard University)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Interactions Between Firms and Politicians
(G3)
Presiding:
William Megginson
(University of Oklahoma)
Politically-Connected Analysts
Michael McDonald
(University of Tennessee)
[View Abstract]
This paper evaluates the advantages of being a politically-connected equity analyst, i.e., an analyst that makes large political donations. I find that these politically connected analysts are more accurate than other small donor and non-donor analysts, and they actually become more accurate after they become large donors, suggesting their enhanced performance derives from an advantage gained through their political activity. These results are stronger when (i) the analyst works or lives in the state represented by the benefitting politician, (ii) the covered firms are economically connected to the government, and (iii) the benefitting politician serves on a committee that regulates the covered firm. Overall, these results suggest that politically-connected analysts benefit from relationships with politicians who possess knowledge that impacts firms? prospects.
Bribes and Firm Value
Stefan Zeume
(INSEAD)
[View Abstract]
[Download Preview] I exploit the passage of the UK Bribery Act 2010 as an exogenous shock to UK firms' cost of using bribes to study whether the ability to use bribes creates firm value. First, I find that UK firms operating in high corruption regions of the world display negative abnormal returns upon passage of the Act. A firm operating exclusively in the most corrupt regions suffers a 6.2% drop in value compared to a firm operating exclusively in the least corrupt regions. The effect is stronger for firms that are not already subject to US anti-bribery regulation, are not part of corporate social responsibility indices, operate in concentrated industries, and have better governance. Foreign firms subject to the Act because they have a UK subsidiary also exhibit negative abnormal returns. Second, I identify real effects of the Act. Relative to comparable continental European firms, UK firms expand their subsidiary network less into high corruption regions and their sales in these regions grow six percentage points more slowly.
Politics, State Ownership, and Corporate Investments.
Shashwat Alok
(Washington University-St. Louis)
Meghana Ayyagari
(George Washington University)
[View Abstract]
Political interference has long been considered a major source of
inefficiency in state-owned enterprises. However, empirical evidence regarding the impact of political influence on non-financial firms has been limited. We evaluate the influence of political factors on corporate investment decisions using a unique database of new investment projects announced in India, matched with electoral data at the district level for the period of 1995-2009. We find that state-owned enterprises (SOEs) announce a greater number of projects during election years, especially in politically competitive districts. The number of investments announced by central (state) government firms in election years is on average 36\% (58\%) greater in districts in which the ruling party won or lost the previous election by a narrow margin (\textless 5\%) compared to other districts. We do not observe similar investment patterns for private firms. We also find that investment announcements are greater in districts
Cultural Origins and CEO Incentive Contracts
Xiaoding Liu
(University of Oregon)
[View Abstract]
[Download Preview] Despite the importance of managerial characteristics in determining CEO incentives, empirical research on this topic is scarce. Using a sample of U.S. companies from 1992 to 2011, I show that the CEOs’ cultural origins are economically important determinants of incentive contracts. Cultural origins can explain 5% of the observed variation in pay-performance-sensitivity, compared to 1% explained by other CEO-specific factors documented in the literature such as birth year, gender, and education. Examining potential explanations for this empirical pattern, I find that systematic differences in CEO incentives across cultural origins are related to cultural attitudes regarding the intrinsic and extrinsic value of work. I do not find evidence that the relation is driven by skill or risk aversion.
Discussants:
Jiekun Huang
(National University of Singapore)
David C. Parsley
(Vanderbilt University)
Kateryna Holland
(University of Oklahoma)
Jin Xu
(Purdue University)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall A
American Finance Association
Media & Disclosure
(G1)
Presiding:
Joseph Engelberg
(University of California-San Diego)
News Implied Volatility and Disaster Concerns
Asaf Manela
(Washington University-St. Louis)
Alan Moreira
(Yale University)
[View Abstract]
[Download Preview] We construct a text-based measure of uncertainty starting in 1890 using front-page articles of the Wall Street Journal. News implied volatility (NVIX) captures well the disaster concerns of the average investor. NVIX peaks during stock market crashes, times of policy-related uncertainty, world wars and financial crises. We find that periods when people are more concerned with a rare disaster, as proxied by news, are either followed by periods of above average stock returns, or followed by periods of large economic disasters. Concerns related to wars and government policy explain 53% and 22% of the time-variation in risk premia our measure identifies. These findings suggest that time variation in rare disaster risk is an important source of aggregate asset prices fluctuations. We provide parameter values of interest to macro-finance, such as the persistence and volatility of the disaster probability process.
Playing Favorites: How Firms Prevent the Revelation of Bad News
Lauren H. Cohen
(Harvard Business School)
Dong Lou
(London School of Economics)
Christopher Malloy
(Harvard Business School)
[View Abstract]
[Download Preview] We explore a subtle but important mechanism through which firms manipulate their information environments. We show that firms control information flow to the market through their specific organization and choreographing of earnings conference calls. Firms that ?cast? their conference calls by disproportionately calling on bullish analysts tend to underperform in the future. A long-short portfolio that exploits this differential firm behavior earns abnormal returns of up to 95 basis points per month. Firms that call on more favorable analysts experience more negative future earnings surprises and more future earnings restatements. Further, firms that cast their calls have higher accruals, barely exceed/meet earnings forecasts, and subsequently issue equity.
Why Do Investors Disagree? The Role of a Dispersed News Flow
Michal Dzielinski
(University of Zurich)
Henrik Hasseltoft
(University of Zurich)
[View Abstract]
[Download Preview] Using recent advances in news analytics, we construct an empirical measure of
aggregate news dispersion and study how a dispersed news flow affects investors
and aggregate stock returns. Our measure reflects the polarization of news across
firms, based on millions of company-specific news items. We find that news
dispersion i) predicts investor disagreement positively, ii) is positively related to turnover, iii) predicts aggregate stock returns negatively, and iv) predicts realized variance positively. The effects of news dispersion are consistent with models of disagreement and short-sales constraints and support the idea that a dispersed news flow represents a fundamental reason for why investors disagree.
Discussants:
Diego Garcia
(University of North Carolina)
Eriz Zitzewitz
(Dartmouth College)
Tim Loughran
(University of Notre Dame)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
Motivations and Value Creation in Mergers
(G3)
Presiding:
Robert Parrino
(University of Texas)
The Incentives for Vertical Mergers and Vertical Integration
Laurent Fresard
(University of Maryland)
Gerard Hoberg
(University of Maryland)
Gordon Phillips
(University of Southern California)
[View Abstract]
We examine the incentives for firms to vertically integrate through vertical mergers and production. We develop a new firm-specific measure of vertical integration using 10-K text to identify the extent a firm's products span vertically related product markets. We find that firms in high R&D industries are less likely to vertically integrate or engage in vertical mergers, and are more likely to initiate customer or supplier relationships outside of the firm. These findings are consistent with firms with unrealized innovation avoiding integration to maintain ex-ante incentives to make relationship specific investments and maintain residual rights of control as in Grossman and Hart (1986). In contrast, firms in high patenting industries with stable product markets are more likely to vertically integrate consistent with control rights being obtained by commercializing firms to reduce potential ex-post holdup.
Asset Complementarities, Mergers and Synergies
Paolo Fulghieri
(University of North Carolina-Chapel Hill)
Merih Sevilir
(Indiana University)
[View Abstract]
This paper studies the importance of asset complementarities between merging firms in the creation of synergies from the merger. It presents a model of endogenous synergy creation and shows that expected synergies from a merger are realized only if the managers from the two merging firms are willing to collaborate towards the creation of synergies. We show that incentives to collaborate are stronger in mergers combining firms with complementary assets and resources. Importantly, this result arises not because greater complementarities imply greater merger gains, but because greater complementarities lead to stronger incentives for managers to work together, increasing the endogenous success probability of achieving the expected synergies. Our model predicts that the likelihood of generating expected synergies is greater in mergers motivated by scope economies than in mergers motivated by scale economies. In addition, vertical mergers are more likely to succeed relative to horizontal me
Technological Specialization and Corporate Diversification
Fernando Anjos
(University of Texas-Austin)
Cesare Fracassi
(University of Texas-Austin)
[View Abstract]
[Download Preview] We develop a dynamic model of diversifying mergers, with three key features: (i) synergies from combining complementary technologies are affected by an exogenous level of technological specialization; (ii) conglomerates incur a marginal cost associated with organizational complexity; (iii) mergers are modeled as a search-and-matching process. A calibrated version of the model simultaneously matches three corporate-diversification magnitudes: the proportion of assets allocated to conglomerates; the diversification discount; and a positive association between conglomerate value and segment distance, an industry-network measure of technological complementarity. The calibrated model also shows how an increase in technological specialization can account for empirical corporate-diversification trends.
Merger Negotiations with Stock Market Feedback
Sandra Betton
(Concordia University)
B. Espen Eckbo
(Dartmouth College)
Rex Thompson
(Southern Methodist University)
Karin Thorburn
(Norwegian School of Economics)
[View Abstract]
[Download Preview] The takeover literature shows that offer premiums increase cross-sectionally with pre-offer target stock price runups. Using a simple takeover model, we examine whether this correlation reflects a costly feedback loop from runups to deal terms, in which bidders effectively pay twice for anticipated target synergies embedded in runups. The model shows that, when takeover rumors cause investors to update about the expected deal value, the conventional intuition that offer premiums should be cross-sectionally independent of runups does not hold. Our large-sample evidence support rational deal anticipation in runups but strongly rejects the existence of a costly feedback loop from runups to offer premiums. We also show that bidder takeover gains increase cross-sectionally with target gains and runups, as predicted when bidders share in synergy gains. We conclude that target runups do not increase bidder takeover costs at the intensive margin.
Discussants:
Thomas W. Bates
(Arizona State University)
Andres Almazan
(University of Texas-Austin)
Matthew Rhodes-Kropf
(Harvard Business School)
Alex Edmans
(University of Pennsylvania)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Multi-Country Empirical Banking Studies
(G3)
Presiding:
Kathy Dewenter
(University of Washington )
Why Do Governments Lend? Evidence from the Corporate Loan Market
Veljko Fotak
(University at Buffalo)
[View Abstract]
[Download Preview] Despite the inefficiencies documented in empirical studies, state ownership of productive assets persists worldwide. One explanation is the 'market failure' view, positing that the raison d'etre of state-owned firms is to enable projects the private sector is reluctant to sponsor. I analyze a sample of 148,511 corporate loans worth over USD 37 trillion from 156 countries, initiated between 1980 and 2010, to investigate whether lending by state-owned institutions is consistent with the market-failure view. I find that the proportion of loans involving state-owned lenders is higher in countries with weak protection of property rights, in non-common law countries, and during banking crises. Further, the level of state-owned lender involvement (loan arranging and sole lending versus passive loan syndicate membership) escalates in the presence of weak protection of property rights and during banking crises; the share of the loan retained by state-owned lenders increases in the presence of weak protection of property rights. Finally, I find that loans involving state-owned lenders display larger lending syndicates, longer maturities, less frequent collateralization, and lower spreads, with a discount of approximately 21 bps. Evidence of subsidization is stronger in the presence of weak protection of property rights. Overall, my findings are mostly consistent with the market-failure view.
Dollar Funding and the Lending Behavior of Global Banks
Victoria Ivashina
(Harvard Business School)
David S. Scharfstein
(Harvard University)
Jeremy Stein
(Harvard University)
[View Abstract]
A large share of dollar-denominated lending is done by non-U.S. banks, particularly European banks. We present a model in which such banks cut dollar lending more than euro lending in response to a shock to their credit quality. Because these banks rely on wholesale dollar funding, while raising more of their euro funding through insured retail deposits, the shock leads to a greater withdrawal of dollar funding. Banks can borrow in euros and swap into dollars to make up for the dollar shortfall, but this may lead to violations of covered interest parity (CIP) when there is limited capital to take the other side of the swap trade. In this case, synthetic dollar borrowing becomes expensive, which causes cuts in dollar lending. We test the model in the context of the Eurozone sovereign crisis, which escalated in the second half of 2011 and resulted in U.S. money-market funds sharply reducing the funding provided to European banks. Coincident with the contraction in dollar funding, there w
Bank Internationalization and Risk Taking
Allen N. Berger
(University of South Carolina)
Sadok El Ghoul
(University of Alberta)
Omrane Guedhami
(University of South Carolina)
Raluca Roman
(University of South Carolina)
[View Abstract]
This paper investigates the effects of bank internationalization on risk taking. We find that internationalization increases bank risk taking: the Z-score of US banks that engage in foreign activities is lower than that of their purely domestic peers. The results are consistent with the empirical dominance of the market risk hypothesis, whereby internationalization increases banks? risk due to market-specific factors (competition, culture, regulatory complexity, economic and political instability, etc.) over the diversification hypothesis, whereby internationalization allows banks to reduce risk through increased diversification of their operations. The results continue to hold after conducting a variety of robustness tests, including accounting for endogeneity and sample selection bias. We also find that the magnitude of this difference in risk taking is more pronounced during financial crises than normal times. Additional results suggest that capital market participants recognize the
Discussants:
Robert Cull
(World Bank)
Ran Duchin
(University of Washington)
Luc Laeven
(International Monetary Fund)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Real Estate and Mortgages
(G2)
Presiding:
Karen Pence
(Federal Reserve Board)
Concentration in Mortgage Lending, Refinancing Activity, and Mortgage Rates
David S. Scharfstein
(Harvard University)
Adi Sunderam
(Harvard Business School)
[View Abstract]
We present evidence that high concentration in local mortgage lending reduces the sensitivity of mortgage rates and refinancing activity to mortgage-backed security (MBS) yields. A decrease in MBS yields is typically associated with greater refinancing activity and lower rates on new
mortgages. However, this effect is dampened in counties with concentrated mortgage markets. We isolate the direct effect of mortgage market concentration and rule out alternative explanations based on borrower, loan, and collateral characteristics in two ways. First, we use a matching procedure to compare high- and low-concentration counties that are very similar on observable characteristics and find similar results. Second, we examine counties where concentration in mortgage lending is increased by bank mergers. We show that within a given county, sensitivities to MBS yields decrease after a concentration-increasing merger. Our results suggest that the effectiveness of housing as a monetary policy tran
The Hidden Peril: The Role of the Condo Loan Market in the Recent Financial Crisis
Sumit Agarwal
(National University of Singapore)
Yongheng Deng
(National University of Singapore)
Chenxi Luo
(National University of Singapore)
Wenlan Qian
(National University of Singapore)
[View Abstract]
This paper studies a largely overlooked and important market in explaining the recent financial crisis?the condominium loan market, which constitutes 15% of the overall residential mortgage market. Condo loans have distinct characteristics that make the market a natural setting to understand the roles of less financially constrained homebuyers and investors in contributing to the recent financial crisis. Condominium loans appear to be safer by conventional risk metrics, but they are more likely to be associated with investment purchases; their loan terms are much riskier; and condo borrowers tend to exercise the default option more ruthlessly compared to conventional prime or subprime borrowers. Compared with the subprime market, condominium loan defaults increased at a faster pace over the 2003?2009 period; among loans originated in 2006 or 2007, condominium loans are 30% more likely to default within two years of origination. Condo loans default much earlier, and these early defaults
Housing Collateral and Entrepreneurship
Martin Schmalz
(University of Michigan)
David Sraer
(Princeton University)
David Thesmar
(HEC Paris)
[View Abstract]
[Download Preview] This paper shows that collateral constraints restrict entrepreneurial activity. Our empirical strategy uses variations in local house prices as shocks to the value of collateral available to individuals owning a house and controls for local demand shocks by comparing entrepreneurial activity of homeowners and renters operating in the same region. We find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral create larger firms and more value added, and are more likely to survive, even in the long run.
Does Junior Inherit? Refinancing and the Blocking Power of Second Mortgages
Philip Bond
(University of Minnesota)
Ronel Elul
(Federal Reserve Bank of Philadelphia)
David Musto
(University of Pennsylvania)
[View Abstract]
In most states, the law grants seniority to the oldest mortgage on a house, unless that mortgagee subordinates its claim. We show that this practice significantly impedes the refinancing of first mortgages by imparting blocking power to junior mortgagees. We identify the effect by building a database showing all mortgages of a large panel of homeowners, identifying those whose combined loan-to-value makes them candidates for refinancing their first mortgages, and contrasting the incidence of refinancing between the states following this standard and the states following an alternate standard by which a mortgage inherits the seniority of the mortgage it replaces, if the replacement does not impair junior claims.
Discussants:
Karen M. Pence
(Federal Reserve Board)
Ben Keys
(University of Chicago)
Margarita Tsoutsoura
(University of Chicago)
Sumit Agarwal
(National University of Singapore)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Homeownership
(R3)
Presiding:
Donald Haurin
(Ohio State University)
Measuring the Benefits of Homeowning: Effects on Children Redux
Richard Green
(University of Southern California)
Sarah Mayhorter
(University of Southern California)
Gary D. Painter
(University of Southern California)
Michelle White
(University of California-San Diego)
[View Abstract]
Fifteen years ago, Green and White (1997) published a paper in the Journal of Urban Economics that found that children of homeowners were more likely to stay in school and less likely to have children of their own by age 17 than children of renters.1 We also found that longer tenure mitigates the adverse effect of renting, so that children of renters are more likely to stay in school if their families have lived in the same rental unit longer. Thus owning may produce better outcomes for children than renting in part because owners generally move less frequently than renters. In this paper, we focus on a number of potential mechanisms by which homeownership may impact student outcomes. First, we consider the amount of the downpayment as a means of determining the selection of households into homeowning. Here, we find that there are no differences in child outcomes by the size of the downpayment, but that there is a significant difference if the household provides any downpayment. Second, we consider the number of transitions into homeownership and the timing of first time homeownership. The results suggest that stability plays a more important role than homeownership. Finally, we will be testing whether the impact of stability differs in neighborhoods that are improving or declining and in high poverty vs. low poverty neighborhoods.
The Benefits of Pre-Purchase Homeownership Counseling
Gabriela Avila
(Freddie Mac)
Hoa Nguyen
(Freddie Mac)
Peter Zorn
(Freddie Mac)
[View Abstract]
[Download Preview] Our paper provides an empirical assessment of the effectiveness of pre-purchase homeownership counseling in reducing 90-day delinquency rates. We use data on nearly 38,000 fixed-rate, purchase money mortgages originated under Freddie Mac's affordable lending programs between the years 2000 and 2008. We take efforts to control for the quasiexperimental nature of our data, as well as the heterogeneous experience of borrowers postorigination.
We find that counseling reduces the delinquency rate of first-time home buyers by 29 percent, that counseling's effectiveness is largely insensitive to its method of delivery, and that its effectiveness was greatest in the boom/crisis years of 2005 through 2008. We estimate the dollar benefit of counseling's reduction in delinquency rates to be about $1,000, easily sufficient to pay for its delivery.
Homeowner-Entrepreneurs, Housing Capital Gains, and Self-Employment
John Harding
(University of Connecticut)
Stuart Rosenthal
(Syracuse University)
[View Abstract]
[Download Preview] Using individual-level data from the 1985-2011 American Housing Survey panel, this paper confirms that housing capital gains encourage transitions into self-employment. Additional findings suggest that this occurs at least in part because homeownership provides an accessible source of potential financing that serves as a form of insurance for aspiring homeowner-entrepreneurs. The link between homeownership and self-employment is also stronger for older homeowners who are wealthier and typically have more latitude to take on discretionary mortgage debt to finance an investment. Overall, our results provide support for arguments in previous studies that personal wealth and access to credit are important drivers of self-employment. Our findings also provide a new justification for longstanding government support for homeownership: homeownership encourages self-employment.
Houses, Apartments and Condos
N. Edward Coulson
(Pennsylvania State University)
Lynn Fisher
(University of North Carolina-Chapel Hill)
[View Abstract]
[Download Preview] In the U.S., homeownership is strongly correlated with the type of building that households occupy. Data from the national American Housing Survey (AHS) indicate that 83 percent of occupied single-family, detached housing in the U.S. is owner-occupied while only 12 percent of units in multifamily buildings are owner-occupied. This paper fills a gap in the homeownership literature by considering the relationship between building size and governance. A portfolio model of investment choice in risky housing assets trades-off a free-rider problem in joint ownership against economies of scale that are obtained in larger buildings with respect to the cost of third-party management. Our results show that the smallest multifamily buildings are particularly disadvantaged for purposes of condo ownership, because free-riding reduces contributions of investor effort while third party management is still relatively expensive. The empirical portion of the paper uses AHS data to estimate the bids of condominium owners with respect to marginal quality, as measured by interior floor space. We confirm that low wealth households are outbid for space in larger condominium buildings by higher wealth households, as predicted by the model.
Discussants:
Thomas Davidoff
(University of British Columbia)
Michael Collins
(University of Wisconsin)
Steven Bourassa
(University of Louisville)
Anthony Yezer
(George Washington University)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Urban Development and Transportation
(R1)
Presiding:
Jeffrey Lin
(Federal Reserve Bank of Philadelphia)
Vestiges of Transit: Urban Persistence at a Micro Scale
Leah Brooks
(Federal Reserve Board)
Byron Lutz
(Federal Reserve Board)
[View Abstract]
What explains the persistence of the past? Do increasing returns to scale reinforce previous choices, or do institutions lock in past decisions? We attempt to distinguish between these two explanations in the case of Los Angeles streetcars' long-run effects on urban form. Streetcars had their heyday in the 1910s, experienced declining ridership thereafter, and were off the road entirely by 1963. Despite this extinction, we observe a persistent correlation between population density and distance to the streetcar. Furthermore, when we control for characteristics that might drive both modern day density and historical streetcar location, by comparing a small circle around each streetcar stop to an equally sized concentric ring, we continue to find an effect: the streetcar circle has 15 percent more capital per land area than the concentric ring. By examining patterns of post-streetcar development, we rule out the possibility that this effect is solely driven by the dense capital put in place during the streetcar era. Our evidence also argues against the reinforcement of density by agglomerative forces. We do find evidence in favor of an institution---zoning---that ratified and then locked in decisions made during the streetcar era. We show that properties near the streetcar have more permissive building restrictions. We further show that this more permissive zoning can explain the greater density around obsolete streetcar stops. In sum, density persists near extinct streetcars over almost a century. By locking in the density that formed around streetcar stops in their heyday, the institution of land use regulation makes streetcars influential in absentia.
Making the Move: The Impact of the 1906 San Francisco Disaster on Firm Relocations
James Siodla
(University of California-Irvine)
[View Abstract]
[Download Preview] This paper studies the impact of the 1906 San Francisco earthquake and fire on firm relocations and the spatial distribution of industries in the city. The disaster disrupted normal business activity through the destruction of over 28,000 buildings on more than 500 city blocks. Using data gathered from historical city business directories, this study estimates the impact of a large-scale disaster on firm relocations. Evidence reveals that burned-out firms were more likely to move to different city blocks after 1906 relative to firms on unburned blocks, so that the fire significantly increased the likelihood of relocating by at least 30 percentage points. Additionally, the average post-disaster move was nearly one-half mile in length. The study also provides an overview of industry localization before and after the disaster, revealing a large impact of the disaster. These outcomes imply that fixed investments, which represent commitments to current locations, discourage firm relocations.
Agglomeration within an Urban Area
Stephen Billings
(University of North Carolina-Charlotte)
Erik Johnson
(Quinnipiac University)
[View Abstract]
[Download Preview] This paper utilizes a newly created index for colocalization to estimate the determinants of industrial agglomeration within a single urban area. We construct our new index to directly incorporate the location of individual establishments relative to the population of all establishments when creating our measure of spatial similarity between industry pairs. Results highlight the scope of colocalization across manufacturing and service industries. We estimate that proximity to transportation infrastructure, access to consumers and knowledge spillovers largely explain patterns of agglomeration. We find a smaller role for input-output linkages as well as consumption externalities for retail and consumer service industries. Results are sensitive to the use of our new colocalization index relative to prominent indices in the literature.
Urban Transport Expansions, Employment Decentralization, and the Spatial Scope of Agglomeration Economies
Nathaniel Baum-Snow
(Brown University)
[View Abstract]
This paper investigates the relationships between urban highway construction and the decentralization of jobs and workers' residential locations by industry between 1960 and 2000. Estimates indicate that highways cause significantly greater amounts of residential than job decentralization. Identification of these treatment effects relies on exogenous variation available from planned portions of the federal highway system and variation across cities in the number of highways received due to these cities' relative locations. Each radial highway displaced an estimated 16 percent of the central city working population but only 6 percent of the jobs to the suburbs. These estimates are fairly consistent across industry. These results support the idea that local spillovers remain an important incentive for firms to to cluster spatially, even in the face of transportation cost reductions.
Discussants:
Stephen J. Redding
(Princeton University)
Richard Hornbeck
(Harvard University)
William Kerr
(Harvard University)
Jeffrey Brinkman
(Federal Reserve Bank of Philadelphia)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon A
Association for Comparative Economic Studies
Towards European Banking Union: Implications for Eastern Europe
(G2)
Presiding:
Claudia Buch
(Halle Institute for Economic Research)
Branching Out: Foreign Bank Entry and Access to Small Business Finance
Thorsten Beck
(Tilburg University)
Hans Degryse
(University of Leuven)
Ralph De Haas
(EBRD)
Neeltje van Horen
(De Nederlandsche Bank)
[View Abstract]
This paper aims to contribute to a better understanding of the consequences of foreign bank entry for small firms' access to credit. To do so we collect new data on the geographical location of foreign and domestic bank branches across 22 Eastern and Central European countries. We merge these data with information on firms' access to credit in 2005 and 2008 as taken from the Business Environment and Enterprise Performance (BEEPS) survey. In all we match 10,700 firms to all the banks active in a 5, 10 and 20 km radius around each firm in these two years. As localities within one and the same country differ with respect to the share of foreign-owned branches, we exploit a within-country cross-locality identification strategy to mitigate endogeneity concerns. We first examine whether the presence of a foreign bank branch in a firm's vicinity affects access to finance and, if so, whether certain types of firms are impacted more than others. Second, we analyze whether the mode of foreign bank entry (greenfield or M&A), the amount of time a bank has been present in a locality, and the functional and geographical distance within the bank matter for local firms' credit constraints..
Information sharing, credit market competition and loan performance
Jaap Bos
(Maastricht University)
Ralph De Haas
(EBRD)
Matteo Millone
(Maastricht University)
[View Abstract]
[Download Preview] We use detailed data on over 200,000 loans granted by a large microfinance institution in Bosnia and Herzegovina to assess the impact of the introduction of a credit registry in 2009 on loan quality. We find that the introduction of mandatory information sharing among lenders had a substantial positive impact on the quality of new loans. In line with theory, this impact was the highest in areas with intense credit market competition and for loans to first-time borrowers. While the introduction of the credit registry did not lead to shifts in the average borrower profile along observable characteristics, we find that loans became smaller, shorter, and more expensive. This suggests that at least part of the improvement in loan quality was due to more conservative lending practices at the intensive margin.
Loan/Loss Provisioning: Precautionary or Cyclical?
John P. Bonin
(Wesleyan University)
Marko Kosak
(University of Ljubljana)
[View Abstract]
Loan/loss provisioning is designed as a precautionary regulatory instrument to provide a cushion for the impact of business cycles on banking assets. Bank lending is cyclical by nature as evidenced by the positive relationship between growth rates of bank credit and GDP. We examine empirically the precautionary role played by loan/loss provisioning in banking sectors in Eastern European transition economies using data from Bank Scope, the IMF, and central banks in the region. We find a negative relationship between loan/loss provisions and both growth rates of bank credit and GDP indicating that this regulatory tool actually exacerbates the impact of cyclical bank lending behavior. We focus on the period beginning in 2004 during which time retail credit cycles were pervasive throughout the region to examine the effectiveness of this regulatory instrument. Our empirical results have important policy implications for the duration and depth of business cycles in this region because these economies are heavily reliant on bank credit due to the underdeveloped nature of capital markets in the region. We argue for the use of dynamic provisioning as an instrument to mitigate the cyclicality of bank behavior.
Crises, Rescues, and Policy Transmission through International Banks
Claudia Buch
(Halle Institute for Economic Research)
Catherine Tahmee Koch
(University of Zurich)
Michael Kötter
(Frankfurt School of Finance and Management)
[View Abstract]
The global financial crisis has shaken the fundamentals of international banking and triggered a downward spiral of asset prices. To prevent a further meltdown of markets, governments intervened massively by means of rescues measures to recapitalize banks and through liquidity support. We use a detailed, bank-level dataset for German banks to analyze how the assets and liabilities of their foreign affiliates responded to domestic (German) and to US crisis support schemes. We analyze how these policy interventions spilled over into foreign markets. We identify loan supply effects by exploiting that not all banks received policy support and that the timing of received support measures differed across banks. Banks covered by rescue measures of the German government increased their foreign activities after these policy interventions, but they did not expand relative to non-supported banks. Banks claiming liquidity support under the Term Auction Facility (TAF) program withdrew from foreign markets outside the US, but they expanded relative to affiliates of other German banks.
Discussants:
Tara Rice
(Federal Reserve Board)
Galina B. Hale
(Federal Reserve Bank of San Francisco)
Camelia Minoiu
(International Monetary Fund)
Steven Ongena
(Tilburg University)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Social Control --Processes and Outcomes
(B5)
Presiding:
Robert Prasch
(Middlebury College)
Using Quantitative Easing to Reduce Unemployment: A New Version of Trickle Down Economics
John Watkins
(Westminster College)
[View Abstract]
[Download Preview] Quantitative easing represents a variation of trickle-down economics: the presumption is that asset purchases by The Federal Reserve (FED) benefit everyone. The policy involves increasing the prices of treasury bonds and mortgage backed assets to stimulate output and employment. Quantitative easing acts on balance sheets; it works through the price system by affecting the structure of prices, and hence wealth. The unemployed, lacking assets, are not directly affected by changes in asset prices. The unemployed are dependent on policies directed at generating income. While FED intervention prevented a collapse in asset prices, its effect on the real economy remains tenuous. The policy, however, has been a disaster from the point of view of social and economic justice. Data suggests that the policy has exacerbated the inequality in both the distribution of wealth and income, while doing little to reduce unemployment. The policy contrast sharply with fiscal policy employed during World War Two, which promoted greater equality in the distribution of income.
Institutions and the Importance of Social Controls in a Nation's Development
Svetlana Kirdina
(Russian Academy of Science)
[View Abstract]
[Download Preview] Inquiries into institutional change are relatively new to post-transition Russia. This inquiry draws attention to thinking regarding social control aimed at -- not in changing -- but rather in retaining institutions. In this vein, the retaining of institutions can and does indeed play crucial roles in the economic and social development for selected nation states. We accept the notion that institutions are constantly evolving. However, new institutions inherit and also move forward and can form into foundational institutional structures, defined as institutional matrices. These institutional matrices suggest that later emerging institutions do not necessarily impose dramatic and opposing challenges, but rather contribute to the continuity and continuousness of evolutionary institutional developments. And, these preexisting institutional matrices should be understood as the manifestation of earnest contributions of previous generations, reflecting an evolutionary consensus achieved between and among social groups and classes of communities composing a nation state that has contributed toward a society's surviving on their given territory. In this respect, institutions could be considered as a sort of human ecology that needs to be understood, respected, and preserved. This inquiry includes an analysis of a predominant institutional structure characterized by by X- and Y-matrices. Attempts at changing historically established institutional structures has, in cases, resulted in catastrophic aftermaths and backwash effects for selected nations under consideration. For contrast, successful national examples relying upon the uses of social controls for maintaining effective proportions between predominant and complementary institutional matrices shall be explored in this inquiry.
Culture and Good Governance: A Brief Empirical Exercise
Randy McFerrin
(New Mexico State University)
Richard V Adkisson
(New Mexico State University)
[View Abstract]
[Download Preview] This paper uses regression analysis to explore relationships between culture and governance. The World Bank Worldwide Governance Indicators, in six expressions, are used as dependent variables. Explanatory variables are real per capita GDP (PPP) and culture measured in two dimensions. The data set includes 68 nations. The authors find that the level of development, measured as real per capita GDP has the strongest relationship with good governance but, in most cases, the cultural measures are influential as well.
Setting a Principle to Interest Cap on Issuance of Home Mortgages
Timothy Wunder
(University of Texas-Arlington)
[View Abstract]
Almost all home buyers in the US need a mortgage to buy and the current system of mortgage origination creates an incentive for borrowers to offer bids on homes far higher than would be possible without that system. This results in inflation of home values, increased financial indebtedness, and record profits for the banking industry. Over the past 50 years requirements to obtain a mortgage have been lessened and it has become common for people to buy homes with little down and long repayment times. The result has been that for many borrowers almost all of the mortgage payment goes to pay for interest on the loan. In the 1950's housing accounted for 22% of the household budget; that rose to 33% by 1980 and 43% today and there is little doubt that this trend is tied to the ability of buyers to obtain greater leverage. The mortgage industry is an industry that is supposed to help foster affordable home ownership yet as currently instituted it has resulted far greater expense leading to further hardships for those Americans with low incomes. This essay will explore how a rule to cap the principle to interest ratio in early mortgage payments would impact the relevant institutions and offer an overview of how such a rule would guide society to a more socially desirable outcome.
Firm Reorganization as a Means of Social Control
Rick Aalbers
(Radboud University Nijmegen)
Wilfred Dolfsma
(University of Groningen)
Rowan Leerentveld
(University of Groningen)
[View Abstract]
Firms appear to be continuously reorganizing, either of the downsizing kind when management believes savings need to be made, or of the re-aligning kind when current firm structure is believed to be misaligned with future firm strategy. Mergers & Acquisitions, most particularly, have seemed to become one major wave with the occasional lull rather than the opposite (McCarthy & Dolfsma 2012). Reorganizations are an important means for management to control the firm. Reorganizations are the most immediate form of ordering that most people will experience, even if management operates at a distance or even is absent (Veblen 1964 [1923]). Reorganizations are likely to expand in terms of social and economic impact in the years to come as competitive pressure increases.
Whether reorganizations actually meet the stated goals of management, and help the firms reach specified goals, is rarely researched. In the meantime, employees seem mostly to suffer (Datta et al. 2010). As the better employees, the ones management would like to retain, tend to leave by themselves (Shah, 2000; Sahdev 2004), and firm goals may not to be met since survivors' morale plunges as well (Mishra et al. 2009), one reorganization can usher in the need for a subsequent one (cf. Gilson et al. 2004). In this paper we use unique data, from the reorganization plans that Dutch firms are obliged to draft and file with the Ministry of Social Affairs, to analyze the antecedents for, and consequences of reorganization by firm management. Examining the organizational performance data in the years leading up to - as well as - following up on a major reorganization event, we find that, while reorganization may be inescapable, when undertaken quickly, yet with a relatively considerable concern for all employees (including those laid off), post-reorganization firm performance will tend to turn out best. Based on another unique database we also discuss, at micro-level, the social and human consequences of a reorganization by comparing the pre- and post-downsizing situation of a firm.
Discussants:
William Waller
(Hobart and William Smith Colleges)
Robert E. Prasch
(Middlebury College)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon K
Association of Environmental & Resource Economists
Air Pollution in Developing Countries
(Q5)
Presiding:
Matthew Neidell
(Columbia University)
Household Preferences for Clean Energy Technologies in Rural India
Marc Jeuland
(Duke University)
Jessica Lewis
(Duke University)
Subhrendu K. Pattanayak
(Duke University)
Jie Sheng Tan Soo
(Duke University)
[View Abstract]
[Download Preview] This paper explores the heterogeneity in household preferences for different features of improved cookstoves (ICS), and the degree to which these are associated with actual adoption behaviors observed during a randomized ICS promotion campaign. The data come from a survey of 1060 households residing in rural communities located in Uttarakhand, India. During baseline surveys, all households participated in a discrete choice experiment (DCE) in which they selected their preferred stove options in a series of stated choice tasks. Analyzing the data from the DCE, we find that households on average have a strong preference for traditional stoves and have greater willingness to pay (WTP) for the smoke emissions reduction feature of ICS than for decreased fuel requirements and increased convenience (number of cooking surfaces), but that this average masks important heterogeneity in preferences. Latent class analysis (LCA) of the choice patterns in the data allows us to identify 3 distinct categories of households, who can be characterized as disinterested in ICS (54%), interested in most features of the ICS (20%), and sensitive primarily to the smoke emissions feature of stoves (27%). We then investigate whether membership in each of these classes helps predict adoption of ICS that were promoted during a randomized promotion experiment with a subset of 770 of these households. In general, we find that the LCA preference classes do relate to stove purchase decisions and responsiveness to randomized rebates. Lastly, as the stove promotion experiment sold both biomass and electric ICS, we find that distaste for smoke emissions (relative to other negative attributes of stoves), as revealed in the LCA, appears to be a particularly strong driver for adoption of the electric ICS.
The Effect of Beijing's Driving Restrictions on Pollution and Economic Activity
V. Brian Viard
(Cheung Kong Graduate School of Business)
Shihe Fu
(Xiamen University)
[View Abstract]
[Download Preview] We evaluate the environmental benefit and economic cost of Beijing's driving restrictions. Based on daily data from multiple monitoring stations, air pollution falls 20% during every-other-day and 9% during one-day-per-week restrictions. Based on hourly television viewership data, viewership during the restrictions increases by 8.7 to 12.8% for workers with discretionary work time but is unaffected for workers without, consistent with the restrictions' higher per-day commute costs reducing daily labor supply. Causal effects are identified from both time-series and spatial variation in air quality and intra-day variation in viewership. We provide possible reasons for the policy's success, including evidence of high compliance based on parking garage entrance records.
Driving Restrictions That Work? Quito's Pico y Placa Program
Paul Carrillo
(George Washington University)
Arun Malik
(George Washington University)
Yiseon Yoo
(George Washington University)
[View Abstract]
[Download Preview] In this paper we present the first analysis of Quito's three-year-old Pico y Placa (PyP) program. The program is well suited to study for a number of reasons: (i) the presence of restrictions only during peak (traffic) hours; (ii) a restricted zone that is limited to the central part of the city; and (iii) the availability of a fairly long time series of hourly pollution and meteorological data for the parts of the city that are subject to restrictions as well as those that are not. These features allow us to make use of difference-in- differences (DD) and difference-in-difference-in-differences (DDD) research designs that exploit both temporal variation and spatial variation to identify the effects of the program. Specifically, we use concentration of carbon monoxide (CO), a pollutant primarily emitted by motor vehicles, as our outcome measure, and define our treatment group to be the set of peak (traffic) hours inside the restricted zone. We define two alternative control groups: (i) off-peak hours inside the restricted zone, and (ii) peak hours outside the restricted zone. We exploit diurnal variation by using a DD strategy that compares the change in pollution during peak hours inside the restricted zone to the change in pollution during off-peak hours in the same zone. Spatial variation is exploited by using a DD strategy that compares the change in pollution during peak hours inside the restricted zone to the change in pollution during the same hours outside the restricted zone. Both types of variation are exploited simultaneously using a DDD strategy.
Fuel Mix and Air Quality during a Natural Experiment in the Sao Paulo Metropolitan Area between 2009 and 2011
Alberto Salvo
(National University of Singapore)
Franz Geiger
(Northwestern University)
[View Abstract]
Between 2009 and 2011, the gridlocked Sao Paulo metropolitan area experienced large fluctuations in the pump price of ethanol (E100) relative to gasoline (E20 or E25), inducing as many as one million owners of bi-fuel light-duty vehicles to switch between energy sources. We assess the effect of the fuel mix on air quality by combining fuel shares from a consumer demand model with detailed street-hour level data on regulated pollutant concentrations, meteorology, and road traffic conditions.
Discussants:
Rema Hanna
(Harvard University)
Reed Walker
(University of California-Berkeley)
Prashant Bharadwaj
(University of California-San Diego)
Erin Mansur
(Dartmouth College)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 401
Econometric Society
Dynamics of Health Insurance Choice
(I1)
Presiding:
Donna Gilleskie
(University of North Carolina)
Estimating Dynamic Discrete Choice Models of Product Differentiation: An Application to Medicare Part D with Switching Costs
Daniel Miller
(Clemson University)
Jungwon Yeo
(Singapore Management University)
[View Abstract]
[Download Preview] This paper proposes an algorithm to estimate dynamic discrete choice models using aggregate market share data. The algorithm achieves a computational advantage by decomposing the complicated mapping between market shares and utility flows into two simpler ones. The first maps observed market shares to mean choice specific values, and the second then maps to mean utility flows. In the application, we estimate switching costs in the Medicare Part D market. Our results indicate a large switching cost of around $1,700, which implies an average welfare loss of $480 as enrollees choose to remain in sub-optimal plans to avoid switching costs.
Estimating Switching Costs for Medicare Advantage Plans
Kathleen Nosal
(University of Mannheim)
[View Abstract]
Medicare eligibles have the option of choosing from a menu of privately administered managed care plans, known as Medicare Advantage (MA) plans, in lieu of conventional fee-for-service Medicare coverage (Original Medicare). These plans often provide extra benefits to enrollees, but may impose large switching costs as a result of restrictive provider networks, differences in coverage across plans, and learning and search costs. I propose a structural dynamic discrete choice model of how consumers who are persistently heterogeneous make the choice among MA plans and original Medicare based on the characteristics of the available MA plans. The model explicitly incorporates a switching cost and changes over time in choice sets and plan characteristics. I estimate the parameters of the model, including the switching cost, using the methods developed by Gowrisankaran and Rysman (2011). The estimates indicate that the switching cost is statistically and economically significant. Through a series of counterfactual analyses, I find that the share of consumers choosing MA plans in place of original Medicare would more than triple in the absence of switching costs, and nearly double if plan exit and quality changes were eliminated. I also find that when switching costs are accounted for the Medicare Advantage program is not very valuable to consumers and even reduces consumer welfare in some years.
The Determinants of Rising Inequality in Health Insurance and Wages
Rong Hai
(University of Chicago)
[View Abstract]
[Download Preview] What has caused the rising gap in health insurance coverage by education in the U.S.? How does the employment-based health insurance market interact with the labor market? What are the effects of social insurance such as Medicaid? By developing and structurally estimating an equilibrium model, I find that the interaction between labor market technological changes and the cost growth of medical services explains 60 to 70 percent of the gap. Using counterfactual experiments, I also evaluate the impact of further Medicaid eligibility expansion and employer mandates introduced in the Affordable Care Act on labor and health insurance markets.
Discussants:
Mark V. Pauly
(University of Pennsylvania)
Gabriel Picone
(University of South Florida)
John Rust
(Georgetown University)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 402
Econometric Society
Financial Frictions and the Macroeconomy
(E5)
Presiding:
Andrea Tambalotti
(Federal Reserve Bank of New York)
Liquidity Trap and Excessive Leverage
Alp Simsek
(Massachusetts Institute of Technology)
Anton Korinek
(Johns Hopkins University and International Monetary Fund)
[View Abstract]
We investigate the role of preventive policies in debt markets in mitigating liquidity traps driven by household leverage. When borrowers engage in deleveraging, the interest rate needs to fall to induce lenders to pick up the decline in aggregate demand. However, if the fall in the interest rate is limited by the zero lower bound, aggregate demand is insu¢ cient and the economy enters a liquidity trap. In such an environment, agents’ex-ante leverage and insurance decisions are associated with aggregate demand externalities. The competitive equilibrium allocation is constrained inefficient. Welfare can be improved by restrictions on leverage and by mandatory insurance requirements.
Liquidity Constraints, Risk Premia, and the Macroeconomic Effects of Liquidity Shocks
Ivan Jaccard
(European Central Bank)
[View Abstract]
[Download Preview] We study the macroeconomic effects of liquidity shocks in a dynamic general equilibrium model in which firms and households are subject to liquidity constraints. The supply of liquidity is endogenously determined by a financial sector that allocates the production of liquidity services between the different sectors of the economy. In our environment, the model that generates realistic asset pricing predictions also has a stronger endogenous propagation mechanism. Our results suggest that the exceptional magnitude of the Great Recession can be explained by a negative liquidity shock originating in the financial sector.
Credit Crises, Precautionary Savings and the Liquidity Trap
Veronica Guerrieri
(University of Chicago)
Guido Lorenzoni
(Northwestern University)
[View Abstract]
[Download Preview] We study the effects of a credit crunch on consumer spending in a heterogeneous- agent incomplete-market model. After an unexpected permanent tightening in con- sumers' borrowing capacity, some consumers are forced to deleverage and others increase their precautionary savings. This depresses interest rates, especially in the short run, and generates an output drop, even with flexible prices. The output drop is larger with nominal rigidities, if the zero lower bound prevents the interest rate from adjusting downwards. Adding durable goods to the model, households take larger debt positions and the output response may be larger.
Household Leveraging and Deleveraging
Alejandro Justiniano
(Federal Reserve Bank of Chicago)
Giorgio E. Primiceri
(Northwestern University)
Andrea Tambalotti
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] U.S. households' debt skyrocketed between 2000 and 2007, and has been falling since. This leveraging (and deleveraging) cycle cannot be accounted for by the liberalization, and subsequent tightening, of credit standards in mortgage markets observed during the same period. We base this conclusion on a quantitative dynamic general equilibrium model calibrated using macroeconomic aggregates and microeconomic data from the Survey of Consumer Finances. From the perspective of the model, the credit cycle is more likely due to factors that impacted house prices more directly, thus affecting the availability of credit through a collateral channel. In either case, the macroeconomic consequences of leveraging and deleveraging are relatively minor, because the responses of borrowers and lenders roughly wash out in the aggregate.
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 403
Econometric Society
Instrumental Variables
(C1)
Presiding:
Azeem Shaikh
(University of Chicago)
Diagnostics for Exclusion Restrictions in Instrumental Variables Estimation
Kirill Evdokimov
(Princeton University)
David S. Lee
(Princeton University)
[View Abstract]
This paper considers diagnostics of the exclusion restriction based on the internal consistency of the instrument variables model. In most cases, empirical studies involve a number of control variables. Usually, there is a theory or mechanism that explains the instrument, and why it can be excluded from the outcome equation. The exclusion restriction is typically formulated and expected to hold conditional on a number of individual characteristics. That is, the argument is usually not that the exclusion restriction holds on average, but that it holds for all individuals in the population of interest. In other words, the typical reasoning in favor of the exclusion restriction should hold not only for the population but also for its different subpopulations. We use this observation to construct a testable implication. Consider a subpopulation that has zero or low correlation between the instrument and the endogenous variable. If the exclusion restriction holds, we should also find that the correlation between the instrument and the outcome variable is low. This provides a basis for the diagnostics of the exclusion restriction. Note that the existence of subpopulations for which the instrumental variable is (almost) irrelevant is rather typical for applied studies.
It turns out that the above implication leads to a nonstandard econometric testing problem. The problem contains elements that are similar to the literatures on partially identified models and on weak instrument models, but none of these literatures provides a satisfactory solution to our problem. For example, the analysis of weak instrument models is typically greatly simplified by observing that conditional on a certain sufficient statistic the distribution of the Quasi-Likelihood Ratio test statistics does not depend on the true concentration parameter. This argument does not apply in our problem thus requiring a more complicated analysis. We provide a number of testing strategies and discuss their
Many IVs Estimation of Dynamic Panel Regression Models
Nayoung Lee
(Chinese University of Hong Kong)
Hyungsik Roger Moon
(University of Southern California)
[View Abstract]
We investigate linear dynamic panel regression models with fixed effects when both the cross section dimension, N, and the time dimesion, T, are large. An important reference of the large N,T dynamic panel literature is Alvarez and Arellano (2003) (hereafter AA). AA studied various instrumenal variable (IV) estimators under the alternative asymptotics where N,T get large with N/T goes to a contant. In AA the number of the IVs (or the number of the moment conditions) is an order of T^2. An interesting finding of AA is that the 2SLS estimator based on the forward orthgonal demeaned panel does not suffer from the many IV (or many moments) bias, while the 2SLS estimator based on the first differenced panel suffers from it. Regarding this, we ask the following questions. What makes the difference between the two estimators? Is the forward orthogonal transformation better than the conventional first differenced approach? How can we improve the bias if a 2SLS estimator suffers from it due to large T?
In this paper we answer to these questions with dynamic panel regressions that extend the textbook dynamic panel regression, allowing the individual effects to be individually heterogenous trends as time varying fixed effects and the regression error to be serially correlated. These extensions are motivated by the dynamic linear panel regression with classical measurement errors (e.g., Lee (2009)) and heterogenous income profile income dynamics model (e.g., Guvenen (2007, 2009) and Lee and Moon (2013)).
We study the 2SLS estimator (2SLSE) in the extended model. Notice that the 2SLSE is not efficient when the error is not homoskedastic. However, we still investigate it because it is easy to compute, the closed form of the estimators are available, and widely used in practice.
Our findings are as follows. The 2SLSE based on the forward orthogonal detrended panel and further lagged transformed data as IVs can be biased when the regression error is serically correlated and T is large. The bias of the 2SLSE due to many IVs can be improved by the JIVE that was proposed by Angrist, Imbens, Kreuger (1999). An important theoretical finding of the paper is that the alternative asymptotics where N,T go to infinite with T^3/N goes to a constant a good approximation theory that characterizes the finite sample bias of the 2SLS when T is large.
Semiparametric Instrumental Variable Estimation in an Endogenous Treatment Model
Roger Klein
(Rutgers University)
Chan Shen
(Anderson Cancer Center)
[View Abstract]
[Download Preview] In this paper we propose an instrumental variables (IV) estimator for a semiparametric outcome model with endogeous discrete treatment variables. The main contribution of our paper is that the identification, consistency and asymptotic normality of our estimator all hold even under misspecification of the treatment model. As expected from Newey and McFadden (1994), the covariance matrix for the parameters and functions of interest does not depend on estimation uncertainty of the instruments for the endogenous treatments. Further, we extend our method to the nonparametrtic case with both continuous and discrete exogenous variables. We prove identification, consistency and asymptotic normality and provide uniform convergence results for estimated functions of interest.
Semiparametric Estimation and Inference Using Doubly Robust Moment Conditions
Sergio Firpo
(FGV-SP)
Christoph Rothe
(Columbia University)
[View Abstract]
[Download Preview] We study semiparametric two-step estimators which have the same structure as parametric doubly robust estimators in their second step, but retain a fully nonparametric spec- ification in the first step. Such estimators exist in many economic applications, including a wide range of missing data and treatment effect models. We show that these estimators are √n-consistent and asymptotically normal under weaker than usual conditions on the accuracy of the first stage estimates, have smaller first order bias and second order variance, and that their finite-sample distribution can be approximated more accurately by classical first order asymptotics. We argue that because of these refinements our estimators are useful in many settings where semiparametric estimation and inference are traditionally believed to be unreliable. We also provide some simulation evidence to illustrate the practical relevance of our approach.
Discussants:
Timothy Armstrong
(Yale University)
Xu Cheng
(University of Pennsylvania)
Sukjin Han
(University of Texas-Austin)
Matias Damian Cattaneo
(University of Michigan)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 405
Econometric Society
Trust and Cooperation
(D7)
Presiding:
Lise Vesterlund
(University of Pittsburgh)
Principal-Agent Settings with Random Shocks
Roman Sheremeta
(Chapman University)
[View Abstract]
[Download Preview] Using a gift exchange experiment, we show that the ability of reciprocity to overcome incentive problems inherent in principal-agent settings is greatly reduced when the agent's effort is distorted by random shocks and transmitted imperfectly to the principal. Specifically, we find that gift exchange contracts without shocks encourage effort and wages well above standard predictions. However, the introduction of random shocks reduces wages and effort, regardless of whether the shocks can be observed by the principal. Moreover, the introduction of shocks significantly reduces the probability of fulfilling the contract by the agent, the payoff of the principal, and total welfare.
Money and Trust among Strangers
Gabriele Camera
(University of Basel)
Marco Casari
(University of Bologna)
Maria Bigoni
(University of Bologna)
[View Abstract]
What makes money essential for the functioning of modern society? Through an experiment, we present evidence for the existence of a relevant behavioral dimension in addition to the standard theoretical arguments. Subjects faced repeated opportunities to help an anonymous counterpart who changed over time. Cooperation required trusting that help given to a stranger today would be returned by a stranger in the future. Cooperation levels declined when going from small to large groups of strangers even if monitoring and payoffs from cooperation were invariant to group size. We then introduced intrinsically worthless tokens. Tokens endogenously became money: subjects took to reward help with a token, and to demand a token in exchange for help. Subjects trusted that strangers would return help for a token. Now, cooperation levels remained stable as groups grew larger. In all conditions, full cooperation
was possible through a social norm of decentralized enforcement, without using tokens. This turned out to be especially demanding in large groups. Lack of trust among strangers thus made money behaviorally essential. To explain these results, we develop an evolutionary model. When behavior in society is heterogeneous, cooperation collapses without tokens. In contrast, the use of tokens makes cooperation evolutionarily stable.
Self-Image and Strategic Ignorance in Moral Dilemmas
Zachary Grossman
(University of California-Santa Barbara)
Joel van der Weele
(Goethe University)
[View Abstract]
[Download Preview] Avoiding information about adverse welfare consequences of self-interested decisions, or strategic ignorance, is an important source of corruption, anti-social behavior and even atrocities. We analyze a Bayesian signaling model of an agent who cares about self-image and has the opportunity to learn the social benefits of a personally costly action. We derive the self-image value of strategic ignorance in equilibrium and show that the trade-off between self-image and material payoffs can lead the agent to use ignorance as an excuse, even if it is deliberately chosen. The theory can explain puzzling previous experimental findings on strategic ignorance and is tested in two new experiments. In line with the predictions of the self-signaling model, the data show that a) many people will reveal relevant information about others' payoffs after making an ethical decision, but not before, and b) some people are willing to pay for ignorance.
Strong, Bold, and Kind: Self-Control and Cooperation in Social Dilemmas
Martin Georg Kocher
(University of Munich)
Peter Martinsson
(University of Gothenburg)
Kristian Myrseth
(ESMT Berlin)
Conny Ernst-Peter Wollbrant
(Gothenburg University)
[View Abstract]
We develop a model that relates self-control and conflict identification to cooperation patterns in social dilemmas. As predicted, we find in a laboratory public goods experiment a robust association between stronger self-control and higher levels of cooperation. This means that there is evidence for an impulse to be selfish and that cooperative behavior requires self-control effort. Free-riders differ from other contributor types only in their tendency not to have identified a self-control conflict in the first place.
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 406
Econometric Society
Volatility and Asset Returns
(G1)
Presiding:
Amir Yaron
(University of Pennsylvania)
Identifying Long-Run Risks: A Bayesian Mixed-Frequency Approach
Frank Schorfheide
(University of Pennsylvania)
Dongho Song
(University of Pennsylvania)
Amir Yaron
(University of Pennsylvania)
[View Abstract]
[Download Preview] We develop a nonlinear state-space model that captures the joint dynamics of consumption, dividend growth, and asset returns. Building on Bansal and Yaron (2004), our model consists of an economy containing a common predictable component for consumption and dividend growth and multiple stochastic volatility processes. The estimation is based on annual consumption data from 1929 to 1959, monthly consumption data after 1959, and monthly asset return data throughout. We maximize the span of the sample to recover the predictable component and use high-frequency data, whenever available, to efficiently identify the volatility processes. Our Bayesian estimation provides strong evidence for a small predictable component in consumption growth (even if asset return data are omitted from the estimation). Three independent volatility processes capture different frequency dynamics; our measurement error specification implies that consumption is measured much more precisely at an annual than monthly frequency; and the estimated model
is able to capture key asset-pricing facts of the data.
Stock Return and Cash Flow Predictability: The Role of Volatility Risk
Tim Bollerslev
(Duke University)
Lai Xu
(Duke University)
Hao Zhou
(Tsinghua University)
[View Abstract]
[Download Preview] We examine the joint predictability of return and cash flow within a present value framework, by imposing the implications from a long-run risk model that allow for both time-varying volatility and volatility uncertainty. We provide new evidence that the expected return variation and the variance risk premium positively forecast both short-horizon returns and dividend growth rates. We also confirm that dividend yield positively forecasts long-horizon returns, but that it cannot forecast dividend growth rates. Our equilibrium-based "structural" factor GARCH model permits much more accurate inference than univariate regression procedures traditionally employed in the literature. The model also allows for the direct estimation of the underlying economic mechanisms, including a new volatility leverage effect, the persistence of the latent long-run growth component and the two latent volatility factors, as well as the contemporaneous impacts of the underlying "structural" shocks.
Expected VIX Option Returns
Zhaogang Song
(Federal Reserve Board)
[View Abstract]
We dissect the fine structure of volatility risks, as an important component of time-varying investment opportunities, by studying returns on VIX option portfolios. In particular, we provide model-free evidence regarding the two leading channels in modeling volatility risks: stochastic volatility-of-volatility and volatility jumps. We find that zero-delta straddles and delta-hedged portfolios of VIX options, which are neutral to changes in VIX but sensitive to volatility-of-volatility, underperform zero. In contrast, tail portfolios, which we construct by out-of-the-money and at-the-money VIX options and are only sensitive to tails risks of volatility, outperform zero. Therefore, risks in volatility-of-volatility and jump-induced volatility tails are priced, providing empirical support for both of the two leading channels. We further construct measures for volatility-of-volatility and volatility tail risks, by the whole set of out-of-the-money VIX options, to understand how they are priced relative to variance and equity risk premiums. We find that both measures predict short-horizon market returns, with the predictability from volatility-of-volatility risks subsumed by the variance premium but the volatility tail risk standing as a separate channel. Different from existing tail risk measures of merely market returns, our volatility tail index provides important information regarding how investors gauge the extreme volatility risks.
Equilibrium-Based Volatility Models of the Market Portfolio Rate of Return (Peacock Tails or Stotting Gazelles)
David Feldman
(University of New South Wales)
Xin Xu
(University of New South Wales)
[View Abstract]
Volatility models of the market portfolio's return are central to financial risk management. Within an equilibrium framework, we introduce an implementation method and study two families of such models. One is deterministic volatility, represented by current popular models. Another is in the "constant elasticity of variance" family, in which we propose new models. Theoretically, we show that, together with constant expected return, the latter family tends to have better ability to forecast. Empirically, our proposed models, while as easy to implement as the popular ones, outperform them in three out-of-sample forecast evaluations of different time periods, by standard predictability criteria. This is true particularly during high-volatility periods, whether the market rises or falls.
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 307
Economic Science Association
Identifying Time Preferences from Lab and Field Data
(D9)
Presiding:
Charles Sprenger
(Stanford University)
A Perspective on Measuring Discounting and Present Bias
James Andreoni
(University of California-San Diego)
[View Abstract]
We examine the predictive validity of two recent innovations to the experimental measurement of time preferences: the Convex Time Budget (CTB) and the Double Multiple Price List (DMPL). Using comparable experimental methods, the CTB and DMPL are implemented, corresponding parameters are estimated, and out of sample prediction is conducted for survey measures of patience and incentivized willingness to accept for a future-dated monetary claim. We outline criteria that preference elicitation techniques
should meet, and analyze the two approaches in this framework.
Recent Developments in the Measurement of Time Preferences
Glenn W. Harrison
(Georgia State University)
[View Abstract]
The rigorous measurement of time preferences requires attention to theory, experimental design, and structural econometrics. Casual claims that most agents discount time in a "hyperbolicky" manner simply fail to survive rigorous measurement. Three insights have dramatically changed the inferred measures: recognition that discount factors apply to utility streams and not directly to money or consumption, recognition that nonadditive intertemporal utility functions allow one to separate pure time preference from intertemporal risk aversion (and from atemporal risk aversion), and recognition that observed behavior might be generated by a "mixture" of datagenerating processes. However, all empirical methods to identify structural parameters require assumptions. Recent studies test and reject some of those assumptions, which is admirable, but suffer from fatal flaws of experimental design and econometrics. Many assumptions remain to be tested. The conclusion is that researchers need to be aware of the theoretical and empirical tradeoffs in different methods, which have strengths and weaknesses in different settings (lab or field) and for different inferential objectives (testing theory or measuring time preferences).
Identifying Self Control in Field Data
Sendhil Mullanaithan
(Harvard University)
Supreet Kaur
(Columbia University)
Michael Kremer
(Harvard University)
[View Abstract]
Using a year-long field experiment with data entry workers, we test for interpersonal differences in self-control problems in the workplace. We manipulate two features of the work environment to obtain separate field-based measures of time inconsistency among the same population of workers. First, some workers increase output substantially as their randomly assigned weekly payday gets closer. Second, some workers choose dominated contracts-which penalize low output but provide no greater reward for high output-to motivate their future selves. These two behaviors are strongly correlated: workers with above average payday effects are 49% more likely to choose dominated contracts and show substantially greater output increases under their provision. These findings provide evidence for stable interpersonal differences in self-control across field behaviors. In contrast, laboratory measures of time preference-such as those computed using cash tradeoffs-have limited predictive power. We provide empirical evidence that
measurement issues, such as the fungibility of cash rewards, undermine the reliability of such measures in our setting.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 112-A
Health Economics Research Organization
Contributed Papers in the Economics of Hospital Productivity, Financial Incentives, and Vertical Integration
(I1)
Presiding:
J. Fitzmaurice
(Agency for Healthcare Research and Quality)
Hospitalists and Hospital Productivity
Rezwan Haque
(Harvard University)
Robert S. Huckman
(Harvard University)
[View Abstract]
Over the past decade there has been a steady rise in the use of hospitalists to manage inpatient care at U.S. hospitals. Using data from the American Hospital Association (AHA) and the AHRQ's Nationwide Inpatient Sample (NIS) database, we investigate whether hospitals that employ hospitalists achieve reductions in risk-adjusted length of stay over the time period 2003 to 2010. We find some preliminary evidence that hospitalists reduce risk-adjusted length of stay for patients whose primary diagnosis is a medical diagnosis related group (DRG). The effect is strongest for complex patients who have a higher number of comorbidities. Our findings warrant further investigation into how hospitalists affect other measures of hospital productivity.
Financial Incentives, Treatment of Medicare Beneficiaries with Spine Problems and Change in Their Health
Jean Mitchell
(Georgetown University)
Jack Hadley
(George Mason University)
[View Abstract]
Financial Incentives, Treatment of Medicare Beneficiaries with Spine Problems and Change in Their Health
The Impact of Provider Consolidation on Price: Horizontal Integration and Tied Purchasing
Caroline Carlin
(Medica Research Institute)
Roger Feldman
(University of Minnesota)
Bryan Dowd
(University of Minnesota)
[View Abstract]
In recent years, U. S. hospitals have accelerated the trend toward acquisition of physician practices. If the hospital and physician practice had different levels of market power prior to the acquisition, the tied contracting that results when health plans must negotiate with the combined entity may have an impact on the price of clinic and hospital services. In addition, when the hospital already owns a number of clinics, forming an integrated delivery system, this new acquisition results in horizontal integration of clinic systems, possibly increasing the delivery system’s market power for physician services. However, there is a paucity of empirical literature documenting the impact of vertical integration of hospitals and physician practices on prices.
This study analyzes data from a large metropolitan area, in which three multispecialty clinic systems were acquired by two hospital-owned integrated delivery systems at the end of 2007. We examine the impact of these hospital acquisitions on measures of hospital and physician prices weighted by intensity of utilization, and on unit prices for several high-frequency physician procedures. We find evidence of an increase in physician prices for a health plan’s enrollees attributed to both the acquired clinic system and to the acquiring IDS’s legacy clinics, relative to clinics unaffected by acquisitions, supporting the hypothesis that horizontal integration between the newly acquired clinics and the previously owned legacy clinics increases market power. In addition, we find changes in hospital prices consistent with the impact of tied physician and hospital contracting in a differentiated market.
Discussants:
David Chan
(Stanford University)
Laurence Baker
(Stanford University)
Michael Hagan
(Agency for Healthcare Research and Quality)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 407
History of Economics Society
Experiments in Economics: Historical and Methodological Perspectives
(B2)
Presiding:
John Davis
(Marquette University)
Maurice Allais, Jimmie Savage, and the Allais Paradox
Floris Heukelom
(Radboud University-Nijmegan)
[View Abstract]
This article documents the history of the Allais paradox, and shows that underneath the many discussions of the various protagonists lay different, irreconcilable epistemological positions. Savage, like his mentor von Neumann and similar to economist Friedman, worked from an epistemology of generalized characterizations. Allais, on other hand, like economists Samuelson and Baumol, started from an epistemology of exact descriptions in which every axiom was an empirical claim that could be refuted directly by observations. As a result, the two sides failed to find a common ground. Only a few decades later was the now so-called Allais Paradox rediscovered as an important precursor when a new behavioral economic sub-discipline started to adopt the epistemology of exact descriptions and its accompanying falsifications of rational choice theory.
What Mechanism Design Theorists Had to Say About Laboratory Experimentation in the Mid-1980s
Kyu Sang Lee
(Ajou University)
[View Abstract]
[Download Preview] Thanks to the recent studies of the history and philosophy of experimental economics, it is well known that around the early 1980s, experimental economists made a case for the legitimacy of their laboratory work by emphasizing that it was a nice and indispensable complement to mechanism design theorists' mathematical study of institutions. The present paper examines what mechanism design theorists thought of laboratory experimentation, or whether they were willing to form a coalition with experimental economists circa the mid-1980s. By exploring several dimensions of the relationship between mechanism design theory and experimental economics, the present paper shows that a close rapport had been established by the early 1980s between the representative members of the two camps, and also that mechanism design theorists were among the strongest supporters of laboratory experimentation in the economics profession in the mid-1980s.
The First-Price Auction Controversy
Andrej Svorencik
(University of Mannheim)
[View Abstract]
The First-Price Auction Controversy played out in the pages of the AER at the turn of the 1980s and this paper reconstructs the tensions within the community of experimental economists over two core themes of experimental research: how to establish sufficient experimental control in order to establish empirical regularities in the laboratory, and how to modify theory in light of countervailing empirical evidence. This important episode is also situated within the broader developments of the experimental turn in economics.
Discussants:
Jeff E. Biddle
(Michigan State University)
Spencer Banzhaf
(Georgia State University)
Daniel Friedman
(University of California-Santa Cruz)
John B Davis
(Marquette University)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 106-A
Industrial Organization Society
The Organization of Organizations
(L2)
Presiding:
Peter Cappelli
(University of Pennsylvania)
Managing the Family Firm: Evidence from CEOs at Work
Raffaella Sadun
(Harvard University)
Oriana Bandiera
(London School of Economics)
Andrea Prat
(Columbia University)
[View Abstract]
[Download Preview] CEOs affect the performance of the firms they manage, and family CEOs seem to weaken it. Yet little is known about what top executives actually do, and whether it differs by firm ownership. We study CEOs in the Indian manufacturing sector, where family ownership is widespread and the productivity dispersion across firms is substantial. Time use analysis of 356 CEOs of listed firms yields three sets of findings. First, there is substantial variation in the number of hours CEOs devote to work activities, and longer working hours are associated with higher firm productivity, growth, profitability and CEO pay. Second, family CEOs record 8% fewer working hours relative to professional CEOs. The difference in hours worked is more pronounced in low- competition environments and does not seem to be explained by measurement error. Third, difference in differences estimates with respect to the cost of effort, due to weather shocks and popular sport events, reveal that the observed di↵erence between family and professional CEOs is consistent with heterogeneous preferences for work versus leisure. Evidence from six other countries reveals similar findings in economies at different stages of development.
Compensation Matters: Incentives for Multitasking in Law Firms
Kathryn Shaw
(Stanford University)
Ann Bartel
(Columbia University)
Brianna Cardiff
(Stanford University)
[View Abstract]
Compensation plans should address the multitasking problem that can occur if measured individual performance omits important contributions to the firm that are essential for long term profitability. The limited availability of firm-level compensation data has resulted in little empirical evidence on the impact of compensation plans on personal productivity. We study an international law firm that moves from high-powered individual incentives towards incentives for activities that contribute to the firm's long run profitability. That is, the firm moves from individual pay-for-performance to pay for leadership activities. The data follow the productivity of 472 lawyers for the time period 2005 to 2010, for 14,430 lawyer months of data. The effect of this change in incentive pay on lawyers' productivity is large and robust; team leaders reduce their billable hours and increase their non-billable hours. The outcome is a reallocation of billable tasks from the leaders to the associates.
Do Star Performers Produce More Stars?: Peer Effects and Learning in Elite Teams
Casey Ichniowski
(Columbia University)
Anne Preston
(Haverford College)
[View Abstract]
[Download Preview] This study examines whether workers who join elite teams experience long lasting productivity effects from their time with high performing peers. We assemble unique team- and player-level data sets on professional soccer. This setting offers exceptional features that make empirical analyses especially persuasive. The players in the twenty-one year team-level panel data set are members of two teams – national teams and club teams – allowing us to measure the effects of membership on elite clubs on national team performance. This feature overcomes any reflection problems and certain selection issues since we measure performance of the talented players who are selected for elite clubs when they return to their national teams. We also compare the contribution of players who join elite clubs in the year before and the year after they are exposed to an “elite club treatment†for the first time. Finally, we take advantage of the landmark Bosman ruling that dramatically increases the participation of foreign players on elite clubs in elite European leagues to estimate local average treatment effects. We supplement this team-level analysis with estimates of changes in player-level performance using new proprietary data on “soccer events†over five years of national team and club team games. Across all data sets and models, we document large and significant performance effects of soccer players after they join elite soccer clubs. We also conduct interviews with top U.S. national team players who joined elite clubs during their careers to help understand mechanisms behind our econometric estimates.
Discretion in Hiring
Mitchell Hoffman
(Yale University)
Lisa B Kahn
(Yale University)
Danielle Li
(Northwestern University)
[View Abstract]
How should authority be allocated in firms? We address this question in the context of worker hiring, focusing specifically on to what extent managers should be bound with fixed organizational routines (``rules") or whether managers should be given authority to hire whom they wish (``discretion"). We study the staggered introduction of a job testing technology across several large firms hiring in the service industry. Using worker-recruiter matched data on job applicants and hired workers, we document in preliminary results that there are large differences across recruiters and location in the extent to which they practice discretion in hiring (vs. relying on the screening technology). Workers hired by recruiters who exercise discretion by not complying with test recommendations are significantly more likely to exit the firm sooner. Reducing recruiter discretion could increase firm profits and productivity, but reducing turnover costs.
Discussants:
Alan Benson
(University of Minnesota)
Jennifer Brown
(Northwestern University)
Orie Shelef
(Stanford University)
Christopher Stanton
(University of Utah)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon C
International Association for Energy Economics/National Association for Business Economics
The Energy Boom and the United States Economy
(Q4) (Panel Discussion)
Panel Moderator:
Mine Yucel
(Federal Reserve Bank of Dallas)
Adam Sieminski
(Energy Information Administration)
Outlook for U.S. Shale Oil and Gas
John Larson
(IHS)
The Effects of the Unconventional Energy Revolution on the U.S. Economy
Arthur Berman
(Labyrinth Consulting Services, Inc.)
Let's Be Honest About Shale Gas
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Congress C
International Banking, Economics & Finance Association
European Banking and Monetary Transmission
(G2)
Presiding:
Wayne Passmore
(Federal Reserve Board)
The Systemic Risk of European Banks during the Financial and Sovereign Debt Crises
Lamont K. Black
(DePaul University)
Ricardo Correa
(Federal Reserve Board)
Xin Huang
(Duke University)
Hao Zhou
(Tsinghua University)
[View Abstract]
[Download Preview] We propose a hypothetical distress insurance premium (DIP) as a measure of the European banking systemic risk, which integrates the characteristics of bank size, default probability, and interconnectedness. Based on this measure, the systemic risk of European banks reached its height in late 2011 around 500 billion euro. We find that the sovereign default spread is the factor driving this heightened risk in the banking sector during the European debt crisis. The methodology can also be used to identify the individual contributions of over 50 major European banks to the systemic risk measure. This approach captures the large contribution of a number of systemically important European banks, but Italian and Spanish banks as a group have notably increased their systemic importance. We also find that bank-specific fundamentals predict the one-year-ahead systemic risk contribution of our sample of banks in an economically meaningful way.
The Euro Exchange Rate During the European Sovereign Debt Crisis - Dancing to Its Own Tune?
Michael Ehrmann
(Bank of Canada)
Chiara Osbat
(European Central Bank)
Jan Strasky
(Organisation of Economic Co-operation and Development)
Lenno Uuskyla
(Bank of Estonia)
[View Abstract]
[Download Preview] This paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. Among the few factors that are found to have affected changes in exchanges rate levels are policy actions at the EU level and by the ECB. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility was increasing in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions.
Does Bank Competition Influence the Lending Channel in the Eurozone
Zuzana Fungacova
(Bank of Finland)
Laura Solanko
(Bank of Finland)
Laurent Weill
(University of Strasbourg)
[View Abstract]
This paper examines how bank competition influences the bank lending channel in the Eurozone countries. Using a sample of banks from 12 Eurozone countries over the period 2002-2010 we analyse the reaction of loan supply to monetary policy actions depending on the degree of bank competition. We find that enhanced competition strengthens the transmission of monetary policy through the bank lending channel. Thus our results support the view that the single monetary policy might have asymmetric effects in Eurozone countries depending on their level of bank competition. Further investigation shows that banks with less market power were more sensitive to monetary policy only before the financial crisis. Policy recommendations include the support for convergence in the levels of banking sector competition in the euro area to make monetary policy transmission more symmetric and enhancing bank competition to make the monetary policy more effective.
Monitoring the Supervisors: Optimal Regulatory Architecture in a Banking Union
Jean-Edouard Colliard
(European Central Bank)
[View Abstract]
[Download Preview] I study the optimal architecture of bank supervision in a federal system. A central supervisor gets information about a bank, for instance through stress-testing, and decides whether an on-site examination should be performed by a local or a central authority. Local supervisors have lower inspection costs, but do not internalize cross-border externalities. The optimal degree of centralization depends on the severity of these externalities, the opacity of the supervised bank and the specificity of its assets. The market reacts to the chosen architecture, so that a centralized supervision endogenously increases market integration and cross-border externalities, strengthening the need for centralized supervision. The economy can be trapped in an equilibrium with low supervision and integration, while a forward-looking design of the supervisory architecture would coordinate economic agents on a superior equilibrium.
Discussants:
Jens Christensen
(Federal Reserve Bank of San Francisco)
Louis Raes
(Tilburg University)
Loretta Mester
(Federal Reserve Bank of Philadelphia)
Larry Wall
(Federal Reserve Bank of Atlanta)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom C2
International Economic & Finance Society
International Trade
(F1)
Presiding:
Hakan Yilmazkuday
(Florida International University)
Firm-to-Firm Trade
Jonathan Eaton
(Brown University)
Samuel S. Kortum
(Yale University)
Francis Kramarz
(CREST)
[View Abstract]
We build a model of firm-to-firm trade in which firms are heterogeneous not only in their efficiency but in their use of inputs. Exchange of both intermediate and final goods occurs through matching between individual buyers and sellers rather than through Walrasian markets. An implication is that firms' unit costs vary not only because of their efficiency but because of their luck in finding low-cost suppliers. Firms vary in size not only because of their unit costs but through their luck in meeting more and larger buyers. Lower trade barriers, by giving firms access to a wider range of suppliers, increase the share of intermediates in production and can affect the wages of different types of labor differentially, depending on their substitutability with intermediates.
The Aggregate Impact of Antidumping Policies
Kim Ruhl
(New York University)
[View Abstract]
Multilateral trade agreements, such as the GATT/WTO, have severely restricted the ability of countries to raise tariffs on imports. One of the few tools still available to policy makers under the WTO rules is antidumping law --- and antidumping investigations have become a major impediment to free trade. The United States has initiated more than 1200 antidumping investigations since 1980; globally, more than 200 antidumping investigations are initiated per year.
In this paper I develop a tractable model of antidumping policy and embed it into a general equilibrium model with heterogeneous firms and monopolistic competition. The model of antidumping policy embodies two key features of the existing law: firms charging "low" prices are (i) more likely to be accused of dumping and (ii) face larger antidumping duties.
In the calibrated model, the existing U.S. antidumping policy has an aggregate impact equivalent to a 6 percent tariff that is uniformly applied to all firms. The welfare costs of antidumping policy come, not only from the higher prices charged by firms subject to antidumping duties, but also from the higher prices that all exporting firms optimally charge in order to minimize the probability of being accused of dumping.
Who's Getting Globalized? The Size and Nature of Intranational Trade Costs
Dave Donaldson
(Massachusetts Institute of Technology)
David Atkin
(Yale University)
[View Abstract]
[Download Preview] In this paper we develop a new methodology for estimating intranational trade costs, apply our methodology to newly collected CPI micro-data from Ethiopia and Nigeria, and explore how our estimates affect the geographic incidence of globalization within these countries. Our approach confronts three well-known but unresolved challenges that arise when using price gaps to estimate trade costs. First, we work exclusively with a sample of goods that are identified at the barcode-level, to mitigate concerns about unobserved quality differences over space. Second, because price gaps only identify trade costs between pairs of locations that are actually trading the product in question, we collect novel data on the location of production/importation of each product in our sample in order to focus exclusively on trading pairs. Conditioning on this new information raises our estimate of trade costs by a factor of two. Third, we demonstrate how estimates of cost pass-through can be used to correct for potentially varying mark-ups over space. Applying this correction raises our trade cost estimate by a factor of two (again). All said, we estimate that intranational trade costs in our sample are 7-15 times larger than similar estimates for the US. In a final exercise we estimate that intermediaries capture the majority of the surplus created when the world price for an imported product falls, and that intermediaries' share is even higher in remote locations. This sheds new light on the incidence of globalization.
Economic Integration Agreements, Border Effects, and Distance Elasticities in the Gravity Equation
Jeffrey H. Bergstrand
(University of Notre Dame)
Mario Larch
(University of Bayreuth)
Yoto V. Yotov
(Drexel University)
[View Abstract]
[Download Preview] Using a novel common econometric specification, we examine the measurement of three important effects in international trade that historically have been addressed largely separately: the (partial) effects on trade of economic integration agreements, national borders, and bilateral distance. First, recent studies focusing on precise and unbiased estimates of effects of economic integration agreements (EIAs) on members' trade may be biased upward owing to inadequate control for exogenous unobservable country-pair-specific technological innovations (decreasing the costs of international relative to intranational trade); we find evidence of this bias using a properly specified gravity equation. Second, our novel methodology yields economically plausible and statistically significant estimates of the declining effect of "national borders" on world trade, now accounting for endogenous EIA formations and unobserved country-pair heterogeneity in initial levels. Third, we confirm recent evidence providing a solution to the "distance-elasticity puzzle," but show that these estimates of the declining effect of distance on international trade are biased upward by not accounting for endogenous EIA formations and unobserved country-pair heterogeneity. We show that these results are robust to a battery of sensitivity analyses allowing for phase-ins of agreements, lagged terms-of-trade effects, reverse causality, various estimation techniques, disaggregation, inclusion of intranational trade, and accounting for firm-heterogeneity and country-selection biases.
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Rooms 408 & 409
Korea-America Economic Association/American Economic Association
Money in an Era of Financial Crisis and Recovery
(E4)
Presiding:
Michael Bordo
(Rutgers University)
Assessing Potential Inflation Consequences of QE after Financial Crises
Samuel Reynard
(Swiss National Bank)
[View Abstract]
[Download Preview] Financial crises have been followed by different inflation paths which are related to monetary policy and money creation by the banking sector during those crises. Accounting for equilibrium changes and non-linearity issues, the empirical relationship between money and subsequent inflation developments has remained stable and similar in crisis and normal times. This analysis can explain why the financial crisis in Argentina in the early 2000s was followed by increasing inflation, whereas Japan experienced deflation in the 1990s and 2000s despite quantitative easing. Current quantitative easing policies should lead to increasing and persistent inflation over the next years.
Money Demand in an Era of Financial Uncertainty and Innovation
Richard Anderson
(Federal Reserve Bank of St. Louis)
John Duca
(Federal Reserve Bank of Dallas)
[View Abstract]
[Download Preview] Money targeting ended two decades ago due to money demand instability, often stemming from financial innovations. By increasing the liquidity of relatively less-liquid assets such innovations change the substitution elasticities underlying money demand and give rise to "shifts" in the demand for money. In addition, there has been little work examining broader flights to liquidity during financial crises and periods of prolonged high risk premia.
We examine how innovations affecting portfolio substitution effects and how mortgage refinancing activity have affected households' short- and long-run demand for M2, and find apparent instability in money demand can be modeled. In addition to finding large short-run effects of mortgage refinancing balances, we find that changes in the costs of buying and selling mutual funds not only shift the level of M2's velocity, but have also amplified the long-run impact of uncertainty on the demand for M2, as well as the short-run effects of stock prices and the yield curve. The improved models can be used to glean better information from M2 about nominal spending over the medium to long-run. In the next phase of our research, we will use our framework to forecast how a return to more normal risk premia could affect M2 demand and affect what the path of M2 implies about future nominal GDP growth during the recovery from the Great Recession.
Global Liquidity through the Lens of Monetary Aggregates
Kyuil Chung
(Bank of Korea)
Jong Eun Lee
(Sejong University)
Elena Loukoianova
(International Monetary Fund)
Hail Park
(Bank of Korea)
Hyun S. Shin
(Princeton University)
[View Abstract]
This paper examines how the activities of non-financial firms imply a close theoretical and empirical relationship between domestic monetary aggregates and global financial conditions. Monetary aggregates reflect, in part, the activities of non-financial firms who channel capital market financing into the domestic banking system, thereby influencing funding conditions and credit availability. Periods of capital inflows are also those when the domestic currency is appreciating, and such periods of rapid exchange rate appreciation coincide with increases in the central bank's foreign exchange reserves, increasing the stock of narrow money. The paper examines cross-country panel data on monetary aggregates and other measures of non-core bank liabilities and examine their economic significance. Non-core liabilities that reflect the activities of non-financial firms reflect broad credit conditions and predict global trade and growth.
Monetary Analysis and the Financial Crisis
Katrin Assenmacher
(Swiss National Bank)
Stefan Gerlach
(Central Bank of Ireland & CEPR)
[View Abstract]
[Download Preview] Many observers have argued that monetary policy strategies that attach a role to money and credit are more robust than other policy frameworks. In particular, such strategies can detect developments in the financial sphere of the economy that may impact on inflation at longer time horizon than that normally considered or that may trigger risks to financial stability. We assess these claims by looking at a number of such indicators linking banks’ funding decisions to money demand and relate these to financial sector instabilities and inflation pressures before the crisis in the US, the euro area, the UK, and Switzerland.
Discussants:
Richard Porter
(Federal Reserve Bank of Chicago)
Benjamin Keen
(University of Oklahoma)
Bang Nam Jeon
(Drexel University)
Franceso Drudi
(European Central Bank)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association
Happiness at Work
(J5)
Presiding:
John Smith
(Rutgers University-Camden)
Why Happiness Increases Productivity
Morris Altman
(Victoria University of Wellington)
[View Abstract]
Evidence strongly suggests that there is a positive relationship between levels of happiness and worker productivity. A happier worker is a more productive worker. Conventional economics assumes that principle-agent dilemmas are resolved such that firms are productively efficient; otherwise big bills would be left lying on the sidewalk. This would inconsistent with the assumption of rational materially maximizing individuals. Building on x-efficiency theory, a model is presented to help explain why unhappy workers (Nash equilibrium-Prisoner s Dilemma solution) are consistent with productivity equilibrium within the firm and with rational economic agents. Also, this modeling helps explain why happiness contributes to increasing productivity and why it is possible to have both happy firms and unhappy firms in competitive equilibrium in any given point in time and over historical time. Important to this discussion is an understanding of the power relationships across firm members, institutional parameters, norms and culture.
Time for Happiness? Associations Between Flexible Work Hours, Happiness, Satisfaction, by Type of Labor
Lonnie Golden
(Pennsylvania State University-Abington)
Julia R. Henly
(University of Chicago)
Susan J. Lambert
(University of Chicago)
Jaeseung Kim
(University of Chicago)
[View Abstract]
[Download Preview] Research on the well-being effects of work and work hours tend to leave unconsidered more comprehensive indicators, such as self-reported happiness. Moreover, employee-centered flexibility has not been a focus as a potential contributing determinant of employee subjective well-being, including happiness and workers' job satisfaction, in the US. This paper uses data pooled from a nationally representative US survey, the General Social Survey and three separate years of a module that contain many working condition items and job status distinction by salaried and hourly paid. Controlling for a workers income bracket, and work hours duration, having work schedule flexibility in the form of an ability to take time off during the work day and, to a somewhat lesser extent, to vary starting and quitting times daily, are both associated with greater happiness, whereas an ability to refuse overtime work is weak at best. Most interesting is that the associations are generally stronger among workers paid by the hour than by salary. Interaction effects show that hourly paid workers benefit relatively more, especially from the ability to take time off of work during the day. For labor economics, worker utility functions thus may be more complete by including the timing and flexibility of working time. For policy, organizational practices and legislation that promotes more employee-centered flexible working time may not only help workers alleviate work-life time conflicts, but also promote worker well-being, generally, especially among hourly-paid workers.
The Effect of Income on the Importance of Money: Survey and Experimental Evidence
Sanford E. DeVoe
(University of Toronto)
Dr. Jeffrey Pfeffer
(Stanford University)
Dr. Byron Y. Lee
(University of China)
[View Abstract]
The authors investigate how both the amount and source of income affects the importance placed on money using a longitudinal analysis of the British Household Panel Survey and evidence from two laboratory experiments. Larger amounts of money received for labor were associated with individuals placing greater importance on money, but this effect did not hold for money unrelated to work. The longitudinal survey analysis demonstrated these differential effects of the source of income on money s importance while holding constant stable individual differences. The experiments provide evidence that the source of income has a causal effect on the importance of money as well as on the effort expended to earn more money. Even as individual differences in the importance placed on money may affect peoples income, our results suggests that, depending upon its source, income can also affect the importance people place on money.
How Happiness Research Can Improve Employment Law and Policy
Peter H. Huang
(University of Colorado-Boulder)
[View Abstract]
Much of employment law and policy is based upon modern labor economics, which is a branch of applied microeconomics based upon labor supply choices that maximize utility functions that depend positively on leisure and negatively on labor. Recent empirical studies about experienced happiness, flow, and meaning find that people care about more than just wages in making labor supply choices. People can view their employment as being a job, career, or calling depending on whether they are motivated by money, status, or some larger purpose. This paper analyzes how research about subjective well-being changes the foundations of modern labor economics and in so doing also changes much of employment law and policy. This work builds on the work presented in Scott A. Moss and Peter H. Huang, How the New Economics Can Improve Discrimination Law, and How Economics Can Survive the Demise of the Rational Actor , 51 William & Mary Law Review 183-259 (2009), and is also related to Ernest Friedrich Schumacher's essay, Buddhist Economics, which was first published in Asia: A Handbook, edited by Guy Wint, published by Anthony Blond Ltd., London, 1966. Schumacher included his essay as part of his book, Small Is Beautiful: Economics as if People Mattered (1973). This paper is particularly timely in light of the advent of research by (behavioral) economists and (positive) psychologists about divergences among experienced versus predicted happiness and remembered happiness. Finally, this paper considers how adopting the objective of employee happiness alters employment regulation and can foster innovation and entrepreneurship.
What does the Human Resources Department Need to Know about Happiness?
Debra L. Casey
(Temple University)
G. Steven McMillan
(Pennsylvania State University-Abington)
[View Abstract]
"The literature on happiness, subjective well-being, and life satisfaction is abundant and expanding quite dramatically, with different disciplines defining and measuring these concepts quite differently. The purpose of this research study is twofold: first, to utilize a bibliometric approach to map the literature on happiness, and second, to identify the findings this body of research offers to inform the essential functions of human resource management (HRM) in the world of work.
Bibliometrics is the collection and analysis of quantitative bibliographic data derived from scientific publications. While the term bibliometrics is rather recent dating back to the late 1960 s, the field itself has roots reaching back at least 80 years (Lotka, 1926). Accordingly, bibliometrics is an empirical, quantitative methodology that we use to classify and describe the underlying structure of the research on happiness, subjective well-being, positivity, and life satisfaction as it relates to the world of work. Utilizing key search terms in Thomson Scientific s Web of Science, we create a happiness database of scholarly work. Two software packages, Bibexcel and Pajek, are used to identify and analyze the differing clusters of scholarly activity and to visualize graphical representations of the uncovered relationships.
In the second part of our paper, these relationships are qualitatively analyzed through the framework of HRM. HRM strives to link the human capital potential of a firm to positive organizational outcomes through five essential functions: (1) job design and analysis; (2) recruitment and selection; (3) training and development; (4) performance appraisal and measurement; and (5) compensation and benefits. As revealed through the bibliometric analysis, the happiness literature brings findings to bear on each of these HRM functions. From both a future research perspective and an applied managerial perspective, we analyze these findings as they can inform and improve HRM efforts in the future.
Discussants:
Adam Okulicz-Kozaryn
(Rutgers University-Camden)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Measuring the Effect of the Minimum Wage
(J5)
Presiding:
Paul Wolfson
(Dartmouth College)
The Consequences of the Minimum Wage for Low Income Families
Dale Belman
(Michigan State University)
Paul Wolfson
(Dartmouth College)
[View Abstract]
The Consequences of the Minimum Wage for Low Income Families Although an initial goal of the minimum wage was to provide a minimum standard of living, research on the effect of minimum wage increases on low income families has focused on whether it lifts families above the poverty threshold. The current research uses the SIPP to investigate whether increases in the minimum wage affect the annual income of low income families and how far up the income distribution such effects, if they are present, reach. The SIPP is uniquely suited to this research because of the depth of its questions on income and family structure and because its longitudinal structure allows following families through increases in the minimum wage. We embed measures of minimum wage change at the federal and state level into conventional models of family income to estimate the impact of the minimum wage on family earned income as well as any indirect effects on the receipt of other forms of income.
When Mandates Work: Raising Labor Standards at the Local Level
Michael Reich
(University of California-Berkeley)
[View Abstract]
[Download Preview] States and cities have come to the fore in passing minimum wage laws, living wage laws, paid sick leave policies and other labor standards. I examine the experience of San Francisco, which has passed the most numerous and most advanced such mandates. These policies have enhanced living standards for the bottom quintile of the city's workers, without any discernible negative effects upon employment. I make these points by summarizing the studies in a new book, When Mandates Work, Reich, Jacobs and Dietz, University of California Press.
Fairness and Frictions: The Impact of Raises on Quit Behavior
Laura Giuliano
(University of Miami)
Jonathan Leonard
(University of California-Berkeley)
Arindrajit Dube
(University of Massachusetts-Amherst)
[View Abstract]
We use personnel records to examine the impact of a federal minimum wage increase on raises and subsequent quit rates at a large U.S. retail firm. The firm's wage policy resulted in sizeable wage spillovers--with raises given to those earning as much as 15% above the new minimum. Our analysis focuses on two potential explanations for such spillovers: (1) fairness concerns and (2) the presence of substantial search frictions and monopsony power. In either context, workers earning more than the minimum may require raises to prevent them from quitting when the minimum wage goes up. We first estimate the causal effects of raises on quit behavior, and then examine the roles of fairness concerns and market frictions in driving this behavior. Our research design exploits plausibly exogenous variation in raises created by a corporate rule for adjusting wages. When the minimum wage went up, the firm grouped its low-wage employees into 15-cent wide wage bands and assigned each group to a common new pay step. This rule created discontinuous wage increases at the pay-step thresholds as well as variation in the wage increases of employees within each 15-cent band. We use the discontinuities to estimate regression discontinuity (RD) models of the impact of wage increases on quit rates. We also estimate instrumental variables (IV) models using the distance between an employee's initial wage and the next pay-step threshold as an instrument for the wage increase. Both the RD and IV estimates imply large quit elasticities--ranging from a 9-month elasticity of -9 to a 3-month elasticity of -18. Such large quit responses might suggest that search frictions in the low-wage labor market are small. However, because much of the variation in our sample comes from workers in the same stores, these elasticities could also reflect social comparisons and distaste for unfair wage inequalities. We test the latter hypothesis using variation in the wage increases of one's "peers"--defined as coworkers in the same store and within the same 45-cent wage band. Our results imply significant peer effects that are asymmetric, non-linear, and larger in the short run. Specifically, workers whose relative wage increases are in the bottom quartile of our sample (and whose absolute wage increases are 20% smaller on average than those of their peers) are roughly 35% more likely to quit within 3 months. However, we find no significant effects of relative wage increases that are either positive or only slightly negative. Our results therefore suggest that employees react strongly to "unfair" wages policies, but only when their own raises are significantly smaller than those of their peers. After accounting for these peer effects, the 3- and 6-month quit elasticities are close to zero and the 9-month elasticity is about half as large and statistically insignificant. These estimates are consistent with the presence of substantial market frictions and monopsony power, at least in the short run. In sum, our results suggest that both fairness concerns and market frictions impact the firm's wage policy and employee quit behavior.
Discussants:
Ed Muir
(American Federation of Teachers)
Brian J. Phelan
(DePaul University)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
The Strength and Efficacy of the Public and Private Retirement Systems
(J5)
Presiding:
Teresa Ghilarducci
(New School)
401(k) Participant Behavior in a Volatile Economy
Barbara Butrica
(Urban Institute)
Karen Smith
(Urban Institute)
[View Abstract]
The booms and busts of the late 1990s and 2000s have taken 401(k) plan participants on a roller-coaster ride of ups and downs. Yet, it isn't clear how participants respond to these periods of economic expansions and contractions. Do they stop contributing or reduce their 401(k) contributions during economic downturns? Do participants react similarly to all recessions or do certain economic downturns-because of their severity, for example-induce different or more dramatic behavioral responses? What are 401(k) participants' responses to booms compared with busts? Are retirement account portfolios more heavily invested in stocks when the economy is booming and less invested in stocks when the economy is failing? This paper uses data from the Survey of Income and Program Participation matched to tax data from the Social Security Administration's Detailed Earnings Records along with data from the Survey of Consumer Finances to document changes in DC plan participation, contributions, investment allocation, and risk tolerance between the late 1990s and late 2000s and examine how they correspond to changes in the economy. The findings will improve our understanding of the factors influencing workers' 401(k) behavior in ways that could help policymakers encourage higher participation and contribution levels throughout workers' careers and promote retirement security.
The Determinants of Defined Contribution Retirement Plan Participation Over Time
Joelle Saad-Lessler
(New School)
Teresa Ghilarducci
(New School)
[View Abstract]
[Download Preview] This study analyzes the impact of unemployment spell length and incidence on changes in defined contribution (DC) plan participation, controlling for changes in demographic, economic, and spousal characteristics, as well as changes in plan details using longitudinal data on the same individuals from 2009-2012. We apply a Oaxaca-Blinder decomposition on the results and find that the most important factors in determining the change in DC plan participation between 2009 and 2012 were the change in employer contributions to DC plans, the change in spousal participation, and the increase in the number of weeks spent unemployed or out of the labor force. These findings underscore the importance of keeping track of the impact of unemployment on subsequent DC plan participation.
How Valuable Is Social Security Wealth, and How Might It Be Affected By Changes to Program Design?
Anthony Webb
(Boston College)
[View Abstract]
Previous research has calculated the value of Social Security wealth to working age households by calculating the expected present value of benefits, discounted by a rate of interest and annual survival probabilities, and pro-rating between past and future employment. This methodology ignores 1) the value of the longevity insurance provided by Social Security; 2) the insurance provided through he progressive benefit formula against the risk of low lifetime earnings; and 3) the obligation to pay Social Security taxes.
Using numerical optimization techniques in a model incorporating financial, labor market and mortality risk, we calculate Social Security Equivalent Wealth, the minimum amount a risk averse household would require by way of compensation for withdrawing from the system, and losing all accrued benefits. We compare this with prorated expected present value. We calculate whether households at various points on the income distribution have a preference for benefit cuts or tax increases as a means of restoring solvency.
Estimating the Occupational Health Gradient at Older Ages: The Role of Peak Career Earnings
Lauren Schmitz
(New School)
[View Abstract]
This paper examines whether working conditions contribute to health disparities at older ages. The impact of occupation on health in the years leading up to retirement is not well understood, partly because it is difficult to untangle the long-term or cumulative effect of a worker's occupational commitment over their lifetime from job demands at older ages. To better estimate the connection between work and health, a unique and rich panel data set was analyzed that incorporates health and employment data from eight waves (1992-2008) of the Health and Retirement Study (HRS) with data on objective job demands from the Department of Labor's Occupational Information Network (O*NET), and administrative earnings data from the Social Security Administration's Master Earnings Files (MEF). The MEF contain W-2 earnings records for jobs held before individuals enter the HRS, making it possible to estimate the cumulative effect of earnings over the life cycle on baseline health while also controlling for any unobserved heterogeneity that may be correlated with working conditions at older ages. Results show that trends in peak career earnings are strong predictors of physical, environmental, and psychosocial working conditions at older ages. After controlling for these trends at baseline, dynamic panel ordered probit models reveal that characteristics of the psychosocial and physical work environment are associated with health transitions after age 50.
Emptying the Nest Egg: The Causes and Effects of Leakage from Defined Contribution Accounts
Robert Hiltonsmith
(New School)
[View Abstract]
This study uses the 2008 wave of the Survey of Income and Program Participation (SIPP) to investigate the factors behind household decisions to make early withdrawals from retirement accounts. It seeks build on previous research by jointly considering all forms of leakage from both DC accounts and IRAs, potentially producing more robust correlations than the bulk of previous research, which mostly considered only one type of leakage or retirement account. Retirement plan participants who experience life shocks would likely consider all methods of accessing their retirement assets to be substitutes for one another, (perhaps) choosing the method that incurs the least damage to their retirement prospects while allowing them to meet the need necessitated by a particular shock. Finally, the 2008 SIPP panel may, due to changing macroeconomic trends, allow the project to discover significance for shocks which previous research failed to find significance for, particularly education cost shocks. Given that such costs have been rising, on average, at much higher rate than overall costs, it is possible that households in the 2008 panel may have been forced to dip into their retirement accounts to meet education expenses that are larger, in real terms, than those faced by households in previous panels.
Discussants:
Leora Friedberg
(University of Virginia)
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 105-A
Middle East Economic Association
Labor Market Issues
(J2)
Presiding:
Jeffrey Nugent
(University of Southern California)
The Labor Market Impact of Mobility Restrictions: Evidence from the West Bank
Sami Miaari
(University of Tel-Aviv)
Massimiliano Calì
(World Bank)
[View Abstract]
Using data on Israeli closures inside the West Bank, we provide new evidence on the labour market effects of conflict-induced restrictions to mobility. To identify the effects we exploit the fact that the placement of physical barriers by Israel was exogenous to local labour market conditions and use a measure of conflict intensity to control for the likely spurious correlation between local unrest, labour market conditions and barriers' placement. We find that these barriers to mobility have a significant negative effect on employment, wages and days worked per month. On the other hand the barriers had a positive impact on the number of hours per working day. These effects are driven mainly by checkpoints and only a tiny portion of the effects is due to direct restrictions on workers' mobility. Despite being an under-estimation of the actual effects, the overall costs of the barriers on the West Bank labour market are substantial: in 2007 for example these costs amounted to 6% of GDP. Most of these costs are due to lower wages, thus suggesting that the labour markets have adjusted to the restrictions more through prices than quantities.
Female Labor Supply in Egypt, Tunisia and Jordan
Edward Sayre
(University of Southern Mississippi)
Rana Hendy
(Economic Research Forum)
[View Abstract]
[Download Preview] Many researchers have made the connections between women's opportunities in the workforce and economic development. If women are not able to work outside the home because of cultural, legal or other institutional barriers, then the country will not be using all of its resources effectively. In the Middle East, this issue is particularly of concern since female labor force participation rates are some of the lowest throughout the world. Female labor force participation ranges from a high of 52 percent in Qatar to a low of 13 percent in country Syria.
This paper first examines the different experiences of female labor supply between different countries in the Middle East. A critical question that the authors also attempt to answer is whether or not it is the husband versus society that keeps married women out of the workforce.
Waves of Immigration from the Middle East to the United States
Hisham Foad
(San Diego State University)
[View Abstract]
[Download Preview] Anecdotal evidence suggests three "waves" of immigration from the Middle East and South Asia to the United States. The first wave began in the late 19th century and lasted until the passage of the Johnson-Reed Quota Act in 1924, which severely restricted migration from non-European countries. The second wave is stated to have begun with the 1948 Arab-Israeli War and continued with a series of revolutions in Egypt, Iraq, and Syria. Immigrants from this wave were less numerous than the first wave, but tended to be better educated, often coming from the established elite in their native countries. The third wave was started by the passage of the Immigration and Nationality Act of 1965, which abolished the quota system that had been established in 1924. This law, coupled with continuing economic and political instability in the Middle East led to a boom in immigration from the Middle East to the United States.
The purpose of this study is to assess differences across these waves of immigrants. I examine differences across dimensions such as educational attainment, personal income, occupation, residence in an ethnic enclave, and internal mobility. Differences are evaluated not only across these three waves, but also for individual source countries as well as regional variations across the United States. I also assess cultural assimilation by looking at data for second generation immigrants to see the fraction of their parents (i.e. first generation immigrants) that married outside of their migrant communities. Finally, I depart from the anecdotal definitions of these three waves and search fr endogenous breakpoints using Hansen's (2000) technique. This method allows for an identification of the years in which migrant characteristics significantly changed across the dimensions evaluated in my study.
Estimation of Gender Wage Differentials in Egypt using Oaxaca Decomposition Technique
Marwa Biltagy
(Cairo University)
[View Abstract]
[Download Preview] This paper focuses on estimating wage differences between males and females in Egypt to understand the determinants of gender wage gap and control of this variation. The main objective of this paper is to provide an economic analysis of the wages system in Egypt in order to specify the major problems of that system and to calculate the wage differentials between both genders. This paper consists of four main sections, excluding introduction and conclusion. The first section surveys the wages system in Egypt and its structure, the second presents the data description and the characteristics of males' and females' samples, the third section proposes the empirical model and its estimation and the fourth one introduces the results of the regression analysis of males' and females' samples in addition to policy implications.
Convergence of Human Capital: Geography and Policy
B. Can Karahasan
(Okan University)
Alpay Filiztekin
(Sabanci University)
[View Abstract]
[Download Preview] This paper seeks to investigate the regional human capital differences in Turkey by questioning the convergence hypothesis during the last two decades. Given that human capital accumulation plays a vital role for understanding the regional inequalities at the very local level, we decide to divert the attention towards the way that human capital level of individuals differ among the 923 districts of Turkey. Initial set of results obtained from district level data for the years of 1990, 2000 and 2010 validate that; central expectations of the neo-classical convergence theory hold for Turkey; districts with relatively lower education levels realize a better human capital development. Moreover we clarify that for the baseline age group of 30-49 the speed of convergence is higher. While these preliminary findings should indicate the fall of regional imbalances for the human capital accumulation, additional results obtained from Exploratory Spatial Data Analysis (ESDA) and Geographically Weighted Regression (GWR) underline that this convergence is not stable (stationary) geographically. Even though the global estimates of the initial human capital underlines an overall convergence, GWR results pin-point that this convergence is not stable among the whole geography of Turkey, which clearly underlines local divergence.
Discussants:
Mahdi Majbouri
(Babson College)
B. Can Karahasan
(Okan University)
Rahel Schomaker
(FOEV Speyer)
Edward Sayre
(University of Southern Mississippi)
Fatma Dogruel
(Marmara University)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Congress B
National Association of Forensic Economics
Topics in Forensic Economics II – Employment Session
(K1)
Presiding:
John Ward
(University of Missouri-Kansas City)
Employment Transition Options for Elder Statesmen Forensic Economists
Frank Tinari
(Tinari Economics)
[View Abstract]
The author examines various exit strategies for the older Forensic Economic practitioner.
The Impact of Workplace Flexibility Policies on Career Employment, Bridge Jobs, and the Timing of Retirement
Kevin E. Cahill
(Boston College)
Michael D. Giandrea
(US Bureau of Labor Statistics)
Joseph F. Quinn
(Boston College)
[View Abstract]
[Download Preview] To what extent does hours flexibility in career employment impact the retirement process? Workplace flexibility policies have the potential to improve both the welfare of employees and the business outcomes of employers. These policies, and hours flexibility in particular for older Americans, have also been touted as a way to reduce turnover. For older Americans, reductions in turnover could mean more years in career employment, fewer years in bridge employment, and little or no impact on the timing of retirement. Alternatively, hours flexibility in career employment could lead to longer working lives and delayed retirements. The distinction between the two outcomes is important if hours flexibility policies, such as phased retirement, are to be considered an option for alleviating the strains of an aging society. This paper describes how hours flexibility in career employment impacts the retirement patterns of older Americans. We use data on three cohorts of older Americans from the Health and Retirement Study (HRS), a large nationally-representative dataset that began in 1992. We explore the extent to which hours flexibility arrangements are available and utilized in career employment and explore the extent to which such arrangements impact job transitions later in life. We find that bridge job prevalence is higher among those with access to hours flexibility compared to those without hours flexibility. Further, while we find mixed evidence that hours flexibility extends time in career employment, we do find that hours flexibility in career employment is associated with longer tenure on bridge jobs. Taken together these results suggest that hours flexibility in career employment is associated with extended work lives, particularly in post-career employment.
"Make Whole" Damages in Employment Litigation; A Case Study
Thomas Roney
(Thomas Roney, LLC)
[View Abstract]
[Download Preview] An examination of the "make whole" doctrine in employment matters. I examine the determination of back pay and front pay damages, with offset earnings. Damages are adjusted for appropriate State and Federal Taxes and the award is tax-adjusted for the receipt of a lump-sum award of past and future damages in the current year.
Discussants:
Stephen M. Horner
(Economic Consulting)
Gary Skoog
(DePaul University)
William D. King
(William D. King & Associates, Inc.)
Jan 04, 2014 8:00 am, Philadelphia Marriott, Meeting Room 306
National Economic Association/African Finance & Economics Association
African Development
(O1)
Presiding:
Mwanza Nkusu
(International Monetary Fund)
Aid Allocation, Gender and Social Development in Sub-Saharan Africa
Léonce Ndikumana
(University of Massachusetts-Amherst)
Lynda Pickbourn
(Hampshire College)
[View Abstract]
While African countries have made some progress in social development since the turn of the century, many are still lagging behind in important social development goals such as education, health, nutrition and access to water and sanitation. Moreover, social equity remains a major challenge in most countries. Most specifically, the record shows a large gender gap along many dimensions, including access to education, health, and other social services. This paper investigates the role that aid and its allocation across sectors may have played in generating these outcomes. This study uses data from OECD/DAC on sectoral allocation of development aid as well as data from the World Bank, the UNDP and other sources on public social expenditures, social development outcomes and other country-specific indicators. It undertakes a detailed statistical analysis to examine the linkages between aid allocation and development outcomes, with a particular focus on gender development and gender inequality. We use pooled cross-sectional and panel data estimation techniques controlling for country specific effects (using panel fixed-effects estimations), time effects (to account for global shocks), potential outliers (using iterated reweighted least squares - IRLS), and potential endogeneity of the regressors (using the system general method of moments - GMM). The results from this study have important implications for aid effectiveness and for strategies to improve gender equity in development.
The Role of Education and Migration in Social Safety Nets: Some Empirics
Kwabena Gyimah-Brempong
(University of South Florida)
Yaw Nyarko
(New York University)
[View Abstract]
This paper uses LSS data from two African countries to investigate the relationships among education, migration and social safety nets in Africa. Using educational attainment of head of household as our measure of education, we find positive and statistically significant relationships between education and the probability of sending a domestic remittance as well as between education and the absolute amount of domestic remittance a household sends in both countries. The estimates are robust to model specification (including the number and type of control variables), data organization, and estimation method. This suggests that one mechanism through which education provides a social safety net in Africa is the migration and remittances channel. This result is consistent with the results of research that conclude that education reduces poverty in households. It is also consistent with the results of research that finds that highly educated international migrants tend to remit more overall than their less educated counterparts. Our results suggest that policymakers should develop better policies to improve the efficiency of remittance flows to encourage high income educated migrants to send remittances to support their relatives.
Growth and Inequality in Africa 1960-2010
Depankar Basu
(University of Massachusetts-Amherst)
Mwangi wa Githinji
(University of Massachusetts-Amherst)
[View Abstract]
Changes in equality over time in African countries have been difficult to trace due to the lack of longitudinal household level data. Standardized residuals from a cross-country regression of life expectancy at birth on per capita income, HIV prevalence and a measure of conflict can be used to track broad socio-economic inequality over time (Basu, 2011). In this paper, we use this residual-based measure of inequality to analyze patterns of growth and distribution in Africa since the 1960s. We find striking differences in the regime of economic growth in the 1960s versus the growth regime since the mid-1990s. While the first regime is seen to be one of equalizing growth, the growth process since the mid-1990s has been intensely disequalizing. Agricultural growth emerges as a key determinant of the distributional consequences of economic growth in Africa.
The Making of the Middle Class in Africa
Mthuli Ncube
(African Development Bank)
Abebe Shimeles
(African Development Bank)
[View Abstract]
This paper makes an effort to understand the making of a middle class in Africa by exploiting a comparable micro data from the Demographic and Health Surveys (DHS) for 42 countries over two decades consisting of over 750,000 individual histories using ownership of physical assets, housing conditions and access to clear water as key welfare indicators. The size of the middle class increased from about 5% to 15% in the last two decades and this result is consistent with an alternative estimate based on consumption expenditure computed in a companion paper by the African Development Bank. We constructed a pseudo-panel to examine the dynamics of middle class in blocks of four periods covering the period 1990-2011. A key finding is that there was significant mobility of the middle class to the upper class (rich) in the last two decades with very little evidence of slipping back to poverty with obvious difference across countries. The paper approached the making of a middle class in Africa form an institutional and policy perspectives. Generally the size of the middle class is higher in countries where mutual trust among citizens tends to be stronger. Other initial conditions such level of development in early decades, quality of institutions and most of all ethnic fractionalization play a significant role in determining the growth of the middle class in recent years. The role of education feature prominently in the making of the middle class. In about 30 of the 82 country-level decompositions of the asset index we conducted, the role of education exceeded 25% in explaining the overall variance in the asset index. The 'premium' (or 'return') individuals get from achieving primary, secondary and tertiary level of education was very clear in the accumulation of assets. A policy of increasing the stock of education may be seen with caution however. The relative gains (or 'returns') with respect to asset decline for secondary and higher level of education as the proportion of people achieving the same level of schooling or mean level of schooling increases.
Bank Regulation and Efficiency: What Works for Africa?
Thouraya Triki
(African Development Bank)
Imen Kouki
(University of Dubai, UAE)
Pietro Calice
(African Development Bank)
[View Abstract]
[Download Preview] We use a new database on regulation and supervision in 46 countries to study the relationship between the regulatory framework and bank efficiency in Africa. Specifically, we examine how bank efficiency is influenced by requirements related to (i) Overall capital stringency, (ii) Restrictions on entry into banking, (iii) Restrictions on bank activities, (iv) Transparency requirements, (v) Restrictions on exit from banking, (vi) Liquidity and diversification requirements, (vii) Price controls (financial repression), (viii) Availability of financial safety nets and (ix) Quality of supervision. We find that tighter restrictions on exit and on permitted activities negatively affect bank efficiency while increased liquidity and diversification requirements and the availability of financial safety nets have efficiency-enhancing effects. These results hold for different bank size and risk groups we consider. We also find that more stringent restrictions on entry increase the efficiency of large banks while reducing the efficiency of small banks. Similarly, our results suggest that small banks are the main losers in terms of efficiency from increased transparency requirements, price controls and stringent capital requirements. Likewise, enhanced quality of supervision seems to hinder the efficiency of low risk banks regardless of their size. Overall, our findings support the argument that regulation should be adapted to the risk and size level of the institutions that are being regulated.
Oil Wealth, Ethno-Religious-Linguistic Fractionalization and Civil Wars in Africa: Cross-Country Evidence
John C. Anyanwu
(African Development Bank)
[View Abstract]
[Download Preview] We empirically examine the effect of oil wealth and ethno-religious-linguistic fractionalization on civil war prevalence in Africa, by using three different estimation strategies and alternative measures of societal heterogeneity. We show that oil wealth and the three distributional measures of ethnic fractionalization, religious fractionalization, and linguistic fractionalization are significant correlates of civil war in Africa. These effects persist as we use an alternative measure of the prevalence of civil war. Thus, while oil wealthy, ethnically and linguistically fractionalized countries are more likely to experience civil violence, religiously fractionalized ones are less likely to experience significant civil violence in the Continent. We also find that countries with large population size, rough (mountainous) terrain and coup-prone are at greater risk for civil war than those that are more democratic with high per capita income and economic growth.
Discussants:
Zuzana Brixiova
(African Development Bank)
Una Okonkwo Osili
(Indiana University-Purdue University-Indianapolis)
John Karikari
(Government Accountability Office)
Léonce Ndikumana
(University of Massachusetts-Amherst)
Malokele Nanivazo
(United Nations University)
Elizabeth Asiedu
(University of Kansas)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Washington A
Society for Economic Dynamics
Understanding Trends in Labor Market Outcomes
(J3)
Presiding:
Erik Hurst
(University of Chicago)
Where is the Land of Opportunity? Geographical Variation in Intergenerational Mobility in the United States
Raj Chetty
(Harvard University)
Nathaniel Hendren
(Harvard University)
Patrick Kline
(University of California-Berkeley)
Emmanuel Saez
(University of California-Berkeley)
[View Abstract]
We use administrative records on the earnings of more than 40 million pairs of parents and children to describe four features of intergenerational mobility in the United States. First, we characterize the joint distribution of parent and child income at the national level. We find that the relationship between parent and child income is linear in percentile ranks. A 10 percentile increase in parent income is on average associated with a 3.3 percentile increase in a child's income. Second, upward income mobility varies substantially across areas of the U.S. For example, the probability that a child reaches the top quartile of the national income distribution starting from a family in the bottom quartile ranges from 8% in Atlanta to 19% in Salt Lake City. Third, we study parents who move across areas and show that a child's outcomes vary in proportion to her duration of exposure to a better area. This suggests that the variation in intergenerational mobility across areas may be partly driven by causal effects of place rather than pure sorting. Finally, we explore the factors correlated with upward mobility. We find that high mobility areas have (1) less income inequality and residential segregation, (2) greater family and social stability, and (3) better outcomes in primary schools. While our descriptive analysis does not identify the causal mechanisms that drive upward mobility, we provide a new publicly available dataset of intergenerational mobility statistics by area to facilitate future research on such mechanisms.
Volatility and Inequality during the Last Four Decades: A Joint Analysis of Businesses and Their Employees
Nicholas Bloom
(Stanford University)
Fatih Guvenen
(University of Minnesota)
Jae Song
(Social Security Administration)
[View Abstract]
This paper studies inequality and volatility of firms and their employees using a large administrative dataset. We construct a large matched employer-employee dataset, which includes detailed the workforce characteristics (age, gender, income) for a representative sample of firms. Using this dataset, we examine the component of labor income inequality that is explained by inequality across firms and inequality within firms. We also study how firms change their workforce characteristics in response to aggregate, sector-level and firm-level shocks.
Accounting for Changes in Between Group Inequality
Ariel Burstein
(University of California-Los Angeles)
Eduardo Morales
(Columbia University)
Jonathan Vogel
(Columbia University)
[View Abstract]
[Download Preview] We provide a framework with multiple worker types (e.g. gender, age, education), to decompose changes in aggregated and disaggregated between-group inequality into changes in (i) the supply of each worker type, (ii) the importance of different tasks, (iii) the extent of computerization, and (iv) other labor-specific productivities (a residual to match observed relative wages). The model features three forms of comparative advantage: between worker types and computers, worker types and tasks, and computers and tasks. We parameterize the model to match observed changes in worker type allocation and wages in the United States between 1984 and 2003. The combination of changes in the importance of tasks and computerization explain the majority of the rise in the skill premium as well as rising inequality across more disaggregated education types, whereas labor-specific productivity changes drive between-worker wage polarization.
Men Not At Work: Explaining Trends in Male Hours over Five Decades
Mark Aguiar
(Princeton University)
Erik Hurst
(University of Chicago)
Loukas Karabarbounis
(University of Chicago)
[View Abstract]
In this paper, we examine the the determinents of the evolution of male hours by years of schooling within the U.S. between the mid-1960s through the late 2000s. We quantify the extent to which changes in wages, changes in female labor supply, changes in the taxes and transfers, changes in the price of leisure, and changes in the price of home production explain changes in male hours within each skill group. Given the changes in both quantities and prices, we infer a common set of preference paramaters across the skill groups. We then perform counter-factuals about how hours would have evolved had the various determinents not changed.
Jan 04, 2014 8:00 am, Pennsylvania Convention Center, 106-B
Society of Government Economists
Recent Advances in Empirical Research Using Administrative Data
(D1)
Presiding:
Charles Hokayem
(US Census Bureau)
An Evaluation of Retirement Income in the CPS ASEC Using IRS Form 1099-R Microdata
Adam Bee
(US Census Bureau)
[View Abstract]
In the past several decades, individuals 65 and over have experienced remarkable declines in poverty, from 35.2 percent in 1959 to 9.0 percent in 2011. These declines in official poverty rates, however, are based on self-reported income data from the Current Population Survey Annual Social and Economic Supplement (CPS ASEC). In this paper I evaluate the quality of the retirement income data in the 2010 CPS ASEC by matching it to individual microdata from IRS 1099-R forms filed with tax returns for the 2009 tax year. I find that recipiency of retirement income may be underreported on the CPS ASEC, as only a third of individuals with matched 1099-R forms reported receiving any retirement income. Much of this discrepancy, however, may be due to differences in scope, as the 1099-R covers a wider set of payments than is intended to be captured in the CPS ASEC retirement income items. In cases where positive amounts are reported on the CPS ASEC, however, those amounts appear to be quite accurate. Among cases with positive reported income, the correlation between CPS ASEC and 1099-R log amounts is 0.769. Upon modeling 1099-R recipiency as a function of age with discontinuities at various policy-relevant age cutoffs, I find a 14.0 percentage-point jump in recipiency at age 59½, the age at which IRA withdrawals are allowed without penalty. Taken together, these results provide suggestive evidence that retirement income may represent an underestimated contribution to the material well-being of the elderly.
The Earnings Impact of Graduating from College during a Recession
Gary Benedetto
(US Census Bureau)
Graton Gathright
(US Census Bureau)
Martha Stinson
(US Census Bureau)
[View Abstract]
We test the prediction that labor market conditions upon initial labor force participation have a persistent impact on earnings. Using data from eight panels of the Survey of Income and Program Participation linked to earnings records for 1978 to 2010 from the Social Security Administration's Master Earnings File, we estimate the impact of the unemployment rate faced upon college graduation on male college graduates' earnings for up to 15 years after graduation. We do not find evidence of a persistent impact of the graduation-year unemployment rate on earnings beyond the graduation year. We repeat our analysis on Version 5.1 of the SIPP Synthetic Beta (SSB), a recently released public-use synthetic version of these linked data, as a test of the analytical validity of the SSB. We obtain estimates from the SSB that are similar in sign and magnitude to estimates from the underlying confidential data.
Employment Transitions and Earnings Instability: An Analysis Using SIPP Linked to Administrative Data at the Job-Level
Holly Monti
(US Census Bureau)
Gary Benedetto
(US Census Bureau)
Graton Gathright
(US Census Bureau)
Martha Stinson
(US Census Bureau)
Kelly Trageser
(US Census Bureau)
Christopher Wignall
(US Census Bureau)
[View Abstract]
We study the contribution of job changes to earnings instability using a new dataset that links survey reported jobs to administrative records that contain earnings and employer characteristics. Most of the studies in the earnings instability literature have concluded that instability increased in the 1970s and early 1980s, but results for more recent years are mixed. Using this novel dataset, we provide new estimates of earnings instability in recent years and examine the driving forces behind earnings changes. Additionally, we explore the extent to which transitions between employment and non-employment and transitions within and across industries explain earnings changes. We also examine these relationships separately for different demographic groups.
We describe the creation of this new linked job-level dataset that combines Survey of Income and Program Participation (SIPP) job reports with administrative earnings records and employer information. The addition of administrative data to the SIPP ties a rich demographic worker profile to a longitudinal history of employers, complete with their corresponding characteristics, spanning 1978 to 2010. These data are ideal for tracking the movement of different types of workers between firms and assessing the impact of employment changes on worker outcomes. The Census Bureau is currently researching confidentiality protection methods for this file with the goal of eventually adding some of this content to future versions of the SIPP Synthetic Beta (SSB).
SNAP Receipt among the Non-Poor: Issues of Measurement in the ACS
Erik Scherpf
(US Department of Agriculture)
[View Abstract]
USDA's Supplemental Nutrition Assistance Program (SNAP) is the largest food assistance program in the United States and a cornerstone of federal programs for reducing food insecurity and hunger. Knowing who receives SNAP benefits and who, among eligible individuals, does not is important for assessing and improving program performance. Until recently, the data required to produce reliable estimates of participation rates within a State had not been available. By linking a State's administrative data on SNAP participation to the ACS, we have shown how a wide range of State and sub-State SNAP participation rates can be estimated and of use to policymakers and administrators. This paper builds on that work by giving special focus to issues of income measurement and intra-year income dynamics.
Household survey data, such as the American Community Survey (ACS), often show a larger share of participants in SNAP with income above the program's gross income thresholds than does USDA's SNAP Quality Control (QC) data. Strengths of the QC data, which are drawn from program operations data, are that they provide an official record of participation and benefits and are considered more reliable for measuring monthly income. Strengths of the ACS include that it has information on non-participants and that it is large enough for state and sub-state analyses. This paper uses the ACS and matched SNAP administrative data to investigate the extent to which estimates are affected by: 1) differences in the time period over which income is measured in the ACS (annual) relative to the time period over which SNAP eligibility is determined (monthly); 2) differences in how the SNAP eligibility unit is measured; 3) imputation of income in the ACS; and 4) measurement error in reported SNAP receipt in the ACS.
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Anthony
Union for Radical Political Economists
New Labor Process Research in the SSA Tradition
(B5)
Presiding:
Don Goldstein
(Allegheny College)
Understanding Institutional Equilibrium, Decline, or Collapse in the Context of an SSA
James Devine
(Loyola Marymount University)
[View Abstract]
[Download Preview] "Institutional equilibrium" can explain persistence of a micro institution by conditioning participants to have the beliefs pushing them to act to further its goals. This involves internal harmony plus mechanisms creating it. For a bureaucracy, corporate hierarchies operates in equilibrium between Weber's ideal and "red tape." Dynamics involve interaction between internal equilibrium and external conditions. Disruption by external forces encourages downfall, which may undermine larger institutions (e.g., an SSA). Equilibrium can also imply "relative autonomy."
Exploring a Role for Capability Theory in SSA Labor Process Research
Don Goldstein
(Allegheny College)
[View Abstract]
[Download Preview] Since its origins in the 1970s and eighties, Social Structure of Accumulation (SSA) research has moved away from its early emphasis on organization-level dynamics of profit-making, reinvestment, and labor process (within their broader institutional setting). Recent authors have begun to explore ways of renewing this emphasis. This paper proposes using the theory of “organizational capabilities†to reinvigorate this dimension of the SSA approach. An organizational capability is the capacity to mobilize disparate resources to achieve competitively important results. Capability theory focuses on path-dependent development of the firm’s ability to survive within its competitive environment and the importance of organizational learning when that environment changes. These emphases are well suited for deepening an SSA-oriented understanding of how the institutional structure of capital accumulation reaches into, and is in turn affected by, competitive dynamics at the firm level. The argument is illustrated with a preliminary application to the emergence of a post-1970s SSA in the U.S.
Labor Process and the Social Structure of Accumulation in China
Zhongjin Li
(University of Massachusetts-Amherst)
Hao Qi
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] Inspired by the interplay between the social structure of accumulation theory and the labor process theory, this paper is to specify the particular mechanism that labor institutions take in accomplishing China's rapid capital accumulation in the reform era. The paper starts by proposing a framework to understand the relation among overtime work, labor process, and the wage gap and presents the puzzling contradiction between the low wages and the need to sustain the reproduction of labor power for Chinese workers. The paper then details the bi-directional determination between the subordination of labor in the workplace and the wage gap, and further analyzes the critical conditions for the stability of the current labor institutions and the sustaining capital accumulation.
What's Happening to Supervisory Labor: Downsizing, Changing Management Practices, Steps toward a New SSA?
Michele Naples
(College of New Jersey)
[View Abstract]
[Download Preview] The waves of corporate downsizing since the 1980s have been seen as “hollowing out the firm," as if leveling the ground for new institution-building. Yet David Gordon showed that the supervisory/non-supervisory ratio continued to rise with early downsizing, has that trend continued? Are the ongoing corporate downsizing and centralization of capital in the recent, post-crisis period clearing the way for the next SSA for management? What form will that take? The paper explores this question, examining the literature on changes in supervisory ratios across several social-science disciplines.
Discussants:
Hao Qi
(University of Massachusetts-Amherst)
Thomas Herndon
(University of Massachusetts-Amherst)
Mihnea Tudoreanu
(University of Massachusetts-Amherst)
Jan 04, 2014 8:00 am, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists
South-South Economic Integration and Development
(F5)
Presiding:
Firat Demir
(University of Oklahoma)
Effects of FDI Flows on Institutional Development in the South: Does it Matter Where the Investors are From?
Firat Demir
(University of Oklahoma)
[View Abstract]
[Download Preview] FDI flows to and from developing countries have increased significantly accounting for more than 31% and 52% of global flows in 2012, respectively. Even more impressive has been the increase in South-South FDI flows, reaching around 63% of all outflows from developing countries in 2010. The increasing share of South-South flows and rising assertiveness of developing country multinationals in cross-border investments have created a controversy with regard to their effects on host country institutions. Given the weaker conditionality requirements in South-South FDI compared to North-South flows, developing countries such as China are accused of undermining developed country efforts to improve the institutional quality of developing countries. In this paper we provide an empirical analysis of the effects of bilateral FDI flows on institutional distance between home and host countries and whether such effects are dependent on the direction of the flows that is South-South vs. North-South, as well as South-North and North-North. The empirical result using bilateral FDI flows data among 134 countries during 1990-2009 suggests that the institutional development effects of bilateral FDI flows from North to South as well as those from South to South countries are not significant and are not any different from each other. In either case we do not find any significant convergence or divergence effect of FDI flows on the institutional distance between host and home countries. We also fail to find any significant effect of pooled North-South FDI flows on host country institutions. In contrast, we find that pooled South-South FDI flows have a significantly negative effect on host country institutions. Furthermore, we find some evidence that South – South FDI flows might be harmful to institutional development in natural resource rich countries while the opposite is true for North – South flows. Last but not least we discover that bilateral trade flows are much more influential in institutional convergence between countries.
South-South Economic Cooperation: Problems and Possibilities
Amitava Dutt
(University of Notre Dame)
[View Abstract]
[Download Preview] Problems with the nature of North-South interaction and the slowdown of Northern growth have intensified calls for South-South economic cooperation to foster Southern economic development. This paper examines the problems that stand in the way of increasing South-South economic integration and explores ways of overcoming these problems by analyzing: first, what types of country groups are best suited for South-South cooperation; second, what forms cooperation should take; and third, what needs to be done to supplement South-South cooperation agreements.
The Consequences of Expanding South-South Trade: Revisiting an Old Question in Light of Trade and Open Economy Models
Arslan Razmi
(University of Massachusetts-Amherst)
[View Abstract]
South-South trade has expanded noticeably in recent years. There has been little communication between the workhorse trade-theoretic and macro, fix price, less-than-full employment frameworks in analyzing the economic significance of this development. This paper is an attempt to begin filling this gap. First, I discuss trends in the proportion of Southern country trade with other Southern countries. Next, I investigate whether this proportion has evolved differently for different groups of developing countries. Having empirically established some developments on the ground, I then explore the logical consequences of these developments, initially using three workhorse trade frameworks: (1) the Heckscher-Ohlin framework, (2) the Feenstra-Hanson intermediate input framework, and (3) the "new" new trade theory with heterogenous firms.
South-South Trade, Real Wages, and Commodity Prices
Matias Vernengo
(University of Utah)
[View Abstract]
Between the late 1990s and now the share of South-South trade in total world trade increased from around 12% to approximately 27%, while the share of North-North trade declined from 46% to less than 30%. Chinese imports of commodities from other developing countries grew at a fast pace, and prices skyrocketed fueling a boom in the periphery. This suggests that demand forces were important in the expansion of commodity prices. In addition, real wages in Southern countries rose steeply, while wages in developed countries stagnated. Higher wages, one must note, imply higher costs of production and higher prices of commodities, but resulting from supply side forces. Finally, the 2000s saw a significant financialization of commodity prices, which also led to speculation and higher prices. This paper evaluates the several forces behind the expansion of commodity prices and the limits to a Southern strategy of development based on commodity production.
New Models of Development in the Southern Cone: Shifting Away from Neoliberal Orthodoxy Yet Moving Toward Re-Primarization: The Cases of Brazil and Argentina
Paul Cooney
(Universidade Federal do Pará-Brazil)
[View Abstract]
Since the turn of the century both Brazil and Argentina elected progressive governments and pursued policies breaking from neoliberal orthodoxy. However, as a result of globalization and in particular, the rise of China, and subsequent growth of 'commodities' markets, both economies have been experiencing re-primarization. Thus, in spite of some advances for local manufacturing, both Brazil and Argentina have witnessed an increased role for agro-industry and primary goods production in recent decades. This paper analyzes these changes for each country as well as carries out a comparison between them, assessing the new development models being pursued in the Southern Cone.
Discussants:
Arslan Razmi
(University of Massacusetts-Amherst)
William A. Darity, Jr.
(Duke University)
Matias Vernengo
(University of Utah)
Amitava Dutt
(University of Notre Dame)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, P1 Parlor
Agricultural & Applied Economics Association
Decarbonizing Transportation: Implications for Alternative Fuels and Agricultural Markets
(Q1)
Presiding:
Madhu Khanna
(University of Illinois)
Key Economic Insights Required for Using Lifecycle Analysis for Policy Decisions
Antonio M. Bento
(Cornell University)
Richard Klotz
(Cornell University)
[View Abstract]
[Download Preview] We develop an analytic and numerical model that integrates land, food and fuel markets and is linked with a sectoral emissions model to examine how the amount of biofuel in the economy impacts the lifecycle emissions of a biofuel under different policies. Our central finding is that the change in GHG emissions due to a unit expansion in biofuel will vary dramatically in the amount of biofuel in the economy and with the policy driving the expansion. The emissions from a unit expansion in corn ethanol due to a blend mandate fall from 12 gCO2e/MJ to 3 gCO2e/MJ, as the quantity of ethanol in the economy increases from 6 to 15 billion gallons. For an input subsidy, emissions due to a unit of ethanol increase from 15 gCO2e/MJ to 26 gCO2e/MJ over the same increase in ethanol. We discuss the implications of these results for lifecycle analysis.
Escape from Third-Best: Rating Emissions for Intensity Standards
Derek Lemoine
(University of Arizona)
[View Abstract]
[Download Preview] An increasingly common type of environmental policy instrument limits the carbon intensity of transportation and electricity markets. In order to extend the policy's scope beyond point-of-use emissions, regulators assign each competing fuel an emission intensity rating for use in calculating compliance. I show that welfare-maximizing ratings do not generally coincide with the best estimates of actual emissions. In fact, the regulator can achieve a higher level of welfare by manipulating the emission ratings than by manipulating the level of the standard. Moreover, a fuel's optimal rating can actually decrease when its estimated emission intensity increases. Numerical simulations of the California Low-Carbon Fuel Standard suggest that when recent scientific information suggested greater emissions from conventional ethanol, regulators should have lowered ethanol's rating (making it appear less emission-intensive) so that the fuel market would clear with a lower quantity.
Fracking and the (New) Economics of Natural Gas in Transportation
Steven Sexton
(North Carolina State University)
[View Abstract]
Hydraulic fracturing (fracking) has substantially boosted U.S. natural gas production by unlocking gas reserves stored within shale rock. Over the next two decades, fracking is expected to produce the dominant share of domestic natural gas and to generate about a 20% increase in production by 2035. The shale boom caused natural gas prices to plummet in 2011 and 2012, prompting renewed interest in the potential for natural gas to displace considerable oil consumption in transportation. Natural gas burns clean relative to oil-Ââ€based fuels, thus lowering the social costs of transportation, including the costs of carbon emissions and criteria pollutant emissions, as well as other externalities. Like electric vehicles, however, the market for natural gas vehicles is characterized by network externalities that impede diffusion of the technology. Some (e.g., Knittel 2012) have advanced proposals to level the playing field for natural gas in transportation. This paper reviews both prevailing market trends and existing and potential future transportation fuel policies, like the low carbon fuel standard, to evaluate the potential for natural gas to displace sizable quantities of gasoline and diesel in the transportation sector and the tradeoffs associated with foregone displacement of coal in the power sector.
Discussants:
Gal Hockman
(Rutgers University)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon C
American Economic Association
Agency Conflicts and Asset Pricing
(G1)
Presiding:
Bruno Biais
(Toulouse School of Economics)
Financial Crises, Risk Premia, and the Term Structure of Risky Assets
Tyler Muir
(Northwestern University and Yale University)
[View Abstract]
The literature on rare disasters shows that low probability events can explain high, time-varying risk premia. I find that large spikes in risk premia occur around financial crises but not around other disasters such as wars. A model with financial intermediaries generates endogenous financial crises that quantitatively match those in the data, while also replicating high equity risk premia and volatility. Compared to a standard disasters framework, the model makes additional empirical predictions which I confirm in the data. First, the equity of the intermediary sector strongly forecasts stock returns. Second, financial crises are temporary, which implies that the term structure of risky assets is downward sloping during financial crises when risk premia are concentrated in the near term. The model explains the level and slope of the term structure of risky assets including equities, corporate bonds, and VIX, both unconditionally and in a crisis. I then use the term structure of risky assets to infer the daily probability and persistence of a financial crisis in real time, providing a useful tool to analyze policy responses in a crisis.
Uncertainty Shocks and Balance Sheet Recessions
Sebastian Di Tella
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper investigates the origin and propagation of balance sheet recessions in a general equi- librium model with financial frictions. I first show that in standard models driven by TFP shocks, the balance sheet channel completely disappears when agents are allowed to write con- tracts on the aggregate state of the economy. Optimal contracts sever the link between leverage and aggregate risk sharing, eliminating the concentration of aggregate risk that drives balance sheet recessions. I then show how the type of aggregate shock that hits the economy can help explain the concentration of aggregate risk. In particular, I show that uncertainty shocks can drive balance sheet recessions and "flight to quality" events, even when contracts can be written on the aggregate state of the economy. Finally, I explore implications for financial regulation.
Risk-Sharing or Risk-Taking? Counterparty Risk, Incentives and Margins
Bruno Biais
(Toulouse School of Economics)
Florian Heider
(European Central Bank)
Marie Hoerova
(European Central Bank)
[View Abstract]
We analyze optimal hedging contracts and show that, although they are designed for risk-sharing, they can breed risk-taking. Bad news about the hedged risk increases the expected liability of the protection seller, undermining her own risk prevention incentives. This limits risk-sharing, creates endogenous counterparty risk and triggers contagion from news about the hedged risk to the balance sheet of the protection seller. Variation margins emerge as an optimal mechanism, which changes risk prevention incentives in addition to providing insurance against counterparty risk. Our theory implies that institutions with stronger asset base and less moral hazard should provide more protection, engage in more risk prevention, and face lower margin requirements.
Asset Management Contracts and Equilibrium Prices
Andrea M. Buffa
(Boston University)
Dimitri Vayanos
(London School of Economics)
Paul Woolley
(London School of Economics)
[View Abstract]
We study the joint determination of fund managers’ contracts and equilibrium asset prices. Because of agency frictions, fund investors make managers’ fees more sensitive to performance and benchmark performance against a market index. In equilibrium, managers underweight expensive stocks that are in high demand by other traders and have endogenously high volatility and market betas, and overweight low-demand stocks. Since benchmarking makes it risky for managers to deviate from the index, it exacerbates cross-sectional differences in alphas and the negative relationship between alpha on one hand, and volatility or beta on the other. Moreover, because underweighting the expensive stocks is riskier than overweighting the cheaper ones, benchmarking raises the price of the aggregate stock market and can increase its volatility. Asset management contracts are not socially optimal because investors do not internalize the feedback effect between contracts and asset prices.
Discussants:
Hyun S. Shin
(Princeton University)
Markus K. Brunnermeier
(Princeton University)
Alp Simsek
(Massachusetts Institute of Technology)
Zhiguo He
(University of Chicago)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 204-C
American Economic Association
Behavioral Economics and Public Policy
(H3)
Presiding:
Hunt Allcott
(New York University)
Active vs. Passive Decisions and Crowd-out in Retirement Savings Accounts: Evidence from Denmark
Raj Chetty
(Harvard University)
John Friedman
(Harvard University)
Soren Leth-Petersen
(University of Copenhagen)
Torben Heien Nielsen
(Danish National Centre for Social Research)
Tore Olsen
(University of Copenhagen)
[View Abstract]
Do retirement savings policies - such as tax subsidies or employer-provided pension plans -
increase total saving for retirement or simply induce shifting across accounts? We revisit this
classic question using 45 million observations on wealth for the population of Denmark. We nd
that a policy's impact on wealth accumulation depends on whether it changes savings rates by
active or passive choice. Tax subsidies, which rely upon individuals to take an action to raise
savings, have small impacts on total wealth. We estimate that each $1 of tax expenditure on
subsidies increases total saving by 1 cent. In contrast, policies that raise retirement contributions
if individuals take no action { such as automatic employer contributions to retirement accounts
{ increase wealth accumulation substantially. Price subsidies only affect the behavior of active
savers who respond to incentives, whereas automatic contributions increase the savings of passive
individuals who do not reoptimize. We estimate that approximately 85% of individuals are
passive savers. The 15% of active savers who respond to price subsidies do so primarily by
shifting assets across accounts rather than reducing consumption. These individuals are also
more likely to oset changes in automatic contributions and have higher wealth-income ratios.
We conclude that automatic contributions are more effective at increasing savings rates than
price subsidies for three reasons: (1) subsidies induce relatively few individuals to respond, (2)
they generate substantial crowd-out conditional on response, and (3) they do not in
influence the savings behavior of passive individuals, who are least prepared for retirement.
How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange
Keith Marzilli Ericson
(Boston University)
Amanda Starc
(University of Pennsylvania)
[View Abstract]
[Download Preview] Standardization of complex products is touted as improving consumer decisions and intensifying price competition, but evidence on standardization is limited. We examine a natural experiment: the standardization of health insurance plans on the Massachusetts Health Insurance Exchange. Pre-standardization, firms had wide latitude to design plans. A regulatory change then required firms to standardize the cost-sharing parameters of plans and offer seven defined options; plans remained differentiated on network, brand, and price. Standardization led consumers on the HIX to choose more generous health insurance plans and led to substantial shifts in brands' market shares. We decompose the sources of this shift into three effects: price, product availability, and valuation. A discrete choice model shows that standardization changed the weights consumers attach to plan attributes (a valuation effect), increasing the salience of tier. The availability effect explains the bulk of the brand shifts. Standardization increased consumer welfare in our models, but firms captured some of the surplus by reoptimizing premiums. We use hypothetical choice experiments to replicate the effect of standardization and conduct alternative counterfactuals.
Can a Small Nudge Affect Job Choice? Experimental Evidence from Teach for America
Lucas Coffman
(Ohio State University)
Clayton Featherstone
(University of Pennsylvania)
Judd Kessler
(University of Pennsylvania)
[View Abstract]
Previous research has demonstrated that giving individuals information about others' pro-social actions affects behavior. But this research has investigated the role of social information on relatively small decisions (e.g. donating a few dollars to charity or reusing a hotel towel). Can similar social information impact people's decisions when the stakes are large - for example a decision about job choice? We ran an experiment with Teach For America, a U.S. non-profit organization that hires college graduates to teach at under-resourced public schools. The experiment added a short line - highlighting the previous year's matriculation rate of 84% - to the acceptance letters of randomly selected potential teachers. We find that adding the line increases the probability an individual accepts the teaching job by 1.7 percentage points and the effect persists into the second semester of teaching, over a year later. Consistent with the previous literature, we find that our treatment is most effective among groups that are more marginal in their decision to join Teach For America. In a group that we identified ex ante as being less likely to accept the offer, the line increases the probability of accepting the offer and to be teaching a year later by about 4 percentage points. A follow-up survey finds that our treatment increased beliefs about the number of people who accept the teaching offer and suggests possible mechanisms of the treatment. Our results demonstrate that social information is an incredibly powerful lever that can impact large-stakes decisions including job choice.
The Lightbulb Paradox: Evidence from Two Randomized Control Trials
Hunt Allcott
(New York University)
Dmitry Taubinsky
(Harvard University)
[View Abstract]
[Download Preview] It is often suggested that consumers are imperfectly informed about or inattentive to energy costs of durable goods such as cars, air conditioners, and lightbulbs. We study two randomized control experiments that provide information on energy costs and product lifetimes for energy efficient compact fluorescent lightbulbs (CFLs) vs. traditional incandescent bulbs. We then propose a general model of consumer bias in choices between energy-using durables, derive sufficient statistics for quantifying the welfare implications of such bias, and evaluate energy efficiency subsidies and standards as second best corrective policies if powerful information disclosure is infeasible. In the context of our theoretical model, the empirical results suggest that moderate CFL subsidies may be optimal, but imperfect information and inattention do not appear to justify a ban on traditional incandescent lightbulbs in the absence of other inefficiencies.
Discussants:
John Beshears
(Harvard University)
Stefano DellaVigna
(University of California-Berkeley)
Joshua Schwartzstein
(Dartmouth College)
Stephan Meier
(Columbia University)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
Climate Change Policy after Kyoto
(Q5)
Presiding:
Nicholas Stern
(London School of Economics)
Tax Policy Issues in Designing a Carbon Tax
Eric Toder
(Urban Institute)
Donald Marron
(Urban Institute)
N/A
How Effective are U.S. Renewable Energy Subsidies in Cutting Greenhouse Gases?
Brian Murray
(Duke University)
John Reilly
(Massachusetts Institute of Technology)
Maureen Cropper
(University of Maryland)
Francisco de la Chesnaye
(Electric Power Research Institute (EPRI))
[View Abstract]
[Download Preview] The federal tax code provides preferential treatment for the production and use of renewable energy. We report estimates of the subsidies’ effects on greenhouse gases (GHG) emissions developed in a recent National Research Council (NRC) Report. Due to lack of estimates of the impact of tax provisions on GHG emissions, new modeling studies were commissioned. The studies found at best a small impact of subsidies in reducing GHG emissions; in some cases, emissions increased. The NRC report also identified the need to capture the complex interactions among subsidies, pre-existing regulations,and commodity markets.
International Aspects of Taxing Carbon
Charles McLure
(Hoover Institution)
[View Abstract]
[Download Preview] Disparities in commitments to reduce GHG emissions create demands for border carbon adjustments (BCAs) to prevent negative competitive effects and carbon leakage. A BCA regime that accomplishes economic objectives and is administratively feasible, WTO legal, and politically acceptable may be impossible. BCAs should be limited to a few basic products that are both energy-intensive and trade-exposed. To prevent adverse competitive effects and leakage, without creating protection, import BCAs should be based on the lower of the carbon content of production in the importing country and actual carbon content. Whether the World Trade Organization (WTO) would condone BCAs is unclear. Even if found to violate basic trade rules, BCAs might qualify for a special exception. The WTO is not likely to condone BCAs based on the actual carbon intensity of imports, but might accept BCAs based on the average carbon intensity or the carbon intensity of the “predominant method of production†in the importing country, with the option of demonstrate lower carbon intensity. Basing BCAs on “best available technology†would help assure WTO acceptance, but might do little to reduce negative competitive effects and leakage and raises technical questions. To be eligible for a special exemption, BCAs violating basic trade rules must satisfy one of specified exceptions (most likely that for provisions “relating to the conservation of exhaustible natural resources†or “necessary to protect human, animal or plant life or healthâ€) and must not be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade.†Sectoral approaches may be preferable to BCAs as a way to attack negative competitive effects and leakage.
The Costs and Consequences of Clean Air Act Regulation of CO2 from Power Plants
Dallas Burtraw
(Resources for the Future)
Joshua Linn
(Resources for the Future)
Karen Palmer
(Resources for the Future)
Anthony Paul
(Resources for the Future)
[View Abstract]
[Download Preview] U.S. climate policy is unfolding under the Clean Air Act. Mobile source and construction permitting regulations are in place. Most importantly, EPA and states will determine the form and stringency of the regulations for power plants. Various approaches would affect the cost of emitting greenhouse gases; these approaches create valuable assets, but they distribute the asset values differently among electricity producers, consumers, and the government. We compare a tradable performance standard with several cap and trade policies. Distributing asset values to producers and consumers has small effects on average electricity prices but imposes greater social cost than a revenue-raising policy.
Discussants:
Gilbert Metcalf
(Tufts University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 109-B
American Economic Association
Computational Solutions to Optimal Policy Problems
(C6)
Presiding:
Laurence Kotlikoff
(Boston University)
Generational Risk - Is It a Big Deal?
Jasmina Hasanhodzik
(Boston University)
Laurence J. Kotlikoff
(Boston University)
[View Abstract]
[Download Preview] The theoretical literature on generational risk assumes that this risk is large and that the government can effectively share it. To assess the validity of these assumptions, this paper simulates a realistically calibrated 80-period overlapping generations life-cycle model with aggregate productivity shocks.
We find that intrinsic generational risk is actually quite small and that government policies can greatly exacerbate it. We also show that a bond market dramatically improves cohort-specific sharing of risky government policy. Our simulations reveal very small equity premia, and suggest three new explanations for this finding. First, there is relatively little intrinsic generational risk. Second, intrinsic generational risk hits both the young and the old in similar ways. And third, artificially inducing risk between the young and the old via government policy elicits more net supply as well as net demand for bonds, by the young and the old respectively, leaving the risk premium essentially unchanged. Our results hold even in the presence of rare disasters and very high risk aversion. They echo Lucas' (1987) and Krusell and Smith's (1999) point that macroeconomic fluctuations are too small to have major microeconomic consequences.
Searching for an Optimal Taylor Rule
Serguei Maliar
(Stanford University)
Lilia Maliar
(Stanford University)
[View Abstract]
We consider a stylized new Keynesian model with Calvo-type price frictions and a zero lower bound on nominal interest rates. We assume that a central bank chooses monetary policy according to a Taylor-style rule. We study both qualitatively and by simulation, how the parameters in the Taylor rule affect the social welfare. We allow for more flexible shape of Taylor rule that determine how aggressive is the central bank in pursuing its objectives. We identify an optimal shape of the Taylor rule under which the social welfare is maximized within the class of policy rules considered.
Optimal Dynamic Taxation with Endogenous Government Debt Limits
Sevin Yeltekin
(Carnegie-Mellon University)
Kenneth Judd
(Hoover Institution)
[View Abstract]
Standard analyses of dynamic optimal taxation, such as Barro (1979), Judd (1989), and Chari, Christiano and Kehoe, (1994) assume a representative agent, a single kind of capital, and an annual time period for both tax decisions and economic decision making. US tax policy treats different kinds of capital, such as owner-occupied housing and corporate capital, very differently. Different kinds of capital have very different rates of depreciation and costs of adjustments. Policymakers respond with substantial lags to changing fiscal conditions, whereas private agents can react immediately. The assumption of representative agent also limits the relevance of these analyses since tax policy always involves planners' preferences over distribution of income. Using modern methods and tools for multidimensional dynamic programming, we examine the implications of these more realistic assumptions on the level of taxes and debt, the natural debt limit, and the timing and incidence of taxation on different groups.
A Big Data Approach to Optimal Sales Taxation
Richard W. Evans
(Brigham Young University)
Kerk Phillips
(Brigham Young University)
Kenneth Judd
(Hoover Institution)
Jeremy Bejarano
(Brigham Young University)
Christian Baker
(Brigham Young University)
[View Abstract]
We solve for the frontier of optimal commodity (sales) tax policies for different revenue needs given a population of heterogeneos consumers and multiple consumption goods. The household objective functions are general enough that the policy maker's maximization problem is nonconvex. We calibrate our model to the United States using Consumer Expenditure Survey (CEX) data. We then use ``big data'' techniques as a solution method for our calibrated theoretical model. Our solution method is ideally suited for dealing with models with nonconvex optimization problems, large degrees of heterogeneity, rich policy structure, model uncertainty, and policy objective uncertainty. We solve for the set of optimal differentiated sales taxes, the optimal flat tax, and the optimal tax structure given a tax exempt category of consumption goods (services). We find evidence of only a small loss in tax revenue switching to a flat sales tax and a large loss in tax revenue by exempting a consumption category as large as services.
Discussants:
Laurence J. Kotlikoff
(Boston University)
Kenneth Judd
(Hoover Institution)
Sevin Yeltekin
(Carnegie-Mellon University)
Serguei Maliar
(Stanford University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 202-A
American Economic Association
Economic Development
(O1)
Presiding:
Anne Case
(Princeton University)
Business Literacy and Development: Evidence from a Randomized Controlled Trial in Rural Mexico
Giacomo de Giorgi
(Stanford University)
Gabriela Calderon
(Stanford University)
Jesse Cunha
(Naval Postgraduate School)
[View Abstract]
[Download Preview] Women in developing countries often earn income through small enterprises such as making
and selling food and craft items or re-selling wholesale goods. Several previous studies have
established that women's returns in these enterprises are low, often lower than those of malerun
small enterprises in the same area. One possible explanation for this finding is that women
have especially deficient basic business skills. Working with an NGO, we devised a randomized
controlled trial in which female entrepreneurs were given 48 hours of training, over six weeks,
on topics such as measuring costs, setting prices, maximizing profits, marketing, and handling
the legal issues that arise in a small business. We find that the entrepreneurs who were randomly
assigned to treatment earn higher profits, have larger revenues, and serve a greater number of
clients. We also find that they are more likely to use formal accounting techniques and know how
profitable they are. Furthermore, these effects do not appear to be transitory, as positive treatment
effects persist into the medium term, two and a half years after the training.
What is Social Inequality and Why Does it Matter?
Chiara Binelli
(University of Southampton)
Matthew Loveless
(University of Kent)
Stephen Whitefield
(University of Oxford)
[View Abstract]
[Download Preview] As distinct from income or wealth inequality, ‘social inequality’ is currently poorly understood and, at best, unevenly measured. We take a first step towards building a consistent framework to conceptualize and measure social inequality. We characterize social inequality as the relative position of individuals along a number of dimensions that measure achieved outcomes and perceived access to services as prerequisites to achieve outcomes in the future. Using survey data from twelve Central and Eastern European countries we construct an index of social inequality that we compare with other measures of inequality, and we use to identify which countries are more or less socially advantaged. We find that cross-national patterns of social inequality differ significantly from patterns derived from measures of income inequality. This is important since countries with less social inequality have higher levels of economic performance and human development, and stronger political institutions.
The Impact of Civil Unrest on Social Capital in Rural Kenya
Joan Hamory Hicks
(University of California-Berkeley)
Daniel L. Hicks
(University of Oklahoma)
[View Abstract]
Following a heavily-contested presidential election and two months of protests, violent, primarily ethnic-based, clashes erupted across central and western Kenya in late 2007. This study examines the socioeconomic impact of these events in Busia District. Although not an epicenter of conflict, the region experienced sporadic unrest, inflation, commodity shortages, local market closures, and an influx of refugees. A unique survey of young adults collected in the months surrounding the election permit the use of both differences-in-differences and propensity score matching to estimate the short- to medium-run effects of this conflict. Both approaches suggest a loss of social cohesion and a breakdown of informal financial activities within weeks of conflict cessation. Furthermore, while self-reported attitudes regarding trust of others remain unchanged, respondents' actions belie this as cheap talk. Analysis confirms large declines in attendance at religious services, participation in community and bible groups, and utilization of non-family members as points of contact for future survey enumeration efforts. Respondents are between 29 and 53 percent less likely to engage in informal lending and transfers post-conflict. These findings highlight a discrepancy between reported attitudes and observable behavior. Given the key role played by social networks in facilitating informal financial transactions in less-developed countries, these results indicate that even brief civil unrest may have lasting negative consequences.
Putting Social Preferences into Context Separating Monetary and Socio-Psychological Incentives
Andreas Bergh
(Lund University)
[View Abstract]
[Download Preview] Common models of social preferences usually assume the existence of a pref-
erence for other-regarding behavior or equal sharing. Apart from this preference being potentially idiosyncratic in strength, qualications are at most
made informally on conferences when empirical deviations from predictions are
explained by contextual variables. Starting from this observation, we present
a simple framework which allows us to model social preferences in a game
theoretic setting which explicitly separates economic incentives from social context effects. Moreover, we discuss and exemplify how the framework can be used to empirically study the effect of contextual variables as well as the
influence of subject characteristics on the sensitivity to such variables.
Contracts Do Matter: Evidence That Legal Formalism Has a Significant Impact on Household Wealth
Alan Green
(Stetson University)
[View Abstract]
[Download Preview] Research on how political institutions impact economic growth consists largely of cross country regressions with severe econometric limitations. This paper looks at the question of how institutions impact household wealth, which is a different but arguably more useful question for analysis. Households in large surveys are independent random variables and do not choose their institutions, thus reducing the problems of small sample sizes, closely related variables and endogeneity that plague cross country work. Results show a strong quadratic effect of legal formalism on household wealth, contrary to the literature that shows no impact of formalism on growth. Household analysis also shows smaller impacts of property rights than found in the literature. Results are robust to inclusion of controls for other institutions, geography, economic indicators, historical factors and democracy.
The Economic Consequences of the Spanish Reconquest: The Long-Term Effect of Political Power Concentration on Development
Diego Romero-Ávila
(Pablo de Olavide University)
Daniel Oto-Peralías
(Pablo de Olavide University)
[View Abstract]
[Download Preview] This paper considers the Spanish Reconquest in the Middle Ages as a quasi-natural experiment to analyze the long-term effects of the concentration of political power on economic development. Our analysis shows that: a) there is a strong relationship between the Reconquest and the extent of concentration of de facto and de jure political power; b) the alleged relationship, which is due to a historical accident, is not associated with any feature related to the economic potential of the territories; and c) the specific configuration of economic and political power distribution in favor of the landed nobility, which persisted over time and generated extractive institutions to exploit the landless peasantry, ultimately influenced the pattern of development of the Spanish provinces.
Jan 04, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon F
American Economic Association
Economics at the Federal Reserve Banks
(E5) (Panel Discussion)
Panel Moderator:
Stanley Fischer
(Council on Foreign Relations)
William Dudley
(Federal Reserve Bank of New York)
Narayana Kocherlakota
(Federal Reserve Bank of Minneapolis)
Charles I. Plosser
(Federal Reserve Bank of Philadelphia)
Eric Rosengren
(Federal Reserve Bank of Boston)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 201-B
American Economic Association
Economics Education in the Digital Age: The Implications of Online Technologies and MOOCs
(A1)
Presiding:
Nancy Rose
(Massachusetts Institute of Technology)
Teaching Economics Online: Experience With a MOOC on Development Economics
Abhijit Banerjee
(Massachusetts Institute of Technology)
Esther Duflo
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] TMassive Online Open Courses present the potential to deliver high quality education to a large number of students. But they suffer from low completion rates. This paper identifies disorganization as a factor behind failure to complete a MOOC. Students who enroll one day late are 17 percentage points less likely to earn a certificate than students who enroll exactly on time. This reflects selection, but it does seem to be related to demographic characteristics, motivation to complete the course, or ability. This suggests that building in even more structure in the MOOC could be a factor in improving performance.
The Industrial Organization of Online Education
Tyler Cowen
(George Mason University)
Alex Tabarrok
(George Mason University)
[View Abstract]
[Download Preview] How will online education change the market for education? What will determine price, quality, the number of competitors and professor rewards? How will the cost disease and educational innovation evolve? We draw on economic theory, evidence from other industries and our experience creating Marginal Revolution University, an online platform for economics education, to map out plausible scenarios.
Equalizing Superstars: The Internet and the Democratization of Education
Daron Acemoglu
(Massachusetts Institute of Technology)
David Laibson
(Harvard University)
John A. List
(University of Chicago)
[View Abstract]
[Download Preview] Educational resources distributed via the Internet are rapidly proliferating. One prominent concern associated with these potentially transformative developments is that, as many of the leading technologies of the last several decades have been, these new sweeping technological changes will be highly disequalizing, creating superstar teachers, a wider gulf between different groups of students and potentially a winner-take-all educational system. In this paper, we argue that, these important concerns notwithstanding, a major impact of the superstars created by web-based educational technologies will be the democratization of education: not only will educational resources be more equally distributed, but also lower-skilled teachers will be winners from this technology. At the root of our results is the observation that for web-based technologies to exploit the comparative advantage of skilled lecturers, they will need to be complemented with opportunities for face-to-face discussions with instructors, and web-based lectures will increase the quantity and quality of teaching services complementary to such instruction, potentially increasing the marginal product and wages of lower-skill teachers.
Sustainable Economics Models for Online Postsecondary Education? MOOCs, Nonselective, and Highly Selective Advanced Education
Caroline Hoxby
(Stanford University)
[View Abstract]
[Download Preview] I consider how online postsecondary education, including massive open online courses (MOOCs), might fit into economically sustainable models of postsecondary education. I contrast nonselective postsecondary education (NSPE) in which institutions sell fairly standardized educational services in return for up- front payments and highly selective postsecondary education (HSPE) in which institutions invest in students in return for repayments much later in life. The analysis suggests that MOOCs will be financially sustainable substitutes for some NSPE, but there are risks even in these situations. The analysis suggests that MOOCs will be financially sustainable substitutes for only a small share of HSPE and are likely to collapse the economic model that allows HSPE institutions to invest in advanced education and research. I outline a non-MOOC model of online education that may allow HSPE institutions both to sustain their distinctive activities and to reach a larger number of students.
Discussants:
Gail Hoyt
(University of Kentucky)
John Siegfried
(Vanderbilt University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 204-A
American Economic Association
Economics of the Internet and Mobile Computing
(L1)
Presiding:
Glenn Ellison
(Massachusetts Institute of Technology)
Mobile Computing: The Next Platform Rivalry
Tim Bresnahan
(Stanford University)
Shane Greenstein
(Northwestern University)
[View Abstract]
[Download Preview] Mobile computing is becoming an enormous industry. Competition to become the dominant mobile operating system platform, or one of several dominant platforms, is intense. Rival companies are competing to attract consumers and application developers. This paper discusses the current state of competition, and the role of platform governance in differentiating offerings.
Trading Dollars for Dollars: The Price of Attention Online and Offline
Matthew Gentzkow
(University of Chicago)
[View Abstract]
[Download Preview] Popular accounts suggest that advertising revenue per unit of consumer attention is lower online than offline, and has fallen in traditional media as the Internet has made advertising markets more competitive. I assess these claims theoretically and empirically, and compare the patterns we observe for the Internet to trends in advertising around the introduction of television and radio. The evidence suggests that the price of attention for similar consumers is actually higher online than offline, and that the growth of new media is not robustly associated with a declining price of attention.
The Growth of Mobile Electronic Commerce
Liran Einav
(Stanford University)
Jonathan Levin
(Stanford University)
Igor Popov
(Stanford University)
Neel Sundaresan
(eBay)
[View Abstract]
Mobile electronic commerce is growing rapidly. We use detailed data from eBay to discuss which type of consumers are moving to mobile devices, and how behavior on mobile devices differs from behavior on desktop and laptop computers. We then draw some implications for how online commerce might evolve as users shift increasingly toward mobile computing.
Discussants:
Hal Varian
(Google)
Susan Athey
(Stanford University)
Pat Bajari
(Amazon)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 108-B
American Economic Association
Explaining Commodity Price Fluctuations
(Q4)
Presiding:
Gordon Rausser
(University of California-Berkeley)
Demand Effects and Speculation in Oil Markets: Theory and Evidence
Eyal Dvir
(Boston College)
Kenneth Rogoff
(Harvard University)
[View Abstract]
[Download Preview] We present evidence showing the existence of stable co-integrating vectors
connecting four important variables in the U.S. and global oil markets: oil
production, stocks of crude oil, the real price of oil, and broad measures
of income. Our data are monthly, and go back to the 1930's, split into
sub-samples which correspond to periods before and after the 1973 crisis. We
further show that the co-integrating vectors found in the data accord well
with an extended commodity storage model which allows for demand growth
dynamics and for supply regimes. Specifically, inventories and price move in
opposite directions when supply is flexible, but the relationship reverses
so that they co-move when supply is inflexible.
Forecasting the Real Price of Oil in a Changing World
Lutz Kilian
(University of Michigan)
Christiane Baumeister
(Bank of Canada)
[View Abstract]
[Download Preview] The U.S. Energy Information Administration (EIA) regularly publishes monthly and quarterly forecasts of the price of crude oil for horizons up to two years, which are widely used by practitioners. Traditionally, such out-of-sample forecasts have been largely judgmental, making them difficult to replicate and justify. An alternative is the use of real-time econometric oil price forecasting models. We investigate the merits of constructing combinations of six such models. Forecast combinations have received little attention in the oil price forecasting literature to date. We demonstrate that over the last 20 years suitably constructed real-time forecast combinations would have been systematically more accurate than the no-change forecast at horizons up to 6 quarters or 18 months. MSPE reduction may be as high as 12% and directional accuracy as high as 72%. The gains in accuracy are robust over time. In contrast, the EIA oil price forecasts not only tend to be less accurate than no-change forecasts, but are much less accurate than our preferred forecast combination. Moreover, including EIA forecasts in the forecast combination systematically lowers the accuracy of the combination forecast. We conclude that suitably constructed forecast combinations should replace traditional judgmental forecasts of the price of oil.
150 Years of Boom and Bust: What Drives Mineral Commodity Prices?
Martin Stuermer
(University of Bonn)
[View Abstract]
[Download Preview] My paper is the first to provide long-run evidence on the dynamic effects of supply and demand shocks on mineral commodity prices. I assemble and analyze a new data set of prices and production levels of copper, lead, tin, zinc, and crude oil from 1840 to 2010. Price fluctuations are primarily driven by demand rather than supply shocks. Demand shocks affect the price persistently for up to 15 years, whereas the effect of supply shocks persists for a maximum of 5 years. My paper shows that price surges caused by rapid industrialization are a recurrent phenomenon throughout history. Mineral commodity prices return to their declining or stable trends in the long run.
Effects of Index-Fund Investing on Commodity Futures Prices
James D. Hamilton
(University of California-San Diego)
Jing Cynthia Wu
(University of Chicago)
[View Abstract]
[Download Preview] The last decade brought substantial increased participation in commodity markets by index funds that maintain long positions in the near futures contracts. Policy makers and academic studies have reached sharply different conclusions about the effects of these funds on commodity futures prices. This paper proposes a unifying framework for examining this question, noting that according to a simple model of futures arbitrage, if index-fund buying influences prices by changing the risk premium, then the notional positions of the index investors should help predict excess returns in these contracts. We find no evidence that the positions of traders in agricultural contracts identified by the CFTC as following an index strategy can help predict returns on the near futures contracts. We review evidence that these positions might help predict changes in oil futures prices, and find that while there is some support for this in the earlier data, this appears to be driven by some of the dramatic features of the 2007-2009 recession, with the relation breaking down out of sample.
Discussants:
Christopher R. Knittel
(Massachusetts Institute of Technology)
Thomas Helbling
(International Monetary Fund)
Gordon Rausser
(University of California-Berkeley)
Michael Sockin
(Princeton University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 202-B
American Economic Association
Giving and Social Contexts
(H4)
Presiding:
Kimberley Scharf
(University of Warwick)
Hey Look At Me! The Effect of Giving Circles on Giving
Dean Karlan
(Yale University)
Margaret McConnell
(Harvard University)
[View Abstract]
Theories abound for why individuals give to charity. We conduct a field experiment
with a Yale service club to test the impact of a promise of public recognition on giving.
Some may claim that they respond to an offer of public recognition not to improve their
social standing, but rather to motivate others to give. To tease apart these two theories,
we conduct a laboratory experiment with undergraduates, and find no evidence to sup-
port the alternative, altruistic motivation. We conclude that donations increase after
promises of public recognition primarily because of individuals' desire to improve their
social image.
Viral Altruism? A Study of Charitable Giving in On-Line Networks
Mario Macis
(Johns Hopkins University)
Nicola Lacetera
(University of Toronto)
Angelo Mele
(Johns Hopkins University)
[View Abstract]
We study charitable giving in on-line networks using observational and experimental data from HelpAttack! (HA), the developer of a Facebook and Twitter application that facilitates donations to charities while broadcasting these activities to the donors’ contacts or followers. Evidence from the entire database of pledges and users for the period 2010-2012 indicates that, on average, HA users’ pledges generate 5% additional pledges by their contacts or followers. To overcome identification issues in estimating network effects, we conducted a natural field experiment where we randomized the broadcasting of users’ pledges. Even though our campaigns reached about 13 million Facebook users, 6,000 users clicked on the ad but only 18 pledges were made, without any subsequent pledge from these users’ contacts. An on-line survey was then conducted to explore the reasons for the lack of donations. We found that both the presence of an intermediary and a fee contributed to the low donation rate, and also that respondents are less likely to donate to less known charitable organizations. Our results suggest that on-line fundraising efforts by charities are more successful if done directly (without intermediaries) and efficiently (without charging high processing fees). Our findings also suggest that network effects in on-line platforms, while powerful for a range of activities, might be more limited when it comes to contributing real money to charities.
Charitable Giving and Social Group Size: Does it Take a lot of Friends to be a Successful Fundraiser?
Sarah Smith
(University of Bristol)
Kimberley Scharf
(University of Warwick)
[View Abstract]
[Download Preview] Many individuals fundraise for charities, asking their friends, family and colleagues to sponsor them for various activities or for donations in lieu of wedding/birthday presents. In practice, the size of individuals' social groups will vary and this may matter for the effectiveness of their fundraising. We empirically investigate the relationship between donations and group size in the real-world setting of online fundraising. In particular, we look at the relationship between the number of Facebook friends of the fundraiser and the amount given by the donors to the individual's fundraising page. We find that individuals with larger social groups are not more successful at raising funds than individuals with smaller social groups. Fundraisers with more friends typically attract a larger number of donors, but there is a negative relationship between group size and the average amount that donors give. We rule out classic free-riding in public goods provision as a likely explanation. Instead, we consider a number of aspects of real-life social groups (including the strength of social ties and the degree of overlapping networks) that have not been discussed in the previous experimental literature on group size and public goods provision, but that are likely to shape donor behaviour in practice.
Represented and Situated Social Contexts of Giving
Jen Shang
(Indiana University and University of Bristol)
[View Abstract]
This research studies how represented and situated social contexts may jointly influence behavior. It examines who (Study 1: Field surveys) and what (Study 2: Field experiment) individuals include in a representation of their social context for a collective behavior (i.e. giving) and how this represented social context might join with a situated social context to influence that behavior (Study 2&3: Field Experiments). It shows that total/future real-world giving is positively correlated with representations of the number of a donor's friends and family beneficiaries (not the number of a donor's coworker beneficiaries or friends and family members who are only of close psychological distance). Moreover, it shows it is not only the representation of the absolute number of friends and family beneficiaries that matters in giving, the general sense of whether this number feels "more" or "less" than a reference point in an external social context also matters. The influence of this situated social context generates a behavior pattern that is opposite from what would have be predicted by a classic anchoring theory.
Discussants:
A. Abigail Payne
(McMaster University)
Leonard Lee
(Columbia University)
Angelo Mele
(Johns Hopkins University)
Michael K. Price
(Georgia State University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 201-C
American Economic Association
Healthcare Performance and Competition
(I1)
Presiding:
John Van Reenen
(London School of Economics)
The Impact of Market Competition on Healthcare Quality: Fragmentation in Physician-Hospital Networks
Julie PW Bynum
(Dartmouth College)
Jonathan S. Skinner
(Dartmouth College)
[View Abstract]
There is increasing evidence that regional competition in healthcare markets is associated with higher quality of care; patients have greater opportunity to choose higher-quality providers. However, in the U.S., Medicare enrollees often seek care simultaneously from a variety of different healthcare systems. Thus greater regional competition can also lead to greater fragmentation of care: Patients in a two-hospital town may be initially treated at Hospital A but then show up at Hospital B's emergency room for complications. Thus this patient receives poor-quality follow-up care because the two hospitals do not share patient data. We first use physician-hospital networks to document the association between spatial competition and the likelihood of fragmented care - as measured by multiple diagnostic scans, inappropriate combinations of prescription drugs prescribed by different physicians, poor preventive care, and multiple emergency room admissions. We then test whether more competition has differential associations with fragmentation for low-income or African-American patients, who are more likely to seek care at emergency rooms, relative to higher-income patients.
Does Competition Improve Public Hospitals' Efficiency? Evidence from a Quasi-Experiment in the English National Health Service
Zack Cooper
(Yale University)
Stephen Gibbons
(London School of Economics)
Alistair McGuire
(London School of Economics)
[View Abstract]
This paper uses a difference-in-difference style estimation strategy to test separately the impact of competition from public sector and private sector hospitals on the efficiency of public hospitals. Our identification strategy takes advantage of the phased introduction of a recent set of substantive reforms introduced in the English NHS that gave patients a choice over where they received care and forced public sector health care providers to compete with other public hospitals and eventually to face competition from existing private sector providers. In this study, we measure efficiency using hospitals' average length of stay (LOS) for patients undergoing elective surgery. For a more nuanced assessment of efficiency, we break LOS down into its two key components: the time from patients' admission to the hospital until their surgery and the time from their surgery until their discharge. Here, pre-surgery LOS serves as a proxy for hospitals' lean efficiency and is less biased by patient characteristics. Our results suggest that competition between public providers prompted public hospitals to improve their productivity by decreasing their pre-surgery, overall and post-surgery length of stay. In contrast, competition from private hospitals did not spur public providers to improve their performance and instead left incumbent public providers with a more costly case mix of patients and led to increases in post-surgical LOS.
The Impact of Competition on Management Quality: Evidence from Public Hospitals
Nicholas Bloom
(Stanford University)
Carol Propper
(University of Bristol)
Stephan Seiler
(Stanford University)
John Van Reenen
(London School of Economics)
[View Abstract]
[Download Preview] We analyze the causal impact of competition on managerial quality (and hospital performance). To address the endogeneity of market structure we analyze the English public hospital sector where entry and exit are controlled by the central government. Because closing hospitals in areas where the governing party is expecting a tight election race ("marginals") is rare due to the fear of electoral defeat, we can use political marginality as an instrumental variable for the number of hospitals in a geographical area. We find that higher competition is positively correlated with management quality - measured using a new survey tool. Adding a rival hospital increases management quality by 0.4 standard deviations and increases survival rates from emergency heart attacks by 8.8%. We confirm the validity of our IV strategy by conditioning on marginality in the hospital's own catchment area, thus identifying purely off the marginality of rival hospitals. This controls for "hidden policies" that could be used in marginal districts to improve hospital management. We also run placebo tests of marginality on schools, a public service where the central government has no formal influence.
Healthcare Exceptionalism? Productivity and Allocation in the United States Healthcare Sector
Amy N. Finkelstein
(Massachusetts Institute of Technology)
Amitabh Chandra
(Harvard University)
Chad Syverson
(University of Chicago)
Adam Sacarny
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] The conventional wisdom in health economics is that large differences in average productivity across hospitals are the result of idiosyncratic institutional features of the healthcare sector which dull the role of market forces that exists in other sectors. Strikingly, however, productivity dispersion across hospitals is, if anything, smaller than in narrowly defined manufacturing industries such as concrete. While this fact admits multiple interpretations, we also find evidence against the conventional wisdom that the healthcare sector does not operate like an industry subject to standard market forces. In particular, we find that more productive hospitals have higher market shares at a point in time and are more likely to expand over time.For example, a 10 percent increase in hospital productivity today is associated with about 6 percent more patients in 5 years. Taken together, these facts suggest that the healthcare may have more in common with "traditional" sectors than is often assumed
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 103-B
American Economic Association
Household Finances during the Crisis - A European-United States Perspective
(D1)
Presiding:
Michael Ehrmann
(European Central Bank)
The Dynamics of Household Saving in the Great Recession: Evidence from Longitudinal Wealth Surveys in Spain and the United States
Olympia Bover
(Bank of Spain)
Arthur Kennickell
(Federal Reserve Board)
[View Abstract]
In this paper we analyze the change in household saving in Spain and the US (over the 2005-2009 and 2007-2009, respectively) using the panel component of the Survey of Consumer Finances (SCF) and the Spanish Survey of Household Finance (EFF). To this end we exploit a common three-level indicator question about expenses relative to income. Of particular interest are effects of income and wealth shocks that have taken place over the period.
Changes in Wealth and Labor Supply Responses of Older Households in the Great Recession: An Analysis with the Survey of Consumer Finances
Jesse Bricker
(Federal Reserve Board)
Kevin Moore
(Federal Reserve Board)
Jeffrey Thompson
(Federal Reserve Board)
[View Abstract]
[Download Preview] Between December 2007 and June 2009, US households endured the deepest recession since the Great Depression. During this time, households saw a 30% decline in the S&P 500, a 20% decline nationally in house prices, and a five percentage point increase in the national unemployment rate. Theoretically, these economic changes should influence labor supply decisions. The decline in net worth may induce households to stay in the labor force. Conversely, a local labor market with few opportunities may constrain households' supply of labor. This paper examines the labor supply decisions of two important groups: older workers near retirement and retired workers. Older workers near retirement may respond to losses in wealth in a variety of ways: delaying retirement, working more hours, or working multiple jobs. Retired workers may respond to declines in wealth by re-entering the labor force. Local labor market conditions may also influence the decisions of these two groups by limiting opportunities to work. This paper addresses these important questions about labor supply decisions in the Great Recession using the 2007-09 Panel Survey of Consumer Finances (SCF), a special re-interview of the 2007 SCF cross-section, and the 2001-2010 SCF cross-sections.
The Distribution of Wealth and the Marginal Propensity to Consume
Christopher D. Carroll
(Johns Hopkins University)
Jiri Slacalek
(European Central Bank)
Kiichi Tokuoka
(Ministry of Finance, Japan)
[View Abstract]
[Download Preview] We present a macroeconomic model calibrated to match both microeconomic and macroeconomic evidence on household income dynamics. When the model is modified in a way that permits it to match empirical measures of wealth inequality in the U.S., we show that its predictions (unlike those of competing models) are consistent with the substantial body of microeconomic evidence which suggests that the annual marginal propensity to consume (MPC) is much larger than the 0.02-0.04 range implied by commonly-used macroeconomic models. Our model also (plausibly) predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across categories of households (e.g., low-wealth versus high-wealth households).
Exploring Differences in Household Debt across Euro Area Countries and the United States
Dimitris Christelis
(CSEF, CSF and CEPAR)
Michael Ehrmann
(Bank of Canada)
Dimitris Georgarakos
(Goethe University)
[View Abstract]
[Download Preview] In several economies, household debt had risen substantially prior to the financial crisis, and the subsequent household deleveraging has strongly affected their macroeconomic performance. At the same time, there are large cross-country differences in the number of households participating in debt markets and in the amounts of debt held. Against this background, this paper uses household-level data for the United States and 11 European economies to decompose differences in debt holdings into differences due to household composition and those arising from different economic environments. The paper finds that households in the United States have the highest prevalence of debt, and hold comparatively large amounts. Differences in household composition contribute very little to these differences. In contrast, economic conditions have played a major role, with U.S. economic conditions having been much more conducive to debt holdings. The Netherlands are the only European economy with, at least in parts, similarly favourable conditions.
Discussants:
Enrichetta Ravina
(Columbia University)
Luigi Pistaferri
(Stanford University)
Gianluca Violante
(New York University)
Daniel Cooper
(Federal Reserve Bank of Boston)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Liberty Ballroom
American Economic Association
Macroeconomic Impact of Population Aging
(E2)
Presiding:
Alan Auerbach
(University of California-Berkeley)
Overview of the Macroeconomic Impacts of Aging
Ronald Lee
(University of California-Berkeley)
[View Abstract]
[Download Preview] The US population will age rapidly for several decades and then more slowly, with less aging than most rich nations. Health of the elderly improved, but disability stagnated after 2000. Retirement age reversed its decline around 1995 and health status leaves room for greatly increased elder labor supply. Many older people have inadequate retirement savings and face uncertainty about both public and private pensions and health insurance. Population aging may cause a small decline in rates of return. The main problem is the impact of population aging on public programs for the elderly which also shape inter-age and inter-generational impact.
Growth and Aging
Louise Sheiner
(Federal Reserve Board)
[View Abstract]
The composition of the U.S. population will change significantly in coming decades as the decline in fertility rates following the baby boom, coupled with continued increase in longevity, leads to an older population. This demographic shift will likely have significant effects on the long-run prospects for living standards.
This paper discusses the consequences of population aging from a macroeconomic perspective. Although analyzing the macroeconomic impact does not require any modeling of government policies, the paper shows that the macroeconomic consequences of aging are nevertheless directly linked to government policies, both past and present.
Although there is little uncertainty that the population will experience a notable change in demographic structure over the next few decades, there is considerably more uncertainty about the economic effects of that change. This paper considers a number of alternative paths the economy could follow in response to population aging. It seems clear that, barring a more significant increase in labor force participation than seems likely at this juncture, population aging will lead to a reduction in per capita consumption relative to a baseline in which the demographic composition of the population does not change. But the size of any consumption reductionâ€â€and the likely evolution of wages, interest rates, and other macro variables--depends critically on whether that adjustment happens sooner or later.
The composition of the U.S. population will change significantly in coming decades as the decline in fertility rates following the baby boom, coupled with continued increase in longevity, leads to an older population. This demographic shift will likely have significant effects on the long-run prospects for living standards.
Aging in Europe: Reforms and behavioral reactions
Axel Boersch-Supan
(Max Planck Institute)
[View Abstract]
[Download Preview] The extent of demographic changes in Europe is much more drastic than in the US. This paper studies the effects of population aging on the interactions between economic growth and living standards in Europe with labor market and pension reform, behavioral adaptations, and international capital flows. Our analysis is based on an overlapping generations model with behavioral reactions to reform which is extended to the multi-country situation typical for Europe. While the negative effects of population aging on growth in Europe can in principle be compensated by reforms and economic adaptation mechanisms, they may be partially offset by behavioral reactions.
The Growing Gap In Life Expectancy: Using the Future Elderly Model to Estimate Implications for Social Security and Medicare
Peter R. Orszag
(Citigroup)
[View Abstract]
Mortality gradients by education and income have been rising in the United States and elsewhere. The effect of the rising gap in life expectancy on Social Security progressivity has received relatively little attention, and the impact on Medicare has received effectively none. This paper uses the Future Elderly Model to estimate the effects of the increased mortality gap on the progressivity of Social Security and Medicare benefits for those born between 1928 and 1990. It finds significant effects on the lifetime progressivity of benefits under both programs. Given the potential impact on progressivity, the future of the mortality gradient may also have noticeable effects on total program costs. The topic deserves more attention from both policy-makers and researchers.
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, Grand Hall
American Economic Association
Microeconomics Poster Session
(D1) (Poster Session)
Presiding:
W. Alan Bartley
(Transylvania University)
Unmet Aspirations as an Explanation for the Age U-Shape in Human Wellbeing
Hannes Schwandt
(Princeton University)
[Download Preview] Cost Containment, Vendor Participation and Participant Access: Evidence from the WIC Program
Katherine H. Meckel
(Columbia University)
Religion, Economics, and the Electoral Success of the Nazis
Jorg L. Spenkuch
(Northwestern University)
Philipp Tillmann
(University of Chicago)
[Download Preview] Understanding Informality: Sub-National Determinants in Mexico
Sean Dougherty
(OECD Economics Department)
Octavio Escobar
(ESG Management School Paris)
[Download Preview] Personality Traits and Financial Decision-Making
Yilan Xu
(University of Illinois)
Andrea H. Beller
(University of Illinois)
Brent W. Roberts
(University of Illinois)
Jeffrey R. Brown
(University of Illinois)
Cognitive Development and Civil War in Africa
Philip Verwimp
(Université Libre de Bruxelles)
Ambiguity Aversion: Experimental Modeling, Evidence, and Implications for Pricing
Jan Pieter Krahnen
(Goethe University Frankfurt)
Peter Ockenfels
(Goethe University Frankfurt)
Christian Wilde
(Goethe University Frankfurt)
[Download Preview] Cross-Industry Interlinkages in Employment Growth: Evidence from Brazil
Jean Nahrae Lee
(New York University)
Daniel Ribeiro Carvalho
(USC Marshall School of Business)
[Download Preview] Attenuation Bias, Recall Error and Housing Wealth Effects
Yvonne McCarthy
(Central Bank or Ireland)
Kieran McQuinn
(Central Bank of Ireland)
[Download Preview] The Discriminatory Effect of Domestic Regulations on International Trade in Services: Evidence from Firm-Level Data
Matthieu Crozet
(Paris School of Economics (Paris I) and CEPII)
Emmanuel Milet
(Paris School of Economics (Paris I))
Daniel Mirza
(University François Rabelais and GERCIE, CEPII and the Banque de France)
[Download Preview] Firm Downsizing, Public Policy, and the Age Structure of Employment Adjustments
Sebastian Buhai
(Stockholm University)
Hans-Martin von Gaudecker
(University of Bonn)
[Download Preview] Measuring Economic Change in Indonesia —As Seen from Space
Susan Olivia
(Monash University)
John Gibson
(University of Waikato)
Economic Shocks, Civil War & Ethnicity
Thorsten Janus
(University of Wyoming)
Daniel Riera-Crichton
(Bates College)
[Download Preview] The Effect of Child Support Income on TANF Exits and Re-Entries After the Great Recession
Jeongsoo Kim
(Department of Commerce)
An Eye-Tracking Study of Feature-Based Choice in One-Shot Games
Giovanna Devetag
(Luiss Guido Carli)
Sibilla Di Guida
(SBS-EM, ECARES, Université Libre de Bruxelles)
Luca Polonio
(Department of Cognitive Science and Education)
eBay or Amazon? Time-Sensitive Retail Purchases via Auctions
Brennan Christopher Platt
(Brigham Young University)
[Download Preview] Happy Mothers, Successful Children: Effects of Maternal Life Satisfaction on Child Outcomes
Dimitrios Nikolaou
(Illinois State University)
[Download Preview] How did Massachusetts Health Reform Affect the SSI-Disabled Program?
Chun-chieh Hu
(Syracuse University)
[Download Preview] Sanctions and Trade Diversion: Exporter-level Evidence from Iran
Jamal Ibrahim Haidar
(Paris School of Economics)
Optimal timing, cost and sectoral dispatch of emission reductions: abatement cost curves vs. abatement capital accumulation
Adrien Vogt-schilb
(CIRED)
Guy Meunier
(INRA)
Stephane Hallegatte
(World Bank)
[Download Preview] The Effect of Welfare Reform on Women's Marital Bargaining Power
Mia Bird
(University of California, Berkeley)
[Download Preview] Heterogeneity in the Neighborhood Spillover Effects of Foreclosed Properties
Lei Zhang
(North Dakota State University)
Tammy Leonard
(University of Texas at Dallas)
James Murdoch
(University of Texas at Dallas)
The Impact of Weight Control Belief on Cigarette Consumption among Adults: Findings from the ITC Project
Ce Shang
(University of Illinois at Chicago, Institute for Health Research and Policy)
Frank J. Chaloupka
(1Health Policy Center, Institute for Health Research and Policy, University of Illinois at Chicago, Chicago, IL)
Geoffrey T. Fong
(Department of Psychology, University of Waterloo, Waterloo, Canada)
Mary Thompson
(5Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, Ontario)
Mohammad Siahpush
(College of Public Health, University of Nebraska Medical Center, Nebraska)
[Download Preview] Infectious Disease Detection with Private Information
Alexander Ernestovich Saak
(International Food Policy Research Institute)
David A. Hennessy
(Iowa State University)
[Download Preview] Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 103-C
American Economic Association
Nature of Labor Income Dynamics
(J3)
Presiding:
Fatih Karahan
(Federal Reserve Bank of New York)
Labor Income Dynamics and the Insurance from Taxes, Transfers, and the Family
Richard Blundell
(University College London and Institute for Fiscal Studies)
Michael Graber
(University College London)
Magne Mogstad
(University College London)
[View Abstract]
[Download Preview] What do labor income dynamics look like over the life-cycle? What is the relative importance of persistent shocks, transitory shocks and heterogeneous profiles? To what extent do taxes, transfers and the family attenuate these various factors in the evolution of life-cycle inequality? In this paper, we exploit rich Norwegian panel data to answer these important questions. We estimate a process for income dynamics that allows for key aspects in the evolution of labour income over the life-cycle, including non-stationarity in age and time, heterogeneous profiles, and shocks of varying persistence. We find that labor income dynamics differ systematically by age, skill level and their interaction. For low skilled, the magnitude of permanent shocks are monotically increasing in age. High skilled, on the other hand, experience large persistent shocks early in life; these shocks decrease in magnitude until age 35, after which they are relatively small and fairly stable. The variance of transitory shocks exhibits a decreasing profile over the life-cycle for all skill levels. We find that the progressive nature of the Norwegian tax-transfer system plays a key role in attenuating the magnitude and persistence of income shocks, especially among the low skilled. By comparison, spouse's income matters less for the dynamics of inequality over the life-cycle. The size and detailed nature of the data we are using also allow us to bring new evidence on several issues pertinent to modelling of income processes. One key finding is that restricting the age or time dependence of the variance of income shocks can lead to quite misleading conclusions about labor income dynamics. Another key finding is that allowing for heterogeneity by education levels is necessary to accurately describe the labor income dynamics of young and old workers.
Subjective Expectations and Income Processes in Rural India
Orazio Attanasio
(University College London)
Britta Augsburg
(Institute for Fiscal Studies)
[View Abstract]
This paper uses unique primary data to analyze and characterize the process that generates household income of poor households in rural India. We analyze and use data on individual subjective expectations elicited directly from the respondents of a household survey. We describe how the data was elicited and discuss its validity and to what degree we can trust that it reflects agents' believes about the future. We then use the responses to the subjective answers to the expectations questions and a parametric assumption to fit, for each household in the sample, a probability distribution for future income. We then use the moments we can compute from this distribution, together with data for actual current income, to specify and estimate a dynamic model of household income. We find that our households face a very persistent income process: we cannot reject the hypothesis of a random walk. Our paper is one of the first that uses subjective expectations data to model income processes.
Matching, Sorting, Firm Output and Wages
Thibaut Lamadon
(University College London)
Jeremy Lise
(University College London)
Costas Meghir
(Yale University)
Jean-Marc Robin
(Sciences Po and University College London)
[View Abstract]
In this paper we develop an equilibrium model of wage determination and employment in an environment with search frictions. The central question we want to ask is what are the sources of wage dispersion in the economy and the extent to which the returns to human capital characteristics vary across jobs. We decompose pay dispersion in that due to specific ability, firm characteristics, the interaction between the two and what is due to luck through the search process. However, in order to achieve this we need estimate a structural model characterizing pay determination in equilibrium since linear decomposition of wages can be biased in this environment because pay is not a monotonic function of either job or human capital characteristics. The model we specify allows for two-sided heterogeneity with possible complementarities between worker and job characteristics when there are capacity constraints in the firm. The model is estimated on matched employer-employee data from Sweden.
What Do Data on Millions of United States Workers Say About Labor Income Risk?
Fatih Guvenen
(University of Minnesota)
Fatih Karahan
(Federal Reserve Bank of New York)
Serdar Ozkan
(Federal Reserve Board)
Jae Song
(Social Security Administration)
[View Abstract]
The goal of this paper is to shed new light on idiosyncratic income risk using a unique and confidential dataset from the Social Security Administration on individuals' earnings histories that has three key advantages: (i) a very large sample size (with 5+ million individuals) with a long time span (1978-2011), (ii) minimal measurement error, and (iii) no top-coding. The substantial sample size allows us to cut the data in different and novel ways and document some interesting empirical facts.
First, earnings changes display extreme leptokurtosis, meaning that compared to a normal distribution (with the same standard deviation), most earnings changes are very close to zero but few changes are extremely large. The resulting distribution looks very different from Gaussian, the typical assumption made in the literature. Second, there is enormous dispersion in the variance of earnings shocks across individuals: the top 10% most volatile individuals have an average standard deviation of shocks that is 6 times larger than the least volatile 10%. Third, the life-cycle growth rate of earnings varies strongly with the level of lifetime earnings. For example, the individual with the median lifetime earnings experiences an earnings growth of 30% from age 30 to 60, whereas for the individual in the 95th percentile, this figure is 200%. These and other features of individual earnings turn out to be difficult to capture with standard specifications used in the existing literature. The first part of this paper estimates a set of stochastic processes with increasing generality to capture these salient features of earnings dynamics to provide a reliable "user's guide" for applied economists. In the second we examine if these documented features can be explained in a standard job ladder model with learning about match quality and depreciation of skills during unemployment.
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 107-B
American Economic Association
New Perspectives on Corporate Governance
(G3)
Presiding:
Luigi Zingales
(University of Chicago)
The Financial Crisis of 1873 and 19th Century American Corporate Governance
Efraim Benmelech
(Northwestern University)
[View Abstract]
The crisis of 1873 was one of the most severe financial crises in the history of the U.S. The 1873 crisis was associated with banking crises; stock market crashes in a number of countries (Bordo, 1986) and with abrupt reversals in capital flows from England (and the other core European countries) to the countries of new settlement, including the U.S. In this paper we focus on a different aspect of the crisis of 1873 - the connection between the crisis and failures of corporate governance. We argue that tunneling and looting of firms by their executives and directors exacerbated the financial panic and led to an economic depression. The 1873 financial provides evidence that is consistent with the emerging markets crisis of 1997-1998 and exemplifies the importance of corporate governance and investor protection
Economic Consequences of Changing Organizational Structures: Evidence from the Death Sentence Clause of the PUHCA of 1935
Francisco Perez-Gonzalez
(Stanford University)
[View Abstract]
The objective of this paper is to examine the importance of organizational form on firm performance. I exploit variation in organizational choice that resulted from the introduction of the Public Utility Holding Company Act (PUHCA) of 1935. PUHCA forced holding companies to: (1) divest non-integrated assets, and (2) simplify their corporate structures by limiting the number of layers in an organizational structure. As a result of the Act, a significant number of firms that would not otherwise be independent were divested, and pyramidal structures with more than 3 layers were eliminated. Using hand-collected data, I test for the effect of changing organizational structures on operating efficiency, profitability, and financing decisions.
How Pervasive is Corporate Fraud?
Alexander Dyck
(University of Toronto)
Adair Morse
(University of California-Berkeley)
Luigi Zingales
(University of Chicago)
[View Abstract]
We estimate what percentage of firms engage in fraud and the economic cost of fraud. Our estimates are based on detected frauds, and frauds that we infer are started but are not caught. To identify the 'iceberg' of undetected fraud we take advantage of an exogenous shock to the incentives for fraud detection: Arthur Andersen's demise, which forces companies to change auditors. By assuming that the new auditor will clean house, and examining the change in fraud detection by new auditors, we infer that the probability of a company engaging in a fraud in any given year is 14.5%. We validate the magnitude of this estimate using alternative methods. We estimate that on average corporate fraud costs investors 22 percent of enterprise value in fraudcommitting firms and 3 percent of enterprise value across all firms.
Discussants:
Franklin Allen
(University of Pennsylvania)
Amit Seru
(University of Chicago)
Frank Partnoy
(University of California-San Diego)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 112-B
American Economic Association
Policy Interventions and Educational Outcomes
(J6)
Presiding:
Rodney Andrews
(University of Texas-Dallas)
The Effect of Health Care Access on Academic Achievement: Evidence from State Medicaid and SCHIP Expansions
Michael F. Lovenheim
(Cornell University)
Samuel Kleiner
(Cornell University)
[View Abstract]
With the large expenditures that the Federal and state governments make on Medicaid coverage to lower-income families and with the recent passage of the 2010 Affordable Care Act that expands health insurance coverage to virtually all US families, understanding the effect of health care coverage and the resulting health improvements it provides on important outcomes like education is of high policy importance. However, little prior work has been done examining this question. We contribute to filling this gap in the literature by examining the effect that the Medicaid and SCHIP expansions in the 1990s and 2000s had on student academic achievement and attainment. Specifically, we exploit state-level changes in eligibility that occurred at different times and varied in generosity to estimate difference in difference models that identify how expanding medical insurance coverage for lower-income families affects tests scores, high school completion, college-going, college completion, and future earnings. We also examine whether effects vary by the age of the child when the expansion took place.
Using School Choice Lotteries to Test Measures of School Effectiveness
David Deming
(Harvard University)
[View Abstract]
[Download Preview] Value-added models (VAMs) have become a common approach to measuring school effectiveness, both in the academic literature and in U.S. education policy. Yet random variation in school attendance is necessary to test the validity of VAMs, and to guide the selection of models for measuring causal effects of schools. In this paper I use random assignment from a public school choice lottery in Charlotte-Mecklenburg (CMS) to test the predictive power of a wide variety of commonly used VAM specifications. I find that VAMs are a remarkably accurate out-of-sample predictor of student achievement. In specifications with minimal controls and two or more years of prior data, I fail to reject the hypothesis that school effects are unbiased. VAMs with a richer set of covariates perform similarly.
Effects of Charter School Entry on Local School Markets
Marcus Casey
(University of Illinois-Chicago)
Patrick Baude
(University of Illinois-Chicago)
Eric Hanushek
(Stanford University)
Steve Rivkin
(University of Illinois-Chicago)
[View Abstract]
Legislation that permits charter schools to compete with traditional public schools is founded on the beliefs that relaxation of regulations and competition can improve the quality of education. Entry of a charter school strengthens existing competitive forces rising from competition among public school districts by eliminating the need to change residencies in order to switch schools, by differentiating school offerings, and potentially by providing higher quality alternatives. Although large-scale comparisons of charter and traditional public schools suggest that charter schools do not outperform traditional public schools on average, the ultimate judgment of program impact depends on the longer-term school market dynamics. Successful competition should lead to rising entry into higher quality schools and higher exit from less successful schools. Over time low-performing charter schools would be expected to improve or exit the market, and low-performing traditional schools should experience shrinking enrollment and pressure to improve. It is these market dynamics that we investigate using Texas public school administrative data. These data permit us to track charter school entry, charter school location changes, student transitions, and the evolution of charter and regular school estimates of value added. We will use evidence on the interrelationships among these factors within local education markets to draw inferences on charter school impacts and the dynamics of the education market place. Of particular interest are potential differences in the strength of market forces in support of higher school quality by the level of poverty, share of limited English proficient students, other demographic characteristics, and community type.
Intensive Math Instruction and Educational Attainment: Long-Run Impacts of Double Dose Algebra
Kalena Cortes
(Texas A & M University)
Joshua Goodman
(Harvard University)
Takako Nomi
(St. Louis University)
[View Abstract]
Success or failure in freshman math has long been thought to have a strong impact on subsequent high school outcomes. We study an intensive math instruction policy in which students scoring below average on an 8th grade exam were assigned in 9th grade to an algebra course that doubled instructional time, altered peer composition and emphasized problem solving skills. Using a regression discontinuity design, we show positive and substantial long-run impacts of double-dose algebra on standardized test scores, high school graduation rates and college enrollment rates. The attainment effects were larger than the test score effects would predict, highlighting the importance of evaluating educational interventions on longer-run outcomes. Perhaps because the intervention focused on verbal exposition of mathematical concepts, the intervention's impact was generated largely by students with below average reading skills, emphasizing the need to target interventions toward appropriately skilled students. This is the first evidence we know of demonstrating the long-run impacts of such intensive math instruction.
Discussants:
Juan Carlos Suárez Serrato
(Stanford University)
Monica Deza
(University of Texas-Dallas)
Damon Jones
(University of Chicago)
Omari Swinton
(Howard University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 203-A
American Economic Association
Raising Revenue: The Economics of Tax Evasion and Enforcement
(H2)
Presiding:
Joel Slemrod
(University of Michigan)
Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-Through of State Diesel Taxes
Erich Muehlegger
(Harvard University)
Wojciech Kopczuk
(Columbia University)
Justin Marion
(University of California-Santa Cruz)
Joel Slemrod
(University of Michigan)
[View Abstract]
[Download Preview] The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.
No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax
Dina Pomeranz
(Harvard University)
[View Abstract]
[Download Preview] Tax evasion generates billions of dollars of losses in government revenue and creates large distortions, especially in developing countries. A growing, mostly theoretical literature argues that information flows are central to understanding effective taxation. This paper analyzes the role of information for tax enforcement in the case of the Value Added Tax (VAT) through two randomized field experiments with over 400 thousand Chilean firms. Claims that the VAT facilitates tax enforcement by generating a paper trail on transactions between firms have led to widespread VAT adoption worldwide, but there is surprisingly little evidence. I find that the paper trail acts as a substitute to a firm's own audit risk. A message announcing increased tax enforcement has a much smaller effect on reporting of transactions that are already covered by a paper trail. A second experiment shows that the paper trail leads to spillovers that create important multiplier effects in tax enforcement. The impact of a random audit announcement is transmitted up the VAT chain, increasing compliance by firms' suppliers. These findings confirm that when evasion is taken into account, significant differences emerge between taxes that are equivalent in standard models but generate different information on taxable transactions.
Taxes on the Internet: Deterrence Effects of Public Disclosure
Joel Slemrod
(University of Michigan)
Thor Thoresen
(Statistics Norway)
Erlend Bø
(Statistics Norway)
[View Abstract]
[Download Preview] Supporters of public disclosure of personal tax information point to its deterrent effect on tax evasion, but this effect has not been empirically explored. Although Norway has a long tradition of public disclosure of tax filings, it took a new direction in 2001 when anyone with access to the Internet could obtain individual information on income, wealth, and income and wealth taxes paid. We exploit this change in the degree of exposure to identify the effects of public disclosure on income reporting. Identification of the deterrence effects of public disclosure is facilitated by the fact that, prior to the shift to the Internet in 2001, some municipalities had exposure which was close to the Internet type of public disclosure, as tax information was distributed widely through paper catalogues that were locally produced and disseminated. We observe income changes that are consistent with public disclosure deterring tax evasion: an approximately 3 percent average increase in reported income is found among business owners living in areas where the switch to Internet disclosure represented a large change in access.
Tax Flights
Koleman Strumpf
(University of Kansas)
[View Abstract]
[Download Preview] Tax evasion is difficult to measure, since evaders try to avoid detection and counter-factual behavior is hard to establish. This paper considers evasion in an environment where these two issues can be overcome. Aircraft are taxed as personal property in some American states. Taxes are owed if the plane is hangared in the state on one specific date. Strategic plane owners may try to evade the tax by flying to a non-taxing jurisdiction just before this date and returning shortly thereafter. I assess such "tax flights" using a database of about twenty million trips covering general aviation flights in the United States during the period 2004 to 2009. For each flight I know the time, location of the arrival and departure airport, the address of the owner, and the type of plane. I match this to a database of local tax rates and valuation of planes to measure the potential tax bills. To establish the counter-factual flying behavior, I exploit variation in tax policy (at both the state and local level), exemptions for certain classes of planes, type of plane, tax valuation method, and tax date. Preliminary results indicate the presence of tax flights. In later revisions I will estimate this elasticity by demographics, such as income, which can potentially inform both theory and practice. To validate the results, I will see whether planes on tax flights are actually missing from tax rolls and also employ various placebo tests such as considering the impact of taxes on exempt plane flight patterns and quasi-experimental tax rate changes applying only to certain classes of planes.
Discussants:
David Merriman
(University of Illinois-Chicago)
James Alm
(Tulane University)
Austan Goolsbee
(University of Chicago)
Nathaniel Hendren
(NBER and Harvard University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 204-B
American Economic Association
Rapid Growth or Stagnation for the United States Economy?
(F4)
Presiding:
Dominick Salvatore
(Fordham University)
Economic Growth and Convergence
Robert Barro
(Harvard University)
[View Abstract]
In an 80-country panel since the 1960s, the estimated convergence rate for per capita GDP is 1.7% per year. This "beta convergence" is conditional on an array of explanatory variables that hold constant countries' long-run characteristics. In a much longer time frame-28 countries since 1870-estimation with country fixed effects is reasonable, and the estimated convergence rate is 2.4% per year. Combining the estimates from the two panels suggests that the conditional convergence rate is close to the "iron-law" rate of 2%, implying that it takes 35 years for half of an initial gap to vanish and 115 years for 90% to disappear. A measure of dispersion-the standard deviation of the log of per capita GDP across 25 countries-is reasonably stable since 1870. This lack of "sigma convergence" is consistent with the presence of beta convergence.
How to Achieve Stronger United States Growth
Martin Feldstein
(Harvard University)
[View Abstract]
[Download Preview] This paper outlines what can be done to stimulate (1) a faster cyclical recovery and (2) a faster rate of growth of real GDP in the long run. Three types of long run policy options are presented: policies to increase the labor force; policies to improve the quality of the labor force; and policies to increase the quantity and quality of productive capital
Path to Prosperity
Edward C. Prescott
(Arizona State University)
[View Abstract]
The behavior of the US economy has been as predicted by neoclassical growth theory, which treats productivity and tax policies as exogenous. There are two changes in policy that are required to restore and enhance prosperity. One is to permit rather than block changes that increase productivity. The other change is to eliminate all capital income taxes and to rely on a labor income/consumption tax. This would result is a dramatically increase in household net worth and a dramatically reduction in the poverty rate. The US economy would not just recover from the current depression of 13% relative to the pre 2008 trend, but move to a balanced growth path that is 20% higher. All birth-tear cohorts alive today and in the future benefit in the transition and there would be no need for large government debt relative to GNP.
Stagnation -- The New Normal
Lawrence Summers
(Harvard University)
Rapid Growth or Stagnation? An Economic Policy Choice
John B. Taylor
(Stanford University)
[View Abstract]
In recent years the American economy has been growing very slowly averaging only 2 percent per year during the current recovery. The result has been stagnant real incomes and persistently high unemployment. One view is that this poor state of affairs will continue in a "new normal" caused by reduced productivity gains and fundamental structural changes in capital and labor markets due in part to the financial crisis. This paper explores the view that the cause of the recent poor performance is economic policy rather than economic structure, and that a change in policy can reverse these trends and restore rapid economic growth. Drawing on the history of policy during the past 50 years and empirical evidence on the impact of specific policy actions, it shows how basic reforms of fiscal, monetary, regulatory, and international economic policy can help put the economy on a strong growth path as in the past
Discussants:
Dale Jorgenson
(Harvard University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 110-B
American Economic Association
Strategies for Reducing Crime
(K4)
Presiding:
David Abrams
(University of Pennsylvania)
Preventing Youth Violence and Dropout: A Randomized Field Experiment
Jens Ludwig
(University of Chicago)
Sara Heller
(University of Chicago)
Harold Pollack
(University of Chicago)
Roseanna Ander
(University of Chicago)
[View Abstract]
Imroving the long-term life outcomes of disadvantaged youth remains a top policy priority in the United States, although identifying successful interventions for adolescents - particularly males - has proven challenging. This paper reports results from a large randomized controlled trial of an intervention for disadvantaged male youth grades 7-10 from high-crime Chicago neighborhoods. The intervention was delivered by two local non-profits and included regular interactions with a pro-social adult, after-school programming, and - perhaps the most novel ingredient - in-school programming designed to reduce common decision-making problems related to automatic behavior and biased beliefs, or what psychologists call cognitive behavioral therapy (CBT). We randomly assigned 2,740 youth to programming or to a control group; about half those offered programming participated, with the average participant attending 13 sessions. Program participation reduced violent-crime arrests during the program year by 8.1 per 100 youth (a 44 percent reduction). It also generated sustained gains in schooling outcomes equal to 0.14 standard deviations during the program year and 0.19 standard deviations during the follow-up year, which we estimate could lead to higher graduation rates of 3-10 percentage points (7-22 percent). Depending on how one monetizes the social costs of crime, the benefit-cost ratio may be as high as 30:1 from reductions in criminal activity alone.
How Effective are Enforcement Efforts Targeting Illegal Drugs? Evaluating OTC Restrictions Targeting Methamphetamine Precursors
Matthew Weinberg
(Drexel University)
Carlos Dobkin
(University of California-Santa Cruz)
Nancy Nicosia
(RAND Corporation)
[View Abstract]
[Download Preview] Although enforcement efforts are the primary approach to reducing illegal drug use and its harms in the U.S., the evidence on their effectiveness is mixed. This is due to the inherent difficulties in studying illegal activities and the lack of abrupt spatial and temporal variation in most enforcement efforts, both of which make it difficult to implement a clean research design. We overcome these challenges by using rich administrative records from law enforcement, public health, and workplace safety sources and by exploiting the staggered implementation of state laws targeting over-the-counter medicines that can be used to produce methamphetamine. We estimate that the regulations reduced the number of methamphetamine laboratories operating in a state by 36%. We find no compelling evidence of changes in methamphetamine consumption or drug related arrests, suggesting that people were able to find methamphetamine proudced out of state.
Fragmentation and Crime
Anne Morrison Piehl
(Rutgers University)
Hilary Sigman
(Rutgers University)
[View Abstract]
As practiced in the United States, federalism means that there are more than 10,000 local police agencies, a number far larger than the number of county governments or the number of state criminal law jurisdictions, for example. This decentralization, and the fact that the agencies are funded using local tax mechanisms, have been blamed by some authors for certain negative features of the operation of American criminal justice (Stuntz 2011). We describe the variation in the way the operation of law enforcement is decentralized in the U.S., particularly across regions. We then examine the consequences of this decentralization for crime prevention. We look at how the level of fragmentation is related to crime rates and how changes in fragmentation are related to changes in crime rates. Consolidation of police services is sometimes proposed as a mechanism for reducing externalities, as increasing the geographic scale of enforcement is theorized to lead to greater information and improved strategic options. At the same time, consolidation is sometimes proposed to reduce cost. In fact, local government fiscal distress commonly leads to calls for centralization of services. The results of these analyses are therefore relevant to issues of local public finance currently under debate.
Discussants:
Matthew J. Lindquist
(SOFI, Stockholm University)
Rosalie Pacula
(RAND Corporation)
William Hoyt
(University of Kentucky)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 203-B
American Economic Association
The Cyclicality of Hiring and Employment
(A1)
Presiding:
John Haltiwanger
(University of Maryland)
Cyclical Reallocation of Workers across Large and Small Employers
Erika McEntarfer
(US Census Bureau)
John Haltiwanger
(University of Maryland)
Henry Hyatt
(US Census Bureau)
LIliana Sousa
(US Census Bureau)
[View Abstract]
[Download Preview] Search-and-matching models with on-the-job search and firm size yield the prediction that job-to-job flows reallocate workers from smaller to larger firms. Recent papers have extended such models to explain the cyclicality of employment at large vs. small firms. In this paper, we use linked employer-employee data for the U.S. to provide direct evidence on worker reallocation by firm size. We find that job-to-job flows do not generally move workers from smaller to larger employers. Instead, we show that workers moving directly from one job to another more frequently move from large firms to small firms than the reverse. This is despite the fact that large businesses rely more on poaching workers from other firms when hiring and small businesses hire largely from the pool of nonemployed, results that are consistent with the theory. Regarding the cyclical nature of this reallocation, we find that poaching hires are highly procyclical for both large and small firms. Yet despite the cyclical nature of poaching, net reallocation across firm size classes via poaching is relatively stable across the business cycle. The implication is that net poaching by size class is relatively small in magnitude at all phases of the cycle. We find more supportive evidence of the predictions of recent theories regarding net poaching between small and large firms in times of tight labor markets when we focus on mature firms. Even here however the quantitative effects are small.
On the Importance of the Participation Margin for Labor Market Fluctuations
Aysegul Sahin
(Federal Reserve Bank of New York)
Michael W. L. Elsby
(University of Edinburgh)
Bart Hobijn
(Federal Reserve Bank of San Francisco)
[View Abstract]
In this paper we examine the role of the participation margin in shaping the evolution of unemployment
over the business cycle. Our analysis yields a rich set of empirical findings that challenge the
conventional practice of abstracting from labor force participation in theoretical and empirical work. Our
findings are as follows. First, standard estimates of worker flows among the three labor market states
reveal that the moderate cyclicality of the stock of labor force participants masks substantial cyclicality
in worker flows between unemployment and nonparticipation. Second, we find this channel to be
quantitatively significant: Application of a novel decomposition of the variation in labor market stocks
into components accounted for by underlying worker flows reveals that transitions at the participation
margin account for around oneâ€third of the cyclical variation in the unemployment rate. Third, the latter
result is robust to conventional and practical adjustments of data for spurious transitions, and for time
aggregation. Rather, we show that inferences from conventional, stocksâ€based analyses of labor force
participation are subject to a stockâ€flow fallacy. Finally, new estimates of heterogeneity in worker flows
across labor market histories reveal that an important part of the contribution of the participation
margin, and therefore of unemployment fluctuations in general, can be traced to a novel channel based
on cyclical shifts in the labor market attachment composition of the unemployed.
Our analysis relies on the longitudinallyâ€linked monthly Current Population Survey (CPS) microdata. A
particular issue that arises when one uses the gross flows data is that they are thought to be particularly
susceptible to classification errors in recorded labor market status. While such errors may largely cancel
in measured labor market stocks, they can accumulate in estimates of worker flows, leading to spurious
measured transitions. Previous research has found these errors to be substantial, especially for
transitions between unemployment and nonparticipation.
In this paper we take this possibility seriously and examine whether adjustments for misclassification
errors have an impact on the cyclicality of worker flows at the participation margin. We consider two
approaches. First, we apply Abowd and Zellner's (1985) estimates of misclassification probabilities
inferred from CPS reinterview surveys to adjust the gross flows estimates for spurious transitions. This
adjustment substantially reduces the estimated flows, especially those that involve transitions in and
out of the labor force, however, the rate of outflow of unemployed workers into nonparticipation
remains prominently procyclical. We also use a novel method to deal with misclassification error, and
assess the effect of recoding sequences of recorded labor market states to eliminate highâ€frequency
reversals of transitions between unemployment and nonparticipation. A striking feature of the results
of this more practical recoding approach is that the adjusted flows line up closely with those implied by
the Abowd and Zellner (1985) correction. What emerges from this analysis is that, while the
countercyclicality of the nonparticipationâ€toâ€unemployment rate is diminished by both conventional and
practical adjustments for classification error, the procyclicality of the rate of outflow of unemployed
workers into nonparticipation appears to be a robust feature of the dynamics of the labor market in the
United States.
Job Search Behavior over the Business Cycle
Toshihiko Mukoyama
(University of Virginia)
Christina Patterson
(Federal Reserve Bank of New York)
Aysegul Sahin
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] In this paper, we study nonemployed workers' job search behavior. In particular, we analyze how search behavior changes over the business cycle. Theoretically, we show that job search intensity can either be procyclical or countercyclical depending on various factors. Empirically, we first examine how aggregate job search intensity changes over the business cycle. Second, we examine job search behavior at the individual level and analyze how various factors affect individuals' job search behavior.
The Cyclical Behavior of Employment: Does it Matter Whether You Ask Households or Employers?
James R. Spletzer
(US Census Bureau)
Katharine Abraham
(University of Maryland)
John Haltiwanger
(University of Maryland)
kristin Sandusky
(US Census Bureau)
[View Abstract]
Accurate employment trends, particularly during business cycles, are important for economic
policymakers, business investors, and academic researchers. It is disturbing when the two key series of
monthly employment in the United States diverge in trend. In the figure below (which is updated
monthly at http://www.bls.gov/web/empsit/ces_cps_trends.pdf), noticeable differences in employment
from the payroll survey (the Current Employment Statistics, or CES) and adjusted employment from the
household survey (the Current Population Survey, or CPS) have occurred twice during the past two
decades. Both of these differences have coincided with recessions.
In our earlier work (Journal of Labor Economics, April 2013; also see NBER Working Paper #14805),
we investigated the 1998-2003 divergence using linked microdata from the CPS and the Longitudinal
Employer Household Dynamics (LEHD). The LEHD is a longitudinal employer-employee dataset
originating from the State UI programs. We found that the 1998-2003 divergence was attributable to the
payroll survey measuring more multiple jobs during the 1996-1999 period, followed by the household
survey measuring more off-the-books and/or independent contractor employment in the 2001-2003
period. The data series in our earlier work stopped in 2003.
In this new research, we will extend our linked CPS-LEHD
microdata to 2011 and analyze the causes of the recent 2007-
2012 discrepancy between payroll and household employment.
This recent divergence is characterized by household
employment growing faster in the years immediately preceding
the recession (which is different from the 1998-2003
divergence), and the discrepancy not resolving itself following
the recession (which is, again, different than the 1998-2003
divergence). These differences suggest that the explanations
for the 2007-2012 divergence will not be the same as the
explanations we found in our earlier work.
The data and methodology that we will use in this current project will be an improvement upon our earlier
work. Because of the increasing coverage of the LEHD program in recent years, we will be able to use
many more states than the 16 states we used in our earlier work. Furthermore, the 2007-2009 recession
had much more regional dispersion than the 2001 recession, and this regional variation will help us
identify the source of the divergence between the payroll survey and the household survey.
Discussants:
Giuseppe Moscarini
(Yale University)
Christopher J. Nekarda
(Federal Reserve Board)
Andreas Mueller
(Columbia University)
Bruce Fallick
(Federal Reserve Board)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 103-A
American Economic Association
The Growth of Finance
(G1)
Presiding:
Robin Greenwood
(Harvard University)
Money Doctors
Nicola Gennaioli
(Universitat Pompeu Fabra)
Andrei Shleifer
(Harvard University, Department of Economics)
Robert W. Vishny
(University of Chicago)
[View Abstract]
We present a new model of money management, in which investors delegate portfolio management to professionals based not only on performance, but also on trust. Trust in the manager reduces an investor's perception of the riskiness of a given investment, and allows managers to charge higher fees to investors who trust them more. Money managers compete for investor funds by setting their fees, but because of trust the fees do not fall to costs. In the model, 1) managers consistently underperform the market net of fees but investors still prefer to delegate money management to taking risk on their own, 2) fees involve sharing of expected returns between managers and investors, with higher fees in riskier products, 3) managers pander to investors when investors exhibit biases in their beliefs, and do not correct misperceptions, and 4) despite long run benefits from better performance, the profits from pandering to trusting investors discourage managers from pursuing contrarian strategies relative to the case with no trust. We show how trust-mediated money management renders arbitrage less effective, and may help destabilize financial markets.
The Growth of Finance
Robin Greenwood
(Harvard University)
David S. Scharfstein
(Harvard University)
[View Abstract]
The U.S. financial services industry grew from 4.9% of GDP in 1980 to 7.9% of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity. Another important factor was growth in fees associated with an expansion in household credit, particularly fees associated with residential mortgages. This expansion was fueled by the development of non-bank credit intermediation (or "shadow banking"). We offer a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking - the main areas of growth in the financial sector - has been socially beneficial.
Has the United States Financial Industry Become Less Efficient?
Thomas Philippon
(New York University)
[View Abstract]
[Download Preview] A quantitative investigation of financial intermediation in the U.S. over the past 130 years yields the following results : (i) the finance industry's share of GDP is high in the 1920s, low in the 1950s and 1960s, and high again in the 1990s and 2000s; (ii) most of these variations can be explained by corresponding changes in the quantity of intermediated assets (equity, household and corporate debt, assets yielding liquidity services); (iii) intermediation is produced under constant returns to scale with an annual average cost comprised between 1.5% and 2% of outstanding assets; (iv) quality adjustments that take into account changes in the characteristics of firms and households are quantitatively important; and (v) the unit cost of intermediation has not decreased over the past 30 years.
Towards a Run-Free Financial System
John H. Cochrane
(University of Chicago)
[View Abstract]
Essay on preventing runs in the US financial system
Discussants:
John H. Cochrane
(University of Chicago)
Thomas Philippon
(New York University)
Robin Greenwood
(Harvard University)
Andrei Shleifer
(Harvard University, Department of Economics)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 105-B
American Economic Association
Trade and Development
(F1)
Presiding:
Stephen Redding
(Princeton University)
Railroads and American Economic Growth: A Market Access Approach
Dave Donaldson
(Massachusetts Institute of Technology)
Richard Hornbeck
(Harvard University)
[View Abstract]
[Download Preview] This paper examines the historical impact of railroads on the American economy. Expansion of the railroad network may have affected all counties directly or indirectly - an econometric challenge that arises in many empirical settings. However, the total impact on each county is captured by changes in that county's "market access," a reduced-form expression derived from general equilibrium trade theory. We measure counties' market access by constructing a network database of railroads and waterways and calculating lowest-cost county-to-county freight routes. As the railroad network expanded from 1870 to 1890, changes in market access were capitalized into county agricultural land values with an estimated elasticity of 1.1. County-level declines in market access associated with removing all railroads in 1890 are estimated to decrease the total value of US agricultural land by 64%. Feasible extensions to internal waterways or improvements in country roads would have mitigated 13% or 20% of the losses from removing railroads.
Export Markets and Labor Reallocation in a Low-Income Country
Brian McCaig
(Australian National University)
Nina Pavcnik
(Dartmouth College)
[View Abstract]
[Download Preview] We study labor allocation across employers in response to new export opportunities in a setting where a majority of the labor force works for small, less productive, household-owned businesses, rather than employers in the registered enterprise sector. We find the incidence of employment in household businesses declines more in Vietnamese industries that face larger U.S. tariff cuts on exports induced by the 2001 U.S.-Vietnam Bilateral Trade Agreement. The magnitude of this reallocation is larger for workers in more internationally integrated provinces and in younger cohorts. Declines in export costs expand industry employment among employers in the enterprise sector.
Agricultural Productivity and Structural Transformation: Evidence from Brazil
Paula Bustos
(Universitat Pompeu Fabra)
Bruno Caprettini
(Universitat Pompeu Fabra)
Jacopo Ponticelli
(Universitat Pompeu Fabra)
[View Abstract]
[Download Preview] We study the effects of the adoption of new agricultural technologies on structural transformation. To guide empirical work, we present a simple model where the effect of agricultural productivity on industrial development depends on the factor bias of technical change. We test the predictions of the model by studying the introduction of genetically engineered soybean seeds in Brazil, which had heterogeneous effects on agricultural productivity across areas with different soil and weather characteristics. We find that technical change in soy production was strongly labor saving and lead to industrial growth, as predicted by the model.
External Integration and Internal Development: Evidence from Argentina 1870-1914
Pablo D. Fajgelbaum
(University of California-Los Angeles)
Stephen J. Redding
(Princeton University)
[View Abstract]
External integration is often argued to be an important driver of economic development. Key challenges in quantifying these effects are finding exogenous sources of variation in external integration and controlling for internal trade costs. We use Argentina's integration into world markets in the late-nineteenth century to address these challenges. We combine spatially disaggregated data with a general equilibrium model to quantify the channels through which external integration influences internal development. We find that much of the welfare gains from Argentina's integration into world markets arose from reductions in internal trade costs that enabled interior regions to participate in world markets.
Discussants:
Gilles Duranton
(University of Pennsylvania)
Brian Kovak
(Carnegie Mellon University)
David Lagakos
(University of California-San Diego)
David E. Weinstein
(Columbia University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Cross-Sectional Variation in Average Returns and Volatilities
(G1)
Presiding:
Christopher Polk
(London School of Economics)
Asset Pricing in the Dark: the Cross Section of OTC Stocks
Andrew Ang
(Columbia University)
Assaf Shtauber
(Columbia University)
Paul Tetlock
(Columbia University)
[View Abstract]
Compared to listed stocks, over-the-counter (OTC) stocks are far less liquid, disclose less information, and exhibit lower institutional holdings. We exploit these different market conditions to test theories of cross-sectional return premiums. Compared to return premiums in listed markets, the OTC premium for illiquid stocks is several times higher, the OTC premiums for size, value, and volatility are similar, and the OTC premium for momentum is three times lower. The OTC premiums for illiquidity, size, value, and volatility are largest among stocks that are held almost exclusively by retail investors and those that do not disclose financial information. Theories of differences in investors? opinions and short sales constraints help to explain these return premiums. Our momentum results are most consistent with Hong and Stein?s (1999) theory based on the gradual diffusion of information.
Firm Characteristics and Empirical Factor Models: a Data-Mining Experiment
Leonid Kogan
(Massachusetts Institute of Technology)
Mary Tian
(Federal Reserve Board)
[View Abstract]
"A three-factor model using the momentum and cashflow-to-price factors explains 14 well-known asset pricing anomalies." Our data-mining experiment provides a backdrop against which such claims can be evaluated. We construct three-factor linear pricing models that match return spreads associated with as many as 14 out of 27 commonly used firm characteristics over the 1971-2011 sample. We form target assets by sorting firms into ten portfolios on each of the chosen characteristics and form candidate pricing factors as long-short positions in the extreme decile portfolios. Our analysis exhausts all possible 351 three-factor models, consisting of two characteristic-based factors in addition to the market portfolio. 71% and 48% of the examined factor models match a larger fraction of the target return cross-sections than the CAPM or the Fama-French three-factor model, respectively. We find that the relative performance of the complete set of three-factor models is highly sensitive to the sa
Dissecting Factors
Joseph Gerakos
(University of Chicago)
Juhani Linnainmaa
(University of Chicago)
[View Abstract]
[Download Preview] Firm size and book-to-market ratio can each be split into two components: one correlated with changes in the market value of equity and the other with everything else. We construct factors from these four components and show that although each component explains variation in returns, only the components correlated with changes in the market value of equity have positive prices of risk. Portfolios based on the unpriced parts generate statistically and economically significant three-factor alphas. Even though average returns are flat across these portfolios, their loadings on SMB and HML differ significantly. Hence, the three-factor model assigns significantly negative alphas to "high" portfolios and positive alphas to "low" portfolios. These results are relevant for practice. Applying the Fama and French (2010) bootstrapping methodology, we find that the estimated fraction of skilled mutual fund managers increases from 4% to 27% when we control for the unpriced parts of size and value. Also, the negative correlation between gross profitability and value is entirely due to the unpriced part of value.
The Common Factor in Idiosyncratic Volatility
Bryan T. Kelly
(University of Chicago)
Hanno Lustig
(University of California-Los Angeles)
Stijn Van Nieuwerburgh
(New York University)
[View Abstract]
[Download Preview] We show that firms' idiosyncratic volatility in returns and cash flows obeys a strong factor structure. We find that the stocks of firms with large, negative common idiosyncratic volatility (CIV) factor betas earn high average returns. The CIV beta quintile spread is 5.6% per year. To explain this spread, we develop a heterogeneous investor model with incomplete markets in which the idiosyncratic volatility of investor consumption growth inherits the factor structure of firm cash flow growth. In our model, the CIV factor is a priced state variable, because an increase in volatility represents a worsening of the investment opportunity set for the average investor. The calibrated model is able to match the high degree of comovement in idiosyncratic volatilities, the CIV beta spread, along with a host of asset price moments.
Discussants:
Dong Lou
(London School of Economics)
Jonathan Lewellen
(Dartmouth College)
Kent Daniel
(Columbia University)
John Y. Campbell
(Harvard University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall A
American Finance Association
Determinants and Consequences of Corporate Cash Holdings
(G3)
Presiding:
Heitor Almeida
(University of Illinois-Urbana Champaign)
Labor Adjustment Costs and Capital Structure Decisions
Matthew Serfling
(University of Arizona)
[View Abstract]
[Download Preview] This paper investigates how the costs associated with dismissing employees impact a firm’s capital structure decisions. I hypothesize that increases in these labor adjustment costs reduce a firm’s optimal amount of debt financing by lowering expected profitability and raising financial distress costs and operating leverage. To test this hypothesis, I adopt a difference-in-differences research design and exploit the passage of state-level wrongful discharge laws that allow workers to sue employers for unjust dismissal as an exogenous increase in labor adjustment costs. I find robust evidence that firms reduce financial leverage ratios following the passage of these laws. This finding is driven by firms whose employees are more likely protected by these laws, firms whose employees are more likely to file wrongful termination lawsuits, and firms that are more likely to lay off workers. Additional analyses suggest that reverse causality and omitted variables related to local economic conditions, changes in the types of workers that a firm employs, and changes in the nature of a firm’s operations do not drive these results. Lastly, firms also hold more cash and investors place a higher value on each additional dollar of cash holdings following the passage of wrongful discharge laws. Overall, my findings imply that labor market frictions in the form of labor adjustment costs can have a significant impact on a firm’s financing decisions.
Is There a United States High Cash Holdings Puzzle After the Financial Crisis?
Lee Pinkowitz
(Georgetown University)
René M. Stulz
(Ohio State University)
Rohan Williamson
(Georgetown University)
[View Abstract]
[Download Preview] Defining as normal cash holdings the holdings a firm with the same characteristics would have had in the late 1990s, we find that the abnormal cash holdings of U.S. firms after the financial crisis amount to 10% of cash holdings, which represents an increase in abnormal cash holdings of 87% from before the crisis. Strikingly, abnormal cash holdings do not increase more for U.S. firms than for firms in advanced countries from before the crisis to after the crisis. The increase in abnormal cash holdings of U.S. firms is concentrated among highly profitable firms. Though abnormal cash holdings of multinational firms increase sharply in the early 2000s, they do not from before the crisis to after and they do not evolve differently over that time from the abnormal cash holdings of foreign multinational firms. Further evidence shows that the tax explanation for the cash holdings of U.S. multinational firms cannot explain these large abnormal holdings. In sum, while the high cash holdings of U.S. firms before the crisis are a U.S. puzzle, the increase in cash holdings of U.S. firms from before the crisis to after is not.
Easy Come, Easy Go: Cheap Cash and Bad Corporate Decisions
Igor Cunha
(University of Illinois-Urbana Champaign)
[View Abstract]
[Download Preview] This paper investigates the relation between the sources of cash reserve and firm's investment decisions. I explore the information on the cash flow statement to organize cash holding by its source: Financing, Operating or Investment activity. I find that the overspending evidence previously associated to firms with large cash holdings are driven by firms with high cash reserves coming from operations. My evidence is consistent with theories of the disciplinary effects of external financing. Furthermore, I show that manager's perception of the opportunity costs of their cash reserves affects their investment decisions, and can represent an additional source of agency problems.
Discussants:
Hyunseob Kim
(Cornell University)
Fritz Foley
(Harvard University)
Jarrad Harford
(University of Washington)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
Managerial Incentives I
(G3)
Presiding:
Gustavo Manso
(University of California-Berkeley)
Large Shareholders and CEO Performance-Based Pay: New Evidence from Privately-Held Firms
Huasheng Gao
(Nanyang Technological University)
Kai Li
(University of British Columbia)
[View Abstract]
In this paper we study CEO contract design employing a unique dataset on privately-held and public firm CEO annual compensation over the period 1999-2011. Compared to public firms, privately-held firms have less diffuse ownership and hence stronger shareholder monitoring. We show that both private and public firm CEO pay is positively and significantly related to firm accounting performance, and that the pay-performance link is much stronger in public firms. Further, in a cross-section of both privately-held and public firms, CEO pay-performance sensitivity first increases and then declines as the level of ownership concentration rises. Our main findings are robust to accounting for firms' self-selection into different ownership structures and to different measures of firm accounting performance. We conclude that there is a complex inverted-U shaped relation between ownership concentration and CEO performance-based pay.
Idiosyncratic Risk and the Manager
Brent Glover
(Carnegie Mellon University)
Oliver Levine
(University of Wisconsin-Madison)
[View Abstract]
Compensating a manager with their own firm's equity induces effort but also exposes the manager to firm-specific risk. Consequently, the discount rate of the undiversified manager differs from that of a diversified shareholder, resulting in a distortion in the optimal investment and financing policies chosen by the manager. We embed an agency conflict in a neoclassical model of the firm to investigate the quantitative effects of this distortion. In the model calibrated using data for S&P 1500 firms, the risk averse, log utility manager significantly underinvests, resulting in a long-run capital stock approximately 9% below the shareholder's optimal level. This represents a loss to shareholders of 1-2% of total firm value. Alternatively, this loss resulting from suboptimal investment policy can be viewed as the cost of inducing effort from the manager.
Employment and Wage Insurance within Firms: Worldwide Evidence
Andrew Ellul
(Indiana University)
Marco Pagano
(Universite di Napoli Federico II)
Fabiano Schivardi
(LUISS)
[View Abstract]
[Download Preview] We investigate the determinants of employment and wage insurance that firms offer to their employees against industry-level and idiosyncratic shocks. Using data on firms from 41 countries, we find that family firms provide more employment protection but less wage stability than non-family ones. Employment protection is priced: family firms pay a 5% lower average wage, controlling for country, industry and time effects. The additional protection offered by family firms is stronger, and the wage discount larger, the less generous the unemployment insurance system, indicating that firm-provided and government-provided employment insurance are substitutes. State-owned firms provide more employment stability than privately owned ones, and the same applies to business groups relative to standalone companies. The cross-country evidence is broadly confirmed by Italian employee-employer matched data, which additionally show that family firms adjust to shocks mostly through the hiring margin, while separations are not responsive to shocks. The matched data also reveal that the real wage discount featured by family firms tend to disappear if one controls for workers unobserved characteristics though workers fixed effects, suggesting that the wage discount observed in family firms is at least in part due to lower unobserved workers’ skills in family firms.
Discussants:
Jay Hartzell
(University of Texas-Austin)
Dmitry Livdan
(University of California-Berkeley)
David Sraer
(Princeton University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Mutual Funds and Investment Choice
(G1)
Presiding:
William Goetzmann
(Yale University)
Adding Value Through Information Interpretation: News Tangibility and Mutual Funds Trading
Oleg Chuprinin
(University of New South Wales)
Sergio Gaspar
(INSEAD)
Massimo Massa
(INSEAD)
[View Abstract]
[Download Preview] We study how ability of asset managers to process different types of information affects mutual fund performance. We characterize information environment of each stock by constructing a proxy of the degree to which the information about the company is quantitative (“tangibleâ€). By using media news reports, we distinguish between quantitative news (expressed by numeric characters) and qualitative news (expressed by verbal content). We relate mutual funds' trading to changes in tangibility of the stocks held by the funds, conditioning on the overall amount of news as well as other sources of information, such as market prices and analyst reports. We show that funds adjust their positions in response to changes in the information environment as proxied by the tangibility measure. Funds that rely more heavily on such strategies earn higher alphas. Fund managers that are more sensitive to fluctuations in tangibility tend to manage fewer funds and work in smaller teams. This result is consistent with the view that focused fund managers are better able to take advantage of the innovations in information.
Investment Decisions under Ambiguity: Evidence from Mutual Fund Investor Behavior
C. Wei Li
(University of Iowa)
Ashish Tiwari
(University of Iowa)
Lin Tong
(University of Iowa)
[View Abstract]
[Download Preview] This study provides novel evidence on the role of ambiguity aversion in determining the response of mutual fund investors to historical fund performance information. We present a model of ambiguity averse investors who receive multiple performance-based signals of uncertain precision about manager skill. A key implication of the model is that when investors receive multiple signals of uncertain quality, they place a greater weight on the worst signal. We find strong empirical support for this prediction in the data. Fund flows display significantly higher sensitivity to the worst performance measure even after controlling for fund performance at multiple horizons, performance volatility, flow-performance convexity, and a host of other relevant explanatory variables. This effect is particularly pronounced in the case of retail funds in contrast to institutional funds. Our results suggest that fund investor behavior is best characterized as reflecting both Bayesian learning and ambiguity aversion.
Asset Allocation and Monetary Policy: Evidence from the Eurozone
Harald Hau
(University of Geneva)
Sandy Lai
(University of Hong Kong)
[View Abstract]
[Download Preview] The eurozone has a single short-term nominal interest rate, but monetary policy
conditions measured by either real short-term interest rates or Taylor rule residuals varied substantially across countries in the period from 2003—2010. We use this cross-country variation in the (local) tightness of monetary policy to examine its influence on equity and money market flows. In line with a powerful risk-shifting channel, we find that fund investors in countries with decreased real interest rates shift their portfolio investment out of the money market and into the riskier equity market. This produces the strongest equity price increase in countries where domestic institutional investors hold a large share of the countries’ stock market capitalization.
Performance-Chasing Behavior and Mutual Funds: New Evidence from Multi-Fund Managers
Darwin Choi
(Hong Kong University of Science and Technology)
Bige Kahraman
(Stockholm School of Economics)
Abhiroop Mukherjee
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] We study managers who manage multiple mutual funds. Consistent with the idea
that investors infer ability from past returns, flows into a fund are predicted by past performance in another fund the multi-fund manager manages. The explanatory
power of the other fund is stronger when it performed particularly well, when the two funds have similar styles, and when the manager has started managing a fund recently. Nonetheless, past performance in one fund predicts subsequent performance in the other. This is likely due to some investors' insufficient withdrawal of capital from a fund when the other fund performed poorly.
Discussants:
Roy Zuckerman
(Rutgers University)
Philipp Illeditsch
(University of Pennsylvania)
Masahiro Watanabe
(University of Alberta)
Hong Zhang
(INSEAD)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Panel Discussion: What Should Macroeconomists Learn from Finance?
(G1)
Presiding:
Amir Sufi
(University of Chicago)
Discussants:
Markus K. Brunnermeier
(Princeton University)
Atif Mian
(Princeton University)
Arvind Krishnamurthy
(Northwestern University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Private Equity
(G2)
Presiding:
David Robinson
(Duke University)
The Operational Consequences of Private Equity Buyouts
Shai Bernstein
(Stanford University)
Albert Sheen
(Harvard Business School)
[View Abstract]
[Download Preview] Do private equity buyouts disrupt company operations to maximize short-term goals? We document significant operational changes in 103 restaurant chain buyouts between 2002 and 2012 using health inspection records for over 50,000 stores in Florida. Store-level operational practices improve after private equity buyout, as restaurants become cleaner, safer, and better maintained. Supporting a causal interpretation, this effect is stronger in chain-owned stores than in franchised locations -- twin restaurants over which private equity owners have limited control. Private equity targets also reduce employee headcount, lower menu prices, and experience a lower likelihood of store closures -- a proxy for poor financial performance. These changes to store-level operations require monitoring, training, and better alignment of worker incentives, suggesting PE firms improve management practices throughout the organization.
The Disintermediation of Financial Markets: Direct Investing in Private Equity
Lily Fang
(INSEAD)
Victoria Ivashina
(Harvard Business School)
Joshua Lerner
(Harvard Business School)
[View Abstract]
One of the important issues in corporate finance is the role of financial intermediaries. In the private equity setting, institutional investors are increasingly eschewing intermediaries in favor of direct investments. To understand the trade-offs at work in this setting, we compiled a proprietary dataset of direct investments from seven large institutional investors. We find that solo investments by institutions outperform co-investments and a wide-range of benchmarks for traditional private equity partnership investments. We also find that the outperformance is driven by deals where informational problems are not too severe, such as more proximate transactions to the investor and later-stage deals, and by an ability to avoid the deleterious effects on returns often seen in periods with large inflows into the private equity market.
Do Private Equity Funds Game Returns?
Gregory Brown
(University of North Carolina-Chapel Hill)
Oleg Gredil
(University of North Carolina-Chapel Hill)
Steven Kaplan
(University of Chicago)
[View Abstract]
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the opportunity for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if returns on existing funds are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV manipulation. We find evidence of managers boosting reported NAVs during times that fundraising activity is likely to occur. However, this behavior is mostly limited to firms that are subsequently unsuccessful at raising a next fund which suggests that investors see through the manipulation. In contrast, we find evidence that top-performing funds under-report returns. This conservatism is consistent with these firms insuring against future bad-luck that could make them appear as though they are ne
Limited Partner Performance and the Maturing of the Private Equity Industry
Berk A. Sensoy
(Ohio State University)
Yingdi Wang
(California State University-Fullerton)
Michael Weisbach
(Ohio State University)
[View Abstract]
[Download Preview] We evaluate the performance of limited partners’ (LPs) private equity investments over time. Using a sample of 14,380 investments by 1,852 LPs in 1,250 buyout and venture capital funds started between 1991 and 2006, we find that the superior performance of endowment investors in the 1991-1998 period, documented in prior literature, is mostly due to their greater access to the top-performing venture capital partnerships. In the subsequent 1999-2006 period, endowments no longer outperform, no longer have greater access to funds that are likely to restrict access, and do not make better investment selections than other types of institutional investors. Nevertheless, all investor types’ private equity investments continue to outperform public markets on average. We discuss how these results are consistent with the general maturing of the industry, as private equity has transitioned from a niche, poorly understood area to a ubiquitous part of institutional investors’ portfolios.
Discussants:
Laura Lindsey
(Arizona State University)
Morten Sorensen
(Columbia University)
Tim Jenkinson
(Oxford University)
Yael V. Hochberg
(Northwestern University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Government Intervention in Residential Mortgage Markets
(G2)
Presiding:
Shane Sherlund
(Federal Reserve Board)
Is the FHA Creating Sustainable Homeownership?
Andrew Caplin
(New York University)
Anna Cororaton
(Federal Reserve Bank of New York)
Joseph Tracy
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Following the onset of the housing crisis, the FHA significantly expanded its lending. A key policy question is to what degree has the FHA been creating sustainable homeownership experiences. To date, the FHA has not produced data to answer this key question. Measuring sustainably of homeownership requires data that tracks the borrower and not specific mortgages. We produce first results on the sustainability of homeownership for recent FHA-insured borrowers. For the 2007 vintage of FHA borrowers, more than 40 percent of these borrowers have already been 90 days or more delinquent, while less than 12 percent have completed their graduation to sustainable homeownership by finally paying off all FHA mortgages. We project that the proportion of the 2007 vintage who have been 90 days or more delinquent will rise above 50 percent within five years, while fewer than 18 percent will have completed their graduation to sustainable homeownership. We also show that the FHA use of a data structure that is based on mortgages rather than borrowers leads it to underestimate delinquency risk to borrowers and financial risks to taxpayers.
Securitization and the Fixed-Rate Mortgage
Andreas Fuster
(Federal Reserve Bank of New York)
James Vickery
(Federal Reserve Bank of New York)
[View Abstract]
Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for household risk management, monetary policy, and systemic risk. In this paper, we show that securitization is a key driver of FRM supply. Our analysis compares the agency and nonagency mortgage-backed-securities (MBS) markets, exploiting the freeze in nonagency MBS liquidity in the third quarter of 2007. Using exogenous variation in access to the agency MBS market, we find that when both market segments are liquid they perform similarly in terms of supporting FRM supply. However, after the nonagency market freezes, the share of FRMs is sharply higher among mortgages eligible to be securitized through the still-liquid agency MBS market. Our interpretation is that securitization is particularly important for FRMs because of the prepayment and interest rate risk embedded in these loans. We highlight policy implications for ongoing reform of the U.S. mortgage finance system.
Supervisory Stress Testing, Model Risk, and Model Disclosure: Lessons from OFHEO
W. Scott Frame
(University of North Carolina-Charlotte)
Kristopher Gerardi
(Federal Reserve Bank of Atlanta)
Diana Hancock
(Federal Reserve Board)
Paul Willen
(Federal Reserve Bank of Boston)
[View Abstract]
Large financial institutions and their supervisors around the world have embraced the use of stress tests as a key tool for evaluating the financial condition of institutions and financial systems. While stress tests can provide valuable insights, they are vulnerable to model risk. This paper explores this vulnerability through a case study of a recent U.S. supervisory experience with a complex and fully disclosed stress test that failed spectacularly: OFHEO's risk-based capital stress test for Fannie Mae and Freddie Mac. Our analysis focuses on a key element of OFHEO's stress test: the performance of 30-year fixed-rate mortgages. After illustrating the poor default and prepayment forecasting performance of the model as implemented, we find that the primary explanation for this model failure was that OFHEO never re-estimated the model and hence left parameters static for almost a decade. We also show that default forecast performance would have been enhanced by including additional variables as the market evolved during the 2000s, like credit scores, documentation levels, vintage effects, and more disaggregated house price indices. Finally, we demonstrate that the house price stress inherent in the OFHEO model was significantly less stressful than the actual recent U.S. experience. Taken together, we believe that our results support efforts to mitigate model risk in stress tests through continuous development and independent validation.
How the Federal Reserve's Large-Scale Asset Purchases (LSAPs) Influence Mortgage-backed Securities (MBS) Yields and U.S. Mortgage Rates
Wayne Passmore
(Federal Reserve Board)
Diana Hancock
(Federal Reserve Board)
[View Abstract]
[Download Preview] We conduct an empirical analysis of the Federal Reserve’s large-scale asset purchases (LSAPs) on MBS yields and mortgage rates. The Federal Reserve’s accumulation of MBS and Treasury securities lowered MBS yields and mortgage rates by more than what would have been suggested by changes in market expectations alone, suggesting that portfolio rebalancing effects of LSAPs are an important consideration for monetary policy transmission. Our estimates also suggest that the Federal Reserve must hold a substantial market share of agency MBS or of Treasury securities to significantly lower MBS yields and in turn significantly lower mortgage rates.
Discussants:
Christopher L. Foote
(Federal Reserve Bank of Boston)
Kamila Sommer
(Federal Reserve Board)
Robert Sarama
(Federal Reserve Board)
Taylor Nadauld
(Brigham Young University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Mortgages 3
(D1)
Presiding:
Karen Pence
(Federal Reserve Board)
Determinants of Mortgage Curtailment Behavior
Hong Lee
(Louisiana State University)
Meagan McCollum
(Louisiana State University)
Kelley Pace
(Louisiana State University)
TBA
Did Local Lenders Forecast the Bust? Evidence from the Real Estate Market
Kristle Romero Cortes
(Federal Reserve Bank of Cleveland)
Experimental Tests for Discrimination by Mortgage Loan Originators
Andrew Hanson
(Marquette University)
Zackary Hawley
(Texas Christian University)
Bo Liu
(Georgia State University)
Hal Martin
(Georgia State University)
[View Abstract]
We design and implement an experimental test for differential response by Mortgage Loan Originators (MLOs) to requests for information about mortgage loans. Our experiment, based on e-mail correspondence with 5,464 MLOs is designed to analyze differential treatment by client race and credit score. Our results show that on net 1.9 percent of MLOs discriminate by not responding to African American clients while responding to white clients. We find that this level of discrimination is small compared to the differential treatment across credit score groups, with 8.3 percent of MLOs responding to inquiries from relatively high credit score clients while not responding to clients that do not report a credit score, and 3.7 percent of MLOs responding to the high credit score group while not responding to inquiries from clients with a relatively low credit score. The effect of being African American on MLO response is roughly equivalent to the effect of having a credit score that is 50 points lower. We also find that the content of response to our inquiries favors whites by offering more details about a loan and using more friendly language.
The Interest Rate Elasticity of Mortgage Demand: Evidence from Bunching at the Conforming Loan Limit
Anthony DeFusco
(University of Pennsylvania)
Andrew Paciorek
(Federal Reserve Board of Governors)
[View Abstract]
[Download Preview] The relationship between the mortgage interest rate and a household's demand for mortgage debt has important implications for a host of public policy questions. In this paper, we use detailed data on over 2.7 million mortgages to provide novel estimates of the interest rate elasticity of mortgage demand. Our empirical strategy exploits a discrete jump in interest rates generated by the conforming loan limit---the maximum loan size eligible for securitization by Fannie Mae and Freddie Mac. This discontinuity creates a large ``notch'' in the intertemporal budget constraint of prospective mortgage borrowers, allowing us to identify the causal link between interest rates and mortgage demand by measuring the extent to which loan amounts bunch at the conforming limit. Under our preferred specifications, we estimate that a 1 percentage point increase in the rate on a 30-year fixed-rate mortgage reduces first mortgage demand by between 2 and 3 percent. We also present evidence that about one third of the response is driven by borrowers who take out second mortgages while leaving their total mortgage balance unchanged. Accounting for these borrowers suggests a reduction in total mortgage debt of between 1.5 and 2 percent per percentage point increase in the interest rate.
Discussants:
Andra Ghent
(Arizona State University)
Andrew Paciorek
(Federal Reserve Board)
Elliot Anenberg
(Federal Reserve Board)
Manuel Adelino
(Duke University)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 413
American Risk & Insurance Association/American Economic Association
Topics in Risk and Economics
(D8)
Presiding:
Martin Grace
(Georgia State University)
Loss Reserve Management Surrounding CEO Turnover: Evidence from the Property-Casualty Insurance Industry
Jiang Cheng
(Shanghai University of Finance and Economics)
J David Cummins
(Temple University)
Tzuting Lin
(National Taiwan University)
[View Abstract]
We investigate the earnings management surrounding CEO turnover by examining CEO turnover in the U.S. property-casualty insurance industry. Incumbent CEOs manage earnings upward prior to non-routine turnover, consistent with the cover-up hypothesis. Incoming CEOs manage earnings downward in the transition year of routine turnover, consistent with the big-bath hypothesis .Incoming CEOs in routine turnover show short-term myopia behavior, evidenced by boosted accounting performance in the immediate subsequent years following the transition. In contrast, incoming CEOs manage earnings downward in the subsequent years following non-routine turnover, supporting the long-term career concerns hypothesis. Furthermore, we find that manager's opportunism varies significantly among organizational forms and ownership structures. The cover-up hypothesis and long-term career concerns hypothesis are mainly supported in stocks but not mutuals. In contrast, the big-bath hypothesis and short-term myopia hypothesis are supported in mutuals but not stocks.
Do Elections Delay Regulatory Action?
Martin F. Grace
(Georgia State University)
J Tyler Leverty
(University of Iowa)
[View Abstract]
[Download Preview] This paper investigates whether elections delay regulatory action against failing financial institutions in a country with strong institutions and property rights. Exploiting the cross-sectional and time-series heterogeneity in the exogenous electoral cycles of U.S. insurance regulators and governors, we find causal evidence that regulators delay interventions before elections. The extent of the delay is larger before competitive elections and when the regulatory task is assigned to a politician (elected regulator) rather than a bureaucrat (appointed regulator). Regulatory governance mechanisms that constrain the discretion of regulators reduce the politicization of regulatory supervision. The delays induced by elections substantially increase the ultimate costs of failure.
The Influence of Premium Subsidies on Moral Hazard in Insurance Contracts
Johannes Jasperson
(Ludwig-Maximilians-Universitaet)
Andreas Richter
(Ludwig-Maximilians-Universitaet)
[View Abstract]
Subsidized insurance premiums are present in nearly all public and some private insurance systems. Such subsidies are usually implemented to increase participation in the insurance program and to decrease the effects of adverse selection in the market. It has been argued that the increased demand for insurance due to subsidies also increases the market inefficiencies stemming from moral hazard in the market. While this argument is intuitive and some empirical evidence exists for it, it ignores the wealth effects of premium subsidies and their effect on moral hazard. We argue that such effects can be dominating for the majority of the insured, particularly in insurance markets where most insured do not have a choice between different insurance policies, as is sometimes
the case, e.g. in health insurance. Our theoretical model shows that wealth effects do influence the moral hazard in a given insurance market and that the influence depends on contract design. The results offer policy implications for premium subsidies in public
insurance systems calling for a differential treatment of premium subsidies in insurance systems with different premium schedules. One example for this is a different effect of premium subsidies in health insurance and long term care insurance.
Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection
Vanya Horneff
(Goethe University Frankfurt)
Raimond Maurer
(Goethe University Frankfurt)
Olivia S. Mitchell
(University of Pennsylvania)
Ralph Rogalla
(Goethe University Frankfurt)
[View Abstract]
[Download Preview] Defined contribution pensions are the most rapidly growing form of retirement saving product around the world. Yet participants in such self-directed pension plans often fail to understand the risks associated with their investment and spending decisions, exposing them to the possibility of potential retirement shortfalls. Accordingly, households could likely benefit from incorporating income and return guarantees into their defined contribution pension plans in addition to improving their financial literacy. Specifically, such products offer lifelong benefit payments during retirement, as well as protection of accumulated assets from downside market shocks. Such guarantees are offered by insurers in the form of investment-linked variable annuities (VAs), though relatively little is known about how to integrate these products into the pension context. This paper shows how such VAs with guarantees can be used to enhance retirement security in the context of a life cycle model.
The Effect of Banking Crises: Evidence from Non-life Insurance
Shinichi Kamiya
(Nanyang Technological University)
George Zanjani
(Georgia State University)
Jackie Li
(Nanyang Technological University)
[View Abstract]
[Download Preview] We study the connection between banking crises and non-life insurance consumption in 139 countries from 1988 to 2010. After controlling for output, we find a negative excess decline in non-life insurance consumption after the occurrence of a banking crisis only in countries heavily depending on bank credit. The primary contributing factor is motor insurance which loses 113% of the annual premium in the same post-crisis window. The magnitude of premium loss is 60-70% larger in the high income countries. We interpret this finding in the context of the macroeconomic literature on the real effects of banking crises: Reduced consumption of non-life insurance is consistent with a reduction in risk-taking at the societal level that could lead to the persistent post-crisis output effects observed in recent macroeconomic research. We test whether the reduced insurance consumption can be explained by risk-shifting due to the post-crisis contraction of credit and investment.
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 305
American Society of Hispanic Economists
Migration Factors and Economic Outcomes
(F22)
Presiding:
David Molina
(University of North Texas)
Selectivity and Immigrant Employment
Brian Duncan
(University of Colorado-Denver)
Stephen J. Trejo
(University of Texas-Austin)
[View Abstract]
[Download Preview] The labor market contribution made by immigrant workers depends on their productivity, as determined by the skills and abilities of these workers and reflected in the hourly wages that they earn, but it also depends on how much they choose to work. Jointly modeling location and employment decisions turns out to have important implications for migrant selectivity. Existing microeconomic models of migrant self-selection ignore employment decisions, and these models demonstrate that immigrants need not be favorably selected in terms of their wages or labor market skills. By contrast, we show that immigrants are likely to be favorably selected in terms of employment rates. Moreover, the interaction between decisions regarding work and migration serves to limit the extent to which immigrants can be negatively selected in terms of skills. Empirical analysis of microdata from the U.S. Census confirms the main implication of the theoretical model. In particular, at low skill levels foreign-born men are more likely to work than U.S.-born men, whereas at high skill levels the employment rates of immigrants and natives are similar.
Does Violence Affect Migration Flows? Evidence from the Mexican Drug War
Heriberto Gonzalez Lozano
(University of Pittsburgh)
Sandra Orozco-Aleman
(Mississippi State University)
[View Abstract]
We study the effect of drug-violence on the inflows and ouflows of migrants
between Mexico and the United States. The results show that violence increases
the inflows of workers from Western Mexico but decreases the inflows from Southern
Mexico. Additionally, violence is associated with increases in return migration.
One factor that could explain the different behavior of workers from Western
and Southern Mexico is having different costs of violence. I use Mexico's National
Surveys on Victimization and Perceptions of Public Safety to test for differences
in the cost of crime and the perception of public safety. The results show that
individuals from Western Mexico feel more unsafe in their own municipality and
have higher losses due to crime. Therefore, high costs associated with the increase
in violence could explain the increase in the inflow of workers from that region of
Mexico.
Where is the American Dream? Community Level Immigration Enforcement and Interstate Migration
Catalina Amuedo-Dorantes
(San Diego State University)
Fernando A. Lozano
(Pomona College)
[View Abstract]
Since the mid-2000s a number of different communities across the United States responded to increased immigration by enacting their own local enforcement measures. The new local-level policies have ranged from city level 287(g) Agreements and Secure Communities agreements, to state level E-Verify verfication mandates, or Omnibus Immigration Bills as in the case of Arizonas famous State Bill 1070, respectively. The geographic and time variability in the enactment of these measures has been exploited by a growing economics literature examining how these policies
are impacting the population, social and economic outcomes of unauthorized immigrants living in those states. While much of the literature has noted a
flight of unauthorized immigrants away from states that adopt these measures, no attention has yet been paid to which states this population is migrating to.
Does the United States Labor Market Reward International Experience?
Susan Pozo
(Western Michigan University)
[View Abstract]
[Download Preview] What happens when you are born a U.S. citizen, but spend all or some of your formative years in a foreign country? Does the US labor market reward individuals for the "international human capital" acquired through those experiences abroad? Given the increasing importance of international economic transactions in the U.S. (through growth in trade in goods and services, foreign direct and portfolio investments, immigration and the expansion of international supply chains) I surmise and find that indeed,individuals likely to possess cross-country competency are rewarded in the U.S. labor market with higher earnings, presumably due to their greater sensitivity to foreign cultures, institutions and languages.
Discussants:
Marie T. Mora
(University of Texas-Pan American)
Anita Alves Pena
(Colorado State University)
Ronald L. Oaxaca
(University of Arizona)
Richard Fry
(Pew Research Center)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon A
Association for Comparative Economic Studies
Kazakhstan's Economic Strategy: Halfway to 2030
(O2)
Presiding:
Richard Pomfret
(University of Adelaide)
Kazakhstan's 2030 Strategy: Goals, Instruments and Performance
Richard Pomfret
(University of Adelaide)
[View Abstract]
[Download Preview] In 1997 at the nadir of the transitional recession President Nazarbayev set out his vision of Kazakhstan’s future to 2030. This document has remained the guiding document for subsequent short- and medium-term policy planning. What was the vision and to what extent has it been respected over the subsequent sixteen years? The answer is important in understanding the type of market-based economy that is being established, and in particular the role of the state in the economy. It is also important as the background for the Kazakhstan 2050 strategy announced by the President in December 2012 as the successor to Kazakhstan 2030.
Agriculture in Kazakhstan's 2030 Strategy: Achievements to Date and Obstacles to Future Development
Martin Petrick
(Leibniz Institute of Agricultural Development Halle)
Juergen Wandel
(Warsaw School of Economics)
[View Abstract]
[Download Preview] The 2030 strategy document, published in 1997, described the state of Kazakhstan's domestic agriculture rather bluntly: it highlighted agriculture as a sector with barely functioning market relations and widely corrupt management. Under the long-term goal of "Economic growth based on a developed market economy with a high level of foreign investment", agriculture was the first on a list of sectors where an "active industrial policy of diversification" was to be pursued. In the years following the declaration, a sequence of funding programs made this goal operational, and the newly released 2050 strategy set even more ambitious goals. Indeed, a visible track record of agricultural recovery has emerged since. Kazakhstan's farming sector is now among the world's top producers and exporters of wheat. Between 1999 and 2008, five million ha of cropland were put into production again. In 2011, an all-time bumper crop was harvested.
Against this apparent success story of a top-down development agenda, the current contribution analyses the changes that actually took place at the farm level. It scrutinizes the impacts of recent reform steps on agricultural producers, and it attempts to identify the future bottlenecks of agricultural development in Kazakhstan. In addition to official statistics and case study work carried out by the authors in the last couple of years, the empirical basis for this analysis comes from two rounds of farm surveys conducted by the World Bank and IAMO in Akmola and Almaty provinces in 2003 and 2012. These surveys provide highly original micro-data on the economic activities of agricultural enterprises, individual farms and household producers in these regions. The paper specifically looks at the strategic sectors wheat, beef and dairy. It discusses issues of land market liberalisation, credit infrastructure, the future of agro-holdings, local policy implementation, and the relative merits of crop vs. livestock production.
Kazakhstan: The Best Oil Magnate in the CIS?
Yelena Kalyuzhnova
(University of Reading)
[View Abstract]
[Download Preview] Over the last ten years mineral wealth has played a significant role in the economic development of resource rich CIS countries, such as Kazakhstan, which has benefited greatly from its hydrocarbon sector. These trends follow almost a decade of increasing oil prices, with the result that Kazakhstan has emerging as an important energy producer in Euro-Asia. Inter-alia, this paper analyses the institutional setting and development of the Kazakhstani oil and gas sector. It provides a comparative institutional analysis and a theoretical background to interpret and test theories of natural resource rent extraction and circulation and their relationship to energy policies in Kazakhstan and Russia. The paper also gives a detailed analysis of investment opportunities, highlighting the growth potential and feasibility of projects and identifies the key challenges, drivers and restraints in the country's oil and gas industry and the impact of these on the economy. The theoretical framework provides the basis for the empirical analysis based on a VAR/VECM approach combined with stochastic volatility to allow for movements in oil prices and revenues. The paper's comparison of Kazakhstan and Russia is unique and provides an interesting theoretical and empirical analysis of their comparative development in the oil and gas sector.
Kazakhstan's 2050 Strategy: Goals, Instruments and Prospects
Johannes Linn
(Brookings Institution)
[View Abstract]
[Download Preview] This paper reports on the approach and results of a long-term prospects study of Kazakhstan. Starting with the vision announced by the country’s leadership in 2012 that Kazakhstan is to join the top 30 developed countries by 2050, the study assessed the vision and its feasibility; explored the current conditions in Kazakhstan, the international and regional outlook, and the lessons from comparator countries; carried out in-depth analysis in seven priority areas, resulting in a set of short, medium and long-term recommendations, and an assessment of key challenges and tradeoffs; and explored some cross-cutting principles to guide policy making under uncertainty. The paper closes with an assessment of some challenges that faced the study team as it carried out its work.
Discussants:
David M. Kemme
(University of Memphis)
Paolo Verme
(World Bank)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
The Institutionalist Movement in American Economics: A Discussion of Malcolm Rutherford's Book
(B5) (Panel Discussion)
Panel Moderator:
John Henry
(University of Missouri-Kansas City)
Anne Mayhew
(University of Tennessee)
Using Rutherford to Identify Marginalized Splinters
Sherry D. Kasper
(Maryville College)
Thoughts on the Institutionalist Movement in American Economics from the Lens of the History of Economics
Robert E. Prasch
(Middlebury College)
The Neoclassicism and Institutionalism: A Brief History of a Failed Relationship
Frederic Lee
(University of Missouri-Kansas City)
Institutional Economics of the Inter-war Period
Malcolm Rutherford
(University of Victoria)
Response to Panelists
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Congress A
Association for Social Economics
The Ethics and Economics of Corporation Governance, Finance, and the Great Recession
(G1)
Presiding:
Wilfred Dolfsma
(University of Groningen)
The United States Treasury's Rhetoric of the AIG Bailout: A Misguided Justification
Rojhat Avsar
(Columbia College Chicago)
[View Abstract]
The U.S. Treasury announced the sale of its final shares of AIG common stock on December 11, 2012 and a realized positive return of 5 billion to taxpayers on their "investment." The AIG experiment highlights a crucial function that the government served in the economy hidden behind the language of "financial investment": its ability to "smooth" the consequences of aggregate risk for individuals. This function becomes particularly pronounced when market valuation mechanism (e.g. stock prices) goes awry. As J. R. Common once said, "People act to enlarge valuations in periods of hope and to depress valuations in periods of fear." Only collective action could pre-empt such short-termism which was evident in the decision leading up to AIG's rescue. In fact, the role of government in the rescue of AIG is not essentially different than its overall social insurance function (e.g. unemployment insurance). This very role could have easily extended into foreclosure crisis through a loan modification mandate-a policy which would amount to investment in the future of the housing market. This paper intends to expose the logical inconsistencies and the ideological bias in the Treasury's conception of "government" and offer a more systematic articulation of the (welfare-enhancing) social insurance function that the government is very-well position to serve in dealing with the consequences of aggregate risk.
The "Paradigm Blindness" of Economics: Ethical Challenges to Economic Thought from the Financial Crisis
Robert McMaster
(University of Glasgow)
Denis Fischbacher-Smith
(University of Glasgow)
[View Abstract]
George DeMartino (2011: 31) has argued eloquently that economics and economists, "routinely affect the life chances of others …", and as such there is a need for a professional ethics in economics. Recently the AEA (2012) required submissions to its journals to disclose any potential conflicts of interest, especially involving financial support, and urged other scholarly journals and outlets to follow suit. This may be too little (and too late) to ensure an ethically responsible economics. There is no reference to the teaching of economics. There is also no reference to the teaching of economics and the manner in which future generations of the profession can be inculcated into such an ethical culture. In part, this debate mirrors the role of values and ethics in science - an area where considerable advances have been made by comparison. We consider that the teaching of economics is the most obvious means of reproduction and therefore in perpetuating the inherent "paradigm blindness" of the standard approach with its attendant disregard for pluralism. The duty of care we advocate centres on a requirement for economics programmes to expose students to alternative schools of thought as a means of liberating students, and therefore future economists and by extension wider society, from this reductionist paradigm blindness. Using insights from risk management we further argue that an explicit ethical code recognised as a duty of care could potentially act to relegate the false prophets of mainstream economics.
Are Near-Retirees Getting Hit from All Sides? Understanding the Link between Job Insecurity and Older Households' Wealth Risk Exposure
Sara Bernardo
(University of Massachusetts-Boston)
Christian E. Weller
(University of Massachusetts-Boston)
[View Abstract]
Older US households are nearing retirement with fewer savings and larger debt obligations than previous generations, prompting policymakers to address the causes of decreased retirement savings. This research examines the labor market and financial market risk exposure of near retirees as obstacles to building adequate savings. Using data from the SCF from 1989-2010, we paint a comprehensive picture of labor market and financial market risk exposure for older households, test for a correlation between the two and analyze the trends of risk exposure for diverse household groups. This research is grounded in the literature that examines the emergence and subsequent impacts of what Hacker (2006) calls the 'great risk shift'. The increased importance of individual savings for the current generation of near retirees is largely a consequence of diminishing social protections against economic and financial risks that has taken place over the past few decades. Individually based and managed plans have replaced stronger state and employer sponsored retirement and health programs, shifting the responsibility of risk management onto households. This shift has been accompanied by an emphasis on the benefits of individual choice, control and ownership for household welfare and security. Thus, this paper also examines how the balance of economic risks between households and social institutions is impacted by the legal construction of social and individual rights. In particular, this paper explores how the recent shift towards 'the ownership society' has been characterized by an individual orientation towards property rights rather than a collective orientation towards social protections.
The Perpetuation of Class Divides from the Bottom Up: Trust, Groupthink and the Emerging Evidence from Corporate Boards
René Reich-Graefe
(Western New England University)
[View Abstract]
The psychological phenomenon of trust among firm participants is a much neglected academic inquiry in corporate governance research. Trust is a concrete but underappreciated reality for the success of corporate investments. It constitutes part of a complex solution for encouraging investor confidence in the face of absolute decisionmaking power of corporate directors. However, trust is also a socially, structurally and normatively embedded phenomenon. Thus, its functionality for purposes of the corporate wealth maximization exercise also makes it a principal engine for the perpetuation and aggravation of wealth inequality and class divides. In this regard, the emerging evidence from the organizational and psychological behavior of corporate directors in large, publicly-held firms may provide a textbook example of both the severe limits and high social costs of trusting and trust for purposes of corporate governance and beyond. This paper focuses on the mechanics of interpersonal trusting and applies them to the larger context of group trusting and impersonal trust. It analyzes how such forms of collective trust fundamentally undergird corporate governance in general and the workings of corporate boards in particular. Trust reduces economic complexity and exposure to opportunistic behavior. However, its reduction function proves more imagined than real. Bluntly put, trust seems a mere collective exercise in selective fatalism, if not, selective hallucinosis. Accordingly, the main functionality of trust in the realm of corporate governance may only lie in creating, obfuscating and concealing-thus, in preserving, rationalizing and aggravating-fundamental societal disparities at the expense of a truly transcendental common good.
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Anthony
Association for the Study of Cuban Economy
The Cuban Economy: Should the United States Lift the Embargo?
(P2)
Presiding:
Luis Locay
(University of Miami)
Should the United States Lift the Embargo?
Roger Betancourt
(University of Maryland)
[View Abstract]
[Download Preview] This paper discusses the history and evolution of the US trade embargo on Cuba, and its main current determinants within the framework of a political economy model. It divides the embargo into three separate embargoes - on flows of goods and services, on flows of persons, and on flows of capital. The author concludes that all three embargoes should be ended, but that the conditions for doing so vary across the three.
Discussants:
Bryan Roberts
(Nathan Associates)
Carlos Seiglie
(Rutgers University)
Luis Locay
(University of Miami)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 310
Association for the Study of Generosity in Economics/International Association for Feminist Economics
Inside the Black Box: Household Dynamics
(J1)
Presiding:
Yana Rodgers
(Rutgers University)
Gender Differences in Time and Resource Allocation in Rural Households in Ethiopia
Diksha Arora
(University of Utah)
Codrina Rada
(University of Utah)
[View Abstract]
[Download Preview] We discuss the estimation of a gender disaggregated Household Accounting Matrix for a typical rural household in Ethiopia. Data from the 1997 Ethiopian Rural House- hold Survey (ERHS) provides information on time-use of household head and spouse, on individual asset ownership and consumption management decisions. Our proposed methodology is a first step towards a gendered approach to account for intra-household allocation of labor and resources. The household accounting matrix provides both a framework for modeling gender relations within the household economy and for the data that describes these relations.
Economic Opportunities and Gender Differences in Human Capital: Experimental Evidence from India
Krishna Kant Jha
(L.N.Mithila University)
[View Abstract]
[Download Preview] The old saying 'Caring for a daughter is like watering another's tree' reflects the historic view of many Indian families that investing in the education of girls is a waste of resources because she will be lost to another family through marriage. Under this background the present study [of four all-women higher education institutions in DarbhangÄ in Bihar, north eastern India] suggests that this situation is changing in Bihar with contemporary views of girls' education varying from the traditional belief that it is a luxury to its being a need and a right. It is generally accepted that education facilitates the employability of women but women and men typically have different interpretations of what it enables beyond this. Women tend to talk of education and employment as a way of escaping the bonds of tradition and leading to greater independence, confidence and self-worth. However, men typically see the greater employability of women generated through investment in their education in terms of financial benefits, particularly as a supplement to household income, and a means of reifying traditional domestic structures. Moreover, whilst women and men tend to express the view that educating girls will make them better wives and mothers and benefit society as a whole, there is considerably less emphasis on the individual benefits to women and a clear sense from men that greater employability should not lead to greater empowerment. Some men (and some women, too) perceive girls' education as a threat to traditional ways of life. The study shows that women do want to make use of their higher education to secure greater independence, including financial independence, but that they are willing to forsake this within traditional domestic structures. That is, marriage marks the adaptation of their preferences.
Market Wages, The Price of Childcare and Mothers' Time Allocation in China
Jing Liu
(Central University of Finance and Economics-Beijing)
[View Abstract]
[Download Preview] Using CHNS dataset from the 2004 to 2009, we will study time choices by mothers who have children aged below 6 years old. We estimate a five-equation system in which the dependent variables are the minutes used in home production, active leisure, market work, child care-giving and sleeping. The results based on the pooled individual observations suggest that childcare is distinct from both leisure and home production, and should be considered separately when doing the time allocation research of mothers. With women’ own wage increases, employment minutes are increased while all the other four time patterns were decreased, assuming that the substitution effect is greater than the income effect. The trade-off between employment time and childcare time is larger than the trade-off among employment, home-production and leisure. Informal childcare substitution, such as female elders who lived closely, shows more substantial impact on mothers’ time allocation than the formal ones. Besides, sleeping time of new mothers will also react to the wages and the childcare substitutions and should be considered when doing time research.
Gender Perspectives of Time Allocation in China
Anne de Bruin
(Massey University)
Na Liu
(Xiangtan University)
[View Abstract]
[Download Preview] This paper uses a unique, recent (2010) twenty four hour Chinese dataset to draw novel insights on gender time allocation on the basis of income and regional rural-urban classifications. Non labour income considerations build on the standard labour income - leisure model. Cultural and family embeddedness perspectives overlay economic explanations. The paper examines the overall nature of the gender gap between time allocation of men and women on an individual basis and also for matched husband-wife couples. The main unit of analysis is individuals aged 16-60.
Regression findings raise more questions than answers and explanations are speculative. For instance, intra-household access to resources and gender power dynamics may explain why rural females spend more time on market employment than men with increases in non-labour income in the form of rent and interest. Urban related findings imply changing attitudes of urban males with their engagement in more housework. This may conform to urbanization and economic development leading to change in traditional attitudes to gender roles. Suggestions are also put forward to explain other region specific findings such as the increase in leisure of urban males. For example, it likely that increases in leisure hours of higher income individuals is possibly correlated with business networking. Economic necessity push as an explanation for increases in market employment hours is yet another reflection that enters the picture when considering the relationship between transfer payments and time use. Some policy implications of findings are drawn out.
Risk Factors for Domestic Violence: An Empirical Analysis for Indian States
Nabamita Dutta
(University of Wisconsin-La Crosse)
Meenakshi Rishi
(Seattle University)
Sanjukta Roy
(World Bank)
U. Vinodhini
(M.S. Swaminathan Research Foundation)
[View Abstract]
The Indian economy has progressed much in terms of standard economic indicators of GDP and growth, yet it still struggles to guarantee the levels of freedom outlined by Sen (1999) for women. Crime records show that a woman is molested in India every 26 minutes; raped every 34 minutes; faces an incident of sexual harassment every 42 minutes; and is killed every 93 minutes. The statistics on domestic violence or violence against women within the family home are grim: India's National Family Health Survey-III (NFHS-3), carried out in 29 states during 2005-06, found that 37.2 percent of Indian women "experienced violence" after marriage.
Other studies on domestic violence in India have documented its prevalence and stressed the socio-cultural factors that contribute to its pervasiveness (Bhatti 1990; Visaria 1999). However, most studies do not address the issue of susceptibility of women to domestic violence within the specific context of their cultural, economic, and social backgrounds. This paper examines the vulnerability of women in India to domestic violence based on two specific risk factors – alcohol consumption by partner and exposure to intergenerational violence. We utilize the NFHS -3 databases to assess how alcohol consumption by partner and intergenerational violence affects the probability of domestic violence. A novelty of our analysis is that we control for specific behavioral factors and their role in mitigating domestic violence.
Discussants:
Yana Rodgers
(Rutgers University)
Cecilia Conrad
(MacArthur Foundation)
Chris Slootmaker
(Colorado State University)
John R Moreau
(University of Missouri-Kansas City)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 307
Association of Christian Economists
The Great Recession and Beyond: Lessons Learned
(E6) (Panel Discussion)
Panel Moderator:
John Lunn
(Hope College)
Karen Campbell
(University of Pennsylvania)
Victor Claar
(Henderson State University)
Martha LaBarge
(Hope College)
John Lunn
(Hope College)
Nathanael Peach
(George Fox University)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon K
Association of Environmental & Resource Economists
Advances in Natural Resource Economics
(Q2)
Presiding:
Benjamin Gilbert
(University of Wyoming)
Partial Enclosure of the Commons
Christopher Costello
(University of California-Santa Barbara)
Nicolas Querou
(CNRS)
Agnes Tomini
(UMR)
[View Abstract]
[Download Preview] Partial enclosure of the commons is perhaps the most common institutional ar- rangement for governing renewable natural resources, yet it has received almost no attention in the literature. We define it as a circumstance in which part of a spatially-connected resource is controlled by a sole owner, but the remainder is competed for by an open access fringe. Because the resource is mobile, each group imposes an externality on others, this externality gives rise to a market failure. We develop a spatial bioeconomic model to address questions such as: Under what conditions will partial enclosure lead to aggregate (or individual) welfare gains? What will be the consequences of partial enclosure on the open access fringe? What are the ecological e�ects of partial enclosure? And, for di�erent objectives, in which patches should partial enclosure be undertaken? The framework allows us to make sharp analytical predictions, which are then illustrated with a numer- ical example of a spatially-connected fishery surrounding the Northern Channel Islands.
Poaching and the Protection of an Endangered Species: A Game-Theoretic Approach
Jon M. Conrad
(Cornell University)
Adrian Lopes
(Cornell University)
[View Abstract]
[Download Preview] The poaching of endangered species like the elephant and the rhino has increased dramatically over the last decade. Anti-poaching patrols must use their limited resources strategically in order to achieve the highest level of protection. We develop a model that views poaching and protection as a repeated game between strategic players. We conceptualize a “space†within which an endangered species is distributed spatially and temporally through migration. Poaching and anti-poaching patrolling are introduced as spatial-temporal activities in the space. We study the long-term effects of different strategies of a poaching unit and an anti-poaching unit on the population dynamics of an endangered species. We solve for a mixed strategy Nash equilibrium in this game and provide a proof for it uniqueness. The model is generally applicable to the protection of spatially distributed species populations that are subject to illegal harvest.
Coase It's Fehr: Property Rights and Social Preferences
Andreas Leibbrandt
(Monash University)
John Lynham
(University of Hawaii)
[View Abstract]
We introduce a Coasean solution by capping the total amount of production at the optimal amount and then allocating property rights to produce this total.
Our first behavioral intervention varies the degree to which property rights are enforced. Interestingly, we find a clear non-monotonic relationship between compliance and enforcement. When individuals are never monitored, property rights are better respected and production is closer to the social optimum than when individuals are occasionally monitored. This suggests that external monitoring may crowd out intrinsic motivations or pro-social responsibility. Not surprisingly, when monitoring is very frequent, subjects respect property rights. Yet, in terms of social efficiency, frequent monitoring does not fare better than no monitoring when taking into account costs associated with monitoring.
The Costs of Protecting the Wild: Evidence from Natural Resource Auctions
Branko Boskovic
(University of Alberta)
Linda Nostbakken
(University of Alberta)
[View Abstract]
Our study focuses on wildlife regulations in the oil sands region in northern Alberta. We do this for two reasons. First, in contrast to all other environmental regulations firms are subject to in Alberta, these wildlife regulations vary geographically within the province. Second, because industrial development in this region is rapidly expanding, the resulting interaction between industry and wildlife is a growing public policy con- cern. As a result of the industrial activity, several wildlife species, such as the caribou, have been classified as species at risk of severe population declines.
Discussants:
Junjie Zhang
(University of California-San Diego)
Linda Fernandez
(Virginia Commonwealth University)
Dean Lueck
(University of Arizona)
Ujjayant Chakravorty
(Tufts University)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 401
Econometric Society
Barriers to Education in Developing Countries
(O1)
Presiding:
Seema Jayachandran
(Northwestern University)
Drug Battles and School Achievement: Evidence from Rio de Janeiro's Favelas
Joana Monteiro
(CID and Harvard University)
Rudi Rocha
(Federal University of Rio de Janeiro)
[View Abstract]
[Download Preview] This paper examines the effects of armed conflicts between drug gangs in Rio de Janeiro's favelas on student achievement. We explore variation in violence that occurs across time and space when gangs battle over territories. Within-school estimates indicate that students from schools exposed to violence score less in math exams. Our findings suggest that the effect of violence increases with conflict intensity, duration, and proximity to exam dates; and decreases with the distance between the school and the conflict location. Finally, we find that school supply is an important mechanism driving the achievement results; armed conflicts are associated with higher teacher absenteeism, principal turnover, and temporary school closings.
Parents' Perceptions and Children's Education: Experimental Evidence from Malawi
Rebecca Dizon-Ross
(Stanford University)
[View Abstract]
[Download Preview] Many models of human capital investment incorporate individual-level characteristics, like ability, that affect the returns to investment. The implication is that efficient investments depend on individual characteristics. However, the literature has paid relatively limited attention to the fact that it is perceived, not true, characteristics that determine investments. This paper uses data from a field experiment conducted in Malawi to assess whether parents have inaccurate perceptions about their children's academic abilities, and whether parents' inaccurate perceptions distort their investments in their children's education. I find that the divergence between parents' beliefs about their children's achievement and their children's true achievement is large, and that this creates a wedge between parents' intended and actual educational investments. Providing parents with information significantly impacts their investments, causing them to become more closely aligned with their children's achievement. Poorer, less-educated parents have less accurate perceptions about their children's academic abilities than richer, more-educated parents, and update their beliefs more in response to improved information. Inaccurate beliefs may thus exacerbate inequalities in educational outcomes between richer and poorer families.
Barriers and Returns to Secondary Schooling in Ghana
Esther Duflo
(Massachusetts Institute of Technology)
Pascaline Dupas
(Stanford University)
Michael Kremer
(Harvard University)
[View Abstract]
We use randomly assigned secondary school scholarships combined with a 5-year panel dataset to estimate the barriers and returns to secondary education for adolescents from poor families in Ghana. We estimate the returns along many dimensions, from labor market outcomes to health to farming productivity.
Discussants:
Christopher Blattman
(Columbia University)
James Berry
(Cornell University)
Owen Ozier
(World Bank)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 402
Econometric Society
Fiscal Policy, Financial Policy & Default
(F3)
Presiding:
Guido Lorenzoni
(Northwestern University)
Fiscal Rules and the Sovereign Default Premium
Juan Carlos Hatchondo
(Indiana University)
Leonardo Martinez
(International Monetary Fund)
Francisco Roch
(University of Chicago)
[View Abstract]
We study the effects of introducing fiscal rules-understood as constraints on the decision-making ability of current and future governments-using a model of sovereign default. We first calibrate the benchmark model without a fiscal rule using as a reference an economy that pays a significant sovereign default premium. We then study the effects of introducing different sequences of debt ceilings. We show that the government would benefits from committing to a sequence of debt ceilings that eventually reduces its level of indebtedness enough to bring the sovereign default premium to negligible levels. With this commitment the government (and lenders) may benefit immediately (before any fiscal adjustment) from almost eliminating the exposure to default risk. Benefits from imposing a fiscal rule arise even if the government is not shortsighted. Assuming that the government is short- sighted implies even larger debt reductions. Lower debt levels also allow the government to implement a less procyclical and eventually a countercyclical fiscal policy that reduces consumption volatility. Welfare gains from committing to a fiscal rule could be substantial.
Debt Dilution and Seniority in a Model of Defaultable Sovereign Debt
Burcu Eyigungor
(Federal Reserve Bank of Philadelphia)
Satyajit Chatterjee
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] An important inefficiency in sovereign debt markets is debt dilution, wherein sovereigns ignore the adverse impact of new debt on the value of existing debt and, consequently, borrow too much and default too frequently. A widely proposed remedy is the inclusion of seniority clause in sovereign debt contracts: Creditors who lent first have priority in any restructuring proceedings. We incorporate seniority in a quantitatively realistic model of sovereign debt and find that seniority is quite effective in mitigating the dilution problem. We also show theoretically that seniority cannot be fully effective unless the costs of debt restructuring are zero.
Bailout Guarantees, Banking Crises and Sovereign Debt Crises
Javier Bianchi
(University of Wisconsin)
Sandra Valentina Lizarazo
(Universidad Carlos III de Madrid)
Horacio Sapriza
(Federal Reserve Board)
[View Abstract]
This paper studies the link between banking crises, sovereign default and government guarantees. A banking crisis can lead to a credit crunch, which can be mitigated by government guarantees. At the same time, public guarantees expose the government to potentially severe losses from a collapsing banking sector, causing sovereign spreads to increase substantially. As a result, the value of government guarantees deteriorate during a banking crisis and may aggravate the crisis in the financial sector. Our analysis tries to determine under which circumstances it is desirable for the government to provide bailout guarantees to the financial sector, and to provide a quantitative assessment of the costs and benefits of such public guarantees.
On the Macroeconomic and Distributional Effects of Bailout Guarantees in the Mortgage Market
Dirk Krueger
(University of Pennsylvania)
Kurt Mitman
(University of Pennsylvania)
[View Abstract]
In this paper we study the aggregate and distributional consequences of government bailout guarantees in the U.S. mortgage market. We construct a model with aggregate risk in which competitive financial intermediaries issue mortgages to households that can default on their debt. Default probabilbilities are priced into mortgage interest rates unless a government bailout guarantee makes the lenders whole even in economic downturns in which foreclosure rate surge.
Discussants:
Satyajit Chatterjee
(Federal Reserve Bank of Philadelphia)
Leonardo Martinez
(International Monetary Fund)
Emine Boz
(International Monetary Fund)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 403
Econometric Society
Innovation and Economic Growth
(E5)
Presiding:
David Lagakos
(Arizona State University)
The Impact of Government Debt and Taxation on Endogenous Growth in the Presence of a Debt Trigger
Gregory Huffman
(Vanderbilt University)
[View Abstract]
[Download Preview] Relatively little is known about how government debt influences future growth or interest rates. This paper analyzes an infinite-horizon economy within which these issues can be addressed, and in which the growth and interest rates are determined endogenously. A novel solution to a continuous-time model is developed. A "Debt Trigger" is introduced which prohibits the government from expanding its debt beyond some specific share of GDP. It is shown that the effect of the size of government debt on growth depends critically on the intertemporal elasticity of substitution of consumption. Higher initial levels of government debt may increase the resulting growth rate temporarily, but reduce it in the long term. It is then shown that a reduction in the capital tax rate may (or may not) be growth enhancing for some parameter values. The magnitude of these effects depends on the parameters of the economy. There are complicated short, intermediate, and long-term impacts of a change in the tax rate. For some parameter values the model exhibits some Unpleasant Fiscal Arithmetic: reducing the capital tax rate can cause a drastic growth implosion. Labor-leisure choice is then incorporated into to the model, and it is then shown that the growth rate is increasing in the rate at which the future labor tax is increasing. The results presented here show that there may be a complex relationship between the size of the government debt, and the resulting growth and interest rates.
Competition as an Engine of Economic Growth with Producer Heterogeneity
Christian Jensen
(University of South Carolina)
[View Abstract]
When producers are heterogeneous, the degree of competition between them does not only affect aggregate output via mark-ups and dead-weight losses, but also through aggregate productivity due to specialization. As competition tightens, high productivity producers gain market shares at the cost of low productivity ones, generating economic growth through increased aggregate productivity and capital accumulation, in line with what is observed empirically. Consequently, competition is not limited to reducing dead-weight losses, and can play a greater role in economic growth and development than traditionally considered. Economic growth spurs profits, which leads to entry and increased competition that generates growth, so competition provides a channel through which the economy generates growth internally. When barriers to entry are low enough, this channel can make the returns to scale in the inputs that the economy accumulates endogenously go from being decreasing to nondecreasing at the aggregate level, thus enabling endogenous growth.
Research Policy and U.S. Economic Growth
Richard M. H. Suen
(University of Connecticut)
[View Abstract]
[Download Preview] This paper examines quantitatively the effects of R&D subsidy and government-financed basic research on U.S. economic growth and consumer welfare. To achieve this, we develop an endogenous growth model with both public and private research investment. A calibrated version of the model is able to replicate some important features of the U.S. economy over the period 1953-2009. Our model suggests that government basic research spending has a significant positive effect on economic growth and consumer welfare. Subsidizing private R&D, on the other hand, has no impact on economic growth.
R&D Investment and Financial Frictions
Oscar Valencia
(Toulouse School of Economics)
[View Abstract]
[Download Preview] R&D intensity for small firms is high and persistent over time. At the same time, small firms are often financially constrained. In this paper, we propose a theoretical model that explains the coexistence of these two stylized facts. We show that self-financed R&D investment can distort effort allocated to different projects in a firm. In a dynamic environment, we show that it is optimal for the firm to invest in R&D projects even given borrowing constraints. We find that beyond a certain threshold, there is effort substitution between R&D and production. When transfers from the investor to the entrepreneur are large enough, R&D intensity decreases with respect to financial resources. We show that conditional on survival, firms that are more innovative and financially constrained grow faster and exhibit higher volatility.
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 201-A
Econometric Society
Opportunities and Pitfalls of Big Data
(C1)
Presiding:
Francis Diebold
(University of Pennsylvania)
High Frequency in Time and Space
Torben Andersen
(Northwestern University)
[View Abstract]
[Download Preview] The presentation will explain how one may extend statistical techniques developed for high-frequency asset returns to obtain new inference tools which simultaneously exploit high-frequency data along several different ``dimensions'' for a joint coherent analysis in a general setting.
The feasibility of the new approach stems from an application of recently developed in-fill asymptotic theory and the associated notion of “stable convergence,†emanating from the work of Jean Jacod.
The approach also allows for the development of targeted formal diagnostic tools to assess model performance. In combination, the procedures enable us to move far beyond prior work in terms of providing valid asymptotic inference while dealing with model complexity and new techniques for model misspecification. The formal theory is developed in Andersen, Fusari and Todorov, “Parametric Inference and Dynamic State Recovery from Option Panels."
Our empirical illustration uses joint high-frequency asset price and option surface observations for the S&P 500 equity index to estimate the complex risk-neutral asset return dynamics, while respecting the presence of no arbitrage constraints and measurement errors.
We find a new three factor representation to provide a superior fit. Most importantly, there is evidence of a jump tail factor in the option surface dynamics which represents risk compensation, but is largely divorced from the actual physical return dynamics. This factor plays a critical role in explaining the dynamics of the equity risk premium, but it cannot be identified directly from the underlying asset prices. The empirical work is described in Andersen, Fusari and Todorov, “Risk Premia Embedded in Index Options.â€ÂÂ
Lastly, we note that the approach can be extended to accommodate other economic and financial settings where we have a data panel with a large cross-section coupled with time series observations which may involve persistent dynamic dependencies.
Boosting Recessions
Serena Ng
(Columbia University)
[View Abstract]
[Download Preview] This paper explores the eectiveness of boosting, often regarded as the state of the art
classication tool, in giving warning signals of recessions three, six and twelve months ahead.
Boosting is used to screen as many as 1500 potentially relevant predictors consisting of 132 real
and nancial time series and their lags. Estimation over the full sample 1961:1-2011:12 nds that
there are fewer than ten important predictors and the identity of these variables change with
the forecast horizon. There is a distinct dierence in the size and composition of the relevant
predictor set before and after mid-1980. Rolling window estimation reveals that the importance
of the term and default spreads are recession specic. The Aaa spread is the most robust
predictor of recessions three and six months ahead, while the risky bond and 5yr spreads are
important for twelve months ahead predictions. Certain employment variables have predictive
power for the two most recent recessions when the interest rate spreads were uninformative.
Warning signals for the post 1990 recessions have been sporadic and easy to miss. The results
underscore the challenge that changing characteristics of business cycles pose for predicting recessions.
Distilling the Macroeconomic News Flow
Michael Brandt
(Duke University)
TBA
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 404
Econometric Society
Risk and Ambiguity
(D8)
Presiding:
Lise Vesterlund
(University of Pittsburgh)
Consistency of Higher Order Risk Preferences
Cary Deck
(University of Arkansas)
Harris Schlesinger
(University of Alabama)
[View Abstract]
[Download Preview] Risk aversion (a 2nd order risk preference) is a time-proven concept in economic models of choice under risk. More recently, the higher order risk preferences of prudence (3rd order) and temperance (4th order) also have been shown to be quite important. While a majority of the population seems to exhibit both risk aversion and such higher-order risk preferences, a significant minority does not. We show how both risk-loving as well as risk-averse behaviors might be generated by a simple type of basic lottery preference for either (1) combining "good" outcomes with "bad" ones, or (2) combining "good with good" and "bad with bad." We further show that this dichotomy is fairly robust at explaining higher order risk attitudes in the laboratory. In addition to our own experimental evidence, we take a second look at the extant laboratory experiments that measure higher order risk preferences and we find a fair amount of support for this dichotomy. Our own experiment is the first to look beyond 4th order risk preferences and we examine risk attitudes at even higher levels. The consistency of these results with expected utility theory and with a few non-expected utility theories is also examined.
Are Individual Risk Preferences Time Inconsistent? Temporal Construal and Time-Dependent Changes in Risk Preferences
Plamen Nikolov
(Harvard University)
[View Abstract]
Psychology-based theory on temporal construal posits that individuals perceive and weigh properties of distant-future events differently as compared to how they perceive concrete near- future events. In this experimental project, we examine whether temporal distance between an individual planning timepoint and the actual execution of that plan (i.e. investment with execution delay), influences the individual influences the degree of risk aversion at the investment planning point. Can temporal distance, in and of itself, systematically influence our risk tolerance? Based pilot lab-in-the-field experiment conducted in Kenya, we demonstrate that as distance between planning and execution timepoints decreases, holding the timepoint for resolution of uncertainty about two assets offered to experimental subjects fixed, individuals become less risk averse. This finding has broad implications for welfare-enhancing risk-taking behaviors in various technology adoption settings in both developed and developing countries.
On Measuring Risk and Ambiguity Preferences
James Andreoni
(University of California-San Diego)
Charles Sprenger
(Stanford University)
[View Abstract]
This work investigates new measurement techniques for identifying risk and ambiguity preferences. Tests separating between competing behavioral decision theories are provided.
No Two Experiments are Identical
Larry Epstein
(Boston University)
Yoram Halevy
(University of British Columbia)
[View Abstract]
We study choice between bets on the colors of two balls, where one ball is drawn from each of two urns. Though you are told the same about each urn, you are told very little, so that you are not given any reason to be certain that the compositions are identical. We identify choices that reveal an aversion to ambiguity about possible differences between urns, thus identifying a source of uncertainty different from the usual Knightian distinction between risk and ambiguity. The choice behavior of subjects is studied in a controlled high-stakes laboratory experiment, and the ability of new and existing models to rationalize the experimental findings is examined.
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 405
Econometric Society
Wage Inequality
(E2)
Presiding:
Alisdair McKay
(Boston University)
Idiosyncratic risk, insurance, and aggregate consumption dynamics: a likelihood perspective
Alisdair McKay
(Boston University)
[View Abstract]
[Download Preview] This paper shows how the empirical implications of incomplete markets models can be assessed using the same full-information methods that are commonly used for representative agent models. It then asks what features of the microeconomic insurance arrangement are important for understanding the dynamics of aggregate consumption as it relates to aggregate labor income and employment conditions. A model with a low level of insurance against unemployment risk and an intermediate level of insurance against individual skill shocks provides the best fit of the aggregate data. A model that matches the strong consumption responses to fiscal stimulus payments does not improve the overall fit to the aggregate data.
Wage Volatility and the Option Value of Inter-industry Mobility
Seth Neumuller
(Wellesley College)
[View Abstract]
Contrary to standard economic intuition, I document a negative relationship between wages and wage volatility across industries in panel data. I also find that young workers disproportionately seek employment in high volatility industries which offer faster expected wage growth. This paper develops a general equilibrium theory of industry choice that quantitatively accounts for these features of the data. The ability to switch industries generates option value and limits exposure to labor market risk. This option value declines with age, leading to net mobility over the life cycle, while selection produces differences in expected wage growth rates across industries.
Comparative Advantage and Risk Premia in Labor Markets
Pedro Silos
(Federal Reserve Bank of Atlanta)
German Cubas
(University of Houston)
[View Abstract]
Using the Survey of Income and Program Participation (SIPP) we estimate quarterly labor earnings risk across 21 industries of the US economy. We document a significant and positive association between earnings risk (both permanent and transitory) and average log-earnings across industries. The Finance sector is 50% riskier than Government which implies a mean earnings premium of 20%. We develop an equilibrium framework to analyze the interplay between volatility in labor earnings and comparative advantage in determining the level of earnings across industries. We use the model to decompose how much of the empirical correlation represents compensation for risk and how much represents selection. The positive association between permanent risk and earnings is compensation for risk, but selection is responsible for the observed relationship between temporary risk and mean earnings.
Top Incomes, Rising Inequality, and Welfare
Kevin J. Lansing
(Federal Reserve Bank of San Francisco and Norges Bank)
Agnieszka Markiewicz
(Erasmus University)
[View Abstract]
[Download Preview] This paper develops a general-equilibrium model of skill-biased technological change that approximates the dramatic upward shift in the share of total income going to the top decile of U.S. households since 1980. Under realistic assumptions, we show that all agents in the economy can benefit from the technology change, provided that the observed rise in U.S. redistributive transfers over this period is taken into account. We show that the increase in capital's share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses. Depending on assumptions, the model can produce simulations in which rising income inequality is associated with either faster or slower output growth relative to the no-change trend. This theoretical ambiguity may provide some basis for the conflicting findings in the empirical literature on the links between inequality and growth.
Jan 04, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon B
Economists for Peace & Security
Costs and Consequences of Austerity
(E6) (Panel Discussion)
Panel Moderator:
Allen Sinai
(Decision Economics)
Carmen M. Reinhart
(Harvard University)
Robert Pollin
(University of Massachusetts-Amherst)
Olivier Blanchard
(International Monetary Fund)
Susan M. Collins
(University of Michigan)
Robert Zoellick
(Peterson Institute for International Economics)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 112-A
Health Economics Research Organization
Implementation of the Affordable Care Act
(I1)
Presiding:
Michael Chernew
(Harvard University)
Transaction Costs, Market Power and the Entry of Accountable Care Organizations in Health Care
H. E. Frech, III
(University of California-Santa Barbara)
Benjamin R. Handel
(University of California-Berkeley)
Liora Bowers
(University of California-Berkeley)
Christopher Whaley
(University of California-Berkeley)
Carol J. Simon
(United Health Group)
[View Abstract]
Transaction Costs, Market Power and the Entry of Accountable Care Organizations in Health Care
ACOs were promoted in the 2010 Patient Protection and Affordable Care Act (ACA) to incentivize integrated care and cost control. Because they involve vertical and horizontal collaboration, ACOs also have the potential to harm competition and raise prices or reduce quality for commercial plans and Medicare. The Federal Trade Commission and the Department of Justice are carefully monitoring ACO development.
In this paper, we analyze ACO entry patterns using a unique, proprietary database that includes public (Medicare) and private ACOs, in operation or in development. We estimate an empirical model explaining county-level ACO entry as a function of physician, hospital and insurance market structure, existing practice patterns, regulations, and demographics.
We find that physician concentration has a small positive effect, suggesting a market power motive. In contrast, physician concentration by geographic site, a measure of locational concentration of physicians, strongly discourages ACO entry, suggesting an efficiency motive. Surprisingly, hospital concentration has little effect. HMOs penetration is a strong predictor of ACO entry, while physician-hospital organizations have little effect. Small markets discourage entry, suggesting diseconomies of small scale ACOs. Predictors of public and private ACO entry are different. State regulations have little effect.
Sticker Shock for Individual Insurance From Health Reform
Mark V. Pauly
(University of Pennsylvania)
Scott E. Harrington
(University of Pennsylvania)
Adam Leive
(University of Pennsylvania)
[View Abstract]
[Download Preview] Sticker Shock for Individual Insurance From Health Reform
This paper provides estimates of the financial consequences of changes to the individual insurance market because of the Affordable Care Act (ACA). Our measure of payment for an individual or household is the "total expected price" (TEP) for insurable health care: the sum of premiums and expected out of pocket payment. TEP represents a way to adjust for differences in coverage across plans by looking at the consequences of often-complex cost sharing provisions; a plan with a lower premium because of reduced coverage will display a higher expected out of pocket payment. We compare TEP values for individuals in California before and after the ACA, using measures of premiums actually paid by the previously insured and associated out of pocket payments in the pre-ACA period versus premiums on the Exchange and an estimate of out of pocket payments in the post-ACA period. We show the same calculation for the previously uninsured in California, for population subgroups based on age, sex, and income, and for the sample of persons in states where the federal government will administer exchanges.
Assessing the Impact of Massachusetts Health Reform on the Utilization, Cost, and Outcomes Fee-for-Service Seniors in Medicare: Positive or Negative Externality?
Stephen T. Parente
(University of Minnesota)
Roger Feldman
(University of Minnesota)
Joanne Spetz
(University of California-San Francisco)
Bryan Dowd
(University of Minnesota)
[View Abstract]
[Download Preview] Assessing the Impact of Massachusetts Health Reform on the Utilization, Cost, and Outcomes Fee-for-service Seniors in Medicare: Positive or Negative Externality?
The passage the 2010 Patient Protection and Affordable Care Act (ACA) will yield the largest expansion of insurance coverage since the introduction of the Medicare and Medicaid program. What is unclear is the impact of the expansion on the population already insured. Fortunately, the Massachusetts health reform implemented in 2006 provided a national experiment to gauge the impact. This analysis seeks to examine the Medicare fee for service population’s changes in cost, service use and risk-adjusted mortality within the Massachusetts Medicare fee-for-service senior population compared to the states adjacent to Massachusetts as well as the remaining states in the United States.
We use Medicare claims years 2005 through 2011 to gauge the impact of Massachusetts insurance expansion on seniors. We examine health care use, cost and mortality information by senior for year as dependent variables for a difference in differences empirical analysis. Our first difference is MA versus surround states (CT, RI, NH, ME and VT) as well as the rest of the country. The second difference is the pre-post 2006 time mark.
Prior to the 2008 recession, we find evidence that Medicare beneficiaries in Massachusetts did not experience a significant change in primary care visits. The impact post the recession complicates the interpretation of the finds because it created a large trough in utilization in Medicare seniors even though there benefit design was not affected by the recession. A similar but not statistically significant result was found between MA and surround state seniors in use of specialty care. With respect to outcomes, we find a significant increase in Medicare inpatient mortality in Massachusetts compared to other New England states as well as non-New England States.
While our results are early, we do find evidence suggesting the Massachusetts 2006 health reform did influence seniors care patterns and outcomes.
Discussants:
Martin S. Gaynor
(Carnegie-Mellon University)
Joseph P. Newhouse
(Harvard University)
Cory S. Capps
(Bates White-Washington, DC)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 407
History of Economics Society
Financial Crises and Their Resolution in the History of Economic Thought
(E5)
Presiding:
L. Randall Wray
(Levy Financial Institute)
Arresting Financial Crises: The Fed Versus the Classicals
Thomas M. Humphrey
(Federal Reserve Bank of Richmond (Ret))
[View Abstract]
[Download Preview] Nineteenth Century British economists Henry Thornton and Walter Bagehot established the classical duties of a central bank acting as a lender of last resort (LLR) striving to avert financial panics and crises: Lend freely (to temporary illiquid but solvent borrowers only) against the security of sound collateral. Charge above-market, penalty interest rates so as to minimize moral hazard. Deny aid to unsound, insolvent borrowers. Preannounce your commitment to lend freely in all future panics. Lend for short periods only. Have a clear, simple, certain exit strategy. The LLR's purpose is to prevent bank runs and collapses of the money stock -- collapses that, by reducing spending and the level of prices, will, in the face of downward inflexibility of nominal wages, produce falls in employment and output.
The Fed, in the crisis of 2008-9, adhered to some of the classical rules -- albeit using a credit-easing rather than a money-stock stabilization rationale -- while deviating from others. Consistent with the classicals, the Fed filled the market with liquidity while lending to a wide variety of borrowers against an extended array of assets. But it departed from the classical prescription in charging subsidy rather than penalty rates, in lending against tarnished collateral and/or purchasing assets of questionable value, in bailing out insolvent borrowers, in extending its loan repayment deadlines beyond intervals approved by classicals, and in failing both to precommit to arrest all future crises and to articulate an unambiguous exit strategy. Given that the classicals demonstrated that satiating panic-induced demands for cash is sufficient to end crises, the Fed might consider abandoning its costly and arguably inessential deviations from the classical model and, instead, return to it.
A Minskian Framework for Successful Financial Crisis Resolution
L. Randall Wray
(Levy Financial Institute)
[View Abstract]
Hyman Minsky was well known for his theory of financial instability and for his analysis of financial crises. His argument that the "Big Bank" and the "Big Government" play an essential role in crisis resolution is also recognized, and as well his warning that "stability is destabilizing". But his analysis of crisis prevention and resolution went much deeper than this. It is not widely known that in the 1960s he participated in major studies of "real world" bank supervision, one for the Federal Reserve Bank (on a reassessment of discount window operations) and one for the California State banking commission. After arriving to the Levy Economics Institute he created a research program that he called "reconstituting the financial system". In the early 1990s he prepared a series of manuscripts that looked closely at recent evolution of the financial system and as well at the approach to banking regulation and oversight, arguing that the New Deal reforms had served us well in the past but were no longer applicable to the current financial system. Further, he argued that the pattern of "validating" financial innovations by rescuing institutions and de facto accepting those innovations that increase systemic fragility not only create moral hazard but also move the financial system ever further away from encouraging what he called the "capital development of the economy". This paper will begin with Minsky's research on that Levy project to develop a framework for crisis resolution that could return financial institutions to serving the public purpose-precisely what the New Deal reforms had done. However, this time around we cannot simply mimic the reforms of the 1930s, rather, we need to develop an approach to resolving the next crisis in a manner that recognizes today's complex linkages.
Financial Crisis Resolution and Federal Reserve Governance: Economic Thought and Political Realities
Bernard Shull
(Hunter College)
[View Abstract]
[Download Preview] The organizational structure of the Federal Reserve System, including a Board in Washington, and twelve member-owned Reserve Banks with legislatively delineated boards of directors, was originally designed as a key mechanism to curb misguided and/or self-serving practices by operating officials (agents) that could damage owners and/or other stakeholders (principals); i.e., as a form of internal 'governance.' The original design has, in form, been sustained since the Federal Reserve was established; but as the System has grown in responsibilities, power and influence, the nature and function of the structural governance mechanism has changed. Considering both political imperatives and economic thought, this paper reviews the rationale of the original design and tracks the principal changes through three financial upheavals of the past century: the inflation/depression of 1919-21; the Great Depression of the 1930s; and the Stagflation of the late 1970-early 1980s. It then relates these past changes to developments since the financial crisis of 2007-09.
The review provides information on the kinds of organizational changes that have been seriously considered in the past, discusses why they were or were not adopted, and evaluates relevant issues. In the context of the current public debate on the recent expansion of Federal Reserve operations, both as a lender of last resort and as an agent for economic stimulus, it provides a basis for reconsideration of existing organizational structure and governance.
Resolution of International Financial Crises: How the Treasury and the Federal Reserve used to Handle Them and How They Have Resolved Them over the Last Two Decades
Walker F. Todd
(American Institute for Economic Research)
[View Abstract]
This paper explores the various methods used historically by the US to resolve international financial crises, including, among others, the renegotiation of European War debts following WWI; the suspension of international gold backing of the dollar in 1971 in response to the gold drain that begin in the 1960s; the reactions to a series of third world debt crises, mostly involving US banks and Latin American countries, over the 1982-1989 period, which culminated in the development of the Brady Plan (1989); responses to 1998-1999 financial crises involving East Asia, Latin America, and Russia (1998-1999) derived from the Washington Policy Consensus; and the Treasury's strong dollar policy of the early 21st century. The policy responses to these earlier crises are compared and contrasted with the methods being used to deal with the present crisis. In general, crisis resolution plans modeled on the Brady Plan seem more successful, both near term and long-term, than models that could be characterized as stalling for time. Meanwhile, the current approach in both the US and the Europe still amounts to stalling for time while engaging in a massive monetary expansion that in the past would have led to massive currency depletion, which cannot be helpful to Europe.
Discussants:
James A. Felkerson
(University of Missouri-Kansas City)
Eric Tymoigne
(Lewis & Clark College)
Yeva Nersisyan
(Franklin & Marshall College)
Gretchen Greene Yeo
(Federal Reserve Bank of New York (Retired))
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 106-A
Industrial Organization Society
Empirical Studies of Contracts
(D8)
Presiding:
Bernard Salanie
(Columbia University)
Better Safe than Sorry? Ex Ante and Ex Post Moral Hazard in Dynamic Insurance Data
Jaap Abbring
(Tilburg University)
Pierre-André Chiappori
(Columbia University)
Tibor Zavadil
(VU University-Amsterdam)
[View Abstract]
This paper empirically analyzes moral hazard in car insurance using a dynamic theory of an insuree's dynamic risk (ex ante moral hazard) and claim (ex post moral hazard) choices and Dutch longitudinal micro data. We use the theory to characterize the heterogeneous dynamic changes in incentives to avoid claims that are generated by the Dutch experience-rating scheme, and their effects on claim times and sizes under moral hazard. We develop tests that exploit these structural implications of moral hazard and experience rating. Unlike much of the earlier literature, we nd evidence of moral hazard.
Reel Authority: Relational Renegotiation in the Movie Industry
Daniel Barron
(Northwestern University)
Robert S. Gibbons
(Massachusetts Institute of Technology)
Ricard Gil
(Johns Hopkins University)
Kevin J. Murphy
(University of Southern California)
[View Abstract]
Despite the importance of relational contracting between firms (Macaulay, 1963), parties in ongoing relationships also partially structure their dealings using formal contracts (Klein, 2000), but the latter are often incomplete. We develop a model and provide evidence in a specific setting: the formal and informal contracts between movie distributors and exhibitors. As studied by Gil (2007, 2013), before a movie opens, the parties sign formal contracts specifying how the box-office revenues for the movie will be shared, but the sharing rate is often renegotiated after the movie's run is complete, with the exhibitor paying the distributor a lower sharing rate than formally specified. Since such ex post transfers would not occur in one-shot transactions, our analysis considers a repeated game between both parties, where this ex post settling-up can be seen as "relational renegotiation." We explore these issues using Gil's data from a major non-integrated Spanish movie exhibitor that includes contracted and renegotiated weekly sharing rates for all movies played between January 2001 and June 2002. By merging new data on weekly box-office revenues for every movie in each of the exhibitor's theaters, we analyze how anticipated future reductions in the sharing rate (agreed after the movie has finished its run) influence the exhibitor's current decision to show or discontinue the movie. In keeping with efficiency, we find that both the probability of renegotiation and the size of the anticipated discount are positively related to the opportunity cost of showing a given movie.
Incentives to Invest in Short-Term vs. Long-Term Contracts: Theory and Evidence
Pierre Dubois
(Toulouse School of Economics)
Tomislav Vukina
(North Carolina State University)
[View Abstract]
In this paper we study the effects of the change in contract length on the agents' incentives to invest and exert effort. We present an agent's dynamic decision model that explicitly deals with two types of investments and directly allows for contract regime switching by varying the probability of contract renewal parameter. The fact that the unobservable investment in human capital is complementary with the agent's effort produces a result that increasing the probability of contract renewal increases investment and effort, with the consequent increase in production. We also show that there exists a specific level of investment in human capital, for which the investment in physical capital is profitable. We test these theoretical predictions using contract settlement data for the production of hatching eggs. The data was generated by a natural experiment where during the period covered by the data the contract had changed from short-term to long-term. The obtained empirical results are largely supportive of the developed theory.
Financial Constraints and Moral Hazard: The Case of Franchising
Ying Fan
(University of Michigan)
Kai-Uwe Kuhn
(University of Michigan)
Francine Lafontaine
(University of Michigan)
[View Abstract]
[Download Preview] Financial constraints are an important impediment to the growth of small businesses. We study theoretically and empirically how the financial constraints of agents affect their decisions to exert effort, and, hence the organizational decisions and growth of principals, in the context of franchising. We find that a 30 percent decrease in average collateralizable housing wealth in a region delays chains' entry into franchising by 0.28 years on average, 9 percent of the average waiting time, and slows their growth by around 10 percent, leading to a 10 percent reduction in franchised chain employment.
Discussants:
Pierre Dubois
(Toulouse School of Economics)
Julie Mortimer
(Boston College)
Steven Tadelis
(University of California-Berkeley)
Jaap Abbring
(Tilburg University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Congress C
International Banking, Economics & Finance Association
TARP and Crisis Resolution
(G2)
Presiding:
Kasper Roszbach
(Sveriges Riksbank and University of Groningen)
Depressing depositors and cheering up borrowers: The effects of bank bailouts on banking competition and the evolution of zombie banks
Cesar Calderon
(World Bank)
Klaus Schaeck
(Bangor University)
[View Abstract]
[Download Preview] We investigate how government interventions such as blanket guarantees, liquidity support, recapitalizations, and nationalizations during crises affect banking competition. This issue is critical for stability, access to finance, and economic growth. Exploiting cross-country and cross-time variation in the timing of interventions and accounting for their non-random assignment, we document that liquidity support, recapitalizations, and nationalizations trigger economically large increases in competition. Moreover, zombie banks become collectively more important, increase market shares, and contribute to shifts in market conduct by affecting the pricing of deposits and loans following such interventions. Finally, while liquidity support, recapitalizations, and nationalizations reduce deposit rates they also decrease loan rates.
Crises, Rescues and Policy Transmission through International Banks
Claudia Buch
(Halle Institute for Economic Research)
Catherine Tahmee Koch
(University of Zurich)
Michael Koetter
(Frankfurt School of Finance and Management)
[View Abstract]
[Download Preview] The World Financial Crisis has shaken the fundamentals of international banking and triggered a downward spiral of asset prices. To prevent a further meltdown of markets, governments have intervened massively through rescues measures aimed at recapitalizing banks and through liquidity support. We use a detailed, bank level dataset for German banks to analyse how the lending and borrowing of their foreign affiliates has responded to domestic (German) and to US crisis support schemes. We analyse how these policy interventions have spilled over into foreign markets. We identify loan supply shocks by exploiting that not all banks have received policy support and that the timing of receiving support measures has differed across banks. We find that banks covered by rescue measures of the German government have increased their foreign activities after these policy interventions, but they have not expanded relative to banks not receiving support. Banks claiming liquidity support under the Term Auction Facility (TAF) program have withdrawn from foreign markets outside the US, but they have expanded relative to affiliates of other German banks.
Did TARP Banks Get Competitive Advantages?
Allen N. Berger
(University of South Carolina)
Raluca Roman
(University of South Carolina)
[View Abstract]
This paper conducts an empirical assessment of the Troubled Assets Relief Program (TARP) on bank competition. One possible unintended consequence of the program is that it may have given TARP banks competitive advantages over non-TARP banks. Our difference-in-difference analysis yields several important results: 1) Overall, TARP recipients did get competitive advantages and increased both their market shares and market power compared to non-TARP recipients, 2) The competitive advantages are due primarily or entirely to TARP banks that repaid early, suggesting that these banks significantly reduced their cost disadvantages, and 3) Results point to the likelihood that the positive market share and market power findings may be driven primarily by the safety effect, which is partially offset by the cost disadvantage effect, at least for the banks that repaid early. Results hold when using an instrumental variable analysis, propensity score matched samples, and several other robustness tests. These findings suggest a possible distortion in competition because of the government intervention, which may have misallocated resources, with potential implications for financial stability.
The Federal Reserve's Discount Window and TAF Programs: Pushing on a String?
Allen N. Berger
(University of South Carolina)
Lamont K. Black
(DePaul University)
Christa H.S. Bouwman
(Case Western Reserve University)
Jennifer L. Dlugosz
(Washington University-St Louis)
[View Abstract]
[Download Preview] The Federal Reserve provided an unprecedented amount of liquidity to the U.S. banking sector during the recent financial crisis. This paper focuses on two of the main programs, the discount window and Term Auction Facility (TAF). Using novel data that were recently made public, we examine which banks used the funds, how the use of other funding sources changed, and whether the use of these funds affected bank lending. We have three main findings: small banks receiving funds were weak banks whereas large banks generally were not; the funds substituted to a limited degree for other funding sources; and banks receiving funds increased their lending relative to other banks. Additional analyses examine the height of the crisis, subsamples of banks, and whether banks used some of the funds to liquefy their balance sheets. The findings provide insights into role of the lender of last resort and suggest that the Federal Reserve was successful in its goal of increasing the flow of credit during the crisis.
Discussants:
Robert DeYoung
(University of Kansas)
Benjamin Tabak
(Central Bank of Brazil and Universidade Catolica de Brasilia)
Nick Coleman
(Federal Reserve Board)
John Driscoll
(Federal Reserve Board)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom C2
International Economic & Finance Society
Exchange Rates and Fundamentals
(F4)
Presiding:
Karen Lewis
(University of Pennsylvania)
Exchange-Rate Dark Matter
Martin Evans
(Georgetown University)
[View Abstract]
Dark matter accounts for 83 percent of the matter in the universe and plays a central role in cosmology modeling. This paper argues that an analogous form of dark matter plays a similarly important role in international macroeconomics. Exchange-rate dark matter is invisible, but its existence can be inferred from observations on real exchange rates and interest rates. I first show that dark matter is the dominant driver of short - and medium-term changes in real exchange rates for the G-7 countries; accounting for more than 90 percent of the variance at the five - year horizon. I then develop a model in which risk shocks account for dark matter's role as a driver of exchange - rate dynamics and other macro variables.
Commodity Trade and the Carry Trade: A Tale of Two Countries
Robert Ready
(University of Rochester)
Nikolai Roussanov
(University of Pennsylvania)
Colin Ward
(University of Pennsylvania)
[View Abstract]
[Download Preview] Persistent differences in interest rates across countries account for much of the prof- itability of currency carry trade strategies. The high-interest rate “investment†curren- cies tend to be “commodity currencies,†while low interest rate “funding†currencies tend to belong to countries that export finished goods and import most of their com- modities. We develop a general equilibrium model of commodity trade and currency pricing that generates this pattern via frictions in the shipping sector. The model pre- dicts that commodity-producing countries are insulated from global productivity shocks by the limited shipping capacity, which forces the final goods producers to absorb the shocks. As a result, a commodity currency is risky as it tends to depreciate in bad times, yet has higher interest rates on average due to lower precautionary demand, compared to the final good producer. The model’s predictions are strongly supported in the data. The commodity-currency carry trade explains a substantial portion of the carry-trade risk premia, and all of their pro-cyclical predictability with commodity prices and shipping costs, as predicted by the model.
Product Introductions, Currency Unions, and the Real Exchange Rate
Alberto Cavallo
(Massachusetts Institute of Technology)
Brent Neiman
(University of Chicago)
Roberto Rigobon
(Massachusetts Institute of Technology)
[View Abstract]
We use a novel dataset of online prices of identical goods sold by four large global retailers in dozens of countries to study good-level real exchange rates and their aggregated behavior. First, in contrast to the prior literature, we demonstrate that the law of one price holds very well within currency unions for thousands of goods sold by each of the retailers, implying good-level real exchange rates equal to one. Prices of these same goods exhibit large deviations from the law of one price outside of currency unions, even when the nominal exchange rate is pegged. This clarifies that it is the common currency per se, rather than the lack of nominal volatility that results in the lack of cross-country differences in the prices of these goods. Second, we use a novel decomposition to show that most of the cross-sectional variation in good-level real exchange rates reflects differences in prices at the time products are first introduced, as opposed to the component emerging from heterogeneous pass-through or from nominal rigidities during the life of the good. In fact, international relative prices measured at the time of introduction move together with the nominal exchange rate. This stands in sharp contrast to pricing behavior in models where all price rigidity for any given good is due simply too costly price adjustment for that good.
On What States Do Prices Depend? Answers From Ecuador
Craig Benedict
(Vanderbilt University)
Mario Crucini
(Vanderbilt University)
Anthony Landry
(University of Pennsylvania)
[View Abstract]
An important challenge for macroeconomics is to understand the reasons that retail prices change infrequently and the implications of this pricing behavior for economic welfare and allocative efficiency. This paper develops a menu cost model of pricing in which retail firms intermediate trade between manufacturers of goods and final consumers. In particular, retail firms purchase manufactured goods in a competitive global market and employ workers to sell the goods in retail outlets at a markup over marginal cost. An important facet of our analysis is that the labor-cost share of retail production differs across goods in the consumption basket. Consequently, firms with different cost structures will change prices by different amounts and at different frequencies despite facing a common menu cost. This allows us to account for some of the cross-sectional differences observed in the frequency of price changes across goods. We apply this model to Ecuador to take advantage of a rich database of monthly retail prices of more than 200 goods and services across 12 Ecuadorian cities. Ecuador is also an interesting case study for menu cost pricing because it underwent a number of dramatic changes in inflation and exchange rate regimes, with a currency crisis and hyperinflation followed by adoption of the US dollar as the unit of account.
Discussants:
Adrien Verdelhan
(Massachusetts Institute of Technology)
Riccardo Colacito
(University of North Carolina)
Chris Telmer
(Carnegie Mellon University)
Lucasz Drozd
(University of Pennsylvania)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Rooms 408 & 409
Korea-America Economic Association
Measurement Issues in Dynamic Macro Models
(E2)
Presiding:
Yongsung Chang
(University of Rochester and Yonsei University)
Assessing DSGE Model Nonlinearities
Frank Schorfheide
(University of Pennsylvania)
S. Boragan Aruoba
(University of Maryland)
Luigi Bocola
(University of Pennsylvania)
[View Abstract]
[Download Preview] We develop a new class of time series models to identify nonlinearities in the data
and to evaluate DSGE models. U.S. output growth and the federal funds rate display
nonlinear conditional mean dynamics, while inflation and nominal wage growth feature
conditional heteroskedasticity. We estimate a DSGE model with asymmetric wage and
price adjustment costs and use predictive checks to assess its ability to account for nonlinearities. While it is able to match the nonlinear inflation and wage dynamics, thanks to the estimated downward wage and price rigidities, these do not spill over to output growth or the interest rate.
Risk Aversion, Risk Premia, and the Labor Margin with Generalized Recursive Preferences
Eric Swanson
(Federal Reserve Bank at San Francisco)
[View Abstract]
[Download Preview] A flexible labor margin allows households to absorb shocks to asset values with
changes in hours worked as well as changes in consumption. This ability to absorb
shocks along both margins greatly alters the household's attitudes toward risk, as shown by Swanson (2012). The present paper extends that analysis to the case of generalized recursive preferences, as in Epstein and Zin (1989) and Weil (1989), including multiplier preferences, as in Hansen and Sargent (2001). Understanding risk aversion for these preferences is especially important because they are the primary mechanism being used to bring macroeconomic models into closer agreement with asset pricing facts. Measures of risk aversion commonly used in the literature--including traditional, fixed-labor measures and Cobb-Douglas composite-good measures--show no stable relationship to the equity premium in a standard macroeconomic model, while the closed-form expressions derived in this paper match the equity premium closely. Thus, measuring risk aversion correctly--taking into account the household's labor margin--is necessary for
risk aversion to correspond to asset prices in the model.
Market Structure and Cost Pass-Through in Retail
Gee Hee Hong
(Bank of Canada)
Nicholas Li
(University of Toronto)
[View Abstract]
[Download Preview] We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. To answer this question, we use scanner data from a large U.S. retailer to estimate product level pass-through for three different vertical structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. Our findings emphasize that accounting for the interaction of vertical and horizontal structure is important in understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share.
Testing an Alternative Price-Setting Behavior in New Keynesian Phillips Curve: Extrapolative Price-Setting Mechanism
Sunghyun Henry Kim
(Sungkyunkwan University and Suffolk University)
Yoonseok Choi
(Suffolk University)
[View Abstract]
[Download Preview] Hybrid New Keynesian Phillips curve (NKPC) has been widely used in monetary policy literature (e.g. Gali and Gertler, 1999) as it contains both forward-looking and backward-looking components and therefore fits the data well. A typical backward-looking part of price setting behavior assumes that firms use the previous period’s price. In this paper, we propose a generalized version of the hybrid NKPC by incorporating extrapolative (adaptive) price-setting mechanism in backward-looking part of the price setting behavior. We assume that when firms set the price at period t, they use information on price in period t-1 plus a portion of the change in prices between t-1 to t-2, which permits the trend in past price changes (partial error correction). Under this generalized setting, we derive reduced and structural NKPC explicitly. It turns out that the newly derived NKPC is a nesting model of the original hybrid NKPC in Gali and Gertler (1999). The empirical results show that the extrapolative component is strongly significant in explaining the inflation dynamics. In addition, the generalized version of the hybrid NKPC fits the data better than the original hybrid NKPC in terms of various measures for empirical performance such as AIC, BIC, root mean squared error and mean absolute error.
Discussants:
Karel Mertens
(Cornell University)
Jesus Fernandez-Villaverde
(University of Pennsylvania)
Rebecca Hellerstein
(Federal Reserve Bank of New York)
Thomas Lubik
(Federal Reserve Bank of Richmond)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Business Cycle Effects: Hours and Gender Gap
(J5)
Presiding:
Peter Berg
(Michigan State University)
Mastering the Great Recession in Germany - Determinants of Working Time Accounts Use to Safeguard Employment
Alexander Herzog-Stein
(Macroeconomic Policy Institute)
Ines Zapf
(Institute for Employment Research)
[View Abstract]
The German economy was severely hit by the global financial and economic crisis of the years 2008 and 2009. Germany's gross domestic product shrank by more than five per cent and the annual working time per employee was reduced by 3.3 per cent in 2009 in comparison to 2008. Here, working time accounts played an important role in the temporary reduction of hours worked in the economy and therefore to overcome the negative effects of the Great Recession in Germany. The author's analysis of data on establishments with a works council and at least 20 employees from the Works Council Survey of the Institute of Social and Economic Research in 2009/2010 shows that the influence and presence of trade unions and the direct impact of the economic crisis are factors that increase the probability to reduce time credits or build-up time deficits on working time accounts to safeguard employment. Staff characteristics like the share of female workers, the share of highly qualified employees or the share of workers with a fixed-term contract have a negative impact. A negative working relationship between works council and management has no significant impact. The model also controls for different factors, like economic sectors and establishment size. Altogether, no significant differences are found between the use of working time accounts to safeguard employment in general and the use in consequence of the economic crisis. This could be an indication that working time accounts have to be established well in advance before it is possible to use them to safeguard jobs during an economic crisis.
Determinants of Working Overtime in Germany
Ines Zapf
(Institute for Employment Research)
[View Abstract]
Overtime work is widespread in Germany. However there are different forms of working overtime - paid overtime, unpaid overtime and overtime compensated by free time off later. Firstly, the paper shows the development of overtime hours in Germany with data of the Socio-Economic Panel from 1991-2011 with regard to the compensation form. In general, paid overtime is declining whereas working overtime with a compensation of free time later off is increasing. This is due to the increasing amount of working time accounts in German establishments, where deviations from regular or collectively agreed working hours lead to savings or deficits. These savings are compensated by free time off later. Secondly, the paper shows the distribution and the determinants of overtime work by different factors on the individual and establishment level as well as due by workplace related factors, like employment status, occupational status, qualification level, decision-making autonomy of employees, worries about job, establishment size and economic sectors. Results show that there are for example considerable differences between full-time and part-time employees, with full-time employees working more overtime hours and between the qualification level, with high qualified employees working more overtime. Employees with decision making autonomy work more overtime hours in comparison to others. In larger establishments, employees are working more overtime than in smaller ones.
Gender Gaps and Recessions: Comparing the Great Recession to Previous Recessions
Joseph Marchand
(University of Alberta)
[View Abstract]
[Download Preview] The downward pressures on wages and employment caused by recessions are not equally shared between the genders, adversely affecting male workers more than female workers. This theoretical prediction is based on the premise that men are disproportionately represented in more cyclical industries, such as construction, while women are disproportionately represented in less cyclical industries, such as services. Despite this theory, recent empirical evidence has lead to mixed results, with some supporting the theory of pro-cyclical gender gap movements and others suggesting either non-cyclical or even counter-cyclical movements. That said, much of this empirical literature relies on the same measurement, using time variation and the correlation between gender gaps and the unemployment rate to identify their estimates. An alternative quasi-experimental method introduced by Marchand and Olfert (2013) through an application to the Great Recession is utilized in the current study, in order to calculate, compare, and contrast the impacts of the previous three recessions in the United States which have taken place over the last thirty years. This methodology allows for the direct comparison of these effects across different recessions, as well as for the wage and employment gaps to be estimated separately, neither of which can be done using the canonical method previously applied in this literature. Once this application is completed, the effects will be generalized over all of the recessions. This assessment can conclude whether the gender wage and employment gap movements are pro-cyclical, non-cyclical, or counter-cyclical with respect to each of the recessions and across all recessions, and it can determine the differing magnitudes and statistical significance of these effects.
Discussants:
Lonnie Golden
(Pennsylvania State University-Abington)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
Fixing Jobs, Activities and Value: Policy Challenges in a More Open World
(J5)
Presiding:
Teresa Ghilarducci
(New School)
Industrial Policy in the Era of Vertically Specialized Industrialisation
William Milberg
(New School)
[View Abstract]
Industrial Policy in the Era of Vertically Specialized Industrialisation
Offshorability of Service Jobs and Reverse Trends: The Case of France
El Mouhoub Mouhoud
(University of Paris-Dauphine)
[View Abstract]
Offshorability of Service Jobs and Reverse Trends: The Case of France
The Legacy of the Great American Laissez-Faire Experiment: Growth, Inequality and Good Jobs in the US and France
David Howell
(New School)
[View Abstract]
Post-1980 American economic policy has reflected a profound ideological shift toward free market orthodoxy. The economic case for this "laissez-faire experiment"Â has been the belief that there would be a substantial payoff in shared growth: more inequality but a substantial trickle-down in economic welfare to nearly all households. France, on the other hand, stands out among rich countries for its resistance to pressure to deregulate and adopt the "American Model"Â. The conventional wisdom since the 1990s has been that French economic performance has been disastrous, especially concerning LM outcomes for young less educated workers. This talk compares post-1980 American and French performance on shared growth. France shows far superior performance on all measures of income inequality, much more rapid compensation growth for manufacturing workers, and much greater translation of GDP into "adequate jobs" (not low wage and not involuntary part-time), especially for young (20-34) less educated (high school only) workers - the adequate employment rate had risen faster to far higher levels for both young male and female French workers . At the same time, unemployment rates have shown significant convergence and unemployment-to-population rates have tracked each other closely since the mid-1990s. In sum, I find that on these indicators of shared growth - inequality, compensation growth, and the generation of decent jobs - France has substantially outperformed the US. since the mid-1990s.
Global Power Shifts and Welfare in Advanced Economies: Lessons from the AUGUR "Europe in the World 2030" Project
Pascal Petit
(University of Paris-Nord)
[View Abstract]
Global Power Shifts and Welfare in Advanced Economies: Lessons from the AUGUR "Europe in the World 2030" Project
Discussants:
Heather Boushey
(Center for American Progress)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association/International Association for Feminist Economics
International Perspectives on Gender in the Workplace, Session II
(J5)
Presiding:
Adrienne Eaton
(Rutgers University)
CHANGES IN WOMEN'S EMPOWERMENT IN TURKEY, 1993-2003
Tunay Oguz
(University of New Mexico)
[View Abstract]
This study evaluates the expansion of women's empowerment over a ten year period in Turkey. Data from the Turkish Demographic Heath Survey between 1993 and 2003 suggest growing empowerment in terms of attitudes towards gender roles, power over life choices, and in greater decision-making power in the household. Education and urbanization are strongly related to empowerment in both years, and community level measures of norms have an even larger impact. Increases in empowered behaviors are closely tied to changes in observed characteristics, and changes in community norms explain up to 49 percent of the overall improvement in empowerment. Empowerment as measured by contraceptive use, however, appears to have arisen from the social evolution of family planning preferences, rather than to changes in individual and community characteristics.
Child Labour and Labour Market Outcomes in Tanzania: A Gender Perspective
Sara Burrone
(University of Turin)
[View Abstract]
[Download Preview] Using the KHDS dataset from Kagera region, in Tanzania, we study both the main causes of child labour and its consequences on the labour market outcomes over 13 years horizon, highlighting the gender differences.
To study the determinants we use two different models: a Probit and OLS regression, in the former we analyze how the probability of children of being involved in works changes in base of some households and individuals' characteristics and, in the latter how these variables affect the hours of child labour. To analyze the consequences of child labour on the kind of employment in the adulthood we use two multinomial logistic regressions, while to study its effect on the adult earning we use an OLS regression.
The results show that the characteristic of the family are the main determinants of child labour, kind of employment and wage in the adulthood.
Studying the determinants we note that gender discrimination does not affect in significant way the parents' decision to send children to work, we only note that getting older makes the working hours increase especially for girls. An enhancement in the wealth of the family is significantly associated with a decrease in the probability of being involved in child labour, while in the farmer families this does not happen, and the "wealth paradox" is confirmed: child labour increases as the wealth increases. Finally, as the number of the components of the family increases the hours of child labour lower.
With regards to the consequences of child labour, our outcomes show that it avoids adult unemployment, informal and domestic works in favor of farm employment, however this is not true in the case of women. Generally, being female is significantly related to farm works in the adulthood and the employed women earn lower wages than the employed men, except for those that worked in family's farms during their childhood.
Moreover, child labour in family farms prevents people from becoming wage employees in the adult age in favor, again, of a job in the agricultural sector. The variables measuring the wealth of the origin family, and, in particular, of the farmer families, are very significant: as the wealth of the family increases, the probability of being a peasant in the adulthood decreases, while in the farmer family the opposite happens: it increases.
The Occupational Segregation of Black Women: A Look at its Evolution from 1940 to 2010
Olga Alonso-Villar
(Universidade de Vigo)
Coral del Rio Otero
(Universidade de Vigo)
[View Abstract]
[Download Preview] Based on harmonized and detailed occupation titles and making use of measures that do not require pair-wise comparisons among demographic groups, this paper shows that the occupational segregation of Black women dramatically declined from 1940 to 1980 (especially in the 1960s and 1970s), it slightly decreased from 1980 to 2000, and it remained stagnated in the first decade of the 21st century. To assess the reduction in segregation, this paper extends recent measures that penalize the concentration of Black women in low-paid jobs and finds that the integration process slightly reversed after 2000. Regarding the role that education has played, this study highlights that only from 1990 onward, Black women with either some college or university degrees have lower segregation (as compared with their peers) than those with lower education. Nevertheless, in 2010, Black women with university degrees still tend to concentrate in occupations that have wages below the average wage of occupations that high-skilled workers fill.
The French Policy of Development of Personal and Household Services: Is It a Success for Job Creation and Work-Life Balance?
François-Xavier Devetter
(CLERSE Université de Lille 1, Telecom Lille)
[View Abstract]
In the context of high unemployment, several European countries are encouraging Personal and Household Services (services facilitating daily life: housekeeping, laundry, ironing). The French and Belgian policies in this topic are the most important: great tax reductions, creation of specific vouchers, organization of agencies, etc.). These policies are often presented by governments and the European Commission as success stories. Their main purposes are to create high-quality jobs, to help to find a balance between work and family life and to provide care for dependent people.
While several evaluations conclude there has been significant jobs creation, other studies highlight ambiguous results. This communication aims at drawing an appraisal of the French policy: is it really a ""good practice""?
First we study jobs creation not only on a quantitative point of view but in taking account of the new jobs quality too (wages, working time, job security, etc.). The main law ( Borloo plan of 2005) facilitates for-profit organizations and helped to create a new segment. But it could encourage a new polarization of jobs and a destabilization of the non-profit sector.
Secondly we examine the effects of these measures on gender and social equality. By using both quantitative and qualitative data, we aim to gain a better understanding of the factors of demand for these services, and to examine the possibility of more greatly democratizing this demand (could these services be less dependent from income and more linked with the needs of the family?). Does the French policy promote gender equality and work-life conciliation or is it a policy increasing inequalities?
These two aspects (job quality and democratization of demand) are not separate issues. They could determine, together, very different worlds of production . The French choice and its unequal orientation must be discussed.
Discussants:
Kate Bahn
(Schwartz Center for Economic Policy Analysis)
Adrienne Eaton
(Rutgers University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 105-A
Middle East Economic Association
Financial Markets, Institutions and Regulations
(G1)
Presiding:
Mine Cinar
(Loyola University)
The Monetary Impact of Banking Sector Compliance with International Rules on Selected MENA Economies
Wassim Shahin
(Lebanese American University)
[View Abstract]
The study analyzes the monetary consequences of the international banking and financial regulatory restrictions imposed in the last few years on selected MENA economies namely Lebanon, Egypt, Saudi Arabia and Turkey.
Regional and Global Spillovers and Diversification Opportunities in the GCC-Wide Equity Sectors across Market Regimes
Mehmet Balcilar
(Eastern Mediterranean University,)
Riza Demirer
(Southern Illinois University-Edwardsville)
Shawkat Hammoudeh
(Drexel University)
[View Abstract]
[Download Preview] This paper examines the international diversification benefits of bloc-wide equity sectors of the stock markets of oil-rich Gulf Cooperation Council (GCC) countries by comparing alternative spillover models for local, regional and global factors. Both the return and volatility spillover effects are found to display time variations with regime-specific patterns based on low, high and extreme volatility market states. We also find that the highly segmented GCC-wide equity sectors can serve as safe havens for international investors during periods of high and extreme market volatility. The in- and out-of-sample portfolio analyses further suggest that supplementing global portfolios with positions in these markets yield significant diversification benefits, offering much improved risk-adjusted returns consistently across the alternative spillover models examined.
Consumer Confidence in a DSGE Model for Turkey
Pinar Deniz
(Marmara University)
Erhan Aslanoglu
(Marmara University)
[View Abstract]
[Download Preview] In this study, it is argued that agents, separate from the observable economic indicators, carry current and/or future time information about the economy, and that this information is already present in consumer confidence index (CCI). Moreover, it is argued that as well as consumers, this information is utilized by producers who have entrepreneurial sentiments. Producers are divided as large scale enterprises (LSEs) and small and medium scale enterprises (SMEs). SMEs are assumed to reach this entrepreneurial information (animal spirits) in the economy, but LSEs do not either because they want to stick to their business plan or they cannot due to their rigid structure. A standard small scale New Keynesian DSGE model for Turkey for the period of 2006-2012 is constructed incorporating CCI and information component. The responses of economic fundamentals to monetary policy, information and technology shocks are examined.
Keywords: New Keynesian DSGE, Monetary Policy, Consumer Confidence Index
Jel Classification: D84, E47, E52.
Are Switching Costs Deterrent to Competition in the Credit Card Markets?
G. Gulsun Akin
(Bogazici University)
Alper Alkan
(Is Investment)
Ahmet Faruk Aysan
(Central Bank of the Republic of Turkey)
Levent Yildiran
(Bogazici University)
[View Abstract]
This paper analyses the switching behaviour of the Turkish credit cardholders by using a very recent survey data. Customers that value bank level characteristics of the card are likely to be locked-in whereas customers are responsive to non-price benefits such as limits and cash backs. The price related features, on the other hand, are not significant factors in switching behaviours of cardholders. This finding justifies sticky interest rates and the existence of non-price competition. The model also controls for bank dummy variables and estimations reveal that each issuer generates switching costs at different levels.
Foreign Currency Lending and Banking System Stability - New Evidence from Turkey
Emre Ozsoz
(State University of New York-FIT)
Ali M. Kutan
(Southern Illinois University-Edwardsville)
Erick W. Rengifo
(Fordham University)
[View Abstract]
Regulators in developing countries have started to tighten the regulations regarding banks' foreign currency (FC) lending. Following others, in June 2009, in what is considered "a surprise development" the Turkish Government removed a provision from its existing laws that had allowed Turkish residents to borrow in foreign currency from banks operating in Turkey. The development ended a long era of foreign currency lending for consumer loans. This paper studies the determinants and consequences of foreign currency lending for banks in Turkey in the run-up to this significant policy change. By using detailed balance sheet data on the foreign and Turkish currency composition of bank assets and liabilities between 2002 and mid-2009 when the policy change was initiated, we evaluate the drivers of FC lending by banks in Turkey along with consequences for the banking system in particular and for the economy in general. We highlight possible risks to the Turkish banking system as a result of the system's heavy exposure to exchange rate and default risks. In doing so, we show that the policy change was not necessarily a surprise but a cautionary step in the right direction to help keep Turkish banking system stable.
Discussants:
Gulcay Tuna
(Eastern Mediterranean University)
Alpay Filiztekin
(Sabanci University)
Mahmoud Haddad
(University of Tennessee-Martin)
Moataz El Said
(International Monetary Fund)
Erhan Aslanoglu
(Marmara University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Congress B
National Association of Forensic Economics
Topics in Forensic Economics III - Legal Session
(K1)
Presiding:
Lane Hudgins
(Lane Hudgins Analysis)
Potential Effects of the Patient Protection and Affordable Care Act on the Award of Life Care Expenses
Victor Matheson
(College of Holy Cross)
[View Abstract]
[Download Preview] Plaintiffs in personal injury lawsuits are entitled to compensation for future medical expenses. We argue that the “guaranteed issue†and “individual mandate†requirements of the recently passed Affordable Care Act (ACA) will allow victims to address a large portion of their health needs through the purchase of a simple health insurance plan rather than direct compensation for an itemized list of health care needs. As such, damage awards for many health expenditures should be capped at a maximum of $6,250 per year. Therefore, the role of a life care planner should evolve into determining which life care expenses are covered under covered by the minimum insurance requirements mandated by the ACA and which entail additional expenditures beyond those covered by health insurance.
Determining Economic Damages: State of Maryland
Rick Gaskins
(Gaskins Associates, PC)
Joseph I. Rosenberg
(CFA, LLC)
[View Abstract]
Consistent with the Journal of Forensic Economics "State Series", this paper examines the determination of economic damages in the state of Maryland.
The Loss of Chance Rule in the Various States
David Schap
(College of Holy Cross)
Lauren Guest
(College of Holy Cross)
[View Abstract]
[Download Preview] Incremental "loss of chance" occurs in medical malpractice cases in which a patient's survival probability is reduced from a pre-negligence probability of fifty percent or less to a lower probability ex post negligent medical treatment. States differ as to whether the loss of chance doctrine has been permitted. If permitted, after assessing the relevant probabilities, damages are awarded according to the incremental harm caused. Using a four-way classification previously developed in the literature, the 50 states are classified as of July 2013 as to whether incremental loss of chance has been adopted (22), rejected (18), not yet addressed (6) or deferred (4). Changes in state disposition toward the rule since 2010 are highlighted.
Discussants:
Constantine M. Boukidis
(Vavoulis, Weiner & McNulty)
Hans R. Duff
(Stat Analytics, Inc.)
Jonathan S. Shefftz
(JShefftz Consulting)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 306
National Economic Association
Bridging the Academy and Public Policy: A Session in Honor of Marcus Alexis
(J1)
Presiding:
Margaret Simms
(Urban Institute)
Black-White Differences in Consumption: An Update and Some Policy Implications
Charles Betsey
(Howard University)
[View Abstract]
Marcus Alexis, in his Ph.D. dissertation and in later published work, conducted pioneering work in the area of black-white differences in consumption behavior and thereby influenced our understanding of black household behavior and significantly impacted the field of marketing. This paper recapitulates his findings and reviews some contemporary work on black-white differences in consumption and the implications for asset accumulation and the racial wealth gap, poverty measurement, consumer marketing, and other contemporary issues.
Disparities in Wealth Accumulation and Loss from the Great Recession and Beyond
Caroline Ratcliffe
(Urban Institute)
Signe-Mary McKernan
(Urban Institute)
C. Eugene Steuerle
(Urban Institute)
Sisi Zhang
(Fannie Mae)
[View Abstract]
How did the Great Recession impact the wealth of American's and what wealth components drove the changes? The Great Recession hit family finances in many directions, from falling house values to stock market losses. These losses weakened the economic security of American families, many of which were vulnerable prior to the crisis. This study estimates the impact of the Great Recession on family net worth, and key components of net worth (e.g., home equity, financial assets), across age groups and race and ethnic groups. We use synthetic birth cohorts to construct pseudo-panel data based on the Survey of Consumer Finances triennial cross-sections from 1983 through 2010. Multivariate cohort analyses show that the Great Recession resulted in large declines in wealth overall and relative to previous recessions. Younger families lost the greatest percentage of their wealth as a result of the Great Recession, driven in part by large losses in home equity. Hispanic families saw the largest declines in wealth (62%), followed by black families (43%) and then white families (24%). The young and families of color were not on firm wealth building paths prior to the Great Recession and were disproportionately hit by the recession, calling into question whether a whole range of policies (from tax to social) have been working for these groups. Reforming asset development policies so they benefit all families, instead of primarily high-income families, and helping families enroll in automatic savings vehicles, will help improve wealth inequality and promote saving opportunities for all Americans.
Marcus Alexis and Regulatory Reform in the Transportation Industry
James Peoples
(University of Wisconsin-Milwaukee)
[View Abstract]
[Download Preview] Regulatory reform enacted in the latter quarter of the 20th century facilitated a significant change in the economics of the transportation industry. Several prominent economists were instrumental in the construction and implementation of policy that promoted greater market influence on the determination of rates and entry on trucking, rail and airline transport services. Notable among these economists is Marcus Alexis. His unique attributes as a legal scholar, research economist and political analyst are evident in his stewardship of the Interstate Commerce Commission (ICC), the oldest regulatory agency in the US, during the implementation of deregulation in trucking, rail and air transport service.
This article highlights the writings and teachings of Marcus Alexis on the political and economic movement toward regulatory change in transportation services. Analysis of the current state of the transportation industry and the current focus of economic regulation is also presented with the purpose of examining the accuracy of Alexis's prediction on the effect of regulatory reform on the economics of this industry and its labor market.
Immigration and African American Joblessness: Critically Appraising the Empirical Evidence
Patrick Mason
(Florida State University)
[View Abstract]
[Download Preview] This paper critically assesses the empirical evidence on the relationship between immigration and African American employment. Studies using various methodologies and data are reviewed: natural experiments, time series, and cross-sectional studies of local labor markets and intertemporal changes in the national labor market. We find that for African Americans as a whole, immigration may have little effect on mean wages and probability of employment. However, there is some evidence that immigration may have had an adverse impact on the labor market outcomes of African Americans belonging to low education-experience groups. However, even this modest conclusion must be qualified: the literature has many unresolved econometric issues that might easily undermine the received wisdom.
Discussants:
William A. Darity, Jr.
(Duke University)
Kaye Husbands Fealing
(National Academies)
Gary A. Hoover
(University of Alabama)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 410
Society for Computational Economics
Policy Design with Computational Heterogeneous Agents Models
(E6)
Presiding:
Herbert Dawid
(Bielefeld University)
Interest Rate Rules and Macroeconomic Stability under Heterogeneous Expectations
Mikhail Anufriev
(University of Technology, Sydney)
Tiziana Assenza
(Universita Cattolica, Milano)
Cars Hommes
(University of Amsterdam)
Domenico Massaro
(University of Amsterdam)
[View Abstract]
[Download Preview] The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a simple frictionless dynamic stochastic general equilibrium (DSGE) model to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous expectations. Agents are boundedly rational and switch between different forecasting heuristics based upon recent past performance. The stabilizing effect of different monetary policies depends on the ecology of forecasting rules (i.e., the composition of the set of predictors), on agents' sensitivity to differences in forecasting performance, and on how aggressively the monetary authority sets the nominal interest rate in response to inflation. In particular, if the monetary authority responds only weakly to inflation, a cumulative process with rising inflation is likely. On the other hand, a Taylor interest rate rule that sets the interest rate more than point for point in response to inflation stabilizes inflation dynamics, but does not always lead the system to converge to the rational expectations equilibrium, as multiple equilibria may persist.
Evolution of Beliefs, Policy Implications in Agent-Based and Experimental Economies:Learning the Ramsey outcome in a Kydland & Prescott Economy
Jasmina Arifovic
(Simon Fraser University)
Murat Yildizoğlu
(Bordeaux University)
[View Abstract]
[Download Preview] We study learning in the Kydland and Prescott environment. Our policy maker evaluates its potential strategies regarding the announced and the actual inflation rate using its mental model . This model is forward looking and adaptive at the same time. There are two types of agents: Believers who set their inflation forecast equal to the announced inflation, and nonbelievers who form static optimal forecast coupled with a forecast error correction mechanism. Our results show that the economy can reach near Ramsey outcomes most of the time. In the absence of believers, the economies almost always converge to the Ramsey outcome.
In their experiments with human subjects, Arifovic and Sargent (2003) showed that experimental economies reach and stay close to the Ramsey outcome most of the time, giving support to the 'just do it' policy recommendation . In light of the experimental findings, our model is of particular interest as it is the only agent-based or adaptive learning model that consistently selects the Ramsey outcome.
Fiscal and Monetary Policies in Complex Evolving Economies
Giovanni Dosi
(Sant'Anna School of Advanced Studies, Italy)
Giorgio Fagiolo
(Sant'Anna School of Advanced Studies, Italy)
Mauro Napoletano
(OFCE and SKEMA Business School, France)
Andrea Roventini
(University of Verona, Italy)
Tania Treibich
(OFCE and GREDEG, France)
[View Abstract]
[Download Preview] We build an agent-based model that can be employed as a laboratory to explore the effects of alternative combinations of fiscal and monetary policies under different income distribution regimes. In particular, this setting allows us to evaluate fiscal rules in a dynamic environment subject to banking crises and deep recessions. Portraying an economy with heterogeneous capital- and consumption-good firms, heterogeneous banks, workers/consumers, a central bank and a Government, the model is able to reproduce a wide array of macro, micro empirical regularities, as well stylized facts concerning financial dynamics and banking crises. Simulation results show the strength of the interactions between different types of fiscal and monetary policies. The appropriate policy mix to stabilize the economy requires unconstrained anti-cyclical fiscal policies, where automatic stabilizers are free to dampen business cycles fluctuations, and a monetary policy targeting also employment. Instead, "discipline-guided" fiscal rules alike the Stability and Growth Pact or the Fiscal Compact in the eurozone always depress the economy without improving public finances, even when escape clauses in case of recessions are considered. In that, austerity policies appear to be in general self-defeating. Furthermore, the negative effects of austere fiscal rules are magnified by conservative monetary policies focused on inflation stabilization only. Finally, our conclusions about the effects of different monetary and fiscal policies become even sharper as the levels of income inequality increase.
Cohesion Policy and Inequality Dynamics: Insights from a Heterogeneous Agents Macroeconomic Model
Herbert Dawid
(Bielefeld University)
Philipp Harting
(Bielefeld University)
Michael Neugart
(Technical University of Darmstadt)
[View Abstract]
[Download Preview] Recent experience in the European Union highlights the importance of analyzing the implications of cohesion policies not only for inter-regional inequality but also for intra-regional inequality. This paper studies the effects of different types of technology-oriented cohesion policies with respect to convergence of regions in terms of per-capita output and in terms of income inequality within regions. A two-region agent-based macroeconomic model, the Eurace@Unibi model, is used to analyze short-, medium- and long-term effects of policies fostering adoption of new technologies in lagging regions. In particular, policies are considered where firms in the lagging region receive subsidies for physical investment. It is demonstrated that the effects of the policies both on per-capita output and between and within regional inequality differ substantially depending on how successful the policy is in incentivizing firms to choose best available capital vintages. In particular, depending on the setup of the policy not only the effect on the speed of convergence and income inequality in the lagging region changes, but also the implications for the leading region might be enhanced or reduced growth. Furthermore, it is studied how the effects of the policies depend on the financing scheme, i.e. whether the policy is financed solely by the lagging region or jointly by both regions.
Discussants:
Shu-Heng Chen
(National Chengchi University)
Blake LeBaron
(Brandeis University)
Michael Neugart
(Technical University of Darmstadt)
Ekaterina Sinitskaya
(Iowa State University)
Jan 04, 2014 10:15 am, Pennsylvania Convention Center, 106-B
Society of Government Economists
Latest Research on Poverty Measurement for the United States
(I3)
Presiding:
Angus Deaton
(Princeton University)
A Comparison of Geographic Adjustments for Poverty Thresholds: Regional Price Parities vs. Median Rents from the American Community Survey
Trudi Jane Renwick
(US Census Bureau)
Bettina Aten
(US Bureau of Economic Analysis)
Troy Martin
(US Bureau of Economic Analysis)
[View Abstract]
[Download Preview] Drawing on the recommendations of the 1995 report of National Academy of Sciences (NAS) Panel on Poverty and Family Assistance and the subsequent extensive research on poverty measurement, in 2010 an Interagency Technical Working Group (ITWG) issued a series of suggestions to the Census Bureau and the Bureau of Labor Statistics (BLS) on how to develop a new Supplemental Poverty Measure. In 2011 and 2012, the Census Bureau issued the first Research Supplemental Poverty Measure reports with poverty estimates for 2009, 2010 and 2011.
The ITWG suggested that the poverty thresholds be adjusted for price differences across geographic areas using the best available data and statistical methodology. The estimates in the Census Bureau reports use American Community Survey (ACS) data to adjust the housing portion of the poverty thresholds for differences in housing costs. This geographic cost index uses median outlays of renters for rent and utilities for two-bedroom apartments.
One shortcoming of this geographic cost adjustment mechanism is that it does not account for geographic differences in the cost of other elements of the poverty threshold. Both the 1995 NAS report and the 2010 ITWG suggestions concluded that while adjustment of the entire market basket may be desirable, adequate data on price differences for other elements did not exist.
Over the past few years, the Regional Price Branch of the Bureau of Economic Analysis has developed regional price parities (RPPs) that combine data from the BLS Consumer Price Index program with Census Bureau multi-year rents. The RPPs provide estimates of price level differences across regions for various consumption expenditure classes. This paper will compare state-level SPM poverty rates using RPPs to adjust the poverty thresholds to rates using the index based on median rents using the ACS.
Taking Account of Work-Related Expenses in a Poverty Measure
Brian McKenzie
(US Census Bureau)
Ashley Edwards
(US Census Bureau)
Kathleen Short
(US Census Bureau)
[View Abstract]
[Download Preview] Last year the Census Bureau released the second report on the Supplemental Poverty Measure (SPM) that followed suggestions from an Interagency Technical Working Group on Developing a Supplemental Poverty Measure (ITWG) for a new measure that would supplement the current official measure of poverty. Their suggestions included a new set of thresholds calculated at the Bureau of Labor Statistics that would represent spending on a basic set of goods that includes food, clothing, shelter and utilities (FCSU), and a small additional amount to allow for other needs, adjusted for geographic differences in housing costs. For comparison, SPM family resources should be defined as the value of cash income from all sources, plus the value of in-kind benefits that are available to buy the basic bundle of goods (FCSU) minus necessary expenses for critical goods and services not included in the thresholds. Necessary expenses that must be subtracted include paying taxes, medical expenses, and childcare and other work-related expenses.
This paper describes research into geographic variation in commuting costs and an application to capture this variation in estimates of the SPM using the Current Population Survey Annual Social and Economic Supplement (CPS). Resulting poverty rates are compared to estimates published in 2012 using current methods and comparisons are made across various population subgroups and geographic areas. We will assess the availability of data and possible updating procedures that would occur on a regular basis.
Poverty Estimates for the Aged: How and Why the SPM and Official Estimates Differ
Benjamin Bridges
(Social Security Administration)
Robert Gesumaria
(Social Security Administration)
[View Abstract]
[Download Preview] This paper presents an empirical examination of two poverty measures-the Supplemental Poverty Measure (SPM) and the official poverty measure. In the first part of the paper for various groups we compare the SPM estimates with the official estimates. That is, we look at how the SPM and official estimates differ. We (1) look at poverty for the total population and for various groups of aged and nonaged persons, (2) examine deep poverty and the distribution of persons by resource-to-threshold ratios, and (3) look at poverty of the aged for various demographic and socio-economic groups.
In the second part of the paper we estimate the effects of various features of the SPM upon aged poverty levels. In effect, we look at why the SPM poverty rate for the aged is much higher than the official rate. We examine the effects of (1) various elements of the SPM resource measure, i. e., noncash transfers, refundable tax credits, taxes, medical out-of-pocket expenses, and other nondiscretionary expenses, (2) various elements of the SPM threshold measure, i. e., housing status adjustments, geographic cost-of-living adjustments, threshold level, and equivalence scales, and (3) unit definition.
The Supplemental Poverty Measure under Alternate Treatments of Medical Out-of-Pocket Expenditures
Thesia Garner
(US Bureau of Labor Statistics)
Kathleen Short
(US Census Bureau)
[View Abstract]
[Download Preview] Last year the Census Bureau, with support from BLS, released the second report on the Supplemental Poverty Measure (SPM). The SPM recognizes the necessity of accounting for medical care needs in a poverty measure. The approach is to deduct actual reported out of pocket medical care expenditures from resources before evaluating where a family or resource unit stands in relation to the poverty threshold for a unit like theirs. The currently produced SPM thresholds are based on expenditures for food, clothing, shelter and utilities plus a little bit more for other personal items. Medical care spending is not included in the list of items that define the SPM thresholds.
How to incorporate medical expenses in a poverty measure was a source of debate following the release of the NAS study to improve the measure of poverty . A second approach was proposed that would enhance the portability of poverty thresholds for use with a variety of data sources . In fact, many research groups, using the American Community Survey for SPM estimates, have preferred to use this second method to incorporate health care needs in a poverty measure for local areas . This second approach is examined in this paper, adding health care out-of-pocket expenditures in the calculation of SPM thresholds for the reference two-adult, two-child consumer unit and then not subtracting these expenditures from resources. Once the reference unit threshold is estimated, thresholds for other type of units are produced, accounting for what we refer to as the units' medical risks. The medical risk indexes that we compute vary by characteristics associated with variations in medical care utilization and cost. These characteristics include, among others, size of the unit, age of members, and health insurance coverage.
Discussants:
James P. Ziliak
(University of Kentucky)
Jessica Banthin
(Congressional Budget Office)
Jan 04, 2014 10:15 am, Philadelphia Marriott, Meeting Room 406
Transportation & Public Utilities Group/American Economic Association
Antitrust Enforcement in Innovating Industries: ICT and Telecommunications
(L9)
Presiding:
Howard Shelanski
(Georgetown University)
Incentive Scoring Methodology for Merger Analysis
Steven Salop
(Georgetown University)
Serge Moresi
(Charles River Associates)
[View Abstract]
[Download Preview] The traditional legal approach to merger analysis treats on concentration and market shares as a preliminary screen. However, concentration and market shares are not linked directly to the merging parties’ post-merger incentives to engage in the potentially problematical conduct. Economists have formulated methodologies to score the competitive impact of mergers with screening measures more directly related to the incentives of the parties. We refer to this general approach as “incentive scoring.†Incentive scoring makes economic sense because antitrust analysis is premised on the assumption that firms are rational, profit-maximizing entities. While incentive scoring is not the only information relevant for evaluating likely competitive effects, it clearly is useful evidence, especially in the early phases of a merger investigation. In this paper, we review several related upward pricing pressure measures, the GUPPI for unilateral effects in horizontal mergers, the cGUPPI for coordination issues in horizontal mergers and the vGUPPI for input foreclosure and pricing in vertical mergers.
Antitrust and the Regulation of Standard Setting Organization Contracting
Joshua Wright
(Federal Trade Commission)
Joanna Tsai
(Federal Trade Commission)
[View Abstract]
There are two basic categories of activities that proponents of greater antitrust scrutiny of patent assertion entities (PAE) point to. One is a PAE engaging in patent holdup - typically in the form of reneging on RAND commitments formed during the standard setting process. The other is an acquisition patent from a practicing entity. This study offers analysis of the appropriate role of competition policy with respect to potential PAE activity.
Efficiencies, Competition, and Innovation: Wireless Merger Enforcement
Greg Rooston
(Stanford University)
Patrick Degraba
(Federal Trade Commission)
[View Abstract]
AT&T's announced acquisition of T-Mobile's U.S. wireless communications business raises important competition policy issues that require careful analysis by the agencies that must approve the acquisition, the Federal Communications Commission (FCC) and the Antitrust Division of the U.S. Department of Justice. In recent years antitrust agencies have approved mergers that took an industry from four to three firms. This acquisition may not be as bad as other four-to-three mergers because of the presence of small carriers that are significant in many markets. Because of the potential for conflicting views, the process for evaluating the acquisition could drag on for a year or more.
Effects of Mergers on Incentives for New Technology Adoption
Mark Jamison
(University of Florida)
[View Abstract]
[Download Preview] We analyze how market structure, technology costs, and network effects interact to impact adoption of advanced technologies. This issue has arisen recently in at least two recently failed mergers: The AT&T proposal to acquire T-Mobile's U.S. assets and the proposed GE-Honeywell merger. The former raised the issue of whether increased industry concentration could speed the adoption of advanced wireless communications. The latter raised the issue of rivals are impacted by technology adoption. We find plausible conditions under which increased industry concentration can make technology adoption more profitable for both merging companies and for rivals.
Discussants:
Michael Katz
(University of California-Berkeley)
Eric Ralph
(Federal Communications Commission)
Howard Shelanski
(Georgetown University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Washington A
Union for Radical Political Economists/American Economic Association
Debating the Marginal Productivity Theory of Distribution
(D3)
Presiding:
Michele Naples
(College of New Jersey)
Cambridge-Style Criticism of the Marginal Productivity Theory of Distribution
Geoff Harcourt
(University of Cambridge and University of New South Wales)
[View Abstract]
[Download Preview] In her first review article of Sraffa's 1960 classic, Joan Robinson, elaborating on Sraffa's "prelude to a critique", interprets him as implying (though he would never have written it as loosely)" that the marginal productivity theory of distribution is all bosh". (CEP, 111, 13) Why? This is the theme of the paper. It discusses the roles of arguing in a circle and capital-reversing and reswitching in making the case; takes in Pasinetti's critique of Solow's attempt to reinstate the theory through the concept of the marginal rate of return on investment; and finishes with a discussion of, for example, Hahn's view that the most advanced and rigorous version of supply and demand theories of distribution - modern general equilibrium analysis - is immnue to the Cambride criticisms of the aggregate production function and Garegnani's and Schefold's counter attacks on Hahn's views.
Is the Marginal Productivity Theory of Distribution Empirically Testable?
Jesus Felipe
(Asian Development Bank)
John McCombie
(University of Cambridge)
[View Abstract]
The neoclassical marginal productivity theory of factor pricing is widely used in neoclassical models to provide what it is seen as a convincing explanation of the determination of the real wage rate and the rate of profit, i.e., they are determined by their corresponding marginal productivities. Attempts have been made to corroborate the theory empirically at the macroeconomic level by testing whether or not there is a close correspondence between the estimated output elasticities of a production function and the factor shares. An indirect approach is to estimate a labour demand function and to test whether the estimated parameters are in accordance with the theory. These tests have often not refuted the null hypothesis. However, theoretically, the marginal output produced by the use of an additional factor should be measured in homogeneous physical terms. In practice, the heterogeneous nature of the output means that constant price value data have to be used. The existence of an underlying identity relating value added to total wages and profits means that for purely definitional reasons, the empirical estimates giving the closest statistical fits must always suggest that factors are paid their marginal products. Hence, the marginal product theory of factor pricing can never be refuted using these tests, which makes the tests pointless.
The Marginal Productivity Theory of Distribution in the Textbooks
Fred Moseley
(Mount Holyoke College)
[View Abstract]
[Download Preview] This paper will examine the presentation of the marginal productivity theory of distribution in three best-selling intermediate microeconomic textbooks by Hal Varian, Walter Nicholson, and Robert Frank. Particular attention will be given to the capital market and the marginal productivity of the theory of the price of capital (or the rental rate).
Discussants:
Michael Mandler
(University of London)
Eric Miller
(Summit Consulting)
Robert Frank
(Cornell University)
Jan 04, 2014 10:15 am, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists/International Association for Feminist Economics
Gendered Effects and Policy Implications
(B5)
Presiding:
Nancy Folbre
(University of Massachusetts-Amherst)
Gender in Environmental Context: An Effect of Property Rights, Fines, and Empathy Nudging
Natalia V. Czap
(University of Michigan-Dearborn)
Hans J. Czap
(University of Michigan-Dearborn)
Gary D. Lynne
(University of Nebraska-Lincoln)
Mark E. Burbach
(University of Nebraska-Lincoln)
[View Abstract]
[Download Preview] Experimental economics research shows that gender can often explain some of the variation in individual behavior in experiments. This is especially true for contextualized games (corruption, environmental protection) in which participants’ behavior is guided by homegrown values and predispositions. We examine the gender differences in environmental behavior and the sharing of payoffs between a farmer and a water user under two alternative property rights assignments (farmer/polluter vs. water user/victim) and three methods of feedback (inducing empathy vs. imposing fine vs. no feedback). We found mixed evidence on gender differences concerning the choice of levels of pollution; this difference is only significant if the water user has the property rights and is faced with the threat of a fine. Overall, albeit not always statistically significant, it seems that females are sharing with their group members more than males. Specifically, the results suggest that females are often more empathetic than males when they are in a position of a victim (water user). In a position of a polluter (farmer), in contrast, females and males are almost equally empathetic. Overall imposing monetary fines is counterproductive and decreases environmentally friendly behavior (however it does not significantly affect sharing), while empathy nudging increases sharing behavior (however it does not significantly affect environmentally friendly behavior). Empathy nudging is more effective for females than for males. Imposing fines, however, has no significant gender effect for either conservation or sharing behavior. Our findings provide another argument for increased gender equality based on environmentally sustainable economic development and thus propose a push by national governments as well as international organizations to increase the economic role of women.
Gendered Employment and Public Spending in China
Tabitha Knight
(Colorado State University)
[View Abstract]
[Download Preview] This paper econometrically analyzes the relationship between public expenditure and gendered urban employment in China at the provincial level for the period 1999-2009, a period known for radical reform. Using a simultaneous equation model, we specify equations for gendered employment levels, economic growth, and human capital controlling for trade, investments, and industrialization. Our results suggest that aggregate public expenditures are gender biased, favoring male employment over female. Analyses of specific categories of expenditure show that spending on education and health disproportionately benefit female employment. We conclude with an argument for well-directed expenditures which promote gender equality and increase economic growth.
Practical Implications of Standpoint Theory for Institutional Change
Marianne T. Hill
(Mississippi Center for Policy Research and Planning)
[View Abstract]
Standpoint theory stresses the role of self-organization and collective action in gaining power. Critical to this process is the development of collective standpoints. Given the current crisis of democracy, many groups are increasingly receptive to the idea of institutional reforms that would increase the clout of alternative perspectives during decision-making within bodies ranging from Congress to corporations. Analyses of power by feminists and radicals from Harding to Hartsock, from Alperovitz to Schor, provide insight into how further democratization of our institutions could proceed and the role in this process of the liberating knowledge arising from contesting dominant standpoints.
Social Reproduction in the Time of Neoliberalization: The Role of the Employment Guarantee in India
Sirisha C. Naidu
(Wright State University)
[View Abstract]
[Download Preview] Privatization and informalization of production, land fragmentation and the agrarian crisis in India has forced a significant fraction of rural households to underconsume and widened the income gap at a time of relatively high economic growth. Despite the significant role of the state in precipitating and intensifying this crisis, and in vindicating Polanyi’s notion of a double movement, the state has also invested in social schemes such as the National Rural Employment Guarantee Scheme (NREGS). Seven years after this scheme was first implemented, there is growing evidence of a seemingly contradictory picture of the NREGS. This paper reviews current literature on the performance of the scheme. The paper aims to answer two questions. First, how has the program performed in mitigating underconsumption in rural areas? Second, how has it changed social relations?
Discussants:
Nancy Folbre
(University of Massachusetts-Amherst)
Barbara Hopkins
(Wright University)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Grand Ballroom - Salon K
American Economic Association
European Economic Association Lecture
Presiding:
Dirk Bergemann
(Yale University)
How Can Government Borrow So Much? A Public Choice Theory of Sovereign Debt
Jean-Charles Rochet
(University of Zurich)
N/A
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Grand Ballroom - Salons G & H
American Economic Association
Nobel Laureate Luncheon
Presiding:
William Nordhaus
(Yale University)
Paul Milgrom
(Stanford University)
Roger Myerson
(University of Chicago)
Jan 04, 2014 12:30 pm, Loews Philadelphia Hotel, Regency Ballroom B
American Real Estate & Urban Economic Association
Presidential Luncheon – Fee Event
Presiding:
Yongheng Deng
(National University of Singapore )
Gary D. Painter
(University of Southern California)
Reconsidering the Measurement of Housing Demand
Jan 04, 2014 12:30 pm, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Enabling Myths as Social Control
(B5)
Presiding:
Valerie Kepner
(King's College)
Mythology of Debt and Deficits
William Waller
(Hobart and William Smith Colleges)
[View Abstract]
This paper will explore why the public's and policy makers' views of government debt and deficits are not a function of any economic argument, but instead are manifestations of a series of enabling myths based on moral principles, logical fallacies, misrepresentation of facts, political convenience and the misapplication of economic analysis. The paper will explore the major myths concerning public debt and deficits namely that recent deficits are too large, damaging to the economy, inflationary, and crowd out private investments. Then the nature of the myths supporting these contentions will be explored to try to determine their source and understand their efficacy and persistence. Finally the paper will suggest a number of ways to deal with the problems identified earlier.
Enabling Myths and Persistent Income Inequality in the Americas
Kellin Stanfield
(DePauw University)
[View Abstract]
Intra-national and international disparity remains persistently high throughout the
Americas. At the international level, the United States and Canada maintain a standard of living and economic outcomes far superior to Latin American and Caribbean nations. Even within Latin American nations, disparate outcomes across nations persist. Within nations, persistent patterns of class, racial/ethnic, and gender inequality persist. As regional economic integration progresses, the patterns of economic disparity are being reproduced at the regional level as part of the on-going cultural process. Enabling myths, shared ideological beliefs that evolve and reproduce within culture, provide rational for persistent disparity by persistently re-creating a generally understood sense of fairness of disparate outcomes. Examples from history have shown that concerted action by public policy that addresses the respective particular causes of persistent disparity is necessary to counteract enabling myths.
The 'Asking for it' Myth: Negotiating Sexism
Paula Cole
(University of Denver)
[View Abstract]
Although it has been 50 years since the passage of the Equal Pay Act, women still earn approximately 77 cents for every dollar that men earn. The explanations for this continued disparity in earnings are many, such as occupational segregation, differences in labor force experience, and discrimination. One popular view argues that women do not know how to negotiate, the implication being that women would earn higher wages if only they would effectively ask for better pay. This perception ignores the historical and social context defining the negotiation process. The presumption that women could simply ask for higher wages does not give consideration to the double bind women face, their lower fallback positions, occupational crowding, or their care responsibilities. Rather, this claim blames women for their lower earnings. Unfortunately, this perspective and associated policy responses to the problems of sexism is not new, but reminiscent of the approach to addressing sexual violence. This article will explore the fallacy of blaming women for their lower earnings and present policy responses that challenge institutionalized sexism in the negotiating process.
Neoliberal Europe: Enabling Ethno-Cultural Neutrality or Fueling Neonationalist Sentiment
Quentin Duroy
(Denison University)
[View Abstract]
Ideologically committed to the neoclassical notion of 'market discipline' the neoliberal regime is argued, by its proponents, not only to promote principles of ethno-cultural neutrality but also to create a level-playing field for all individuals regardless of race, class, gender or any other marker of minority status. In practice, however, neoliberal policies, whether they take the form of deregulation, financialization or austerity measures, have increased the incidence of economic vulnerability and marginalization among lower (and middle) social classes in
Europe and have contributed to growing tensions between cultural majorities and ethnic minority groups. While similar sentiments associated with the rise of nationalism in 19th century Europe clearly predates the neoliberal era, it is argued in this paper that neoliberal policies, backed by European Union institutions, have created material conditions which have exposed and widened structural incompatibilities between the notions of state and nation. These incompatibilities have legitimized, and have been reinforced by, the resurgence of radical nationalist sentiment within European nation-states, creating a favorable terrain for the populist rise of far-right factions since the 1990s. In this context, I propose to use, and to expand upon, Veblen's work on nationalism to argue that neoliberal policies in lieu of promoting ethno-cultural neutrality have in fact weakened liberal and social principles of inclusion, and eroded the welfare state provisioning system, in
European democracies by fueling what Veblen referred to as 'unreasoning habits of national conceit, fear, hate, contempt, and servility.'
Unveiling and Deconstructing the Enabling Myths of Neoliberalism through Immanent Critique
Mary Wrenn
(University of Cambridge)
[View Abstract]
Neoliberalism survives on narratives. In the deconstruction of these narratives through immanent critique, we find that this narrative is woven from enabling myths that not only support the neoliberal project, but are essential for its continued survival. This research aims to untangle and critically assess some of the core enabling myths of neoliberalism such as consumer sovereignty, the need for austerity and balanced government budgets, and the demonization of the poor through the critical lens of immanent critique. If we hope to redesign our social institutions into structures which support the flourishing on individuals and broader society, then we must aim a critical eye toward these enabling myths, debunk, and unveil them through immanent critique.
Discussants:
Valerie Kepner
(King's College)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 310
Association for the Study of Generosity in Economics
Charitable Giving and Tax Policy
(H2)
Presiding:
C. Steuerle
(Urban Institute)
Is Charitable Giving by the Rich Responsive to Taxes?
David Joulfaian
(US Department of the Treasury)
[View Abstract]
The income tax deduction for charitable contributions is limited to a fraction of reported income. Consequently, some of the contributions by large donors are not deductible in the year of the transfer, if deductible at all. Because this limit is often ignored in the empirical literature on charitable giving, the tax rate (the implicit subsidy rate) is often measured with error and this may bias estimates of the effects of the tax deduction. In addition to the errors in measuring the tax price, income and the size of gifts are also potentially measured with error; the deduction for contributions is often employed as the measure of transfers when using administrative records even though the amount contributed can be much larger, and income is often understated as the embedded accrued gains in gifts of appreciated assets are overlooked. This paper reviews the key features of the tax treatment of charitable gifts by individuals and employs panel data to explore the sensitivity of behavioral responses to taxes when measurement errors are corrected; the reported deduction in a given year is corrected by using contributions and carry-overs from prior years as well as from merged gift tax returns and publically available information. The empirical findings suggest that giving by the rich may not be as responsive to the income tax as previously thought, and raise a number of questions in modeling the behavior of the wealthy.
The Price Elasticity of Charitable Giving: Does the Form of Tax Relief Matter?
Kimberley Scharf
(University of Warwick)
Sarah Smith
(University of Bristol)
[View Abstract]
[Download Preview] Abstract: We use a survey-based approach to compare the effects of alternative forms of tax relief on donations – a tax rebate for the donor and a matched payment to the charity. On accounting grounds these two are equivalent but, in line with earlier experimental studies, we find that charitable contributions are significantly more responsive to a match than to a rebate. The difference can largely be explained by the fact that a majority of donors do not adjust their nominal donations in response to a change in subsidy. We relate our findings to the growing literature on behavioural tax policy.
Tax Effects on Charitable Giving Estimated with the PSID
Daniel Hungerman
(University of Notre Dame and National Bureau of Economic Research)
Mark Ottoni-Wilhelm
(Indiana University-Purdue University-Indianapolis)
[View Abstract]
An important question in public economics is how much charitable giving responds to changes in tax rates. Policy-makers are mainly interested in giving responses that are permanent changes in behavior. Identifying the permanent charitable giving response to a change in tax rates is difficult because a change in the tax rate faced by an individual must first be decomposed into its permanent and transitory parts. The decomposition into parts is known by the individual, and affects her/his behavior, but is unobserved by econometricians. Most previous estimates of permanent charitable giving responses are based on tax data. Instrumental variables available in tax data are essentially limited to changes in income over time, and, of course, permanent changes in statutory tax rates. Using new data on charitable giving from the PSID, the present paper uses changes in consumption expenditure as an instrument for the permanent change in income to identify the permanent charitable giving response to the 2001-2004 changes in statutory tax rates.
Patterns and Persistence of Cash and Non-Cash Giving
Gerald Auten
(US Department of the Treasury)
Adam Cole
(US Department of the Treasury)
Gregory Leiserson
(US Department of Treasury)
[View Abstract]
In 2007, taxpayers deducted $59 billion for non-cash donations to charity, resulting in a tax expenditure of about $15 billion. While the largest dollar amount ($23.7 billion) was for donations of corporate stock, over $10 billion was claimed as the value of donations of clothing and household items by about 7 million taxpayers. Recent discussion of tax reform often include proposals to repeal or reduce tax expenditure, including charitable deductions, in order to pay for reducing tax rates or to raise revenue. This paper will use special tabulations of non-cash donations for a large panel of income tax returns from 2003 through 2010 to examine issues relevant for thinking about alternative approaches for reform. For example, median donations of clothing are roughly the same as median household spending on clothing. Do such large deductions reflect some taxpayers claiming high deductions every year (likely an abuse) or are they more typically one-time donations associated with a move to another residence? How much did deductions change in response to the tightening of rules for deductions of cars and clothing in 2004 and 2006? Finally, the paper will examine the responsiveness of different types of donations to the tax incentive, which would help answer the question of how much such donations might decrease under various tax reform proposals.
Discussants:
Bariş Yörük
(State University of New York-Albany)
C. Eugene Steuerle
(Urban Institute)
Jon Bakija
(Williams College)
Joseph Rosenberg
(Urban Institute)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 307
Economic History Association
Poverty from a Historical Viewpoint
(N3)
Presiding:
Robert Margo
(Boston University)
Up from Poverty? The 1832 Cherokee Land Lottery and the Long-Run Distribution of Wealth
Joseph Ferrie
(Northwestern University)
Hoyt Bleakley
(University of Chicago)
[View Abstract]
[Download Preview] The state of Georgia allocated most of its land to the public through a system of lotteries. These episodes provide unusual opportunities to assess the long-term impact of shocks to wealth, as winning was uncorrelated with individual characteristics and the eligible population was drawn from a broad cross section of adult white males. Using wealth measured in the 1850 Census manuscripts, we follow up on a sample of men eligible to win in the 1832 Cherokee Land Lottery. We assess the impact of lottery winning on the distribution of wealth 18 years after the fact. Winners are on
average richer (by an amount close to the median of 1850 wealth), but mainly due to a (net) shifting of mass from the middle to the upper tail of the wealth distribution. The lower tail is largely unaff ected. We discuss some possible mechanisms (fixed costs, interactions with ability, risk, and life-cycle consumption patterns) for this result.
The Long Run Impact of Welfare
Shari Eli
(University of Toronto)
Anna Aizer
(Brown University)
Adriana Lleras-Muney
(University of California-Los Angeles)
Joseph Ferrie
(Northwestern University)
[View Abstract]
[Download Preview] We estimate the long-run impact of means-tested cash transfers (welfare) on children’s longevity, educational attainment and income in adulthood. To do so, we collected individual-level administrative records of applicants to the Mothers’ Pension program, the first government-sponsored welfare program in the US (1911-1935) and matched them to death certificates, WWII enlistment and 1940 Census records. The impact of the program is estimated by comparing male children of mothers who received transfers to those whose mothers applied for transfers at the same time and place but were denied. We find that boys of mothers who were accepted lived about a year longer, received one third year more of schooling, were less likely to be underweight and had 20% higher income in early adulthood. We conclude that even relatively modest cash transfers to poor children in early childhood have significant long-run benefits.
Interactions between Social Insurance Programs: The Impact of Medicare on the Characteristics of Petitioners for Bankruptcy
Megan Lynn Fasules
(American University)
Mary Eschelbach Hansen
(American University)
[View Abstract]
Medicare was implemented in 1966 to improve access to medical care and to reduce out-of-pocket medical expenses for individuals over the age of 65, many of whom had low income, high medical expenses, and no health insurance. Existing studies show that dierences in medical insurance can generate small decreases in bankruptcy, but it is not known how suddenly insuring 19 million seniors through Medicare changed age and income at ling. This paper uses new data collected from original court case les in bankruptcy to begin to ll the gap in our knowledge. Preliminary results using quantile regression show that the implementation of Medicare reduced age of petitioners but had and no discernible impact on income of petitioners.
Poverty and Progress among Canadian Immigrants, 1911-1931
Chris Minns
(London School of Economics)
Kris Inwood
(University of Guelph)
Fraser Summerfield
(University of Guelph)
[View Abstract]
[Download Preview] Canada in the early 20th century was one of the world's leading immigrant destinations. Between 1900 and 1930, immigrant flows to Canada were affected by two powerful forces: a shift in immigration demand away from Britain and towards continental Europe, and the enactment of immigration policies designed to restrict entry based on national origin and/or skill. This paper uses samples of the censuses of 1911, 1921, and 1931 to uncover the poverty and progress of Canadian immigrants in the early 20th century. Our findings show larger entry effects and slower adjustment for later immigrant cohorts, in line with pessimistic views of the economic progress of "new" immigrants who dominated flows after 1910. The introduction of restrictive policies may have limited access to migrants from countries where individuals typically had less assimilative capacity, but we find little evidence that changes in policy regimes shifted the within-country composition of migrants to Canada.
Discussants:
Tom S. Vogl
(Princeton University)
Robert A. Margo
(Boston University)
Hoyt Bleakley
(University of Chicago)
Rob Gillezeau
(New Democratic Party)
Jan 04, 2014 12:30 pm, Pennsylvania Convention Center, 112-A
Health Economics Research Organization
Hospitals and Health Policy
(I1)
Presiding:
Jay Bhattacharya
(Stanford University)
Teamwork and Moral Hazard Among Emergency Department Physicians
David Chan
(Stanford University)
[View Abstract]
[Download Preview] How does teamwork increase productivity? Considering teamwork as joint monitoring and management, I investigate this question by studying emergency physicians who work in two settings differing only in the extent that physicians manage work together: In a "nurse-managed" system patients are assigned by a triage nurse "manager," and in a "self-managed" system physicians decide among themselves which patients to treat. The self-managed system increases throughput productivity by 11-15%. Essentially all of this net effect can be accounted for by reducing a "foot-dragging" moral hazard, in which physicians prolong patient stays to appear busier and avoid getting new patients. Foot-dragging is sensitive to peer effects, suggesting that physicians in the same location have better information about each other. In the self-managed system, new patients are assigned more efficiently according to physician workload, suggesting a better use of information to assign patients.
Hospital Input and Output Decisions: Evidence from the Medicare Program
Christine Pal Chee
(Palo Alto VA Health Economics Research Center)
[View Abstract]
Economic theory provides strong predictions for how firms respond to changes in prices. In this paper, I test whether these predictions hold for hospitals that experienced changes in input and output prices induced by a change in Medicare reimbursement policy. Specifically, I evaluate hospital responses to an adjustment made to Medicare payments intended to account for geographic variation in hospital labor mix. I find that hospitals reduced the employment of high skilled nurses in response to an increase in the relative wage of high skilled nurses. This was not accompanied by an increase in the employment of low skilled nurses, suggesting that the two types of nurses are not substitutes in the hospital production function. I also find that hospitals decreased the volume of Medicare inpatient stays in response to an increase in labor costs. These findings show that while the adjustment had intended effects on employment, it also had unintended effects on inpatient stays, highlighting the importance of understanding the economic behavior of hospitals in the design and implementation of health policies.
Regional Growth in Medicare Spending
Jay Bhattacharya
(Stanford University)
[View Abstract]
Regional Growth in Medicare Spending
Discussants:
M. Kate Bundorf
(Stanford University)
William B. Vogt
(University of Georgia)
Thomas DeLeire
(University of Wisonsin-Madison)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 407
History of Economics Society
New Perspectives on Malthus: What Was He Really Saying about Population Growth and Human Societies?
(B3)
Presiding:
Ross Emmett
(Michigan State University)
Thomas and Robert: A Tale of Two Malthuses
Jeffrey T. Young
(St. Lawrence University)
[View Abstract]
[Download Preview] A recent book on economic growth states that "It was the mistaken forecast of Thomas Malthus in the early nineteenth century concerning future prospects for economic growth that earned the discipline its most recognized epithet, the 'dismal science'." This statement contains 4 historical inaccuracies, not least that Robert Malthus, who wrote a short essay in the late 18th century, made no such prediction.
This pervasive but incorrect view of Malthus rests on the belief that Thomas's "ecological model" was a contribution to the analysis of economic growth, and hence the geometric ratio overwhelming the arithmetic ratio is viewed as a scientific prediction. However, the ecological model was a thought experiment to discredit utopian dreams of a world of perfect freedom and equality. When Malthus placed the population principle in the context of institutions he developed a version of the canonical classical model, with labor supply governed by the degree of prudence.
Robert's model assumes institutions and human agency; Thomas's ecological model does not. Contemporary Neomalthusians follow Thomas and the ecological model. Robert understood that the institutions of marriage and private property emerged in reaction to the potential horror of population overshoot and collapse, although he never detailed how this came about. Robert's preventive checks implied a role for agency in human fertility, and he believed that incentives and moral development could nurture the moral preventive checks.
Robert is thus a forerunner to modern developments including the theory of common property resources, new institutional theories of property rights, and the economic theory of fertility. Modern growth theory is "Malthusian" in that it posits a "race" between capital accumulation (including technological change) and diminishing returns. Neomalthusians remain wedded to the ecological model, which does not apply to the human population once it escapes the "Malthusian" trap.
Malthus, Utopians, and Economists
J. Daniel Hammond
(Wake Forest University)
[View Abstract]
[Download Preview] T.R. Malthus is commonly understood to have predicted that the world would become overpopulated because population grows geometrically and capacity to produce food grows arithmetically. This idea of a clash of the two growth rates is expressed in terms such as overpopulation and unsustainable economic growth. The belief that Malthus was the source of this idea is seen in the common use of the adjective "Malthusian" for the idea across scholarly fields. For example, recent titles of journal articles include "Population, Technology, and Growth: From Malthusian Stagnation to Demographic Transition and Beyond,"; "A Model on the Escape from the Malthusian Trap; and "Rearranging the Deck Chairs on the Malthusian Ship."
A close reading of the first edition of Malthus's Essay casts doubt on the attribution of this idea to Malthus. Rather, his aim was to demonstrate the importance of social institutions. In particular he argued that Godwin's and Condorcet's visions of ever more perfect humans living in communistic communities were utopian and that the English Poor Laws trapped families in poverty. Furthermore, Malthus claimed that the central idea in his Essay had been developed earlier by David Hume and Adam Smith. If this was the case, but if the central idea was as it has commonly been interpreted, then one might expect to find population prophets of doom labeled Smithians or Humeans. But they are known as Malthusians, which suggests that either Malthus failed to see the novelty of his central idea, or that his central idea is not what it has been presumed to be.
This paper focuses on contexts - the context from which Malthus wrote the first edition of the Essay, and the way economists' search for Malthus's "model" separated the essay from its historical context. This has contributed to the creation of Malthusianism, which T.R. Malthus probably would not recognize.
Malthus with Institutions: A Comparative Analysis of Prudential Restraint
Ross B. Emmett
(Michigan State University)
[View Abstract]
[Download Preview] T. Robert Malthus is usually remembered for the "gloomy presentiments" of the population principle articulated in the first edition of An Essay on the Principle of Population. Less attention is given to subsequent editions of the Essay, in which Malthus refined the principle, and evaluated it against evidence from around the world. This refinement involved sharpening the distinction between preventive checks that depended upon individual prudential foresight and those that requiring moral restraint. Few are graced with moral restraint, but societies provide institutional constraints that create a cost structure which our prudential reason uses to make decisions regarding the timing of marriage, a key determinant of fertility in Malthus's time.
The refined population principle led to a testable empirical claim: Where a civilization provided institutional incentives to delay marriage, prudential reasoning would become the primary means of checking population growth. Where the incentives to delay marriage were weak or nonexistent, population would be checked primarily by the positive checks of disease, starvation, war, and disaster. Subsequent editions of the Essay explore this claim, as Malthus provides a comparative analysis of the variety of institutional frameworks within which human fertility decisions are made, and examines their effectiveness in delaying marriage.
His comparative analysis provided a scale along which civilizations could be placed. Societies with few institutions featured early marriage and the operational primacy of the positive checks. Some societies, like Great Britain, had developed some institutions which provided incentives to delay marriage, but had other institutional features which encouraged early marriage. Hence, while these societies were advancing because of the operation of the prudential checks, their populations were sometimes subject to the operation of the positive checks. The question remained whether any society could in the future achieve sufficiently advanced institutional features to control population almost exclusively via the prudential checks.
Discussants:
Jerome Lange
(Center for Population and Development)
David M. Levy
(George Mason University)
Yves Charbit
(Paris Descartes University)
Jan 04, 2014 12:30 pm, Pennsylvania Convention Center, 106-A
Industrial Organization Society
Spatial Competition
(L1)
Presiding:
Stephen Martin
(Purdue University)
Price Competition on Graphs
Adriaan Soetevent
(University of Groningen)
Pim Heijnen
(University of Groningen)
[View Abstract]
[Download Preview] This paper extends Hotelling's model of price competition with quadratic transportation costs from a line to graphs. We propose an algorithm to calculate firm-level demand for any given graph, conditional on prices and firm locations. These graph models of price competition may lead to spatial discontinuities in firm-level demand. We show that the existence result of D'Aspremont et al. (1979) does not extend to simple star graphs and we conjecture that this non-existence result holds more generally for all graph models with two or more firms that cannot be reduced to a line or circle.
Costly Location in Hotelling Duopoly
Jeroen Hinloopen
(University of Amsterdam)
Stephen Martin
(Purdue University)
[View Abstract]
[Download Preview] We introduce a cost of location into Hotelling's (1929) spatial duopoly. We derive the general conditions on the cost-of-location function under which a pure strategy price-location Nash equilibrium exists. With linear transportation cost and a suitably specified cost of location that rises toward the center of the Hotelling line, symmetric equilibrium locations are in the outer quartiles of the line, ensuring the existence of pure strategy equilibrium prices. With quadratic transportation cost and a suitably specified cost of location that falls toward the center of the line, symmetric equilibrium locations range from the center to the end of the line.
A Hotelling Model with Price-Sensitive Demand and Asymmetric Distance Costs: The Case of Strategic Transport Scheduling
A. H. van der Weijde
(Free University of Amsterdam)
E. T. Verhoef
(University of Amsterdam)
V.A.C. van den Berg
(University of Amsterdam)
[View Abstract]
[Download Preview] We analyze the scheduling decisions of competing transport operators, using a horizontal differentiation model with price-sensitive demand and asymmetric distance costs. Two competitors choose fares and departure times in a fixed time interval; consumers’ locations indicate their desired departure times. Locations are chosen before prices; we show that the opposite order, like a simultaneous game, does not have a Nash equilibrium. We also discuss Stackelberg games and second-best regulation. Our results show how departure times can be strategic instruments. Services are scheduled closer together than optimal. Optimal regulatory strategies depend on commitment possibilities, and on the value of schedule delay.
Strategic Product Re-Design in Spatially Complex Markets: Evidence from Motion Pictures
Darlene Chisholm
(Suffolk University)
Yu-Hsi Liu
(Suffolk University)
George Norman
(Tufts University)
[View Abstract]
We analyze strategic product exit using data on motion-pictures exhibition choice in a major metropolitan first-run market. Our analysis formalizes the spatial dimension of competition and measures its importance in the strategic exhibition life cycle of films within and across chains. Preliminary results indicate that a film's survival at a particular theatre is affected by intra-firm relative performance and interfirm competitive pressures. We find that theatres compete for market share with neighboring theatres by increasing the time to exit when the competing theatre is owned by a different chain, and avoid business stealing from neighboring theatres within the same chain.
Discussants:
A. H. van der Weijde
(Free University of Amsterdam)
Darlene Chisholm
(Suffolk University)
Adriaan Soetevent
(University of Amsterdam)
Stephen Martin
(Purdue University)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Grand Ballroom - Salon C
International Association for Energy Economics
Advances in Energy Economics Research
(Q4)
Presiding:
Kevin Forbes
(Catholic University of America)
A Computable General Equilibrium Model of Energy Taxation with Endogenous Resource Supply and Flexible Substitution
Andre Barbe
(Rice University)
[View Abstract]
[Download Preview] This paper constructs a new general equilibrium model of the United States economy designed to analyze energy tax policies. Existing models in the literature fall into two groups: general equilibrium models with exogenous energy resource supply and partial equilibrium models of the energy sector with endogenous resource supply. I combine the main advantages of these two strains of the literature by incorporating endogenous resource supply in a computable general equilibrium model with highly disaggregated and flexible industry cost and consumer expenditure functions. The new model is able to analyze the inefficiencies caused by energy taxation: production and consumption inefficiencies, inefficiencies related to resource rents, and those related to externalities. The model is then used to analyze the effects of numerous proposed changes to the taxation of fossil fuels in President Obama's 2014 budget, which would raise revenue by imposing additional taxes on the energy sector.
This analysis reaches three main conclusions. First, the impact of the provisions in the budget proposal on the neutrality of the tax code is unclear. Some provisions move toward neutrality in taxation as advocated in the literature while others do not. The paper also analyzes relative levels of taxation and shows that, taking into account all forms of taxation rather than only income taxes, fossil fuel production is on average taxed more highly than other industries. Second, in comparison to a uniform tax increase that would raise the same amount of revenue, the proposal would have positive - and to some extent unexpected - effects on the US economy. The energy tax increases of the proposal lead to higher household welfare than would occur under a uniform capital tax increase but also would increase the production of fossil fuels, as general equilibrium effects increasing demand more than offset the negative effects of tax-reform-induced increases in the cost of capital in the energy industry. Third, considering general equilibrium effects and allowing for flexible substitution in both inputs and consumption goods significantly alter the predicted impact of the proposal and are thus necessary to accurately predict the effects of energy taxes on the energy industry and the economy. A model that neglects either of these two factors would underestimate the welfare gains from the proposal and not capture the net increase in fossil fuel production. In total, these results show that the budget proposal increases economic efficiency and that general equilibrium models with flexible substitution provide an improved model of energy taxation.
The Effectiveness of Renewable Portfolio Standards in Reducing Carbon Emissions in the United States Electricity Sector
R.J. Briggs
(Pennsylvania State University)
Suman Gautam
(Pennsylvania State University)
[View Abstract]
Do renewable portfolio standards (RPS) – a state level policy that requires utility companies to include a minimum percentage of total electricity sales from eligible renewable or "alternative" technologies – lower CO2 emissions? A major goal of RPS is to reduce carbon emissions, but to our knowledge no prior study quantifies this impact. We analyze how RPS policy affects carbon emissions and how this impact varies with RPS characteristics.
We develop panel data for 48 states from 1997 to 2010 that integrates state-level annual data on RPS levels, CO2 emissions, electricity generation, electricity market restructuring, electricity price, fuel prices, and demographic characteristics. Since selection of RPS policies may be non-random, we use a two-step Heckit model to control for states' choice to adopt an RPS and the level of the RPS in each year.
We use a contagion model to identify the first stage selection, where a state's decision to adopt RPS depends on the decision of "neighboring" states, its renewable potential and economic condition. From the second-stage, we calculate the RPS yearly targets. In the final stage of the three-part model, we use the selection-corrected estimates of RPS levels to estimate the impact of RPS on carbon emissions.
The OLS results show RPS yearly targets are statistically significant in reducing CO2 per MWh, but the selection-corrected regression results fail to find the significance of RPS targets in affecting carbon emission efficiency. Analysis suggests that a state's decision to adopt its RPS policy is influenced by factors such as neighboring states' RPS, share of fossil generation, and electricity price. This study's findings do not claim that RPS is not effective in reducing CO2 per MWh, rather we conclude that that the underlying characteristics of states enacting RPS policies have more to do with success.
The Long-Run Macroeconomic Impacts of Fuel Subsidies
Michael Plante
(Federal Reserve Bank of Dallas)
[View Abstract]
International Energy Agency (IEA) and the International Monetary Fund (IMF) show these subsidies are often quite costly for the governments that put them in place. Analysis on the macroeconomic implications of fuel subsidies has been scant, however.
In this paper I use a small open economy model to analyze how fuel subsidies impact the long-run levels of macroeconomic aggregates such as consumption, labor supply, and aggregate welfare. The case of a net oil importer and a net oil exporter are considered. For both cases the analysis takes into account that these subsidies must be financed by the government. Net oil importers finance the subsidy through some method of taxation while net exporters do so by selling domestically produced oil below its world price.
The results show that long-run aggregate welfare is reduced by these subsidies. The welfare losses are large once the cost of the subsidy exceeds 1 or 2 percent of GDP. This result holds regardless of whether a country is a net oil importer or exporter. The distortions in relative prices introduced by the subsidy create most of the welfare losses. How the subsidy is financed is of secondary importance to the size of the losses. Replacing the subsidies with lump-sum transfers of equal value is a significantly better policy option as this avoids the distortions in relative prices introduced by the subsidy.
Behind the welfare results are the actual distortions introduced by the subsidy. The results show that fuel subsidies can lead to crowding out of non-oil consumption, inefficient inter-sectoral allocations of labor, and other distortions in macroeconomic variables. The exact nature of these distortions is sensitive to the type of tax used to finance the subsidy. This is because distortionary taxes introduce additional changes in people's decisions on how much to work and consume.
The Effects of Oil and Gas Fiscal Regimes on Exploration and Production Decisions
Timothy Fitzgerald
(Montana State University)
Andrew Stocking
(Congressional Budget Office)
[View Abstract]
Long run energy supply depends on drilling new wells and continuing to produce old ones. Tax policy and production contracts are critical to both the quantity produced from existing oil and gas wells and the drilling of new wells. The details surrounding the system of auctions, rentals, taxes, and royalties (the fiscal regime) has important implications for government revenue as well as domestic oil and gas production. This study exploits variation in state and federal fiscal regimes to compare leasing and production outcomes on public land. This comparison allows for new estimates of the sensitivity of exploration and production to fiscal changes. Changes in the fiscal terms of new leases over time offer within regime variation. Such changes have been the basis of past empirical tests. We have the ability to test competing hypotheses by the similar nature of oil and gas resources on state and federal lands within counties at the same time. This provides variation between fiscal regimes.
Comparing leasing and production outcomes between federal and state mineral leasing programs provides rich variation between contractual terms. Using a unique dataset that allows us to link production data to the lease acquisition, exploration, and termination data, we conduct an empirical study. We examine data from federal onshore leases and state leases in Kansas, Montana, and North Dakota.
Preliminary results are that federal and state lease terms do not influence decisions about how much oil or gas to produce from a lease, conditional on positive production from existing wells and not increasing the number of wells on that lease. Initial evidence suggests that leases with lower royalty rates or less onerous environmental regulations attract higher bonus bids. So the fiscal regime affects the extensive margin and the long-term supply as opposed to immediate supply from the intensive margin.
Discussants:
Iman Nasseri
(University of Hawaii-Manoa)
Carlo Andrea Bollino
(Università di Perugia)
Ted Temzelides
(Rice University)
Charles Mason
(University of Wyoming)
Jan 04, 2014 12:30 pm, Pennsylvania Convention Center, 105-A
International Association for Feminist Economics
Diversity in Business: International Evidence
(B5)
Presiding:
Maria Floro
(American University)
Does Gender Matter for Firm Performance? Recent Evidence from Africa
Mina Baliamoune-Lutz
(University of North Florida)
Zuzana Brixiova
(African Development Bank)
[View Abstract]
Using 2005 firm level data for 26 countries in Central and Eastern Europe, Sabarwal and Terrell (2008) found performance gaps between male and female businesses, while controlling for industry and location. Specifically, female entrepreneurs had significantly smaller scales of operation (in terms of sales revenues) and were less efficient in terms of total factor productivity. In contrast, utilizing the World Bank Enterprise Surveys 2002 – 2007, Bardasi et al. (2007) found that in Africa female entrepreneurs were at least as productive as their male counterparts in terms of value added per worker and total factor productivity. In this paper we analyze gender differences in firm performance drawing on the World Bank Enterprise Surveys of African countries during 2008 – 2012. We aim to find out whether differences in performance (in terms of various indicators such as sales revenues, total factor productivity, value of assets, employment) have emerged between male and female firms. We also examine which factors (e.g., education, access to finance, access to land, corruption, industry distribution etc.) drive performance. We conclude with policy recommendations, including those that could encourage women to enter non-traditional industries and sectors. Our methodology relies on regressions with sales as independent variable, while the main explanatory variable is dummy that equals one if the largest owner of the firm is a female and zero otherwise. Other independent variables are capital, labor and intermediary input or education, access to finance and the collateral size. We control for a number of variables to rule out some of the mechanisms through which gender may impact performance, such as education of the main owner and country fixed effect.
Business and Family Dynamics of Copreneurs in the Czech Republic and United States
Nancy Jurik
(Arizona State University)
Alena Krizkova
(Academy of Sciences of the Czech Republic Institute of Sociology)
Marie Dlouha
(Academy of Sciences of the Czech Republic Institute of Sociology)
[View Abstract]
Our presentation focuses on an underrepresented topic in entrepreneurial research: small businesses owned and operated by copreneurs. We compare divisions of labor and responsibilities in the business and family lives of copreneurs in the Czech Republic (CR) and United States (US). Copreneurs are romantic couples who own and operate small businesses together. Family-owned businesses constitute a significant component of many nations' economies and family dynamics are important, although differently, to all entrepreneurial ventures. Copreneurs provide a good point for unpacking the interplay among business, family life, and gender. We draw on interview narratives from 12 CR and 12 US copreneur couples. Each member of the couple was interviewed separately. We conceptualize gender and entrepreneurial identities as ongoing constructions that emerge in couples' social interactions as well as within the context of interviews and the larger culture. The US represents a nation with a long, continuous history of entrepreneurship. In contrast, in the CR, business ownership was prohibited between the 1950s and 1990. At the same time, until the Velvet Revolution in 1989, the former Czechoslovakia exhibited a long history of women's full and normative labor force participation. Thus, during the 1950s, Czech norms pushed women to work whereas in the US, normative expectations encouraged women to stay at home during that period. Yet, women in both nations have born the double work day of household and paid labor. While self-employment may offer women increased flexibility to assume this double burden, their doing so can limit their business opportunities and recognition.
Changing Trends in Microfinance's Emphasis on Gender Empowerment
Ghazal Zulfiqar
(University of Massachusetts Boston)
[View Abstract]
Globally, nearly 80 percent of microfinance's clients are women. This is no coincidence, for microfinance has nearly always been considered an instrument of both poverty alleviation and gender empowerment. However, in the past two decades microfinance has evolved away from a small-scale nonprofit intervention into a large-scale commercialized social venture. This has resulted in a steady erosion of its earlier emphasis on women.
The present study analyzes the impact of commercialization and concern for profit seeking on the empowerment mission of microfinance institutions in Pakistan. The research employs mixed-methods. The qualitative data includes 140 interviews with practitioners, industry experts and microfinance clients across three of the largest cities in Pakistan; as well as observations of client-practitioner interactions, including group meetings, surprise visits, the loan verification, disbursement and collection process. The quantitative data includes institution-wise outreach indicators for 24 quarters, from 2006 to 2012.
The research finds that even if women had received some benefits through microfinance in earlier years, overtime these have largely eroded. Lack of a policy-driven emphasis on empowerment, as well as an increasing focus on financial sustainability and risk reduction has resulted in fewer women borrowers and women's lack of control over the loans that are in their names. In addition, recent product innovations have led to new ways of gender disempowerment, such as the rise of gold backed micro-lending, that targets male borrowers but uses women's jewelry as collateral.
A Consensus Amongst European Economists: Does Gender Matter?
Ann Mari May
(University of Nebraska-Lincoln)
Mary G. McGarvey
(University of Nebraska-Lincoln)
David Kucera
(ILO)
[View Abstract]
Growing interest in the subject of gender diversity on corporate boards and in governmental
policy-making has produced a powerful and expanding literature. New studies, such as those by
professor Katherine Phillips and her colleagues at Columbia University, suggest that increased
diversity in decision-making teams encourages the majority to think more critically about their
views and will result in a wider range of alternatives being discussed – both of which enhance
group decision-making and outcomes.
Belief in the benefits of improved gender balance in economic policy-making is also predicated,
at least in part, on the notion that male and female economists may have different views on policy
issues. As women enter the profession, we would expect that these differences in views on
economic policy, if they exist, may begin to have significant implications for policymaking.
We propose to survey male and female economists who are members of the European Economic
Association to determine if there are gender differences in views on economic theory and policy.
We hope to understand better areas where there is consensus and areas where there may not be a
consensus. These insights will allow us to better understand the ways in which the changing
demographics of the economics profession may perhaps improve decision-making and policy.
Discussants:
Leanne Roncolato
(American University)
Maria S. Floro
(American University)
Song Yueping
(Renmin University)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 413
International Network for Economic Method
Modern Methodologists of the Austrian School
(B2) (Panel Discussion)
Panel Moderator:
Peter Boettke
(George Mason University)
Virgil Storr
(George Mason University)
Can We Avoid Culture in Economics?
Erik Angner
(George Mason University)
"To Navigate Safely in the Vast Sea of Empirical Facts": Behavioral vs Neoclassical Economics
Mario Rizzo
(New York University)
Rationality in Context
Solomon Stein
(George Mason University)
Rationality in Economics: Mises, Becker and Behavioral Economics
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Rooms 408 & 409
Korea-America Economic Association
Market Design: Theory and Empirics
(C7)
Presiding:
Yeon-Koo Che
(Columbia University)
Efficient Matching under Distributional Constraints: Theory and Applications
Yuichiro Kamada
(University of California-Berkeley)
Fuhito Kojima
(Stanford University)
[View Abstract]
[Download Preview] Many real matching markets are subject to distributional constraints. These constraints often take the form of restrictions on the numbers of agents on one side of the market matched to certain subsets of the other side. Real-life examples include restrictions imposed on regions in medical residency matching, academic master's programs in graduate school admission, and state-financed seats for college admission. Motivated by these markets, we study the design of matching mechanism under distributional constraints. We show that the existing matching mechanisms around the world may result in avoidable inefficiency and instability, and propose a better mechanism that has desirable properties in terms of efficiency, stability, and incentives while respecting the distributional constraints.
Efficiency and Stability in Large Matching Markets
Yeon-Koo Che
(Columbia University)
Olivier Tercieux
(Paris School of Economics)
[View Abstract]
[Download Preview] We study efficient and stable mechanisms in many-to-one matching markets when the number of agents is large. We first consider an environment where individuals' preferences are drawn randomly from a class of distributions allowing for both common value and idiosyncratic components. In this context, as the market grows, all Pareto efficient mechanisms (including top trading cycles, serial dictatorship, and their randomized variants) generate total payoffs that converge to the utilitarian upper bound. This result implies that Pareto-efficient mechanisms are asymptotically payoff equivalent in the population distribution sense --- that is, ``up to renaming of agents.'' If objects' priorities are also randomly drawn but agents' common values for objects are heterogeneous, then well-known mechanisms such as deferred acceptance and top trading cycle mechanisms fail either efficiency or stability even in the asymptotic sense. We propose a new mechanism that is asymptotically efficient, asymptotically stable and asymptotically incentive compatible.
School Districting and the Origins of Residential Land Price Inequality
Yong Suk Lee
(Williams College)
[View Abstract]
[Download Preview] This paper examines how education policy generates residential sorting and changes residential land price inequality within a city. In 1974, Seoul shifted away from an exam based high school admission system, created high school districts and randomly allocated students to schools within each district. I examine how residential land prices change across school districts using a first differenced boundary discontinuity design. By focusing on the immediate years before and after the creation of school districts and using general functional forms in distance, I find that residential land price increases by about 13% point more on average and by about 26% point across boundaries in the better school district. In sum, residential land prices increase with the creation of school districts and more pointedly in the better school districts. Such change could impact low-income renter households unless school districting is accompanied by a comparable increase in wages.
Dynamic Platform Competition in a Two-Sided Market: Evidence from the Online Daily Deals Promotion Industry
Byung-Cheol Kim
(Georgia Institute of Technology)
Jeongsik Lee
(Georgia Institute of Technology)
Hyunwoo Park
(Georgia Institute of Technology)
[View Abstract]
We empirically study a dynamic platform competition in the online daily deals promotion industry characterized by intense rivalry between two leading promotion sites, Groupon and LivingSocial, that broker between local merchants and local consumers. We find that, for a comparable deal, the incumbent Groupon enjoys a significant advantage in performance measured in the number of coupon sales, which appears largely attributable to its greater network size in the consumer side. Yet LivingSocial successfully enters and quickly increases penetration in this market. We find no evidence that LivingSocial offers consumers more favorable terms on their deals than Groupon. Instead, on the merchant side, we find that LivingSocial poach merchants from Groupon, aided by the publicly available information on individual merchants and deal performance. Poached deals generate greater and more predictable coupon sales than the deals developed internally. While information-based poaching provides a foothold for the entrant in overcoming the initial size disadvantage, over time it turns into a competition-intensifying channel, as Groupon reacts by the same poaching strategy. Our study shows how platforms compete dynamically in a two-sided market with open information structure, thereby complements prior theoretical developments for multi-sided markets.
Discussants:
Bumin Yenmez
(Carnegie Mellon University)
SangMok Lee
(University of Pennsylvania)
Miguel Urquiola
(Columbia University)
Minjae Song
(University of Rochester)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 410
National Association of Economic Educators
The Effects of Personal Finance Education Over the Life Cycle
(A2)
Presiding:
Jeanne Hogarth
(Center for Financial Services Innovation)
Educational IDAs and Youth Financial Literacy: Preliminary Findings
Radha Bhattacharya
(California State University-Fullerton)
Andrew Gill
(California State University-Fullerton)
Denise Stanley
(California State University-Fullerton)
[View Abstract]
This research examines a cohort of 93 students who are participating in the Center for Economic Education's Individual Account (IDA) Program from June 2011 to June 2016, time periods that denote respectively when the students started 8th grade and when they will graduate from high school. The main goals of this ongoing longitudinal research are to establish and measure the impact of an educational IDA on the rate of college attendance of these students and to measure any attitudinal and behavioral impacts of financial literacy education provided to these students, regarding personal finance issues over the five year period. Our sample is from Title I schools that are predominantly Hispanic. Also, the parents' average score on the five FINRA questions are lower than the state average. The purpose of the current paper is to provide a preliminary analysis based on the first year of implementation of this program. First, we examine the improvement in the posttest performance of 83 students who attended our financial fitness camp in June 2012. We are particularly responsive to three issues raised in the literature: we vary the intensity of our treatment, we compare the performance of students in the IDA program with those who are not, and we control for self-selection of students into attending the financial literacy camp by modeling the parent decision to send their child to the camp. Second, we examine what determines parents' saving behavior. Finally, we examine associations between parent and student rates of time preference, risk preference and attitudes toward saving.
The Importance of Financial Literacy in Retirement Planning
Ashley Tharayil
(University of Nebraska-Lincoln)
[View Abstract]
Financial markets and products continue to become more complex, while individuals continue to become more responsible for their own retirement planning. Hence, an important question arises-does financial literacy affect retirement planning? In this project, retirement planning is observed by examining four different pre-retirement behaviors-calculating retirement savings, contributing regularly to 401 K accounts, maintaining other retirement accounts such as an IRA, Keoghs, etc., and rebalancing retirement portfolios. Each one of these behaviors is independently analyzed with and without the inclusion of financial literacy. Results obtained using the Financial Industry Regulatory Agency (FINRA) dataset show that financial literacy and seeking financial advice are important in explaining retirement planning in this context.
Financial Literacy and Banking Participation: Findings and Implications for Economic Education
Elizabeth Breitbach
(University of South Carolina)
William Walstad
(University of Nebraska-Lincoln)
[View Abstract]
[Download Preview] This research investigates factors affecting the unbanked and underbanked in the United States using two national data sets. While other studies have focused on demographic and socioeconomic factors, this research also looks at the effect of financial literacy. The findings indicate that those with low levels banking participation score significantly lower on a set of financial literacy questions.
An Empirical Analysis Linking a Person's Financial Risk Tolerance and Financial Literacy to Financial Behaviors
Jamie Wagner
(University of Nebraska-Lincoln)
[View Abstract]
[Download Preview] Financial risk aversion can affect how one behaves financially. Are people who take more financial risks more likely to have an emergency fund, own a home, be a saver, and have good credit card behavior? This paper uses the 2009 FINRA data set to examine how risk, financial literacy, and demographic characteristics affect the likelihood that a respondent has an emergency fund, owns a home, is a saver, and has good credit card behaviors. Results from the paper show that a person's self-reported financial risk score has a positive effect only on whether or not the individual has an emergency fund but not the other three dependent variables. Financial literacy positively affects owning a home and having good credit card behaviors. Financial risk tolerance depends on the person's willingness and ability to take on the risk. That ability to take on the risk is thought of as the person's wealth and financial knowledge. Implications of this paper suggest that financial behaviors may be driven more by a person's ability to take on financial risks rather than their willingness to take on the financial risk.
Discussants:
Erin A. Yetter
(Federal Reserve Bank of St. Louis, Louisville Branch)
Jane Lopus
(California State University-East Bay)
Jeanne Hogarth
(Center for Financial Services Innovation)
Paul W. Grimes
(Pittsburg State University)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 306
National Economic Association/American Society of Hispanic Economists
Race, Ethnicity and Economic Policy
(J1)
Presiding:
Anita Pena
(Colorado State University)
Breaking Bad: Are Meth Labs Justified in Dry Counties?
Jose Fernandez
(University of Louisville)
Stephan Gohmann
(University of Louisville)
Joshua Pinkston
(University of Louisville)
[View Abstract]
[Download Preview] This paper examines the influence of alcohol prohibition on the number of methamphetamine labs. The 21st amendment repealed the federal ban on alcohol sales/production, but still allowed states to impose local bans of alcohol. Most studies have considered the direct effects of these bans on alcohol related events. Conlin et al. (2001) find local options bans in Texas may actually increase highway fatalities as individuals will have to travel longer distances to gain access to alcohol. Cambell et al. (2009) surveys several alcohol ban studies and finds the effectiveness of these bans is dependent on the availability of alcohol in surrounding areas. Isolated geographical areas report the highest reductions, but areas where surrounding areas have access to alcohol report no effect or even increases in alcohol related fatalities. Conlin et al. (2005) considers the indirect effect these bans have on illicit drug use in Texas. The authors find local alcohol bans increase illicit drug use and mortality after controlling for county and year fixed effects.
We study these local bans in Alabama, Arkansas, Florida, Kansas, Kentucky, Mississippi, Ohio, Oklahoma, Tennessee, Texas, and Virginia between 1980-2010. In each of these states, the state government allows municipalities/counties to impose a local option ordinance. The local option ordinance can limit alcohol sales to restaurants, golf courses, or complete bans. We define three treatment options: wet, dry, and moist. A "wet" county allows alcohol sales throughout the entire county. A "dry" county bans all alcohol sales. A "moist" county is a dry county that contains a wet city within the county.
We extend the previous literature by studying the effect of these laws on a relatively new popular drug, methamphetamine. Secondly, we treat the liquor laws as endogenous. Most counties adopted local alcohol ordinances prior to our sample time period. Therefore, we need to use propensity score matching to evaluate average treatment effect. In addition to the use of county demographics for matching purposes we also use religious affiliation in 1936 as a proxy for the original vote counts with respect to the liquor ordinances for some counties.
Preliminary results for Kentucky: Applying four different estimation methods and controlling for religious affiliation at time of vote, we find dry counties have two additional meth lab seizures per 100,000 population than in wet and moist counties. Alcohol prohibition status is influenced by the percentage of the population that is Baptist, consistent with the bootleggers and Baptists model. The state could reduce the number of meth lab seizures by 17 to 30 percent per year if all counties were wet.
Health Outcomes for Older Hispanics with HIV in New York City using the Oaxaca Decomposition Approach
Juan DelaCruz
(City University of New York, School of Public Health)
Mark Brennan-Ing
(ACRIA and New York University)
Stephen Karpiak
(ACRIA and New York University)
Nikolaos Papanikolaou
(City University of New York-Lehman College)
[View Abstract]
The age distribution of HIV is changing rapidly in the US. The CDC estimates that half of all those with HIV in the US will be age 50- and older by 2015 The sharp decline in morbid-mortality due to HIV during the current millennium creates an increased population of older adults living with HIV/AIDS, demanding a new set of health services. One of the urgent demands of this epidemic is to identify infected patients early and to link them promptly with suitable care and treatment. Early identification of new cases is critical as late- and under-diagnosis of HIV are concentrated in racial/ethnic minorities, the older adults and other vulnerable populations.
Policy makers often underestimate the complexity and significance of older adults living with the HIV infection. This is made critical by the fact that older adults with HIV are developing 10-20 years earlier than expected illnesses associated with old age (cardiac disease cancers, osteoporosis, diabetes etc.). In particular, older MSM Hispanics are more likely to contract HIV and to face greater health challenges than older Whites. Different characteristics inherent to race/ethnicity, life styles, psycho-social variables and socio-economic status result in disproportionate HIV gaps within the aging population. However, the impact of the HIV epidemic in context with an aging population is not well studied. People over the age of 50 (older adults) who are sexually active may be at higher risk of contracting sexually transmitted diseases due to their engagement in risky behaviors.
Utilizing secondary data, this paper addresses the complexity and challenges of MSM aging with HIV, comparatively analyzing psychosocial variables and health outcomes between older Hispanic and White adults living in NYC. This paper explains features of HIV across race/ethnicity, identifying particular risk factors within our distinctive populations such as discrimination/stigma, substance use and history of incarceration. The state of the HIV epidemic provides meaningful information to identify and forecast potential needs from a multicultural perspective.
Is Los Alamos a Natural Experiment in Stratification Economics?
Sue K. Stockly
(Eastern New Mexico University)
[View Abstract]
Structural Economics is an emerging field of research that seeks to explain the persistence of discrimination and disparity in socioeconomic outcomes among racial, ethnic or other distinguishable groups in society. This study is a preliminary examination of the establishment of the national laboratory and the creation of Los Alamos County by the U.S. Government as a natural experiment in Structural Economics. The hypothesis is that structural forces in the U.S. economy led to and sustained high levels of racial inequality in northern New Mexico. In 1943, the U.S. Government essentially started with a clean slate in Los Alamos by clearing out the few families living in the remote area and setting up a "top secret" research laboratory initially with a single war-time objective of developing atomic weaponry. When that mission was accomplished, the research center was maintained and soon after, Los Alamos because a "closed" city. After a few years, Los Alamos was "opened" and restrictions on who could live and work there were lifted. Seen as protection of "civil rights" a separate county was carved out of sections of primarily Spanish and Native-American counties. Laboratory hiring policies deliberately excluded residents of surrounding communities. Most of the residents of Los Alamos came from outside of New Mexico and were white. The community created by decree was well entrenched in dominant-group culture and institutions with little room for sub-group members. The graph below attached at the end of this narrative illustrates how seventy years after Los Alamos was first established, racial composition is still dramatically different from that of surrounding areas. The paper proposed for presentation includes an extensive review of the literature related to the history of Los Alamos and discrimination in northern New Mexico. Analysis is included of summary statistics for a wide range of county-level data obtained from the U.S. Census Bureau on measures such as employment, income, wealth, health, literacy and educational attainment.
Reframing Academic Engagement: A Case for Status Priming
Salvador Contreras
(University of Texas-Pan American)
Charles Danso
(University of Texas-Pan American)
Sara Ray
(University of Texas-Pan American)
[View Abstract]
Student exerted effort to succeed academically is influenced by numerous factors. We test the hypothesis that one driver is a student's desire to earn social recognition for their efforts. Using a multi-wave, random treatment experimental design, we explore whether social cueing can be used to prime a student's subconscious to internalize the relationship between effort and social status. We test the hypothesis that raised social standing awareness in an academic setting, influences the effective time a student spends studying and her exam scores. Our results indicate weak evidence that our treatment had an effect on effective study time. However, we find evidence that our treatment had a significant effect on low quantile students' performance on exam scores.
Discussants:
David J. Molina
(University of North Texas)
Trevon D. Logan
(Ohio State University)
Lisa D. Cook
(Michigan State University)
Jose N. Martinez
(University of North Texas)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Grand Ballroom - Salon B
Society for Policy Modeling
Forecasting Growth and Development
(O4)
Presiding:
Fred Campano
(Fordham University)
Challenges and Prospects for Developing Countries in the Post-Crisis Period
Andrew Burns
(World Bank)
[View Abstract]
Five years after the crisis, high-income countries are beginning to recover -- even though private and public balance sheets are still impaired. Risks have evolved, with those emanating from high-income countries less likely to emerge. The majority of developing countries have put the crisis behind them and are increasingly grappling with domestic challenges, including moving away from fiscal stimulus policies and back to the structural reform agendas that have underpinned their strong growth over the past 15 years. Looking forward, risks of overheating and asset bubbles persist in East Asia & the Pacific, while several large middle-income countries are having to come to grips with supply-constrained growth rates that are well below pre-crisis levels.
The Growth Comeback in Developing Economies: A New Hope or Back to the Future?
Rupa Duttagupta
(International Monetary Fund)
[View Abstract]
[Download Preview] The presentation will first discuss the IMF's short-term forecasts on global economic activity. Next, zooming in on developing or low-income countries, it will analyze the turnaround in their economic performance since the 1990s relative to previous decades. It will document that growth takeoffs in developing economies generally result in long-term gains in per capita income levels. However, unlike takeoffs prior to the 1990s, developing economies in recent takeoffs have accomplished a narrowing of economic imbalances, such as lower post-takeoff debt and inflation levels; more competitive real exchange rates; and implemented stronger structural reforms and institutions. The chances of starting a takeoff in the 2000s has tripled compared to the period before the 1990s, with domestic conditions accounting for most of the increase. The presentation will conclude that if today's dynamic developing economies continue to sustain their improved policy effort, they are more likely to stay on course and avoid the reversals in economic fortunes that affected many of their predecessors.
A Comparative Study of Forecasts by International Organizations, Plus an Economic Outlook for 2014
Pingfan Hong
(United Nations)
[View Abstract]
[Download Preview] The United Nations (UN), the International Monetary Fund (IMF) and the World Bank (WB) all make annual forecasts for the world economy in their publications, the World Economic Situation and Prospects, the World Economic Outlook, and the Global Economic Prospects, respectively. While each of these publications would serve a specific institutional mandate within these organizations individually, together these forecasts provide critical information for the general public and can have great influence on policymakers worldwide. This paper is intended to study the forecasting performance of these organizations by adopting certain statistical methods to evaluate and analyze the forecasting errors in the period of 1981-2012.
Integrating Projections of Quintile Shares of Household Income with Projections of GDP to Estimate Absolute Levels of Poverty in the Poorest Countries
Dominick Salvatore
(Fordham University)
Fred Campano
(Fordham University)
[View Abstract]
Per capita GDP has been the main statistic used in assessing the level of socio-economic development of countries since national accounts data became available in the late 1950s. While the measurement may provide a ranking of countries, i.e., from the poorest to the richest, it can not detect who is poor and who is not poor in any one country. UNDP's Human Development Index adjusts the rankings of countries for social amenities such as education, health, and political participation, but also cannot estimate the number of people in any one country who might be considered poor because of a lack of these. In this paper we will use the methodology pioneered by Ahluwalia, Carter and Chenery at the World Bank (Growth and Poverty in the Developing Countries, Journal of Development Economics 6 -1979) to provide an estimation of the poverty headcount.
Discussants:
Dominick Salvatore
(Fordham University)
Jan 04, 2014 12:30 pm, Philadelphia Marriott, Meeting Room 406
Transportation & Public Utilities Group
Transportation Public-Private Partnerships
(L9)
Presiding:
Wayne Talley
(Old Dominion University)
Is there a PPP Interest Rate Premium?
Eduardo Engel
(Universidad de Chile and Yale University)
Ronald Fischer
(Universidad de Chile)
Alexander Galetovic
(Universidad de los Andes)
[View Abstract]
It is often argued that a public-private partnership (PPP) should be preferred
to public provision of infrastructure services only if efficiency gains under
a PPP are large enough to compensate for the higher cost of debt observed
under this organizational form. We argue that this argument is suspect by
providing a model where the risk borne by the concessionaire under a PPP
provides incentives to innovate that increase social welfare and lead
to a higher cost of debt. The optimal contract can be implemented via
a simple auction with realistic informational requirements.
Public-Private Partnerships and Pricing in Transport
Roger Vickerman
(University of Kent)
[View Abstract]
In this paper we explore the issues that arise when a requirement for Social Marginal Cost Pricing is incorporated within Public-Private Partnerships and the possible solutions to these issues? After reviewing the theoretical issues raised by both PPPs and SMC pricing, the paper discusses the relevant performance drivers which can be built into PPPs and how these will be changed if a requirement for SMC pricing is incorporated. These issues are discussed for PPPs in different types of transport application, network infrastructures (e.g. roads), nodal infrastructures (e.g. ports and airports), and operations (e.g. urban public transport). Examples are taken mainly from European experience, but with reference to global best practice. By examining the treatment of risk and the types of contractual objective, the paper concludes that generally SMC pricing and efficient PPPs may be incompatible and argues for a dual approach in which users pay the SMC price to achieve market efficiency and a performance-based payment is added to achieve delivery efficiency by the private sector operator. The main lesson is that, as always, one policy instrument cannot be used to address two policy objectives.
Seaport Competition, Ownership and Strategic Investment in Accessibility
Yulai Wan
(Hong Kong Polytechnic University)
Leonardo J. Basso
(University of Chile)
Anming Zhang
(University of British Columbia)
[View Abstract]
[Download Preview] This study investigates the strategic investment decisions of local governments on inland transportation infrastructure in the context of seaport competition. In particular, we consider two seaports with their respective captive catchment areas and a common hinterland for which the seaports compete. The two seaports and the common hinterland belong to three independent local governments, each determining the level of investment for its own inland transportation system. We find that (i) increasing investment in the hinterland lowers charges at both ports; and (ii) increasing investment in a port’s captive catchment area will cause severer reduction in charge at its port than at the rival port. We also examine the non-cooperative optimal investment decisions made by local governments, as well as the equilibrium investment levels under various coalitions of local governments.
Pitfalls of Transport Infrastructure PPPs
Thierry Vanelslander
(University of Antwerp)
Athena Roumboutsos
(University of Antwerp)
Rosario Macario
(University of Antwerp)
[View Abstract]
The analysis of the last decade of PPP cases in transport infrastructure identifies a number of pitfalls that have transformed PPPs from an innovative and promising instrument into a serious government budgetary problem. The economic downturn revealed poor value creation from the application of these models and an adverse (often perverse) behaviour of stakeholders. Risk transfer has often occur with negative impacts for government, optimism bias among other phenomena accrued. Evidence is consolidated that new business models for transport infrastructure delivery are needed. This paper reflects these developments and suggests new ways of value creation within PPPs models.
Discussants:
Patrick McCarthy
(Georgia Institute of Technology)
Thierry Vanelslander
(University of Antwerp)
Roger Vickerman
(University of Kent)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 413
African Finance & Economics Association
Gender and Economic Development in Africa
(O1)
Presiding:
Mina Baliamoune-Lutz
(University of North Florida)
Reducing The Gender Gap in Education: Female Teachers as Role Models
Elizabeth Asiedu
(University of Kansas)
Mwanza Nkusu
(International Monetary Fund)
[View Abstract]
Significant progress has been achieved in reducing the gender gap in primary education. However, the gender gap persists and is bigger in secondary and tertiary education. The employs data from 110 developing countries to examine whether the share of female teachers have a casual impact on the repletion rate of female students in secondary ad tertiary institutions. It also analyzes whether relationship is significantly different for countries in Sub-Saharan Africa.
The Opportunity Cost of Time Spent Fetching Water for Women in Sub-Saharan Africa
Richard U. Agesa
(Marshall University)
Jacqueline Agesa
(Marshall University)
[View Abstract]
A large proportion of sub-Sahara African households lack access to running tap water in the home. Consequently, individuals (typically women) walk long distances and spend relatively long time periods fetching water from a source outside the home. The opportunity cost of time spent fetching water is the forgone time on schooling, leisure, and other domestic chores. The policy literature hypothesizes that the time forgone, particularly on schooling, forms a possible explanation for the high dropout rate for females in school. The policy literature, however, lacks empirical evidence to support this hypothesis. We fill this void and augment the literature in two significant ways: first, we offer empirical evidence to validate the fetching water/schooling time tradeoff for women. Second, we offer empirical validation for the anecdotal policy notion that the high dropout rate for females in school may partially be attributed to the fetching water/schooling time tradeoff for women.
Bride Price and Fertility Decisions: Evidence from Rural Senegal
Linguère Mously Mbaye
(IZA)
Natascha Wagner
(Erasmus University-Rotterdam)
[View Abstract]
Our analysis uses a unique panel data of more than 800 households to study the relationship between bride price and fertility decisions in the context of rural Senegal. This paper is an important contribution to the literature because most of the studies about marriage payments have been made in the context of South Asia. In this region, marriage payments are found in the form of dowries. The African context, in which a bride price is paid, is fundamentally different and the dynamics that apply in Asia cannot be extrapolated for the African continent. In many Sub-Saharan African countries and particularly in Senegal, the bride price is a key element of the marriage contract. Our study is the first large-scale analysis of bride price dynamics in Senegal. It raises many issues related to the economics of the marriage market, gender empowerment and intra-household bargaining power. We consider a woman's role in the marriage as represented by fertility decisions. We use an accurate fixed-effects model and find that the relationship between bride price payments and the number of children is non-linear but u-shaped. Women who receive at least the symbolic minimum bride price of the traditional marriage contract tend to respond with a large number of offspring. Even if we control for divorce, migration and proximity to the parents, this pattern remains. Thus, the more a woman is perceived as precious investment by her in-laws the higher is the pressure for reproductive success. The results highlight the importance of the bride price in establishing a socially accepted and enforceable contract. This suggests that the bride price system is prone to limit the bargaining power and independence of women as they are determined by a payment between the groom's family and the bride's family.
Multidimensional First Order Dominance Analysis: An application to the Democratic Republic of Congo
Malokele Nanivazo
(United Nations University)
[View Abstract]
[Download Preview] This paper performs a multidimensional first order dominance (FOD) analysis of child well-being in the Democratic Republic of Congo (DRC). This methodology allows the ordinal ranking of the 11 provinces of the DRC in terms of their well-being based upon the probability of their domination. This empirical application obviates the need to adopt a weighting scheme for the deprivation indicators or to rely on the signs of other cross-derivatives for comparison. I execute a bootstrap linear programming algorithm on seven deprivations indicators for three sub-samples of children derived from the DRC 2007 Standard Demographic and Health Survey. Our results reveal widespread disparities in child well-being in the DRC.
Private Aid, Development and Gender Equity
Una Okonkwo Osili
(Indiana University-Purdue University-Indianapolis)
[View Abstract]
[Download Preview] In this paper, we use newly available data on private aid flows to better understand the extent to which private flows are focused on gender equity-and implications for girls and young women. Although there is an extensive literature on foreign aid and its impact on development outcomes, much less is known about the influence of private aid on gender equity. In the past decade, there has been a significant growth in private aid; however, very few studies have examined the size and composition of private aid, and the extent to which private funding is allocated toward improving gender equality.
The paper explores three main research questions: What are the trends in private aid to gender equality in the past decade? Which countries have received private aid to support gender equity, and how does private aid flows toward gender equality and related causes differ from Official Development Assistance (ODA) flows? What are the country-level factors that influence private aid toward gender inequality?
Gender Gap in the Labor Market in Swaziland
Thierry Kangoye
(African Development Bank)
Zuzana Brixiová
(African Development Bank)
[View Abstract]
This paper documents the main gender disparities in the Swazi labor market and suggests mitigating policies. Based on the first two (2007 and 2010) Swaziland Labor Force Surveys, we found several indicators of female labor market disadvantages. For example, relative to men, women are disproportionally impacted by unemployment and le income countries in Southern Africa -- overcome these disadvantages.
Discussants:
John Karikari
(Government Accountability Office)
Lynda Pickbourn
(Hampshire College)
Edward Kutsoati
(Tufts University)
Abebe Shimeles
(African Development Bank)
Kwabena Gyimah-Brempong
(University of South Florida)
Albert A. Okunade
(University of Memphis)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 405
American Committee on Asian Economic Studies
Asia and Its External Relations
(F1)
Presiding:
Mordechai Kreinin
(Michigan State University)
The Implications of Region-Wide FTAs for Japan and Emerging Asia
Hiro Lee
(Osaka University)
Ken Itakura
(Nagoya City University)
[View Abstract]
[Download Preview] In this paper we compare welfare effects and the extent of sectoral adjustments under the proposed Trans-Pacific Partnership (TPP) agreement and the Regional Comprehensive Economic Partnership (RCEP) accords using a dynamic CGE model from the perspective of Japan and emerging Asian economies. The TPP has undergone 18 negotiating rounds and currently includes 12 negotiating members, with Japan joining in July 2013, while the RCEP is composed of 16 economies and will begin formal negotiations in September 2013. The ambitious goals of both organizations, as well as overlapping membership, make comparisons of different scenarios particularly intriguing.
ASEAN Centrality and United States Interests
Peter A. Petri
(Brandeis University)
Michael G. Plummer
(Johns Hopkins University)
[View Abstract]
[Download Preview] The Association of Southeast Asian Nations (ASEAN) is strategically significant because of its economic dynamism and role in regional security and economic architectures. ASEAN seeks to strengthen this strategic position through "centrality" in the region's intra-regional and external policy decisions. Some argue that this centrality will be undermined by the Trans-Pacific Partnership (TPP) negotiations, which include only four of ASEAN's ten members at present. Economic estimates suggest, however, that the TPP could generate substantial benefits for the economies involved and the region as a whole. From the viewpoint of the United States and ASEAN, a dual strategy-deep engagement with advanced economies through the TPP and broad, general support for ASEAN-would maximize incomes without harming any (and possibly benefiting all) ASEAN economies. The paper shows that such a strategy has solid economic underpinnings and recommends that the United States vigorously pursue deep relations with some ASEAN members as well as wide engagement with ASEAN as a whole.
Central Asia: Landbridge between East Asia and the EU, or Stuck in the Middle?
Richard Pomfret
(University of Adelaide)
[View Abstract]
[Download Preview] In the context of current tensions between the EU and Russia over Ukraine, this paper asks where Central Asia’s future will be in the global economy. Although Russia is seeking to cement ties within a customs union, economic links to Russia have been declining over the 22 years since the dissolution of the Soviet Union. Today the EU is Central Asia’s largest economic partner, and since 2000 China the fastest growing. These relations are soundly based on specialization by comparative advantage, and if trade costs continue to fall the East-West link between Central Asia and China and the EU will flourish. On the other hand, if politics triumph and Central Asian governments chose an exclusionary regional arrangement with Russia, then they risk being sidelined from the global economy in any role other than as primary product exporters dependent on volatile world prices.
Lifting Impediments to South and Southeast Asian Integration: An Eclectic Approach
Masahiro Kawai
(ADB Institute)
[View Abstract]
Although many studies have suggested that there exists great potential for expanding trade and investment links between South and Southeast Asia, inter-regional economic integration continues to underperform. The two regions are home to some of the most dynamic economies in the world, and this growth has been to no small degree due to rapid internationalization of key economies. However, the share of inter-regional trade and investment continues to be extremely small. After using various methods to demonstrate this underperformance, this study considers how the two regions might strengthen links through a variety of approaches, including trade facilitation, cooperation in the area of energy trade, creating new vehicles for infrastructural investment (and better exploitation of existing ones), and formal regional cooperation.
Discussants:
Raed Safadi
(OECD)
Manoranjan Dutta
(Rutgers University)
Don P. Clark
(University of Tennessee)
Mardi Dungey
(University of Tasmania)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, Grand Hall
American Economic Association
AEA Committee on Economic Education Poster Session
(Poster Session)
Presiding:
Steven Cobb
(University of North Texas)
Do Monetary Incentives Matter in Classroom Experiments: Effects on Game Performance and Exam Scores
Matthew Rousu
(Susquehanna University)
Jay Corrigan
(Kenyon College)
Jill Hayter
(East Tennessee State University)
Greg Colson
(University of Georgia)
David Harris
(Benedictine College)
Olugbenga Onafowora
(Susquehanna University)
Brand Name Quiz and Incentives of Product Differentiation in Monopolistic Competition
Xin Fang
(University of Illinois-Chicago)
Why is it Not Always Easy to Convince the Value of (Neoclassical) Microeconomic Theory to Graduate Students in Healthcare Administration?
Hengameh M. Hosseini
(Pennsylvania State University - Harrisburg)
[Download Preview] Use of Rubrics in Undergraduate Economics Classes
Veronika Dolar
(Long Island University)
[Download Preview] Students' Time-Allocation, Attitudes and Performance on Multiple-Choice Tests
Vladimir Hlasny
(Ewha Womans University)
[Download Preview] Poster Projects in Economics Classroom: Stimulating Active Learning and Creativity
Inessa Love
(University of Hawaii-Manoa)
Teaching Replication in Quantitative Empirical Economics
Jan H. Hoffler
(University of Gottingen)
Three Effective Strategies in Teaching Undergraduate Econometrics Courses
Leila Farivar
(Ohio State University)
Service Learning in a Business Finance Economics Course
Max St. Brown
(Washington State University)
The Effectiveness of Participatory Simulation in Resource Economics Education
Yu-li Ko
(Rensselaer Polytechnic Institute)
Directed Crib Sheet Development as a Preparation and Review Tool: Identifying Effectiveness of Incentives on Student Learning Outcomes in Principles of Economics
Colin Cannonier
(Belmont University)
Kara D. S. Mitchell
(Belmont University)
[Download Preview] Getting Students in Introductory Economics Classes to Understand the Economics of Health Insurance
Ranganath Murthy
(Western New England University)
An Experiment Illustrating the Provision of Discrete Public Good under Asymetric Information
Shizuka Nishikawa
(St. Mary's College of Maryland)
[Download Preview] Increase Student Engagement and Foster Critical Thinking Using Data-Driven Exercises
Amy Henderson
(St. Mary's College of Maryland)
Use of Student Authors: Study Guide to Teach Applied Econometrics and Introductory Statistics
Rod D. Raehsler
(Clarion University)
[Download Preview] Active Group Design in Trading Simulation to Promote Active Learning
Xiaowen Gao
(Coventry University London)
Checker Flag Apps for a Winning Pedagogy
Howard H. Cochran
(Belmont University)
Marieta V. Velikova
(Belmont University)
Bradley D. Childs
(Belmont University)
[Download Preview] Using CDF to Make Graphics Interactive in Lectures and Online Exercises
Tom Creahan
(Morehead State University)
Algebra I Assessment and Student Performance in Principles of Economics
Irene R. Foster
(George Washington University)
Melanie Allwine
(George Washington University)
[Download Preview] An Interactive Graphing Activity
William Alpert
(University of Connecticut)
Oskar Harmon
(University of Connecticut)
Adam Nemeroff
(University of Connecticut)
Robert Szarka
(University of Connecticut)
Paul Tomolonis
(University of Connecticut)
[Download Preview] The Power of Voice in Online Education: Using VoiceThread to Promote Reflection, Participation and Community
Catherine Lawson
(Missouri Western State University)
To Donate or Not to Donate-Classroom Game Illustrating the Characteristics of a Public Good
Ashley Tharayil
(University of Nebraska-Lincoln)
First Impressions and Lasting Impressions: Making Economics Memorable
Charity-Joy Acchiardo
(Transylvania University)
G. Dirk Mateer
(University of Kentucky)
Introduction to the Three-Range Aggregate Supply Curve: A Cooperative Learning Activity
Laura Whitaker
(University of Delaware)
Revise and Resubmit: Using Exams as Teaching Tools
Kathryn Birkeland
(University of South Dakota)
A Competitive Market Demonstration for Principles of Microeconomics Courses
Lucas M. Engelhardt
(Kent State University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 203-B
American Economic Association
Cognitive, Non-Cognitive Skills, and Contracts on Marital Outcomes
(J1)
Presiding:
Aloysius Siow
(University of Toronto)
Relationship Skills in the Labor and Marriage Markets
Laura Turner
(University of Toronto)
Gueourgui Kambourov
(University of Toronto)
Aloysius Siow
(University of Toronto)
[View Abstract]
[Download Preview] We examine the role of relationship skills in determining life cycle outcomes in education, labor and marriage markets. We posit a two-factor model with human capital and ``relationship'' or ``partnering'' skill. Relationship skill is understood in our framework as the ability to maintain long-term relationships, both in the formal job market and the home sector. Using a Mincer-Jovanovic (1981) framework and evidence on job and marital separations in the PSID, we argue that relationship skills are naturally modeled as an individual fixed factor that increases the durability of relationships in multiple sectors. Next, we use data from the Occupational Information Network to extract and develop a common factor from measures of non-cognitive skills that reduce divorce and job loss likelihood conditional on partners' wages and education. In both empirical and numerical analysis, we show that this factor operates differently in the market and home sectors. It is highly complementary in the market sector but fairly substitutable in the home sector: that is, stability of marriage depends most strongly on at least \textit{one} partner being endowed with strong partnering skills. It therefore stands in contrast to measures of more general human capital, such as educational attainment that are highly complementary inputs into marriage. To explore the quantitative implications of relationship skill, we use the PSID to develop and estimate a two-factor life cycle model of schooling, job search and marriage that allows us to test the importance of partnering skills, including their implications for optimal schooling and occupational decisions, and the joint distribution of relationship skills and human capital in the population.
Prenuptial Agreements and Household Wellbeing: Theory and Evidence from Italy
Alessandra Voena
(University of Chicago)
Denrick Bayot
(University of Chicago)
[View Abstract]
[Download Preview] This paper examines prenuptial contracts that allow couples in Italy to choose, at virtually no cost, how their assets will be divided in case of divorce. Unique administrative data on marriages and divorces from 1995 to 2011 indicate that the majority of newlyweds (67% in 2011) choose to forgo the default community property regime and to maintain separate property, which in other countries would require signing a costly prenuptial contract. In addition, the data suggest that couples choose community property to provide insurance to wives who forgo labor market opportunities and undertake household-specific investments. We estimate a dynamic model of marriage, female labor supply, savings and divorce to match the patterns of regime choice and outcomes observed in the administrative data. The estimates suggest that, as the rate of female labor participation increases and the gender wage gap decreases, there are increasing gains from separate property. Hence, lower costs of prenuptial contracting, as occurs in Italy and other civil law countries, might lead to substantial welfare gains for both husbands and wives, greater rates of female labor participation, lower probability of divorce and higher rates of household savings.
Divorce: What Does Learning Have to Do with It?
Ioana Marinescu
(University of Chicago)
[View Abstract]
[Download Preview] Learning about marriage quality has been proposed as a key mechanism
for explaining how the probability of divorce evolves with marriage duration, and why
people often cohabit before getting married. I develop four theoretical models of divorce,
three of which include learning. I use data from the Survey of Income and Program
Participation to test reduced form implications of these models. The data is inconsistent
with models including a substantial amount of learning. On the other hand, the data is
consistent with a model without any learning, but where marriage quality changes over
time.
Skills, Preferences, and Family Outcomes
Shelly Lundberg
(University of California-Santa Barbarra)
[View Abstract]
[Download Preview] The widening gap in marital status, relationship stability, and childbearing between socioeconomic groups raises concerns about child wellbeing and future inequality. This paper uses data from a sample of young adults--Wave IV of the National Longitudinal Study of Adolescent Healthâ€â€Âto investigate the role of cognitive ability and non-cognitive skills as possible contributors to this gap. Blinder-Oaxaca decompositions of differences in key family outcomes across education groups show that, though individual non-cognitive traits are significantly associated with relationship history and family status, they collectively contribute very little to socioeconomic gaps in relationship instability and single motherhood for women, and make no significant contribution to the relationship instability gap for men. Measured skills can explain 15-20 percent of the differences in these outcomes by family background, but this effect is severely attenuated (single motherhood) or disappears (relationship instability) when own education is added to the model. The individual traits that are most strongly (negatively) predictive of single motherhood are optimism and emotional stability.
Discussants:
Rachel Fernandez
(New York University)
Aloysius Siow
(University of Toronto)
Gabriella Conti
(University of Chicago)
Laura Turner
(University of Toronto)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 203-A
American Economic Association
Data Revisions and Macroeconomic Analysis
(E5)
Presiding:
Dean Croushore
(University of Richmond)
The Meta Taylor Rule
Kevin Lee
(University of Nottingham)
James Morley
(University of New South Wales)
Kalvinder Shields
(University of Melbourne)
[View Abstract]
[Download Preview] We characterise U.S. monetary policy within a generalized Taylor rule framework that accommodates uncertainties about the duration of policy regimes and the specification of the rule, in addition to the standard parameter and stochastic uncertainties inherent in traditional Taylor rule analysis. Our approach involves estimation and inference based on Taylor rules obtained through standard linear regression methods, but combined using Bayesian model averaging techniques. Employing data that were available in real time, the estimated version of the ‘meta’ Taylor rule provides a flexible but compelling characterisation of monetary policy in the United States over the last forty years.
Nowcasting the Business Cycle in an Uncertain Enviroment
Knut Are Aastveit
(Norges Bank)
Francesco Ravazzolo
(Norges Bank)
Herman van Dijk
(Tinbergen Institute and Erasmus University)
[View Abstract]
[Download Preview] We introduce a Combined Density Factor Model (CDFM) approach that accounts for time varying uncertainty of several model and data features in order to provide more accurate and complete density nowcasts. By combining predictive densities from a set of dynamic factor models, using combination weights that are time-varying, depend on past predictive forecasting performance and other learning mechanisms that are incorporated in a Bayesian Sequential Monte Carlo method, we are able to weight 'soft' and 'hard' data uncertainty, parameter uncertainty, model uncertainty and uncertainty in the combination of weights in a coherent way. Using experiments with simulated data our results show that soft data contain useful information for nowcasting even if the series is generated from the hard data. Moreover, a carefully combination of hard and soft data, as in the proposed approach, improves density nowcasting. For empirical analysis we use U.S. real-time data and obtain as results that our CDFM approach yields more accurate nowcasts of GDP growth and more accurate prediction of NBER Business cycle turning points than other combination strategies. Interestingly, the CDFM performs particularly well, relative to other combination strategies, when focusing on the tails and it delivers timely and accurate probabilities of high growth and stagnation.
Characteristics and Implications of Chinese Macroeconomic Data Revisions
Tara Sinclair
(George Washington University)
[View Abstract]
[Download Preview] Recent research examining U.S. macroeconomic data suggests that revisions may be much more important than traditionally assumed. This paper extends the analysis to Chinese data, where there has been substantial debate about data quality for some time. The key finding in this paper is that indeed the Chinese macroeconomic data revisions are not well-behaved, but that they are not much different from U.S. macroeconomic data revisions.
United States Fiscal Policy: Ex Ante and Ex Post
Dean Croushore
(University of Richmond)
Simon van Norden
(HEC Montreal)
[View Abstract]
[Download Preview] The surge in fiscal deficits since 2008 has put a renewed focus on our understanding of fiscal policy. The interaction of fiscal and monetary policy during this period has also been the subject of much discussion and analysis. This paper gives new insight into past fiscal policy and its influence on monetary policy by examining the U.S. Federal Reserve Board staff's Greenbook forecasts of fiscal policy. We create a real-time database of the Greenbook forecasts of fiscal policy, examine the forecast performance in terms of bias and efficiency, and explore the implications for the interaction of fiscal policy and monetary policy. We also attempt to provide advice for fiscal policy by showing how policymakers learn over time about the trajectory of the U.S. Federal Government's fiscal balance as well as the changing roles of structural and cyclical factors.
Discussants:
Todd Clark
(Federal Reserve Bank of Cleveland)
Jonathan Wright
(Johns Hopkins University)
Nelson Mark
(University of Notre Dame)
Valerie Ramey
(University of California-San Diego)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 201-B
American Economic Association
Developing Country Lessons for Advanced Economy Growth
(F4)
Presiding:
Michael Spence
(New York University)
Economic Performance in Developing and Advanced Nations: Then vs. Now
Anusha Chari
(University of North Carolina-Chapel Hill)
Peter Blair Henry
(New York University)
[View Abstract]
Not so long ago, emerging markets were known as "Third World" nations mired in poverty, prone to epic defaults, debt crises, stratospheric inflation rates, and chronic instability. Advanced countries seemed to hold the keys to prosperity. How times have changed. Today, China has the world's second-largest economy; Mexico boasts a thriving manufacturing sector and expanding high-tech industry; and Brazil has lifted 20 million people out of poverty and into a burgeoning middle class. The developed world, meanwhile, is struggling at best, attempting to battle their way out of multiple debt and financial crises. Developing countries-on whose continued success the future prosperity of the global economy depends as never before-have turned themselves around through a sustained commitment to economic reform and pragmatic growth strategies. First World nations, on the other hand, appear unable to muster the discipline required to regain their pre-crisis levels of employment and growth, raising the possibility of a Japanese-style lost decade. The world economy is passing through a dangerous phase that calls for new analyses of fiscal consolidation, structural reform, job-creation, and strategies for sustained economic growth. Which policy reforms, in what environments, truly increase efficiency and allow countries to make the most of precious resources? This paper will use the historical experience of policy reform in emerging economies to draw lessons for long-term growth in today's advanced economies.
Forty Years of Leverage: What Have We Learned About Sovereign Debt?
Peter Boone
(London School of Economics)
Simon Johnson
(Massachusetts Institute of Technology)
[View Abstract]
We have seen several incarnations of debt crises beginning with the build-up of sovereign debt in the 1970s which led to the Third-World debt crisis, followed by Mexico, the East Asian crisis, Brazil, Russia, Argentina and Turkey. 40 years later, in the aftermath of the global financial crisis, advanced economies are mired in a debt crisis of their own. In all these cases debt has shown up in different guises. Common themes that emerge are that the risks associated with debt embody common features regardless of form (examples include commercial bank lending to sovereigns in the lead-up to the Third World debt crisis, short-term dollar denominated lending to banks in East Asia prior to 1997). Principally, debt does not incorporate the risk-sharing aspects of equity which implies that excessive reliance on debt can cause financial distress as we have seen in crisis after crisis in the developing and now the developed world. The question therefore arises if debt is so risky why do we see so much of it? The observed pattern of debt and equity flows is an equilibrium outcome, resulting from the optimal response of borrowers and lenders to a given set of institutional arrangements. Therefore, the critical issue is what distortions in the international financial system produce incentives that lead to a disproportionate amount of debt over equity financing. Arguments highlighted in the literature provide a range of examples that bias lenders in favor of debt finance and bank intermediation over equity financing despite the inefficiencies of debt finance. This paper will focus on lessons advanced economies can draw from the experience of emerging-market debt crises and provide relevant prescriptions for regulatory reform in the international financial architecture.
Demand & Defective Growth Patterns: The Role of the Tradable and Nontradable Sectors in an Open Economy
Sandile Hlatshwayo
(University of California-Berkeley)
Michael Spence
(New York University)
[View Abstract]
[Download Preview] The U.S. economy is currently growing annually at about 2 percent in real terms and is well below its potential. The economy is demand constrained as a result of a large, negative domestic aggregate demand shock that followed from a decade of running on excess domestic demand. This excess demand was enabled by an unsustainable run-up in leverage and an accompanying asset price bubble. In short, prior to the recession, the U.S. exhibited a defective growth pattern. This paper focuses on the underlying structural elements of U.S. growth patterns, pre and post-crisis. The data suggest what theory would point to: as domestic aggregate demand retreats to more sustainable levels relative to total income, the tradable side of the economy is an important catalyst for restoring growth. As de-leveraging runs its course, domestic demand will bounce back to some extent; however, the economy will not re-leverage to the pre-crisis composition of domestic and external demand. The latter will grow larger. To shed light on these growth dynamics, we closely examine the tradable structure of the economy, uncovering its central characteristics and interactions with cyclical forces. A structural rebalancing is already occurring; the tradable sector generated more than half of gross gains in value added since the start of the recovery even though it is only a third of the economy. The growth of exports and the relative decline in import share, along with the rest of domestic demand, is causing the current account deficit to decline. However, there are also potential hurdles. Most of the post-crisis employment growth originated in largely non-tradable industries, indicating a continuing divergence between drivers of employment and drivers of value-added, with negative implications for the income distribution.
Discussants:
Chang-Tai Hsieh
(University of Chicago)
René M. Stulz
(Ohio State University)
Laurence M. Ball
(Johns Hopkins University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 103-A
American Economic Association
Firm Behavior, Standards, and the Provision of Energy Efficiency
(Q4)
Presiding:
Robert Stavins
(Harvard University)
Imperfect Information, Nudges, and Inventory Decisions: Evidence from a Field Experiment on the Adoption of Energy Efficient Durables
Hunt Allcott
(New York University)
Richard Sweeney
(Harvard University)
[View Abstract]
Imperfect information about energy costs is one potential explanation for why some consumers do not purchase energy efficient durables, and this has motivated information provision mandates such as fuel economy labels and "Yellow Tags" on home appliances. We partner with the water heater division of a large nationwide retailer of household energy using durables, where the market share of Energy Star appliances is only about five percent. We implement a field experiment that randomizes hard information on energy costs, large customer rebates, and incentives for sales associates who sell Energy Star appliances. We calibrate a demand system by combining the field experiment with observed purchase and inventory data and additional microdata from follow-up surveys with a subsample of customers. We show that the largest barrier to adoption of energy efficient durables in this context is not hard information on energy costs. Instead, the firm's inventory and stocking decisions, combined with subtle nudges provided by the sales associates, have large impacts compared to customer rebates and hard information.
The Perverse Consequence of Energy Efficiency Standards
Koichiro Ito
(Stanford University)
James Sallee
(University of Chicago)
[View Abstract]
This paper provides empirical evidence that energy efficiency standards can have an adverse effect on energy efficiency. Regulators in many counties recently implemented energy efficiency standards that vary by the size of products. For example, the fuel economy standards in the US, Japan, Korea, and China have different standards for different size of vehicles. First, we provide a simple model of automakers' decisions under such regulation. Automakers can meet the standard either by actually improving the efficiency of vehicles or by increasing the size of vehicles to have less stringent regulation. Second, we exploit the nonlinear schedules of Japanese fuel economy standards to test empirical predictions. We find significant bunching of cars at the kink points of the nonlinear schedules, which suggests that significant numbers of cars become heavier due to the regulation. Because automakers meet the efficiency targets by increasing the weights of many vehicles, the overall energy efficiency becomes worse, although automakers appear to meet the targets set by regulators. Finally, we provide the efficiency cost of this regulation compared to the first best scenario with carbon pricing.
Do Fuel Economy Standards Reduce Automobile Safety? Examining Automaker Choices in the Distribution of Vehicle Attributes
Antonio M. Bento
(Cornell University)
Kenneth Gillingham
(Yale University)
Kevin Roth
(Cornell University)
[View Abstract]
With the latest round of 2017-2025 Corporate Average Fuel Economy (CAFE) standards, the United States is committed to using standards as the primary policy instrument to reduce oil consumption and emissions. Yet standards are controversial, in part due to the possibility that automakers may down-weight vehicles in order to meet the standards, potentially leading to increased automobile fatalities and injuries. The relationship between fuel economy standards, automaker attribute choices, and fatalities depends on both the automaker response to fuel economy standards across an entire vehicle fleet and how changes to the distribution of attributes in the fleet translate to fatalities and injuries. This study examines how historical changes in CAFE standards have influenced product attribute choices across the entire vehicle line-up, from the promulgation of CAFE standards in 1978 to the present. We bring together comprehensive data on vehicle attributes and sales for all major automakers selling in the U.S. We examine the impact of changes in fuel economy on the quantiles of the unconditional distribution of weight using a regression of the recentered influence function of the unconditional quantile on the explanatory variables. The results are used to simulate how the distribution of weight in the vehicle fleet would change with tightened fuel economy standards. We then perform a Monte Carlo analysis to examine how fatalities and injuries would change based on the change in the distribution of the fleet. We find clear evidence that automakers did not down-weight the entire product line-up in response to more tightly binding fuel economy standards, but rather focus on smaller to mid-sized vehicles. Surprisingly, the increase in the weight dispersion of the fleet is offset by an overall downweighting, so the number of fatalities and injuries only modestly increases. This result highlights the complex consequences of fuel economy standard regulation.
Bunching With the Stars: How Firms Respond to Product Certification
Sebastien Houde
(University of Maryland)
[View Abstract]
[Download Preview] This paper first shows that firms respond strategically to ENERGY STAR, a voluntary certification program for energy efficient products. In the US refrigerator market, firms offer products that bunch exclusively at the minimum and ENERGY STAR standards. Firms also charge higher markups on certified models on the order of 1 to 5 percentage points. The second part of this paper performs a structural estimation of an oligopoly model, and simulates firms' product lines and pricing decisions under certification, and various other policies. Compared to a Pigouvian tax, a certification performs surprisingly well from the standpoint of economic efficiency. The presence of imperfect competition, consumer heterogeneity, and firms' ability to alter the product mix explain this result. Without certification, firms have more incentives to distort energy efficiency to screen consumers--a separating equilibrium with low and high energy efficient products is more likely to prevail. The ENERGY STAR certification favors a pooling equilibrium with products that just meet the certification requirement. For the demand parameters estimated, this pooling equilibrium delivers greater benefits to consumers, on average. Consumers are better off with a choice set that is less differentiated, but offers energy efficiency above the minimum standard. Profits are also higher when the certification is in effect. Firms can extract more consumer surplus due to consumers' high willingness to pay for the ENERGY STAR label.
Discussants:
Carolyn Fischer
(Resources for the Future)
Ashley Langer
(University of Michigan)
Mar Reguant
(Stanford University)
Erich Muehlegger
(Harvard University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 201-C
American Economic Association
Firms, Finance and Global Recessions
(F4)
Presiding:
Sebnem Kalemli-Ozcan
(University of Maryland)
Financial Shocks and Global Production Chains
Sebnem Kalemli-Ozcan
(University of Maryland)
See-Jik Kim
(Seoul National University)
Hyun S. Shin
(Princeton University)
Bent Sorensen
(University of Houston)
Sevcan Yesiltas
(Johns Hopkins University)
[View Abstract]
Sustaining global production chains has been discussed in the context of technological needs and global trade but the importance of financial linkages in such chains has received much less attention. We formulate a model on the importance of such linkages and provide evidence from an extensive firm-level data set covering OECD countries during last decade. We show that firms that are upstream and/or firms that are part of multinational chains suffer more during recession due to their need for financing.
Reallocation in the Great Recession: Cleansing or Not?
Lucia Foster
(US Census Bureau)
Cherly Grim
(US Census Bureau)
John Haltiwanger
(University of Maryland)
[View Abstract]
[Download Preview] A ubiquitous feature of the U.S. economy is a high pace of output and input reallocation across producers. The evidence shows that this high pace of reallocation is closely linked to productivity, demand and cost dynamics. That is, resources are being shifted away from low productivity, low demand and high cost producers towards high productivity, high demand, and low cost producers. While these patterns hold on average, an open question is the extent to which the reallocation dynamics in recessions is "cleansing" or not. There are alternative hypotheses that could support either outcome. One hypothesis is that recessions are times when the opportunity cost of time and resources are low implying that recessions will be times of accelerated productivity enhancing reallocation. Prior research suggests that the recession in the early 1980s is consistent with an accelerated pace of productivity enhancing reallocation. Alternative hypotheses highlight the potential distortions to reallocation dynamics in recessions. Such distortions might arise from many factors including, for example, distortions to credit markets. It might be that when credit markets are distorted (in recessions), reallocation may be driven more by credit constraints and less by market fundamentals such as productivity, demand and costs. The close connection between the financial crisis and the Great Recession obviously raises interesting questions about the importance of this hypothesis in the recent period.
Misallocation of Capital in Europe
Gita Gopinath
(Harvard University)
Sebnem Kalemli-Ozcan
(University of Maryland)
Loukas Karabarbounis
(University of Chicago)
Carolina Villegas-Sanchez
(ESADE)
[View Abstract]
European south and east has received massive amount of capital flows during the last decade, a phenomenon labeled as end of Feldstein-Horioka puzzle by many. Yet, all these economies are currently in crisis. This paper asks
why this happened. We use extensive firm level data from Europe (over million firms) to investigate allocation of capital within firms, sectors and countries. We find that while capital has been allocated to productive firms, this has not been the case for productive sectors. We show that the explanation lies in the official taxes and subsidies that are targeted for certain sectors. We argue that the leading explanation in the literature, that is credit constrained entrepreneurs and collateral channel cannot explain what happened in Europe. Our results have wide implications about a series of models.
Discussants:
Saki Bigio
(Columbia University)
Nicholas Bloom
(Stanford University)
Ricardo Reis
(Columbia University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 108-B
American Economic Association
Global Risks and Currencies: Theory and Evidence
(F3)
Presiding:
Lars Hansen
(University of Chicago)
Crash Risk in Currency Returns
Mikhail Chernov
(University of California-Los Angeles and CEPR)
Jeremy Graveline
(University of Minnesota)
Irina Zviadadze
(Stockholm School of Economics)
[View Abstract]
[Download Preview] We quantify crash risk in currency returns. To accomplish this task, we develop and estimate an empirical model of exchange rate dynamics using daily data for four currencies relative to the US dollar: the Australian dollar, the British pound, the Swiss
franc, and the Japanese yen. The model includes (i) normal shocks with stochastic variance, (ii) jumps up and down in the exchange rate, and (iii) jumps in the variance. We identify these components using data on exchange rates and at-the-money implied variances. We find that crash risk is time-varying. The probability of an upward (downward) jump in the exchange rate, associated with depreciation (appreciation) of the US dollar, is increasing in the domestic (foreign) interest rate. The probability of jumps in variance is increasing in the variance but is not related to interest rates. Many of the jumps in exchange rates are associated with macroeconomic and political news, but jumps in variance are not. On average, jumps account for 25% (and can be as high as 40%) of total currency risk, as measured by the entropy of exchange rate changes, over horizons of one to three months. The dollar carry index, which is based on 21 exchange rates, retains these features. A simple calibration analysis using option-implied smiles suggests that jump risk is priced.
Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence
Emi Nakamura
(Columbia University)
Dmitriy Sergeyev
(Columbia University)
Jón Steinsson
(Columbia University)
[View Abstract]
We quantify the importance of long-run risks - persistent shocks to growth rates and uncertainty - in a panel of long-term aggregate consumption data for developed countries. We identify sizable and highly persistent world growth-rate shocks as well as less persistent country-specific growth rate shocks. The world growth-rate shocks capture the productivity speed-up and slow-down many countries experienced in the second half of the 20th century. We also identify large and persistent common shocks to uncertainty. Our world uncertainty process captures the large but uneven rise and fall of volatility that occurred over the course of the 20th century. We find that negative shocks to growth rates are correlated with shocks that increase uncertainty. Our estimates based on macroeconomic data alone line up well with earlier calibrations of the long-run risks model designed to match asset pricing data. We document how these dynamics, combined with Epstein-Zin-Weil preferences, help explain a number of asset pricing puzzles.
Crash Risk in Currency Markets
Emmanuel Farhi
(Harvard University)
Samuel Paul Fraiberger
(New York University)
Xavier Gabaix
(New York University)
Romain Ranciere
(International Monetary Fund)
Adrien Verdelhan
(Massachusetts Institute of Technology)
[View Abstract]
How much of carry trade excess returns can be explained by the presence of disaster risk? To answer this question, we propose a simple structural model that includes both Gaussian and disaster risk premia and can be estimated even in samples that do not contain disasters. The model points to a novel estimation procedure based on currency options with potentially different strikes. We implement this procedure on a large set of countries over the 1996--2008 period, forming portfolios of hedged and unhedged carry trade excess returns by sorting currencies based on their forward discounts. We find that disaster risk premia account for about 25% of expected carry trade excess returns in advanced countries.
Robust Exchange Rates with Rare Events
Riccardo Colacito
(University of North Carolina-Chapel Hill)
Max Croce
(University of North Carolina-Chapel Hill)
[View Abstract]
We characterize a novel international trading scheme based on entropy-sharing. In our frictionless general equilibrium model, two international
consumers with preferences for robustness trade both two consumption goods and a complete
set of date- and state-contingent securities. Consumption home bias and concern
for the temporal distribution of international disasters risk generate rich dynamics for international
prices and quantities. In our model, exchange rate movements are as volatile as
they are in the data. Furthermore, both the volatility of the exchange rate movements
and currency risk premia are endogenously time varying and history dependent.
Discussants:
Viktor Todorov
(Northwestern University)
Jose Ursua
(Goldman Sachs)
Jessica Wachter
(University of Pennsylvania)
Lars Hansen
(University of Chicago)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 105-B
American Economic Association
Identification and Specification Issues in Econometrics
(C1)
Presiding:
Serena Ng
(Columbia University)
Weak Identification in Maximum Likelihood: A Question of Information
Anna Mikusheva
(Massachusetts Institute of Technology)
Isaiah Andrews
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] In this paper we connect the discrepancy between two estimates of Fisher information, one based on the quadratic variation of the score and the other based on the negative Hessian of the log-likelihood, to weak identication. Classical asymptotic approximations assume that these two estimates are asymptotically equivalent but we show that this equivalence fails in many weakly identified models, which can distort the behavior of the MLE. Using a stylized DSGE model we show that the discrepancy between information estimates is large when identication is weak.
Select the Valid and Relevant Moments: An Information Based LASSO for GMM with Many Moments
Xu Cheng
(University of Pennsylvania)
Zhipeng Liao
(University of California-Los Angeles)
[View Abstract]
[Download Preview] This paper studies the selection of valid and relevant moments for the generalized method of moments (GMM) estimation. For applications with many candidate moments, our asymptotic analysis accommodates a diverging number of moments as the sample size increases. The proposed procedure achieves three objectives in one-step: (i) the valid and relevant moments are distinguished from the invalid or irrelevant ones; (ii) all desired moments are selected in one step instead of in a stepwise manner; (iii) the parameters of interest are automatically estimated with all selected moments as opposed to a post-selection estimation. The new method performs moment selection and efficient estimation simultaneously via an information-based adaptive GMM shrinkage estimation, where an appropriate penalty is attached to the standard GMM criterion to link moment selection to shrinkage estimation. The penalty is designed to signal both moment validity and relevance for consistent moment selection. We develop asymptotic results for the high-dimensional GMM shrinkage estimator, allowing for non-smooth sample moments and weakly dependent observations. For practical implementation, this one-step procedure is computationally attractive.
Model Selection for Conditional Moment Inequality Models
Xiaoxia Shi
(University of Wisconsin-Madison)
Yu-Chin Hsu
(Academia Sinica)
[View Abstract]
[Download Preview] In this paper, we propose a Vuong (1989)-type model selection test for conditional moment inequality models. The test uses a new average generalized empirical likelihood (AGEL) criterion function designed to incorporate full restriction of the conditional model. We also introduce a new adjustment to the test statistic making it asymptotically pivotal whether the candidate models are nested or nonnested. The test uses simple standard normal critical value and is shown to be asymptotically similar, to be consistent against all fixed alternatives and to have nontrivial power against n-1/2-local alternatives. Monte Carlo simulations demonstrate that the finite sample performance of the test is in accordance with the theoretical prediction.
A Discontinuity Test for Identification in Nonlinear Models with Endogeneity
Carolina Caetano
(University of Rochester)
Christoph Rothe
(Columbia University)
Nesse Yildiz
(University of Rochester)
[View Abstract]
[Download Preview] In this paper, we consider a triangular system of equations with a potentially endogenous variable whose distribution has a mass point at the lower boundary of its support, but is otherwise continuous. We show that, together with a weak continuity condition on the structural function, this setup yields a testable implication of the set of assumptions that is commonly used in this class of models to achieve identification of various structural quantities through a control variable approach.
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 103-B
American Economic Association
Inequality in the Future
(J3)
Presiding:
Joseph Altonji
(Yale University)
The Declining Fortunes of the Young Since 2000
Paul Beaudry
(University of British Columbia)
David A. Green
(University of British Columbia)
Benjamin M. Sand
(York University)
[View Abstract]
In our recent paper on technological change and occupational wage outcomes (NBER wp #18901 ) , we argued that the US economy underwent a reversal in demand for high cognitive skill occupations around 2000. Just as importantly, we argue that this fall in demand has "cascaded" down the occupation structure, with more educated workers taking up lower skilled jobs than in the 1990s and less educated workers moving out of the labor market. In this paper, we will address the implications of these patterns for long term inequality patterns. In particular, the demand pattern we investigate has strong implications for inequality since it involves rents going to a small number of people at the top while wages are falling, particularly at the bottom of the distribution. It is well understood that the extent to which we should be concerned with an increase in inequality of this kind is strongly linked to mobility patterns. Our specific goal in this paper is to document the extent to which poor labor market outcomes for youth in the 2000s reflect a temporary or permanent shift in their career paths. In particular, we will use synthetic cohorts drawn from the CPS to examine how career outcomes in terms of wages and job quality progress as the young workers age in order to assess whether they tend to catch-up up with their older counterparts or whether the initial poor outcomes appear to persist over time creating a even more serious inequality problem.
Trends in Earnings Differentials Across College Majors and the Changing Task Composition of Jobs
Joseph G. Altonji
(Yale University)
Lisa B. Kahn
(Yale University)
Jamin D. Speer
(Yale University)
[View Abstract]
Inequality has increased both within and across education levels since 1980. Several researchers have shown that changes in the structure of wages and in employment are strongly associated with the importance of abstract tasks relative to manual and routine tasks. However, there is little direct evidence on how differences in the skills and training of workers within an education level interact with changes in the demand for skill to determine inequality. We focus on college graduates and examine trends in inequality across fields of study. We show that earnings differentials across majors have increased substantially since the early 90s. We study the degree to which this increase can be accounted for by changes in the labor market prices associated with the skill requirements of the occupations that particular majors lead to.
The Return of the Solow Paradox? IT, Productivity and Employment in U.S. Manufacturing
Daron Acemoglu
(Massachusetts Institute of Technology)
David H. Autor
(Massachusetts Institute of Technology)
David Dorn
(CEMFI)
Gordon Hanson
(University of California-San Diego)
Brendan Price
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] An increasingly influential "technological-discontinuity" paradigm suggests that IT-induced technological changes are rapidly raising productivity while making workers redundant. This paper explores the evidence for this view in the U.S. manufacturing sector. In contrast to this view and our expectations, we find little differential productivity growth in IT-intensive manufacturing industries. In fact, gross output does not even appear to grow faster in such industries than in the rest of manufacturing. Though there is some relative decline in employment in these industries in the 1990s, this is preceded by more rapid growth in the 1980s and is followed by more rapid growth in the 2000s. Overall, there is little support for this popular technological-discontinuity view within U.S. manufacturing.
Discussants:
Joseph G. Altonji
(Yale University)
David Dorn
(CEMFI)
Stephen Machin
(University College London)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 204-A
American Economic Association
Investigating the Determinants of Infant Mortality
(I1)
Presiding:
Emily Oster
(University of Chicago)
Smoking Bans, Maternal Smoking and Birth Outcomes
Prashant Bharadwaj
(University of California-San Diego)
Julian Johnsen
(University of Bergen)
Katrine Loken
(University of Bergen)
[View Abstract]
An important externality of smoking is the harm it might cause to those who do not smoke. This paper examines the impact on birth outcomes of children of female workers who are affected by smoking bans in the workplace. Analyzing a 2004 law change in Norway that extended smoking restrictions to bars and restaurants, we find that children of female workers in restaurants and bars born after the law change saw significantly lower rates of being born below the very low birth weight (VLBW) threshold and were less likely to be born pre-term. Using detailed data on smoking status during pregnancy, we find that relative to the control group, most of the benefits arise from changes in smoking behavior of the mother; the effect of second hand smoke exposure on birth outcomes in this formulation appears to be quite small. Using individual tax data, we find that the law change did not result in changes in earnings or employment opportunities for those affected, thus suggesting that the effects seen are likely a direct result of changes in smoke exposure in utero. Using a twins based analysis, we link very low birth weight status to adult labor force participation and suggest that via the improvements in birth weight alone, the smoking restriction law in Norway could result in a 0.2 percentage point increase in full time employment by age 28.
Why is Infant Mortality Higher in the United States Than in Europe?
Alice Chen
(University of Chicago)
Emily Oster
(University of Chicago)
Heidi L. Williams
(Massachusetts Institute of Technology)
[View Abstract]
The US has a substantial - and poorly understood - infant mortality disadvantage relative to peer countries. Using new international micro-data, we document two striking new facts: this disadvantage largely arises in the postneonatal period (after the first month of life), and is almost entirely driven by higher cross-group inequality in the US. Building on these new facts, we assess potential explanations. The importance of postneonatal mortality strongly suggests that technology intensive post-birth medical care is unlikely to explain the US disadvantage. More tentatively, cross-group data on causes of death and behaviors suggest that well child-visits may play an important role.
The Impact of the Fracking Boom on Infant Health: Evidence from Detailed Location Data on Wells and Infants
Janet M. Currie
(Princeton University)
John Deutch
(Massachusetts Institute of Technology)
Michael Greenstone
(Massachusetts Institute of Technology)
Katherine H. Meckel
(Columbia University)
[View Abstract]
This paper uses detailed data from several states to determine the infant health impacts of exposure to recently developed hydraulic fracturing techniques (i.e., "fracking") to recover natural gas. We conduct the analysis with a new data file that contains the longitude and latitude of all fracked wells and the street address of all new mothers. These data will be merged with information on which households rely on well water that may potentially be contaminated through the fracking process and which ones rely on public water supplies that are cleaned in the normal process of water delivery.
The Great Equalizer: Health Care Access and Infant Mortality in Thailand
Jonathan Gruber
(Massachusetts Institute of Technology)
Nathaniel Hendren
(Harvard University)
Robert Townsend
(Massachusetts Institute of Technology)
[View Abstract]
This paper analyzes Thailand's 2001 healthcare reform, "30 Baht". The program increased funding available to hospitals to care for the poor and reduced copays to 30 Baht (~$0.75). Our estimates suggest the supply-side funding of the program increased healthcare utilization, especially amongst the poor. Moreover, we find significant impacts on infant mortality: prior to 30 Baht poorer provinces had significantly higher infant mortality rates than richer provinces. After 30 Baht this correlation evaporates to zero. The results suggest that increased access to healthcare among the poor can significantly reduce their infant mortality rates.
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salons I & J
American Economic Association
Issues in Higher Education
(I2)
Presiding:
Susan Dynarski
(University of Michigan)
Merit Aid, College Quality and College Completion: Massachusetts' Adams Scholarship as an In-Kind Subsidy
Sarah Cohodes
(Harvard University)
Joshua Goodman
(Harvard University)
[View Abstract]
[Download Preview] We analyze a Massachusetts merit aid program that gives high-scoring students tuition waivers at in-state public colleges with lower graduation rates than available alternative colleges.
A regression discontinuity design comparing students just above and below the eligibility threshold finds that students are remarkably willing to forgo college quality and that scholarship
use actually lowered college completion rates. These results suggest that college quality affects college completion rates and that students likely do not understand this fact well. The
theoretical prediction that in-kind subsidies of public institutions can reduce consumption of the subsidized good is shown to be empirically important.
Merit Aid, Student Mobility and the Role of College Selectivity
Rajashri Chakrabarti
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] In this paper, we investigate the role of college selectivity in mobility decisions (both in-state and out-of-state) of students caused by Georgia's HOPE scholarship program. Did HOPE induce Georgia students who would have otherwise attended more selective out-of-state colleges to move to less selective in-state ones? Or was there movement to more selective ones, both instate and out-of-state? Using student residency and enrollment data from IPEDS and selectivity data from Barrons and Petersons, we find that in the aftermath of HOPE Georgia residents attended relatively more-selective in-state colleges. Georgia residents attending out-of-state colleges were also more likely to attend more selective ones in the aftermath of HOPE, most likely due to an increase in the reservation price to go to out-of-state colleges following HOPE. Our results are robust to a variety of sensitivity checks and have important policy implications.
Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges
Stephanie Cellini
(George Washington University)
Claudia Goldin
(Harvard University)
[View Abstract]
[Download Preview] We use administrative data from five states to provide the first comprehensive estimates of the size of the for-profit higher education sector in the U.S. Our estimates include schools that are not currently eligible to participate in federal student aid programs under Title IV of the Higher Education Act and are therefore missed in official counts. We find that the number of for-profit institutions is double the official count and the number of students enrolled during the year is between one-quarter and one-third greater. Many for-profit institutions that are not Title IV eligible offer certificate (non-degree) programs that are similar, if not identical, to those given by institutions that are Title IV eligible. We find that the Title IV institutions charge tuition that is about 78 percent higher than that charged by comparable institutions whose students cannot apply for federal financial aid. The dollar value of the premium is about equal to the amount of grant aid and loan subsidy received by students in eligible institutions, lending some credence to a variant of the "Bennett hypothesis" that aid-eligible for-profit institutions capture a large part of the federal student aid subsidy.
Smarts versus Skills: The Effect of College Entrance Exams on Labor Market Outcomes and Inequality
Lesley Turner
(University of Maryland)
Sergio Urzua
(University of Maryland)
Stephanie Rennane
(University of Maryland)
Patricia Navarro-Palau
(Columbia University)
[View Abstract]
Information asymmetries make it difficult for governments and universities to determine which students will benefit the most from attending a selective institution. The allocation of students to higher education affects both private earnings and income inequality. We propose to study the choice of whether to base college admissions on measures of acquired knowledge or innate ability, taking advantage of a reform in Chile. Traditionally, Chilean students were assigned to universities by a centralized system based on tests designed to measure innate ability. Beginning in 2003, the Ministry of Education switched to a new test intended to evaluate the knowledge acquired by a student during secondary school. We will use a regression discontinuity approach and focus on two sources of variation in student outcomes: variation in the sharp test score cut-off that determines which students can apply to highly selective universities, and the large number of endogenous test score thresholds determined by students' demand for openings within a specific university-majors. By comparing the outcomes of students that are just barely admitted to a more selective program to those who are just barely rejected, we can estimate the causal impact of college quality on earnings and employment. Additionally, by contrasting these labor market returns to college admission for students admitted through the "knowledge" and "ability" regimes, we will be able to test whether students earn more when allocated to college programs through these different mechanisms. Finally, we will test whether the "knowledge" regime increased income inequality by reducing low-income students' postsecondary opportunities. Results from our study will have important implications for education policy in both Chile and the United States.
Discussants:
Sarah Turner
(University of Virginia)
Michael F. Lovenheim
(Cornell University)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
Macroeconomics of Austerity
(E6) (Panel Discussion)
Panel Moderator:
James Poterba
(Massachusetts Institute of Technology and NBER)
Lawrence Summers
(Harvard University)
Olivier Blanchard
(International Monetary Fund)
Hans-Werner Sinn
(Ifo Institute for Economic Research)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 204-B
American Economic Association
New Challenges in Sovereign Debt Restructuring
(F4)
Presiding:
Patrick Bolton
(Columbia University)
A Distant Mirror of Debt, Default, and Relief
Carmen M. Reinhart
(Harvard University)
[View Abstract]
[Download Preview] We take a first pass at quantifying the magnitudes of debt relief achieved through default and restructuring and examine the subsequent economic performance of the debtors in two distinct samples: credit events in the middle-high income emerging markets, 1979-2010; and the debt hangover of official debt created by World War I and the defaults of the major advanced economies, 1920-1939. The indicators we analyze in the post-debt-relief period for both samples include: real per capita GDP (levels and growth rates); sovereign credit ratings (Fitch, Moodys and Institutional Investors); capital flow bonanzas; debt servicing burdens (interest and amortization) relative to GDP, GNI, revenues, and exports; external debt (public plus private) for emerging markets; total, external, and domestic central government debt for interwar episodes (relative to GDP, GNI, and exports). Across 42 default and restructuring episodes over 1932-1939 and 1979-2010 for which we have the required data, debt relief averaged 14 and 16 percent of GDP for advanced economies and middle-high-income emerging markets, respectively; there are numerous reasons why these estimates represent a lower bound on the true magnitude of debt relief. The post final debt reduction landscape is characterized by higher income levels and growth, lower debt servicing burdens, lower external debt, sovereign credit ratings and capital flows behaved differently in the interwar and modern periods; in the latter case ratings recover markedly.
Restructuring the Sovereign Debt Restructuring Mechanism
Rohan Pitchford
(Australian National University)
Mark L. J. Wright
(University of California-Los Angeles)
[View Abstract]
Sovereign defaults are time consuming and costly to resolve ex post. But these costs also improve borrowing incentives ex ante. What is the optimal tradeoff between efficient borrowing ex ante and the costs of default ex post? What policy reforms, from collective action clauses to an international bankruptcy court, would attain this optimal tradeoff? Towards an answer to these questions, this paper presents a simple incomplete markets model of sovereign borrowing that is coupled with an explicit and flexible model of the sovereign debt restructuring process. We characterize the optimal amount of delay, and explore numerically the effects of various policy options on the amount of delay in renegotiations, and on the efficiency of capital flows.
The Greek Debt Restructuring: An Autopsy
Jeromin Zettelmeyer
(EBRD and CEPR)
Christoph Trebesch
(University of Munich)
Mitu Gulati
(Duke University)
[View Abstract]
[Download Preview] The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt reliefâ€â€over 50 percent of 2012 GDPâ€â€with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedentsâ€â€particularly in its very generous treatment of holdout creditorsâ€â€that are likely to make future debt restructurings in Europe more difficult.
Sovereign Defaults in Court
Julian Schumacher
(Free University and Hertie School of Governance)
Christoph Trebesch
(University of Munich)
Henrik Enderlein
(Hertie School of Governance and Harvard University)
[View Abstract]
[Download Preview] Sovereign debt is widely seen as non-enforceable and immune from legal action. This paper takes a different perspective, by documenting the changing environment for sovereign debt enforcement in courts. We construct a comprehensive dataset of lawsuits filed against defaulting governments since 1976 and find a strong increase in creditor litigation: case numbers, case volumes, and attachment attempts have all more than doubled over the past two decades. In recent years, almost 50\% of sovereign debt restructurings involved creditor lawsuits abroad. Our empirical analysis also suggests that litigation has negative spillover effects on (i) government access to international credit markets, (ii) international trade, and (iii) delays in crisis resolution. We conclude that the legal remedies against sovereign defaults have greatly increased - with high costs inside and outside the courtroom.
Discussants:
Laura Alfaro
(Harvard University)
Fernando Broner
(CREI and Universitat Pompeu Fabra)
Anil Kashyap
(University of Chicago)
Michael Bordo
(Rutgers University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 109-B
American Economic Association
Political Institutions, Representation and Policy
(D7)
Presiding:
Benjamin Olken
(Massachusetts Institute of Technology)
Democracy, Redistribution, and Political Participation: Evidence from Sweden 1919-1938
Per Pettersson-Lidbom
(Stockholm University)
Björn Tyrefors-Hinnerich
(Stockholm University)
[View Abstract]
[Download Preview] In this paper, we compare how two different types of political regimes-direct versus representative democracy-redistribute income towards the relatively poor segments of society after the introduction of universal and equal suffrage. Swedish local governments are used as a testing ground since this setting offers a number of attractive features for a credible impact evaluation. Most importantly, we exploit the existence of a population threshold, which partly determined a local government's choice of democracy to implement a regression-discontinuity design. The results indicate that a representative democracy spends 40-60 percent more on public welfare. Our interpretation is that direct democracy may be more prone to elite capture than representative democracy since the elite's potential to exercise de facto power is likely to be greater in direct democracy after democratization.
Policy Choices in Assembly vs. Representative Democracies: Evidence from Swiss Communes
Patricia Funk
(Universitat Pompeu Fabra)
Stephan Litschig
(Universitat Pompeu Fabra)
[View Abstract]
This paper evaluates whether the form of the legislative institution-citizen assembly vs. elected parliament-affects the allocation of community resources. We collect data at the local (commune) level in Switzerland over the period 1945-2010 and use two research designs-fixed effects and regression discontinuity (RD) based on local population-to get at the causal effect of the form of democracy on the size and structure of local public spending. Preliminary fixed-effects estimates suggest that parliaments increase both revenue and public expenditure per capita by about 8 percent. In contrast, regression discontinuity estimates are essentially zero and estimated precisely enough to reject the impact on expenditure per capita found in other settings. Results so far thus highlight the local nature of RD estimates (population is an order of magnitude larger in our fixed effects sample compared to the RD sample) as well as the importance of contextual factors-such as the existence of fiscal referenda, present in Switzerland but likely absent elsewhere-in mediating the effect of legislative institutions on policy choices.
Do Elected Councils Improve Governance Outcomes? Experimental Evidence on Local Institutions in Afghanistan
Andrew Beath
(World Bank)
Fotini Christia
(Massachusetts Institute of Technology)
Ruben Enikolopov
(Institute for Advanced Study and New Economic School)
[View Abstract]
[Download Preview] Using data from a field experiment in 500 villages, we study how local institutions affect the quality of governance, as measured by aid distribution outcomes. In villages where elected councils exist and manage distributions, aid targeting improves. However, if the distribution is not clearly assigned to either the council or to customary leaders, the creation of elected councils increases embezzlement and makes decision-making less inclusive. Requiring that women manage the distribution jointly with customary leaders also increases embezzlement. Thus, while elected councils can improve governance, overlapping mandates between new and existing institutions may result in increased rent-seeking.
Discussants:
Tommaso Nannicini
(Bocconi University)
Anh Tran
(Indiana University)
Stephan Litschig
(Universitat Pompeu Fabra)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 107-B
American Economic Association
Public Policy and the Aggregate Economy
(E6)
Presiding:
Richard Blundell
(University College London)
Aggregate Implications of Innovation Policy
Andrew Atkeson
(University of California-Los Angeles)
Ariel Burstein
(University of California-Los Angeles)
[View Abstract]
We examine the quantitative impact of changes in innovation policies on innovation spending, the innovation rate, and aggregate growth in the long-run and over an initial transition period of 20 years in a baseline Klette-Kortum Neo-Schumpeterian growth model. We present simple analytical results isolating the specific features and/or parameters of the model that play the key roles in shaping its quantitative implications for the aggregate impact of innovation policies. We find in our baseline model that changes in innovation policies cannot spur a significant change in aggregate productivity over the medium term horizon (i.e. 20 years) in an economy with a moderate initial net growth rate of TFP unless the change in policy leads to a very large change in the innovation rate spurred by a very large change in investment in innovation relative to GDP. Moreover, we show that the medium term dynamics implied by the model are not very sensitive to the degree of intertemporal knowledge spillovers that determine the model's long run implications. We find that one of the key features of the Klette-Kortum model (and nearly all Neo-Shumpeterian growth models) that drive these quantitative implications for the medium term is the assumption that there is no social depreciation of innovation expenditures.
A draft of the paper is available at: http://www.econ.ucla.edu/arielb/innovationpolicy.pdf
Optimal Capital versus Labor Taxation with Innovation-Led Growth
Philippe Aghion
(Harvard University)
Ufuk Akcigit
(University of Pennsylvania)
Jesus Fernandez-Villaverde
(University of Pennsylvania)
[View Abstract]
Chamley (1986) and Judd (1985) showed, analyzing optimal taxation in a standard neoclassical growth model with capital accumulation and infinitely-lived agents, that taxing capital cannot be optimal in the steady state (i.e. in the long run). In this paper, we introduce innovation-led growth into the Chamley-Judd framework, using a Schumpeterian growth model where productivity-enhancing innovations result from profit-motivated R&D investment, Final good is produced with capital and labor, and capital accumulates over time exactly as in Chamley and Judd. Our main result is that, for a given required trend of public expenditure, a zero tax on capital becomes sub-optimal, due to a market size effect. In particular, for sufficiently high level of public expenditure, not taxing capital implies that labor must be taxed at a high rate. This in turn has a detrimental effect on labor supply, and therefore the market size for innovation. Simultaneously, taxing capital also reduces innovation incentives and, for some parameter values, it is optimal to subsidize it. However, the former effect dominates when the required level of public expenditure and the income elasticity of labor supply are both sufficiently high.
A Schumpeterian Model of Top Income Inequality
Charles I Jones
(Stanford University)
Jihee Kim
(Stanford University)
[View Abstract]
[Download Preview] Top income inequality rose sharply in the United States over the last 30 years but increased only slightly in economies like France and Japan. Why? This paper explores a model in which the interplay between entrepreneurial efforts to grow existing market share and the creative destruction associated with outside innovation lead top incomes to obey a Pareto distribution. The extent to which entrepreneurs, interpreted very broadly, can grow the markets for their existing ideas is a key determinant of top income inequality, while the creative destruction by which one entrepreneur replaces another restrains inequality. Any changes in the economy that make a given amount of entreprenuerial effort more effective at building market share will increase top inequality. Examples might include the world wide web and possibly globalization. On the other hand, policies that restrain the growth of market share by entrepreneurs can limit inequality. Differences in these considerations across countries may help explain the divergent patterns of top income inequality that we see in the data.
Firm Size Distortions and the Productivity Distribution: Evidence from France
Luis Garicano
(London School of Economics)
John Van Reenen
(London School of Economics)
Claire Lelarge
(CREST)
[View Abstract]
[Download Preview] We show how size-contingent laws can be used to identify the equilibrium and welfare effects of labor regulation. Our framework incorporates such regulations into the Lucas (1978) model and applies this to France where many labor laws start to bind on firms with exactly 50 or more employees. Using data on the population of firms between 2002 and 2007 period, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. With flexible wages, the deadweight loss of the regulation is below 1% of GDP, but when wages are downwardly rigid welfare losses exceed 5%. We also show, regardless of wage flexibility, that the main losers from the regulation are workers (and to a lesser extent large firms) and the main winners are small firms.
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 103-C
American Economic Association
Theory of Persuasion
(D8)
Presiding:
Matthew Gentzkow
(University of Chicago)
Costly Persuasion
Matthew Gentzkow
(University of Chicago)
Emir Kamenica
(University of Chicago)
[View Abstract]
[Download Preview] We study the design of informational environments in settings where generating information is costly. We assume that the cost of a signal is proportional to the expected reduction in uncertainty. We show that Kamenica & Gentzkow's (2011) concavification approach to characterizing optimal signals extends to these settings.
How Better Information Can Garble Experts' Advice
Matthew Elliott
(California Institute of Technology)
Benjamin Golub
(Stanford University)
Andrei Kirilenko
(Commodity Futures Trading Commission)
[View Abstract]
We model environments in which there is an unobserved, binary state of interest, and a principal's optimal action depends on its realization. Experts receive signals about the true state and then each recommends an action to the principal. We assume the principal and all experts dislike making errors in their decision and recommendations, respectively, but may trade off the possibility of false positives and false negatives in different ways. The main question we address is whether it is in the principal's interest to let the experts share information before they make their recommendations. Although doing so improves experts' ability to avoid errors, we identify a simple environment in which any principal, regardless of how she trades off the different errors, is made worse off if the experts are permitted to share information.
Interim Bayesian Persuasion: First Steps
Eduardo Perez-Richet
(Ecole Polytechnique)
Delphine Prady
(French Treasury)
[View Abstract]
[Download Preview] This paper makes a first attempt at building a theory of interim Bayesian persuasion.
I work in a model where a low or high type sender seeks validation from a receiver who
is willing to validate high types exclusively. After learning her type, the sender chooses
a complete conditional information structure for the receiver. I suggest a solution to this
game that takes into account the signaling potential of the sender's choice.
Discussants:
Paul Milgrom
(Stanford Univeristy)
Ilya Segal
(Stanford University)
Navin Kartik
(Columbia University)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon B
American Economic Association
Toilet Papers: The Economics of Sanitation in Developing Countries
(O1)
Presiding:
Anne Case
(Princeton University)
How Much International Variation in Child Height Can Sanitation Explain?
Dean Spears
(Princeton University)
[View Abstract]
Physical height is an important economic variable reflecting health and human capital. Puzzlingly, however, differences in average height across developing countries are not well explained by differences in wealth. In particular, children in India are
shorter, on average, than children in Africa who are poorer, on average, a paradox
called "the Asian enigma" which has received much attention from economists. This
paper provides the first documentation of a quantitatively important gradient between
child height and sanitation that can statistically explain a large fraction of international
height differences. This association between sanitation and human capital is
robustly stable, even after accounting for other heterogeneity, such as in GDP. I apply
three complementary empirical strategies to identify the association between sanitation
and child height: country-level regressions across 140 country-years in 65 developing
countries; within-country analysis of differences over time within Indian districts; and
econometric decomposition of the India-Africa height difference in child-level data.
Open defecation, which is exceptionally widespread in India, can account for much or
all of the excess stunting in India.
The Dirty Business of Reducing Open Defecation: Lessons from a Sanitation Intervention
Shah Manisha
(University of California-Los Angeles)
Paul Gertler
(University of California-Berkeley)
Lisa Cameron
(Monash University)
[View Abstract]
This paper uses a randomized experimental design to evaluate a sanitation intervention that was piloted at scale across rural East Java. The program, known as Total Sanitation and Sanitation Marketing (TSSM) relies on facilitated sessions that trigger a sense of disgust at open defecation to stimulate collective action to solve current sanitation problems. Its lack of financial assistance to communities differentiates it from many previous programs that have subsidized sanitation materials. Anecdotal evidence from several countries suggests cost-effective, positive results and has led to the program being adopted in many different contexts. We find that the program significantly increased toilet construction, resulted in behavioral change amongst households with no private toilets, and had consequent sizeable impacts on child health. By decomposing the program impact we are able to show that the program worked predominantly through behavioral change. Toilet construction is however more effective at reducing open defecation than behavioral change but was hindered by the lack of financial assistance. Toilet construction was concentrated mainly among less poor households, with most of the health benefits also accruing to these households.
Does Development Aid Undermine Political Accountability? Voter and Politician Responses to a Large-Scale Randomized Intervention
Raymond Guiteras
(University of Maryland)
Mushfiq Mobarak
(Yale University)
[View Abstract]
This paper addresses two inter-related questions in the political economy of development literature. First, does development aid potentially worsen outcomes in the long run by reducing politicians' accountability and allowing bad leaders to persist in office? (Ahmed, 2012; Brollo et al., 2012) Second, are voters systematically fooled by randomness, attributing the effects of random shocks to politicians? (Wolfers, 2007; Cole, Healy and Werker, 2012; Manacorda, Miguel and Vigorito, 2009) This paper examines these claims in the context of a large-scale randomized intervention in rural Bangladesh. The intervention provided information on the importance of sanitation and, in randomly chosen neighborhoods, subsidies for sanitation improvements. This intervention had three key features: it was conducted at a large scale (118 villages, 372 neighborhoods and 18,000 households); the randomization occurred at two levels, one public and one non-public; we collected data on political leaders' actions and residents' attitudes towards these leaders. These features allow us to estimate changes in political opinions as well as changes in politician behavior in reaction to the randomized program placement. We show that politicians respond to program placement in a way that can rationalize seemingly "irrational" voter reactions to random events, consistent with a simple model of politician behavior. In the case of the sanitation program in Bangladesh, the randomized program led to some positive spillover effects on politician behavior - the program induces leaders to expend more effort (to distinguish themselves from bad leaders, according to our model), and some constituents benefit as a result. Furthermore, the effect of the intensive sanitation information campaign is to create greater accountability, not less, as the constituents become more informed about the communal sanitation needs, and the associated responsibilities of community leaders.
Sanitation In Combination: A Pilot Randomized Controlled Trial of Water, Sanitation, and Hygiene Interventions Alone and in Combination in Rural Western Kenya
Garret Christensen
(Swarthmore College)
Holly Dentz
(Emory University)
Tomoé Bourdier
(Innovations for Poverty Action)
Amy Pickering
(Stanford University)
Clair Null
(Emory University)
[View Abstract]
Diarrheal episodes early in life can have long-term effects on child growth and development. While water and hygiene interventions have been found to reduce diarrheal disease, few studies have rigorously evaluated the effectiveness of sanitation interventions, and fewer still have evaluated sanitation in combination with water and hygiene interventions to assess how benefits might aggregate. In preparation for a much larger randomized trial to investigate the substitutability and complementarities of water, sanitation, and hygiene interventions, the WASH Benefits project enrolled 499 pregnant women and mothers of young children in a pilot cluster randomized trial in rural western Kenya. Subjects were randomized by village to receive a sanitation intervention alone or in combination with water and hygiene interventions; other subjects were randomly assigned to a control group, or to groups receiving only water or only hygiene interventions. In a context where 90% of study participants already had a simple unimproved pit latrine in their compound, our sanitation package consisted of a plastic slab to improve the flooring of the latrine, a drop hole cover to prevent flies from carrying contamination out of the latrine, a potty for children under four years of age, and a "pooper scooper" to remove feces (animal or human) from the compound yard. The interventions led to statistically significant improvements in observable characteristics (less visible feces in the latrine and a cover over the drop hole), as well as self-reported behaviors (reduced open defecation by young children), compared to the control group. We find significantly better sanitation outcomes in the sanitation-only treatment arm relative to the multiple-intervention arm, suggesting that multiple interventions could potentially overload the recipient, although this could also be explained by the behavior change component of the single intervention arm having been more intensive.
Discussants:
Seema Jayachandran
(Northwestern University)
Pascaline Dupas
(Stanford University)
Alix Zwane
(Bill and Melinda Gates Foundation)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 202-A
American Economic Association
Trade and the Economic Impacts of Transportation Infrastructure
(F1)
Presiding:
Stephen Redding
(Princeton University)
Can Openness to Trade Reduce Income Volatility? Evidence from Colonial India's Famine Era
Robin Burgess
(London School of Economics)
Dave Donaldson
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Whether openness to trade can be expected to reduce or exacerbate the equilibrium exposure of real income to productivity shocks remains theoretically ambiguous and empirically unclear. In this paper we exploit the expansion of railroads across India between 1861 to 1930, a setting in which agricultural technologies were rain-fed and risky, and regional famines were commonplace, to examine whether real incomes became more or less sensitive to rainfall shocks as India's district economies were opened up to domestic and international trade. Consistent with the predictions of a Ricardian trade model with multiple regions we find that the expansion of railroads made local prices less responsive, local nominal incomes more responsive, and local real incomes less responsive to local productivity shocks. This suggests that the lowering of transportation costs via investments in transportation infrastructure played a key role in raising welfare by lessening the degree to which productivity shocks translated into real income volatility. We also find that mortality rates became significantly less responsive to rainfall shocks as districts were penetrated by railroads. This finding bolsters the view that growing trade openness helped protect Indian citizens from the negative impacts of productivity shocks and in reducing the incidence of famines.
Roads and Trade: Evidence from the United States
Gilles Duranton
(University of Pennsylvania)
Peter Morrow
(University of Toronto)
Matthew Turner
(University of Toronto)
[View Abstract]
[Download Preview] We estimate the effects of interstate highways on the level and composition of trade for us cities. Highways within cities have a large effect on the weight of city exports with an elasticity of approximately 0.5. There is no discernible effect of highways on the total value of exports. Consistent with this, we find that cities with more highways specialize in sectors producing heavy goods.
Trade Integration, Market Size, and Industrialization: Evidence from China's National Trunk Highway System
Ben Faber
(London School of Economics and University of California-Berkeley)
[View Abstract]
Large scale transport infrastructure investments connect both large metropolitan centers of production as well as small peripheral regions. Are the resulting trade cost reductions a force for the diffusion of industrial and total economic activity to peripheral regions, or do they reinforce the concentration of production in space? This paper exploits China's National Trunk Highway System as a large scale natural experiment to contribute to our understanding of this question. The network was designed to connect provincial capitals and cities with an urban population above 500,000. As a side effect, a large number of small peripheral counties were connected to large metropolitan agglomerations. To address non-random route placements on the way between targeted city nodes, I propose an instrumental variable strategy based on the construction of least cost path spanning tree networks. The estimation results suggest that network connections have led to a reduction in GDP growth among non-targeted peripheral counties due to reduced industrial output growth. Additional results present evidence in favor of a mechanism based on trade cost reductions between asymmetric regions.
Trade and the Topography of the Spatial Economy
Treb Allen
(Northwestern University)
Costas Arkolakis
(Yale University)
[View Abstract]
[Download Preview] We develop a versatile general equilibrium framework to determine the spatial distribution of economic activity on (nearly) any surface with (nearly) any geography. Combining the gravity structure of trade with labor mobility, we provide conditions for the existence and uniqueness of a spatial economic equilibrium and derive a simple set of differential equations which govern the relationship between economic activity and the geography of the surface. We then use the framework to identify the underlying topography of productivities and amenities both in the United States and across the world. We find that geographic location is an important determinant of the observed spatial distribution of income. Finally, we show how changing the underlying geography would affect the equilibrium distribution of economic activity.
Discussants:
Felix Tintlenot
(University of Chicago and Pennsylvania State University)
Michal Fabinger
(Pennsylvania State University)
David Atkin
(Yale University)
Kerem Cosar
(University of Chicago)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon F
American Economic Association
What's Happening to Health Care Costs?
(I1) (Panel Discussion)
Panel Moderator:
Joseph Newhouse
(Harvard University)
David M. Cutler
(Harvard University)
Martin S. Gaynor
(Carnegie Mellon University)
Douglas J. Holtz-Eakin
(American Action Forum)
Peter R. Orszag
(Citigroup)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
Capital Structure, Production, and Labor
(G3)
Presiding:
David Matsa
(Northwestern University)
Production Characteristics, Financial Flexibility, and Capital Structure Decisions
Sebastian Reinartz
(Technische University Munchen)
Thomas Schmid
(Technische University Munchen)
[View Abstract]
[Download Preview] This article reveals a positive and causal relationship between production flexibility and financial leverage. A worldwide sample of energy utilities allows us to apply three direct measures for production flexibility which are based on the technologies of the firms' power plants. For identification, we exploit privatizations and deregulations of electricity markets, gas and electricity prices, and geographical variations of natural resources as plausibly exogenous instruments. Variation in countries' investor protection and abnormal returns around the collapse of Lehman Brothers indicate a substitution effect between production and financial flexibility. Lastly, we find that the effect of production flexibility increases with electricity price volatility.
Capital Structure and Employment Flexibility
Olga Kuzmina
(New Economic School)
[View Abstract]
[Download Preview] This paper provides causal evidence of flexible operating strategies affecting capital structure of firms. I exploit the appealing setting of the European labor market to show that the use of employment contracts that provide firms with a greater operating flexibility in terms of less costly firing promotes debt financing. I build the identification strategy on the exogenous inter-temporal and cross-regional variation in government programs that discouraged the use of more flexible contracts by firms. The results of the paper highlight the importance of examining operating and organizational strategies as integral determinants of corporate financing policies.
The Effect of Firm Finances on Workplace Safety
Jonathan Cohn
(University of Texas-Austin)
Malcolm Wardlaw
(University of Texas-Dallas)
[View Abstract]
[Download Preview] This paper studies the impact of a firm's financial structure and condition on workplace safety using establishment-level injury data. We find that injury rates increase with leverage, controlling for a number of other factors (including establishment fixed effects). They also increase (decrease) in response to plausibly exogenous negative (positive) cash flow shocks, especially in more leveraged firms. We interpret these results as evidence that firms cut investment in activities that enhance workplace safety when they lack financing. This represents a previously unexplored channel through which a firm's finances can impact the well-being of its employees, an important set of non-financial stakeholders in the firm.
Human Capital Loss in Corporate Bankruptcy
John Graham
(Duke University)
Hyunseob Kim
(Cornell University)
Si Li
(Wilfrid Laurier University)
Jiaping Qiu
(McMaster University)
[View Abstract]
This paper quantifies the ?human costs of bankruptcy? by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau?s LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.
Discussants:
Mitchell Petersen
(Northwestern University)
Francisco Perez-Gonzalez
(Stanford University)
Nancy Rose
(Massachusetts Institute of Technology)
Ashwini Agrawal
(New York University)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Corporate Governance
(G3)
Presiding:
Bo Becker
(Harvard Business School)
Soft Shareholder Activism
Doron Levit
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper studies informal communications (voice) and exit as alternative ways through which shareholders can influence managers when obtaining control is not feasible or too costly. By focusing on the interaction between financial markets and the incentives of activist investors to communicate with managers, the analysis relates the effectiveness of voice and exit to market liquidity; entrenchment and compensation structure of managers; and expertise, liquidity and ownership size of activist investors. Importantly, I characterize the circumstances under which activist investors prefer to voice themselves publicly rather than engaging with managers behind the scenes.
Equity Issuance, Distress, and Agency Problems: 20 Percent Rule for Privately Issued Equity
James Park
(Korea University)
[View Abstract]
[Download Preview] Stock exchanges require shareholder approval for discounted placements that make up more than 20% of existing shares. This study shows discontinuity among placement distribution around the 20% threshold, which suggests that managers tend to avoid seeking approval by keeping the placement fraction just below 20%. Empirical results show that placements below 20% have negative announcement returns while firms that seek approval do not. Moreover, managers seem to avoid seeking shareholder approval not because the approval process is too costly, but because the placements are not in the best interests of shareholders. Overall, my findings suggest agency problems in private placements.
Capital Gains Lock-In and Governance Choices
Stephen G. Dimmock
(Nanyang Technological University)
William Gerken
(University of Kentucky)
Zoran Ivkovich
(Michigan State University)
Scott Weisbenner
(University of Illinois-Urbana Champaign)
[View Abstract]
[Download Preview] Capital gains taxes create a disincentive for mutual funds to sell stocks that have accrued gains. Because of differences in the tax status of funds’ investors and differences in accrued gains in a stock, capital gains “lock-in†will vary across funds even for the same stock. We find that funds are more likely to oppose management when they are locked-in to a position: for votes in which opposing management is value increasing, a fund’s capital gains lock-in reduces the likelihood of selling the stock prior to the vote, but increases the likelihood of voting against management. Consistent with this tax lock-in motivation, these findings are concentrated among funds with few tax-deferred investors. Our results thus show one determinant of corporate governance by mutual funds.
Corporate Investment and Stock Market Listing: A Puzzle?
John Asker
(New York University)
John Farre-Mensa
(Harvard Business School)
Alexander Ljungqvist
(New York University)
[View Abstract]
We evaluate differences in investment behavior between stock market listed and privately held firms in the U.S. using a rich new data source on private firms. Listed firms invest less and are less responsive to changes in investment opportunities compared to matched private firms, especially in industries in which stock prices are particularly sensitive to current earnings. These differences do not appear to be due to unobserved differences between public and private firms, how we measure investment opportunities, lifecycle differences, or our matching criteria. We suggest that the patterns we document are consistent with theoretical models emphasizing the role of managerial myopia.
Discussants:
Denis Gromb
(INSEAD)
Xavier Giroud
(Massachusetts Institute of Technology)
Francisco Perez-Gonzalez
(Stanford University)
Gustavo Manso
(University of California-Berkely)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Financial Distress and Corporate Bankruptcy
(G3)
Presiding:
Vikrant Vig
(London Business School)
When the Congress Says “PIP Your KERPâ€: Performance Incentive Plans, Key Employee Retention Plans and, Chapter 11 Bankruptcy Resolution
Evren Ors
(HEC Paris)
Vedran Capkun
(HEC Paris)
[View Abstract]
[Download Preview] Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) imposed stringent requirements on Key Employee Retention Plan (KERP) adoptions and implicitly favored Performance Incentive Plans (PIPs) in the amended Chapter 11. We use court documents to differentiate between retention versus performance incentive plans, and examine their impact on bankruptcy resolution before and after BAPCPA. We find that PIPs effectiveness in reducing bankruptcy duration and improving operating performance post-Chapter 11 disappears after BAPCPA. We also find that pre-reform KERPs are associated with longer bankruptcy proceedings and lower operating performance. Our findings are consistent with the presence of regulatory arbitrage post-BAPCPA.
Creditor Governance with Loan-to-Loan and Loan-to-Own
Kai Li
(University of British Columbia)
Wei Wang
(Queen's University)
[View Abstract]
This paper studies creditor governance in Chapter 11 firms through their loan-to-loan strategy, whereby existing creditors continue to provide lending after a borrower files for Chapter 11, and loan-to-own strategy, whereby creditors become equity holders at a borrower?s emergence from Chapter 11. We show that activist creditors strategically choose distressed firms to enforce their influence. We find that maintaining lending relationships with a borrower is a major consideration for loan-to-loan participants. Existing lenders select borrowers with better operating performance and stronger institutional shareholder presence to continue with the lending. Loan-to-loan strategies weaken the liquidation bias of secured lenders, resulting in a higher likelihood of emergence. In addition, loan-to-loan enables these creditors to gain control of management hiring, resulting in a higher likelihood of firms hiring an external CEO. In contrast, loan-to-own strategies allow unsecured creditors to
Indirect Bankruptcy Costs and Bankruptcy Law
Zacharias Sautner
(University of Amsterdam)
Vladimir Vladimirov
(University of Amsterdam)
[View Abstract]
We use a simple model to predict how creditor rights in bankruptcy affect the accumulation and magnitude of indirect bankruptcy costs. We empirically identify these effects by using two matched samples of bankrupt firms that provide us with variation in creditor rights. Consistent with our model, we find evidence that, when creditor rights are stronger, indirect bankruptcy costs are lower prior to bankruptcy, and that these costs accumulate more slowly in the period preceding a bankruptcy filing.
How Costly is Corporate Bankruptcy for Top Executives?
B. Espen Eckbo
(Dartmouth College)
Karin Thorburn
(Norwegian School of Economics)
Wei Wang
(Queen's University)
[View Abstract]
[Download Preview] High expected personal costs may cause risk-averse executives to hedge against default by reducing corporate leverage and perhaps under-invest in risky corporate projects, resulting in a potentially important form of agency costs of debt. To address this issue, we provide estimates of CEO human capital losses from corporate bankruptcy which, for the first time, account for CEO post-bankruptcy employment. Fully half of the incumbent CEOs maintain full-time executive employment with a median estimated labor income loss of zero. Thus, these CEO's labor market reputations do not seem to have been tainted by the bankruptcy event. However, the other half---CEOs who fail to maintain executive employment---experience a median loss equal to five times their pre-departure labor income. Executives with greater {\it predicted} income loss are more likely to be forced out, suggesting that these managers were earning supra-competitive rents. The proportion equity pay in the CEO's compensation packag
Discussants:
Ben Iverson
(Harvard Business School)
Rainer Haselmann
(University of Bonn)
Nicolas Serrano-Velarde
(University of Oxford)
Jacopo Ponticelli
(Universitat Pompeu Fabra)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Household Finance: Retirement-Labor Choices
(G1)
Presiding:
Adair Morse
(University of California-Berkeley)
Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice
Ralph Koijen
(University of Chicago)
Stijn Van Nieuwerburgh
(New York University)
Motohiro Yogo
(Federal Reserve Bank of Minneapolis)
[View Abstract]
We develop a pair of risk measures for the universe of health and longevity products
that includes life insurance, annuities, and supplemental health insurance. Health delta measures the differential payoff that a product delivers in poor health, while mortality delta measures the differential payoff that a product delivers at death. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of health and longevity products. For each household in the Health and Retirement Study, we calculate the health and mortality delta implied by its ownership of life insurance, annuities including private pensions, and long-term care insurance. We then compare them to the optimal health and mortality delta implied by the life-cycle model. For the median household aged 51 to 58, the lifetime welfare cost of market incompleteness and suboptimal insurance choice is 6 percent of total wealth.
Made Poorer by Choice: Worker Outcomes in Social Security v. Private Retirement Accounts
Javed Ahmed
(Federal Reserve Board)
Brad Barber
(University of California-Davis)
Terrance Odean
(University of California-Berkeley)
[View Abstract]
Can the freedom to choose how retirement funds are invested leave workers worse off? We analyze social risks of allowing choice, using the Social Security system as an example. Comparing a private account-based alternative with the current system via simulation, we document that choice in both equity allocation and equity composition lead to increased income inequality and risk of shortfalls relative to currently promised benefits. While private accounts disproportionately increase shortfall risk for low-income workers, allowing choice increases risk for all workers (even with high return outcomes). Our results suggest that private-account-based systems featuring investor choice pose substantial risk to social welfare beyond that induced by uncertain market outcomes. We also find that a representative worker who earns his cohort’s average annual salary benefits much more from a private-account alternative than do most workers. Thus, the welfare of such a representative worker should not be used to assess population wide benefits of private-account alternatives.
What is the Impact of Financial Advisors on Retirement Portfolio Choices and Outcomes?
John Chalmers
(University of Oregon)
Jonathan Reuter
(Boston College)
[View Abstract]
[Download Preview] Within the Oregon University System?s defined contribution retirement plan, one investment provider offers access to face-to-face financial advice through its network of brokers. We find that younger, less highly educated, and less highly paid employees are more likely to choose this provider. To benchmark the portfolios of broker clients, we use the actual portfolios of self-directed investors and counterfactual portfolios constructed using target-date funds, a popular default investment. Broker clients allocate contributions across a larger number of investments than self-directed investors, and they are less likely to remain fully invested in the default option. However, broker clients? portfolios are significantly riskier than self-directed investors? portfolios, and they underperform both benchmarks. Exploiting across-fund variation in broker compensation, we find that broker clients? allocations are higher when broker fees are higher. Survey responses from current plan participan
Microfinance, Poverty, and Education
Britta Augsburg
(Institute For Fiscal Studies)
Ralph De Haas
(EBRD)
Heike Harmgart
(EBRD)
Costas Meghir
(Yale University)
[View Abstract]
We use an RCT to analyze the impact of microcredit on poverty reduction, child and teenage labour supply, and education. The study population consists of loan applicants to a major MFI in Bosnia who would have been rejected through regular screening. Access to credit allowed borrowers to start and expand small-scale businesses. Households that already had a business and where the borrower had more education, ran down savings, presumably to complement the loan and achieve the minimum investment amount. However, in less-educated households consumption went down. A key new finding is a substantial increase in the labor supply of children aged 16-19 year old together with a reduction in their school attendance, raising important questions about the unintended intergenerational consequences of relaxing liquidity constraints for self-employment and business creation or expansion.
Discussants:
Deborah Lucas
(Massachusetts Institute of Technology)
Jonathan A. Parker
(Northwestern University)
Olivia S. Mitchell
(University of Pennsylvania)
Jonathan Morduch
(New York University)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Commonwealth Hall A
American Finance Association
Networks, International Finance
(G1)
Presiding:
Tarek Hassan
(University of Chicago)
Resident Networks and Firm Trade
Lauren H. Cohen
(Harvard Business School)
Umit Gurun
(University of Texas-Dallas)
Christopher Malloy
(Harvard Business School)
[View Abstract]
We demonstrate that simply by using the ethnic makeup surrounding a firm?s location, we can predict, on average, which trade links are valuable for firms. Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarters. We use the formation of World War II Japanese Internment Camps to isolate exogenous shocks to local ethnic populations, and identify a causal link between local networks and firm trade links. Firms that exploit their local networks (strategic traders) see significant increases in future sales growth and profitability, and outperform other importers and exporters by 5%-7% per year in risk-adjusted stock returns. In sum, our results document a surprisingly large impact of immigrants? economic role as conduits of information for firms in their new countries.
Sovereign Debt Crises and Financial Contagion: Estimating Effects in an Endogenous Network
Brent Glover
(Carnegie Mellon University)
Seth Richards-Shubik
(Carnegie Mellon University)
[View Abstract]
In an integrated global financial system, a sovereign default raises concerns of financial contagion to other countries. We develop and estimate an equilibrium model featuring a network of international borrowing and lending. In the model, the network structure of borrowing-lending relationships arises endogenously and results in the propagation of financial shocks across countries. We estimate the model using data on foreign claims among a network of 20 countries over six years. Simulating counterfactual experiments from the estimated model, we find a non-trivial role for financial contagion. The default of a sovereign in the network has a noticeable effect on the borrowing costs and default probabilities of other network members.
Capital Controls and International Financial Stability
Adrian Buss
(INSEAD)
[View Abstract]
[Download Preview] Capital controls have been adopted by several emerging countries in the last few years as a reaction to large capital inflows, causing a so-called "currency war". However, a priori it is not clear whether the introduction of capital controls actually strengthens financial stability, and what the possible adverse consequences are. In this paper, we conduct an analysis of the implications of capital controls for financial stability. We study a financial transaction (Tobin) tax applicable to cross-border capital flows in a multi-good, multi-country dynamic equilibrium model with incomplete financial markets and heterogeneous agents. Our results indicate that the impact of capital controls varies considerably across market segments. In currency markets, capital controls reduce the volatility. However, in international stock markets, their introduction amplifies price movements, thus, increases the volatility.
Discussants:
Thomas Chaney
(University of Chicago)
Bruce I. Sacerdote
(Dartmouth College)
Anna Pavlova
(London Business School)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
The Consequences of Imperfect Financial Markets
(G1)
Presiding:
Zhiguo He
(University of Chicago)
House Prices, Collateral and Self-Employment
Manuel Adelino
(Duke University)
Antoinette Schoar
(Massachusetts Institute of Technology)
Felipe Severino
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We document the importance of the collateral-lending channel for small business employment over the last decade. Small businesses in areas with bigger run-ups in house prices experienced stronger increases in employment than large firms in the same areas and industries. To separately identify the role of the collateral-lending channel from aggregate changes in demand, we show that this effect is more pronounced in industries that need little startup capital and where housing-collateral is more important. The increase is also present in manufacturing industries, particularly those that ship goods over long distances. In aggregate this channel explains 15%-25% of employment variation.
Financial Entanglement: A Theory of Incomplete Integration, Leverage, Crashes, and Contagion
Nicolae Garleanu
(University of California-Berkeley)
Stavros Panageas
(University of Chicago)
Jianfeng Yu
(University of Minnesota)
[View Abstract]
Investors, firms, and intermediaries are located on a circle. Intermediaries
facilitate risk sharing by allowing investors at their location to invest in firms at other locations. Access to markets is not frictionless, but involves participation costs that increase with distance. Asset prices, the extent of market integration, the extent of cross-location capital flows, and the resources devoted to the financial industry are jointly determined in equilibrium. Although investors at any location are identical to each other, we find that the financial sector may exhibit diversity, with some financial intermediaries in every location offering high-leverage, high-participation, and high-fee structures and some intermediaries offering unlevered, low-participation, and low-fee structures. The capital attracted by high-leverage strategies is vulnerable to even small changes in market access costs, leading to discontinuous price drops and portfolio-flow reversals. Moreover, an adverse shock t
Intangible Capital and Corporate Cash Holdings
Antonio Falato
(Federal Reserve Board)
Dalida Kadyrzhanova
(University of Maryland)
Jae W. Sim
(Federal Reserve Board)
[View Abstract]
This paper explores the hypothesis that the rise in intangible capital is a fundamental driver
of the secular trend in US corporate cash holdings over the last decades. Using a new measure, we show that intangible capital is the most important firm-level determinant of corporate cash holdings. Our measure accounts for almost as much of the secular increase in cash since the 1980s as all other determinants together. We then develop a new dynamic model of corporate cash holdings with two types of productive assets, tangible and intangible capital. Since only tangible capital can be pledged as collateral, a shift toward greater reliance on intangible capital shrinks the debt capacity of firms and leads them to optimally hold more cash in order to preserve financial flexibility. In the model, firms with growth options tend to hold more cash in anticipation of (S,s)-type adjustments in physical capital because they want to avoid raising costly external finance. We show that this mechanism
Discussants:
David Sraer
(Princeton University)
Arvind Krishnamurthy
(Northwestern University)
Neng Wang
(Columbia University)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Agency Problems and Marketing of Real Estate
(R2)
Presiding:
Crocker Liu
(Cornell University)
Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis
Christopher L. Foote
(Federal Reserve Bank of Boston)
Kristopher Gerardi
(Federal Reserve Bank of Atlanta)
Paul Willen
(Federal Reserve Bank of Boston)
[View Abstract]
We present 12 facts about the mortgage crisis. We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors. Instead, we argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. We then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.
Housing Markets with Construction, Screening, and Focused Search
Joseph Williams
(Professors Capital)
[View Abstract]
[Download Preview]
Existing homes are sold at lower higher average prices than comparable new homes. Buyers search less intensively among existing homes than new housing projects, but buy more frequently after initial inspections. These and other properties of housing search are predicted by a model with the following properties. Buyers screen listings on electronic sites and search only among acceptable matches, controlling both the focus and intensity of their searches. Sellers of existing homes negotiate with buyers, whereas builders of new housing do not. Only new homes can be customized for buyers. Partial equilibria are calculated explicitly. Steady state is characterized for a housing market with entry by builders in some submarkets.
In-House Transactions in the Real Estate Brokerage Market: Matching Outcome or Strategic Promotion?
Lu Han
(University of Toronto)
Seung-Hyun Hong
(University of Illinois-Urbana Champaign)
[View Abstract]
This paper examines in-house transactions in the residential real estate brokerage industry, for which both the buyer's agent and the seller's agent are associated with the same brokerage firm. The study is motivated by an empirical observation that the fraction of in-house transactions is much higher than what is implied from an independent relationship between the buyer's brokerage choice and the seller's brokerage choice. To investigate the underlying mechanisms that generate these in-house transactions, we first construct a simple search model that predicts two types of in-house transactions with different implications for competition and market efficiency. The first is strategic promotion in that a brokerage firm financially rewards its affiliated agents for promoting houses listed by the same brokerage, thereby influencing buyers' choice set of potential houses. The second is a matching outcome in that brokerage firms that specialize in certain segments of housing markets naturally attract interest from buyers and sellers with similar tastes. Using home transaction data from a large metropolitan area, we estimate a model of in-house transactions that seeks to distinguish between these two mechanisms and controls for various other confounding factors. We find that buyers' agents are more likely to promote in-house listings when they receive a smaller share of commission fees from the sellers' agents and when buyers have higher search cost. Such effects are weaker after the introduction of a new regulation that requires agents to disclose their agency relationship. These findings provide strong evidence for in-house transactions due to strategic promotions, which create a distortion to the matching process that benefits agents themselves rather than buyers and sellers.
The Home Selling Problem: Theory and Evidence
Francois Ortalo-Magne
(University of Wisconsin)
Antonio Merlo
(University of Pennsylvania)
John Rust
(Georgetown University)
[View Abstract]
[Download Preview] This paper formulates and solves the problem of a homeowner who wants to sell her house for the maximum possible price net of transactions costs (including real estate commissions). The optimal selling strategy consists of an initial list price with subsequent weekly decisions on how much to ad
just the list price until the home is sold or withdrawn from the market. The solution also yields a sequence of reservation prices that determine whether the homeowner should accept offers from potential buyers who arrive stochastically over time with an expected arrival rate that is a decreasing function of the list price. We estimate the model using a rich data set of complete transaction histories for 780 residential properties in England introduced by Merlo and Ortalo-Magne (2004). For each home in the sample, the data include all listing price changes and all offers made on the home between initial listing and the final sale agreement. The estimated model fits observed list price dynamics and other key features of the data well. In particular, we show that a very small "menu cost" of changing the listing price (estimated to equal 10 thousandths of 1% of the house value, or approximately £10 for a home worth £100,000), is sufficient to explain the high degree of "stickiness" of listing prices observed in the data.
Discussants:
Robert Van Order
(George Washington University)
John Krainer
(Federal Reserve Bank of San Francisco)
Paul Carrillo
(George Washington University)
Andrew Caplin
(New York University)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Real Estate Values
(R3)
Presiding:
Anthony Yezer
(George Washington University)
Explaining House Price Dynamics: If Not Fundamentals Then What?
Thao Le
(National University of Singapore)
David Ling
(University of Florida)
Joseph Ooi
(National University of Singapore)
[View Abstract]
[Download Preview] This paper examines the role of non-fundamentals-based sentiment in house price dynamics, including the well-documented volatility and persistence of house prices during booms and busts. To measure and isolate sentiment’s effect, we employ survey-based indicators that proxy for the sentiment of three major agents in housing markets: home buyers (demand side), home builders (supply side), and lenders (credit suppliers). After orthogonalizing each sentiment measure against a broad set of fundamental variables, we find strong and consistent evidence that the changing sentiment of all three sets of market participants predicts house price appreciation in subsequent quarters, above and beyond the impact of changes in fundamentals and market liquidity. More specifically, a one-standard-deviation shock to market sentiment is associated with a 22-80 basis point increase in real house price appreciation over the next two quarters. These price effects are large relative to the average real price appreciation of 0.71 percent per quarter observed over the full sample period. Moreover, housing market sentiment and its effect on real house prices is highly persistent. The results also reveal that the dynamic relation between sentiment and house prices can create feedback effects which contribute to the persistence typically observed in house price movements during boom and bust cycles.
The Myth of the Constant-Quality Home: A New, Unbiased House-Price Index
Anna Amirdjanova
(University of California-Berkeley)
Richard Stanton
(University of California-Berkeley)
Nancy Wallace
(University of California-Berkeley)
[View Abstract]
In this paper we develop a new data set containing both property characteristics and transaction details over a fourteen year period for the universe of all single-family residential housing units in the California counties of Alameda and San Francisco.
We use our database to show that in these counties (as in other areas with high home prices) household expenditures on home remodeling are high, and are more likely to be undertaken by households planning to move. The dominant repeat-sales single-family residential house price indices in the U.S., which completely ignore remodeling, therefore substantially over-estimate real-estate returns. We use our new dataset to develop and estimate a new residential single-family house price index that avoids many of the problems of repeat-sales indices.
Our estimator embeds two Poisson processes, one for the likelihood and amount of remodeling, and the other for the likelihood of sale. Based on these intensities, we estimate dynamic price indices, using classical linear-filtering techniques, for baskets of houses of given types. Our estimator reveals significant differences in both the level and volatility of our price indices compared with the benchmark repeat-sales index, suggesting that the biases in these indices renders them unsuitable as a measure of U.S. real-estate returns.
House Price Tiers in Repeat Sales Estimation
Douglas McManus
(Freddie Mac)
[View Abstract]
[Download Preview] Estimating house price indexes for different price tiers is important because there can be market segmentation within a housing market. The existing methods for estimating tiered house price indexes are subject to substantial biases because a property's tier can only be measured imprecisely. Both academic research and industry practice have implemented tiered house price index estimation techniques but without a methodological solution to the bias problem. This paper proposes bootstrap procedures for correcting this bias, both in the context of testing for the existence of house price tiers, and in the context of estimating tiered indexes. This method is illustrated at the state and MSA levels for California and Los Angeles, and it is shown that there are statistically significant tier effects, even after correcting for tier bias.
Local Quantile House Price Indices
Daniel McMillen
(University of Illinois, Urbana-Champaign)
[View Abstract]
[Download Preview] Locally weighted quantile regressions allow the coefficients of hedonic house price functions to vary over space. Using data on all house sales in Cook County, Illinois, for 2000-2011, I show how the full distribution of appreciation rates changed over time in small geographic areas. The estimates reveal significant spatial variation in appreciation rates both geographically and across the distribution of house prices. During the boom, house prices rose most rapidly among lower-priced homes, particularly on the South and West sides of Chicago. Prices then declined most rapidly afterward in these same areas. In contrast, high-priced homes in the Near North Side of the city and in the far North suburbs had only moderate declines in prices after 2006. The results clearly indicate that standard approaches to estimating house price indices over-simplify what is actually a rich set of spatial and temporal variation in appreciation rates.
Discussants:
William Larson
(Bureau of Economic Analysis)
Amanda Ross
(West Virginia University)
Brent Smith
(Virginia Commonwealth University)
Chao Yue Tian
(University of North Carolina)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Regency Ballroom C2
American Real Estate & Urban Economic Association/American Economic Association
The Role of Regulation in the Housing Market
(R3) (Panel Discussion)
Panel Moderator:
Sumit Agarwal
(National University of Singapore)
John Y. Campbell
(Harvard University)
Christopher Mayer
(Columbia University)
Atif Mian
(Princeton University)
Amit Seru
(University of Chicago)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon A
Association for Comparative Economic Studies
Exchange Rate Developments and Labor Markets: What do the Theory and the Data Tell Us?
(F4)
Presiding:
Jan Svejnar
(Columbia University)
Ownership Structure, Real Exchange Rate Movements and Labor Market Adjustment in Chinese Industrial Sectors
Risheng Mao
(Chinese Academy of Social Sciences)
John Whalley
(University of Western Ontario)
[View Abstract]
[Download Preview] This paper investigates the impacts of Renminbi (RMB) real exchange rate movements on employment and wage rates. Based on the panel dataset covering 456 narrowly defined four digit Chinese manufacturing industries and industry specific real exchange rates, we stress the links between impacts of exchange rate fluctuations on labor market with ownership structure of manufacturing industries. The empirical results show that movements of RMB real exchange rate would likely have pronounced effects on both net employment and wage rates. A 10% RMB real appreciation (depreciation) would likely cause a net employment decline (rise) of around 3.7% and a wage rate drop of 1.9% after controlling for other factors. The impacts of real exchange rate movements on net employment and wage rates vary significantly with the ownership structure of manufacturing sectors. Employment and wage rates for private enterprises are less responsive to RMB real exchange rate fluctuations than is true for state owned enterprises (SOEs) and foreign invested enterprises (FIEs). This finding is opposite to the widely held belief that the labor market behavior of Chinese SOEs shows stronger labor market rigidities than for private firms. Impacts of exchange rate movements emerge as systematically related to export openness, import penetration and profit margins of individual manufacturing industries.
Bilateral Exchange Rates and Jobs
Eddy Bekkers
(Johannes Kepler University Linz)
Joseph Francois
(Johannes Kepler University Linz)
[View Abstract]
[Download Preview] We study the labor market effects of bilateral exchange rate realignment. We place emphasis on the composition of trade, the role of intermediates, and the underlying conditions of the labor market. Employment effects hinge on the fraction exported to and imported from the trading partner. A larger fraction exported to and a smaller fraction imported from the trading partner make it more likely that appreciation has beneficial effects. Furthermore, more sticky price expectations in wage formation, a smaller fraction of intermediates in the production process, and a lower rate of importer pass through make it more likely that appreciation of the exchange rate of the trade partner has positive employment effects. At a more technical level, the scope for substitution away from higher priced inputs, either toward other sources of supply, or toward value added, is also important to the direction and magnitude of changes in employment.
Rethinking Optimal Exchange Rate Regimes with Frictional Labor Markets
Alessia Campolmi
(Central European University)
Ester Faia
(Goethe University Frankfurt)
[View Abstract]
Currency fluctuations are an important determinant of labour market dynamics. Vice-versa relative labour costs affect real exchange rate dynamics. The optimal choice of exchange rate regimes cannot neglect such nexus. We asses such a choice using a two-country model with frictional labour markets. The monetary authority faces a tension between the classical insulating property of floating exchange rates and the destabilizing effects of currency fluctuations on (relative) job flows. Results show that the second motive is important: optimal monetary policy prescribes (some) response to the exchange rate. We also re-examine the conditions for optimal policy in a currency area whose members experience asymmetries in labour market institutions.
'Do Real Exchange Rates Affect Employment? ?A Comparative Perspective on Africa'
Zuzana Brixiova
(African Development Bank)
Balasz Egert
(OECD)
Jan Svejnar
(Columbia University)
[View Abstract]
[Download Preview] This paper attempts to evaluate the impact of exchange rates on employment rates in African economies. Extending the model of Frenkel and Ros (2006) and using panel estimation techniques applied to data drawn from the World Development Indicators and ILO databases, we seek to figure out if and to what extent deviations from the long-term equilibrium real exchange rate impacts on labor market outcomes, in particular on the employment and the labor force. Specifically, do large deviations have a different influence on employment than small exchange rate misalignments and mild volatility? And if so, are there non-linear effects? We benchmark our for African countries against a panel including most other emerging and developing countries.
Discussants:
Jan Babecky
(Czech National Bank)
Davide Furceri
(International Monetary Fund)
Wenli Li
(Federal Reserve Bank of Philadelphia)
Klara Sabirianova Peter
(University of North Carolina-Chapel Hill)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Social Control in the Modern Economy
(B5)
Presiding:
Barbara Wiens-Tuers
(Pennsylvania State University-Altoona)
Government and Social Control from the Bottom Up: The Economics of Influence
David Colander
(Middlebury College)
[View Abstract]
[Download Preview] Economic policy is generally discussed within an economics of optimal control framework, in which government attempts to correct for market failures. That framework developed in the 1930s as economics was structured in a Walrasian model in which economic policy was seen as a problem of equating marginal social costs with marginal social benefits.
Many economists of the time, including Institutionalists, opposed that simplistic framework for policy, arguing that it missed important dimensions of policy. Among other things, things it assumes people are selfish, and that tastes are given, neither of which fit reality. In a forthcoming book (Colander and Kupers, Activist Laissez Faire, Princeton University Press, forthcoming), I provide a much broader framework for approaching economic policy that I call "the economics of influence" approach. This framework sees the economy as evolving complex system that is uncontrollable in a formal mathematical sense.
Within this framework, while government cannot control outcomes, government can and does influence outcomes because of its central role in establishing the rules of the game for the ecostructure within which new institutions develop. The paper suggests that providing a legal structure that encourages the development of for-benefit enterprises is an example of the type policy that follows from this framework. It argues that for-benefit institutions would allow markets to move beyond material welfare to provide social welfare from the bottom up, just as for-profit enterprises allow markets to provide material welfare from the bottom up.
Collective Action and Economic Justice: A Structural Approach
David Zalewski
(Providence College)
[View Abstract]
[Download Preview] As the documentary Inside Job conveyed to millions of people who were unfamiliar with the complexities of modern finance, the roots of the recent economic crisis were largely moral rather than technical. Unfortunately, the federal government's initiative to address the causes of the collapse – The Dodd-Frank Act – fails to adequately address this issue. This paper develops a theoretical framework for ethical financial reform, which is based on John Commons's notion of the transaction as the fundamental unit of economic analysis, and on an adaptation of A. Allan Schmid's Situation, Structure, and Performance (SSP) model of institutional analysis. It concludes that ethical provisioning through the financial system is best accomplished through a system of mutual or community banks, and the most effective way to increase the reach of these intermediaries is through "grassroots" efforts such as the Facebook-based "Bank Transfer Day" in 2011, rather than relying on "captured" regulators.
Gender Dimension of Household Borrowing
Barbara Hopkins
(Wright State University)
Zdravka Todorova
(Wright State University)
[View Abstract]
[Download Preview] Institutionalist analyses of rising household debt have focused on declining real incomes that make it harder to meet established standards of consumption. However, there is also a rise in debt during the 1990s when household incomes were going up. We argue that changing gender norms and changes in household structure are important components of understanding the increase in household borrowing for consumption. Particularly, we explore how the institution of gender could be relevant for explaining rising pecuniary standards of consumption. The gender dimension of rising household borrowing for consumption consists of: evolving consumption standards for working women; evolving notions of responsible motherhood; changing beauty norms; and a growing reliance on individualized household consumption at the expense of accessible public space. These stem out of invidious distinction. Consequently, among other recognized measures, the social control of household indebtedness and financial fragility necessitates steps that would move us away from building social relations predominantly through private consumption of gendered commodities. We argue that formulating such measures involves building public space and presumes revisiting the evolution of the gender dimension of household borrowing for consumption.
FCC's Broadband Plan
Robert Loube
(Rolka Loube Saltzer Associates)
[View Abstract]
The goal of the FCC's Broadband plan is to ensure the ubiquitous deployment of affordable broadband service and to ensure an open Internet that will stimulate the growth of services provided over the Internet. To implement these goals the FCC has initiated a series of programs and rule-making proceedings that have changed the basic communications regulatory environment. The purpose of this paper is to evaluate the FCC's rule-making decisions and program changes in light of its stated goals and to determine if the FCC's initiatives are in line with the principles of social control as defined by Institutionalist economists. It will be shown that the FCC's actions will not induce the industry to fulfill the FCC's goals. Instead the FCC's decisions drift from one problem to the next without providing a clear path to anywhere. In addition, major communications providers have also proposed substantial changes in the communications regulatory environment. The paper will show how the major providers' proposals would lead to a continuance of their dominance of the industry and to relieve them of public service obligations. Finally the paper will provide a regulatory framework that could induce the industry to fulfill the FCC's goals. This regulatory framework would be consistent with the principles of social control and public interest regulation.
The Financial Crisis and Institutional Change: Lessons from Latin America
Eugenia Correa
(National Autonomous University of Mexico)
[View Abstract]
[Download Preview] Being conceived merely as an exogenous shock, for mainstream economists once the crisis works itself out, the self-adjusting properties of the economic system will ensure that the latter eventually returns to normality. While recognizing that some changes in the regulatory structure relating to the banking sector may be necessary, such as changes in capital adequacy requirements, the mainstream theoretical approach has remained largely unaffected by the crisis. To understand what really happened during the financial crisis and its impact on overall economic activity, it is necessary to adopt a different conception of the economic system that is offered by the Minskian/Institutionalist approach. The paper seeks to study the evolution of the funding relationship, driven by a series of financial crises since the 1980s, that gave way to Money Manager Capitalism internationally. The political and institutional diversity in Latin America allows us to observe not only the trajectory of institutional change, but also its forms. These countries have embraced different choices pertaining to economic stabilization and financial regulation, with moderately different results on the distribution of income, wages and employment. In turn, widespread difficulties to mitigate or abolish policies of austerity in the region, reveal the depth of the institutional changes that have subordinated monetary and fiscal policies to the needs of the growing financialized sphere of economic activity. Financial crises have been a force for change in the region, especially since Latin America changed its course with regards to its social organization.
Discussants:
Barbara Wiens-Tuers
(Pennsylvania State University)
Geoffrey Schneider
(Bucknell University)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Congress A
Association for Social Economics
Law and Social Economics: Foundations
(K1)
Presiding:
Mark D. White
(City University New York)
Should Individual Maximizers Seek to Maximize Social Utility as Well?
Claire Finkelstein
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper is the Introduction to a book-length project setting forth a contractarian approach to law in the Hobbesian tradition. The book thus aims to bring a rational choice approach to political life into the fold of legal theory. For many years the core positions in jurisprudential writings have divided between those who defend a moral, or deontological, approach to legal questions and those who defend a utilitarian, or economic, approach. A Hobbesian legal theory is that it holds out the promise of an alternative to these two historic rivals, and thus offers an end to a stalemate in the jurisprudential literature of longstanding. The account I propose is of particular interest because it allows legal theory to avoid the major weaknesses of each of the traditional approaches, meanwhile capturing the benefits of each. This Introduction will attempt to explain the nature of both these weaknesses and benefits. It will provide an overview that will identify the place of a contractarian approach in the overall landscape of jurisprudential theories. It will be the task of the rest of the book to sketch the proposed contractarian alternative, in as much detail as possible, articulating it in particular in the context of specific legal doctrines. The current work argues that a contractarian approach in the rationalistic tradition presents a viable alternative to legal reasoning based on moral intuition, on the one hand, and legal reasoning based on the concept of maximization on the other.
A Relational View of Law and Economics
Daniel Finn
(St John's University)
[View Abstract]
[Download Preview] The critical realist school of sociology and the analysis of coercive power by philosopher Thomas Wartenberg together enable a re-orientation of the traditional economic conception of law and economics. Critical realists (e.g., Margaret Archer, Douglas Porpora, Pierpaolo Donati) understand a social structure as a set of relationships among pre-existing social positions. Only persons are agents but structures have causal impact by shaping the environment in which the agent makes a decision. Thus, a university consists in relationships between professors and students, faculty members and deans, etc. A new PhD takes on the position of professor and faces a series of "enablements," restrictions, and incentives. Some have emerged from conscious choice by the academic department, university, or government. Others have emerged from student expectations or departmental tradition. Markets, too, are sets of relationships among pre-existing social positions, e.g., consumer/clerk, employee/employer, doctor/patient. The relevant prices individuals face in these social positions are simply one of a large number of restrictions, enablements, and incentives involved. Thomas Wartenberg understands coercive power as the power of a threat, typically enforced not by Person A wielding power but by others whose actions toward the subordinate are based on A's actions. Thus professors wield coercive power over students through grading because employers care about grades. Prices in markets are similarly coercive. Prices and government legislation are not radically different. Both are forms of coercive power which, along with a host of other restrictions, enablements, and incentives, are normal parts of the economic relationships that constitute markets.
The Role of Economic Rights and the Law in Social Economics: A Natural Law Perspective
Stefano Solari
(Università di Padova)
[View Abstract]
[Download Preview] The paper presents a legal approach to social economics, that is to say a perspective to study economic interaction framed by an analysis of rights, obligations and rules. Contemporary Law and Economics has not increased the theoretical understanding of this issue. On the other hand, the institutionalist wing of Social Economics is increasingly including ethical and legal elements in its study of economic processes and allows for an understanding of the very social and psychological nature of the law. We will start from the notion of transaction and, in particular, from the framework proposed by John Commons (1924). After discussing the notion of law incorporated in Commons' scheme, we will modify the variables as to fit different interpretations of law coming from different traditions. In particular, we will try to understand the idea of rights and of the law emerging from the work of Ronald Dworkin (1977). That "liberal" approach will be compared to a "conservative" (in terms of view of the law) approach deriving from the classical natural law approach. This comparison has the aim to single out the specificity of an "ethical-realist" view of man We will take the work of Vicktor Cathrein (1890-91) as a reference for this, as well as that of contemporary social philosophers as John Finnis (1980).
Bringing Justice under the Law to All Persons in Economics
Kevin McCarron
(Bureau of Labor Statistics)
Robert E. Prasch
(Middlebury College)
[View Abstract]
Of the legal scholars proposing to restore a sense of justice in law, Glenn Greenwald stands out with his call for justice for all: his book With Liberty and Justice for Some argues cogently that those in American society at the top of the economic ladder currently need never worry about coming into contact with justice. However, Mr. Greenwald is not an economist: he does not examine or elucidate at their core the very economic mechanisms and institutions that have aided in giving rise to such inequality. Our paper proposes to review work of neo-Kantian scholars, such as David Ellerman's foundational work on Property and Contracts in Economics, as the starting point for bringing justice to a long neglected realm of economics: economic actors in the form of joint-stock companies. Is there something innate about their foundational structure, particularly under the current American regimen of incorporation, that allows these economic actors to claim personhood but flee responsibility at seemingly every constitutional turn? Specifically, we shall seek to harness Greenwald's call to bring justice to all persons with a particular emphasis on the largest manifestation of economic actors of our era. Thus, the specific goals of this paper are to provide legislators with both an economic analysis, based on neo-Kantian thinking, and a consequent policy prescription to rein in the premiere, but legally neglected, institutions of our economic system.
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 310
Association for the Study of Generosity in Economics
Charitable Giving: Explaining Contributions
(H3)
Presiding:
Lise Vesterlund
(University of Pittsburgh)
Share Everything and Don't Take Things that Aren't Yours: Moral Cost in Giving Develops Early
John A. List
(University of Chicago)
Michael K. Price
(Georgia State University)
Anya C. Samak
(University of Wisconsin)
[View Abstract]
Abstract: An active area of research within social science concerns the underlying motivation for sharing scarce resources. In order to shed light on the evolutionary origins of giving motivations, we experimentally investigate the effects of manipulating action sets and payoffs in a series of dictator games with young children. Over 300 children ages 3-7 participated in our artefactual field experiment. When the action set is limited only to giving (as in the standard dictator game) or to taking, we do not see a difference in the final allocation chosen by the dictator. However, dictators give significantly less to the recipient when we expand to a symmetric action set of giving or taking. Our results cannot be easily explained by other-regarding preferences, including altruism or inequality aversion. We offer moral cost as a potential model to explain our results. Giving or not taking is driven not by the benefits it provides the recipient, but rather by the amount of moral cost to the dictator. Our results suggest that children learn to identify moral cost at an early age, and that moral cost is an important driver of behavior.
Diversity and Donations: The Effect of Religious and Ethnic Diversity on Charitable Giving
James Andreoni
(University of California-San Diego)
A. Abigail Payne
(McMaster University)
Justin Smith
(Wilfrid Laurier University)
David Karp
(McMaster University)
[View Abstract]
We explore the effects of local ethnic and religious diversity on private donations to charity. We find that an increase in religious or ethnic diversity decreases donations. The ethnicity effect is driven by non-minorities and blacks, and is strongest in high income, low education areas. The religious effect is driven by Catholics, and is concentrated in high income, high education areas. We find no evidence that diversity affects the fraction of households that donate. Our results provide a parallel to the negative effects of diversity on publicly provided goods, and opens new challenges for fundraisers and policy makers.
Intuitive Generosity and Error Prone Inference from Decision Time
María P. Recalde
(University of Pittsburgh)
Arno Riedl
(Maastricht University)
Lise Vesterlund
(University of Pittsburgh)
[View Abstract]
In an attempt to better understand what drives charitable giving researchers have begun to draw inference from the time it takes decision makers to make donation decisions. Examining decision times in a series of public goods games Rand et al (2012) find that subjects who reach their decisions relatively quickly are more generous than those who take more time to decide. This negative correlation between decision time and giving causes them to infer that cooperation/generosity is intuitive, and that time is needed to act selfishly and reject our emotional influence to be altruistic. We report data demonstrating that the inference on decision time is sensitive to the environment in which generosity is measured, and we argue that confusion is a strong confound when the equilibrium lies on the boundary of the strategy space. We examine behavior in two public goods games with interior Nash equilibria, one with an equilibrium toward the bottom of the strategy space and one with an equilibrium toward the top of the strategy space. Looking at the game with a low interior Nash equilibrium, we replicate Rand's finding that participants who make decisions quickly tend to be more generous. However the correlation between time and contributions reverses when instead the equilibrium contribution is high. In this case we find that those who make decisions quickly are less generous than those who take more time making their decisions. Our results suggest that the negative correlation between decision time and generosity may not reflect 'spontaneous giving,' but rather the fact that confused participants quickly select a contribution in the middle of the strategy space.
Social Recognition in Charitable Giving: In Pursuit of Perfection
Judd Kessler
(University of Pennsylvania)
Katherine Milkman
(University of Pennsylvania)
C. Yiwei Zhang
(University of Pennsylvania)
[View Abstract]
We analyze panel data spanning a decade from a major north east university and observe multiple changes to their recognition policy (recognition opportunities are both introduced and removed). These changes affect the probability of donation, the amount given, and the likelihood of giving strategically. We observe that recognition crowds in other donations to the University.
Discussants:
Bill Harbaugh
(University of Oregon)
Mark Ottoni-Wilhelm
(Indiana University-Purdue University-Indianapolis)
Judd Kessler
(University of Pennsylvania)
Lise Vesterlund
(University of Pittsburgh)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 307
Association of Christian Economists
Faith-Based Institutions, Education and Choices
(L3)
Presiding:
John Lunn
(Hope College)
Conceptions of the Human Person in Economic Thinking: From Smith and Marx to Contemporary Theory
Alejandro A. Canadas
(Catholic University)
John D. Larrivee
(Mount St. Mary's University)
[View Abstract]
[Download Preview] We consider how economics courses can connect to the mission of religiously grounded universities via assumptions about the human person, using Smith and Marx and communism as historical examples, as well as some areas in contemporary economics in which questions of the human person arise. The Christian vision of the human person assumes that we have been made by God, who has provided us with capacity to follow a moral law and to live for purpose. Smith wrote during a time of questioning at the epistemological and metaphysical level regarding human nature. Marx attempted to craft an economic model of history and society to be consistent with his assumptions of philosophical materialism. Areas of contemporary economics have broadened the scope of reasoning regarding economic behavior beyond a simple economic self-interest, this may provide opportunities for richer models of human capacity and institutions addressing the non-material level. This is explored more fully with the case of development economics.
An Evangelical Anomaly: Religious Observance and Intertemporal Choice
Sara Helms
(Samford University)
Charles Stokes
(Samford University)
Jeremy Thorton
(Samford University)
[View Abstract]
[Download Preview] Educational achievement is positively correlated with religious devotion. However, those religious sects which are more devoted have, on average, lower levels of education. Evangelical Protestants, for example, have the highest level of religious devotion but the lowest level of educational achievement. Previous research explains this by proposing that education enhances the gains to social interaction while substituting for religious belief. We examine an alternative hypothesis, where religion is a moderator of time preference across potential investments, including: savings, social capital, and human capital. We use the COPPS and wealth supplements of the Panel Study of Income Dynamics (PSID) to observe household investments of time and money for various religious groups. Consistent discounting across a range of investments by the religious would indicate that differences in time preferences, rather than idiosyncratic attitudes toward education, account for differential investments across religious groups. Our results suggest that education is the anomaly, and that Evangelical Protestants do not behave differently than other religious groups in areas of altruism or saving. Instead, we find that differences in the level of devotion to religious activities provides the sharpest differences in investment behavior.
The Protective Response of Faith-Based Institutions.
Kurt J. Keiser
(Southwestern College)
[View Abstract]
[Download Preview] In The Great Transformation, Karl Polanyi wrote of the "double movement", the protective response of society as a result of the socially destructive effects of the self-regulating market system (Polanyi, 1957). Polanyi emphasized the primacy of society and the embedded nature of the economy within society. He identified trade unions and other voluntary associations, as well as direct government intervention,as playing a major role in the protective response against the dis-embedded economy. Ironically, even the modern corporation, the central economic institution of modern capitalism, is viewed as part of this protective push-back (Polanyi, 1944; Stanfield, 1986). Polanyi ultimately advocated democratic socialism as the cure for the dis-embedded economy.
Polanyi and other anthropological economists are remiss in neglecting the momentous role of faith-based institutions in unifying society and "re-embedding" the economy. Faith-based institutions are properly viewed as complementary - not antithetical - to modern capitalism. The Christian tradition, in particular, is sympathetically aligned with the moral and philosophical underpinnings of democratic capitalism (Enzinga, 2009; Finn, 2007; Monsma, 2007). The purpose of this paper is to explore the modification of Polanyi's double movement to encompass the role of faith-based institutions as society's preeminent ameliorative or protective institutions. Polanyi's notion of a re-embedded economy "demands a much more fundamental transcendence of the market" than the conventional-heterodox canon suggests (Lacher, 1999). Attention will be given to representative examples of faith-based institutions and their acute "protective responses" to the Great Recession and what the Christian community has gained and learned from these efforts.
Balancing Act in Faith-Based Social Enterprises: An Empirical Study of 'Business as Mission' Practioners
Steve Rundle
(Biola University)
Min-Dong Paul Lee
(Wheaton College)
[View Abstract]
Economic theory relies heavily on the assumption that humans are self-interested. Yet, even as far back as Adam Smith, economists have acknowledged that human behavior can also be motivated by other factors like sympathy for others. Perhaps nowhere is this tension between self- and others-interest sharper than in the area of Social Entrepreneurship (SE). Social Enterprises are businesses (for-profit or nonprofit) that seek to address social and environmental problems (sympathy for others) in a manner that is also financially self-sustaining or even profitable (self-interest). In the SE literature this simultaneous pursuit of economic, social and environmental goals is referred to as a “triple bottom line.†In Christian circles a fourth bottom line of spiritual impact is sometimes added, in which case it is often referred to as “Business as Mission†(BAM).
Scholarly research in this area is still in its early stages. For example, there has been little empirical research that explains whether and how a single organization – either nonprofit or for-profit – can achieve success in multiple, potentially competing “bottom lines†at once. Part of the problem is theoretical; scholars have yet to agree on a definition, much less a theoretical framework for studying SE and BAM (Hill et. al. 2010; Martin and Osberg 2007; Short et. al. 2009; Rundle 2012). Another problem is empirical. Unlike the standard measures of success used for ordinary businesses, the idiosyncrasies of each social enterprise make it difficult to construct a standardized approach to assessing noneconomic impact.
The purpose of this paper is to begin filling these gaps by presenting the findings of a recent anonymous, global survey of 119 self-defined BAM practitioners. The survey was exploratory in nature, asking questions related to the structure and governance of the enterprises, the backgrounds and motivations of the practitioners, and the observed outcomes in terms of economic, social, environmental and spiritual impact. From the responses we were able to construct a measure of impact that was then used in a regression analysis to identify the characteristics that are highly correlated with high-impact businesses and practitioners. We find that BAM practitioners who have a narrow agenda; and specifically, a concern only about the spiritual bottom line (e.g., conversions to Christianity), tend to have less overall impact than those with a more “holistic†understanding of their purpose. Ironically, they tend to have a smaller impact even in the one bottom line (spiritual) that they care about most. This result is consistent with other empirical studies, both in the BAM literature and the SE literature more generally.
Discussants:
Sarah Estelle
(Hope College)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon K
Association of Environmental & Resource Economists
Agriculture, Land Use and Climate
(Q1)
Presiding:
Maximilian Auffhammer
(University of California-Berkeley)
Do Temperature Thresholds Threaten American Farmland?
Emanuele Massetti
(Yale University)
Robert Mendelsohn
(Yale University)
[View Abstract]
[Download Preview] In this paper we use flexible functional forms to estimate the marginal effect of mean temperatures during 3-hour, daily and longer time intervals on land values. We use US Agricultural Census Data and detailed climate data obtained from the NARR model, a very large dataset that contains climatic data on 3-hour time intervals, at fine spatial resolution, from 1979 to present day. The paper finds no evidence of temperature threshold effects on land values and in the Eastern United States. The flexible functional forms suggest inverted-U shaped or almost constant marginal effects at different levels of temperature whether one is using average temperature over 3-hour, daily, continuous days or the growing season. We find instead evidence that land values in areas that are frequently affected by extreme heat waves reflect large expected productivity losses. Using annual yields and weather data we find evidence that both cold and high temperatures reduce corn, soybeans, and to a lesser extent, cotton yields. The downward sloping section of the relationship that relates temperature and yields is steeper than the upward sloping section but we do not find evidence of sudden discontinuities.
Emissions vs. Practice Baselines for Agricultural Greenhouse Gas Offsets
David Smith
(University of Minnesota)
John Horowitz
(US Department of Agriculture)
[View Abstract]
Proposed GHG cap-and-trade programs allow the purchase of offsets by regulated sectors (e.g. energy) from unregulated sectors (e.g. agriculture). Offsets can increase the cost-effectiveness of GHG regulation if the offset activities provide truly additional reductions in emissions. Unfortunately, non-additional offsets are unavoidable due to pricing and information asymmetry so the cost-savings from the offset activity must be weighed against the added social damages from non-additional offsets. Baselines are one policy feature that can reduce non-additional offsets. This paper examines emissions and practice baseline approaches for determining GHG offsets in the agricultural sector. Using farm management data from a representative sample of wheat fields in 2009 we simulate emissions data and then construct hypothetical emissions and practice baselines and emissions factors. We demonstrate the information requirements and other design issues that arise in setting such baselines. We examine performance primarily in terms of the potential non-additional credits issued in each baseline approach
Energy Load Control, Groundwater Conservation, and Climate Change
Taro Mieno
(University of Illinois)
Nicholas Brozovic
(University of Illinois)
[View Abstract]
[Download Preview] In this study, we develop a dynamic optimization problem in which farmers need to de- cide when and how much water to apply to their crops through a production season with a probabilistic interruptible electricity (water) supply. We derive optimality conditions and comparative statics to analyze impacts on irrigation behavior and interactions with climate. Simple intuition suggests that as the probability of power control on a given day increases, farmers should apply more water per successful irrigation to hedge against the risk of not being able to meet crop water requirements. However, it is less clear whether total applied water will increase or decrease as a result of load control and potential energy supply inter- ruption. Nor is it clear how energy supply interruption and climate change interact to change irrigation practices. Specific research questions addressed in this study are 1) How would profit-maximizing farmers adjust their irrigation strategy under load control compared to the case of no control?, 2) Is there any parameter space in which the introduction of supply interruption increases water and energy use?, and 3) How might climate change interact with load control programs to influence irrigation behavior?
Environmental Evaluations of Agricultural Multinationals Deforestation Mitigation Efforts in the Amazon
Suhyun Jung
(University of Minnesota)
Stephen Polasky
(University of Minnesota)
[View Abstract]
[Download Preview] Environmental protection fails to occur in many developing countries even when they have good environmental laws because of limited government ability to monitor and enforce environmental laws. An alternative route to monitoring and enforcing environmental laws is to engage private firms and non-governmental organizations (NGOs). In this paper, we evaluate whether the Responsible Soy Project, a partnership between Cargill and The Nature Conservancy (TNC), was successful in enforcing Brazil's Forest Code, a stringent law to prevent deforestation. Implementation of the Responsible Soy Project, however, was preceded by the opening of a new port facility in the Brazilian Amazon that opened new areas to profitable agricultural production. We develop a profit maximization model to understand farmers' agricultural production and deforestation decisions. We then empirically evaluate whether the Responsible Soy Project had an environmental impact using difference-in-difference (DID) and nearest neighbor covariate matching methods. Theoretical results predict and empirical results show higher deforestation rates for landowners participating in the project (the treatment group) immediately after the port opened compared to other landowners (the control group), but little difference in deforestation rates between the control and the treatment group after the project started. These results emphasize the importance of timing. To be effective, environmental conservation projects should start before economic development activities that encourage deforestation.
Discussants:
Michael Roberts
(University of Hawaii)
Cathy Kling
(Iowa State University)
Ram Fishman
(George Washington University)
Eduardo A. Souza-Rodrigues
(University of Toronto)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Congress C
Association of Financial Economists
Innovation and Finance
(G2)
Presiding:
Lemma Senbet
(University of Maryland)
Does Banking Competition Affect Innovation?
Jess Cornaggia
(Georgetown University)
Yifei Mao
(Indiana University)
Xuan Tian
(Indiana University)
Brian Wolfe
(Indiana University)
[View Abstract]
[Download Preview] We exploit the deregulation of interstate bank branching laws to test whether banking competition affects innovation. We find robust evidence that banking competition reduces state-level innovation by public corporations headquartered within deregulating states. Innovation increases among private firms that are dependent on external finance and that have limited access to credit from local banks. We argue that banking competition enables small, innovative firms to secure financing instead of being acquired by public corporations. Therefore, banking competition reduces the supply of innovative targets, which reduces the portion of state-level innovation attributable to public corporations. Overall, these results shed light on the real effects of banking competition and the determinants of innovation.
Are the Life and Death of an Early Stage Venture Indeed in the Power of the Tongue? Lessons from Online Crowdfunding Pitches
Dan Marom
(Hebrew University)
Orly Sade
(Hebrew University)
[View Abstract]
[Download Preview] Securing seed funding is one of the biggest challenges for any entrepreneur. While presenting an initiative to potential investors, the entrepreneur can choose the extent to which she presents herself, versus presenting the project idea. This research investigates not only this decision, but also the effect of this decision on the success of the fundraising in a leading crowdfunding financing platform (Kickstarter). In our empirical analysis, we use a text mining quantification method validated by experiment and robustness tests. This methodology was implemented on a dataset that was collected by custom software, and which includes more than 20,000 online business pitches and their crowdfunding results. Our findings indicate clearly that in Kickstarter fundraising, entrepreneurs' descriptions do matter - projects which highlighted their entrepreneurs enjoyed higher rates of success, controlling for other relevant variables.
Has Financial Innovation Made the World Riskier? CDS, Regulatory Arbitrage and Systemic Risk
Tanju Yorulmazer
(Federal Reserve Bank of New York)
[View Abstract]
The paper builds a theoretical model to analyze the use of credit default swaps (CDS)
to free up regulatory capital in bank balance sheets and its consequences for systemic risk. Equity capital can act as a buffer against losses, and reduce incentives for excessive risk-taking by increasing bank's.skin in the game. Basel capital regulation suggests that a bank can lower its capital requirement against risky investments by acquiring a CDS contract. I show that this may undo the effects of capital requirements, and result in banks investing in highly risky projects they would not have invested absent CDS. Furthermore, I show that the bank and the insurer prefer a high correlation in their returns and jointly shift the risk to the deposit insurance fund. Even though the CDS can provide limited insurance, it can be traded at a price higher than its fair value, which reflects the value of regulatory arbitrage banks exploit. In various extensions, I look at how CDS helps banks expand their balance sheet, which, in turn, can fuel asset price bubbles.
Discussants:
Daniel Paravisini
(London School of Economics)
Enrichetta Ravina
(Columbia University)
Florian Heider
(European Central Bank)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 106-A
Chinese Economic Association in North America
Greater China and the World Economy II
(F6)
Presiding:
Xiaodong Zhu
(University of Toronto)
The Great Stagnation of Taiwan
Stacey Chen
(Academia Sinica)
[View Abstract]
[Download Preview] Since the mid 1990s, Taiwanese hourly pay at nearly all percentile has been stagnating, irrespective of including performance pay or not. Ironically, the real GDP per capita grew steadily throughout the period of 1978 to 2008. The labour income share has persistently declined since 1994, while the capital income share was rising. The consequence of this long-term stagnation is devastating particularly for the young generations born after the 1950s. Except for the top 99th percentile, the wage-age profiles started flattening or declining for the 1940s birth cohort after the age of 50, for the 1950s birth cohort after the age of 40, and for the 1960s birth cohort after the age of 30. Unlike the abrupt change in wage profiles in the mid 1990s, the only evident change in the composition of the workforce prior to 1995 is a smooth decline in the proportion of workers who received no compulsory eduction. This short report call for economists to look into plausible causes to this pressing issue.
A Demographic Theory of Economic Transition
Y. Stephen Chiu
(University of Hong Kong)
[View Abstract]
This paper explores the role of population structure and dynamic in determining the choice of economic reform strategies. It is motivated by a comparison of economic reform experiences in China and Russia. At the beginning of reforms, the Chinese population was much younger and, despite its birth control policy, has continued growing in the next half century, with 40 percent increase in size; whereas the Russian population was much older, peaked soon, and has since remained stagnant. The investment nature of reform---pain now, gain later---suggests that demographic structure and dynamic like those in China might bestow the government with a great deal of leeway for trials and errors (a corollary being that a self-interested government may use the leeway for procrastination). In the absence of such demographic conditions, a benevolent government may find it necessary to commit to irrevocable reform, if chances arise. This vindicates the big bang approach advocated for the Russian reform.
Volatility and Economic Systems: Evidence from China
HughBoqun Wang
(Johns Hopkins University)
Dennis Tao Yang
(University of Virginia)
[View Abstract]
We study the relationship between aggregate output volatility and economic regimes of central planning, a mixed system, and an open market economy. A dramatic decline in volatility in China is documented for the past half century. The output volatility measured by the standard deviation of real gross domestic product (GDP) growth over the specified rolling windows declined by 73% from 1953-1977 to 1978-2008. The sharpest reduction occurred in 1978 when China began to initiate a series of institutional reforms, moving away from a centrally planned system towards a market economy. Since the inception of these reforms, the volatility continued to decline, dropping more than 30% from 1978-1994 to 1995-2008. During the planning period, the co-movements in the provincial output, which reflected the systemic risks associated with the highly centralized economic and political systems, were found to be the primary source of the high output volatility.
Accounting for China's Growth
Loren Brandt
(University of Toronto)
Xiaodong Zhu
(University of Toronto)
[View Abstract]
This paper uses a muti-sector growth model to quantify the sources of China's impressive growth in the last three decades. Because China's growth during this period is accompanied by two important structural transformations: from agriculture to manufacturing and services, and from state-owned firms to non-state firms, we build a three-sector model with two types of firm ownership within the two non-agricultural sectors and do model-based growth accounting. We find only a modest role for labor reallocation from agriculture and capital deepening, and identify rising TFP in the non-state non-agricultural sectors as the key driver of growth. We also find significant misallocation of capital: The less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to re-balance its growth. While the misallocation of capital may have declined in the manufacturing sector, it has increased in the services sector. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data sets.
Discussants:
YinChi Wang
(Chinese University of Hong Kong)
Charles Leung
(City University of Hong Kong)
TszNga Wong
(Bank of Canada)
Zheng Michael Song
(University of Chicago)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 202-B
Chinese Economists Society
Labor Market Issues in China: Evidence from the RUMIC Longitudinal Survey
(J4)
Presiding:
Klaus Zimmermann
(Institute for the Study of Labor (IZA))
The RUMiC Longitudinal Survey: Fostering Research on Labor Markets in China
Corrado Giulietti
(Institute for the Study of Labor (IZA))
Martin Guzi
(Institute for the Study of Labor (IZA))
Klaus F. Zimmermann
(Institute for the Study of Labor (IZA))
[View Abstract]
[Download Preview] This paper describes the Longitudinal Survey on Rural Urban Migration in China (RUMiC), a unique data source in terms of spatial coverage and panel dimension for research on labor markets in China. The survey is a collaboration project between the Australian National University, Beijing Normal University and the Institute for the Study of Labor (IZA), which makes data publicly available to the scientific community by producing Scientific Use Files. The paper illustrates the structure, sampling frame and tracking method of the survey, and provides an overview of the topics covered by the dataset, and a review of the existing studies based on RUMiC data.
International Financial Crisis and Wage Inequality in Urban China
Li Shi
(Beijing Normal University)
[View Abstract]
[Download Preview] Shock of the international financial crisis occurred in 2007/8 had a negative impact on the Chinese economy at the early stage, but the immediate reaction of the Chinese government with a stimulus package of 4 trillion investment made the economy recovered promptly. Since the crisis and the government stimulus package generated different impacts on unemployment and wage growth across regions and industries, the impact would lead to some changes in the pattern of wage inequality before and after the crisis. The paper uses the urban household data collected from RUMIC surveys during 2008-2010, to investigate the changes in wage growth and inequality in urban China during this period. The findings indicates that the international financial crisis did not have significantly negative impact on wage growth and contributed to narrowing wage inequality in urban China, which was largely due to offsetting effects of the governmental stimulus policies. However along with fading impact of the stimulus policies and growing impact of the international financial crisis, the wage growth experienced a downward trend and wage inequality appeared to rise in 2010.
Labor Contract of Chinese Rural to Urban Migrants
Yanjiao Song
(Renmin University of China)
Zhong Zhao
(Renmin University of China)
[View Abstract]
Since 1988, rural to urban migration has become an important social and economic phenomenon in China. According to the National Bureau of Statistics of China, there were around 140 million rural to urban migrants (hereafter referred to as "migrants") living in cities in 2008. But the labor protection for the migrants is minimum until the implementation of Labor Contract Law in 2008. Using the sample of migrant households from the RUMiC panel data collected between 2007 and 2011, this paper aims to answer three questions: (1) What are the determinants of the type of labor contract of the migrants; (2) How have these determinants changed from 2007 to 2011; and (3) What is the role of the Labor Contract Law? Based on the empirical findings, policy implications, as well as recommendations, will be discussed.
Sibling Influence on the Human Capital of the Left Behind
Constanza Biavaschi
(Institute for the Study of Labor (IZA))
Corrado Giulietti
(Institute for the Study of Labor (IZA))
Klaus F. Zimmermann
(Institute for the Study of Labor (IZA))
[View Abstract]
[Download Preview] While a growing literature has analyzed the effects of parental migration on the educational outcomes of children left behind, this is the first study to highlight the importance of sibling interactions in such a context. Using panel data from the RUMiC Survey, we find that sibling influence on schooling performance is stronger among left- behind children. Hence, parental migration seems to trigger changes in the roles and effects among children. However, it is primarily older sisters who exhibit a positive influence on their younger siblings. We corroborate our results by performing a series of tests to mitigate endogeneity issues. The results from the analysis suggest that sibling effects in migrant households might be a mechanism to shape children’s outcomes and success and that adjustments within the family left behind have the potential to generate benefits – or reduce hardship – in response to parental migration.
Discussants:
Zhong Zhao
(Renmin University of China)
Constanza Biavaschi
(Institute for the Study of Labor (IZA))
Corrado Giulietti
(Institute for the Study of Labor (IZA))
Li Shi
(Beijing Normal University)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 406
Cliometrics Society
Technology and Property Rights
(N7)
Presiding:
David Mitch
(University of Maryland)
DOES COPYRIGHT LIMIT ACCESS TO CLASSICAL MUSIC? EVIDENCE FROM U.S. ORCHESTRAS, 1842-2012
Petra Moser
(Stanford University)
Jerry Lao
(Stanford University)
[View Abstract]
[Download Preview] Policy changes in 1996 and 2012 retroactively placed thousands of foreign compositions, such as Sergei Prokofiev's "Peter and the Wolf," under copyright in the United States. Critics argue that long-lived copyright terms limit access to important compositions for all but the most affluent US orchestras, but there is little systematic evidence. This paper investigates repertoire data for US symphonies between 1842 and 2012 to investigate whether copyright terms may in fact limit access to classical music. We find that copyright is a key determinant of the types of music that US orchestras play, and that the impact of copyright disproportionately falls on orchestras that are more budget-constrained. Repertoire data also indicate that a lack of protection helped popularize Russian music in the United States.
The Great Divergence and the Economics of Printing
Luis Angeles
(University of Glasgow)
[View Abstract]
This paper offers an economic analysis of the choice of printing technology in early modern China and Europe, and links the outcomes to the subsequent divergence in economic development between these two regions. Despite its technological precociousness, China adopted xylography over movable type for most of its printing. Europe, who discovered printing considerably later, only employed movable type. I show how this choice is fully compatible with standard economic behaviour and ultimately stems from the differences between the European and the Chinese script. While this did not result in fewer or more expensive books in China, it had the more pernicious effect of limiting the variety of printing therein: new book titles produced in Europe outnumbered those produced in China by one to two orders of magnitude. If new books are the carriers of new ideas, and new ideas the ultimate engine of growth, the economics of printing can plausibly have a first order effect on long-term economic development.
Turning Points in Leadership: Shipping Technology in the Portuguese and Dutch Merchant Empires
Claudia Rei
(Vanderbilt University)
[View Abstract]
[Download Preview] This paper discusses the implications of organizational control on the race for economic leadership in merchant empires. Poor organizations have reduced incentives to invest, which in turn stifle technological improvements making leaders lag behind new entrants. Portugal's large ships carried more merchandize and were more fitting of the monarch's grandiose preferences, but they also were more prone to disaster in stormy waters. The merchant controlled Dutch East India Company however, invested in smaller but more seaworthy vessels conducting more voyages at a much lower loss rate. The surviving historical evidence shows Portugal relying on large ships well into the seventeenth century suggesting her technological edge was gone by the time the Dutch enforced their presence in the Indian Ocean.
A Tale of Two SICs: Industrial Development in Japan and the United States in the Late Nineteenth Century
John Tang
(Australia National University)
[View Abstract]
[Download Preview] Late developing countries are able to adopt best practice technologies pioneered abroad, allowing more rapid convergence toward leading economies. Meiji Japan (1868-1912) is considered a successful example of industrial convergence, but much of the evidence relies on national aggregates or selected industries. Using historical industry data, this paper examines whether Japan adopted new technologies faster compared to the United States. Contrary to conventional wisdom, duration analysis indicates that new sectors did not appear relatively sooner in Japan; however, they did grow to economic significance faster. Higher firm capitalization and capital intensity are also associated with earlier entry for Japanese sectors.
Discussants:
Lisa D. Cook
(Michigan State University)
Carol H. Shiue
(University of Colorado)
Ahmed Rahman
(US Naval Academy)
Susan Wolcott
(Binghamton University)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 401
Econometric Society
Bounded Rationality and Markets
(D4)
Presiding:
Bart Lipman
(Boston University)
Optimal Screening of Time Inconsistency
Simone Galperti
(Northwestern University)
[View Abstract]
[Download Preview] This paper develops a theory of optimal provision of commitment devices to people who value both commitment and fl‡exibility, and whose preferences differ in the degree of time inconsistency. If time inconsistency is observable, then both a planner and a monopolist provide devices that help each person commit to the efficient level of ‡flexibility. But the combination of unobservable time inconsistency and preference for fl‡exibility creates an adverse-selection problem. To solve it, the monopolist and (possibly) the planner inefficiently curtail fl‡exibility in the device for a more inconsistent person, and may have to add unused options to, or even distort, the device for a less inconsistent person. Flexibility is curtailed in a particular way that is evocative of existing commitment devices. This theory has normative as well as positive implications for private and public provision of these devices.
Competition for Consumer Inattention
Geoffroy de Clippel
(Brown University)
Kfir Eliaz
(Tel Aviv University and University of Michigan)
Kareen Rozen
(Yale University)
Foundations for Optimal Inattention
Andrew Ellis
(Boston University)
[View Abstract]
[Download Preview] This paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information. An optimally inattentive agent chooses both her coarsening and her actions by constrained maximization of an underlying subjective expected utility preference relation. The main result axiomatically characterizes the conditional choices of actions by an agent that are necessary and sufficient for her behavior to be seen as if it is the result of optimal inattention. Observing these choices permits unique identification of the agent's utility index, cognitive constraint and prior (the last under a suitable richness condition). An application considers a market in which strategic firms offer differentiated products. If the consumer's information concerns firms' quality, then equilibrium consumer surplus may be higher with an optimally inattentive consumer than with one who processes all available information.
Optimal Savings Contracts and Withdrawal Penalties
Georgy Egorov
(Northwestern University)
Attila Ambrus
(Duke University)
[View Abstract]
Early withdrawal penalties are prevalent in retirement accounts such as IRA and 401(k) in the US. In this paper, we provide contract theory microfoundations for such features. Building on the framework of Amador, Werning, and Angeletos (AWA, Econometrica 2006), we consider a consumption-savings problem of a time-inconsistent individual who is not willing to pre-commit to a particular consumption path because of possible future shocks to his utility function. In AWA's three-period setting, we characterize conditions under which the optimal contract will feature withdrawal penalties; we show that they are most likely when the individual faces a small probability of a severe preference shock. We also show that withdrawal penalties become more likely if the individual becomes more able to save on the side (which is realistic in low-inflation environments). Finally, we study a multi-period model and show that withdrawal penalties should not decrease over time, except for the last period. This helps explain why retirement accounts have a flat withdrawal penalty up until a certain age, rather than a gradually decreasing one that naïve intuition would suggest.
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 402
Econometric Society
Identification and Estimation Nonseparable Models with Endogeneity
(C0)
Presiding:
Arthur Lewbel
(Boston College)
Identification and Estimation of Individual Discrete Choice Models with Market Level Endogeneity
Amit Gandhi
(University of Wisconsin-Madison)
[View Abstract]
In this paper we merge two existing strands of literature. On the one hand there are individual discrete choice models with endogenous errors. These models present a non-separability problem that is handled typically through control functions. On the other hand there are market level demand models based upon inverting the demand relationship to generate a separable structure with endogeneity. We combine elements of both approaches to provide a new framework for demand estimation that connects the market level models to individual level models and offers an approach to demand estimation that allows researchers to avoid the inversion.
Counterfactual Worlds: Characterising the Identifying Power of Incomplete Models with Conditional Independence Restrictions
Andrew Chesher
(University College London)
Adam Rosen
(University College London)
[View Abstract]
[Download Preview] We study models in which an observed discrete or continuous classifier variable indicates in which one of a set of counterfactual processes an economic entity (e.g. an individual or household or firm) is observed. The other observed outcomes are delivered by the particular counterfactual process in which an entity is found.
The models are incomplete in the sense that even with knowledge of the values of observed exogenous and unobserved variables a model may not deliver a unique value of the endogenous outcomes. This may happen because there is no detailed specification of the genesis of the classifier variable and/or because there is an incomplete specification of the counterfactual processes. We study the identifying power of models of this sort that incorporate conditional independence restrictions under which unobserved variables and the classifier variable are stochastically independent conditional on the observed exogenous variables. The models generalize classical treatment effect models. In one example of an application, we observe the entry decisions of firms that can choose which of a number of markets to enter and we observe various endogenous outcomes delivered in the markets they choose to enter. We use random set theory methods to characterise the identifying power of these models for fundamental structural relationships and probability distributions and for interesting functionals of these objects, some of which may be point identified.
On the Independence Assumption on Nonseparable Models with Simultaneity
Rosa Matzkin
(University of California-Los Angeles)
[View Abstract]
This paper contrast and unifies two different approaches that have been used to estimate nonseparable models with endogeneity, of the form yâ‚=m(yâ‚‚,εâ‚), where m is strictly increasing in the unobservable εâ‚. The conditional moments approach (e.g., Chernozhukov and Hansen (2005)) employs an excluded variable x, assumed to be statistically independent of εâ‚, and imposes conditions on the conditional distribution of yâ‚‚ given x. The system approach (e.g., Matzkin (2008, 2010)) specifies the model as yâ‚ = m(yâ‚‚,εâ‚); yâ‚‚ = n(yâ‚,x,ε₂) and imposes conditions on the primitive function n and the primitive density of (εâ‚,ε₂,x). This paper provides conditions on the system approach guaranteeing that the conditions employed in the conditional moments approach are satisfied. It also provides conditions on the models used in the conditional moments approach guaranteeing that the assumptions of the system approach are satisfied. A series of new results on the identification and estimation of nonseparable models with simultaneity where the vector of unobservable variables (εâ‚,ε₂) is not distributed independently of x are developed. The asymptotic properties of the new estimators as well as their small sample behavior are presented.
Full Paper (PDF file)
A Triangular Treatment Effect Model With Random Coefficients in the Selection Equation
Stefan Hoderlein
(Boston College)
Eric Gautier
(ENSAE-CREST)
[View Abstract]
In this paper we study nonparametric estimation in a binary treatment model where the outcome equation is of unrestricted form, and the selection equation contains multiple unobservables that enter through a nonparametric random coefficients specification. This specification is flexible because it allows for complex unobserved heterogeneity of economic agents and non-monotone selection into treatment. We obtain conditions under which both the conditional distributions of Yâ‚€ and Yâ‚, the outcome for the untreated, respectively treated, given first stage unobserved random coefficients, are identified. We can thus identify an average treatment effect, conditional on first stage unobservables called UCATE, which yields most treatment effects parameters that depend on averages, like ATE and TT. We provide sharp bounds on the variance, the joint distribution of (Yâ‚€,Yâ‚) and the distribution of treatment effects. In the particular case where the outcomes are continuously distributed, we provide novel and weak conditions that allow to point identify the joint conditional distribution of Yâ‚€,Yâ‚, given the unobservables. This allows to derive every treatment effect parameter, e.g. the distribution of treatment effects and the proportion of individuals who benefit from treatment. We present estimators for the marginals, average and distribution of treatment effects, both conditional on unobservables and unconditional, as well as total population effects. The estimators use all the data and discard tail values of the instruments when they are too unlikely. We provide their rates of convergence, and analyze their finite sample behavior in a simulation study. Finally, we also discuss the situation where some of the instruments are discrete.
Discussants:
Whitney Newey
(Massachusetts Insitute of Technology)
Kirill Evdokimov
(Princeton University)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 403
Econometric Society
Macroeconomic Dynamics at the Zero Lower Bound
(E6)
Presiding:
Giorgio Primiceri
(Northwestern University)
The Inflation-Output Tradeoff Revisited
Gauti Eggertsson
(Brown University)
[View Abstract]
A rich literature from the 1970s shows that as inflation expectations become more and more in- grained, monetary policy looses its stimulative effect. In the extreme, with perfectly anticipated infla- tion, there is no trade-off between inflation and output. A recent literature on the interest-rate zero lower bound, however, suggests that there may be some benefits from anticipated inflation in a liquidity trap. In this paper, we reconcile these two views by showing that while it is true at positive interest rates that the more anticipated inflation becomes, the less stimulative it is, the opposite holds true at the zero bound. Indeed, at the zero bound, the more the public anticipates inflation, the greater is the expansionary effect of inflation on output. This leads us to revisit the trade-off between inflation and output, and to show how radically it changes in the face demand shocks that are large enough to bring the economy to a liquidity trap. Instead of vanishing once inflation becomes anticipated, the trade-off between inflation and output increases substantially and may become arbitrarily large, so that raising the inflation target in a liquidity trap can be very stimulative.
The Empirical Implications of the Interest-Rate Lower Bound
J. David Lopez-Salido
(Federal Reserve Board)
[View Abstract]
Using Bayesian methods, we estimate a nonlinear DSGE model in which the interest-rate lower bound is occasionally binding. We quantify the size and nature of disturbances that pushed the U.S. economy to the lower bound in late 2008 as well as the contribution of the lower bound constraint to the resulting economic slump. Compared with the hypothetical situation in which monetary policy can act in an unconstrained fashion, our estimates imply that U.S. output was more than 1 percent lower, on average, over the 2009–2011 period. Moreover, around 20 percent of the drop in U.S. GDP during the recession of 2008-2009 was due to the interest-rate lower bound. We show that the estimated model generates lower bound episodes that resemble salient characteristics of the observed U.S. episode, including its expected duration.
Macroeconomic Dynamics Near the ZLB: A Tale of Two Equilibria
S. Boragan Aruoba
(University of Maryland)
Frank Schorfheide
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper studies the dynamics of a New Keynesian DSGE model near the zero lower bound (ZLB) on nominal interest rates. In addition to the standard targeted-inflation equilibrium, we consider a deflation equilibrium as well as a Markov sunspot equilibrium that switches between a targeted-inflation and a deflation regime. We use the particle filter to estimate the state of the U.S. economy in 2008:Q4 under the assumptions that the U.S. economy has been in either the targeted-inflation or the sunspot equilibrium. The two equilibria provide an equally plausible description of the observed data but have different policy implications. We consider a combination of fiscal policy (calibrated to the American Recovery and Reinvestment Act) and monetary policy (that tries to keep interest rates near zero) and compute government spending multipliers. Ex-ante multipliers (cumulative over one year) under the targeted-inflation regime
Do Unemployment Benefits Make Recessions Worse?
Lawrence Christiano
(Northwestern University)
[View Abstract]
This paper investigates the cyclical effects of unemployment compensation. We argue that under normal circumstances increases in unemployment compensation tends to increase unemployment. However in times when the zero lower bound restriction on the interest rate is binding, increasing unemployment compensation has a substantial positive effect on output and employment. We make this argument using an estimated model that combines search frictions along with standard New Keynesian frictions.
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 201-A
Econometric Society
Macroeconomics with Debt Markets in Turmoil
(E5)
Presiding:
Enrique Mendoza
(University of Pennsylvania)
Sovereign Default Risk and Banks in a Monetary Union
Harald Uhlig
(University of Chicago)
[View Abstract]
[Download Preview] This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank, and that their sovereign partially backs up any losses, should the banks not be able to repurchase the bonds. I argue that regulators in risky countries have an incentive to allow their banks to hold home risky bonds and risk defaults, while regulators in other ``safe'' countries will impose tighter regulation. As a result, governments in risky countries get to borrow more cheaply, effectively shifting the risk of some of the potential sovereign default losses on the common central bank.
Currency Pegs, Downward Nominal Wage Rigidity, Unemployment, and Macro Prudential Policy
Martin Uribe
(Columbia University)
TBA
Saving Europe?: The Unpleasant Arithmetic of Fiscal Austerity in Integrated Economies
Enrique G. Mendoza
(University of Pennylvania)
Linda Tesar
(University of Michigan)
Jing Zhang
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] This paper studies the macroeconomic implications of tax adjustments in response to large
public debt shocks using a two-country dynamic general equilibrium model. Endogenous capital
utilization and a limited tax allowance for depreciation are introduced to produce a realistic
elasticity of capital tax revenue. Income tax hikes have adverse eects on macro aggregates
and welfare, and trigger strong cross-country externalities, because countries that raise taxes
become less competitive and less ecient. Quantitative analysis calibrated to European data
shows that unilateral capital tax increases cannot restore scal solvency in the region with larger
debts shocks (the "GIIPS"), because the dynamic Laer curve peaks below the required revenue
increase. Unilateral labor tax hikes can do it, but still have negative eects on the GIIPS and
positive eects on their trading partners (the "EU10"). Moreover, unilateral tax hikes are less
costly for GIIPS under autarky than under free trade. Allowing for strategic interaction, oneshot
Nash tax competition in which both regions adjust taxes to oset observed debt shocks
produces a race to the bottom" in capital taxes and higher labor taxes. The regions do better
in Cooperative equilibria, but capital (labor) taxes are still lower (higher) than at present, and
the welfare loss is smaller under either Nash or Cooperative equilibria than with unilateral tax
hikes.
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 404
Econometric Society
Unemployment Across Regions and Sectors
(J3)
Presiding:
Marianna Kudlyak
(Federal Reserve Bank of Richmond)
Productivity Insurance: The Role of Unemployment Benefits in a Multi-Sector Model
David L. Fuller
(Concordia University)
Marianna Kudlyak
(Federal Reserve Bank of Richmond)
Damba Lkhagvasuren
(Concordia University)
[View Abstract]
[Download Preview] We construct a search-matching model with sectoral mobility and analyze the provision of unemployment benefits in this environment. Agents direct their search to a particular sector, and face moving costs when deciding to search in a different sector. Idiosyncratic productivity shocks make working in certain sectors more productive in others. We find the optimal replacement ratio and analyze how the presence of moving costs affects it.
Sectoral Shift, Job Mobility and Wage Inequality
Florian Hoffmann
(University of British Columbia)
Shouyong Shi
(University of Toronto)
[View Abstract]
In the last few decades there is a clear shift of the U.S. economy from the non-service sector to the service sector. We document the patterns of changes in the employment share in services, the transition rates of workers between the two sectors and between different employment status, the relative wage income between the sectors, and wage inequality. To understand these changes jointly, we construct a dynamic equilibrium model of a two-sector economy where workers search both on the job and in unemployment. Assuming that the value-added per labor has been increasing in services relative to non-services, we estimate the model and make inferences on how the sectoral shift interacts with skill accumulation and labor market frictions.
Disentangling Labor Supply and Demand Shifts Using Spatial Wage Dispersion: The Case of Oil Price Shocks
Matthias Kehrig
(University of Texas-Austin)
Nicholas Ziebarth
(University of Iowa)
[View Abstract]
[Download Preview] We separate changes in labor supply and demand through changes in higher-order moments of the wage distribution. We illustrate this idea in a study of the eects of oil price shocks, which generate a predictable labor demand adjustment across regions. Empirically, oil price shocks decrease average wages, particularly skilled wages, and increase wage dispersion, particularly unskilled wage dispersion. In a model with spatial energy eciency dierences and nontradables, labor demand shifts, while explaining the response of average wages to oil price shocks, have counterfactual implications for the response of wage dispersion. Only shifts in labor supply can explain this latter fact.
Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects
Marcus Hagedorn
(Institute of Advanced Studies)
Fatih Karahan
(Federal Reserve Bank of New York)
Iourii Manovskii
(University of Pennsylvania)
Kurt Mitman
(University of Pennsylvania)
[View Abstract]
We exploit policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed – the micro effect – we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon C
International Association for Energy Economics/American Economic Association
What Determines the Price of Oil? The Roles of Supply, Demand, Speculation and Other Factors?
(Q4) (Panel Discussion)
Panel Moderator:
Kenneth Medlock
(Rice University)
Mahmoud El-Gamal
(Rice University)
Supply, Demand, and Oil Price Cycles: The Medium-Term View
Lutz Kilian
(University of Michigan)
Quantifying the Speculative Component in the Real Price of Oil: The Role of Global Oil Inventories
Christopher R. Knittel
(Massachusetts Institute of Technology)
The Simple Economics of Commodity Price Speculation
John E. Parsons
(Massachusetts Institute of Technology)
Speculation and Speculation in Oil Prices
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 305
International Health Economics Association
Quality in Health Care Markets: Measurement and Incentives
(I1)
Presiding:
Richard Lindrooth
(University of Colorado)
Spillover Effects of the Alternative Quality Contract on Spending and Quality for Medicare Beneficiaries
J. Michael McWilliams
(Harvard University)
Bruce Landon
(Harvard University)
Michael E. Chernew
(Harvard University)
[View Abstract]
We examine the spillover effects of the Blue Cross Blue Shield Alternative Quality Contract (AQC) – a global payment system with pay-for-performance incentives – on spending and quality of care for Medicare beneficiaries in Massachusetts.
Using a difference-in-differences approach and Medicare claims data from 2007-2010, we compared spending and quality of care for beneficiaries served by organizations participating in the AQC with spending and quality for beneficiaries served by other providers (control group), before and after organizations joined the AQC in 2009 or 2010. We estimated differential changes for the intervention group separately for their first and second years of exposure to the AQC, focusing on the 7 organizations that joined the AQC in 2009 for estimates in year 2. We analyzed total spending on hospital and outpatient care and spending by type of service. Annual quality measures included 5 process measures, hospitalizations for ambulatory care-sensitive conditions, and 30-day readmissions. We used propensity-score methods and linear regression to adjust for sociodemographic characteristics, baseline clinical conditions, and county fixed effects. Robust variance estimators were used to adjust for clustering within organizations and individuals.
Relative to the control group, total quarterly spending for the intervention group differentially decreased in year 2 of the intervention but not in year 1. The spending reduction in year 2 was explained largely by lower spending on outpatient care. There were significant differential reductions in spending by type of service. LDL testing differentially increased for some beneficiaries in the intervention group. Performance on other quality measures did not differentially change.
The AQC was associated with modest reductions in spending for Medicare beneficiaries but not with consistently better quality of care. Thus, efforts by provider groups to control spending in response to global payment incentives from one payer may have similar effects on spending for other patients they serve.
Do Patient-Centered Medical Homes Reduce Emergency Department Visits?
Guy David
(University of Pennsylvania)
Phil Saynisch
(Harvard University)
Somesh Nigam
(Independence Blue Cross)
Candace Gunnarsson
(S2 Statistical Solutions)
[View Abstract]
[Download Preview] This paper assesses whether adoption of the Patient-Centered Medical Home (PCMH) reduces emergency department (ED) utilization among patients with and without chronic illness. We use administrative data from approximately 460,000 Independence Blue Cross patients enrolled in 280 primary care practices which converted to PCMH status from 2008-2012. We estimate the effect of a practice becoming PCMH certified on ED visits and costs for its patients using a difference-in-differences approach, employing either practice or patient fixed effects. We analyzed patients with and without chronic illness across six chronic illness categories. We find that among chronically ill patients, transition to PCMH status was associated with 5-8% reductions in ED utilization. This finding was robust to a number of specifications, including analyzing avoidable and weekend ED visits alone. The largest reductions in ED visits are concentrated among chronic patients with diabetes and hypertension. Hence, the adoption of the PCMH model was associated with lower ED utilization for chronically ill patients, but not for those without chronic illness. The effectiveness of the PCMH model varies by chronic condition. Analysis of weekend and avoidable ED visits suggests that reductions in ED utilization stem from better management of chronic illness rather than expanding access to primary care clinics.
Product Differentiation and Severity Adjustment in United States Hospitals
Jeffrey S. McCullough
(University of Minnesota)
Ira S. Moscovice
(University of Minnesota)
[View Abstract]
Health care consumers are challenged by limited provider quality information. Incomplete information may result in suboptimal quality investment or poor patient-provider matching. Hospitals are multiproduct firms where outcomes depend on patient severity as well as provider efforts. Traditional severity adjustment techniques control for observed patient characteristics and standardize the product, or case, mix to the national average. Standardizing the case mix may understate quality differences when hospitals are specialized. Furthermore, high risk patients may be more sensitive to hospital quality, leading to endogenous hospital selection. We study the implications of product differentiation and severity adjustment focusing on Critical Access Hospitals (CAHs). These hospitals have limited resources and treat a rural population that differs from those of urban hospitals.
We use the 100% MedPAR Medicare claims data from 2005-2007. These data describe patient diagnoses, demographics, and outcomes for all Medicare Fee-For-Service hospitalizations. We focus on five common high-mortality diagnoses: pneumonia (PN), congestive heart failure (CHF), chronic obstructive pulmonary disease (COPD), acute myocardial infarction (AMI), and cerebrovascular disorder (CVD). We estimate conditions-specific mortality to recover hospital quality levels. We recover hospital-level quality for the entire patient population and the actual CAH patient population. Ultimately, differential distances between patients and hospitals will be used to identify hospital choice. This will correct for selection bias in the observed product distribution.
We find that CAHs have higher average severity-adjusted mortality. However, the CAHs serve disproportionately few patients for their low-performance diagnoses. Preliminary results suggest that standardizing to the US population, as opposed to the actual rural population, accounts for approximately15% of observed excess mortality. We are building on these preliminary estimates to address selection bias.
Discussants:
H. E. Frech, III
(University of California-Santa Barbara)
Christina L. Marsh
(University of Georgia)
Stephen T. Parente
(University of Minnesota)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Rooms 408 & 409
International Network for Economic Method
Edward Leamer's The Craft of Economics
(B4) (Panel Discussion)
Panel Moderator:
Don Ross
(University of Cape Town)
Glenn W. Harrison
(Georgia State University)
Methodological Lessons from General Equilibrium Trade Models
Lawrence Edwards
(University of Cape Town)
Telling the Best Story About Trade Between Developed and Emerging Economies
Don Ross
(University of Cape Town)
Story-Telling is Part of Science, Not an Alternative to it: The Science of International Economics
Edward E Leamer
(University of California-Los Angeles)
The Craft of Economics: 
Methodological Lessons Drawn from the Intellectual history of the Heckscher-Ohlin Model
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Grand Ballroom - Salon L
International Society for New Institutional Economics
The Economic Institutions of Higher Education
(I2)
Presiding:
Scott Masten
(University of Michigan)
Herding Cats? Management and University Performance
John McCormack
(University of Bristol)
Carol Propper
(University of Bristol, Imperial College London)
Sarah Smith
(University of Bristol)
[View Abstract]
[Download Preview] A commonly held view is that managing academics is like herding cats: difficult and possibly pointless. Using a tried and tested measure of management practices shown to predict firm performance, we survey nearly 250 university departments across more than 100 UK universities. We show large differences in management scores across universities and that departments in research intensive universities score higher than departments in newer, more teaching-oriented universities. We find that management at the department level does matter in universities. The scores, particularly with respect to provision of incentives for staff recruitment, retention and promotion, are correlated with both teaching and research performance conditional on resources and past performance. Moreover, this relationship holds for all universities, not just research-intensive ones.
The Problems of Higher Education: Property Rights and Public Choice
Henry G. Manne
(George Mason University)
[View Abstract]
[Download Preview] Prior to 1862, with insignificant exceptions, American colleges and universities were either strongly tied to a particular religious denomination or they reflected an elitist social consciousness that, like religion, helped define the "mission" of the schools. The non-profit status of these schools was perfectly consistent with this mission, as the last thing wanted was consumer sovereignty or a competitive market for higher education. Vocational training, such as for engineers, chemists, architects, lawyers, or doctors, was done almost exclusively in flourishing proprietary institutions. All this changed with the establishment of the land-grant schools under the Morrill Acts of 1862 and 1890, which caused massive failures of both the private religious schools and the proprietary ones. The land-grant schools were originally highly vocational in their mission, but they retained the governance structure of their private not-for-profit predecessors. This lead to the development of many of the peculiarities of higher education seen today. With no constraining market to answer to, schools tend to reflect the intellectual and ideological preferences of the faculties at the standard-setting schools.
Universities as Innovators: The Effects of Academic Incubators on Patent Quality
Peter G. Klein
(University of Missouri)
Christos Kolympiris
(Wageningen University)
[View Abstract]
[Download Preview] Despite a wealth of research on university incubators, science parks, and other attempts at commercialization, there is little consensus on the effectiveness of university-sponsored commercial innovation. We analyze the impact of incubators and other types of facilitators on the quality of innovations produced by US research-intensive academic institutions from 1969 to 2012. Using forward patent citations to measure the quality of innovation we show that establishing a university-affiliated incubator is followed by a reduction in innovation on campus, controlling for patent-, university-, and time-specific characteristics. The results hold when we control for the endogeneity of the decision to establish an incubator using the presence of incubators at peer institutions as an instrument. The results suggest that university incubators compete for resources with technology transfer offices and other campus programs and activities, such that the useful and commercializable outputs they generate can be partially offset by reductions in innovation elsewhere on campus.
Discussants:
Robert S. Gibbons
(Massachusetts Institute of Technology)
Henry Hansmann
(Yale University)
Jeffrey Furman
(Boston University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
Human Capital at Work: Education
(J5)
Presiding:
Phanindra Wunnava
(Middlebury College and IZA)
Private and Social Returns to Education: Evidence from the Current Population Survey
Kristen Monaco
(California State University-Long Beach)
Steven Yamarik
(California State University-Long Beach)
[View Abstract]
[Download Preview] As states and the nation face fiscal strain there is continued scrutiny regarding the level of public investment in education, particularly higher education. Public investment in education is most commonly economically justified due to production spillovers from education; skills and knowledge attained in schooling are shared with others, however this shared knowledge is not remunerated. This raises the following questions: are there output externalities from education and do these externalities differ across worker groups? There is conflicting evidence regarding the former question in the literature, with the extent of the externality varying considerably based upon the data and methods used. We use multiple years of the Current Population Survey augmented with state level data to measure both private and social returns to education, controlling for both individual and state-level characteristics. We find private returns to schooling on the order of 5% and social returns on the order of 4-5%. The externality is higher for poorly educated workers and higher in high education, high innovation states. The latter finding supports work by Moretti which posits that agglomeration furthered the divergence in productivity and wage rates that were initiated by globalization and skill-biased technological change.
Employment Patterns of Foreign-Born Immigrants in the United States: The Role of English Proficiency
Ying Zhen
(Wesleyan College)
[View Abstract]
[Download Preview] This paper studies the effects of English proficiency on employment of U.S. foreign-born immigrants, using data from the 2001 American Community Survey (ACS). It shows that English proficiency plays an important role in immigrants' employment and its effects on employment patterns across genders are different. Probit regressions show that immigrants with a higher level of English proficiency are more likely to participate in the labor force and find employment. Such likelihood is greater in each category of English proficiency for female immigrants. However, the penalty for being deficient in English in each category is greater in finding employment than in participating in the labor force. Such penalties for female immigrants are much greater than male immigrants at each English proficiency level. There is a complementary relationship between English proficiency and skill levels in terms of employment. High-skilled immigrants benefit more from greater English proficiency than their low-skilled counterparts in finding employment. Such benefits are greater for immigrant women than men at each English proficiency category. However, being proficiency in English is not an important determinant of participation and employment for the low-skilled immigrants. Using Ordered Probit techniques, the results indicate that English proficiency does not seem to be an important contributor for immigrants' work status improvement, especially for male immigrants work status. The Multinomial Logit analysis is applied to examine how English proficiency affects immigrants' occupational choices. The expected risk of staying in the higher-ranking jobs is higher for those with high English proficiency. In addition, immigrants with more educational attainment are more likely to choose science/academic occupations over managerial/professional/technical occupations. Such a pattern remains for both genders.
Discussants:
Paul Harrington
(Drexel University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association
Labor Force Issues in Advanced Economies: Participation, Self-Employment, Outsourcing
(J5)
Presiding:
William Rodgers III
(Rutgers University)
Working, the Job, and Postindustrial Careers with Outsourcing: Theorizing About Job Quality and Loss
Jacqueline Marie Zalewski
(West Chester University of Pennsylvania)
[View Abstract]
[Download Preview] Research on the effects of workplace restructuring suggests that a bifurcation of skill and job quality is occurring in many professions and occupations. While descriptions of restructuring s effects are plentiful, few studies explain why there is variation across jobs within various fields. New trends of outsourcing professional jobs, often to another company that does the work onsite or onshore, gives a unique opportunity to examine the effects of workplace restructuring on job quality and job loss across this employment sector and to explain any variation that exists in these outcomes. Through qualitative interviews representing 13 cases of outsourcing information technology (IT; N=10) and human resource (HR; N=3) jobs, I found differences in rates of job loss in these sectors as well as varied effects on the professional challenges in this work at outsourcing companies. Findings suggest that institutional and environmental factors have important effects on outcomes of job quality and job loss with outsourcing.
Fostering Entrepreneurial Societies: National Labor Market Policies and Self-Employment
Pamela S. Tolbert
(Cornell University)
Lena Hipp
(Wissenschaftszentrum Berline fur Sozialforschung)
[View Abstract]
[Download Preview] By merging individual-level data with national-level indicators on labor market regulations, social policies, and economic conditions from 21 OECD countries, we analyze the degree to which contextual factors shape individuals preferences to become self-employed. We find that national-level policies indeed influence preferences for self-employment and that policies affect different sets of individuals those with qualifications that make them more likely to succeed in self-employment and those who lack such qualifications in different ways. While employees who are likely to succeed as entrepreneurs ( good prospects ) seem to be relatively unaffected by national-level policies, alternative sources of income in form of unemployment benefits or family allowance decrease the likelihood that those employees with poor prospects want to become self-employed. Subsidies paid to the unemployed in order to start a new business, however, significantly increase the odds that those individuals prefer self-employment. Investigating preferences rather than actual behaviors is important for at least two reasons. First, by studying nascent entrepreneurs , i.e., those individuals who are disposed to and prefer self-employment, we can assess the potential for entrepreneurship, which is important for economic development. Second, since voluntary self-employment is more likely to generate individual and societal benefits than involuntary self-employment, which is done out of economic necessity, the paper also provides important recommendations for policies seeking to foster entrepreneurial activities.
On the Persistence of Labor Force Participation Rates by Gender: Evidence from OECD Countries
Herve Queneau
(City University of New York-Brooklyn College)
Amit Sen
(Xavier University)
[View Abstract]
[Download Preview] We present empirical evidence regarding differences in the time series properties of labour force participation rates across gender for a group of twelve OECD countries. Our results indicate that there are gender differences in the dynamics of labor force participation rates across countries. Specifically, the female labor force participation rates are relatively more persistent in seven countries (Australia, Canada, Germany, Japan, The Netherlands, Portugal, and Spain), and the male labour force participation rate is more persistent in four countries (Finland, Norway, Sweden, and the U.S.).
Discussants:
Ruth Milkman
(City University of New York-Graduate Center)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Low Wage/No Wage Jobs
(J5)
Presiding:
Sylvia Allegretto
(University of California-Berkeley)
Imprisoned Jobs, Imprisoned Workers: The Relationship between Prison Population and Free Market Labor
Kerem Cantekin
(University of Utah)
[View Abstract]
[Download Preview] This paper is part of a broader research in which I am examining how prisons and the free labor market affect each other in the USA over 1980-2011 periods. As part of this research I examine how labor market conditions outside of prisons are affecting the growth of the prison population. Building on previous research that considers impact of unemployment, I examine the effect of unemployment rate, labor force participation rate, and the wage rate. My data source on labor market is the Bureau of labor Statistics and on the prison population it is the Bureau of Justice Statistics. Using data provided from these sources, I examine how labor market parameters affect prison population growth at national and state level. I control the affect of several other factors such as size of police force, education level, and the severity of sentencing laws, particularly the affect of Three Strikes Law . My analysis consists of three parts, the first is a time series analysis using data on total prison population in US, and the second is a panel data analysis using state level data. Third I calculated how labor market parameters affect the frequency of the crimes belonging different crime categories, like property crimes, violent crimes, etc. I found that certain crime categories are highly correlated with labor market variables, while others or not that much correlated. Then I have looked how much each crime category contributes to the prison population growth and identified the weight of the crime categories that are highly correlated with labor market parameters.
The New Vulnerable: Low-Income Workers in Low-Wage Jobs
Randy Albelda
(University of Massachusetts-Boston)
Michael Carr
(University of Massachusetts-Boston)
[View Abstract]
Anti-poverty policies that promote employment coupled with the erosion of higher paying jobs for men without college degrees has generated two paths to breadwinner poverty. This paper explores time-trends in the share of workers who are both low-wage and low-income by family status (marital status, presence of children, number of adults in a family, and gender) in the six industries with the largest number and largest share of low-wage and low-income workers. We use March CPS Supplement from 1980-2012 and target the following industries: retail, food services, nursing care and other non-hospital health services, business and
employment services, and non-durable manufacturing (textiles and food). The authors then discuss employment-based and income-based strategies.
Not Enough Hours in the Day: Work Hour Insecurity and a New Approach to Wage and Hour Regulation
Anna Haley-Lock
(University of Wisconsin-Madison)
Charlotte Alexander
(Georgia State Unviersity)
Nantiya Ruan
(University of Denver)
[View Abstract]
[Download Preview] Concern about the diminishing quality of jobs at the lower end of the labor market has generated a substantial literature (e.g., Corcoran, et al, 2000; Hacker, 2006; Kalleberg, 2009; Lambert, 2008; Scott, et al, 2004). More recently, scholarly attention to low wages and benefits has shifted to include the increasingly key role of work hours in determining the earnings potential of lower-level, hourly jobs; and to the sometimes extreme fluctuation in working hours encountered by low-level, hourly employees when employers utilize just-in-time scheduling practices to manage labor expenses.
In this paper, we integrate these insights about the conditions of contemporary low-paying jobs in the U.S. with a consideration of public policy tools for enhancing those conditions. We examine the scope of the problem of employer-driven fluctuation in work hours faced by many hourly service workers, presenting new analyses from urban retail employees. We focus particularly on the growing employer practice of sending workers home early during work shifts. We then utilize these results to explore dimensions of the misfit between contemporary employer scheduling practices and federal and state labor laws, which mandate a minimum hourly wage but tend not to reach issues of scheduling.
This first section sets up our subsequent examination of the elements of a little-known tool in place in eight states and the District of Columbia: "reporting pay" protections requiring employers to pay a minimum number of hours of wages to an employee who is scheduled for and reports to work, thus creating some financial disincentive for employers to send workers home early from work shifts. Analyzing these, we distill directions for perfecting a regulatory mechanism for work hour and income protection.
The Dynamics of Disconnection: Sex Differences in Entry and Exit of Spells of Disconnection
Laryssa Mykyta
(US Census Bureau)
[View Abstract]
In the wake of welfare reform and the recent recession, there has been increased interest in identifying and assessing the well-being of disconnected single mothers (those having no earnings and receiving no assistance from government programs such as unemployment insurance, TANF or SSI disability programs). This paper adds to this literature by using the 2001, 2004 and 2008 Panels of the Survey of Income and Program Participation to examine differences in disconnectedness among both working-age women and men over the last decade. Specifically, I examine changes in the percentage of disconnected men and women over time; sex differences in the number and length of spells of disconnection and in the characteristics of the disconnected.Further, I estimate discrete time hazard models to determine whether there are differences in the predictors of entering and exiting spells of disconnectedness for men and women. Preliminary findings suggest that women were more likely to be disconnected in the 2001 and 2004 Panels; the odds of being disconnected increased for men over the course of the recent recession. Results from discrete-time hazard models reveal further sex differences in entering a spell of disconnection. Among men, younger men with less exposure to the labor market are vulnerable to becoming disconnected; among women, single mothers heading households remain vulnerable to becoming disconnected. To the extent that the sources of disconnectedness vary for men and women, different policy levers may be necessary in order to prevent disconnection and to improve wellbeing for men and for women.
Discussants:
Deborah M. Figart
(Richard Stockton College of New Jersey)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 410
National Association of Economic Educators
What Matters in Principles of Economics Classes?
(A2)
Presiding:
Andrew Hill
(Federal Reserve Bank of Philadelphia)
Loss Aversion, Irrational Behavior, and Student Motivation in the Economics Classroom
Maria Apostolova
(University of Kentucky)
William Cooper
(University of Kentucky)
Gail Hoyt
(University of Kentucky)
Emily Marshall
(University of Kentucky)
[View Abstract]
[Download Preview] This paper evaluates the impact of loss aversion as a behavioral motivator on students' class performance, merging the behavioral economics and the educational incentives literature. The authors conducted an experiment with undergraduate students at the University of Kentucky, where student grades were framed in two different ways. In the treatment sections, the final course grade was framed as a loss, so that students begin the semester with full marks and as the course progresses lose points for less than perfect exam, quiz, and project scores. In contrast, in the control sections a traditional grading scheme was implemented where students begin the course with zero points and earn points throughout the semester as assignments are completed. We find that, at conventional significance levels, an individual in the treatment class did not have a statistically different final grade than an individual in the control class. However, we uncover a heterogeneous gender effect. Males in the treatment class score between 2.88 and 4.19 percentage points higher on the final grade than males in the control class, ceteris paribus. Conversely, females in the treatment class score between 3.30 and 4.33 percentage points lower on the final grade than females in the control class.
Non-Cognitive Skills and Performance of Macro Principles Students
William L. Goffe
(Pennsylvania State University)
Deborah Goins
(Pennsylvania State University)
[View Abstract]
[Download Preview] The aim of this study is to identify non-cognitive characteristics of principles of economics student. It is hypothesized that non-cognitive skills, such as drive, persistence, ambition, and play an important role. This hypothesis on non-cognitive skills takes it cue from extensive work by James Heckman, such as Heckman et al. (2006). Over the course of the semester, three different instruments from the psychological literature were given to students to measure non-cognitive skills. They are the "Grit Scale" (Duckworth and Quin, 2009), a measure of self-control (Tangney et al., 2004), and intellectual curiosity -- the co-called "need for cognition" (Cacioppo et al., 1984). In addition, students were queried on their "mindset" (Dweck, 2006). Learning was evaluated with the "Test of Understanding of College Economics" (Walstad et al., 2007) and comprehensive final exam scores. The dataset consists of approximately 900 macro principles students at Penn State in the Fall of 2012.
A Panel Data Study of Student Knowledge Growth: Application of an Economic Empirical Growth Model
Tin-Chun Lin
(Indiana University-Northwest)
[View Abstract]
[Download Preview] This paper explores factors that contribute to growth in undergraduate knowledge of economics. An endogenous growth empirical model was applied to estimate students’ knowledge growth. Sources of knowledge growth were extracted to identify each factor’s contribution. Analysis indicated that in-classroom factors (instructional skill and attendance) accounted for over 50% of knowledge growth. A complementarity test showed that in- and out-of-classroom efforts were not crowding out each other; moreover, instructional skill/progress and in-classroom efforts were complementary—the more frequently the student attended class, the greater the effect of the instructor’s instructional skills on student progress. Findings implied the importance of traditional classroom learning. In addition to offering online classes to raise enrollments and revenues, school authorities should be aware of the contribution and importance of traditional face-to-face classes and continue to improve the quality of traditional classroom learning.
Does Calculator Use and Test Format Mask Weakness in Basic Math Ability?: Experimental Evidence in Principles of Economics
Melanie Allwine
(George Washington University)
Irene R. Foster
(George Washington University)
[View Abstract]
[Download Preview] This research examines if a simple Algebra I assessment (no calculators allowed and open-ended format) administered by the Principles of Economics faculty at this institution is capturing some weakness in students' basic math ability that the SAT Math test (calculator use allowed and mostly multiple-choice format) is not. Our hypothesis is that the use of a calculator and a multiple-choice format may be allowing students to answer questions correctly they would otherwise not be able to work through and solve. In other words, students may know how to compute answers with calculators or reverse engineer multiple-choice questions while failing to understand underlying math concepts.
This paper presents results from primary experimental data collected Fall 2013 on 1400 students registered for Principles of Economics for which the prerequisite is Algebra I. The dataset contains Algebra I assessment results by type of question (with and without the use of a calculator; and either multiple choice or open-ended format) and other student characteristics including SAT Math scores. Assessment questions were identical to those on recent SAT Math tests.
We identify whether calculator use or test format has a greater effect overall on speed and performance on tests. We identify questions students are able to answer correctly with or without a calculator, and multiple choice or open-ended format. We then identify questions students are unable to answer without a calculator or if a test has an open-ended format, and whether type of calculator makes a difference. We compare performance on such questions to see which of these math skills are critical to the study of economics. Finally, we discuss how to develop assessments to test math skills needed for Principles of Economics.
Discussants:
Carlos Asarta
(University of Delaware)
Andrew T. Hill
(Federal Reserve Bank of Philadelphia)
Mary H. Lesser
(Lenoir-Rhyne University)
William L. Goffe
(Pennsylvania State University)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Congress B
National Association of Forensic Economics
Topics in Forensic Economics IV – Growth and Discounting
(K1)
Presiding:
Elizabeth Gunderson
(Hamline University)
Earnings Growth 1974 - 2012
Edward Foster
(University of Minnesota)
[View Abstract]
[Download Preview] This paper rearranges the data from Census Bureau Personal Income (PINC) tables 32 – 35 showing earnings of full-time, rear-round workers from 1974 to 2012 to display the 39-year time series for real earnings by education and age group. Aggregated data show strong upward trends for all men and all women combined, for men and women with less than a bachelor’s degree and for those with a bachelor’s degree or more. However all trends have flattened since 2000 (not just since the great recession); moreover shifts in the composition of the work force over time lead to the conclusion that the trends in aggregated statistics are unlikely to be useful for projecting earnings growth for any individual plaintiff of a specific age and educational background. The paper gives summary statistics for log-linear regressions of real earnings on time for all education – age - sex combinations for the period 1974 – 1999 and for 2000 – 2012. Growth for the latter period is negative for most of those combinations. A Microsoft Excel workbook accessible from the NAFE website contains the underlying data and several charts.
Present Value, Discount Rate, and Equilibrium
Scott Gilbert
(Southern Illinois University-Carbondale)
[View Abstract]
To estimate economic damages in court cases involving personal injury and wrongful death, economists often face the problem of valuing a stream of lost future earnings. To this end, some economists discount future earnings using a current market yield or interest rate (or rates), while other economists use an average of past market rates. The present work considers the merit of these two approaches (current versus historical yield) by examining their viability in traditional economic models of market equilibrium. I show that, while the current yield approach is fully consistent with market equilibrium, the historical yield approach is less so.
Tests for Stationarity of Ibbotson SBBI Equity Risk Premia
Steven J. Shapiro
(New York Institute of Technology)
Stephen M. Horner
(Economic Consulting)
[View Abstract]
[Download Preview] This paper tests for the the stationarity of historic equity risk premiums that are constructed using Ibbotson SBBI data. Tests were conducted on arithmetic and geometric monthly returns for alternative definitions of historic equity risk premiums that utilized data from January 1926 through December 2012. Based on the Augmented Dickey Fuller unit test for unit roots and the Kwiatkowski, Phillips, Schmidt and Shin test for stationarity, the historic equity risk premiums constucted with the Ibbotson SBBI data were found to be stationary. However, researchers are cautioned that historic equity risk premiums are not necessarily consistent with the ex ante measures that are necessary for measuring expected or required rates of return.
Discussants:
Frank Adams
(Kennesaw State University)
Christopher W. Young
(Tinari Economics Group)
Christopher Warburton
(City University of New York-John Jay College of Criminal Justice)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 306
National Economic Association/Labor & Employment Relations Association
Public Policies Impacting Low-Income & Minority Communities
(H3)
Presiding:
Bradley Hardy
(American University)
The Cost of Homicide: Evidence from Transactions Data
Marcus Casey
(University of Illinois-Chicago)
[View Abstract]
This paper examines the impact of violent crime on housing prices and neighborhood sorting using novel panel data on housing transactions in two large US cities. The results indicate substantial heterogeneity across neighborhoods in the impact on housing prices. High and low price experience very little impact on sales prices whereas neighborhoods closer to median sales prices experience relatively large impacts. Examination of listing behavior suggests that this impact is driven by demand behavior where some evidence suggests sellers reduce list prices more quickly and in the number and composition of new buyers changes in response to recent violent crime. Lastly, the paper explores how these effects help reinforce existing segregation.
The Changing Safety Net for Low-Income Parents and Their Children: Structural or Cyclical Changes in Income Support Policy
Bradley Hardy
(American University)
Timothy Smeeding
(University of Wisconsin)
James P. Ziliak
(University of Kentucky)
[View Abstract]
Evidence on outlays targeted at poor persons suggests that the explosion in the Supplemental Nutrition Assistance Program (SNAP) and the refundable Earned Income Tax Credit (EITC) post 2007 is in large part due to the severe recession. There is no doubt that such changes were in part brought on by the Great Recession, but they have also increased steadily throughout the early 2000's. It is clear that these benefits have had a substantial effect on poverty and instability during the recession. However the 2000's also experienced several other changes which suggest that these benefits will only dissipate slowly as the economy recovers. Over the past three decades, employment and earnings for low skill workers have fallen and are likely to remain below subsistence for young parents with few job skills; births out of wedlock continue to rise and marriage has declined for all races over this same period. From 2002 onward, about half of all children were born to parents who have a high school education or less. Taken together, these changes may mean that food assistance and refundable tax credits will become a permanent source of 'making ends meet' for low wage low income families even when the economy recovers.
In this paper we use a series of short two-year panels from the 1981-2011 waves of the Current Population Survey to investigate the transitory and permanent components of changing earnings, family structures, and receipt of SNAP and EITC benefits. We model household income as a function of a deterministic component, a permanent component, and a mean-reverting transitory component. Most of the prior literature has focused on (white) men in examining earnings and income instability, but this demographic group is at comparatively low risk of transfer participation compared to women (especially single mothers) and non-white men. The large sample sizes in the CPS offer the opportunity to examine cyclical and secular trends in changing earnings and incomes. For example, if the permanent component of changing earnings rises over the past decade, we suggest that demand (outlays and recipients) for these programs will remain a substantial permanent part of the safety net, mainly due to intermittent work and low wages for the younger unskilled population, who bear most of the children in our society.
Factors Influencing Transitions Into and Out of Near Poverty
Misty L. Heggeness
(US Census Bureau)
Charles Hokayem
(US Census Bureau)
[View Abstract]
Media outlets and the public have shown an increased interest in the vulnerability of the near poor, or those living just above the official poverty threshold (DeParle, Gebeloff, and Tavernise, 2011; Dvorak 2012, Editorial; Short and Smeeding 2012; Tavernise, DeParle, and Gebeloff 2011). Similar to those in poverty, individuals living just above poverty face some of the same stresses of economic instability caused by job loss, ill health, and fluctuations in housing and food costs. Heggeness and Hokayem (2013) document long- term demographic and socioeconomic trends of the near poor, including the observation that overall rates of near poverty remain more stable over time than poverty rates (1967-2011). While this observation suggests those who are near poor stay near poor over time, it is also likely that rates of entering near poverty and exiting near poverty occur in such a way that there is little net effect on the near poverty rate. Understanding the dynamics of these near poverty transitions is important for the design of public assistance programs.
This paper examines the factors associated with transitions into and out of near poverty and the composition of this group over time. It takes advantage of the interview structure of the Current Population Survey Annual Social and Economic Supplement (CPS ASEC), which allows us to link the same individual across annual waves to generate a series of two-year panels covering 1967-2011. For purposes of this paper, the near poverty population includes those individuals whose family income falls between 100 and less than 125 percent of poverty thresholds. We examine both the proportion of individuals whose status changes as well as identify characteristics associated with these transitions. Specifically, we report trends of individuals transitioning into near poverty from above and below the near poverty
Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers
Damon Jones
(University of Chicago)
Aprajit Mahajan
(University of California-Los Angeles)
[View Abstract]
We conduct a field experiment designed to test theories of time-inconsistency, namely a "Beta-Delta" model of quasi- hyperbolic discounting. The experiment takes place within the context of a savings decision made by low-income tax filers, who receive income tax refunds consisting of transfers (EITC, Child Tax Credit) and overwithholding. These tax filers are often offered the option to deposit their income tax refund into an illiquid savings vehicle at the time that taxes are filed. In addition to testing for time-inconsistency, the results of our study can be used to improve the design of savings incentives for this population, as well as help evaluate the welfare effects of these savings programs. We find qualitative evidence consistent with the notion that individuals have present-biased preferences. In particular, the tradeoff between a payment in February or a payment in October is much more skewed toward taking a February payment when the decision is made in February than when it is made ahead of time in December. After imposing some structural assumptions, we use the results to produce point estimates for "Beta" and "Delta" of 0.34 and 1.08 over an 8-month period, respectively, which translates into an annual discount rate of 164%.
Discussants:
Dania V. Francis
(Duke University)
Rodney J. Andrews
(University of Texas-Dallas and NBER)
Darrick Hamilton
(New School)
Tiffany Green
(Virginia Commonwealth University)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Washington A
National Tax Association
Taxes, Top Incomes, and Executive Compensation
(H2)
Presiding:
Seth Giertz
(University of Nebraska)
Migration and Wage Effects of Taxing Top Earners: Evidence from the Foreigners' Tax Scheme in Denmark
Henrik Jacobsen Kleven
(London School of Economics)
Camille Landais
(London School of Economics)
Emmanuel Saez
(University of California-Berkeley)
Esben Schultz
(Kraka Copenhagen)
NA
Accounting for Income Changes over the Great Recession (2007-2010) Relative to Previous Recessions: The Importance of Taxes and Transfers
Philip Armour
(Cornell University)
Richard Burkhauser
(Cornell University)
Jeff Larrimore
(Joint Committee on Taxation)
[View Abstract]
[Download Preview] With data from the March CPS and using shift-share analysis, we analyze the factors that account for changes in post-tax post-transfer income during each of the past four recessions. What distinguishes the Great Recession is that drops in employment rather than wage earnings drove income declines. In addition, taxes and transfers played a much greater role in offsetting market income losses â€â€a result largely missed in analyses that do not account for taxes and transfers. This is particularly so among the bottom quintile of the distribution where lower and increased transfers offset more than one-half of the market income declines.
Policy Uncertainty and Rent Seeking by Firms and CEOs: Implications for Efficiency and Optimal Tax Rates
Carola Frydman
(Boston University)
Seth H. Giertz
(University of Nebraska)
Jacob Mortenson
(Georgetown University and Joint Committee on Taxation)
[View Abstract]
[Download Preview] We posit that rent seeking is a largely neglected cost of policy uncertainty. We build on the insights of William Baumol (1990), who contends that entrepreneurship can be not only productive, but also unproductive or even destructive. We argue that policy uncertainty increases the expected returns from rent seeking and thus yields more of this unproductive or destructive entrepreneurship. We develop a model and empirically test the hypothesis that CEOs, and the firms that they manage, respond to tax policy uncertainty by increasing their political contributions and lobbying expenditures. We view uncertainty as a signal that politicians are receptive to policy changes. With little policy uncertainty, higher returns may be sought from investing in productive activities. However, when government is receptive to policy changes, the returns from rent seeking (through lobbying, Political Action Committees, etc.) may be more appealing.
Our work also has implications for tax policy. Piketty, Saez and Stantcheva (forthcoming) show that optimal tax rates depend heavily on both the responsiveness of top incomes to taxes and to the avenues by which they respond. We look at the implications of uncertainty and rent seeking on optimal tax rates. We ague that, to the extent that rent seeking targets tax preferences, higher marginal tax rates will raise incentives for rent seeking, increasing the excess burden from taxation. However, to the extent that rent seeking targets government policies not tied to taxes, our results are in line with the Piketty, Saez and Stantcheva bargaining model, which shows that a higher optimal top tax rate discourages rent seeking. Thus, the responsiveness of rent seeking to policy uncertainty, as well as the relative responsiveness of rent seeking targeting tax versus non-tax policies, independent of uncertainty, both have important implications for optimal taxation.
The Impact of Insider Trading Laws on Dividend Payout Policy
Paul Brockman
(Lehigh University)
Jiri Tresl
(University of Nebraska)
Emre Unlu
(University of Nebraska)
[View Abstract]
[Download Preview] We posit that firms use dividend payout policy to reduce information asymmetry and agency costs caused by country-level institutional weaknesses. Firms operating in countries with weak insider trading laws attempt to mitigate this institutional weakness by committing themselves to paying out large and stable cash dividends. We test this central hypothesis (among others) using an international sample of firms across 24 countries, as well as by conducting a case study during an enforcement action. The results show that weak insider trading laws lead to a higher propensity of paying dividends, larger dividend amounts and greater dividend smoothing. We also show that the market’s valuation of dividend payouts is significantly higher when insider trading protection is weak. It is important to note that these insider trading results are not due to cross-country variations in investor or creditor protection, nor are they contingent on the enforcement of insider trading laws. Overall, our evidence supports the view that dividend payouts serve as a substitute bonding mechanism when country-level legal protections fail.
Discussants:
Jeffrey Thompson
(Federal Reserve Board)
Dhammika Dharmapala
(University of Illinois)
Jan 04, 2014 2:30 pm, Philadelphia Marriott, Meeting Room 407
Peace Science Society International
Frontiers in the Study of the Economics of Terrorism
(H4)
Presiding:
Martin Feldstein
(Harvard University)
The Changing Nonlinear Relationship between Income and Terrorism
Walter Enders
(University of Alabama)
Gary A. Hoover
(University of Alabama)
Todd Sandler
(University of Texas-Dallas)
[View Abstract]
[Download Preview] This paper reinvestigates the relationship between real per capita GDP and terrorism. We devise a terrorism Lorenz curve to show that domestic and transnational terrorist attacks are each more concentrated in middle-income countries, thereby suggesting a nonlinear income-terrorism relationship. Moreover, this point of concentration shifted to lower income countries after the rising influence of the religious fundamentalist and nationalist/separatist terrorists in the early 1990s. The paper then uses nonlinear smooth transition regressions to establish the relationship between real per capita GDP and terrorism for eight alternative terrorism samples, accounting for venue, perpetrators’ nationality, terrorism type, and the time period. Our nonlinear estimates are shown to be favored over estimates using linear or quadratic income determinants of terrorism. These nonlinear estimates are robust to additional controls.
Terrorist Group Location Decision: An Empirical Investigation
Khusrav Gaibulloev
(American University of Sharjah)
[View Abstract]
[Download Preview] This paper explores the determinants of terrorist groups' location choice. In particular, I inquire into whether the number of other groups already based in a country, the political instability of a potential base country, and the distance from the potential base country to the target location influence a terrorist group's decision on where to locate its base country of operations. I apply conditional logit estimator to a data of 525 terrorist groups and 113 potential base countries of operation and find that the number of existing groups in a country increases the probability of a terrorist group choosing the country as a base of operations. More important, terrorist groups are more likely to locate in a country where existing groups share similar ideology with the entrant. A country's political instability and/or state failure raise the chances that a terrorist group will locate there, particularly for nationalist/separatist terrorist groups. Terrorist groups are more likely to base their operations closer to the venues of their planned terrorist attacks. The impact of distance, however, is nonlinear.
Motivating Operatives for Suicide Missions and Conventional Terrorist Attacks
Daniel G. Arce
(University of Texas-Dallas)
Kevin Siqueira
(University of Texas-Dallas)
[View Abstract]
[Download Preview] We investigate the problem of motivating terrorist operatives for suicide missions and conventional terrorist attacks when operatives have either self-interested or social preferences which are not observable by the terrorist organization. We characterize the screening mechanism for selecting operatives according to their social preferences and determine under what conditions a terrorist group will prefer to utilize suicide versus conventional tactics. For example, when operatives are intrinsically-motivated and likely to be represented in the pool of potential recruits, a terrorist organization will be more likely to employ suicide attacks as its sole tactic of choice.
INTERPOL's MIND/FIND Network in Curbing Transnational Terrorism
Javier Gardeazabal
(University of the Basque Country)
Todd Sandler
(University of Texas-Dallas)
[View Abstract]
[Download Preview] This paper investigates the role that the Mobile/Fixed INTERPOL Network Database (MIND/FIND) has played in the War on Terror. MIND/FIND allows countries systematically to screen people and documents at border crossings against INTERPOL databases. We find that, on average, countries using MIND/FIND in 2008 experienced 0.79 fewer transnational terrorist attacks per 100 million people than they would have experienced had they not used MIND/FIND, so that a country like France with a population above 64 million people would have had one half fewer transnational terrorist incidents, a sizeable proportional reduction of 39 per cent.
Terrorism and Arms Trade
S. Brock Blomberg
(Claremont McKenna College)
[View Abstract]
[Download Preview] We conduct a battery of tests using a series of models to study the demand for arms. We show that conflict is an important determinant in the demand for Arms particularly in the Arms imports. We find that external war is the strongest determinant of arms imports, however terrorism rivals internal conflict in predicting higher imports. We investigate this finding by analyzing the extent to which regions or non-linearities are driving the results. We find some evidence that high conflict regions such as the Middle East and North Africa, as well as parts of East and South Asia are hotspots for this activity. Terrorism also has a sizeable impact on arms exports, suggesting that countries respond to terrorist threats by projecting power abroad, perhaps strengthening strategic ties or forging new alliances.
Discussants:
Javed Younas
(American University of Sharjah)
Raul Caruso
(Catholic University of Milan)
Solomon W. Polachek
(Binghamton University)
Carlos Seiglie
(Rutgers University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 204-C
Society for Policy Modeling/American Economic Association
Has Innovation Stopped Driving Growth?
(D2)
Presiding:
Dominick Salvatore
(Fordham University)
Innovation and Economic Growth in a Time of Increased Globalization
Martin Neil Baily
(Brookings Institution)
[View Abstract]
[Download Preview] From the end of World War II through the early 1970s there was strong multifactor productivity growth combined with full employment and rising incomes. Since then, performance has been much less consistent and generally weaker despite signs of continued, strong global innovation. This presentation will explore the ways in which increased globalization has impacted the historical relation between innovation and growth. There are now innovation hubs in many countries; the United States is no longer alone in pushing out the technology frontier. Positively, this means innovations made overseas can be applied here to drive growth. (The US became the richest country in the world in the 19th Century as it borrowed and improved European technology). Negatively, the US economy has lost the commanding lead it had in innovation and productivity. Moreover, innovative American companies do not necessarily manufacture new products here with American workers. What is the balance between these forces and can globalization explain part of the apparent break between innovation and growth?
The Second Machine Age
Erik Brynjolfsson
(Massachusetts Institute of Technology)
[View Abstract]
Advances in digital technologies are accelerating. This should be great news for society. The new machine age lowers prices, improves quality, and brings us into a world where abundance becomes the norm. GDP, productivity and profits in the US are all time highs. What's more, many of the benefits of the new machine age, like free goods on the Internet, aren't even counted in the official statistics but add up to $300B/yr to consumer welfare. But there is no economic law that says digital innovation will benefit everyone evenly. As technology races ahead it can leave a lot of workers behind. Today, the median American worker is poorer than 15 years ago and inequality has increased in most OECD countries. Technology will create even bigger challenges and opportunities in the next 15 years. We need to restructure our economy, institutions and metrics to keep up with these changes.
Evaporating Growth: Can Anything Be Done?
Robert J. Gordon
(Northwestern University)
[View Abstract]
Even if innovators could continue over the next 50 years to create progress that would match the past 150 years,
future growth in the U.S. is inevitably trending down. Hours per capita are falling because of the retirement of
baby boomers and dropping-out of prime-age men with below-college levels of education. The education system
itself is declining in the world league tables, due to college cost inflation, a trillion of student debt, and low college
completion rates. High school dropouts and low international PISA test scores relegate US secondary education
to bottom-of-league performance. Inequality continues to grow and restrictive fiscal policies will eventually be
necessary to stop the debt-GDP ratio from rising. Innovation can't match the great inventions of the past 150
years, making matters worse. What are the solutions?
What Will End the Long Slump?
Dale Jorgenson
(Harvard University)
Mun S. Ho
(Harvard University)
Jon D. Samuels
(Bureau of Economic Analysis)
[View Abstract]
[Download Preview] The traditional approach to growth accounting has been greatly enhanced by the change in focus from the economy as a whole to individual industries. A new consensus has emerged that replication of existing technologies through investments in human and non-human capital, rather than innovation, is the main source of economic growth. The slow recovery from the Great Recession of 2007-2009 has naturally raised the question, has innovation altogether disappeared? We present empirical evidence is that innovation in the IT-producing industries is continuing. However, the U.S. economy has encountered strong demographic headwinds as labor force growth declines and investment in human capital reaches a plateau. Withdrawal of stimulus from monetary and fiscal policy is also slowing the recovery. The reduction in public dissaving, combined with the on-going revival of private saving, will eventually enable private investment to resume its role as the predominant source of economic growth and end the Long Slump.
Discussants:
Dominick Salvatore
(Fordham University)
Jan 04, 2014 2:30 pm, Pennsylvania Convention Center, 106-B
Society of Government Economists
Innovative Approaches to Analyzing Newly Observed Patterns in Economic Data
(B4)
Presiding:
Wendy Li
(US Bureau of Economic Analysis)
The Recent Decline in Employment Dynamics
Henry Hyatt
(US Census Bureau)
James R. Spletzer
(US Census Bureau)
[View Abstract]
[Download Preview] In this paper, we document and attempt to explain the recent decline in employment dynamics. Our empirical work relies on the four leading datasets of quarterly employment dynamics in the United States – the Longitudinal Employer-Household Dynamics (LEHD), the Business Employment Dynamics (BED), the Job Openings and Labor Turnover Survey (JOLTS), and the Current Population Survey (CPS).
We begin by examining changes in labor market composition as an explanation for the decline in employment dynamics. Our analysis shows that changes in the composition of workers and businesses can explain only a small amount of the decline in employment dynamics. We then analyze the relationship between the declines in gross job flows and the declines in gross worker flows. We find that the decline in gross job flows can be described as a narrowing of the distribution of employer growth rates, but this change in the distribution of gross job flows only explains about a third of the decline in gross worker flows. This implies that whatever economic forces are driving the declines in gross job flows, there are other independent forces that are driving the declines in gross worker flows. We also find that the declines in gross worker flows are being driven by a decline in the number of short-duration jobs in the U.S. economy. We end our paper with a discussion of possible theoretical explanations for the decline in employment dynamics, including increases in adjustment costs, changes in the job matching process, the role of uncertainty, and changes in the production process.
State Variation of Student Loan Debt and Performance
Wenhua Di
(Federal Reserve Bank of Dallas)
[View Abstract]
Student loan debt has been increasing at a rapid pace in the last decade, climbing from about $346 billion in the fourth quarter of 2004 to $994 billion in the second quarter of 2013 (Federal Reserve Bank of New York. Along with this increase in debt has been an increase in delinquency and default rates.
Most discussions around student loans have centered on national trends, but individual student loan and performance vary widely. We would like to understand consumer’s decision on taking out student loans and their behavior repaying the loan, but very little information is available at the level of the individual borrower. In this study, we look at the state variation of student loan debt and performance. Data at the state-level are relatively easy to obtain and to some extent reflect the circumstances individuals are facing. Examining the states may shed light on why debt levels and delinquencies vary markedly by individual. Additionally, an understanding of the impact of state support for higher education may inform policy-making on effective student aid at the national level.
Comparison of Petroleum Fiscal Systems and Auctions
Radford Schantz
(US Bureau of Ocean Energy Management)
Walter Stromquist
(Swarthmore College)
[View Abstract]
[Download Preview] A petroleum fiscal system comprises the taxes, royalties, and similar terms in the lease or contract to explore for or produce oil and gas. Each government, as seller of the rights, enacts its distinctive fiscal system; when specified for particular resources at a particular time, it determines the seller’s offer price. Auctions determine the value of the bonus or other bidding variables. The bonus, or similar term, besides deciding which buyer is awarded the rights, also serves as a self-adjusting term that fine tunes the offer price to reflect current conditions. To the extent that different auction formats lead to different results, the format is a significant element of the fiscal system. Oil companies, as buyers, select countries to invest in by comparing the offer prices; comparison among offers is complicated by the diverse quality, risk, and cost of resources offered, as well as the diversity of fiscal systems. The focus in this paper is on the seller who is designing and specifying a fiscal system with two conflicting goods in view: gaining tax revenue for itself and attracting investment in the competitive market. The trade-off of these goods for a government can be represented with utility theory, and as governments evidently have different utility functions, they can have different offer prices. The paper presents empirical models of petroleum fiscal systems around the world and shows how to use them to help assess the current and possible future performance of a fiscal system and auction format. A selection of offshore oil regimes provides a real-life example of a competitive market where multinational oil companies invest globally. The countries are selected from around the world to illustrate diverse fiscal systems, ranging from the US lease system to various other types of licenses and production-sharing contracts. For each country in the selection, 3 or more oil fields are modelled using field-specific data and engineering methods. The models in each instance estimate the rate of return and the taxes given the fiscal terms and auction formats that apply to it. Investment and tax measures are calculated for actual and possible future prices and costs. The results are plotted to show the comparative performance of the fiscal systems and auction formats. The same metrics can be used by a government to gauge the implications of changing its terms and auction approaches.
GSP Expiration and Declining Exports from Developing Countries
Shushanik Hakobyan
(Fordham University)
[View Abstract]
[Download Preview] This paper investigates whether the 2011 expiration of the most comprehensive trade preference program (Generalized System of Preferences or GSP) offered by the US had a detrimental impact on the exports from developing countries. The impact of GSP expiration is examined with a triple difference-in-differences estimation that controls for both country- and product-level export changes. Even though the duties collected during the period of expiration are ultimately refunded after GSP is reauthorized, the findings of this paper suggest that the expiration of GSP has a considerable impact on the level of exports to the US; on average exports dropped by 3 percent in 2011, with exports of agricultural products and textiles and clothing declining as much as 5 and 9 percent, respectively. The decline is increasing in the tariff rates and decreasing in the size of exports.
The Role of Intellectual Property in Value-Added Trade in Global Value Chains
Nikolas Zolas
(US Census Bureau)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Anthony
Union for Radical Political Economists
Research Methods and Applications in Heterodox Economics
(B5)
Presiding:
Frederic Lee
(University of Missouri-Kansas City)
A Data Triangulation Approach to Understanding the Behavior of Small Landholders in Bulgaria
Mieke Meurs
(American University)
[View Abstract]
In this paper, I use data triangulation to investigate how Bulgarian small landholders use their land. Previous work using institutionalist economic theory and survey data has not satisfactorily explained observed behavior of these smallholders. Without additional information on intentionality, it is not possible to distinguish among a variety of causal mechanisms which might be driving the observed patterns of outcomes. In this paper, I add in-depth interviews of 68 Bulgarian smallholders carried out in 2008 to an analysis of the 2007 Bulgarian Intergrated Household Survey, in order to provide information about the intentionality of the decision-makers.
Agent-Based Computational Economics: Simulation Tools for Heterodox Research
Jonathan Cogliano
(Dickinson College)
Xiao Jiang
(Denison University)
[View Abstract]
[Download Preview] This paper introduces Agent-Based Modeling (ABM) as a research tool that possesses advantages for heterodox research programs. We introduce the approach in three steps. First, we discuss the uniqueness of ABMs, which lies primarily in the flexibility to incorporate vastly heterogeneous agents and to address models with high degrees of freedom. Second, we argue that the flexibility of ABMs makes them an appropriate tool for the questions raised by Classical and Post-Keynesian economists. The last section revisits the flexibility of ABMs in order to discuss their capability of incorporating dimensions from across the broad variety of heterodox research programs.
The Use of Quasi-Experimental Design in Urban and Regional Research
Thomas Lambert
(Northern Kentucky University)
Michael Bewley
(Enalysis)
[View Abstract]
Often there are times when due to a lack of data or due to the lack of or the impossibility of random assignment of cases, a researcher is limited in the use of the usual statistical techniques and experimental methods. A technique often used in the social sciences is quasi-experimental design, whereby although random assignment does not occur, threats to research validity are reduced by comparing cases and observations which are as similar as possible. One group is a quasi-experimental group which has received some form of "treatment" whereas another is a comparison group which has not received the treatment.
Measuring the Intra-Household Distribution of Wealth in Ecuador: Qualitative Insights and Quantitative Outcomes
Carmen Diana Deere
(University of Florida)
Zachary Catanzarite
(University of Florida)
[View Abstract]
[Download Preview] This paper reports on the results of a study which employed qualitative field methods to design a household survey to measure the physical and financial assets that individuals and families own. Among the key methods questions were who should be interviewed and how should ownership and valuation questions be posed. As a result of the field work, our protocol became to interview the principal couple of each household together. We triangulate the qualitative insights against the survey results to conclude that the potential sales value and interviewing couples together rather than separately gave us the most reliable estimates of household wealth.
Studying Low-Income Households: Challenges and Issues
Lynne Chester
(University of Sydney)
[View Abstract]
[Download Preview] Studying low income households poses a number of methodological issues. Nevertheless, there are a number of measures which a researcher can take to access “hard to reach†low income households using reliable and valid data collection instruments. Drawing on a study which investigated the impacts of rising energy prices on low income Australian households, this paper discusses the suitability of a mixed methods approach to study low income households along with the strengths and weaknesses of the chosen data collection methods of an online survey, focus groups and interviews. Observations are drawn about the use of intermediaries to recruit low income households, the potential barriers to participation, the impact on the conduct of research by ethics committee requirements, the use of participation rewards and the need for a research design which takes all these issues and more into account.
Discussants:
Frederic Lee
(University of Missouri-Kansas City)
Christine Ngoc Ngo
(University of London)
Jan 04, 2014 2:30 pm, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists
The Political Economy of Distribution
(D3)
Presiding:
Tim Koechlin
(Vassar College)
"Dark Matter," "Black Holes," and Old-Fashioned Exploitation: Multinationals and United States Profitability, Growth, and Employment
Mona Ali
(State University of New York-New Paltz)
[View Abstract]
We compare the industrial dynamics of U.S. out-bound and inward foreign direct investment using domestic based U.S. production as a benchmark. Our panel data analysis (at the disaggregated 4-digit sector-level) finds that U.S. owned foreign direct investment is remarkably more profitable relative to foreign-owned direct investment in the U.S. but also compared to all U.S.-based industries. Our results hold true for both the aggregate non-financial data as well as for the 'narrow measure of value added' which excludes industries lacking proper output measures. For new investment in manufacturing, U.S.-based industries have the lowest profitability as well as the greatest volatility of profits compared to the two direct investment portfolios. We also find that profits on new investment are better at signaling changes in employment and investment than the average rates of return. For the period tested (1999-2005), like U.S. based investment, inward foreign direct investment isn't employment generating while U.S. direct investment abroad produces the fastest gains in value added, investment and employment. While there is little evidence of intangible assets driving relatively superior returns to U.S. investment overseas we find that labor exploitation appears to play a key role.
Generating, Appropriating, and Distributing the Benefits of Cooperation: A Comparison of Views of Economic Community
Jonathan Diskin
(Earlham College)
[View Abstract]
Economists have expanded their analysis of the forms of human cooperation in recent decades, largely under the heading of the study of 'institutions'. I will draw on and compare conceptualizations of cooperation in the work of E. Ostrom, Bowles and Gintis, and J.K. Gibson-Graham in this presentation/essay . Each, in different ways, posits forms of collectivity based on tacit trust, knowledge or values that are manifest in forms of cooperation, whether more local or more 'impersonal'. In an effort to more explicitly identify the modes of community constituted by cooperation, I will delineate these authors' conceptions of cooperation and the (re)distribution of the output and the assets created by cooperative labor.
Urban Inequality, Neoliberalism, and the Case for a Multidisciplinary Economics
Tim Koechlin
(Vassar College)
[View Abstract]
As centers of political power and capital accumulation, cities have long been sites of socioeconomic, spatial, racial and other forms of inequality. Inequality takes many forms: inequality of income and wealth, political and economic power, opportunity, and status. This paper analyzes the ways that rising inequality (a) is a consequence of 35 years of neoliberal globalization, and neoliberal policy in the US and (b) has manifested itself within and among US cities. The paper highlights the ways in which these inequalities are linked to race, gender, policy and globalization. The paper concludes that a rich understanding of urban inequality – in its many dimensions -- requires multidisciplinary analysis.
A Theory That Accounts for Explosive Income and Wealth Dynamics
Mehrene Larudee
(Al Quds Bard Honors College)
[View Abstract]
Among the contributions of Keynes was the insight that asset markets play a critical role in the economy, and function differently from goods markets. Yet this insight has yet to be fully incorporated into heterodox political economy. Asset markets fit only very awkwardly into models. A considerable and useful theory, with Kaleckian and Kaldorian features, is built on the broad division of income flows into wages and profits, with no room for asset markets. Goods and asset markets are assumed to work with very little arbitrage, and arbitrage is not treated as central. In fact, however, arbitrage in asset markets does appear to play a central role in rising wealth inequality in some historical periods. This paper examines a variety of factors that contribute to explosive dynamics in wealth and income inequality, including innovations in laws and regulations, changes in communication technology, changes in the technology of capital mobility, changes in military technology, and the cumulative effect of increasing monopolization in sectors with large information imperfections. Ways to integrate these considerations into heterodox economic theory are explored. The paper contributes to answering the question: When do income and wealth dynamics become explosive, and when they do, what can reverse the trend?
Discussants:
Dorene Isenberg
(University of Redlands)
Bruce Pietrykowski
(University of Michigan)
Jan 04, 2014 4:40 pm, Philadelphia Marriott, Grand Ballroom - Salons G & H
American Economic Association
AEA Awards Ceremony and Presidential Address
(J1)
Presiding:
William Nordhaus
(Yale University)
A Grand Gender Convergence: Its Last Chapter
Claudia Goldin
(Harvard University)
[View Abstract]
[Download Preview] ABSTRACT: The converging roles of men and women are among the grandest advances in society and the economy in the last century. These aspects of the grand gender convergence are figurative chapters in a history of gender roles. But what must the "last" chapter contain for there to be equality in the labor market? The answer may come as a surprise. The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn't hurt). But it must involve changes in the labor market, in particular how jobs are structured and remunerated to enhance temporal flexibility. The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science and health, but is less apparent in the corporate, financial and legal worlds.
Jan 04, 2014 4:45 pm, Philadelphia Marriott, Grand Ballroom - Salon A
Association for Comparative Economic Studies
Membership Meeting and Presidential Address, Followed by our Annual Wine and Cheese Reception – Co-Sponsored by ACES & NES
Hartmut Lehmann
(University of Bologna)
Jan 04, 2014 4:45 pm, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Presidential Address
Phillip Anthony O'Hara
(Global Political Economy Research Unit)
Political Economy of Systemic and Micro Corruption Throughout the World
Jan 04, 2014 5:15 pm, Loews Philadelphia Hotel, Anthony
International Banking, Economics & Finance Association
Annual Membership Meeting and Presidential Address
Jan 04, 2014 5:45 pm, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Business Meeting and Presidential Address
Robert F. Stambaugh
(University of Pennsylvania)
Jan 04, 2014 6:00 pm, Philadelphia Marriott, Grand Ballroom - Salons G & H
American Economic Association
Business Meeting
Jan 04, 2014 7:00 pm, Philadelphia Marriott, Grand Ballroom - Salon B
National Economic Association
Presidential Address and Reception
Jan 04, 2014 8:00 pm, Philadelphia Marriott, Liberty Ballroom
American Economic Association
6th Annual Economics Humor Session in Honor of Caroline Postelle Clotfelter
(Y9)
Presiding:
Benjamin Franklin
(standupeconomist.com)
EconoTrolls: An Illustrated Bestiary
Noah Smith
(Stony Brook University)
N/A
The Economics of Kids
Yaniv Reingewertz
(George Washington University)
N/A
Why I am Not an Academic
Yoram Bauman
(standupeconomist.com)
N/A
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 202-A
American Economic Association
Children
(J1)
Presiding:
Anna Aizer
(Brown University)
Are We Supporting Our Orphans Enough? An Economic Analysis of Three Factors that Affect Child Adoptions from Domestic Foster Care
Anand Murugesan
(University of Maryland)
Robert Innes
(University of California-Merced)
[View Abstract]
[Download Preview] In the United States there are over 800,000 children in foster care in any given year of the last decade. A large proportion (over 20\% in most states) of these children are waiting to be adopted. There is growing evidence that prolonged stay in foster homes can be detrimental to the welfare of the child. We estimate the causal effects of two factors that impact the number of children adopted from domestic foster care: 1) the increasing number of international child adoptions in the U.S. 2) the increased births due to artificial reproductive technologies (ART). We identify the effects using instrumental variables and find there is a significant reduction in child adoptions from foster care due to the increase in international adoptions, but find no effect on adoptions from domestic foster care due to the ART births.
The EITC, Birth Intervals, and Completed Fertility
Katherine H. Meckel
(Columbia University)
[View Abstract]
The value of mother’s labor market time is thought to play an important role in
childbearing decisions. Antipoverty wage subsidies such as the Earned Income Tax
Credit (EITC) may therefore impact fertility among low-income households. Existing
literature finds little effect of the EITC on completed fertility, however. In this article, I
consider a different, plausibly more sensitive, fertility outcome: birth spacing. Research
finds that close birth spacing is detrimental to child health at birth and educational
outcomes. I present a simple model of child spacing in which families trade-off the
health costs of close spacing against the opportunity cost of mother’s time. Because
the EITC is predicted to have different labor supply incentives for married versus single
mothers, I hypothesize a decrease in spacing for single mothers in response to the EITC
and an ambiguous effect for married mothers.
Using a regression discontinuity in first child’s birth month around the end of the
tax year, I find that receiving the EITC one year earlier following the birth of a first
child is associated with shorter birth intervals to the second child and these effects are
concentrated among low-income mothers. I find some evidence that effects are much
stronger for single vs. married women and also find a divergence in birth outcomes for
the second child by mother’s marital status. In line with previous literature, I find no
effect on completed fertility. My article sheds light on some of the trade-offs of welfareto-
work policies and how the impacts of these policies vary by family structure. I discuss
my results in context of recent findings that households have limited information about
their returns.
An Analysis if Different Methods for Incorporating Co-Teachers into Value-Added Models
Jennifer Gnagey
(Ohio State University)
[View Abstract]
[Download Preview] Education data show it is common for students to receive instruction from more than one teacher within a subject during a school year. As teacher-level value-added analysis is increasingly implemented on larger scales and under higher stakes a variety of methods for incorporating such co-teaching arrangements into value-added models (VAMs) have been implemented both in research and in practice. These methods rely on widely varying assumptions, yet the nature of these assumptions and the different performance estimates they induce are not well documented. This paper addresses this issue by evaluating four common VAM-based performance metrics for co-teachers on the criteria of bias, sensitivity, and feasibility.
First, I articulate the assumptions under which each method produces unbiased estimates of co-teacher performance. Second, I use Monte Carlo simulations to investigate the ability of each method to accurately recover the contributions of co-teachers. Each method is applied in the context of three plausible data generating processes which uphold different assumptions about the nature of collaborative instruction. I focus on the ability of the methods to recover teacher effectiveness parameters when their assumptions are violated. Third, I use both simulated and empirical data to examine the sensitivity of co-teacher performance estimates to changes in reported dosage proportions. Finally, I consider the feasibility of implementing these methods in practice focusing on the issue of multicollinearity.
Preliminary results show that different performance estimation methods can induce substantial biases when their assumptions are violated. Particularly, metrics based on team performance can induce significant biases when the assumption of equal contributions to the team is violated. I conclude that the assumptions underlying co-teacher performance estimates must be brought to the forefront of discussions when states and districts decide how to incorporate co-teachers into their evaluation systems.
The Impact of Child Evacuation on the Importance of Family Background
Torsten Santavirta
(Swedish Institute for Social Research)
Markus Jantti
(Stockholm Univeristy)
[View Abstract]
Interventions into children's rearing environment are motivated by concerns about persistence of intergenerational advantage. During World War II some 50,000 Finnish children aged 1-10 were evacuated to foster care in Sweden for an average time of 2 years. We measure the impact of temporary family disruption on the importance of family background for economic status. We use a nationally representative sample of family units from the 1950 Finnish census on evacuee cohorts 1933-1944, including information on participation in the evacuation program. We estimate sibling correlations for pairs neither, both, or one of whom were evacuated and estimate the change in importance of family background from the differences between these.
Our results show that an on average 2 year disruption of the shared family background did have a large impact on intergenerational income persistence. The sibling correlation in income falls from 0.38 for the sibling pairs born 1933-1944 with an intact family background to 0.27 for sibling pairs both of whom were separated from their rearing parents (and from each other), for an average time of 2 year. The sibling correlation of the sibling pairs discordant for evacuation status lands between these two numbers, 0.31.
No Child Left Behind: Extricating the Role of Sanctions and Stigma in Accountability Threats
Rajashri Chakrabarti
(Federal Reserve Bank of New York)
[View Abstract]
NCLB requires states to establish adequate yearly progress (AYP) targets to assess the performance of schools. Title 1 schools missing AYP criteria for two or more consecutive years face title 1 sanctions. Unlike title 1 schools, non-title 1 schools do not receive title 1 funding, and hence do not face sanctions even if they fail to make AYP. However missing AYP is associated with negative publicity and visibility, and hence stigma. Thus Title I schools missing AYP face both sanctions and stigma, while non-title 1 schools missing AYP face only stigma. Exploiting this feature of the program, this paper investigates whether the threat of sanctions along with stigma can bring about a different response from public schools than stigma itself. While multiple pre-NCLB accountability systems incorporated both sanctions and stigma, the simultaneous nature of these consequences precluded separation of these two effects in a convincing manner. In contrast, NCLB provides a unique opportunity to separate out the effects of sanctions from stigma. Using detailed data on Title 1, school scores, and accountability from the state of Wisconsin, and a regression discontinuity strategy that exploits the Title 1 eligibility formula and the AYP formula, I investigate the effect of sanctions versus stigma. Preliminary results indicate that while stigma led to improvement in high stakes reading and math in the threatened schools, threat of sanctions did not lead to additional improvements in these subject areas.
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 103-C
American Economic Association
Consumption and Debt Response to Income Shocks
(E2)
Presiding:
Christopher Carroll
(Johns Hopkins University)
Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore
Sumit Agarwal
(National University of Singapore)
Wenlan Qian
(National University of Singapore)
[View Abstract]
[Download Preview] This paper uses a unique panel data set of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock. We find that consumption rose significantly subsequent to the fiscal policy announcement: for each dollar received, consumers on average spent 90 cents during the ten months after the program’s announcement. There was a moderate decrease in debt. We find a strong announcement effect—consumers increased spending via their credit cards during the two-month announcement period, but they switched to debit cards after disbursement, before finally increasing spending on the credit card in the later months.
Do Household Balance Sheets Affect Stimulus Spending? Lessons from Changes in Payroll Taxes
Claudia Sahm
(Federal Reserve Board)
Matthew D. Shapiro
(University of Michigan)
Joel Slemrod
(University of Michigan)
[View Abstract]
Since the recession began, policy makers have distributed over $400 billion in stimulus income to households in an attempt to bolster consumer spending. After almost five years, the stimulus to most households ended, though the debate over its impact on spending continues. In this paper, we focus on the temporary reduction in payroll taxes from January 2011 to December 2012. To study the response to this stimulus, we fielded two modules on the Thomson Reuters/University of Michigan’s Surveys of Consumers. The first module in March and April of 2011 asked households prospectively about their response to the payroll tax cut, and the second module in April and May of 2013 asked retrospectively about their response to the tax cut as well as their expected response to its expiration. As in our studies of earlier stimulus programs, we find that the boost to spending due to the payroll tax cut was moderate, albeit more than the annuity value that a simple permanent income model would have predicted. Nonetheless, the modal response to the payroll tax cut was to pay off debt with the stimulus income. Somewhat surprisingly, however, the modal expected response to the loss of income at the expiration of the tax cut was to reduce spending, not to increase borrowing. All else equal, these responses suggest that the loss of income at the end of stimulus may have weighed more on spending than the temporary boost to income. To unpack these survey responses and test various behavioral models, we have fielded new questions on household balance sheets and access to liquidity. Current economic thinking often ties a lack of liquidity to spending out of stimulus income and we find some support for this explanation of stimulus spending. However, the asymmetric response to change in income during and after the stimulus seems to be more related to expectations and balance sheet repair than to changes in liquidity. In particular, some households seem reluctant to borrow more or motivated to save more—priorities that appear to shape their response to stimulus more so than increasing or even maintaining current spending. Above all, the survey data reveal that there is substantial variation in the responses of households to stimulus—only a portion of which we can explain with demographics, liquidity, and balance sheet conditions—suggesting that standard explanation of stimulus effects that focuses on constrained households may not be sufficient.
Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates
Tal Gross
(Columbia University)
Matthew J. Notowidigdo
(University of Chicago)
Jialan Wang
(Consumer Financial Protection Bureau)
[View Abstract]
[Download Preview] We estimate the extent to which legal and administrative fees prevent liquidity-
constrained households from declaring bankruptcy. To do so, we study how the
2001 and 2008 tax rebates affected consumer bankruptcy flings. We exploit the
randomized timing of the rebate checks and estimate that the rebates caused
a significant, short-run increase in consumer bankruptcies in both years, with
larger effects in 2008 when the rebates were more generous and more widely
distributed. Using hand-collected data from individual bankruptcy petitions, we
document that households who filed shortly after receiving their rebate checks
had higher average liabilities and liabilities-to-income ratios.
Consumer Responses to Fiscal Stimulus Policy and the Households' Cost of Liquidity
Claus Thustrup Kreiner
(University of Copenhagen, CESifo and CEPR)
David Dreyer Lassen
(University of Copenhagen)
Soren Leth-Petersen
(University of Copenhagen)
[View Abstract]
Consumption theory predicts that the cost of liquidity determines spending
responses to a stimulus. We test this hypothesis directly using administrative
records of individual-level loan and deposit accounts in combination with a
Danish fiscal stimulus reform transforming illiquid pension wealth into liquid
wealth. The data reveal substantial variation in the cost of liquidity across
households, and this cost robustly predicts the propensity to spend. We find
that the heterogeneity across households cannot be explained by short-lived
shocks appearing within the duration of a typical business cycle but show that
it is consistent with liquidity constraints being self-imposed by impatient types.
Discussants:
Jonathan A. Parker
(Northwestern University)
David S. Johnson
(US Census Bureau)
Jane Dokko
(Federal Reserve Board)
Erik Hurst
(University of Chicago)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon K
American Economic Association
Economics of Crime
(K4)
Presiding:
Matthew Lindquist
(SOFI, Stockholm University)
The Importance of Family Background and Neighbourhood Effects as Determinants of Crime
Karin Hederos Eriksson
(Stockholm School of Economics)
Randi Hjalmarsson
(Queen Mary, University of London, and University of Gothenburg)
Matthew J. Lindquist
(SOFI, Stockholm University)
Anna Sandberg
(Stockholm School of Economics)
[View Abstract]
[Download Preview] We quantify the importance of family background and neighborhood effects as determinants of criminal convictions and incarceration by estimating sibling and neighborhood correlations. At the extensive margin, factors common to siblings account for 24 percent of the variation in criminal convictions and 39 percent of the variation in incarceration. At the intensive margin, these factors typically account for slightly less than half of the variation in prison sentence length and between one-third and one-half of the variation in criminal convictions, depending on crime type and gender. Neighborhood correlations, on the other hand, are quite small. We, therefore, conclude that these large sibling correlations are most likely generated by family influences and not by neighborhood influences. Further analysis shows that sibling similarities in criminal behavior appear to be driven mainly by factors common to siblings other than parental income and education. Parental criminality and family structure are particularly important. Sibling spacing also matters.
School Starting Age and Crime
Rasmus Landerso
(Rockwool Foundation Research Unit and Aarhus University)
Helena Skyt Nielsen
(Aarhus University)
Marianne Simonsen
(Aarhus University)
[View Abstract]
[Download Preview] This paper investigates long-term effects of school starting age on crime. A large literature has investigated effects of school starting age on test scores and finds little effect on performance when properly accounting for age-at-test effects. But much less is known about behavioral consequences of school starting age. Black et al. (2011) show that higher school starting age leads to improved mental health (for boys) and a lower risk of teenage pregnancies (for girls), while there is conflicting evidence regarding the risk of receiving ADHD diagnoses (Dalsgaard, Humlum, Nielsen and Simonsen (2012); Elder (2010); Evans, Morrill and Parente (2010)). Our paper contributes to this literature by considering effects on criminal behavior. We also investigate heterogeneity in effects across different types of crimes, timing of crime throughout the week, across ages and across the ability distribution.
As in Black et al. we rely on exogenous variation in the school starting age generated by administrative rules. In particular, we exploit that Danish children typically start first grade in the calendar year they turn seven, which gives rise to a fuzzy regression discontinuity design.
Our analysis uses Danish register-based data for children born in the period from 1981-1993 with crucial information on exact birth dates, a range of crime outcomes, and a rich set of background characteristics.
We find that higher age at school start lowers the propensity to commit crime and show that the individuals who benefit most from being old-for-grade are those with high latent abilities. Furthermore, we investigate potential mechanisms and conclude that incapacitation seems to play an important role. We find that the relative age of classroom peers does not seem to be behind the reduction in crime.
Deal Drugs Once, Deal Drugs Twice: Peer Effects on Recidivism from Prisons
Anna Piil Damm
(CReAM, University College London, and Aarhus University)
Cédric Jean-Laurent Elie Gorinas
(Danish National Centre for Social Research and Aarhus University)
[View Abstract]
[Download Preview] Given its illegal nature, criminal activity is likely to be learned through social interactions. This study investigates the effects of other inmates’ criminal background on crime-specific recidivism among young adults incarcerated for the first time. For drug offenders we find robust evidence that exposure to other young drug offenders while serving time increases the probability of recidivism with a drug-related offense within one year, i.e., reinforcing peer effects for drug criminals. By contrast, we find little evidence of peer influence for other types of crimes. We also provide evidence that inmates sort into networks in the facilities by age: when defining peers as inmates of similar age we find strong evidence of reinforcing peer effects, whereas we find little evidence of peer effects when defining peers as all inmates, irrespective of their demographic characteristics. Due to network sorting, the definition of the peer group is of key importance for testing the existence and magnitude of peer effects in prisons.
Immigration, Employment Opportunities, and Criminal Behavior
Emily Owens
(Cornell University)
Matthew Freedman
(Cornell University)
Sarah Bohn
(Public Policy Institute of California)
[View Abstract]
[Download Preview] There is little consensus on the effects of immigration on crime. One potential explanation for the conflicting evidence is heterogeneity across space and time in policies toward immigrants that affect their status in the community. In this paper, we take advantage of provisions of the Immigration Reform and Control Act of 1986 (IRCA), which granted legal resident status to long-time illegal residents but created new obstacles to employment for more recent immigrants, to explore how employment opportunities affect criminal behavior. Exploiting unique administrative data on the criminal justice involvement of individuals in San Antonio, Texas and using a difference-in-differences methodology, we find evidence of an increase in felony charges filed against Hispanic residents of San Antonio after the expiration of the IRCA amnesty deadline. This was concentrated in neighborhoods where recent immigrants are most likely to locate, suggesting a strong relationship between access to legal jobs and criminal behavior.
Discussants:
Erdal Tekin
(Georgia State University)
Matthew J. Lindquist
(SOFI, Stockholm University)
Patrick Bayer
(NBER and Duke University)
Jacob L. Vigdor
(Duke University)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Meeting Room 307
American Economic Association
Employer Search and Hiring in Organizations
(D2)
Presiding:
Catherine Thomas
(London School of Economics)
The Effects of Subsidizing Employer Search
John Horton
(New York University)
[View Abstract]
Participants in matching markets often face high search and screening costs. An informed third party may reduce these costs by recommending matches-an increasingly easy task as more markets become computer-mediated. This approach to reducing friction raises questions: When are recommendations effective? To what extent, if any, do recommendations crowd out non-recommended, "organic" matches? We answer these questions using an experiment conducted in an online labor market in which a treatment group of employers received algorithmically generated job candidate recommendations. Recommendations improved fill rates by nearly 17% among technical (e.g., computer programming) vacancies but had no effect on non-technical vacancies. This heterogeneity was likely caused by higher screening costs (which we estimate with a structural model of employer screening) and tighter markets for technical vacancies. Where fill rates did increase, however, it was only partly because employers acted upon recommendations: the treatment also increased the hiring of non-recruited, organic applicants. This complementarity was caused by treated employers screening more intensely and extensively, and their additional attention spilling over onto organic applicants. An instrumental variables analysis of the larger marketplace confirms both the positive effect of recruited applicants on fill rates and the absence of crowd-out. Together, these results imply that, despite their smaller size,
search costs do impede matching in computer-mediated markets, but they can be reduced through informational interventions. Furthermore, despite explicit promotions of certain workers over others, in some cases recommendations can improve marketplace efficiency without making anyone worse off.
Learning Through Interviews and Hires: Employer Search and Experimentation in the Job Matching Process
Christopher Stanton
(University of Utah)
Catherine Thomas
(London School of Economics)
[View Abstract]
This paper analyzes employers' search strategies in hiring using an online market for outsourced services. Employer search patterns are consistent with learning about the distribution of employee productivity initially and then subsequently exploiting the information gained through initial experimentation. Employers tend to interview several applicants with varied characteristics when making a first hire. After a successful initial hire, employers interview fewer subsequent candidates and target candidates with similar characteristics. If past hiring was not successful, employers continue to interview intensively. Because experimentation in interviews and hiring results in local knowledge about the mapping from worker characteristics to job match productivity, the results suggest that the employer search process results in relatively homogeneous pools of matches over time.
Recruitment and Selection in Organizations
Ricardo Alonso
(University of Southern California)
[View Abstract]
[Download Preview] This paper studies employer recruitment and selection of job applicants when productivity is match-specific. Job-seekers have private, noisy assessments of their match value and the firm performs noisy interviews. Job-seekers' willingness to undergo a costly hiring process will depend both on the wage paid and on the perceived likelihood of being hired, while a noisy interview leads the firm to consider the quality of the applicant pool when setting hiring standards. I characterize job-seekers' equilibrium application decision as well as the firm's equilibrium wage and hiring rule. I show that changes in the informativeness of job-seekers assessments, or the informativeness of the firm's interview, affects the size and composition of the applicant pool, and can raise hiring costs when it dissuades applications. As a result, the firm may actually favor noisier interviews, or prefer to face applicants that are less certain of their person-job/organization fit.
The Facts About Referrals: Toward an Understanding of Employee Referral Networks
Stephen Burks
(University of Minnesota-Morris)
Bo Cowgill
(University of California-Berkeley)
Mitchell Hoffman
(University of Toronto)
Michael Housman
(Evolv on Demand)
[View Abstract]
[Download Preview] Using unique personnel data from nine large firms in three industries, we document five consistent facts about hiring through employee referral networks. First, referred applicants have similar skill characteristics to non-referred applicants, both observable-to-the-firm (e.g., schooling) and unobservable-to-the-firm (e.g., cognitive and non-cognitive ability), but are more likely to be hired, more likely to accept job offers, and have higher pre-job assessment scores. Second, referred workers have similar skill characteristics to non-referred workers. Third, referred workers are less likely to quit and are more productive, but only on rare high-impact performance metrics; on most standard non-rare performance metrics, referred and non-referred workers perform similarly. Fourth, referred workers have slightly higher wages, but yield substantially higher profits per worker. Fifth, workers who make referrals have higher productivity than others, are less likely to quit after making a referral, and refer those like themselves on particular productivity metrics. Differences between referred and non-referred workers tend to be larger at low-tenure levels; for young, Black, and Hispanic workers; and in strong labor markets. No leading class of theories can alone account for all or most of these results, leading us to suggest several theoretical extensions.
Discussants:
Arnaud Maurel
(Duke University)
Scott Schaefer
(University of Utah)
Michael Waldman
(Cornell University)
Michael Luca
(Harvard Business School)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon A
American Economic Association
Field Experiments in Tax Compliance
(H2)
Presiding:
John List
(University of Chicago)
Extrinsic vs Intrinsic Motivations for Tax Compliance: Evidence from a Field Experiment in Germany
Nadja Dwenger
(Max Planck Institute)
Henrik Jacobsen Kleven
(London School of Economics)
Imran Rasul
(University College London)
Johannes Rincke
(FAU Erlangen-Nuremberg)
[View Abstract]
Is tax compliance driven only by extrinsic motivations such as deterrence and tax policy or is there also a role for intrinsic motivations such as morals, norms and psychology? Agents may comply based on moral sentiments, social norms, guilt and shame (Andreoni et al. 1998), all of which are non-deterrence driven reasons for compliance. The importance of such intrinsically motivated compliance is hard to study empirically and therefore the least understood.
This study uses a unique setting for making progress on this question: the local church tax in Germany. As we show in the paper, tax evaders, compliers, and donors can coexist in the local church tax system and be precisely distinguished from each other. Since there is zero deterrence in the baseline, baseline compliance provides a direct measure of intrinsically motivated tax compliance. Starting from the zero deterrence baseline we use a randomized field experiment to inject deterrence or recognition into the system. This allows us to study if policies aimed at either extrinsic motivation (deterrence) or intrinsic motivation (recognition) have qualitatively different effects on agents who have revealed each of those motivations in the baseline.
Our main empirical findings are the following. First, a significant fraction of agents (23%) comply in the zero deterrence baseline where compliance would be zero absent intrinsic motivation, while the remaining 77% evade the tax. Intrinsic motivation is therefore substantial, although the majority behaves as rational, self-interested taxpayers. Second, announcing a zero audit probability (the status quo) has a small and insignificant effect on the compliance rate, showing that there is very little misperception on average. Third, tax salience and deterrence have strong effects on compliance for baseline evaders, but small and insignificant effects for baseline donors. This is consistent with the fact that the enforcement constraint is not binding for the intrinsically motivated and therefore they are naturally unresponsive to deterrence. Fourth and finally, recognition through social and monetary rewards for compliance has fundamentally different effects on baseline donors (who increase their payments) and baseline evaders (who reduce their payments). Hence, whether recognition helps or hurts depends crucially on what motivates taxpayers in the first place, with positive effects on the intrinsically motivated and negative effects on the extrinsically motivated. All of our findings can be explained by a model of tax compliance that unifies the standard Becker-Allingham-Sandmo approach (strengthening extrinsic motives for tax compliance) and the Andreoni (1989, 1990) warm-glow model of pro-social behaviour.
The Behavioralist Goes to the Tax Office: Evidence from Two Nationwide Field Experiments
Michael Hallsworth
(Imperial College London)
John A. List
(University of Chicago)
Robert Metcalfe
(University of Chicago)
Ivo Vlaev
(Imperial College London)
[View Abstract]
We conducted the two largest natural field experiments in taxation to assess the importance of social norms, fairness concerns, and the saliency of the penalty on tax-paying behavior with a total wealth of $1.03 billion. We designed over twelve social norm messages, two fairness messages, and basic information with respect to payment and penalties. We find that including norms, fairness messages, and basic information in a standard tax payment reminder letter increases the likelihood that the recipient pays. Consistent with our theoretical procrastination model, the minority norm message was most effective in changing behavior, with a 12% treatment effect. Our natural field experiments contributed to over $20 million more tax being paid than would have otherwise occurred. Using the unique datasets from our experiments, we find that people with larger debts, males, the young, those without an accountant, and those who are used to paying late all procrastinate in paying their tax.
Using Omission Bias to Increase Payments to the Government
Michael Hallsworth
(Imperial College London)
John A. List
(University of Chicago)
Robert Metcalfe
(University of Chicago)
Ivo Vlaev
(Imperial College London)
Ara Darzi
(Imperial College London)
[View Abstract]
Using a large nationwide field experiment on tax credits in the UK, we use omission bias to motivate people to pay money back to the government. Firstly, we show that countering the omission strategy is a way to effectively change behaviour - we find around a 100% treatment effect. Secondly, we demonstrate that the result is replicated in the real-life policy situation with significant incentives and disincentives. Thirdly show that there is little difference when the source of anticipated blame is framed individually or collectively. Lastly, this omission strategy is more effective than another set of approaches directed at reciprocity and providing more information.
Tax Withholding and Tax Compliance: Evidence from a Framed Field Experiment
David Bruner
(Appalachian State University)
Michael McKee
(Appalachian State University)
Christian Vossler
(University of Tennessee)
[View Abstract]
[Download Preview] Although tax withholding is a central component of the US income tax system, there is a paucity of research that explores the relationship between tax withholding and subsequent tax reporting. Using a framed field experiment with working adults and deliberate framing, this study looks directly at this nexus. In briefly, we find interesting asymmetries related to tax position, in particular that tax under-reporting is increasing in the level of (possibly) expected as well as unanticipated tax under-withholding, but is invariant to the level of tax over-withholding. Further, we find that better information on tax liability provided by an information "service" only reduces tax under-reporting by those in an under-withholding position. Taxpayer experiences (from outside the lab) and characteristics are strongly tied to experiment behavior.
Discussants:
Michael K. Price
(Georgia State University)
Mark Phillips
(Internal Revenue Service)
Mark Rider
(Georgia State University)
Anya C. Samak
(University of Wisconsin-Madison)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon B
American Economic Association
Financial Decision-Making and the Household Balance Sheet
(G2)
Presiding:
David Laibson
(Harvard University)
Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions
John Beshears
(Harvard University)
James Choi
(Yale University)
David Laibson
(Harvard University)
Brigitte Madrian
(Harvard University)
[View Abstract]
[Download Preview] Can governments increase private savings by taxing savings up front instead of in retirement? Roth 401(k) contributions are not tax-deductible in the contribution year, but they are untaxed upon withdrawal in retirement. The more common before-tax 401(k) contribution is tax-deductible in the contribution year, but both principal and earnings are taxed upon withdrawal. Using administrative plan data from twelve companies that added a Roth option between 2006 and 2010, we find no evidence that total 401(k) contribution rates differ between employees hired before versus after the Roth introduction, which means that the amount of retirement consumption being purchased by 401(k) contributions increases after the Roth introduction. A survey experiment suggests two behavioral factors play a role in the unresponsiveness of contribution rates: (1) employee confusion about or neglect of the tax properties of Roth balances, and (2) partition dependence.
Who is Internationally Diversified?
Geert Bekaert
(Columbia University)
Enrichetta Ravina
(Columbia University)
[View Abstract]
We present new evidence on the degree of international diversification and the individual, firm and plan characteristics associated with it, using a large proprietary sample of individual 401k portfolios. We find a strong and increasing time trend in the fraction of the 401k that workers invest in international funds. In addition, while individual and firm characteristics influence such allocation, we document an important role for the type of firm and the time the worker joins in explaining allocations and their evolution over time.
Does Rising Student Debt Affect the Home Purchase of Young Borrowers?
Meta Brown
(Federal Reserve Bank of New York)
Andrew Haughwout
(Federal Reserve Bank of New York)
Donghoon Lee
(Federal Reserve Bank of New York)
Wilbert van der Klaauw
(Federal Reserve Bank of New York)
[View Abstract]
As aggregate student debts rapidly rise and more borrowers have difficulty making payments on their student debt, there is a growing concern that the burden of student debt might affect the home purchases of young borrowers and, consequently, the housing market recovery. Using the FRBNY Consumer Credit Panel, a representative, loan-level, quarterly panel of data on student debt and other household obligations based on credit reports from 2004 to 2012, we document the increasing prevalence of student debt and borrowers' difficulty with repayment. Further, we investigate whether student debt burden caused a change in home purchasing behavior between 2004 and 2012. We report evidence that student debt balances impacted the demand for, and access to, other types of household debt, particularly, mortgages. We discuss the implications of this finding for public policies geared toward both housing market recovery and higher education finance.
Financial Education and the Debt Behavior of the Young
Meta Brown
(Federal Reserve Bank of New York)
Jaya Wen
(Yale University)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] More than three quarters of young US households bear consumer debt, and young Americans have clear financial literacy shortcomings, yet we have little understanding of the relationship between financial education and subsequent debt behavior. In this paper, we study the effects of exposure to financial training on debt outcomes in early adulthood. Identification comes from variation in financial literacy, economics, and mathematics graduation requirements mandated over the 1990s and 2000s by state-level high school curricula. The FRBNY Consumer Credit Panel provides debt outcomes based on quarterly Equifax credit reports from 1999 to 2012. Our analysis, based on a flexible event study approach, reveals significant effects of quantitative training on debt-related outcomes of youth. We find that math and financial literacy education exposure reduces the incidence of adverse outcomes – such as accounts in collections and delinquent accounts – and reduces both the likelihood of youth carrying debt and their average debt balances. During a difficult era for young first time homebuyers, both math and financial literacy education exposure delay entry into homeownership. The net effect of both math and financial literacy education is an increase in the youths’ average creditworthiness, as measured by the Equifax risk score. On the other hand, economic education leads to significant increases in debt market participation and debt balances – in particular, debt used to support consumption. It increases the likelihood of adverse credit outcomes, leading to a decline in youths’ average risk scores. Our results suggest that financial education programs, increasingly promoted by policy-makers, are likely to have significant impacts on the financial decision-making of youth, but their impacts may depend heavily on the content of the programs.
Discussants:
Kory Kroft
(University of Toronto)
Frank Warnock
(University of Virginia)
Raven Molloy
(Federal Reserve Board)
Brian Bucks
(Consumer Financial Protection Bureau)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 204-C
American Economic Association
Frontiers of Market Design
(D4)
Presiding:
Alvin Roth
(Stanford University)
The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response
Eric Budish
(University of Chicago)
Peter Cramton
(University of Maryland)
John Shim
(University of Chicago)
[View Abstract]
[Download Preview] We argue that the continuous limit order book is a flawed market design and propose that financial exchanges instead use frequent batch auctions: uniform-price sealed-bid double auctions conducted at frequent but discrete time intervals, e.g., every 1 second. Our argument has four parts. First, we use millisecond-level direct-feed data from exchanges to show that the continuous limit order book market design does not really “work†in continuous time: market correlations completely break down at high-frequency time horizons. Second, we show that this correlation breakdown creates frequent technical arbitrage opportunities, available to whomever is fastest, which in turn creates an arms race to exploit such opportunities. Third, we develop a simple new theory model motivated by these empirical facts. The model shows that the arms race is not only socially wasteful -- a prisoner's dilemma built directly into the market design -- but moreover that its cost is ultimately borne by investors via wider spreads and thinner markets. Last, we show that frequent batch auctions eliminate the arms race, both because they reduce the value of tiny speed advantages and because they transform competition on speed into competition on price. Consequently, frequent batch auctions lead to narrower spreads, deeper markets, and increased social welfare.
Organ Donation Loopholes Undermine Warm Glow Giving: An Experiment Motivated By Priority Loopholes in Israel
Alvin E. Roth
(Stanford University)
Judd Kessler
(University of Pennsylvania)
[View Abstract]
Giving registered organ donors priority on organ waiting lists, as has been implemented in Israel and Singapore, provides an incentive for registration and has the potential to increase the pool of deceased donor organs. However, the implementation of a priority rule might allow for loopholes - as is the case in Israel - in which an individual can register to receive priority but avoid ever being in a position to donate his own organs. We experimentally investigate how such a loophole affects donation and find that the majority of subjects use the loophole when available. The existence of a loophole completely eliminates the increase in donation generated by the priority rule. When information about loophole use is made public, subjects respond to others' use of the loophole by withholding donation, and the priority system with a loophole generates fewer donations than an allocation system without priority.
Mechanism Design in Large Games: Incentives and Privacy
Michael Kearns
(University of Pennsylvania)
Mallesh Pai
(University of Pennsylvania)
Aaron Roth
(University of Pennsylvania)
Jonathan Ullman
(Harvard University)
[View Abstract]
[Download Preview] We study the problem of implementing equilibria of complete information games in settings of incomplete information, and address this problem using "recommender mechanisms." A recommender mechanism is one that does not have the power to enforce outcomes or to force participation, rather it only has the power to suggestion outcomes on the basis of voluntary participation. We show that despite these restrictions, recommender mechanisms can implement equilibria of complete information games in settings of incomplete information under the condition that the game is large--i.e. that there are a large number of players, and any player's action affects any other's payoff by at most a small amount.
Our result follows from a novel application of differential privacy. We show that any algorithm that computes a correlated equilibrium of a complete information game while satisfying a variant of differential privacy--which we call joint differential privacy--can be used as a recommender mechanism while satisfying our desired incentive properties. Our main technical result is an algorithm for computing a correlated equilibrium of a large game while satisfying joint differential privacy.
Although our recommender mechanisms are designed to satisfy game-theoretic properties, our solution ends up satisfying a strong privacy property as well. No group of players can learn "much" about the type of any player outside the group from the recommendations of the mechanism, even if these players collude in an arbitrary way. As such, our algorithm is able to implement equilibria of complete information games, without revealing information about the realized types.
Strategy-Proofness, Investment Efficiency, and Marginal Returns: An Equivalence
John William Hatfield
(Stanford University)
Fuhito Kojima
(Stanford University)
Scott Duke Kominers
(University of Chicago)
[View Abstract]
We consider a market design setting where agents make pre-market investment choices before participating in a centralized market mechanism. We show that a market mechanism in this setting induces an agent $i$ to make efficient investment choices if and only if that mechanism also rewards agent $i$ with his marginal surplus; additionally, for an efficient market mechanism, these properties are equivalent to strategy-proofness for $i$. Our equivalence results extend to the case of approximate incentives conditions. Our work shows that under the worker-optimal stable mechanism, workers (such as doctors and lawyers) are incentivized to make efficient human capital investments before entering the labor market. Our results also imply the elimination of hold-up problems in competitive markets.
Discussants:
Michael Ostrovsky
(Stanford University)
James Andreoni
(University of California-San Diego)
Ilya Segal
(Stanford University)
Larry Samuelson
(Yale University)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 105-B
American Economic Association
High Skill Immigration in the Global Economy
(J2)
Presiding:
William Kerr
(Harvard Business School)
Contribution of Immigrant Scientists to Source and Destination Country Scientific Output
Richard B. Freeman
(Harvard University)
Wei Huang
(Harvard University)
[View Abstract]
An increasing proportion of the authors of scientific papers written in the US are foreign-born. This paper examines the extent, if any, that the location of a foreign-born scientist in the US speeds the dissemination of the scientist's output to American researchers compared to what would have happened had they written their paper overseas; and the effect this has on global scientific production.
To see whether writing a paper in the US increases the spread of knowledge to American-based scientists, we compare US citations to papers written by immigrant scientists in the US to US citations to papers written by "otherwise comparable" scientists in their native country and to papers written by "otherwise" comparable scientists from their country working in other countries. To the extent possible, we will also contrast citations to papers of a scientist when he/she works in the US and of the same scientist when they work in another country. If the data supports the hypothesis that scientific work done in the US gains more US citations, US science benefits from immigration of foreign scientists, but does the US gain come at the expense of science in the person's native country? To answer this question, we have to examine whether working in the US adds anything extra to a scientists productivity (per Kahn and MacGarvie 2012) and to flows of information from scientists working in the US to their native country comparable to the flows of information among inventors studied by Kerrr and Agarwal and others), Our analysis will be based on data from the Web of Science and Pubmed.
Heterogeneous Technology Diffusion and Ricardian Trade Patterns
William Kerr
(Harvard Business School)
Sari Kerr
(Wellesley College)
William Lincoln
(Johns Hopkins University)
[View Abstract]
[Download Preview] This study tests the importance of Ricardian technology differences for international trade. The empirical analysis has three comparative advantages: including emerging and advanced economies, isolating panel variation regarding the link between productivity and exports, and exploiting heterogeneous technology diffusion from immigrant communities in the United States for identification. The latter instruments are developed by combining panel variation on the development of new technologies across U.S. cities with historical settlement patterns for migrants from countries. The instrumented elasticity of export growth on the intensive margin with respect to the exporter's productivity growth is between 1.6 and 2.4 depending upon weighting.
German-Jewish Emigres and United States Invention
Petra Moser
(Stanford University)
Fabian Waldinger
(Universtiy of Warwick)
Alessandra Voena
(Harvard University)
[View Abstract]
[Download Preview] Historical accounts suggest that Jewish émigrés from Nazi Germany revolutionized U.S. science. To analyze the émigrés’ effects on chemical innovation in the U.S. we compare changes in patenting by U.S. inventors in research fields of émigrés with fields of other German chemists. Patenting by U.S. inventors increased by 31 percent in émigré fields. Regressions that instrument for émigré fields with pre-1933 fields of dismissed German chemists confirm a substantial increase in U.S. invention. Inventor-level data indicate that émigrés encouraged innovation by attracting new researchers to their fields, rather than by increasing the productivity of incumbent inventors.
College in the States: Foreign Student Demand and Degree Attainment in the United States
Sarah Turner
(University of Virginia)
[View Abstract]
[Download Preview] The U.S. is increasingly a destination for college students from abroad. While it is well-known that the representation of foreign doctorate students at U.S. universities, particularly in science and engineering fields, has increased dramatically over the last three decades, the growth in the participation of undergraduate students is less well-understood. In this paper, we trace out the notable increase in enrollment from abroad, largely as full-pay students, at colleges and universities, identifying particular increases from countries where incomes have expanded rapidly in recent decades. We model variation over time in the foreign undergraduate enrollment in the U.S. in terms of costs, home country opportunities, and incomes. In addition, we examine the extent to which choice of major among foreign undergraduates impacts field of study among U.S. students.
Discussants:
Gordon H. Hanson
(University of California-San Diego)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon J
American Economic Association
History and Long-Term Development in Africa
(O1)
Presiding:
Leonard Wantchekon
(Princeton University)
National Institutions and Subnational Development in Africa
Stelios Michalopoulos
(Brown University)
Elias Papaioannou
(London Business School)
[View Abstract]
[Download Preview] We investigate the role of national institutions on sub-national African development in a novel framework that accounts both for local geography and cultural-genetic traits. We exploit the fact that the political boundaries in the eve of African independence partitioned more than two hundred ethnic groups across adjacent countries subjecting similar cultures, residing in homogeneous geographic areas, to different formal institutions. Using both a matching-type and a spatial regression discontinuity approach we show that differences in countrywide institutional structures across the national border do not explain within-ethnicity differences in economic performance, as captured by satellite images of light density. The average non-effect of national institutions on ethnic development masks considerable heterogeneity partially driven by the diminishing role of national institutions in areas further from the capital cities.
History and Path Dependence: Evidence from Colonial Railroads, Settlers and Cities in Kenya
Remi Jedwab
(George Washington University)
Edward Kerby
(London School of Economics)
Alexander Moradi
(University of Sussex)
[View Abstract]
[Download Preview] Little is known about the extent and forces of path dependence in developing countries. We examine whether locational fundamentals (i.e., the geographical endowments of various locations) or increasing returns (i.e., localized historical shocks) are the main determinants for the distribution of economic activity across space in these countries. The construction of the colonial railroad in Africa provides a natural experiment to study the emergence, persistence and optimality of an urban equilibrium. Using fine spatial data for Kenya over one century, we find that colonial railroads had a strong causal impact on the location and number of European settlers. Economic development in the European areas in turn determined the location of the main cities of the country at independence. Second, railroads fell into disrepair and most settlers left in the immediate post-independence period, yet these patterns of economic geography persisted. While colonial sunk investments (e.g., schools, hospitals and roads) partly contributed to path dependence, railroad cities mainly persisted because their early emergence served as a mechanism to coordinate contemporary investments in the subsequent period. This shows the stability of the equilibrium. Third, the railroad locations have worse geographical fundamentals than other locations that could have counterfactually received the cities, which suggests the equilibrium may not be optimal. Our findings are important as they inform regional economic policy in shaping future economic progress.
Education and Human Capital Externalities: Evidence from Colonial Benin
Leonard Wantchekon
(Princeton University)
Natalija Novta
(New York University)
Marko Klasnja
(New York University)
[View Abstract]
[Download Preview] We use a unique dataset on students from the first regional schools in colonial Benin to investigate the effect of education on income, occupation and political participation. Because of the near random selection of the school location and the first student cohorts, we can estimate the effect of education by comparing the treated to the untreated living in the same village, as well as those living in villages where no schools were set up. We find a significant positive treatment effect of education on a number of outcomes. For example, the treated have better living standards, are less likely to be farmers, and are more likely to be politically active. Second, we look at the outcomes of the descendants. Similar to the first-generation effects, parents' education has a large positive effect on their children's educational attainment, living standards, and social networks. Third, there are large positive externalities of education in the second generation -descendants of the untreated in villages with a school have substantially better outcomes than descendants in villages without a school. We find evidence that these externalities run through the parents' enhanced social networks. Fourth, the strength of extended families is documented as nephews and nieces directly benefit from education of their uncles - they are almost as equally educated as the students' children, and are more educated than descendants without any educated members in a family. We demonstrate that these within-family externalities represent a "family-tax," as educated uncles transfer resources to the extended family.
The Effect of the TseTse Fly on African Development
Marcella Alsan
(Harvard University)
[View Abstract]
The TseTse fly is unique to the African continent and transmits a parasite harmful to humans and lethal to livestock. By limiting the use of domesticated animals in transport and agriculture, and inhibiting the adoption of animal-powered technologies, the fly is hypothesized to have wide-ranging effects on historical Africa. Identification of the impact of the TseTse on precolonial agricultural technologies, institutions and urbanization is achieved by constructing a suitability index for fly survival based on insect physiology and population growth modeling and then combining this model with ethnographic data. African ethnicities in TseTse-suitable areas were characterized by an increased reliance on shifting agriculture and indigenous slavery and were less centralized and urbanized as of the 19th century. As a placebo test, the TseTse index is constructed worldwide and does not have explanatory power outside of Africa, where the fly does not exist. Current economic performance appears to be affected by the TseTse through its effect on historical institutions.
Discussants:
Melissa Dell
(Harvard University)
David Albouy
(University of Michigan)
James Fenske
(Oxford University)
Hoyt Bleakley
(University of Chicago)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 203-B
American Economic Association
Macroprudential Policies
(E5)
Presiding:
Jaume Ventura
(CREI, UPF, and Barcelona GSE)
Effects and Role of Macroprudential Policy: Evidence from Reserve Requirements Based on a Narrative Approach
Guillermo Vuletin
(Brookings Institution)
Carlos A. Vegh
(University of Maryland and NBER)
Pablo Federico
(BlackRock)
[View Abstract]
[Download Preview] We analyze the macroeconomic effects of changes in legal reserve requirements and the relationship between reserve requirement policy and monetary policy in four Latin American countries (Argentina, Brazil, Colombia, and Uruguay). To correctly identify innovations in reserve requirements, we develop a narrative approach based on contemporaneous reports from the IMF and Central Banks that classifies changes in reserve requirements into endogenous or exogenous to the business cycle. We show that this distinction is critical in understanding the effects of reserve requirements. In particular, we show that output falls in response to exogenous changes in reserve requirements but would increase in response to all changes due to misidentification. We also show that, when properly identified, reserve requirement policy acts as a substitute for monetary policy rather than a complement. For instance, in bad times reserve requirements are lowered to stimulate output while interest rates need to increase to prevent the domestic currency from rapid depreciation.
Macroprudential Regulation Versus Mopping Up After the Crash
Olivier Jeanne
(Johns Hopkins University, NBER, and CEPR)
Anton Korinek
(University of Maryland and NBER)
[View Abstract]
[Download Preview] We characterize the optimal mix of ex-ante policy measures (such as macroprudential regulation) and ex-post policy interventions (such as bailouts) to respond to financial crises in models of financial amplification, i.e. in models in which falling asset prices, declining net worth and tightening financial constraints reinforce each other. The optimal policy mix involves a combination of both types of measures since they offer alternative ways of mitigating binding financial constraints. At the optimal policy mix, macroprudential restrictions and bailouts are substitutes. Comparing their relative merits, ex-post policy interventions are only taken once a crisis has materialized and are therefore better targeted, whereas ex-ante measures are blunter since they depend on crisis expectations. However, ex-post interventions distort incentives and create moral hazard. This introduces a time consistency problem, which can in turn be solved by ex-ante policy measures. Limiting ex-post transfers to the revenue accumulated in a bailout fund reduces welfare.
Optimal Policy for Macro-Financial Stability
Gianluca Benigno
(London School of Economics)
Huigang Chen
(MarketShare Partners)
Christopher Otrok
(University of Missouri and Federal Reserve Bank of St. Louis)
Alessandro Rebucci
(John Hopkins University and Inter-American Development Bank)
Eric R. Young
(University of Virginia)
[View Abstract]
[Download Preview] In this paper we study whether policy makers should wait to intervene until a financial crisis strikes or rather act in a preemptive manner. We study this question in a model in which crises are endogenous events as in Mendoza (2010). We show that the extent to which policymakers should intervene in a preemptive manner depends on the set of policy tools available and what these instruments can achieve when a crisis strikes. Specifically, we consider several alternative tax instruments: a distortionary tax on non-traded consumption that can be interpreted in terms of exchange rate policy (or more generally as a price support policy) and a tax on debt that can be interpreted as a capital control on capital flows (or more generally as a financial regulatory policy tool); as well as taxes on labor income, taxes on firm profits, and alternative combinations of these instruments.
We find that if the policy maker has access to only one of these instruments, it is always desirable to intervene before the crisis regardless of the instrument used. If however the policy maker has access to two instruments, it is optimal to act only during crisis times. These results provide a novel rationale for macro-prudential policies. In fact, in broad terms, our analysis suggests that the scope for preemptive policies depends on the effectiveness of crisis resolution policies and their interaction is crucial for the policy design problem. The more effective (ineffective) are ex post policies, there less significant (important) is the scope for ex ante policies.
A Financial Frictions Approach to Crises: Theory and Macroprudential Policy Implications
Anton Korinek
(University of Maryland and NBER)
Enrique G. Mendoza
(University of Pennsylvania and NBER)
[View Abstract]
The 1990s emerging markets crises were a harbinger for the 2008 global financial crash. During those crises, emerging economies lost access to foreign credit markets, suffered Great Recessions and experienced large drops in asset prices. These co-movements were so sharp that they represented outliers, or nonlinearities, in the observed cyclical time-series dynamics of the countries involved. Conventional open-economy macroeconomic models of the RBC or Neo-Keynesian class are unable to explain these nonlinear dynamics, because in these models frictionless world credit markets provide a vehicle for regular consumption smoothing and investment financing over the business cycle. In contrast, models with financial frictions can explain the key stylized facts of such crises. In particular, models in which access to credit is limited to a fraction of the market value of incomes or assets that can be posted as collateral produce infrequent crises events nested within regular business cycles. Crises occur after periods of expansion or adverse shocks lead credit constraints to become binding. When this happens, the classic Fisherian debt-deflation amplification mechanism is set in motion, as agents fire-sell goods and assets in order to meet their credit limits, which results in lower asset prices that force further fire sales. This framework provides strong policy implications, because the market-determined prices that drive the value of collateral introduce a pecuniary externality, by which borrowers do not internalize the effect of their individual choices on market prices, particularly in potential future Fisherian deflation scenarios. This justifies policy intervention, because private agents in an unregulated economy borrow too much compared with a social planner who takes into account this externality. The planner can implement its desired credit allocations in the decentralized economy using macroprudential instruments like taxes on borrowing or loan to value ratios
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 204-A
American Economic Association
Medical Innovation
(I1)
Presiding:
Nolan Miller
(University of Illinois-Urbana-Champaign)
The Market Impacts of Product Patents in Developing Countries: Evidence from India
Mark Duggan
(University of Pennsylvania)
Craig Garthwaite
(Northwestern University)
Aparajita Goyal
(World Bank)
[View Abstract]
According to the 1995 Trade-Related Aspects of Intellectual Property Rights (TRIPS), members of the World Trade Organization were required to implement comprehensive product patents. Developing countries lacking existing product patent systems, such as India, were given until 2005 to apply a TRIPS compliant patent system to their existing pharmaceutical markets. We combine sales data for all retail pharmaceutical sales in India with a newly gathered unique dataset of patents issued by the Indian patent office. Exploiting uncertainty in the timing and outcome of patent decisions, we examine the impact of these product patents on prices, quantities sold, and the number of firms producing the molecule. Our findings indicate that the implementation of a product patent system caused a meaningful shift in the sales concentration in the Indian market but relatively small additional changes in market structure. There were limited effects on prices and a decrease in quantity – suggesting that removing particular firms may have affected access to pharmaceutical in a retail setting for non-price reasons. Our results provide some of the first evidence regarding the impact of TRIPS specifically or patent reforms more generally in a developing country. This represents an important input into the decision making process of firms creating innovations aimed at these emerging markets and governments implementing these reforms.
The Insurance Value of Medical Innovation
Julian Reif
(University of Illinois-Urbana-Champaign)
Anup Malani
(University of Chicago)
Darius Lakdawalla
(University of Southern California)
[View Abstract]
[Download Preview] Technological change in health care is often viewed as a major contributor to increased financial risk, since new technologies are often more expensive than old ones. While true in a static sense, this viewpoint overlooks the manner in which medical innovations reduce the health risk borne by consumers. First, using the parlance of Ehrlich and Becker (1972), therapeutic technologies serve as “self-insurance†that lowers the impact of illness and preventative technologies serve as “self-protection†that lowers the probability of illness. Second, given the incompleteness of real-world financial markets, medical technologies improve the performance of health insurance markets (“market insuranceâ€Â) that transfer wealth across morbidity states. We show that standard methods of valuing medical technologies overlook these insurance benefits from technology. As a result, standard approaches may underestimate the value of medical technology that improves quality of life, and may under or overestimate the value of preventive technologies. Using data from the Tufts Cost-Effectiveness Registry, we estimate total insurance value for a range of real-world medical technologies. We estimate that this insurance value adds 113% to the traditional valuation. Moreover, for typical levels of risk aversion, the insurance value of technology is significantly larger than the insurance value of health insurance itself.
The Effect of United States Health Insurance Expansions on Medical Innovation
Jeffrey Clemens
(University of California-San Diego)
[View Abstract]
[Download Preview] I study the channels through which health insurance influences medical innovation. Following Medicare and Medicaid's passage, I find that U.S.-based medical-equipment patenting rose by 40 to 50 percent relative to both other U.S. patenting and foreign medical-equipment patenting. Within the United States, increases in medical-equipment patenting were most dramatic in states where the Great Society insurance expansions were largest and in which there were large baseline numbers of physicians per resident. Consistent with historical case studies, Medical innovation's determinants extend beyond the potential revenues associated with global market size; a physician driven process of innovation-while-doing appears to play a central role. An extrapolation of the evidence suggests that the last half century's U.S. insurance expansions have driven 25 percent of recent global medical-equipment innovation. In a standard decomposition of health spending growth, this insurance-induced innovation accounts for 15 percent of the long run rise in U.S. health spending in hospitals, physicians' offices, and other clinical settings.
The Local Influence of Principal Investigators on Technology Adoption: Evidence from New Cancer Drugs
Leila Agha
(Boston University)
David Molitor
(University of Illinois-Urbana-Champaign)
[View Abstract]
Adoption of new health care technologies is widely considered to be a key driver of both rising health costs and improved outcomes in the United States. This paper explores the diffusion of new cancer drugs by testing the influence of physician investigators who lead clinical trials. In particular, we exploit variation across drugs in the location of clinical trials to test whether geographic proximity to a principal investigator influences the speed of technology adoption. Using original data on clinical trial study authors and sites for 21 new cancer drugs along with Medicare claims data from 1998-2008, we estimate that patients are 30% more likely to receive treatment with a new drug if they seek care in the hospital referral region where the drug's principal investigator practices. This effect, which is estimated in the first two years following initial FDA approval, fades over time until there is no apparent difference in utilization after four years. The evidence suggests that early information about a new drug can lead to large regional differences in initial adoption rates, but with no effect on long-run adoption levels.
Discussants:
Craig Garthwaite
(Northwestern University)
Heidi L. Williams
(Massachusetts Institute of Technology)
Leemore Dafny
(Northwestern University)
Amanda E. Kowalski
(Yale University)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 202-B
American Economic Association
Poverty
(I3)
Presiding:
Gary Hoover
(University of Alabama)
Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence
Sean Higgins
(Tulane University)
Nora Lustig
(Tulane University)
[View Abstract]
The effect of taxes and benefits on the poor is usually measured using standard poverty and inequality indicators, stochastic dominance tests, and measures of progressivity and horizontal inequity. However, these measures can fail to capture an important aspect: that some of the poor are made poorer (or some of the non-poor made poor) by the tax-benefit system. We call this impoverishment and formally establish the relationships between impoverishment, stochastic dominance tests, horizontal inequity, and progressivity measures. The directional mobility literature provides a useful framework to measure impoverishment. We propose using a transition matrix and income loss matrix, and establish a mobility dominance criterion to compare alternate tax-benefit systems. We illustrate with data from Brazil.
Does Poverty Affect Economic Decision-Making? Experimental Evidence from Changes in Financial Strain at Payday
Stephan Meier
(Columbia University)
Stephanie W. Wang
(University of Pittsburgh)
Leandro S. Carvalho
(University of Southern California)
[View Abstract]
This paper contributes to the renewed debate on poverty and decision-making. We study the causal effect of financial strain on economic decision-making by exploiting the sharp discontinuity in financial strain at payday. Low-income U.S. households were randomly assigned to a group that received an online survey shortly before payday (i.e., the before-payday group) or to a group that received an online survey shortly after payday (i.e., the after-payday group). The survey collected measures of cognitive function and administered risk choice and incentivized (monetary and non-monetary) intertemporal choice tasks. The study design was effective in generating variation in economic circumstances: participants assigned to the before-payday group had 22% less cash and 20% lower expenditures than the after-payday group. The results show that before-payday participants behaved as if they were more present-biased when making choices over monetary rewards. However, this difference was not observed for intertemporal choices over non-monetary real effort tasks. Taken together, these findings suggest that the differences in the monetary intertemporal choices are most likely due to liquidity constraints rather than poverty reducing self-control. We also do not find before-after differences in the willingness to take risks, the likelihood of making decision-making errors (measured as violations of GARP), or the proneness to heuristic judgments (gambler’s fallacy and framing). Finally, the two groups have similar performances in cognitive function tasks measuring cognitive control, working memory, and cognitive reflection. Overall our findings support the “rational adaptation†view that the poor do the best they can given their economic circumstances. 
Changes in the Distribution of Poverty Duration in the United States Since the Mid-1980s
Iryna Kyzyma
(CEPS/INSTEAD Luxembourg and the University of Bremen)
[View Abstract]
Although the absolute number of people living in poverty has been on the rise in the US, the official poverty rate did not change much over recent decades. Increasing during the periods of recession and declining during the periods of economic expansion, the absolute poverty rate was at the same level of 15 percent in the late 2000s as in the mid-1980s.
The temporal 'stability' of cross-sectional poverty rate does not automatically imply that the longitudinal patterns of poverty have also remained unchanged. The poverty rate does a good job in revealing the prevalence of poverty in a particular year but it tells us nothing about the composition of the poor in terms of the amount of time they have spent below the poverty line. In their seminal work Bane and Ellwood (1986) show that whereas some people have very short episodes of poverty, the majority of those who are poor at a particular point in time are in the middle of long poverty spells. This heterogeneity in the duration of poverty episodes is completely ignored in the calculation of cross-sectional poverty rates meaning that the same level of static poverty may be observed under completely different distributions of poverty duration.
This paper aims to look ‘behind’ the stability of the US poverty rate and analyze what has happened to the underlying it distribution of poverty duration between the mid-1980s and the end of the 2000s. To be more precise, it purports to identify (i) what parts of the duration distribution of poverty spells have been affected the most, (ii) in what way the composition of poor has changed over time and how this change has reflected on the distribution of poverty duration, (iii) whether individuals with certain characteristics have become more / less prone to long poverty episodes and, if yes, how it has affected the marginal distribution of poverty duration.
To answer these questions, we first estimate the conditional hazard function of exiting poverty at different spell lengths and then use it to recover the entire unconditional distribution of time spent in poverty. Individual characteristics are introduced in the model in a flexible way which allows them to influence the distribution of poverty duration heterogeneously at different values of duration. To achieve such an unrestricted specification we take advantage of the distribution regression technique and extend it to the context of duration analysis. Once the model is specified a set of counterfactual distributions can be constructed and used to partition the overall change in the distribution of poverty duration into the part induced by the changes in the distribution of individual characteristics and the part associated with the changes in their effects (‘returns’). The analysis is performed on data from the 1984, 2004 and 2008 panels of the Survey of Income and Program Participation.
The Earned Income Tax Credit over the Business Cycle: Who Benefits?
Margaret Jones
(US Census Bureau)
[View Abstract]
[Download Preview] In this paper, I examine the impact of the Great Recession on Earned Income Tax Credit (EITC) eligibility and take-up rates. Because the EITC is structurally tied to earnings, the direction of this impact is not immediately obvious. Families who experience complete job loss for an entire tax year lose eligibility, while those experiencing underemployment (part-year employment, a reduction in hours, or spousal unemployment in married households) may become eligible. Determining the direction and magnitude of the impact is important for a number of reasons. The EITC has become the largest cash-transfer program in the U.S., and many low-earning families rely on it as a means of support in tough times. The program has largely been viewed as a compensation for welfare reform, enticing former welfare recipients into the labor force. However, the impact of the EITC during a period of very high unemployment has not been assessed. To answer these questions, I use the Current Population Survey matched to Internal Revenue Service data from tax years 2005 to 2009 to assess the pattern of employment and eligibility over the Great Recession for different labor-force groups defined by skill, demographic characteristics, and family structure. Results indicate that, compared with high-skilled married men, low-skilled groups experienced greater volatility in employment, responding more strongly to local labor market conditions in terms of total job loss and a reduction in hours and weeks worked. This response was strongest for low-skilled single men and women. However, greater volatility in employment did not translate into higher EITC eligibility or take-up. The results provide some evidence that the EITC, as an important part of the safety net, fails to reach its target population at times when it is most needed.
Misclassification in Binary Choice Models
Bruce D. Meyer
(University of Chicago and NBER)
Nikolas Mittag
(CERGI-EI)
[View Abstract]
Many important binary outcomes such as program receipt and labor market status suffer from misclassification in survey data. This measurement error is necessarily non-classical, leading to bias in linear and non-linear models even if only the dependent variable is mismeasured. Validation studies show that this bias can be substantial in applications such as take-up of transfer programs, but little is known about its direction and size. Bias corrections make strong assumptions and it is unclear whether they improve or aggravate the problem. Focusing on models of food stamp receipt, this paper examines the consequences of misclassification and the performance of robust estimators. First, we derive the asymptotic bias from misclassification of the dependent variable in binary choice models. A Monte Carlo study and an application to food stamp receipt show that the bias formulas are useful to analyze the sensitivity of substantive conclusions, to interpret biased coefficients and imply features of the estimates that are robust to misclassification. For food stamp take-up, the main bias components partly cancel, which explains why previous studies found coefficient signs to be robust and biases smaller than suggested by the frequencies of misclassification. We then use administrative records linked to survey data as validation data to examine estimators that are consistent under misclassification. They can improve estimates, but will often aggravate the problem if the assumptions are invalid. For example, estimators that assume misreporting to be unrelated to observables remove only one bias component in models of food stamp take-up. This leads to larger biases, because this component partly cancelled the attenuation component of the misclassification bias. The estimators differ in their robustness to such violations. Incorporating additional information can improve the performance of the estimators or even yield consistent estimates. We propose tests for misclassification that can help to choose an estimator.
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 204-B
American Economic Association
Research Transparency: Pre-Analysis Plans and Other Approaches for Economics
(C9)
Presiding:
Edward Miguel
(University of California-Berkeley)
Promoting Transparency in Economics Research
Edward Miguel
(University of California-Berkeley)
[View Abstract]
There has been a flurry of activity regarding research transparency in recent years, within the academy and among research funders, driven by a recognition that too many influential research findings are fragile at best, if not entirely spurious or even fraudulent. Yet there remains limited consensus regarding how exactly study registration will work in practice, and about the norms that could or should emerge around it. Is it possible - or even desirable - for all empirical studies to be registered? When and how should study registration be considered by funders and journals? In this talk I will present highlights from the current state of debate on these issues, drawing from advances within economics and other social science disciplines. Given the American Economic Association's formal decision in 2012 to establish an online registry for experimental studies, a discussion of these critical issues with the goal of clarifying the most productive ways forward is especially timely.
Analysis Plans in Economics
Benjamin Olken
(Massachusetts Institute of Technology)
[View Abstract]
In this talk I discuss the motivations, advantages, drawbacks, and nuances of using analysis plansin economics research. I begin with observations of parallel analytical methods used in medical trails to demonstrate the standardization of triple-blinding in a well-known field of experimentation. I then present examples of analysis plans used in three recent projects in Indonesia and Pakistan, using these to frame discussions about the analytical benefits and credibility afforded by the use of PAPs in dealing with negative results, interactions, and specification. Following, I discuss the pitfalls of PAPs: hindering the ability to build a compelling narrative based on some subset of results that is distinct from the pre-specified tables; and the large effort required to scope out all possible hypotheses in advance, if such thoroughness is even intellectually possible. Considerations such as revising the endline analysis plan after looking at midline data, and specifying one-sided tests, are explored. Finally, I conclude by offering my observations on when analysis plans are most helpful, such as when a party has strong vested interests, and when they can be more difficult to implement, such as when results are needed immediately for policy purposes.
Reshaping Institutions: Evidence on Aid Impacts Using a Preanalysis Plan
Katherine Casey
(Stanford University)
Rachel Glennerster
(Massachusetts Institute of Technology)
Edward Miguel
(University of California-Berkeley)
[View Abstract]
[Download Preview] Despite their importance, there is limited evidence on how institutions can be strengthened. Evaluating the effects of specific reforms is complicated by the lack of exogenous variation in institutions, the difficulty of measuring institutional performance, and the temptation to "cherry pick" estimates from among the large number of indicators required to capture this multifaceted subject. We evaluate one attempt to make local institutions more democratic and egalitarian by imposing participation requirements for marginalized groups (including women) and test for learning-by-doing effects. We exploit the random assignment of a governance program in Sierra Leone, develop innovative real-world outcome measures, and use a preanalysis plan (PAP) to bind our hands against data mining. The intervention studied is a "community-driven development" program, which has become a popular strategy for foreign aid donors. We find positive short-run effects on local public goods and economic outcomes, but no evidence for sustained impacts on collective action, decision making, or the involvement of marginalized groups, suggesting that the intervention did not durably reshape local institutions. We discuss the practical trade-offs faced in implementing a PAP and show how in its absence we could have generated two divergent, equally erroneous interpretations of program impacts on institutions.
The Use of Analysis Plans in the Oregon Health Insurance Experiment
Katherine Baicker
(Harvard University)
Amy N. Finkelstein
(Massachusetts Institute of Technology)
Sarah L. Taubman
(NBER)
[View Abstract]
In 2008, a group of uninsured low-income adults in Oregon was selected by lottery to be given the chance to apply for Medicaid. This lottery provides an opportunity to gauge the effects of expanding access to public health insurance on the health care use, financial strain, and health of low-income adults using a randomized controlled design. In the year after random assignment, the treatment group selected by the lottery was about 25 percentage points more likely to have insurance than the control group that was not selected. We find that in this first year, the treatment group had substantively and statistically significantly higher health care utilization (including primary and preventive care as well as hospitalizations), lower out-of-pocket medical expenditures and medical debt (including fewer bills sent to collection), and better self-reported physical and mental health than the control group.
Discussants:
Uri Simonsohn
(University of Pennsylvania, Wharton School of Business)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
Sovereign Debt Crisis
(F4)
Presiding:
Gita Gopinath
(Harvard University)
Is it Too Late to Bail Out the Troubled Countries in the Eurozone?
Juan Carlos Conesa
(State University of New York-Stonybrook University)
Timothy Kehoe
(University of Minnesota)
[View Abstract]
In January 1995, U.S. President Bill Clinton organized a bailout for Mexico that imposed penalty interest rates and induced the Mexican government to reduce its debt, ending the debt crisis. Can the Troika (European Commission, European Central Bank, and International Monetary Fund) organize similar bailouts for the troubled countries in the Eurozone? Our analysis suggests that debt levels are so high that bailouts with penalty interest rates could induce the Eurozone governments to default rather than to reduce their debt. A resumption of economic growth is one of the few ways that the Eurozone crises can end.
Renegotiation Policies in Sovereign Defaults
Christina Arellano
(Federal Reserve Bank of Minneapolis)
Yan Bai
(University of Rochester)
[View Abstract]
This paper studies an optimal renegotiation protocol designed by a benevolent planner when two countries renegotiate with the same lender. The solution calls for recoveries that induce default or repayment trading off the deadweight costs of default and the redistribution benefits of default for each country independent of the other country. This outcome contrasts with a decentralized bargaining solution where a default in one country increases the likelihood of default for the second country because recoveries are lower when both countries renegotiate. The paper suggests that policies geared at designing renegotiation processes that treat countries in isolation can prevent contagion of debt crises.
Sovereign Debt Crises in a Currency Union
Mark Aguiar
(Princeton University)
Manuel Amador
(Stanford University)
Emmanuel Farhi
(Harvard University)
Gita Gopinath
(Harvard University)
N/A
Discussants:
Vincenzo Quadrini
(University of Southern California)
Javier Bianchi
(University of Wisconsin)
Andrew Atkeson
(University of California-Los Angeles)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 201-A
American Economic Association
Strategic Learning: Theory and Evidence
(D8)
Presiding:
Abhijit Banerjee
(Massachusetts Institute of Technology)
Circles of Trust
Samuel Lee
(New York University)
Petra Persson
(Stanford University)
Nikita Roketskiy
(University College London)
[View Abstract]
We study strategic transmission of rival information among individuals who experience warm glow when sharing valuable information with friends. Direct social ties are a prerequisite for communication, but adjacent social ties can undermine it. As a result, larger social networks may diffuse less information, and better-connected individuals may receive less information. When forming networks, individuals cluster into groups that create trust by limiting "outside" ties as a commitment to secrecy.
Strategic Immunization and Group Structure
Andrea Galeotti
(University of Essex)
Brian Rogers
(Northwestern University)
[View Abstract]
We consider the spread of a harmful state through a population divided into two groups. Interaction patterns capture the full spectrum of assortativity possibilities. We show that a central planner who aims for eradication optimally either divides equally the resources across groups, or concentrates entirely on one group, depending on whether there is positive or negative assortativity, respectively. We study a game in which agents can, at a cost, immunize. Negative assortative interactions generate highly asymmetric equilibrium outcomes between ex-ante identical groups. When groups have an underlying divergence, even a small amount of inter-group contacts generates large asymmetries.
Universal Communication via Robust Coordination
Madhu Sudhan
(Microsoft Research and Massachusetts Institute of Technology)
Jacob Leshno
(Columbia University)
[View Abstract]
[Download Preview] Abstract We consider the task of two players who wish to meaningfully communicate with each other, focusing on a simple and essential part of meaningful communication --- the two players must coordinate on common interpretation of messages in order to be able to communicate. We present some basic definitions that capture the notion of the players eventually reaching a state of understanding: We formulate this problem as a repeated coordination game and ask whether the two players can guarantee that after a finite learning time they will coordinate in all periods forward. We ask for coordination in potentially varying environments under limited prior knowledge. Our results show that when there is some "grain of coordination" it can be leveraged to eventual coordination, but it is impossible to achieve coordination deterministically without some initial asymmetry. We give conditions under which randomization can be used to generate a "grain of coordination" and guarantee eventual coordination in a symmetric setting.
Come Play with Me: Experimental Evidence of Information Diffusion About Rival Goods
Abhijit Banerjee
(Massachusetts Institute of Technology)
Emily Breza
(Massachusetts Institute of Technology)
Arun Chandrasekhar
(Stanford University)
Esther Duflo
(Massachusetts Institute of Technology)
Matthew Jackson
(Stanford University)
[View Abstract]
We randomly invite households to come to a pre-specified, central location in 39 villages to participate in laboratory games. We study how the information about the opportunity to earn close to one day's wage diffuses through rural Indian villages by identifying at households who were not randomly invited, but who turned up at our experiment. Furthermore, because some members of some of the villages had prior experience playing similar laboratory games, we ask how experience with a task affects information-spreading and -seeking behavior. Finally, we examine possible channels for strategic information diffusion. In our environment, participant slots for non-invited households are limited, making them rival goods. Additionally, participants could potentially receive larger payoffs from playing the laboratory games with their peers. Because of these two motivations, we examine how final participation patterns may reflect strategic behavior on the part of informed households. The data is consistent with an equilibrium model in which individuals are differentially likely to pass information to their less-connected neighbors, thereby containing the information leakage to other parts of the network.
Discussants:
Matthew Elliott
(California Institute of Technology)
Arun Chandrasekhar
(Stanford University)
Juan Pablo Xandri
(Princeton University)
Petra Persson
(Stanford University)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 201-B
American Economic Association
The Role of Management and Technology for Reallocation and Growth: Micro and Macro Evidence
(L1)
Presiding:
John Van Reenen
(London School of Economics)
Reallocation and Technology: Evidence from the United States Steel Industry
Allan Collard-Wexler
(New York University)
Jan De Loecker
(Princeton University)
[View Abstract]
[Download Preview] We measure the impact of a drastic new technology for producing steel - the
minimill - on the aggregate productivity of U.S. steel producers, using unique
plant-level data between 1963 and 2002. We find that the sharp increase in the
industry's productivity is linked to this new technology, and operates through
two distinct mechanisms. First, minimills displaced the older technology, called
vertically integrated production, and this reallocation of output was responsible
for a third of the increase in the industry's productivity. Second, increased
competition, due to the expansion of minimills, drove a substantial reallocation
process within the group of vertically integrated producers, driving a resurgence
in their productivity, and consequently of the industry's productivity as a whole.
Letter Grading Government Efficiency
Alberto Chong
(University of Ottawa)
Rafael La Porta
(Dartmouth College)
Florencio Lopez-de-Silanes
(EDHEC Business School)
Andrei Shleifer
(Harvard University, Department of Economics)
[View Abstract]
[Download Preview] We mailed letters to non-existing business addresses in 159 countries (10 per country), and measured whether they come back to the return address in the US and how long it takes. About 60% of the letters were returned, taking over 6 months, on average. The results provide new objective indicators of government efficient across countries, based on a simple and universal services, and allow us to shed light on its determinants. The evidence suggests that both technology and management quality influence the quality of government, just as they do that of the private sector.
Management as a Technology
Nicholas Bloom
(Stanford University)
Raffaella Sadun
(Harvard University)
John Van Reenen
(London School of Economics)
[View Abstract]
[Download Preview] Are some management practices akin to a technology that can explain company and national productivity, or are they simply alternative styles? We collect cross sectional and panel data on core management practices across 8,000 firms in 20 countries in the Americas, Europe and Asia. We find the US has the highest size-weighted average management score and about a quarter of the cross- country “management gap†is due to stronger reallocation effects which rewards better managed firms with greater market share. We present a simple model of management as a technology that predicts: (i) a positive effect of management on firm performance; (ii) a positive effect of product market competition on average management quality; and (iii) that the covariance between management and firm size should be stronger when distortions (such as trade and labor market frictions) are weaker. We find empirical support for all of these predictions. Using this idea we find that the US lead in management can account for up to half of the TFP gap between the US and other nations. In addition to the selection and incentive effects of competition, poor governance, informational frictions and human capital appear to be important in explaining the variance of management practices across firms and countries.
How Real Estate Shocks Affect Operational Practices: Evidence from the Restaurant Industry
Shai Bernstein
(Stanford University)
Albert Sheen
(Harvard Business School)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 203-A
American Economic Association
Transfers and Networks in Developing Countries
(O1)
Presiding:
Susan Steiner
(Leibniz Universität Hannover)
The Network Architecture of Reciprocated Versus Unreciprocated Sharing
Laura Schechter
(University of Wisconsin-Madison)
Alexander Yuskavage
(US Treasury Department)
[View Abstract]
[Download Preview] We empirically explore predictions from the theoretical network literature regarding reciprocated (undirected) sharing and unreciprocated (directed) sharing. The predictions that networks of undirected two-way transfers should exhibit high levels of support while networks with one-way flows of transfers should exhibit star-like characteristics are both supported in the data. Because our social network data comes from a sample, rather than a census, we show results both for the original sample data, as well as from the network reconstruction techniques described in Chandrasekhar and Lewis (2011).
The Network Effects of Financial Interventions: Evidence from a Field Experiment in Nepal
Margherita Comola
(Université Paris 1 Panthéon-Sorbonne)
Silvia Prina
(Case Western Reserve University)
[View Abstract]
[Download Preview] We study how networks change because of an exogenous intervention, such as expansion in financial access, and determine how to incorporate these changes when estimating the intervention effects. We use a unique panel dataset that contains detailed information on the network of financial transactions before and after a field experiment that randomized access to savings accounts among poor households in Nepal. We provide evidence that the intervention affected the network of financial transactions. We model how network changes should be taken into account in a (dynamic) peer effect framework. We estimate the true effects of the intervention accounting for such changes and show that the estimates of a (static) peer effect model, which do not account for network changes, are downward biased.
Does the Arrival of a Formal Financial Institution Alter Informal Sharing Arrangements? Experimental Evidence from Village India
Christine Binzel
(University of Heidelberg)
Erica Field
(Duke University)
Rohini Pande
(Harvard University)
[View Abstract]
[Download Preview] How do processes of development, in particular the arrival of formal financial institutions, influence the risk-sharing capacity of village social networks?
To shed light on this question, this paper exploits the randomized branch roll-out by a large rural bank in India. Improved formal financial access leads villagers to increase formal borrowing and reduce informal borrowing and gift exchange within the village. The substitutability of formal for informal borrowing is, in turn, associated with a decline of informal trust-based institutions: the risk-sharing capacity of informal networks falls and villagers are less likely to share resources with network members in non-anonymous dictator games. An overall decline in transfers is accompanied by a shift in transfers away from financial network links and towards social links, suggesting that the availability of formal financial services enables households to shift network investments towards members for whom they feel greater altruism.
Transfer Behaviour in Migrant Sending Communities
Tanika Chakraborty
(IIT Kanpur)
Bakhrom Mirkasimov
(Humboldt University)
Susan Steiner
(Leibniz Universität Hannover)
[View Abstract]
We study how international migration changes the private transfers made between households in the migrant sending communities of developing countries. If migration undermined widely established systems of private transfers, governments may have to introduce public income redistribution programmes to compensate for the loss of these transfers. Using household survey data from Kyrgyzstan, we show that migrant households are more likely to provide monetary transfers to others, but less likely to receive monetary transfers from others. This suggests that migrant households insure non-migrant households against income shocks or simply redistribute income to them. We also find that migrant households are less likely than non-migrant households to provide labour assistance to others, possibly because they have no abundant labour resources.
Discussants:
Marcel Fafchamps
(Oxford University)
Silvia Prina
(Case Western Reserve University)
Alexander Yuskavage
(US Treasury Department)
Nathan Fiala
(DIW Berlin)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon C
American Economic Association
Using Integrated Assessment Models to Inform Decision-Making in the Face of Uncertain Climate Change
(Q5)
Presiding:
David Anthoff
(University of Michigan)
Management of Energy Technology for Sustainability: Funding Energy Technology R&D under Uncertainty about Climate Change
Erin Baker
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] Climate change is a major public policy problem. One vexing problem faced by policy makers is how to allocate research budgets across a variety of energy technologies, in order to reduce the future costs of controlling climate change. In this paper we apply a multi-model approach, implementing probabilistic data derived from expert elicitations into a stochastic programming version of a dynamic integrated assessment model, in order to arrive at insights about the optimal government-funded R&D portfolio. We focus on electricity technologies with a significant chance of a breakthrough - solar PV, CCS, and nuclear. We find that the optimal investment is fairly robust to different specifications of climate uncertainty, to different policy environments, and to assumptions about the opportunity cost of investing; and that policy makers would do better to over-invest in R&D rather than under-invest. We show that R&D is even more valuable in "2nd-best" policy environments, when politics, incentives, and uncertainty don't lead to optimal policies. Finally, we show that R&D can play different roles in different types of policy environments, sometimes leading primarily to cost reduction, other times leading to better environmental outcomes.
Investment Strategy in Energy RD&D under Technological Uncertainty: A Real Options Approach
Emily Fertig
(Pennsylvania State University)
[View Abstract]
Energy technology development is vital to climate policy analysis, and despite being highly uncertain it is most often modeled as deterministic. This simplification neglects the ability to adapt RD&D strategy to changing conditions and invest in initially high-cost technologies with small breakthrough probabilities. This paper develops an analytical stochastic dynamic programming method for valuing and informing strategy for an energy RD&D program under technological uncertainty. Cost of the developmental technology is modeled as stochastic but decreasing in expected value with RD&D spending, disaggregated into R&D and learning-by-doing. R&D spending is assumed to be more likely to generate a breakthrough but less effective in expectation than learning-by-doing. Results of the model applied to carbon capture and sequestration (CCS) indicate that given 15 years until a carbon policy and large-scale CCS deployment, investment in the RD&D program is optimal over a very broad range of initial mitigation costs ($10–$380/tCO2). While the NPV of the program is zero if initial mitigation cost is $100/tCO2, under uncertainty the program is worth about $7 billion. Factors that promote R&D spending over promotion of learning-by-doing include more imminent deployment, high initial cost, lower exogenous cost reductions, and lower program funds available.Uncertainty in technological learning is a crucial factor in planning research, development, and demonstration (RD&D) strategies. Nevertheless, most previous work either models technological change as deterministic or accounts for uncertainty without fully capturing the recourse feature of the problem. This paper improves upon these approaches by developing a real options-based stochastic dynamic programming method for valuing and planning low-carbon energy RD&D investment and is the first of its kind to disaggregate the effects of R&D and learning-by-doing. This simplified model captures the relevant features of the problem and provides general insights on RD&D strategy under technological uncertainty. Results indicate that imminent deployment, high cost, lower exogenous cost reductions, and lower program funds all promote R&D spending over learning-by-doing, since under these circumstances a breakthrough, rather than slow and consistent cost reductions, will render the program successful.
Tipping the Climate Dominoes
Christian Traeger
(University of California-Berkeley)
Derek Lemoine
(University of Arizona)
[View Abstract]
[Download Preview] Anthropogenic emissions of greenhouse gases activate a number of feedback processes in the climate system. Scientists warn that some feedbacks can lead to abrupt and irreversible changes in climate dynamics, so-called tipping points. The threat of tipping points plays a major role in demands for aggressive emission reductions and for limiting warming to 2C, as agreed upon in the Copenhagen Accord. We extend a benchmark integrated assessment model of climate change to account for three interacting, irreversible tipping points: (i) a feedback increasing climate sensitivity, (ii) a feedback reducing carbon sink uptake, and (iii) a tipping point directly affecting economic damages. Each tipping point is triggered by an imperfectly known temperature threshold. Optimal mitigation policy has to account for the impact of today’s emissions on future carbon stock, temperatures, and damages in different possible futures where tipping points may have been triggered at different temperature thresholds. Optimal mitigation today also has to incorporate how future decision makers will respond to current actions, observations, and possible tipping. We show that the presence of the three tipping points approximately doubles the currently optimal carbon tax and that the presence of multiple tipping points cuts the optimal peak temperature by approximately 1C. The effects of the individual tipping points are approximately additive, suggesting that interactions among tipping points are not crucial for policy.
Uncertainty Analysis in Integrated Assessment Models
Kenneth Gillingham
(Yale University)
William Nordhaus
(Yale University)
[View Abstract]
A central issue facing both climate research and climate policy is pervasive uncertainty. Uncertainties range from those regarding economic growth and population through emissions intensities and new technologies to the carbon cycle, climate models, and impacts. This project is the first to systematically quantify probability distributions of key output variables based on probability distributions of input variables across a set of major integrated assessment models. We develop a “two-track” approach that involves simultaneously performing model runs on a set of grid points and developing probability distributions of input variables based on existing literature and expert elicitation. From the gridded model runs, we estimate a surface response function for each model. Then we bring the two tracks together by performing a Monte Carlo analysis based on our input distributions for population, total factor productivity, and climate sensitivity.
Discussants:
Kenneth Gillingham
(Yale University)
Derek Lemoine
(University of Arizona)
Charles Kolstad
(Stanford University)
Maximilian Auffhammer
(University of California-Berkeley)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 103-A
American Economic Association
Women and Leadership
(J16)
Presiding:
Susan Averett
(Lafayette College)
Female Managers in Hybrid Organizations: Evidence from Financial Cooperatives in Senegal
Anais Perilleux
(Universite Catholique de Louvain)
Ariane Szafarz
(Universite Libre de Bruxelles)
[View Abstract]
[Download Preview] This paper brings new insights on gender interaction in the management of hybrid organizations. Our database comes from Union des Mutuelles du Partenariat pour la Mobilisation de l'Epargne et du Credit au Senegal (UM-PAMECAS), a Senegalese network made of 36 financial cooperatives providing 406,667 members with microfinance services. We use random-effect panel estimation to analyze the interplay of female/male-dominated boards with female/male managers. The regressions explain the average loan size and the proportion of loans granted to women. Our results show that male managers mitigate the social orientation of female-dominated boards. In contrast, female managers tend to enhance this orientation. More puzzling is the influence of female managers associated with male-dominated boards. In this case, the presence of a female manager increases the average loan size and reduces the proportion of loans granted to women. In sum, female managers tend to align their objectives on those of the local board even though their hierarchy is at the central level. They avoid as much as possible conflicts with their local board members.
Career Implications of Having a Female-Friendly Supervisor: Evidence from the NCAA
Steven Bednar
(Elon College)
Dora Gicheva
(University of North Carolina-Greensboro)
[View Abstract]
[Download Preview] In this paper we study differences in observed performance and turnover patterns based on workers' gender and supervisors' propensity to hire and retain females. Using longitudinal data on athletic directors and head coaches of NCAA Division I women's teams we estimate athletic director fixed effects in the share of female head coaches, holding constant any time-invariant school-specific factors. While directors matter for the fraction of female head coaches, there is no statistical difference in the distribution of the estimated fixed effects by gender of the athletic director. Further, our findings indicate that the careers of male and female workers may progress differently depending on the propensity of their supervisors to work with and mentor females, and more focus should be placed on this propensity rather than on supervisor gender.
Female Legislators and Foreign Aid
Daniel L. Hicks
(University of Oklahoma)
Joan Hamory Hicks
(University of California-Berkeley)
Beatriz Maldonado
(College of Charleston)
[View Abstract]
[Download Preview] Research has shown that increased female representation in government can alter the scale and scope of national expenditure because of differences in median preferences between men and women. We investigate whether changes in the gender composition of national legislatures in donor countries impact the level and pattern of foreign aid. We show that as donors elect more female legislators, they increase aid both in total and as a percentage of GDP. These increased flows occur predominately through bilateral aid and reflect a redistribution of aid towards developing countries and for humanitarian purposes in particular. While the election of women to political offices is potentially correlated with the preferences of the electorate, we present evidence that female representatives exert a causal influence on aid through the inclusion of fixed effects and a series of quasi-experimental checks.
A Labor Market Punishing to Mothers?
Wayne A. Grove
(Le Moyne College)
Andrew Hussey
(University of Memphis)
[View Abstract]
Bertrand, Goldin and Katz (2010), studying elite MBAs from the University of Chicago, find that men and women initially had "nearly identical labor incomes and weekly hours worked" but then gaps of more than 50 percent emerged, primarily due to the presence of children and of marriage to exceedingly well paid spouses. In this paper we analyze gender differences in obtaining an MBA and then gender gaps in earnings, hours worked and the decision to work. In addition to the usual control variables of cognitive ability and human capital variables (like education, work experience and skills, which account for about half of the gender pay gap), we probe whether non-cognitive attributes and work-life preferences account for gender differences in human capital investments, the decision to work, or the pay gap among MBAs. We use the GMAT Registrant Survey, a stratified random sample of registrants for the GMAT that contains longitudinal data in four waves and is drawn from a national sample of aspiring MBAs. While few gender differences emerge in the decision to obtain an MBA, a third of the females in the survey either prioritize spouses or family or are more motivated than men by personal growth, developing relationships, good work environments and contributing to society. We find no "child pay penalty" for females in a nationally representative sample of MBAs, although we find evidence that the presence of children influences some MBA women to take work interruptions and reduce hours worked, but having a highly paid spouse does not. We find a variety of indicators about whether the woman's MBA ambitions played a secondary role to her spouse's and family's circumstances. MBA gender pay gaps appear to result from well educated women making choices based on their priorities and preferences (as influenced by social norms and much else).
Discussants:
Pascaline Dupas
(Stanford University)
Justin Wolfers
(University of Michigan)
Fidan Ana Kurtulus
(University of Massachusetts-Amherst)
Amalia R. Miller
(University of Virginia)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
Agency and Investment
(G3)
Presiding:
Nittai Bergman
(Massachusetts Institute of Technology)
Urban Vibrancy and Corporate Growth
Casey Dougal
(University of North Carolina-Chapel Hill)
Christopher Parsons
(University of California-San Diego)
Sheridan Titman
(University of Texas-Austin)
[View Abstract]
[Download Preview] We find that a firm's investment is highly sensitive to the investments of other firms headquartered nearby, even those in very different industries. It also responds to fluctuations in the cash flows and stock prices (q) of local firms outside its sector. These patterns do not appear to reflect exogenous area shocks such as local shocks to labor or real estate values, but rather suggest that local agglomeration economies are important determinants of firm investment and growth.
Optimal Long-Term Contracting with Learning
Zhiguo He
(University of Chicago)
Bin Wei
(Federal Reserve Board)
Jianfeng Yu
(University of Minnesota)
[View Abstract]
We introduce uncertainty into the Holmstrom and Milgrom (1987) infinite-horizon model to study optimal dynamic contracting with endogenous learning. The agent?s potential belief manipulation leads to a hidden information problem. We characterize the optimal contract by solving a dynamic programming problem with one state variable. We ?find that in the optimal contract, the optimal effort decreases over time, exhibiting a front-loaded pattern. Furthermore, the optimal contract exhibits an option-like feature in that incentives increase after good performance.
Agency and Corporate Purchase of Insurance
Paul Ehling
(Norwegian Business School)
Avner Kalay
(University of Utah)
Shagun Pant
(University of Iowa)
[View Abstract]
[Download Preview] Consistent with the agency cost rational, this paper documents that managers having large private benefits of control purchase more insurance to reduce their own exposure to the probability of left-tail outcomes and hence the volatility of the firm's cash flows. Private benefits of control are estimated as the difference between the price of the stock, and an equivalent synthetic stock (constructed with options) that provides claims on the same cash flows but gives its owners no voting rights. Consistent with the Jensen (1986) free cash flow hypothesis we also find that firms with larger private benefits of control tend to use more debt.
Central Bank Liquidity Provision and Collateral Quality
Francois Koulischer
(Université Libre de Bruxelles)
Daan Struyven
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Should central banks lend against low quality collateral? We characterize efficient
central bank collateral policy in a model where a bank borrows from the interbank market
or the central bank. Collateral has favorable incentive effects but is costly to transfer to
lenders who value the collateral less because of imperfect collateral quality. We show that
a fall in the quantity or the quality of the bank’s collateral can increase interest rates in
the economy even with a constant policy rate. A looser central bank collateral policy can
reduce the spread, alleviate the credit crunch and increase output.
Discussants:
David A. Matsa
(Northwestern University)
Andrey Malenko
(Massachusetts Institute of Technology)
Geoffrey Tate
(University of North Carolina)
David Sraer
(Princeton University)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Banking and Financial Crises
(G2)
Presiding:
Nicola Gennaioli
(Bocconi University)
A Crisis of Banks as Liquidity Providers
Viral Acharya
(New York University)
Nada Mora
(Federal Reserve Bank of Kansas City)
[View Abstract]
[Download Preview] Can banks maintain their advantage as liquidity providers when exposed to a financial crisis? While banks honored their credit lines drawn by firms during the 2007-09 crisis, this provision of liquidity by banks was only possible because of explicit, large support from the government and government-sponsored agencies. At the onset of the crisis, aggregate deposit inflows into banks weakened and their loan-to-deposit shortfalls widened. These patterns were pronounced at banks exposed to greater undrawn commitments. Such banks sought to attract deposits by offering higher rates, but the resulting private funding was insufficient to cover loan-to-deposit shortfalls and they reduced new credit.
Who Borrows from the Lender of Last Resort?
Itamar Drechsler
(New York University)
Thomas Drechsel
(European Central Bank)
David Marques
(European Central Bank)
Philipp Schnabl
(New York University)
[View Abstract]
[Download Preview] Understanding why banks borrow from the Lender of Last Resort (LOLR) during a financial crisis is crucial to understanding the macroeconomic impact of such large-scale interventions. We document a strong divergence among banks' take-up of LOLR assistance during the financial crisis in the euro area, as banks which borrowed heavily also used increasingly risky collateral. We propose four explanations for this divergence: (1) illiquidity, (2) risk-shifting, (3) political economy, and (4) differences in banks' private valuations. We test these explanations using proprietary data on all central bank borrowing and collateral pledged in the euro area from 2008 to 2011, together with holdings data from the European bank stress tests. Our results strongly support the risk-shifting explanation. We find it both in the financially-distressed countries, where illiquidity and political economy are also at work, and in the non-distressed countries, where it appears to be the main driver of differenc
Banking Competition and Stability: The Role of Leverage
Xavier Freixas
(Universitat Pompeu Fabra)
Kebin Ma
(Tilburg University)
[View Abstract]
[Download Preview] This paper reexamines the classical issue of the possible trade-offs between banking competition and financial stability by highlighting the key role of leverage. By means of a simple model we show how competition affects portfolio risk, insolvency risk, liquidity risk and systemic risk in different ways. The relationships depend crucially on banks? liability structure, and more precisely, on whether banks are financed by insured retail deposits or by uninsured wholesale funding. In addition, we argue that bank?s leverage plays a central role: it is optimally set based on the portfolio risk and affects bank?s solvency, funding liquidity and exposure to contagion. Thus the analysis of the relationship between banking competition and financial stability should carefully distinguish between the different types of risk and take into account banks? endogenous leverage decisions. This leads us to revisit the existing empirical literature using a more precise taxonomy of risk and taking into
Discussants:
Anil Kashyap
(University of Chicago)
Efraim Benmelech
(Northwestern University)
Anjan Thakor
(Washington University-Saint Louis)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom B
American Finance Association
Capital Constraints in the Crisis: Empirical Evidence
(G2)
Presiding:
Arvind Krishnamurthy
(Northwestern University)
The Cost of Financial Frictions for Life Insurers
Ralph Koijen
(University of Chicago)
Motohiro Yogo
(Federal Reserve Board of Minneapolis)
[View Abstract]
During the financial crisis, life insurers sold long-term policies at deep discounts relative to actuarial value. In December 2008, the average markup was ?19 percent for annuities and ?57 percent for universal life insurance. This extraordinary pricing behavior was a consequence of financial frictions and statutory reserve regulation that allowed life insurers to record far less than a dollar of reserve per dollar of future insurance liability. We identify the shadow cost of financial frictions through exogenous variation in required reserves across different types of policies. The shadow cost was $2.32 per dollar of statutory capital for the average insurance company from November 2008 to February 2009.
Is Historical Cost Accounting a Panacea? Market Stress, Incentive Distortions, and Gains Trading
Andrew Ellul
(Indiana University)
[View Abstract]
[Download Preview] We provide new empirical evidence concerning the contentious debate over the use of historical cost versus mark-to-market accounting in regulating financial institutions. These accounting rules, through their interactions with capital regulations, alter financial institutions? optimal portfolio choice and trading behavior. The insurance industry provides a natural laboratory in which to explore these interactions since significant differences exist in the accounting rules imposed by regulators: life insurers have greater flexibility to hold speculative-grade instruments at historical cost than property and casualty (P&C) insurers. Using detailed data on insurers? transactions and portfolio positions, including the regulatory accounting treatment for each security held, we show that life and P&C insurers respond differently to the observed massive downgrades among their holdings in asset-backed securities (ABS). Life insurers largely continue to hold the downgraded securities at histori
Why Did Financial Institutions Sell RMBS at Fire Sale Prices during the Financial Crisis?
Craig Merrill
(Brigham Young University)
Taylor Nadauld
(Brigham Young University)
Rene M. Stulz
(Ohio State University)
Shane Sherlund
(Federal Reserve Board)
[View Abstract]
[Download Preview] Much attention has been paid to the large decreases in value of non-agency residential mortgage-backed securities (RMBS) during the financial crisis. Many observers have argued that the fall in prices was partly caused by fire sales. We use capital requirements and accounting rules to identify circumstances where financial institutions had incentives to engage in fire sales and then examine whether such sales occurred. For financial institutions subject to credit-sensitive capital requirements, capital requirements increase as an asset?s credit becomes impaired. When accounting rules require such an asset?s value to be marked-to-market and the fair value loss to be recognized in earnings, a capital-constrained firm can improve its capital position by selling the credit-impaired asset even if it has to accept a liquidity discount to do so. In contrast, a financial firm whose fair value losses are not recognized in earnings for the purpose of calculating capital requirements is more like
Discussants:
Anna Paulson
(Federal Reserve Bank of Chicago)
Richard Rosen
(Federal Reserve Bank of Chicago)
Manuel Adelino
(Duke University)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Topics in Behavioral Finance
(G3)
Presiding:
Jeffrey Wurgler
(New York University)
Wall Street and the Housing Bubble
Ing-Haw Cheng
(Dartmouth College)
Sahil Raina
(University of Michigan)
Wei Xiong
(Princeton University)
[View Abstract]
[Download Preview] We analyze whether mid-level managers in securitized finance were aware of a large-scale housing bubble and a looming crisis in 2004-2006 using their personal home transaction data. We find that the average person in our sample neither timed the market nor were cautious in their home transactions, and did not exhibit awareness of problems in overall housing markets. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.
Nominal Price Illusion
Justin Birru
(Ohio State University)
Baolian Wang
(Hong Kong University of Science and Technology)
[View Abstract]
We provide evidence that investors suffer from a nominal price illusion in which they overestimate the ?room to grow? for low-priced stocks relative to high-priced stocks. While it has become increasingly clear that nominal price levels influence investor behavior, why prices matter to investors is a question that as of yet has gone unanswered. We find widespread evidence that investors systematically overestimate the skewness of low-priced stocks. Investor expectations of future skewness increase drastically on days that a stock undergoes a split to a lower nominal price. Empirically, however, future physical skewness actually decreases following splits. In the broad cross-section of stocks, we find that investors substantially overweight the importance of price when forming skewness expectations. Asset pricing implications of our findings are borne out in the options market. A zero-cost option portfolio strategy that exploits investor overestimation of skewness for low-priced stocks
Offsetting Disagreement and Security Prices
Byoung-Hyoun Hwang
(Purdue University)
Dong Lou
(London School of Economics)
Chengxi Yin
(Purdue University)
[View Abstract]
[Download Preview] Portfolios often trade at substantial discounts relative to the sum of their components (e.g., closed-end funds, conglomerates). We propose a simple explanation for this phenomenon, drawing from prior research that investor disagreement coupled with short-sale constraints can lead to overpricing. Specifically, we argue that while investors may strongly disagree at the component level, as long as their relative views are not perfectly positively correlated across components, disagreement will partially offset at the portfolio level. In other words, investors generally disagree less at the portfolio level than at the individual component level, which, coupled with short-sale constraints, provides an explanation for why portfolios trade below the sum of its parts. Utilizing closed-end funds, exchange-traded funds, conglomerates, and mergers and acquisitions as settings where prices of the underlying components and prices of the aggregate portfolio can be separately evaluated, we present evidence supportive of our argument.
Discussants:
Christopher L. Foote
(Federal Reserve Bank of Boston)
Brian Boyer
(Brigham Young University)
Christopher Malloy
(Harvard Business School)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Trading
(G1)
Presiding:
Jeffrey Pontiff
(Boston College )
Overreacting to a History of Underreaction?
Jonathan Milian
(Florida International University)
[View Abstract]
[Download Preview] Prior research has documented a long history of positive autocorrelation in firms’ earnings announcement news. This is one of the main features of the post-earnings announcement drift phenomenon and is typically attributed to investors’ underreaction to earnings news. I document that this autocorrelation has become significantly negative for firms with active exchange-traded options. For these easy-to-arbitrage firms, the firms in the highest decile of prior earnings announcement abnormal return (prior earnings surprise), on average, underperform the firms in the lowest decile by 1.29% (0.73%) at their next earnings announcement. Additional analyses are consistent with investors learning about post-earnings announcement drift and overcompensating. For example, I find that, in recent years, stock returns are more extreme in response to extreme earnings surprises, and that investors are positioning themselves immediately prior to the next earnings announcement in anticipation of PEAD (i.e., buying shares or call options of past earnings announcement winners and selling-short or buying put options of past earnings announcement losers). It seems that due to their well-documented history of apparently underreacting to earnings news, investors are now overreacting to earnings announcement news. This paper shows that attempts to exploit a popular trading strategy based on relative valuation can significantly reverse the previously documented pattern.
Worrying about the Stock Market: Evidence from Hospital Admissions
Joseph Engelberg
(University of California-San Diego)
Christopher Parsons
(University of California-San Diego)
[View Abstract]
[Download Preview] Using individual patient records for every hospital in California from 1983-2011, we find a strong inverse link between daily stock returns and hospital admissions, particularly for psychological conditions such as anxiety, panic disorder, or major depression. The effect is nearly instantaneous (within the same day), suggesting that anticipation over future consumption directly influences instantaneous utility, e.g., Caplin and Leahy (2001). Moreover, the effect of such anticipation is path dependent, being strongest during low volatility regimes, and immediately following low returns.
When the Bellwether Dances to Noise: Evidence from Exchange-Traded Funds
Zhi Da
(University of Notre Dame)
Sophie Shive
(University of Notre Dame)
[View Abstract]
[Download Preview] We provide novel evidence that arbitrageurs can exacerbate return comovement via ETF arbitrage. Using a large sample of U.S. equity ETF holdings, we find a strong relation between measures of ETF activity and return comovement at both the fund and the stock levels, after controlling for a host of variables and fixed effects. The effect is stronger among small and illiquid stocks and during market turbulence. An examination of delay measures and mutual-fund-flow-induced price pressure suggests that at least some ETF-driven return comovement is excessive. In other words, ETFs may reduce diversification, the very benefit they were designed to facilitate.
Why Do Investors Trade?
Eric Kelley
(University of Arizona)
Paul Tetlock
(Columbia University)
[View Abstract]
We propose and estimate a structural model of daily stock market activity to test competing theories of trading volume. The model features informed rational speculators and risk-averse uninformed agents who may trade to hedge endowment shocks or to speculate on perceived information. To identify the model parameters, we exploit enormous empirical variation in trading volume, market liquidity, and return volatility associated with regular and extended-hours markets as well as news arrival. We find that the model matches market activity well when we allow for overconfidence. At plausible values of overconfidence and risk aversion, overconfidence?not hedging?explains nearly all uninformed trading, while rational informed speculation accounts for most overall trading. Without overconfident investors, over 99% of trading volume disappears even when informed rational traders disagree maximally. These findings illustrate that modest overconfidence can help explain stark patterns in stock mark
Discussants:
David McLean
(University of Alberta)
Lisa A. Kramer
(University of Toronto)
Robin Greenwood
(Harvard Business School)
David Chapman
(Boston College)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Winning and Losing in Asset Allocation
(G1)
Presiding:
Burton Hollifield
(Carnegie Mellon University)
Ownership Structure, Limits to Arbitrage and Stock Returns: Evidence from Equity Lending Markets
Melissa Prado
(Nova School of Business and Economics)
Pedro Saffi
(University of Cambridge)
Jason Sturgess
(DePaul University)
[View Abstract]
[Download Preview] We examine how institutional ownership structure gives rise to limits to arbitrage through its impact on short-sale constraints. Stocks with lower, more concentrated, and less passive ownership exhibit lower lending supply, higher costs of shorting, and higher arbitrage risk. These constraints limit the ability of arbitrageurs to take short positions and delay the correction of mispricing. A positive shorting demand shock is associated with an additional negative abnormal return of -0.42% for stocks in the following week for stocks in the top quartile of ownership concentration.
What a Difference a Ph.D. Makes: More than Three Little Letters
Ranadeb Chaudhuri
(Oakland University)
Zoran Ivkovich
(Michigan State University)
Joshua Pollet
(University of Illinois-Urbana-Champaign)
Charles Trzcinka
(Indiana University)
[View Abstract]
Several hundred individuals who hold a Ph.D. in finance, economics, or a variety of others fields work for institutional money management companies. The gross performance of investment products managed by individuals with a Ph.D. (Ph.D. products) is superior to the performance of non-Ph.D. products matched by objective, size, and past performance for one-year returns, Sharpe Ratios, alphas, information ratios, and the manipulation-proof measure MPPM. Fees for Ph.D. products are lower than those for matched non-Ph.D. products. Investment flows to Ph.D. products substantially exceed the flows to the matched non-Ph.D. products. Ph.D.s? publications in leading finance and economics journals accentuate many of these differences.
Momentum Crashes
Kent Daniel
(Columbia University)
Tobias Moskowitz
(University of Chicago)
[View Abstract]
[Download Preview] Across numerous asset classes, momentum strategies have historically generated high Sharpe ratios and strong positive alphas relative to standard asset pricing models. However, the returns to momentum strategies are negatively skewed: they experience infrequent but strong and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in what we term "panic" states -- following market declines and when market volatility is high, and are contemporaneous with market "rebounds." We show that the low ex-ante expected returns in panic states result from a conditionally high premium attached to the option-like payoffs of past losers. An implementable dynamic momentum strategy based on forecasts of each momentum strategy's mean and variance generates an unconditional Sharpe ratio approximately double that of the static momentum strategy. Further, we show that momentum returns in panic states are correlated with, but not explained by, volatility risk. These results are robust across eight different markets and asset classes and multiple time periods.
Short-Sale Constraints, Information Acquisition, and Asset Prices
Mahdi Nezafat
(Georgia Institute of Technology)
Qinghai Wang
(Georgia Institute of Technology)
[View Abstract]
[Download Preview] This paper develops a model of information acquisition and portfolio choice under short-sale constraints. We show that short-sale constraints reduce information acquisition and both the constraints on short-selling and the reduced information acquisition affect investment decisions. The effects of short-sale constraints on investment decisions and asset prices are driven largely by the effects on information acquisition, and such effects vary depending on the return and risk characteristics of the risky assets. The model offers explanations for the level and distribution of short interest, the relation between short-selling and stock returns, and provides new predictions on the asset pricing implications of short-sale constraints.
Discussants:
Berk A. Sensoy
(Ohio State University)
Marcin Kacperczyk
(New York University)
Spencer Martin
(University of Melbourne)
Bryan Routledge
(Carnegie Mellon University)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom C2
American Real Estate & Urban Economic Association/American Finance Association
Information in Real Estate and Mortgage Markets
(G1)
Presiding:
Stuart Gabriel
(University of California-Los Angeles)
Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real-Estate Market
Sumit Agarwal
(National University of Singapore)
Itzhak Ben-David
(Ohio State University)
Vincent Yao
(Fannie Mae)
[View Abstract]
[Download Preview] Financially-constrained borrowers have the incentive to influence the appraisal process in order to increase borrowing or reduce the interest rate. The average valuation bias for residential refinance transactions is above 5%. The bias is larger for highly leveraged transactions, and for transactions mediated through a broker, especially where competition is high. Mortgages with inflated valuations default more often; however, lenders partially account for the valuation bias through pricing.
Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market
Tomasz Piskorski
(Columbia University)
Amit Seru
(University of Chicago)
James Witkin
(Columbia University)
[View Abstract]
We quantify the extent to which buyers received false information about the true quality of assets in contractual disclosures by intermediaries during the sale of mortgages in the $2 trillion non-agency market. We construct two measures of misrepresentation of asset quality -- misreported occupancy status of borrower and misreported second liens -- by comparing the characteristics of mortgages disclosed to the investors at the time of sale with actual characteristics of these loans at that time that are available in a dataset matched by a credit bureau. About one out of every ten loans has one of these misrepresentations. These misrepresentations are not likely to be an artifact of matching error between datasets that contain actual characteristics and those that are reported to investors. At least part of this misrepresentation likely occurs within the boundaries of the financial industry (i.e., not by borrowers). The propensity of intermediaries to sell misrepresented loans increased as the housing market boomed. These misrepresentations are costly for investors, as ex post delinquencies of such loans are more than 60% higher when compared with otherwise similar loans. Lenders seem to be partly aware of this risk, charging a higher interest rate on misrepresented loans relative to otherwise similar loans, but the interest rate markup on misrepresented loans does not fully reflect their higher default risk. Using measures of pricing used in the literature, we find no evidence that these misrepresentations were priced in the securities at their issuance. A significant degree of misrepresentation exists across all reputable intermediaries involved in sale of mortgages. The propensity to misrepresent seems to be largely unrelated to measures of incentives for top management, to quality of risk management inside these firms or to regulatory environment in a region.
Understanding Investors in Single-Family Homes
Alexander Chinco
(University of Illinois Urbana-Champaign)
Christopher Mayer
(Columbia University)
[View Abstract]
We investigate the role that out of town second house buyers ("distant speculators") played in bubble formation in the US residential housing market. Distant speculators are likely to be more reliant on capital gains rather than dividend consumption for financial returns as well as less informed about local market conditions. Using transactions level data that identify the address of both the purchased property and the primary residence of the buyer, we show that an increase in purchases by distant speculators (but not local specula- tors) is strongly correlated with appreciation in both house price and implied-to-actual rent ratios (IAR)-a proxy for mispricing in the housing market. We develop a simple model that helps us address the issue of reverse causality. Consistent with this model, we show that the size of the MSA that out of town second house buyers come from is positively related to the impact of distant speculators on house price and IAR appreciation rates in the target MSA suggesting that out of town second house buyers are not simply responding to unobserved changes in housing values in the target MSA. We conclude by demonstrating the large impact that distant speculators have on the local economy, with out of town second house purchases equalling as much as 5% of total output in Las Vegas during the boom.
Second Mortgages: Valuation and Implications for the Performance of Structured Financial Products
Walter Torous
(Massachusetts Institute of Technology)
Kristian Miltersen
(Copenhagen School of Business)
[Download Preview] TBA
Discussants:
Stijn Van Nieuwerburgh
(New York University)
Richard Stanton
(University of California-Berkeley)
Chester Spatt
(Carnegie-Mellon University)
Barney Hartman-Glaser
(University of California – Los Angeles)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Real Estate Investment Trusts (REITS)
(G1)
Presiding:
Yildiray Yildirim
(Syracuse University)
Competition, Auctions & Negotiations in REIT Takeovers
J. Mulherin
(University of Georgia)
Kiplan Womack
(Pepperdine University)
[View Abstract]
[Download Preview] The lack of hostile takeovers and relatively modest wealth gains associated with REIT mergers motivate two fundamental yet previously unexplored questions: how competitive are REIT takeovers, and how exactly does a REIT sell itself to another firm? This paper examines these questions using hand-collected data from SEC merger filings. Four primary findings emerge from this study. First, REITs most often utilize a sales process resembling an auction, where an average of 19 potential buyers are contacted. Second, REIT mergers are on average just as competitive, or more so, as those in other industries. Third, the market for corporate control for REITs is more active than previously thought. Fourth, failure to account for publicly available signals that a REIT is for sale (which typically occur several months in advance prior to the official public merger announcement) results in omitting approximately one third of the total shareholder wealth effect produced by REIT mergers.
Diversification Benefits of REIT Preferred and Common Stock: New Evidence from a Utility based Framework
Walter Boudry
(Cornell University)
Jan de Roos
(Cornell University)
Andrey Ukhov
(Cornell University)
[View Abstract]
[Download Preview] We study the diversification benefits of REIT preferred and common stock using a utility based framework. Taking the view of a long run investor, we conduct our analysis using data from 1992 to 2012. We examine optimal mean-variance portfolios of investors with different levels of risk aversion given access to different classes of assets and establish two main results. First, REIT preferred and common stock provides significant diversification benefits to investors. REIT common stock helps low risk aversion investors attain portfolios with higher returns, while REIT preferred stock helps high risk aversion investors by providing a venue for risk reduction. Both asset classes receive material allocations over plausible levels of risk aversion. Second, while REIT preferred stock appears to behave somewhat like a hybrid debt/equity asset, its risk/return profile appears to not easily be replicated by those asset classes. When given the opportunity, investors will reduce allocations to REIT common stock and investment grade bonds and invest in REIT preferred stock.
Property Dispositions and REIT Credit Ratings
Qing Li
(National University of Singapore)
Masaki Mori
(National University of Singapore)
Seow Eng Ong
(National University of Singapore)
[View Abstract]
[Download Preview] This paper investigates whether and how property dispositions affect credit ratings of real estate investment trusts (REITs). We use an instrument variable to control the potential endogeneity problem associated with firm’s decision to divest assets and find that property dispositions have a positive effect on REIT corporate credit ratings. We further investigate the underlying channels for this positive effect on credit ratings and test hypotheses related to three potential mechanisms: (i) utilization of proceeds, (ii) efficient asset allocation, and (iii) property focus. These mechanisms link the outcome of real estate asset divestitures to the component of REIT credit rating criteria, namely, business position assessment and financial risk profile. Our results show that the positive disposition effect on credit ratings is mainly due to the increase in geographic focus level of REIT property portfolio after the dispositions. Overall, our study provides new evidence on the wealth effects of asset transactions from creditors'perspective.
REITs and Market Microstructure: A Comprehensive Analysis of Market Quality
Pawan Jain
(Central Michigan University)
Mark Sunderman
(University of Memphis)
K. Janean Westby-Gibson
(University of Memphis)
[View Abstract]
[Download Preview] This study analyzes the market quality differences, in terms of liquidity and volatility, between Real Estate Investment Trusts (REITs) and common stocks. The 2008 financial crisis has significantly influenced the market quality for REITs. Our findings reveal intraday patterns indicating a lower liquidity for REITs than other common stocks for the pre-crisis period. This relationship reverses during the post-crisis period with REITs becoming more liquid than non-REITs. We also show that REITs have higher price volatility. Further, we document that post-crisis trading interest in REITs has increased significantly as reflected by increased volume, number of trades and number of quotes.
Discussants:
Shaun Bond
(University of Cincinnati)
Brad Case
(NAREIT)
Xudong An
(San Diego State University)
Mehmet Saglam
(Princeton University)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon I
Association for Comparative Economic Studies
Education, Health and Labor Market Outcomes: Comparative Evidence from Natural Experiments
(I2)
Presiding:
Melanie Khamis
(Wesleyan University)
The Long-term Direct and External Effects of Jewish Expulsions in Nazi Germany
Mevlude Akbulut-Yuksel
(Dalhousie University)
Mutlu Yuksel
(Dalhousie University)
[View Abstract]
[Download Preview] This paper provides causal evidence on long-term consequences of Jewish expulsions in Nazi Germany on the educational attainment of German children. We combine a unique regional-level dataset on the fraction of Jewish population residing in Germany before the Nazi Regime with individual survey data from the German Socio-Economic Panel (GSOEP). Our identification strategy exploits the plausibly exogenous region-by-cohort variation in the Jewish population in Germany as a unique quasi-experiment. We find that the persecution of Jewish professionals had significant, long-lasting detrimental effects on the human capital formation of Germans who were at school-age during the Nazi Regime. First, these children have fewer years of schooling on average in adulthood. Second, they are less likely to go to college or have a graduate degree. These results survive using alternative samples and specifications, including controlling for Second World War, Nazi and Communist Party support, city size, income per capita and unemployment effects.
Health, Education and Cognition: Evidence from a Social Experiment
Costas Meghir
(Yale University)
Marten Palme
(Stockholm University)
Emilia Simeonova
(Tufts University)
[View Abstract]
[Download Preview] The correlation between human capital and educational achievement is one of the most robust findings in the social sciences. Most studies analyzing the effects of exogenous changes in education restrict the outcome under study to wages or earnings from labor. In this paper we examine the effect of an education policy intervention - the introduction of a comprehensive school in Sweden that increased the number of compulsory years of schooling from 7 to 9 - on individual long-term health, cognitive and non-cognitive skills. We show that extra education results in significant gains in skills among children, but the estimated effects on long-term health are small. We also demonstrate the schooling reform had heterogeneous effects across family socio-economic backgrounds and initial skill endowments. Compulsory schooling helps close the skills gap and reduces health inequalities between individuals from high and low socio-economic backgrounds.
Does in Utero Exposure to Illness Matter? The 1918 Influenza Epidemic in Taiwan as a Natural Experiment
Ming-jen Lin
(National Taiwan University)
Elaine Liu
(University of Houston)
[View Abstract]
[Download Preview] This paper uses the 1918 influenza pandemic in Taiwan as a natural experiment to test whether in utero conditions affect long run developmental outcomes. Combining several historical and contemporaneous datasets, we find that cohorts in utero during the pandemic are less educated, shorter as teenagers, and more likely to have kidney disease, glaucoma, respiratory problems and diabetes in old age than other birth cohorts. Despite the possible positive selection on health with the high infant mortality rates during this period (18%), our findings suggest a strong negative effect of in utero exposure to influenza.
'For the Love of the Republic': Education, Secularism and Empowerment
Selim Gulesci
(Bocconi University)
Erik Meyersson
(Stockholm Institute of Transition Economics)
[View Abstract]
[Download Preview] We exploit a change in compulsory schooling laws in Turkey to estimate the causal effects of education on religiosity and women's socio-economic status. A new law, implemented in 1998 bound individuals born after a specific date to 8 years of schooling while those born earlier could drop out after 5 years. This allows the implementation of a Regression Discontinuity (RD) Design and the estimation of meaningful causal estimates of schooling. Using the 2008 Turkish Demographic Health Survey, we show that the reform resulted in a one-year increase in years of schooling among women on average, although it did not increase schooling among men. Over a period of ten years, this education increase resulted in women having lower religiosity, greater decision rights over marriage and fertility, and higher household wealth. We find that a muted average RD effect on labor force participation shrouds heterogenous effects depending on socioeconomic background; women from more socially conservative backgrounds tend to observe no increase in labor force participation whereas women from less conservative backgrounds experience a large increase. Education thus empowers women across a wide spectrum of a Muslim society, yet faces limits in allowing women in the conservative communities from realizing their full potential through the labor market.
Discussants:
Ira N. Gang
(Rutgers University)
Klara Sabirianova Peter
(University of North Carolina-Chapel Hill)
John P. Bonin
(Wesleyan University)
Nuria Rodriguez-Planas
(IZA)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Commons Approach to Social Control in the 21st Century: Firms, Communities and Households as Going Concerns
(B5)
Presiding:
Anne Mayhew
(University of Tennessee)
Evolving Juridical Space of Harm/Value: Remedial Powers in the Subprime Mortgage Crisis
Philip Ashton
(University of Illinois-Chicago)
[View Abstract]
[Download Preview] This paper engages Commons' arguments regarding the relationship between law and capitalism with the legal framing of fringe finance. Fringe financial sectors have been critical growth sectors over the last three decades, mediating between the destruction of incomes through downsizing/outsourcing and their extension through new consumer credit products. As going concerns, however, fringe lenders have opened up "grey areas" in the law regarding the application of earlier legal frameworks to new profit-making activities. As with Commons' analysis of the 19th century legal reframing of property and value, this has promoted a range of legal projects that attempt to work through problematic creditor claims on low-income borrowers. In the fallout of the subprime mortgage crisis, this legal experimentation has sought to resolve those claims by adapting civil procedures (including private rights of action and settlement) with public law's concern with financial stability.
I develop this argument through close analysis of recent legal actions against subprime mortgage lenders. In addition to situating the orientation of regulators to settlement (rather than prosecution), I argue that the legal techniques employed in structuring borrower claims embody certain selectivities that, when applied to concrete experiences of dispossession, transfer legal uncertainty back to borrowers and structure harm as legally unproblematic. They also ignore critical questions regarding the financial commodity chain, granting release from prosecution without clarifying the appropriate lines between fraud, harm, and legitimate business practices at play in fringe finance. The settlement therefore works though grey areas by erasing certain categories of vulnerability from the law.
Ignorance is Not Bliss
Glen Atkinson
(University of Nevada-Reno)
Stephen Paschall
(Lovett Bookman Harmon Marks LLP)
[View Abstract]
[Download Preview] Law and the economy co-evolve. Each affects the other and is affected by the other through the process John R. Commons referred to as "artificial selection." Through artificial selection directed toward particular outcomes law endorses some business practices while denying others. Such endorsements create new law and opportunities for the emergence of endogenous forces which test the prevailing law.
Concentration in the banking sector transformed the local banking model into one in which large interstate banking enterprises dominate the traditional banking markets. As those large enterprises placed pecuniary results before traditional banking relationships they participated in the creation of new financial instruments, such as securitization of mortgages. These new financial instruments, facilitated by the repeal of Glass-Steagall, converted the local banking relationship from one involving home ownership and community investment in mortgages which Commons characterized as "incorporeal property" into intangible property. The debtor was no longer the customer of the bank but an obligor to nameless investors who had no interest in her real estate or the effect of foreclosure on her, her neighbors or her community.
This paper will examine the economic outcomes which these changes in the law produced in Nevada and the endogenous forces which these practices ignited. Nevada is a "redemption state" for foreclosures but this judicial foreclosure process with rights of redemption is bypassed through a non-judicial foreclosure process. The paper also will examine these differences and propose recommendations to protect the public interest.
Repurchase Agreements and the Law: How Legislative Changes Fueled the Housing Bubble
Fiona MacLachlan
(Manhattan College)
[View Abstract]
[Download Preview] J.R. Commons maintained that the fundamental unit of analysis in institutional economics is the transaction, which is characterized by three aspects: conflict, dependence and order. The order is established through rules, whether customary or legal. In contrast to a general equilibrium framework, institutional economics considers the rules establishing the order to be endogenous, evolving alongside other socio-economic variables. Commons' idea of a transaction is particularly useful in the analysis of inventive financial contracts for which the rules that establish the order are subject to interpretation by the courts, and in some cases, to legislative change. As the rules change, so do their effects on the wider economy.
In this paper, the recent evolution of the law with respect to repurchase agreements is examined. Repurchase agreements (repo) are short-term debt contracts that were central in the expansion of liquidity during the run-up to the financial crisis. The irresponsible and disruptive lending within the housing market was related to excessive financial institution leverage made possible through repo. A key issue in the law relating to repo is the status of the collateral in the event of bankruptcy of the borrower. The development of this aspect of the law is traced through interpretations of the bankruptcy code by the courts, as well as through legislated changes to the code. In the latter, evidence of vested interests tilting the law away from the public interest is found.
Backward Art of Thinking about Consumer Spending
Anne Mayhew
(University of Tennessee)
[View Abstract]
In his essay on the backward art of spending, Wesley Mitchell wrote of the asymmetry between the levels of skill in business and household management. There is now an additional and devastating asymmetry between the legal consequences of household and of business spending. The evolution of laws protecting and limiting property entitlements for firms, as described by J.R. Commons, has not extended to equal protections for households and communities. Governments, empowered by current definitions of property and rights attending thereto , and eager to avert financial crises have protected firms from the consequences of risky behavior. Households have not received such treatment. Comparison of American automobile companies and the city of Detroit illustrates the asymmetry involved.
One (of many) barriers to changing the laws affecting households has been public discourse and the ideas that economic thought has brought to it. In this paper, I will focus on some of the unhappy consequences of treating households as economic units that either "consume" or "save". Had it not been for the turn of economic thought that led to Say's Law being made by J.M. Keynes into the weak link in cycle-belittling economic theory, economists might have given greater recognition to the types of spending that are classified as saving in our national accounts and in which modern households actually engage and to the consequences of this spending for the common good. What such recognition would mean for public discourse and continued legal evolution will be explored.
Evolution of Housing Dispossession and the Contraction of Community
Melody Chiang
(University of California-San Diego)
Gary Dymski
(University of California-Riverside)
Jesus Hernandez
(University of California-Davis)
[View Abstract]
[Download Preview] In Legal Foundations of Capitalism, Commons describes the process whereby the "going concerns" that constitute the core of a capitalist economy – the firms that hire, produce, and distribute-had their rights, duties, liberties, and exposures changed through the Law. The financial crisis that erupted with the collapse of the subprime market in 2007, and carried on through the foreclosure crisis of the past six years, has witnessed a huge shift in the distribution of "rights, duties, liberties, and exposures" of lenders and borrowers, owners, banks, and servicers. These shifts have been in the direction of fewer rights and more duties for owners / borrowers and for those who have lost homes, and more freedom of action – liberties – for some of those firms that have funded or serviced mortgage loans. The focus of these shifts in law and in legal practice has been to preserve orderly financial markets and the legal rights of the owners of claims on abstract cash flow. Little attention has been given to the impact of these shifts on households and on the communities within which these households live. The upshot is that many deleterious effects on communities as "going concerns" has been overlooked.
This paper examines the shifts in practices and laws that have occurred in the disposition of delinquent and defaulted mortgages and of foreclosed homes in California. Interview data obtained on a bi-annual basis from the California Reinvestment Coalition's survey of Housing Counselors will be used to gather information on the pattern of changing practices. These data will then be combined with aggregate data on foreclosures, housing purchases and applications, and other sources, to generate a picture of the extent to which households and communities may have had their vibrancy – their integrity as "going concerns" – damaged. The paper will go on the seek out alternative principles for addressing problems of non-payment, overindebtedness, and asset bubbles, as these might be found in Commons' published work – especially in the Legal Foundations of Capitalism.
Discussants:
Anne Mayhew
(University of Tennessee)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Congress A
Association for Social Economics
The Environment, Law, and Social Economics
(Q5)
Presiding:
Jonathan Wight
(University of Richmond)
Do Constitutions Matter? The Effects of Constitutional Environmental Rights Provisions on Environmental Outcomes
Christopher Jeffords
(Indiana University of Pennsylvania)
Lanse Minkler
(University of Connecticut)
[View Abstract]
[Download Preview] We use a novel data set within an instrumental variables framework (IVF) to test whether the presence and legal strength of constitutional environmental rights (CER’s) are related to environmental outcomes. We employ an IVF to account for the fact that a country which takes steps to protect the environment might also be more likely to constitutionalize environmental rights. Controls include: (1) gross domestic product per capita (2) whether the country is a party to the International Covenant on Economic, Social, and Cultural Rights; (3) rule of law; (4) population density; and (5) regional fixed effects. The inclusion of income means that our study is directly related to the Environmental Kuznets Curve literature. The results demonstrate that our instruments are valid and significantly related to whether or not a country includes an environmental rights provision in its constitution. Moreover we find evidence that constitutions do indeed matter for positive environmental outcomes, which suggests that we should not only pay attention to the incentives confronting polluters and resource users, but also to the incentives and constraints confronting those policymakers who initiate, monitor, and enforce environmental policies.
Environmental Ethics, Economics, and Property Law
Steven McMullen
(Calvin College)
Daniel Molling
(Federal Reserve Bank of Kansas City)
[View Abstract]
[Download Preview] There are substantial conflicts between the standard methods of economists and the thinking of environmental ethicists which result in divergent policy proposals and concerns. We argue in this paper that economists can gain from a thoughtful consideration of two of the key insights of environmental ethics: inherent value and ecological context. Taking this ethical approach seriously, however, challenges some fundamental components of economic thought. Specifically, the dominant concept of property in economic and legal thinking supports an overly anthropocentric view of the economy, giving rights only to humans and requiring duties only to other humans, often ignoring the ecological context. We examine divergent approaches to environmental protection within the dominant property paradigm and find them lacking. We show how a modified property concept can accommodate some significant environmental concerns and can help resolve some of the common conflicts between economic and environmental interests. Moreover, this change can set the stage for a legal standing for animals and the environment that are not based on arbitrary political preferences.
How Social Norms Can Guide the Law Pertaining to Accounting in Order to Accomplish Climate Change Remediation
F. Gregory Hayden
(University of Nebraska-Lincoln)
[View Abstract]
During the last 30 years, an elaborate literature has developed to integrate the concepts about social norms with the concepts of law. During that same period, climate change impacts such as natural disasters, agricultural changes, and sea level increases became more pronounced and citizens became aware of and concerned with those impacts. This paper applies the conceptual core of the former to provide remediation tools for the latter. Concepts about laws, regulations, and requirements in a socioeconomic context are utilized to explain how the laws governing corporate accounting need to be changed in order to change the accounting systems of production corporations so those systems reflect environmental impacts, especially climate change impacts. The paper explains why the accounting change is needed and how it should be accomplished in order to allow public agencies to effectively carry out environmental rules and regulations.
The double-entry accounting system currently utilized by production corporations is not designed to record the impact of their investment and production activities on climate change. Public policy for climate change remediation is not possible without an accounting system that provides relevant indicators because regulators and corporations are currently captured by an accounting system that does not take into consideration the ecological challenge. This paper explains how new accounts that record ecological impacts can be designed and integrated into traditional accounts in order to demonstrate the environmental impact of particular corporate activities, and to provide government agencies the socio-ecological indicators for effective climate change remediation.
Marketing Sustainability: Firm Values and Product Differentiation
Jill J. McCluskey
(Washington State University)
[View Abstract]
Many agricultural and food industry firms are adopting rigorous environmental standards that go beyond government standards. I investigate to what extent such practices may depend on the firm's own core environmental values or whether these environmental practices are only a way to differentiate their product in today's more socially aware marketplace or some combination. This paper examines the economics of sustainable practices that go above and beyond what is expected.
Jan 05, 2014 8:00 am, Philadelphia Marriott, Grand Ballroom - Salon L
Association of Environmental & Resource Economists
Domestic Environmental Policy
(Q5)
Presiding:
Meredith Fowlie
(University of California-Berkeley)
Estimating Water Demand at the Intensive and Extensive Margin: The Role of Landscape Dynamics
Daniel Brent
(University of Washington)
[View Abstract]
In this research I develop a novel approach to examine the joint decisions of water consumption and landscape choice by merging a time series of satellite data with monthly metering records at the parcel level for 187,000 households over 11 years in Phoenix,
AZ. Phoenix is ideal for employing satellite data due to its desert climate, large lots, immense water requirements to maintain vegetation, and distinct landscaping alternatives. I exploit this rich and unique dataset to address three research objectives: (1) estimate conditional water demand functions based on landscape choices over time; (2) determine the impact of water prices on the decision to covert a landscape from lush and green to a sparse and dry; and (3) estimate intensive and extensive margin elasticities for water demand.
How do Housing Prices Adjust after an Environmental Shock? Evidence from a State-Mandated Change in Aircraft Noise Exposure
Christian Almer
(University of Bath)
Stefan Boes
(University of Lucerne)
Stephan Nuesch
(University of Zurich)
[View Abstract]
[Download Preview] We contribute to the literature by explicitly addressing the equilibrium conditions. In 2003 a large-scale change in flight regulations at Zurich airport (Switzerland) altered the exposure to aircraft noise in the local housing market (Boes and Nuesch 2011). We interpret this intervention as an exogenous shock and look at continuous records of rental apartments to investigate how prices adjust during the post-policy period. Because some regions around the airport are exposed to less noise and some regions to more, we analyze whether these two scenarios are equally valued in terms of apartment rents (i.e., similar effects with opposite signs).
Environmental Justice: Evidence from Superfund Cleanup Durations
Matthew Harding
(Stanford University)
[View Abstract]
[Download Preview] This paper investigates the extent to which cleanup durations at Superfund sites reflect demographic biases incongruent with the principles of Environmental Justice. We argue that the duration of cleanup, conditional on a large number of site characteristics, should be independent of the race and income profile of the neighborhood in which the site is located. Since the demographic composition of a neighborhood changes during the cleanup process, we explore whether cleanup durations are related to neighborhood demographics recorded at the time when the cleanup is initiated. We estimate a semiparametric Bayesian proportional hazard model, which also allows for unobserved site specific heterogeneity, and find that sites located in black, urban and lower educated neighborhoods were discriminated against at the beginning of the program but that the degree of bias diminished over time. Executive Order 12898 of 1994 appears to have re-prioritized resources for the faster cleanup of sites located in less wealthy neighborhoods. We do not find that the litigation process is an impediment in the cleanup process, and support the notion that community involvement plays an important role.
The Effect of Abundant Natural Gas on Air Pollution from Electricity Production
J. Scott Holladay
(University of Tennessee)
Jacob LaRiviere
(University of Tennessee)
[View Abstract]
[Download Preview] Hydraulic fracturing has led to a dramatic increase in the usage of natural gas for electricity generation in the US and will do the same internationally. We show that this has led to a significant reduction in SO2 and NOx emissions in the northeast US. We also show that CO2 emissions rates are significantly different across levels of electricity generation due to gas offsetting coal. Further, this heterogeneity manifests in a way that implies using average emission rates to evaluate the effects of government policies designed to reduce GHG emissions will cause incorrect predicted changes in emissions.
Discussants:
Nicolai Kuminoff
(Arizona State University)
Justin Gallagher
(Case Western University)
Jaren Pope
(Brigham Young University)
Kevin Novan
(University of California-Davis)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Meeting Room 401
Econometric Society
Empirical Models for Policy Evaluation
(H3)
Presiding:
John Rust
(Georgetown University)
Optimal Taxation in an Empirical Life-Cycle Model of Labour Supply
Andrew Shephard
(University of Pennsylvania)
[View Abstract]
The optimal structure of taxation is examined using a empirical life-cycle model of labour supply. The approach incorporates intensive and extensive labour supply decisions, savings, and endogenous human capital accumulation, in a rich dynamic environment where individuals are subject to preference and productivity shocks, and changes in family structure. We estimate our model using an extensive UK panel data set that spans a series of reforms to the tax and transfer system, and use the estimated model to explore dynamic optimal taxation problems.
Precommitments for Financial Self-Control: Evidence from Credit Card Borrowing
Sungjin Cho
(Seoul National University)
John Rust
(Georgetown University)
[View Abstract]
[Download Preview] We analyze a new data set on installment borrowing decisions of a sample of customers of a credit card company. In an attempt to increase its market share, the company more or less randomly offers its customers free installments, i.e. opportunities to finance credit card purchases via installment loans at a zero percent interest rate for durations up to twelve months. We exploit these offers as a quasi-random field experiment to better understand consumer demand for credit. Although there is considerable customer-level heterogeneity in installment usage, we show that the average take-up rate of free installment offers is low: customers choose them only 20% of time they are offered. Further, we provide evidence of pervasive precommitment behavior by individuals who do decide to take free installment offers. For example, we estimate that of the subset of 10 month free installment offers that are taken, only 18% are taken for the full 10 month term allowed under the offer. In the other 82% of these offers, customers precommit at the time of purchase to pay the balance in fewer than 10 installments. Thus, only 3.6% (18% x 20%) of all 10 month free installment offers are taken for the full 10 month duration. It is challenging to explain this behavior using standard expected utility models since there are no pre-payment penalties and the transactions costs involved in choosing these loans are small: rational customers should take every installment offer for the maximum allowed term when the interest rate is 0%. One explanation for this behavior is that consumers have financial self-control problems and resist the temptation to take interest-free loan offers. If they absolutely must borrow, most consumers choose repayment terms that are shorter than the maximum allowed term to avoid becoming excessively indebted.
Structural Estimation of an Equilibrium Model with Externalities: Program Evaluation of Post-Katrina Rebuilding Grants
Chao Fu
(University of Wisconsin-Madison)
Jesse Gregory
(University of Wisconsin)
[View Abstract]
This paper develops a model of New Orleans homeowners' post-Hurricane Katrina rebuilding choices in which neighborhood amenity values depend endogenously on households' rebuilding choices. Using administrative program participation data from the Louisiana Road Home rebuilding grant program and exploiting a discontinuity in the Road Home program's grant formula, we first compute reduced form estimates of the impact of neighbors' rebuilding choices on the probability that a household rebuilds. Then, treating our reduced form estimates as target auxiliary models, we estimate the equilibrium model's structural parameters by indirect inference. We find that post-Katrina rebuilding generated quantitatively important spillover effects. Policy simulations with the estimated model find that feedback effects caused by amenity spillovers roughly doubled the Road Home program's impact on rebuilding relative to a scenario in which amenities are held fixed. We estimate that amenity improvements caused by Road Home induced rebuilding provided benefits to inframarginal households with a present value equal to about 14\% of the program's cost, a figure that exceeds earlier estimates of the deadweight loss associated with an expectation of bailouts similar to Road Home in the event of future disasters.
The Superintendent's Dilemma: Managing School District Capacity as Parents Vote with Their Feet
Holger Sieg
(University of Pennsylvania)
Akshaya Jha
(Stanford University)
[View Abstract]
Many urban districts confront the necessity of closing schools due to declining enrollments. To address this important policy issue, we formulate a unified approach to estimation, computation of equilibrium, and optimal selection of schools to close. We develop a model of demand for public education that treats each district public school, as well as suburban and private options, as differentiated products. Using data for a mid-sized district with declining enrollments, we employ a two-step estimator that controls for unobserved heterogeneity among students as well as unobserved school characteristics. The demand model is incorporated into a nonlinear integer programming framework to study optimal school closings. We show that consideration of student sorting is vital to the assessment of any school closing policy. We find that the district can reduce excess school capacity without lowering parental perceptions of school quality. Our application also reveals that superintendents confront a difficult dilemma: pursuing an equity objective, such as limiting demographic stratification across schools, results in the closure of high-achieving schools and the exit of many more students than are lost by an objective such as maximizing retention of students in the district or minimizing the number of students in schools chosen for closure.
Jan 05, 2014 8:00 am, Philadelphia Marriott, Meeting Room 402
Econometric Society
Game Theory
(D8)
Presiding:
Amanda Friedenberg
(Arizona State University)
Cognitive Biases in Stochastic Coordination Games and Their Evolution
Daniel H. Wood
(Clemson University)
[View Abstract]
[Download Preview] I model the evolution of behavior in small groups whose members play pairwise 2x2 pure coordination games. Players follow a best-response dynamic with errors which are generated by a fixed cognitive bias, such as the representativeness heuristic. Mistakes in strategy choice impair successful coordination, but they also allow the group to occasionally switch between equilibria. If the equilibrium which generates higher payoffs also occasionally changes, then errors create a positive externality for other players because the group returns to high-payoff equilibria faster. I characterize group members' payoffs generated by this dynamic for several error-generating biases, including limited cognition, the representativeness heuristic, the false-consensus effect, and loss aversion. Biases in belief formation produce larger externalities relative to simply higher error rates. I then analyze how these biases would evolve in a setting with group structure. Group selection partially internalizes the positive externalities, stabilizing a population state in which some players have biases and others do not.
Analysis of Information Feedback and Selfconfirming Equilibrium
Pierpaolo Battigalli
(Bocconi University)
[View Abstract]
[Download Preview] Recent work of us (Battigalli, Cerreia-Vioglio, Maccheroni and Marinacci, 2011) emphasizes the importance of information feedback in situations of recurrent decisions and strategic interaction, showing how it affects the uncertainty that underlies selfconfirming equilibrium. Here we discuss in some detail the properties of such a key feature of recurrent interaction. This allows us to elucidate our notion of Maxmin selfconfirming equilibrium and compare it with an equilibrium concept due to Lehrer (AEJ Microeconomics, 2012).
Reputation without Commitment
Jonathan Lewis Weinstein
(Northwestern University)
Muhamet Yildiz
(Massachusetts Institute of Technology)
[View Abstract]
In the reputation literature, players have commitment types which represent the possibility that they do not have standard payoffs but instead are constrained to follow a particular plan. In this paper, we show that arbitrary commitment types can emerge from incomplete information about the stage payoffs. In particular, any finitely repeated game with commitment types is strategically equivalent to a standard finitely repeated game with incomplete information about the stage payoffs, such that the types with identical solutions have almost identical prior probability in two games. Then, classic reputation results can be achieved with uncertainty concerning only the stage payoffs.
Higher-Order Uncertainty About Language
Andreas Blume
(University of Arizona)
Oliver Board
(New York University)
[View Abstract]
[Download Preview] It has been frequently noted that successful language use depends on the interlocutors'
higher-order beliefs. David Lewis, for example, informally introduces
common knowledge as part of his account of language as a convention. We, instead,
formally model and study the effects of higher-order uncertainty about language. We
find that in common-interest communication games higher-order uncertainty about language,
while potentially resulting in suboptimal language use at any finite knowledge
order, by itself has negligible ex ante payoff consequences. In contrast, with imperfect
incentive alignment, higher-order uncertainty about language may lead to complete
communication failure for any finite-order knowledge of language.
Discussants:
Pablo Schenone
(Arizona State University)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Meeting Room 403
Econometric Society
International Trade: Empirics
(F1)
Presiding:
Ralph Ossa
(University of Chicago)
Does Input-Trade Liberalization Affect Firms' Foreign Technology Choice?
Maria Bas
(CEPII France and Sciences Po)
Antoine Berthou
(Banque de France)
[View Abstract]
[Download Preview] Foreign technology transfers play a key role in economic growth of developing countries. This paper investigates the effects of input-trade liberalization on firms' decision to upgrade foreign technology embodied in imported capital goods. We develop a theoretical model of endogenous technology adoption, heterogeneous firms and imported inputs. Assuming that imported intermediate goods and high-technology are complementary and the existence of technology adoption fixed costs, the model predicts a positive effect of input tariff reductions on firms' technology choice to source capital goods from abroad. This effect is heterogeneous across firms depending on their initial productivity level. Using firm-level data from India and imports of capital goods as a proxy of high-technology, we demonstrate that the probability of importing capital goods is higher for firms producing in industries that have experienced greater cuts on tariff on intermediate goods. Our findings also suggest that only those firms in the middle range of the productivity distribution have benefited from input-trade liberalization to upgrade their technology as predicted by the model. These empirical results are robust to alternative specifications that control for industry and firm characteristics, tariffs on capital goods, other reforms and alternative measures of technology.
Global Gains from Reduction of Trade Costs
Haichao Fan
(Hong Kong University of Science and Technology)
Edwin L. Lai
(Hong Kong University of Science and Technology)
Han (Steffan) Qi
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] This paper derives a measure of the change in global welfare, and then develops a simple equation for computing the global welfare effect of reduction of bilateral trade costs, such as shipping costs or the costs of administrative barriers to trade. The equation is applicable to a broad class of perfect-competition and monopolistic competition models and settings. Balanced trade is not required. The class of models includes the many-country, many-good perfect-competition standard trade model, the Armington model, Eaton and Kortum (2002), Krugman (1980), Melitz (2003) with Pareto distribution of firm productivity, and the extensions of these models to the multi-country and multi-sector case, multi-factor production technology, multi-stage production, the existence of intermediate good and the existence of a non-traded good sector in each country. We prove that the underlying mechanism driving the result is the envelope theorem. The equation is applied to calculate the global welfare impact of reduction of international shipping costs in the last fifty years, as well as the elasticity of global welfare with respect to trade costs in 2010. We find the estimates to be reasonable and consistent with other estimates in the literature.
When the Floodgates Open:
Hale Utar
(Bielefeld University)
[View Abstract]
[Download Preview] Using the dismantling of the Multi-fibre Arrangement quotas on Chinese textile and clothing products in conjunction with China's accession to WTO, within firms adjustments to intensified low-wage competition is analyzed. Employing Danish employer-employee matched data supplemented with transaction-level data covering 1995 to 2007, the analysis shows a significant change in the workforce composition of firms in response to heightened competition. Competition is found to negatively affect employment, value-added and intangible assets of the Danish firms, and firms are found to refocus their innovative efforts away from goods where China's competitive advantage becomes higher. The results show an important role of the distributional impact of low-wage competition within firms in restructuring the industry and support theories that indicate compositional changes in the scopes and operations of ``Northern'' firms in response to competition from ``South''.
Discussants:
Andreas Moxnes
(Dartmouth College)
Ralph Ossa
(University of Chicago)
Chong Xiang
(Purdue University)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Meeting Room 405
Econometric Society
Productivity Differences across Time and Space
(E2)
Presiding:
David Lagakos
(Arizona State University)
Agricultural Productivity Differences across Countries
Douglas Gollin
(Oxford University)
David Lagakos
(Arizona State University)
Michael E. Waugh
(New York University)
[View Abstract]
[Download Preview] Recent studies argue that cross-country labor productivity differences are much larger in agriculture than in the aggregate non-agriculture sector. A concern over these calculations is the possibility that the data are contaminated by measurement problems including, for example, the price data used to create national accounts aggregates. In this paper we re-examine the agricultural productivity data using new international evidence from disaggregate micro sources. We find that for the world's staple grains -- maize, rice and wheat -- the quantity of output per unit of land reported in aggregate data sources is largely consistent with micro evidence. We find a similar consistency between aggregate and micro sources for the quantity of land per worker in agriculture. Putting these together, we conclude that differences in agricultural output per worker across countries are indeed enormous, at least for staple grains.
Intersectoral Distortions, Structural Change and the Welfare Gains from Trade
Tomasz Swiecki
(Princeton University)
[View Abstract]
[Download Preview] How large are the welfare gains from trade when factors are misallocated due to domestic distortions? In this paper I provide a quantitative answer to this question by incorporating distortions to the allocation of labor across broad sectors into a model of structural change and Ricardian trade. Calibrating the model using 36 years of data for a diverse set of countries I find that (1) gains from trade for net exporters of agricultural goods are overstated in models that abstract from intersectoral distortions since in those countries trade tends to exacerbate the effect of domestic frictions; (2) due to distortions developing countries have a strong unilateral incentive to protect their manufacturing sector from foreign competition and that yielding to such protectionist sentiments would negatively affect other poor countries; and (3), mitigating domestic frictions has a much larger potential payoff for poor countries when they are open to international trade.
Structural Transformation and the Rural-Urban Divide
Viktoria Hnatkovska
(University of British Columbia)
Amartya Lahiri
(University of British Columbia)
[View Abstract]
[Download Preview] Development of an economy typically goes hand-in-hand with a declining importance of agriculture in output and employment. Given the primarily rural population in developing countries and their concentration in agrarian activities, this has potentially large implications for inequality along the development path. We examine the Indian experience between 1983 and 2010, a period when India has been undergoing such a transformation. We find a significant decline in the wage differences between individuals in rural and urban India during this period. However, individual characteristics such as education, occupation choices and migration account for at most 40 percent of the wage convergence. We use a two-sector model of structural transformation to rationalize the rest of the rural-urban convergence in India as the consequence of two factors: (i) differential sectoral income elasticities of demand along with productivity growth; and (ii) higher labor supply growth in urban areas. Quantitative results suggest that the model can account for 70 percent of the unexplained wage convergence between rural and urban areas.
Financial Frictions and Agricultural Productivity Differences
Junmin Liao
(Washington University-St. Louis)
Wei Wang
(Washington University-St. Louis)
[View Abstract]
This paper explores the role of financial frictions in accounting for labor productivity differences across provinces in China. A novel data set featuring PPP-adjusted sector-level GDPs in each province is constructed to compare productivity across provinces. In particular, we find cross-province agricultural and aggregate output per worker differences are 5.3-fold and 5.9-fold respectively. Moreover, employment share of agriculture is 6 percent on average in the richest 10 percent of all provinces while the poorest 10 percent of provinces have almost half of their employment working in agriculture. We then explore household-level data from various surveys to find financial frictions exist in rural China with the feature that financial frictions in poorer regions are severer. A two-sector general equilibrium model with a subsistence consumption requirement, modern intermediate input and financial frictions is constructed. Limited credit depresses the use of intermediate inputs while it encourages the use of labor inputs. Consequently, workers are trapped in the agricultural sector and agricultural labor productivity is low. Because of a large weight of agricultural employment, aggregate labor productivity is also low. Our theoretical predictions are broadly consistent with empirical evidence in the literature. Our quantitative exercises show that a substantial part of observed agricultural employment share and labor productivity differences can be accounted for by financial frictions.
Jan 05, 2014 8:00 am, Philadelphia Marriott, Meeting Room 404
Econometric Society
Searching and Contracting
(D3)
Presiding:
Huseyin Yildirim
(Duke University)
Stable Marriages and Search Frictions
Stephan Lauermann
(University of Michigan)
Georg Noldeke
(University of Basel)
[View Abstract]
Stable matchings are the primary solution concept for two-sided matching markets with nontransferable utility. We investigate the strategic foundations of stability in a decentralized matching market. Towards this end, we embed the standard marriage markets in a search model with random meetings. We study the limit of steady-state equilibria as exogenous frictions vanish. The main result is that convergence of equilibrium matchings to stable matchings is guaranteed if and only if there is a unique stable matching in the underlying marriage market. Whenever there are multiple stable matchings, sequences of equilibrium matchings converging to unstable, inefficient matchings can be constructed. Thus, vanishing frictions do not guarantee the stability and efficiency of decentralized marriage markets.
Repeated Contracting in Decentralised Markets
Sambuddha Ghosh
(Boston University)
Seungjin Han
(McMaster University)
[View Abstract]
We consider a model where multiple principals repeatedly offer short-term contracts to three or more agents with private information. Under low discounting there exists a simple class of mechanisms that sustains all equilibrium allocations that could be generated by arbitrarily complex mechanisms. This equivalence result leads to a simple algorithm for computing equilibrium payoffs; this contrasts with the one-shot setting, where closed form expressions of such payoffs do not exist. Endogenous monitoring by agents weakens incentive compatibility relative to one-shot contracting; this lowers minmax values, expanding the set of equilibrium payoffs.
Optimality of Non-competitive Allocation Rules
Tymofiy Mylovanov
(University of Pennsylvania)
Andriy Zapechelnyuk
(Queen Mary, University of London)
[View Abstract]
[Download Preview] We study an allocation problem with asymmetric information, no monetary transfers, and ex-post verifiability. We show that optimal allocation has a number of anti-competitive features: participation might be restricted to a select group of agents; allocation is stochastic, occasionally favoring low-value agents; agents might be required to undertake costly wasteful activities prior to participation. We also show that, in contrast with the classic insight of Bulow and Klemperer (1996) for environments with monetary payments, expanding the market can be counterproductive and the principal should focus on learning details of the environment and designing an optimal mechanism for a small number of agents.
Trading Dynamics in the Market for Lemons
Ayca Kaya
(University of Iowa)
Kyungmin Kim
(University of Iowa)
[View Abstract]
[Download Preview] We present a dynamic model of trading under adverse selection. A seller faces a sequence of randomly arriving buyers, each of whom receives a noisy signal about the quality of the asset and makes a price offer. We show that there is generically a unique equilibrium and fully characterize the resulting trading dynamics. Buyers' beliefs about the quality of the asset gradually increase or decrease over time, depending on the initial level. The rich trading dynamics provides a way to overcome a common criticism on dynamic adverse selection, thereby broadening its applicability. We also show that improving asset transparency may lead to gains or losses in efficiency.
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
Human Capital at Work: Talent, Skills
(J5)
Presiding:
Mark Price
(Keystone Research Center)
Skill Demands and Mismatch in U.S. Manufacturing: Evidence and Implications
Andrew Weaver
(Massachusetts Institute of Technology)
Paul Osterman
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Elevated unemployment rates during and after the recession of 2007-2009 have revived debates over the degree of structural mismatch in the U.S. economy. One of the most frequent claims is that workers lack the skills that employers demand. Unfortunately, the existing literature analyzes mismatch at a high level of aggregation with abstract indices and noisy proxies that obscure the underlying mechanisms as well as the degree to which mismatch occurs within industries. We address these issues by presenting and analyzing results from a survey of U.S. manufacturing establishments. Our survey is the first, to our knowledge, to directly measure concrete employer skill demands and hiring experiences in a nationally representative survey at the industry level. We find that demand for higher level skills is generally modest, and that three quarters of manufacturing establishments do not show signs of hiring difficulties. Among the remainder, demands for higher level math and reading skills are significant predictors of long-term vacancies, but the relationship is not a mechanical one. Some establishment types with significantly higher skill demandsâ€â€such as high-tech plantsâ€â€do not have significantly greater signs of hiring problems. We interpret this finding to indicate that other factors mediate the relationship between skill demands and hiring outcomes, and that simple stories about inadequate workforce skills are misleading. The results imply that firm strategy and a range of institutional policies that go beyond calls for workers to increase educational attainment may be relevant to improving hiring outcomes.
Learning through the Lens of your Job: Employee Commitment and Firm-Specific Human Capital
Colleen Flaherty Manchester
(University of Minnesota)
Qianyun Xie
(University of Minnesota)
[View Abstract]
[Download Preview] Past studies of training and human capital acquisition assume that the nature of the skills acquired by a worker, either general or firm-specific, is determined a priori by the curriculum or content of the training. This paper diverges from this traditional view by proposing that the employee plays an active role in shaping the types of skills acquired, namely to what extent these skills are transferable across employers. We propose that employees with greater identification with and sense of belonging to the employer (i.e. greater organizational commitment) are more likely to acquire new knowledge through the context (or lens) of their current employer, making the resulting human capital less transferable to other employers. This idea of frictions in transferability based on the learning process draws on insights from the transfer of training and transfer of learning literatures. Using data on part-time Masters in Business Administration (MBA) students who are also employees, we evaluate the effect of organizational commitment on the perceptions on the transferability of skills acquired through MBA courses. We show that this relationship is driven by the way in which students engage with the course material. Furthermore, we find evidence that acquisition of firm-specific human capital mediates the relationship between organizational commitment and career rewards.
Task-Specific Experience Versus Task-Specific Talent
Jason B. Cook
(Cornell University)
Richard Mansfield
(Cornell University)
[View Abstract]
[Download Preview] Worker productivity for a particular task is generally assumed to depend on both the worker's innate talent and on the experience accumulated from performing the task (learning by doing). Knowledge of the relative importance of task-specific talent versus task-specific experience is essential for employers to maximize their workforce productivity. For tasks with larger potential experience gains and smaller variance in task-specific talent, the key to a productive workforce is employee retention. Conversely, for tasks yielding smaller experience gains with a larger variance in task-specific talent, the optimal strategy is to fire or reassign low performing workers in an attempt to either improve general worker talent or deliver superior worker-task matches. In this paper, we use administrative panel data to decompose worker performance into general talent, task-specific talent, general experience, and task-specific experience. We consider the context of high school teachers, in which tasks consist of teaching particular classes in particular tracks. For over 14 years in North Carolina, we track the universe of public school teachers and students, observing 74,000 within-teacher changes in course assignments and over 45,000 academic-level (e.g. basic and honors) switches. Such rich data permit the estimation of an education production function that includes general, course-specific, and level-specific experience profiles along with a full set of school-teacher-course-level fixed effects, controlling for many potential biases that generally accompany endogenous course assignment decisions. We find that much of the return to general experience estimated in the value-added literature is actually specific to the subject taught. We also find that switching teachers between academic levels for a given subject is fairly costless. The variation in innate teaching talent is comparable in magnitude to the gains to experience, but in contrast, such skill is mostly general; we estimate only a small role for course-specific or level-specific teaching talent.
Discussants:
Shulamit Kahn
(Boston University)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Human Capital at Work: Training
(J5)
Presiding:
Lawrence Mishel
(Economic Policy Institute)
The Building Trades Unions, OSHA-10, and the future of union-based health and safety training
Clayton Sinyai
(Center for Construction Research and Training)
[View Abstract]
[Download Preview] Over the past two decades, solid case studies have described numerous labor-driven health and safety training programs like those of the UAW (Schurman et al., 1994; Kurtz et al., 1997; Daltuva et. al., 2004), SEIU (Aksari and Mehring, 1992), AFSCME (Luskin et al., 1992) and the Utility Workers (Anderson et al., 2012. Reports on the innovative programs sponsored by OCAW and its successor organizations comprise a veritable cottage industry (Merrill, 1994; Merrill, 1995; Hilyer et al., 2000; McQuiston et al., 2012). Yet the structure and function of the nation's largest occupational health and safety network incorporating union participation - that of the Building and Construction Trades unions, supported by CPWR - remains largely untreated in the academic literature. This program, grafted onto the construction apprenticeship system, operates quite differently from many of the abovementioned others. This case study will draw lessons from the building trades OSHA outreach training program for the future of union participation in occupational health and safety initiatives as well as other skills training.
Hispanic Ethnicity and Work-Related Training in the Construction Industry
C. Jeffrey Waddoups
(University of Nevada-Las Vegas)
[View Abstract]
The study examines the determinants of work-related training in the construction industry, with particular emphasis on investigating disparities in training by Hispanic ethnicity. The data originate from the 2001, 2004, and 2008 installments of the Survey of Program Participation (SIPP). The results indicate a substantially higher likelihood of training among non-Hispanic white construction workers, who are roughly twice as likely as Hispanic workers to engage in training to upgrade skills during either the previous year or previous 10 years. Current union membership was found to be positively correlated with the probability of training in the previous year and also in the previous 10 years, which affects both Hispanic and non-Hispanic white workers by approximately the same magnitude.
Discussants:
Dale Belman
(Michigan State University)
Jan 05, 2014 8:00 am, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association
Still Shifting Risk: Healthcare and Retirement
(J5)
Presiding:
Richard McGahey
(Milano School of International Affairs)
HOW EMPLOYEE EARNINGS ARE ASSOCIATED WITH CDHP PLAN CHOICE
David William Jordan
(Slippery Rock University)
[View Abstract]
[Download Preview] Health Reimbursement Accounts (HRA) and Health Savings Account (HSA) eligible High Deductible Health Plans (HDHP)s emerged as new health care insurance models referred to as Consumer Directed Health Plans (CDHPs) in the early 2000s. The purpose of this study is to examine the association between enrollees’ level of earnings and plan choice when a Managed Care PPO, HRA, and HSA eligible HDHP are offered concurrently in an ESI program.
It is important to examine new health insurance structures, such as CDHPs, to better understand their impact on why enrollees’ choose one health plan over another. Factors that determine enrollees’ plan choice can influence the distribution of socio-economic, health risk, and behavioral characteristics across plans. These factors in turn can affect the financial costs, risk pools, and long-term solvency of such plans. Furthermore, an employer’s ability to structure a benefits plan that accommodates the satisfaction, well-being, retention of present employees and ability to attract qualified future employees is key to their long term viability.
Findings suggest enrollees select a plan that minimizes their future financial exposure based on past ESI experiences and the association between CDHP choice and enrollee earnings may not have a simple linear relationship as suggested by prior research. 
Retirement (In)Security: What's a Union to Do?
Julia A. Cottle
(SEIU Local 1000)
Sarah Zimmerman
(SEIU Local 1000)
[View Abstract]
"Corporate raiding of worker pensions, efforts to encourage public pension funds to make risky investments, and inadequate social and economic policies, has devastated retirement security in the United States over the course of the past three decades. Consequently, workers and the federal government increasingly assume more of the risk and responsibility for retirement security. As one analyst recently quipped, the three-legged stool of retirement composed of a pension, personal savings and social security today resembles a pogo stick; nearly 80 years after the signing of the Social Security Act, the elderly increasingly fall into poverty. Less than 10% of employers offer a pension plan. Seventy-five percent of all Americans approaching retirement age have less than $30,000 in personal savings. One-third of the U.S. elderly rely solely on social security during their golden years . Moreover, millions of people working in the public sector, agriculture and jobs such as domestic work are not even covered by social security. Polling completed in early 2013 indicates that 85% of Americans is anxious about retirement. At the same time, public sector unions have faced relentless communication and policy-driven attacks on their members pensions. Why have pensions become the focal point of so much hostility? How have the unions weathered these attacks? And, what role can unions play in remedying the growing insecurity around retirement? In this paper, we address these questions by sharing the experience of a public sector union local in California and its participation in a coalition of public and private sector locals that have developed an ongoing program devoted to confronting the issues related to retirement insecurity.
Explaining the Historic Decline in Retirement Account Coverage between 2001-2012: The Power of State-Level Variables
Teresa Ghilarducci
(New School)
Joelle Saad-Lessler
(New School)
Lauren Schmitz
(New School)
Anthony Bonen
(New School)
[View Abstract]
[Download Preview] For the first time since World War II the share of American workers covered by a retirement account or pension plan at work fell significantly and steadily from 61% in 2001 to 53% in 2012. This occurred as the retirement-account bargaining environment worsened. Using the Oaxaca decomposition method and the CPS we find that shrinking firm size and bargaining environment factors explain much of the decline in retirement account coverage. Unless retirement account coverage is mandated we do not expect retirement account sponsorship by employers to improve.
Discussants:
Howard Wial
(University of Illinois-Chicago)
Jan 05, 2014 8:00 am, Philadelphia Marriott, Meeting Room 306
National Economic Association
Gender, Race and Economic Development
(J1)
Presiding:
Marie Mora
(University of Texas-Pan American)
Gender and Business Outcomes of Black and Hispanic Entrepreneurs in the United States
Alberto Davila
(University of Texas-Pan American)
Marie T. Mora
(University of Texas-Pan American)
[View Abstract]
In this study, we will use data from the U.S. Census Bureau's Survey of Business Owners (SBO) and the American Community Survey (ACS) to analyze a variety of business outcomes of Black and Hispanic female entrepreneurs, including sales, the likelihood of having paid employees, the likelihood of being a "microentrepreneur" (defined as having fewer than ten employees), and self-employment earnings. These outcomes will be compared to those of non-Hispanic Whites as well as to those of their male counterparts. The importance of studying such outcomes particularly for Black and Hispanic female entrepreneurs can be gleaned through fundamental demographic changes in the business sector in recent years. Indeed, according to the most recent version of the SBO, the number of businesses owned by Black women exceeded the number owned by Black men (912,000 versus 857,000) in 2007. This was not the case five years earlier, as Black-female-owned firms were smaller in number than those owned by Black men (547,000 versus 572,000) in 2002. As such, the 66.7-percent growth in the number of Black-female-owned enterprises outstripped the 49.9-percent growth in the number of Black-male-owned firms between 2002-2007, although the growth rate for both groups considerably outpaced the 18.0-percent growth in the total number of businesses in the U.S. These changes meant that the representation of Black-owned firms was considerably higher among businesses owned by women (11.7 percent) versus those owned by men (6.6 percent). The number of Hispanic-female-owned businesses, too, grew more rapidly than the corresponding number of Hispanic-male-owned firms (45.6 percent versus 33.3 percent) during the same time. However, unlike their Black counterparts, the number of Hispanic-female-owned firms in 2007 had not surpassed that of firms owned by Hispanic men (788,000 versus 1.23 million). As such, compared to Hispanic-owned enterprises, businesses owned by Blacks represented a higher share among female-owned businesses but a lower share among male-owned businesses that year. The escalating presence of female entrepreneurs of color indicates that the successes of their businesses are becoming increasingly important for the economic direction of the U.S. overall.
Race and Gender Heterogeneity in the Impact of English Language Learning Students on Native Students' Performance. The North Carolina Experience.
Timothy M. Diette
(Washington and Lee University)
Ruth Uwaifo Oyelere
(Georgia Institute of Technology)
[View Abstract]
[Download Preview] The influx of immigrants has shifted the ethnic composition of public schools in many states including North Carolina. Recent evidence from North Carolina suggests that increases in immigrant concentration have led to a slight decline in performance solely for students at the top of the achievement distribution. The heterogeneous effects by achievement level lead us to explore in this paper whether the increased immigration has differential effects by gender and race. Utilizing fixed effect methods that allow us to address possible endogeneity with respect to the school's students attend, we find heterogeneous peer effects of limited English students on natives. Specifically, we find no immigrant peer effects on females' achievement in math and reading but significant negative effects on males and blacks on average.
Gender And Firm Performance in Nigeria: Implication of Entrepreneurship
Juliet U. Elu
(Morehouse College)
[View Abstract]
[Download Preview] This paper considers the effects of gender on economic growth in Nigeria. If firm productivity increases with respect to the fraction of its management that is female, an implication is that the formation of female-owned firms could also increase economic growth. With data from the Enterprise Survey Data, we estimate the impact that female management has upon firm-level productivity. The results will inform the extent to which female entrepreneurship can improve material living standards in Sub-Saharan African economies such as Nigeria.
Women and Development: The Case of Tunisia
Mina Baliamoune-Lutz
(University of North Florida)
[View Abstract]
In recent years, Tunisia has managed to achieve a good global ranking in higher education and training, and in health and primary education (see for example, the Global Competiveness Report 2010/2011) thanks, to a large extent, policies that were put into place in the 1960s and continued in subsequent decades, particularly programs that aimed at controlling population, enhancing human capital and empowering women (Baliamoune-Lutz, 2009). Tunisia was the first country in Africa to institute a national family planning program in the early 1960s. The country experienced an important 'educational transition' which allowed it to be more competitive in industries that require higher levels of skills, especially in the manufacturing sector which is an important sector in Tunisia's trade with Europe. As argued by Bechri and Naccache (2003:17), 'population control allowed Tunisia to enter a "virtuous circle" with population control enhancing socio-economic development, and socio-economic development, in turn, enhancing population control." This implies that the same sound macroeconomic polices may not lead to the same resilience in other countries with much lower human (educational) capital stock because of the lack of human capital capable of implementing them.
The goal of his paper is two fold. First, I review the key legislative and policy reforms -beginning with the 'Code of Personal Status' of 1956 - that aimed at empowering women in Tunisia and introduced a major shift in the interpretation of Islamic laws governing family matters. Second, using time series data and a vector auto-regressive model, I test the hypothesis that reducing gender equality had a significant positive impact on development (using various indicators of development) development in Tunisia. There are at least two main interdependent channels through which gender equity (or women empowerment) could impact economic development: education and fertility. Based on the review of the key legislative and policy reforms, and the empirical results, I discuss how changes in education and fertility in Tunisia, have allowed the country to significantly outperform its neighbors in North Africa and most of the other countries in the continent to become the most Competitive African economy (see Global Competiveness Report 2010/2011) in recent years.
Discussants:
John Karikari
(Government Accountability Office)
Kwabena Gyimah-Brempong
(University of South Florida)
Una Okonkwo Osili
(Indiana University-Purdue University-Indianapolis)
Malokele Nanivazo
(United Nations University)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Washington A
Society for the Study of Emerging Markets
The Growing Role of Emerging Market Economies in the Global Economy
(F6) (Panel Discussion)
Panel Moderator:
Ali Kutan
(Southern Illinois University-Edwardsville)
Daron Acemoglu
(Massachusetts Institute of Technology)
Andrew Karolyi
(Cornell University)
Ayhan Kose
(International Monetary Fund)
Sergio Schmukler
(World Bank)
Jan 05, 2014 8:00 am, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists/International Association for Feminist Economics
Globalization, Gender and Development
(F6)
Presiding:
Linda Lucas
(University of South Florida)
Towards Feminist Ecological New Developmentalism: A Conversation on Ends and Means
Gunseli Berik
(University of Utah)
[View Abstract]
We are at an historical moment when there is unanimity about the bankruptcy of mainstream economic theory and policy and the need to shift to an alternative development strategy. Yet, there is limited conversation across intellectual traditions or strands of research in examining whether or how the strategies envisioned are compatible. Such synergies in analysis, visions, and proposed solutions would help build broader coalitions to press for the shift away from mainstream economic theory and policy to an alternative approach. Setting off from the premise that the climate crisis is the all-encompassing crisis, this paper engages with the contributions of feminist economists, ecological economists and new developmentalists to identify an economic development strategy that integrates the goals and analytical strengths of all three groups.
Revisiting the Accounting for Women's Work Project: What Difference Does it Make and the Challenges Ahead
Maria S. Floro
(American University)
[View Abstract]
A collective endeavor by scholars, women's groups and the UN in order to make women's work visible to society in general and policymakers in particular, the Accounting Project has challenged the deeply-rooted biases in output and labor force statistics and the underlying conceptual, theoretical and methodological conventions regarding unpaid work. This paper discusses the broader impact of the Accounting Project, which transcends the concerns raised by feminists, in terms of a deeper understanding of human development and of how we measure well-being, and of the crucial linkages between care work, social reproduction and sustainable development. The paper illustrates the contributions of the accounting project to policy-making with the cases of Colombia and South Korea.
Globalization and the Deterioration of Labor Market Conditions: The Effects of the Economic Crisis on Gender Equality in Spain
Lourdes Beneria
(Cornell University)
[View Abstract]
[Download Preview] Despite the arguments that emphasize the positive aspects of globalization as the generator of jobs and opportunities, many factors have contributed to the deterioration of labor market conditions. One of the latest is the economic crisis, which has been used as an excuse to ignore or eliminate social policies protecting workers and to introduce labor reforms aimed at lowering labor costs while protecting employers that need "help" to face global competition. The paper will illustrate these arguments with the case of Spain, a country that, since 2008, has been plagued with the highest unemployment rate in the EU. In particular, it will focus on how the crisis has been used to stop or neglect policies and practices affecting care work and the construction of gender equality.
The Commodified Womb, Neoliberalism and the White Heteronormative Family
Gillian Hewitson
(University of Sydney)
[View Abstract]
Neoliberalism relies upon reproduction while fictionalising the Western heteronormative family as the natural, rational basis of economic activity. The globalisation and commodification of reproduction in the form of surrogate motherhood contracts between Western and Southern women has the potential to undermine this fiction because surrogacy proliferates the potential gender, racial, genetic, birth and caring relationships between children and adults. However, I argue that because of the surrogate mother's incorporation into gendered and racial circuits of global specialisation and exchange, the white heteronormative family remains the center of reproduction and globalised consumption, the use of the Southern surrogate mother merely having expanded their consumptive reach.
Discussants:
Linda Lucas
(University of South Florida)
Ghazal Zulfiqar
(University of Massachusetts-Boston)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 204-C
American Economic Association
Advances in Open Macroeconomics
(F3)
Presiding:
Jaume Ventura
(CREI, UPF, and Barcelona GSE)
International Liquidity and Exchange Rate Dynamics
Xavier Gabaix
(New York University)
Matteo Maggiori
(New York University)
[View Abstract]
[Download Preview] We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets. Capital flows drive exchange rates by altering the balance sheets of financiers that bear the risks resulting from international imbalances in the demand for financial assets. Such alterations to their balance sheets cause financiers to change their required compensation for holding currency risk, thus impacting both the level and volatility of exchange rates. Our theory of exchange rate determination in imperfect financial markets not only rationalizes the empirical disconnect between exchange rates and traditional macroeconomic fundamentals, but also has real consequences for output and risk sharing. Exchange rates are sensitive to imbalances in financial markets and seldom perform the shock absorption role that is central to traditional theoretical macroeconomic analysis. We derive conditions under which heterodox government financial policies, such as currency interventions and taxation of capital flows, can be welfare improving. Our framework is flexible; it accommodates a number of important modeling features within an imperfect financial market model, such as non-tradables, production, money, sticky prices or wages, various forms of international pricing-to-market, and unemployment.
Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out Effects
Fernando Broner
(CREI, UPF, and Barcelona GSE)
Aitor Erce
(European Stability Mechanism)
Alberto Martin
(CREI, UPF, and Barcelona GSE)
Jaume Ventura
(CREI, UPF, and Barcelona GSE)
[View Abstract]
[Download Preview] In 2007, countries in the euro periphery were enjoying stable growth, low deficits, and low spreads. Then the financial crisis erupted and pushed them into deep recessions, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and, surprisingly, so did the share of the debt held by domestic creditors. Credit was reallocated from the private sector to the public sector, reducing investment and deepening the recessions even further. To account for these facts, we propose a simple model of sovereign risk in which debt can be traded in secondary markets. The model has two key ingredients: creditor discrimination and crowding-out effects. Creditor discrimination arises because, in turbulent times, sovereign debt offers a higher expected return to domestic creditors than to foreign ones. This provides incentives for domestic purchases of debt. Crowding-out effects arise because private borrowing is limited by financial frictions. This implies that domestic debt purchases displace productive investment. The model shows that these purchases reduce growth and welfare, and may lead to self-fulfilling crises. It also shows how crowding-out effects can be transmitted to other countries in the euro zone, and how they may be addressed by policies at the European level.
Rethinking Optimal Currency Areas
Varadarajan Chari
(University of Minnesota)
Alessandro Dovis
(Pennsylvania State University and Princeton University)
Patrick Kehoe
(University of Minnesota)
[View Abstract]
[Download Preview] The classic optimal currency area criterion is that countries with more correlated shocks are better candidates to form a union. We show that when countries have credibility problems this simple criterion must be changed: Symmetric countries gain credibility when joining the union only when the shocks affecting credibility are not highly correlated. Our analysis provides a amended optimal currency area criterion that we argue is more relevant than the classic one. We illustrate our argument both for a reduced form model and for a relatively standard sticky-price general equilibrium model. We argue that our new criterion should lead to a rethinking of the massive amount of empirical work on optimal currency areas.
A Theory of Macroprundential Policies in the Presence of Nominal Rigidities
Ivan Werning
(Massachusetts Institute of Technology)
Emmanuel Farhi
(Harvard University)
[View Abstract]
We study cross-country insurance for members of a currency union using an open economy model with nominal price and wage rigidities. We provide two results that build the case for the creation of a fiscal union within a currency union. First, we show that, if financial markets are incomplete, the value of gaining access to any given level of insurance is greater for countries that are members of a currency union. Second, we show that, even if financial markets are complete, private insurance is inefficiently low. A role emerges for government intervention in macro insurance to both guarantee its existence and to influence its operation. The efficient insurance arrangement can be implemented by contingent transfers within a fiscal union. The benefits of such a fiscal union are larger, the bigger the asymmetric shocks affecting the members of the currency union, the more persistent these shocks, and the less open the member economies.
Discussants:
Kenneth Rogoff
(Harvard University)
Philipp Schnabl
(New York University)
Oleg Itskhoki
(Princeton University)
Jaume Ventura
(CREI, UPF, and Barcelona GSE)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 105-B
American Economic Association
Aggregate Models in International Economics
(F4)
Presiding:
Jonathan Heathcote
(Federal Reserve Bank of Minneapolis)
Assessing International Efficiency
Jonathan Heathcote
(Federal Reserve Bank of Minneapolis)
Fabrizio Perri
(Universita Bocconi)
[View Abstract]
[Download Preview] This chapter is structured in three parts. The first part outlines the methodological steps, involving both theoretical and empirical work, for assessing whether an observed allocation of resources across countries is efficient. The second part applies the methodology to the long-run allocation of capital and consumption in a large cross section of countries. We find that countries that grow faster in the long run also tend to save more both domestically and internationally. These facts suggest that either the long-run allocation of resources across countries is inefficient, or that there is a systematic relation between fast growth and preference for delayed consumption. The third part applies the methodology to the allocation of resources across developed countries at the business cycle frequency. Here we discuss how evidence on international quantity comovement, exchange rates, asset prices, and international portfolio holdings can be used to assess efficiency. Overall, quantities and portfolios appear consistent with efficiency, while evidence from prices is difficult to interpret using standard models. The welfare costs associated with an inefficient allocation of resources over the business cycle can be significant if shocks to relative country permanent income are large. In those cases partial financial liberalization can lower welfare.
International Debt Deleveraging
Luca Fornaro
(CREI, UPF and Barcelona GSE)
[View Abstract]
[Download Preview] I provide a framework for understanding debt deleveraging in a group of financially integrated countries. During an episode of international deleveraging world consumption demand is depressed and the world interest rate is low, reflecting a high propensity to save. If exchange rates are allowed to float, deleveraging countries can depreciate their nominal exchange rate to increase production and mitigate the fall in consumption associated with debt reduction. The key insight of the paper is that in a monetary union this channel of adjustment is shut off, and therefore the falls in consumption demand and in the world interest rate are amplified. Hence, monetary unions are especially prone to hit the zero lower bound on the nominal interest rate and enter a liquidity trap during deleveraging. In a liquidity trap deleveraging gives rise to a union-wide recession, which is particularly severe in high-debt countries. The model suggests several policy interventions that mitigate the negative impact of deleveraging on output in monetary unions.
Technological Change, International Sourcing and the Joint Impact on Productivity
Andreas Moxnes
(Dartmouth College)
Karen Helene Ulltveit-Moe
(University of Oslo)
Esther Ann Boler
(University of Oslo)
[View Abstract]
This paper studies the impact of an R&D cost shock on R&D investments, imported inputs and their joint impact on measured productivity. We introduce imported inputs into a model of R&D and endogenous productivity, and show that R&D and international sourcing are complementary activities. Exploiting the introduction of an R&D tax credit in Norway in 2002, we find that cheaper R&D stimulated R&D investments and imports of intermediates, quantitatively consistent with the model. An implication of our work is that easier access to imported inputs promotes R&D investments and, ultimately, technological change.
Offshoring, Low-Skilled Immigration and Labor Market Polarization
Federico S. Mandelman
(Federal Reserve Bank of Atlanta)
Andrei Zlate
(Federal Reserve Board)
[View Abstract]
[Download Preview] During the last three decades, the U.S. labor market was characterized by its employment polarization. As jobs in the middle of the skill distribution disappeared, employment expanded for the high and low-skill occupations. However, real wages did not follow the same pattern. While earnings for the high-skill occupations increased robustly, wages for both the low and middle-skill workers remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and develop a three-country stochastic growth model to rationalize the pattern of employment and wages. In the model, the increase in offshoring negatively affects the middle-skill occupations, but benefits the high-skill ones, which in turn boosts demand for non-tradable services provided by the low-skill workers. However, low-skill wages remain depressed due to unskilled immigration. Native workers react to immigration by upgrading the skill content of their labor tasks as they invest in training. Our model implications are consistent with empirical evidence showing that the largest increase in non-native employment took place in the relatively low-skilled occupations. The model is estimated with U.S. and multilateral trade-weighted macroeconomic indicators, as well as enforcement data from the U.S.-Mexico border.
Real Exchange Rate Dynamics -- The Role of Monetary Policy
Fernanda Nechio
(Federal Reserve Bank of San Francisco)
Carlos Viana de Carvalho
(PUC-Rio)
[View Abstract]
We study how real exchange rate (RER) dynamics are affected by monetary policy in dynamic, stochastic, general equilibrium, sticky-price models. We find that the source of interest rate persistence -- policy inertia or persistent policy shocks -- is key. When the monetary policy rule has a strong interest rate smoothing component, these models fail to generate high RER persistence in response to monetary shocks. Moreover, in the presence of persistence shocks, interest rate smoothing might lead to lower RER persistence. Policy inertia hampers the ability of these models to generate a hump-shaped response of the RER to monetary shocks.
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 201-C
American Economic Association
Big Data In Macroeconomics: New Insights from Large Administrative Datasets
(E6)
Presiding:
Fatih Guvenen
(University of Minnesota and NBER)
Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States
Raj Chetty
(Harvard University and NBER)
Nathaniel Hendren
(Harvard University and NBER)
Patrick Kline
(University of California-Berkeley and NBER)
Emmanuel Saez
(University of California-Berkeley and NBER)
[Download Preview] see paper
The Distribution of Lifetime Incomes in the United States
Fatih Guvenen
(University of Minnesota and NBER)
Greg Kaplan
(Princeton University and NBER)
Jae Song
(Social Security Association)
[View Abstract]
Empirical facts about the distribution of lifetime incomes are hard to establish due to the lack of a large, clean, and long panel dataset on earnings. Earlier work had to rely on shorter panels (sometimes 3-4 years long) and impose a variety of assumptions to infer the properties of lifetime incomes. In this paper, we use a unique dataset from administrative records that covers every individual with a Social Security Number in the United States. We draw a representative panel dataset covering 1978 to 2011 that includes more than 1.5 million individuals with 34 years of earnings data on each. To our knowledge, this is the first analysis of this kind on lifetime incomes. Our baseline measure of lifetime inequality during this period is substantial---as large as the cross-sectional income inequality during the 2000s. We investigate gender and racial gaps in lifetime incomes and uncover some interesting new patterns. Finally, we take a closer look at individuals in the top 1 and 0.1 percent of the lifetime income distribution, and establish some unique characteristics of these individuals and of their journey over the lifecycle.
Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records
Claus Thustrup Kreiner
(University of Copenhagen, CESifo and CEPR)
Soren Leth-Petersen
(University of Copenhagen and SFI)
Peer Skov
(University of Copenhagen and Rockwool Foundation Research Unit)
[View Abstract]
[Download Preview] Intertemporal shifting of wage income takes place when income earned in one tax year is paid out in another tax year in order to save taxes. Shifting has implications for the evaluation of the distortionary and distributional effects of taxes and may cause serious bias in empirical estimates of the elasticity of taxable income (ETI) for use in policy analysis. Based on new monthly payroll records for the universe of Danish employees we provide evidence of widespread intertemporal shifting of wage income in response to a tax reform that significantly reduced the marginal tax rates for 1/4 of all employees. Ignoring shifting, we estimate the overall ETI to be 0.1 and find that the ETI is increasing in the earnings level. After controlling for shifting, we obtain negligible ETI estimates at all earnings levels. We show that shifting is concentrated on few individuals spread out evenly across industry sectors, and we provide evidence suggesting that tax salience, liquidity constraints and firm willingness to cooperate in shifting are important factors in explaining shifting behavior.
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon K
American Economic Association
Credit and Collateral
(G2)
Presiding:
Aubhik Khan
(Ohio State University)
Patents as Collateral and Directed Technical Change
Ufuk Akcigit
(University of Pennsylvania)
Murat Alp Celik
(University of Pennsylvania)
Guillermo Ordonez
(University of Pennsylvania)
[View Abstract]
Patents and intellectual property are increasingly important forms of loan collateral, relaxing financial constraints that choke off innovative activities. In the late 2000s, almost 10% of new patents (younger than five years) were used as collateral, compared to a negligible fraction in the 1970s. This growth, however, has been concentrated among sectors with more patenting firms, where patents are more pledgeable due to a higher probability of resale by the lender in case of bankruptcy. We study the use patents as collateral in a multi-sector endogenous growth framework where the sectors differ in market size. Our model predicts that the use of patents as collateral directs future technological progress towards sectors with more patenting firms, while not necessarily the most productive. We test the predictions of our model using the USPTO assignments dataset, which records each case of a patent being pledged as collateral. We find strong supporting evidence for our predictions. Finally, a quantitative analysis estimates the welfare gains from relaxed credit constraints through the use of patents as collateral.
Rising Intangible Capital, Shrinking Debt Capacity and the United States Corporate Savings Glut
Jae W. Sim
(Federal Reserve Board)
Antonio Falato
(Federal Reserve Board)
Dalida Kadyrzhanova
(University of Maryland)
[View Abstract]
This paper explores the hypothesis that the rise in intangible capital is a fundamental driver of the secular trend in US corporate cash holdings over the last decades. We construct a new measure of intangible capital and show that intangible capital is the most important firm-level determinant of corporate cash holdings. Our measure accounts for almost as much of the secular increase in cash since the 1980s as all other determinants together. We then develop a new model of corporate cash holdings that introduces intangible capital into an otherwise standard dynamic corporate finance setup. Since intangible capital cannot be pledged as collateral, a shift toward greater reliance on intangible capital shrinks the debt capacity of firms and leads them to optimally hold more cash in order to preserve financial flexibility. In the model, firms with growth options tend to hold more cash in anticipation of (S,s)-type adjustments in physical capital because they want to avoid raising costly external finance. We show that this mechanism is quantitatively important, as our model generates cash holdings that are up to an order of magnitude higher than the standard benchmark and in line with their empirical averages for the last two decades. We also consider alternative hypotheses, such as declining interest rates and rising equity issuance costs. Overall, our results suggest that technological change has contributed significantly to recent changes in corporate liquidity management.
From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply
Rodney Ramcharan
(Federal Reserve Board)
Stephane Verani
(Federal Reserve Board)
Skander Van den Heuvel
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper studies how the collapse of the asset backed securities (ABS) market during the financial crisis of 2007-2009 affected the supply of credit to the broader economy using a new dataset that describes unique interbank relationships within the credit union industry. This industry is important for consumer finance, and we find that ABS related losses at correspondent credit unions are associated with a large contraction in the supply of consumer credit and a hoarding of cash among downstream credit unions, especially among those downstream credit unions that began the crisis with lower capital asset ratios. We also find that this contraction in credit supply may have amplified the initial decline in house prices, and spilled over into the market for consumer durables such as automobiles. These results show how movements in the prices of financial assets can affect the real economy.
Business Cycle Implications of Mortgage Spreads
Karl Walentin
(Sveriges Riksbank)
[View Abstract]
[Download Preview] What are the business cycle effects of shocks to the interest rate spread between residential mortgages and government bonds of the corresponding maturity? We start by noting that the mortgage spread (i) has substantial volatility, (ii) is countercyclical and (iii) leads GDP by 2-3 quarters. Using a structural VAR, we find that innovations to the mortgage spread reduce house prices, residential investment, consumption and GDP by both economically and statistically significant magnitudes. Furthermore, the policy interest rate reacts strongly and in an offsetting direction to mortgage spread innovations. These findings highlight the relevance of financial frictions in residential mortgage markets as an unexplored source of business cycles. In addition, we show that unconventional monetary policy which affects the mortgage spread has sizable macroeconomic impact. Our results are robust to the inclusion of a corporate spread.
Estimating Changes in Supervisory Standards and Their Economic Effects
Seung Jung Lee
(Federal Reserve Board)
William F. Bassett
(Federal Reserve Board)
Thomas W. Spiller
(Federal Reserve Board)
[View Abstract]
[Download Preview] The disappointingly slow recovery in the U.S. from the recent recession and financial crisis has once again focused attention on the relationship between financial frictions and economic growth. With bank loans having only recently started growing and still sluggish, some bankers and borrowers have suggested that unnecessarily tight supervisory policies have been a constraint on new lending that is hindering recovery. This paper explores one specific aspect of supervisory policy: whether the standards used to assign commercial bank CAMELS ratings have changed materially over time (1991-2011). We show that models incorporating time-varying parameters or economy-wide variables suggest that standards used in the assignment of CAMELS ratings in recent years generally have been in line with historical experience. Indeed, each of the models used in this analysis suggests that the variation in those standards has been relatively small in absolute terms over most of the sample period. However, we show that when this particular aspect of supervisory stringency becomes elevated, it has a noticeable dampening effect on lending activity in subsequent quarters.
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 103-A
American Economic Association
Economic Impacts of Natural Disasters
(Q5)
Presiding:
Michael Greenstone
(Massachusetts Institute of Technology)
The Economic Impact of Hurricane Katrina on its Victims: Evidence from Individual Tax Returns
Tatyana Deryugina
(University of Illinois-Urbana-Champaign)
Laura Kawano
(US Department of the Treasury)
Steven Levitt
(University of Chicago)
[View Abstract]
[Download Preview] Hurricane Katrina destroyed more than 200,000 homes and led to massive economic dislocation. Using Internal Revenue Service tax-return data, we provide one of the first systematic analyses of the hurricane's long-term economic impact on its victims. Specifically, we are able to look at the trajectory of wages, unemployment, and location decisions in the years following the storm. In addition to basic economic indicators, we also assess other life changes, such as births, deaths, marriage, and divorce. Our findings have important implications for relief policy as well as for the effects of climate change.
Storms and Jobs: The Effect of Hurricanes on Individuals' Employment and Earnings Over the Long Term
Jeffrey Groen
(US Bureau of Labor Statistics)
Mark Kutzbach
(US Census Bureau)
Anne Polivka
(US Bureau of Labor Statistics)
[View Abstract]
We study the responsiveness of individuals' employment and earnings to the damages and disruption caused by Hurricanes Katrina and Rita, which struck the U.S. Gulf Coast in 2005. Our analysis is based on individual-level survey and administrative data that tracks workers over time -- from 2 years before the storms to 7 years after the storms. We estimate models that compare outcomes for individuals who resided (at the time of the storms) in storm-affected areas with individuals who resided in an unaffected control region along the Atlantic coast. Our estimates indicate that the storms reduced employment in the short term, with a gradual recovery over 4 years. In terms of earnings among those employed, we find short-term losses but long-term gains. We find that the short-term losses in employment were larger for individuals who had lower skills or lower earnings prior to the storms. We also find that individuals who resided in or worked in Census blocks that that experienced major damage had the largest negative effects on employment and earnings, especially in the short term.
Taken by Storm: Business Survival in the Aftermath of Hurricane Katrina
Emek Basker
(University of Missouri)
Javier Miranda
(US Census Bureau)
[View Abstract]
[Download Preview] We use Hurricane Katrina's damage to the Mississippi coast in 2005 as a natural experiment to study business survival in the aftermath of a cost shock. We find storm damage had a "cleansing" effect on businesses: damaged establishments that returned to operation were more resilient than those that had never been damaged. This effect is particularly strong for establishments belonging to younger and smaller firms. Establishments in older and larger chains were initially less likely to exit due to storm damage, and less resilient having survived the damage. We interpret these findings as evidence that the cleansing effect of the shock is tied to the presence of financial constraints.
Determinants of Birth Outcomes: A Study Using Variation in Tornado Exposure
Anca Grecu
(Seton Hall University)
[View Abstract]
[Download Preview] Previous literature finds that adverse events are correlated with poorer infant outcomes, but the timing and mechanisms by which this occurs are poorly understood. This paper uses tornadoes as a source of random variation in exposure to stressors. First, using detailed data on the date of conception, I find that among the 1999-2007 conception cohorts there is evidence of selection: exposure to tornadoes during the second trimester of gestation leads to fewer live births and to changed sex ratios among live births. Second, I argue that tornado destruction represents an exogenous decrease in wealth and investigate its impact on birth outcomes. Conditional on being exposed to tornadoes, tornado damages do not significantly affect live births outcomes. However, repeated exposure during the third trimester is associated with prematurity and lower weight at birth.
Discussants:
Jesse Gregory
(University of Wisconsin-Madison)
Till von Wachter
(University of California-Los Angeles)
Chad Syverson
(University of Chicago)
Emilia Simeonova
(Johns Hopkins University)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon A
American Economic Association
Education, Human Capital and Gender
(J16)
Presiding:
Kevin Lang
(Boston University)
Labour Market Decisions of Immigrant Households
Alicia Adsera
(Princeton University)
Ana Ferrer
(University of Waterloo)
[View Abstract]
We revisit the family investment hypothesis (FIH) for Canada. The FIH proposes that since recent immigrant families are more likely to be credit constrained than native-born households, female immigrants will be more likely to work in low-status jobs to finance their husband's investments in acquiring country-specific human capital. We incorporate a measure of linguistic distance to our analysis. Since fluency in the language of the destination country and the ability to learn it quickly will influence immigrant's success in destination countries' labor markets, variation in linguistic proximity could be used to further determine the extent of credit constraints in immigrant households. We also introduce the study of skill mobility of immigrant women as an alternative way to assess the FIH, using the skills indexes developed from the Occupational Information Network (O*NET), that we match to 4-digit occupation categories contained in the Census. We use confidential files of the Canadian Census of Population 1991 to 2006. Previous studies used data form the 1980s and early 1990s. However, much has changed in the Canadian labour market during recent years, particularly in regards to immigration. Therefore, there is no expectation that previous results will follow given the new set of potentially different immigrants to Canada. In accordance with recent findings in the literature, preliminary results indicate that the predictions of the FIH do follow, but only for some immigrant groups.
All for One? Family Size and Children's Educational Distribution under Credit Constraints
Jeanne Lafortune
(Universidad Catolica de Chile)
Soohyung Lee
(University of Maryland)
[View Abstract]
[Download Preview] Economists have been examining parents' decisions about their offspring's education in the context of "quantity-quality tradeoff" or "birth order
effects". This paper contributes to both literatures by examining the possibility that a child's schooling can be increased by having more siblings, instead of being diminished by competition for parents' resources, as has been suggested in
most of the literature. Specifically, parents unable to borrow or self-finance their children's education may rely on some of their older children's labor income as a source of funding. Then the child(ren) selected for education will benefit from having more siblings who support him/her (them). This implies that the relationship between family size and education, and the relationship between birth order and years of schooling may be systematically different across families depending on their access to assets and borrowing resources. We first examine these relationships in a model combining convex returns to education and credit constraints. Our model predicts correlations among family size, years of schooling
and birth order, which would not exist when either of these two elements is absent. In particular, for credit constrained parents, our model predicts a positive correlation between family size and educational level of the most educated child. It also predicts that the schooling of a child will be positively correlated with his/her birth order as well as with the fraction of female siblings (for males) when gender-biased norms exist. However, we show that these
relationships weaken or disappear for parents with larger assets. Second, we examine the model implications using datasets from the U.S., Mexico, and South Korea (herein Korea). These countries are chosen not only because they have data
on educational attainment of all adult children in a family but also because they are at different stages of development and have different cultural norms. We expect that the model implications generated by credit constraints will be more pronounced among low income families within a country and also more pronounced in low income countries (Mexico and Korea) than in more developed ones (the U.S.). Gender-related predictions will also be more pronounced in Korea, which is known for its son preferences. We find the empirical results to be consistent with our model predictions. Although we do not rule out the possibility that an alternative model may generate some of the empirical patterns this paper documents, it would be challenging to account for all systematic relationships between parents' income
and intra-family educational allocation using alternative hypotheses.
Do Single Sex Schools Make Girls More Competitive?
Soohyung Lee
(University of Maryland)
Muriel Niederle
(Stanford University)
Namwook Kang
(Hoseo University)
[View Abstract]
We examine the effect of single-sex schooling on students’ competitiveness. We conduct an experiment with middle school students in Seoul (South Korea) where students are randomly assigned to either a single-sex school or a coeducational school within a school district. In our sample, girls are comparable to boys in their performances but are less likely to select competition than boys, which is similarly found in existing studies on competition. Our empirical results suggest that conditional on student- and parental characteristics, girls in single-sex schools are equally competitive to girls in coeducational schools, and boys in single-sex schools are slightly more competitive than boys in coeducational schools. These results together with the gender-gap in competitiveness imply that the single-sex schooling is unlikely to reduce that gender gap.
Gender Peer Effects: Evidence from the Transition from Single-Sex to Coeducational High Schools
Jungmin Lee
(Sogang University)
Hye Yeon Park
(Sogang University)
[View Abstract]
[Download Preview] It has long been debated among policy makers, teachers and parents whether coeducational or single-sex schooling is better for students' academic performance or non-cognitive skill development. A fundamental identification problem is selection bias. That is, parents choose their children's schools; students attending single-sex schools and those attending coeducational schools may be different in an unmeasured way. In this paper we exploit transition from single-sex to coeducational high schools from 1998 to 2003 in Seoul, South Korea. The capital city of South Korea provides a unique natural experimental field since students are by and large randomly assigned to high schools within school districts. Using standardized college-entrance examination scores for more than 0.6 million students, we find that an unexpected mix with girls is disadvantageous to boys' academic performance when boys outnumber girls.
Discussants:
Laura Argys
(University of Colorado-Denver)
Sarah Turner
(University of Virginia)
Daniele Paserman
(Boston University)
Cher Li
(Colorado State University)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 201-B
American Economic Association
Growth, Innovation and Trade
(O4)
Presiding:
Paul Romer
(New York University)
Firm Heterogeneity and Aggregate Welfare
Marc J. Melitz
(Harvard University)
Stephen J. Redding
(Princeton University)
[View Abstract]
[Download Preview] We examine how firm heterogeneity influences aggregate welfare through endogenous firm selection. We consider a homogeneous firm model that is a special case of a heterogeneous firm model with a degenerate productivity distribution. Keeping all structural parameters besides the productivity distribution the same, we show that the two models have different aggregate welfare implications, with larger welfare gains from reductions in trade costs in the heterogenous firm model. Calibrating parameters to key U.S. aggregate and firm statistics, we find these differences in aggregate welfare to be quantitatively important (up to a few percentage points of GDP). Under the assumption of a Pareto productivity distribution, the two models can be calibrated to the same observed trade share, trade elasticity with respect to variable trade costs, and hence welfare gains from trade (as shown by Arkolakis, Costinot and Rodriguez-Clare, 2012); but this requires assuming different elasticities of substitution between varieties and different fixed and variable trade costs across the two models.
Creative Destruction and Subjective Well-Being
Philippe Aghion
(Harvard University)
Ufuk Akcigit
(University of Pennsylvania)
Angus Deaton
(Princeton University)
Alexandra Roulet
(Harvard University)
[View Abstract]
[Download Preview] This paper analyzes the effect of Schumpeterian creative destruction on subjective well-being.
We measure subjective well-being using the Cantril ladder of life, a measure of individuals’ overall
evaluation of their lives, and we also use a measure reflecting individuals’ current "worry". For
creative destruction we use establishment turnover following Davis et al (1996). The turnover
data are MSA-level panel data from the Business Dynamics Statistics and the subjective well-being
data are individual data from Gallup. We find that the effect of creative destruction on
subjective well-being is unambiguously positive when we control for MSA-level unemployment,
less so if we do not. We also find that creative destruction has a more positive effect on life
satisfaction in states with more generous unemployment insurance policy. Finally, we find that
the effect of creative destruction on subjective well-being tends to be more positive for young
individuals, for the non-religious, for smokers, for less educated individuals and for the non-hispanic
white.
Trapped Factors and China's Impact on Growth
Nicholas Bloom
(Stanford University)
Paul Romer
(New York University)
Stephen Terry
(Stanford University)
John Van Reenen
(London School of Economics)
[View Abstract]
[Download Preview] In a general equilibrium model of the product-cycle, lower trade barriers increase purchasing power in the South, which lifts the long-run rate of growth by increasing the profit from innovation. In the short run, factors of production must be reallocated inside firms, which temporarily lowers the opportunity cost of innovation (a "trapped factor" effect). Starting from a baseline rate of growth of 2% per year in the OECD, we find that trade integration with low wage countries in the decade around China's accession to the WTO could have increased OECD growth by 0.37% (to 2.37%) per year in the long run. There is an additional short-run effect from trapped factors with growth initially rising by 0.7% per year (to 2.7%). Half of these increases in growth are due to China alone.
Life and Growth
Charles I Jones
(Stanford University)
[View Abstract]
[Download Preview] Some technologies save lives-new vaccines, new surgical techniques, safer highways. Others threaten lives - pollution, nuclear accidents, global warming,the rapid global transmission of disease, and bioengineered viruses. How is growth theory altered when technologies involve life and death instead of just higher consumption? This paper shows that taking life into account has first-order consequences. Under standard preferences, the value of life may rise faster than consumption, leading society to value safety over consumption growth. As a result, the optimal rate of consumption growth may be substantially lower than what is feasible, in some cases falling all the way to zero.
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon B
American Economic Association
Household Finance
(G1)
Presiding:
John Campbell
(Harvard University)
Getting Better: Learning to Invest in an Emerging Stock Market
John Y. Campbell
(Harvard University)
Tarun Ramadorai
(University of Oxford)
Benjamin Ranish
(Harvard University)
[View Abstract]
[Download Preview] Using a large representative sample of Indian retail equity investors, many of them new to the stock market, we show that both feedback from investment returns and years of investment experience have a significant effect on investor behavior, style tilts, and performance. We identify two channels of feedback: overall performance relative to the market, and feedback from the impact on performance of specific behavior and style tilts. Consistent with models of reinforcement learning, feedback has strong predictive ability for future behavior and style tilts. We show that experienced investors have lower portfolio turnover, exhibit a smaller disposition effect, and invest more heavily in value stocks than novice investors, although these behaviors do not fully explain their better performance. We also find that Indian stocks held by experienced investors, or investors whose strategies resemble those of experienced investors (with low turnover and a value tilt), deliver abnormal returns even controlling for standard stock-level characteristics.
The Costs and Benefits of Financial Advice
Steve Foerster
(University of Western Ontario)
Juhani Linnainmaa
(University of Chicago)
Brian Melzer
(Northwestern University)
Alessandro Previtero
(University of Western Ontario)
[View Abstract]
We assess the value that financial advisors provide to clients using a unique panel dataset on the Canadian financial advisory industry. We find that advisors influence investors’ trading choices, but they fail to add value through their investment recommendations when judged relative to passive investment benchmarks. The value-weighted client portfolio lags passive benchmarks by more than 2.5% per year net of fees, and even the best performing advisors fail to produce alphas that reliably exceed their fees. Advisors do influence client savings behavior, however, which suggests that benefits related to financial planning may account for investors’ willingness to accept high fees on investment advice. Finally, we show that differences in clients’ financial knowledge cannot account for the cross-sectional variation in fees, which implies that lack of financial sophistication is not the driving force behind high fees.
Labor Market Experiences and Portfolio Choice: Evidence from the Finnish Great Depression
Samuli Knüpfer
(London Business School)
Elias Rantapuska
(Aalto University)
Matti Sarvimäki
(Aalto University)
[View Abstract]
[Download Preview] Labor market experiences are a natural candidate for explaining portfolio heterogeneity. However, identifying their impact is challenging, because unobservables can influence the careers people choose and the circumstances they experience. We use plausibly exogenous variation in labor market conditions during the Finnish Great Depression in the early 1990s to trace the long-run impact of labor market experiences on portfolio choice. The results suggest that workers who have experienced adverse labor market conditions are significantly less likely to invest in risky assets. The decrease in risky investment is robust to controls for parental variables, family fixed effects, and cognitive ability, and cannot fully be explained by wealth effects or asset market experiences. These effects span generations: individuals whose parents have experienced adverse labor market conditions invest significantly less in risky assets.
Heterogeneous Investment Behavior in a Mandatory Pension Plan: The Role of Cognitive and Non-cognitive Skills
Erik Lindqvist
(Stockholm School of Economics and IFN)
Roine Vestman
(Stockholm University and SIFR)
[View Abstract]
We match Swedish military enlistment data on cognitive and non-cognitive skills onto detailed information about individuals' financial holdings outside as well as inside the government-mandated defined contribution (DC) pension plan which was launched in 2000. We find that at the time of the launch, non-cognitive skill rather than cognitive skill was a strong predictor of opting out from the default fund. Cognitive skill, on the other hand, fosters activity, in terms of re-allocation between funds, conditional on having opted out. As a consequence, the return loss associated with a one-standard deviation increase in non-cognitive skills is estimated to 0.08 percent per year while cognitive skills are unrelated to account returns. The driver of the return loss associated with non-cognitive skill is the peculiar circumstances at the time of the launch -- only pension investors who entered the plan in 2000 suffer a return loss. We argue that the correlation between non-cognitive skills and opting out from the default fund at the time of the launch is explained by a response to the intense information and advertising campaigns that took place.
Discussants:
Tyler Shumway
(University of Michigan)
Antoinette Shoar
(Massachusetts Institute of Technology)
Stefan Nagel
(Stanford University)
Shawn A. Cole
(Harvard Business School)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon C
American Economic Association
Inattention and Experiments
(D8)
Presiding:
Filip Matejka
(CERGE-EI)
Revealed Preference, Rational Inattention, and Costly Information Processing
Andrew Caplin
(New York University)
Mark Dean
(Brown University)
[View Abstract]
[Download Preview] We develop revealed preference tests for models of optimal information acquisition. The tests encompass rational inattention theory as well as sequential signal processing and search. We provide limits on the extent to which attention costs can be recovered from choice data. We experimentally elicit state dependent stochastic choice data of the form the tests require. We find that subjects adjust the intensity and focus of their attention in response to incentives. Our tests provide quantitative confirmation that such adjustments are well-modeled as rationally responsive to costs,
Attention Discrimination: Theory and Field Experiments
Vojtech Bartos
(CERGE-EI)
Michal Bauer
(CERGE-EI, Charles University)
Julie Chytilova
(Charles University)
Filip Matejka
(CERGE-EI)
[View Abstract]
Attention is scarce and reading details of applications for a job, a flat rental, or a school admission is a matter of choice. We study how the knowledge of ethnicity impacts the level of attention to an individual and how that can give rise to discrimination. In contrast to existing theories, we show that attention choices combined with differences in beliefs about ethnic groups generate discrimination even if there are no differences in taste and if information about individual is available. Next, we perform correspondence field experiments. We send emails responding to job offers and to advertisements of flat rental, and vary name of applicants to signal ethnicity. We find that in the Czech Republic minority names are half as likely to receive invitation for a flat visit as well as for a job interview. To investigate whether decision-makers adjust attention based on beliefs and based on the character of the selection process, we monitor inspection of information provided by applicants on their personal website and in their resume. On the housing market, where only few applicants are not invited and thus it is more beneficial to inspect groups with low expected quality, we find that landlords are more likely to inspect personal website of minority applicants and are more responsive to manipulations in available information about minority compared to majority names. The effect of minority name on attention is opposite on the labor market, where the invitation rate is low. The proposed theory explains this set of findings and has offers policy implications for both the design of the selection process. as well as the potential impact of affirmative-action policies.
Correlated Shocks in Keynesian Beauty Contest Game: An Experimental Study
Jess Benhabib
(New York University)
John Duffy
(University of Pittsburgh)
Rosemarie Nagel
(ICREA and Universitat Pomepu Fabra)
[View Abstract]
We extend the Beauty Contest Game by an idiosyncratic shock for each player, where the shocks are correlated between players. The payoff for a player depends on the distance between his choice and the sum of the idiosyncratic shock and the mean of all other players' choices. Prior to choosing from the set of real numbers, players receive a signal about their shock; either they receive precise private information about their shock (iid. drawn from a common and known normal distribution), or they receive noisy information about their shock (the sum of two draws from two different normal distributions, where one is a private draw and the other is a draw which is the same for all). While in the original game there is a unique equilibrium in which all choose zero, in the new game, there are multiple equilibria. In one the mean is zero and the variance is positive, which we call the certainty equilibrium and the other is a stochastic equilibrium. The experimental results show that the game without shocks has a larger variance of choices than the games with (private precise) shocks contrary to the theory. The reason is that players bring in their own (imagined) shocks with a much larger variance across players than when they are told the variance of the shocks.
Discussants:
Dirk Bergemann
(Yale University)
Colin Camerer
(California Institute of Technology)
Cars Hommes
(University of Amsterdam)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon J
American Economic Association
Labor Markets and Occupational Choice
(J2)
Presiding:
Peter McHenry
(College of William & Mary)
Defined Contributions Pensions And Retirement During the Financial Crisis: A Natural Experiment
Matthew Gustafson
(Pennsylvania State University)
[View Abstract]
[Download Preview] I investigate how DC pensions affect retirement using a 1984 federal retirement system change that quasi-randomly assigns DC pensions. I find no evidence that DC pensions affect retirement before the financial crisis. During and after the crisis, employees with DC pensions retire less. This effect is largest for high-income employees. The average high-income employee with a DC pension delays retirement 1.4 to 3 months longer than a comparable non-DC employee does. I argue that this increased retirement delay is caused by a decline in DC pension value, which I estimate is equivalent to three months’ worth of income.
Medical Care Spending and Labor Market Outcomes: Evidence from Workers' Compensation Reforms
David Powell
(RAND)
Seth Seabury
(University of Southern California)
[View Abstract]
[Download Preview] There is considerable controversy over whether much of the spending on health care in the United States delivers enough value to justify the cost. We contribute to this literature by studying the causal relationship between medical care spending and labor outcomes, exploiting a policy which directly impacted medical spending for reasons unrelated to health and using a unique data set which includes medical spending and labor earnings. Our focus on labor outcomes is motivated by its potential usefulness as a measure of health, the importance of understanding the relationship between health and labor productivity, and the policy interest in improving labor outcomes for the population that we study - injured workers. We exploit the 2003-2004 California workers' compensation reforms which reduced medical care spending for injured workers with a disproportionate effect on workers suffering lower back injuries. We link administrative data on workers' compensation claims to earnings and test the effect of the reforms on labor force outcomes for workers who experienced the biggest drop in medical care costs. Adjusting for the severity of injury and selection into workers' compensation, we find that workers with low back injuries experienced a 7.3% greater decline in medical care after the reforms, and that this led to an 8.3% drop in post-injury earnings relative to other injured workers. These results suggest jointly that medical care spending can impact health and that health affects labor outcomes.
The Impact of Eliminating Affirmative Action on Minority and Female Employment: A Natural Experiment Approach Using State-Level Affirmative Action Laws and EEO-4 Data
Fidan Ana Kurtulus
(University of Massachusetts-Amherst and Harvard University)
[View Abstract]
Recent years have witnessed efforts to rescind affirmative action at the state level, with California prohibiting affirmative action in public employment in 1996, Washington in 1998, Michigan in 2006, Nebraska in 2008, Arizona in 2010, and New Hampshire and Oklahoma in 2012, and the future of affirmative action in the United States is uncertain. In this paper, I examine the impact of eliminating affirmative action on the employment of minorities and women within a natural experiment framework using newly available state and local public employment data for 1990 to 2009 from the U.S. Equal Employment Opportunity Commission (EEO-4 files). The empirical analysis exploits the panel structure of the EEO-4 data, along with the time and state variation in affirmative action bans, to estimate difference and differences and dynamic event-study regressions of the implications of the bans on public sector employment. Key findings point to sharp declines in Hispanic male and black female representation following the law changes banning affirmative action, and in the case of black women, the declines become increasingly larger in magnitude over time.
Broadband in the Labor Market: The Impact of Residential High Speed Internet on Married Women's Labor Force Participation
Lisa J. Dettling
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper investigates how high-speed home Internet has impacted married women’s labor force participation. I estimate the net effect of individual Internet usage on labor supply using an instrumental variables strategy which exploits cross-state variation in supply-side constraints to residential broadband Internet access. Results indicate that married women who use the Internet are more likely to participate in the labor force. The average effects mask substantial heterogeneity and increases in participation are concentrated on women with higher levels of education and children. The results suggest home Internet facilitates work-family balance for highly educated women.
Education, Professional Choice and Labour Market Outcomes: Influence of Preferences, Parental Background and Labour Market Tightness
Natalia Kyui
(Bank of Canada)
Veronique Simonnet
(Centre d'Etudes de l'Emploi (CEE), Paris School of Economics (PSE) et University Paris 1 Panthéon-Sorbonne)
[View Abstract]
[Download Preview] Professional and educational choices, while largely determined by personal abilities, preferences, and family background, may also be sensitive to labour market conditions, both current and expected. This paper studies how youths' educational and professional choices are affected by parental background and labour market characteristics, as well as how they in turn influence labour market trajectories. We also analyze the effects of fluctuations in the labour market on the professional choices of youths, their switch to other professional categories, and further labour market trajectories. In particular, we focus not just on the overall fluctuation of the economy and labour market, but also on the labour market fluctuations by professional categories. Thus, we use labour-market tightness characteristics by both professional categories and regions to examine their effects on employment, education-occupation match and wages. Our analysis also allows us to identify the effects on further wages and career development of switching to other professional categories because of the unfavourable conditions in the chosen profession.
Using a combination of survey and administrative data from France, we propose and estimate a joint model of professional preferences, further educational choices and labour market outcomes, i.e. professional choices, employment, education-occupation match, and wages. This model allows us to take into account the correlations between unobservable factors that simultaneously influence these choices and outcomes, and thus to control for self-selection into professional categories based on observable and unobservable factors.
We find that professional preferences are primarily conditioned by parental occupations and their involvement in youths' education, and almost not affected by labour market characteristics. Furthermore, we identify to what extend professional preferences influence educational and occupational choices, employment and wages. Finally, we quantify how labour market tightness in professional categories reshapes both youths' professional choices upon entry into the labour market and their further labour market trajectories.
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 203-B
American Economic Association
Liquidity Supply and Asset Prices
(G1)
Presiding:
Dimitri Vayanos
(London School of Economics)
Demand for Crash Insurance, Intermediary Constraints, and Stock Return Predictability
Hui Chen
(Massachusetts Institute of Technology)
Scott Joslin
(University of Southern California)
Sophie Ni
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] The net amount of deep out-of-the-money (DOTM) S&P 500 put options that public investors purchase (or equivalently, the amount that financial intermediaries sell) in a month is a strong predictor of future market excess returns. A one-standard deviation decrease in our public net buy-to-open measure (PNBO) is associated with a 3.4% increase in the subsequent 3-month market excess return. The predictive power of PNBO is especially strong during the 2008-09 financial crisis, and it cannot be accounted for by a wide range of standard return predictors, nor by measures of tail risks or funding constraints. Moreover, PNBO is contemporaneously negatively related to the expensiveness of the DOTM puts. To explain these findings, we build a dynamic general equilibrium model in which financial institutions play a key role in sharing tail risks. The time variation in the financial institutions' intermediation capacity drives both the equilibrium demand for crash insurance and the market risk premium. Our results suggest that trading activities in the crash insurance market is informative about the degree of financial intermediary constraints.
Convective Risk Flows in Commodity Futures Markets
Ing-Haw Cheng
(Dartmouth College)
Andrei Kirilenko
(Massachusetts Institute of Technology)
Wei Xiong
(Princeton University)
[View Abstract]
This article analyzes the joint responses of commodity futures prices and traders' futures positions to changes in the VIX before and after the recent financial crisis. We find that while financial traders accommodate the needs of commercial hedgers in normal times, in times of distress, financial traders
reduce their net long positions in response to an increase in the VIX causing the risk to flow to commercial hedgers. By exploiting a cross-section of traders, we provide micro-level evidence for a convective flow of risk from distressed financial traders to commercial hedgers. The presence of such risk convection confirms the market impact of financial traders conditional on trades initiated by them and motivates an extension of the long-standing hedging pressure theory of commodity futures markets to incorporate time-varying risk capacities of financial traders.
Liquidity Risk and the Dynamics of Arbitrageur Capital
Peter Kondor
(Central European University)
Dimitri Vayanos
(London School of Economics)
[View Abstract]
We present a dynamic model of risk-sharing where hedgers trade with arbitrageurs. Risk-sharing at a given point in time is determined by the arbitrageurs' effective risk aversion, which is influenced by the profitability of future trading opportunities. For example, when hedgers become more risk averse or fundamentals become more volatile, profitability increases and arbitrageurs may choose to absorb less risk. Effective risk aversion is decreasing in wealth, causing expected returns, volatilities and correlations to be hump-shaped in wealth. Risk-sharing in the long run is characterized through the stationary distribution of arbitrageur wealth. When arbitrageurs' impatience is large relative to hedgers' risk-sharing needs, the stationary density is decreasing in wealth. As hedging needs increase, the density becomes bimodal, with intermediate values of wealth being less likely than small or large ones. We connect our results to the debate on the financialization of commodities and derive empirically testable predictions. Our analysis is fully closed form.
Discussants:
Motohiro Yogo
(Federal Reserve Bank of Minneapolis)
Robin Greenwood
(Harvard University)
Darrell D. Duffie
(Stanford University)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 204-A
American Economic Association
Market Design for Auction Markets
(D7)
Presiding:
Paul Milgrom
(Stanford University)
The VCG Auction in Theory and in Practice
Hal Varian
(Google)
Chris Harris
(Google)
[View Abstract]
[Download Preview] We describe the Vickrey-Clarke-Groves auction (VCG)
for search engine advertising and describe two simple results
concerning 1) the estimation of clickthrough rates and 2) how to
adjust VCG for broad match auctions. We then describe some of
the practical issues involved in implementing such an auction.
Market Design and the Evolution of the Combinatorial Clock Auction
Lawrence Ausubel
(University of Maryland)
Oleg Baranov
(University of Colorado)
[View Abstract]
The Combinatorial Clock Auction (CCA) is a recent innovation in auction design that has been adopted for many digital dividend auctions worldwide. By incorporating package bids, it addresses many concerns of prior spectrum auctions, including demand reduction and the exposure problem. However, its performance may be impeded by weak and manipulable activity rules, a missing-bid problem and suboptimal price feedback. This paper summarizes evidence from major auctions employing the CCA format and provides a detailed account of theoretical and practical developments addressing these issues. These advances have included new activity rules, new pricing rules and an integration of non-combinatorial bids.
The Continuous Combinatorial Ascending Price Auction
Charles R. Plott
(California Institute of Technology)
[View Abstract]
[Download Preview] The continuous combinatorial auction operates with bids for combinations of items that are tendered at any instant of time (as opposed to discrete rounds) and remain as open bids until cancelled. Provisionally winning bids, those that maximize sale value, are continuously computed and thus allow bids to be fashioned and submitted in response to the current state of the auction. Operation in real time requires new stopping rules, new increment requirements and new technologies (robots) that help bidders quickly fashion bids. Experiments in complex environments reveal high efficiency levels. Applications to large private and governmental applications produce high levels of satisfaction, reveal that the auction is easy to understand and require no more than two or three hours for completion.
Deferred Acceptance Heuristic Auctions and United States Spectrum Repurposing
Paul Milgrom
(Stanford University)
Ilya Segal
(Stanford University)
[View Abstract]
We examine a novel class of procurement auctions for single-minded bidders, in which the auctioneer selects a set of bids to be accepted subject to complicated feasibility constraints that preclude optimization-based winner determination. (This setting is inspired by the U.S. Federal Communication Commission's problem of buying out a subset of broadcast TV licenses to clear spectrum for broadband use while retuning the remaining stations into the remaining TV spectrum subject to interference constraints and a possible budget constraint.) For computational feasibility, previous studies have proposed the use of "greedy acceptance" heuristics coupled with strategy-proof pricing. We instead propose a class of auctions based on a "greedy rejection" heuristic, which can be called a "deferred-acceptance" algorithm. We propose "threshold" payments to provide strategy-proof bidding.
We find that these deferred acceptance auctions (1) are strategically equivalent to clock auctions with descending bidder-specific prices in which bidders who haven't quit are acquired at their final clock prices; (2) are (weakly) group strategy-proof (and so are the corresponding clock auctions for any information disclosure policy); (3) are outcome-equivalent to their paid-as-bid counterparts with the same allocation rule under full information, using iterated elimination of weakly dominated strategies. In contrast, heuristic auctions based on a greedy acceptance heuristic generally fail properties (1)-(3), and the Vickrey auction fails these properties as well.
Discussants:
Alvin E. Roth
(Stanford University)
Tayfun Sonmez
(Boston College)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 203-A
American Economic Association
Measuring Financial Variables in the System of National Accounts
(A1)
Presiding:
W. Diewert
(University of British Columbia)
Voyage Accounting, User Costs and the Treatment of Financial Transactions in the Theory of the Firm
W. Erwin Diewert
(University of British Columbia)
[View Abstract]
[Download Preview] The paper considers some of the problems associated with the indirectly measured components of financial service outputs in the System of National Accounts (SNA), termed FISIM (Financial Intermediation Services Indirectly Measured). The paper considers how to integrate financial transactions into the balance sheet and production accounts of a firm. In order to minimize the role of imputations, the paper considers a firm that raises capital at the beginning of the accounting period, engages in some form of productive activity during the period and then distributes the initial capital and any profits back to the capitalists who financed the firm. This situation corresponds roughly to merchant trading voyages made some centuries ago.
Technological Progress, the "User Cost of Money" and the Real Output of Banks
Susanto Basu
(Boston College)
Christina Wang
(Federal Reserve Bank of Boston)
[View Abstract]
[Download Preview] Financial institutions provide their customers a variety of unpriced services and cover their costs through interest margins--Âthe interest rates they receive on assets are generally higher than the rates they pay on liabilities. In particular, banks pay below-public-market interest rates on deposits while charging above-public-market rates on loans. Various authors have suggested that this situation allows one to measure the real quantity of financial services provided without explicit prices as proportional to the real stocks of financial assets held by households. We present a general-equilibrium Baumol-Tobin model where households need bank services to purchase consumption goods. Bank deposits are the single medium of exchange in the economy. The model shows that financial services are proportional to the stocks of assets only under restrictive conditions, including the assumption that financial sector technologies grow at the same rate as technology in the nonfinancial economy. In contrast, measuring real financial output by directly counting the flow of actual services is a robust method unaffected by unbalanced technological change.
Production of Financial Services in the U.S. Economy: Completing the Picture of Credit Intermediation
Carol Corrado
(The Conference Board)
Marshall Reinsdorf
(US Bureau of Economic Analysis)
Kyle Hood
(US Bureau of Economic Analysis)
[View Abstract]
[Download Preview] Although banks are fulcrum of the financial system, the relative importance of nonbank intermediaries and financial market credit instruments has grown over time in most advanced economies. This raises the question of whether financial services provided by non-depository institutions and self-produced financial services in nonfinancial firms are appropriately captured in national accounts.
In this paper we extend the approach that is already used to measure implicitly priced financial services produced by commercial banks to the measurement of the production of such services by other kinds of depository institutions and to non-depository lenders, and we also ask whether some kinds of output have been inappropriately treated as holding gains and thus omitted from measures of production in the national accounts. We find that bringing the estimated output and consumption of implicitly priced borrower services in the United States more than doubles when borrower services provided by nonbank financial intermediaries are taken into account. We also examine patterns of consumption of implicitly priced financial services, finding large flows of such services within the financial corporations sector that shed light on its fragility and vulnerability to systemic risk. As in our earlier work (Corrado, Reinsdorf, and Hood, 2012, and Hood, 2010 and 2013), we adjust our measures of borrower services to exclude interest that is earmarked to cover losses of principal due to defaults. When applied to U.S. commercial banks, this adjustment lowers the level of implicit services and substantially alters its trajectory during and after the Great Recession.
Finally, we attempt also to measure self-produced financial services of nonfinancial corporations connected to accessing credit and managing liquidity. This topic, which to our knowledge has not been addressed in the economics literature, raises questions similar to those addressed in the literature on measuring implicit financial output, such as whether the measure of total production of financial services is invariant to the channel through which financial services are provided. To address self-production of financial services, we exploit (1) income and balance sheet data from the Integrated Macroeconomic Accounts, (2) detailed surveys of compensation and occupations in corporate treasurers' offices from a private source (Association of Finance Professions), and (3) a dataset in which estimates of employment and compensation by detailed occupation (2002 SOC codes) are developed from multiple sources and controlled to information in the U.S. national accounts (Corrado and Hao, 2013 forthcoming).
Financial Services Output in the National Accounts: Evidence from United States Banking Data
Kim Zieschang
(International Monetary Fund)
Dennis Fixler
(US Bureau of Economic Analysis)
[View Abstract]
[Download Preview] Financial services output in the national accounts has been a source of controversy for decades, since the first recommendations on indirect financial service measurements were introduced in the 1953 version of the international accounting standard-the System of National Accounts (SNA). While refinements have been introduced in successive versions of the SNA, up to the most recent, 2008 SNA, definitive implementation of the SNA recommendation for financial services has remained elusive. In a recent paper, Zieschang (2013) identifies three components of the SNA's "financial intermediation services indirectly measured" or "FISIM": account servicing, asset management, and risk intermediation. This paper provides empirical evidence from US bank data for 2001-2012 from the Federal Deposit Insurance Corporation on the importance of these three components-notably the size of risk intermediation relative to the other two components-in the process settling several questions with practical implementation of the SNA's FISIM concept, the most important of these being how to determine the "reference rate of interest" that is key to the calculation. An alternative, satellite presentation of financial services production also is discussed that traces the flow of the risk bearing primary services underlying SNA FISIM's risk intermediation component back to the equity holding sectors from which they originate.
Discussants:
Susanto Basu
(Boston College)
Dennis Fixler
(Bureau of Economic Analysis)
Kim Zieschang
(International Monetary Fund)
Marshall Reinsdorf
(Bureau of Economic Analysis)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 103-C
American Economic Association
New Perspectives on the Returns to College
(I2)
Presiding:
David Card
(University of California-Berkeley)
Personality, IQ, and Lifetime Earnings
Miriam Gensowski
(University of Copenhagen)
[View Abstract]
[Download Preview] In this paper, I show that even in a group of high-IQ men and women, lifetime earnings are substantially influenced by their education and personality traits.
I identify a previously undocumented interaction between education and traits in the earnings generation, which results in important heterogeneity of the
net present value of education. Personality traits directly affect men's earnings, with effects only developing fully after age 30. These effects play a much larger role for the earnings of more educated men. Personality and IQ also influence earnings indirectly through educational choice. Surprisingly, education and personality skills do not always raise the family earnings of women in this cohort, as women with very high education and IQ are less likely to marry, and thus have less income through their husbands. To identify personality traits, I use a factor model that also serves to correct for prediction error bias, which is often ignored in the literature. This paper complements the literature on investments in education and personality traits by showing that they also have potentially high returns at the high end of the ability distribution.
Labor Market Returns to Community College in Michigan
Susan M. Dynarski
(University of Michigan)
Brian Jacob
(University of Michigan)
Daniel Kreisman
(University of Michigan)
[View Abstract]
Linking UI wage records to student-level administrative data from a diverse subset of community colleges in Michigan, we estimate labor market returns to enrollment, course credits and award receipt through the great recession. The panel nature of our earnings data allows us to estimate how these returns accrue with experience across both field of study and type of award. While our point estimates are consistent with previous work, we show that much of the economic returns to awards are concentrated in only a few fields, nursing (for women) and vocational (for men), and that returns to Certificates are less persistent than those for Associate's degrees. In addition, we test functional form assumptions in estimating sheepskin effects, returns to credits for non-completers, and in accounting for simultaneous enrollment and employment decisions common in the literature.
Heterogeneous Paths Through College: Detailed Patterns and Relationships with Graduation and Earnings
Rodney J. Andrews
(University of Texas-Dallas)
Jing Li
(University of Tulsa)
Michael F. Lovenheim
(Cornell University)
Disaggregating the Returns to College
Amanda Yvonne Agan
(Princeton University)
[View Abstract]
Almost half of postsecondary students are currently enrolled in community colleges. These institutions imply that even amongst students with the same degree outcome there is considerable heterogeneity in the path taken to get there. I estimate the life-cycle private and social returns to the different postsecondary paths and sequential decisions made by the students using data from the National Longitudinal Survey of Youth 1979 (NLSY79). My approach highlights both the benefits and the costs of different postsecondary choices, as well as taking account of the fact that wage premia are not constant over the life-cycle. I find positive, significant social and private returns for most postsecondary paths and decisions. Significantly lower opportunity and direct costs for paths that involve community college make the internal returns to these paths high. Even for paths that lead to the same final degree, returns and present values are different due to different costs and earnings over the life-cycle. I also analyze the different programs and majors offered by community colleges separately. For this, I supplement the analysis in the NLSY79 with additional data from the Beginning Postsecondary Students Survey (BPS), the Census, and the Current Population Survey (CPS). I estimate high returns to science, technology, engineering, and mathematics (STEM) majors, business, and health majors at community college as compared to other majors. I find that both occupational and academic associate's degrees give significant returns to men and women.
Discussants:
Jeffrey Smith
(University of Michigan)
Stephanie Cellini
(George Washington University)
Joshua Kinsler
(University of Rochester)
Peter Bergman
(Columbia University-Teachers College)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 202-B
American Economic Association
Price Stickiness: Causes and Consequences
(E3)
Presiding:
Peter Klenow
(Stanford University)
Explicit Evidence on an Implicit Contract
Andrew T. Young
(West Virginia University)
Daniel Levy
(Bar-Ilan University)
[View Abstract]
We offer the first direct evidence of an implicit contract in a goods market. The evidence we offer comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a substantial amount of written evidence of its implicit contract with its consumers-a very explicit form of an implicit contract. The contract represented the promise of a five cent (nominal) price and adherence to the "Secret Formula". In general, the implicit nature of such contracts makes observation difficult. To overcome this difficulty, we adopt a narrative approach. Based on the analysis of a large number of historical documents obtained from the Coca-Cola Archives and other sources, we offer evidence of the Coca-Cola Company both acknowledging and acting on this implicit contract. We also make another unique contribution by exploring quality as a margin of adjustment available to Coca-Cola. The implicit contract included a promise not only of a constant nominal price but also a constant quality (i.e., 6.5 oz. of the Secret Formula). During a period of over 70 years, we find evidence of only a single case of true quality change. By studying the margin of adjustment the Coca-Cola Company chose in response to changes in market conditions, we demonstrate that the perceived costs of breaking the implicit contract were large. We argue that one piece of direct evidence on the magnitude of these costs is the aftermath "New Coke's" introduction in 1985.
The Effects of Price Endings on Price Rigidity: Evidence from VAT Changes
Edward S. Knotek II
(Federal Reserve Bank of Cleveland)
Doron Sayag
(Israel Central Bureau of Statistics)
Avichai Snir
(Netanya Academic College)
[View Abstract]
Price rigidity is a key source of monetary nonneutrality in macroeconomic models, but the structural rationale for sticky prices remains understudied. Notably, most macro models either assume that prices are sticky for random intervals or ascribe price rigidity to the physical "menu costs" of changing prices. This paper examines the role of price endings in generating price rigidity using micro price data that underlie the construction of the Israeli consumer price index. As the marketing and retailing literatures establish, price endings make some prices more attractive than others to retailers, though the choice of what constitutes an attractive ending differs by establishment-type: supermarkets selling many goods to a customer focus on nine-ending price points, while establishments selling few goods to a customer tend to use zero-ending convenient prices. Across a range of econometric specifications, we find that the attractive price ending of choice in each establishment-type induces significantly more price rigidity-econometric estimates put the lower bound at 5 percentage points in terms of the frequency of price changes-than other endings. Using changes to the VAT rate as a source of common economy-wide shocks, we show that the dynamic behavior of prices differs markedly depending on price endings as well.
Rational Inattention, Multi-Product Firms and the Neutrality of Money
Ernesto Pasten
(Bank of Chile and Toulouse School of Economics)
Raphael Schoenle
(Brandeis University)
[View Abstract]
[Download Preview] We explore the impact of monetary policy on the real economy in a model of rational inattention. In our model, which accounts for the multi-product nature of firms, the real impact of monetary policy is much lower than in a less realistic model in which firms produce only one good. This result is due to economies of scope in information processing: As firms produce more goods, the return to gathering information on common monetary, rather than good-specific, shocks increases. When we calibrate our multi-product firm model to US CPI data, we find that monetary policy has minimal real effects. Calibrating our model to PPI data, in which firms price a much smaller number of goods, suggests only modest non-neutrality.
Real Rigidities and Nominal Price Changes
Peter J. Klenow
(Stanford University)
Jonathan L. Willis
(Federal Reserve Bank of Kansas City)
[View Abstract]
A large literature seeks to provide microfoundations of price setting for macro models. A challenge has been to develop a model in which monetary policy shocks have the highly persistent effects on real variables estimated by many studies. Nominal price stickiness has proved helpful but not sufficient without some form of "real rigidity" or "strategic complementarity." We embed a model with a real rigidity a la Kimball (1995), wherein consumers flee from relatively expensive products but do not flock to inexpensive ones. We estimate key model parameters using micro data from the U.S. CPI, which exhibit sizable movements in relative prices of substitute products. When we impose a significant degree of real rigidity, fitting the micro price facts requires very large idiosyncratic shocks and implies large movements in micro quantities.
Discussants:
Benjamin Malin
(Federal Reserve Bank of Minneapolis)
Eric Anderson
(Northwestern University)
Oleksiy Kryvtsov
(Bank of Canada)
Etienne Gagnon
(Federal Reserve Board)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon E
American Economic Association
Providing Evidence-Based Policy Advice
(A2) (Panel Discussion)
Panel Moderator:
Klaus Zimmermann
(IZA and Bonn University)
Richard Blundell
(University College London)
Richard B. Freeman
(Harvard University)
Daniel S. Hamermesh
(University of Texas-Austin and Royal Holloway, University of London)
James J. Heckman
(University of Chicago)
Robert Moffitt
(Johns Hopkins University)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 201-A
American Economic Association
Structural Change, International Trade, and Real Exchange Rate
(O4)
Presiding:
Enrique Mendoza
(University of Pennsylvania)
Global Imbalances and Structural Change in the United States
Kim Ruhl
(New York University)
Timothy Kehoe
(University of Minnesota)
Joseph Steinberg
(University of Toronto)
[View Abstract]
The United States has borrowed heavily from the rest of the world since the early 1990s. At the same time, the share of employment in goods-producing sectors has fall dramatically. We build a general equilibrium model of the United States and the rest of the world to assess the quantitative impact of U.S. borrowing on goods-sector employment, both in the past and the future. We find that U.S. borrowing is not an important driver of sectoral employment dynamics between 1992 and 2011 - differences in productivity growth across sectors is the most important factor. When the U.S. begins to repay its debt to the rest of the world, its trade balance will permanently reverse but goods-sector employment will continue to fall.
Do Falling Iceberg Costs Explain Recent United States Export Growth?
George A. Alessandria
(Federal Reserve Bank of Philadelphia)
Horag Choi
(Monash University)
[View Abstract]
We study empirically and theoretically the growth of U.S. manufacturing exports from 1987 to
2007. We show that the changes in iceberg costs over this period can be identified with plant-level
data on exporters' export intensity. Given this change in iceberg costs, we find that a GE model
with heterogeneous establishments and a sunk cost of starting to export is consistent with both
aggregate U.S. export growth and the changes in the number and size of U.S. exporters. The model
also captures the non-linear dynamics of U.S. export growth. Without a sunk export cost, the
model generates substantially less trade growth and misses out on the timing of export growth.
We also study the interplay between changes in the structure of manufacturing and trade. We find
the growth in trade contributed little to the contraction in U.S. manufacturing while changes in
the structure of manufacturing from changes in sectoral productivity, capital intensity, idiosyncratic
shocks and corporate taxation help to explain changes in export growth.
Relative Prices and Sectoral Productivity
Diego Restuccia
(University of Toronto)
Margarida Duarte
(University of Toronto)
[View Abstract]
The relative price of services rises with development. A standard interpretation of this fact
is that cross-country productivity differences must be larger in manufacturing (tradables)
than in services (non-tradables). Using detailed data from the International Comparison
Program we disaggregate the service sector and show that the behaviour of the relative
price is markedly different across two broad classifications of services: traditional services
such as government, health, and education featuring a rising relative price with development
and non-traditional services such as communication, transportation, insurance and financial
services featuring a declining relative price. Moreover, there is a structural transformation
within services whereby the share of non-traditional services rises with development. What
are the productivity implications of disaggregating the service sector? Using a simple devel-
opment accounting framework and a model of the structural transformation within services,
we find that cross-country productivity dierences are large in non-traditional services, at
least as large as those in manufacturing. Development requires also an emphasis on solving
the productivity problem in non-traditional services in poor countries.
International Competitiveness and Monetary Policy
Paul Bergin
(University of California-Davis)
Giancarlo Corsetti
(Cambridge University)
[View Abstract]
Can a country gain international competitiveness by the design of optimal monetary stabilization rules? This paper develops an open-economy monetary model encompassing comparative advantage and an externality that makes entry of domestic firms in the manufacturing sector socially desirable. Monetary authorities thus trade-off output gap with pro-competitive stabilization. While helping manufacturing firms to set competitively low prices, self-oriented optimal stabilization nonetheless results in stronger terms of trade, due to the change in the country’s specialization and composition of exports. Empirical evidence confirms that the effects of monetary policy design on the composition of trade predicted by the theory are present in data and are quantitatively important.
Discussants:
Douglas Gollin
((Williams College))
Kei-Mu Yi
(Federal Reserve Bank of Minneapolis)
Vivian Yue
(Federal Reserve Board)
Yongseok Shin
(Washington University-St Louis)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon F
American Economic Association
Theory and Measurement of Intangible Capital
(E2)
Presiding:
Edward Prescott
(Arizona State University)
A Reassessment of Real Business Cycle Theory
Ellen R. McGrattan
(Federal Reserve Bank of Minneapolis)
Edward C. Prescott
(Arizona State University)
[View Abstract]
[Download Preview] Recent economic events --- the Great Recession of 2008--2009 and the subsequent slow recovery ---have led many economists to question the usefulness of neoclassical theory for the study of business cycles. Most of the critiques are reserved for real business cycle theories which assume that cyclical variations are driven in large part by shocks to total factor productivity (TFP). The argument is that TFP-driven cycles imply a high correlation between output and labor productivity and this prediction is inconsistent with recent observations. In earlier work, we showed that real business cycle theory is not inconsistent with facts of the recent downturn once investment in intangible capital is included in the analysis. Because it is expensed, investment in intangible capital is not included in measures of business value added and, therefore, GDP. In a typical downturn, GDP falls but investments fall by more in percentage terms. By measuring labor productivity as the ratio of GDP to the total labor input, one underestimates the fall in total output that includes the unmeasured investment. As a result, the fall in actual labor productivity is underestimated and thus the published statistics are seemingly at odds with theory. In this paper, we explore the quantitative evidence, looking to see if there is support for RBC theory appended to include investment in intangible capital made by U.S. businesses. Specifically, we investigate U.S. recessions and booms in the post-World War II period.
Customer Capital over the Business Cycle
Francois Gourio
(Boston University)
Leena Rudanko
(Boston University)
[View Abstract]
We study the importance of investment in customer base---a specific form of intangible capital---over the business cycle. First, we build a model of long-term customer relationships where firms invest resources to acquire new customers. Next, we embed this model in the standard macroeconomic neoclassical framework. In our model, an increase in productivity leads firms to increase investment in their customer base. This additional investment leads firms to expand employment more than they would if product markets were frictionless. Viewed through the lens of neoclassical theory, our model generates a substantial ``labor wedge'' between the marginal product of labor and the marginal rate of substitution of households. This result also holds when we consider impulses other than to productivity. Additionally, our model is consistent with several features of business cycles such as the hump-shape of investment and output, and the procyclicality of advertising expenditures. We use data on employment by occupation to evaluate the magnitude of the labor wedge explained by our channel. We classify occupations according to how much time workers spend on acquisition of long-term relationships as opposed to current production. We find that occupations that are geared towards long-term customer acquisition are more procyclical, and use this to discipline our quantitative evaluation. Our paper also speaks to the relative importance of ``demand shocks'' (output being limited by the cost of selling) vs. ``supply shocks'' (output being limited by the cost of producing). In earlier work, we studied a search and matching model of customer base and studies the empirical implications for firm dynamics in different industries. In contrast, this paper uses a simpler model (without a matching function) and considers business cycle implications. Hence, the two papers are very different.
The Value and Ownership of Intangible Capital
Andrea Eisfeldt
(University of California-Los Angeles)
Dimitris Papanikolaou
(Northwestern University)
[View Abstract]
Two distinguishing features of many types of intangible capital are: (1) It is partly firm specific, and (2) It is partly embodied in key labor inputs. Because key talent is necessary for a firm to efficiently deploy such intangible capital (for example, managerial capital, information capital, and organization capital), the property rights over these types of intangible capital are quite different from those over physical capital. The distinct ownership structure for intangible capital which relies on essential human inputs presents a unique challenge for measurement. In particular, it implies that it is not possible to estimate the value of intangible capital as a residual of market over book values of capital. Such residuals underestimate the value of intangible capital which relies on key labor inputs. In earlier work, we documented variation in the cross section in the relative contribution of organization capital to firms' capital stocks. We showed how the sharing rule for cash flows from organization capital to the firm's owners and to the firm's key talent leads to cross-sectional variation in the cost of capital. Thus, we focused on relative variation in expected returns or discount rates in the cross section, and not on relative values for the levels of organization or intangible capital. The present paper constructs relative estimates of the contribution of intangible capital to total capital over time and across industries. Our estimates are based on flow payments to labor and capital inputs, combined with data describing the relative bargaining power of firm owners vs. necessary key talent, and appropriate risk adjusted discount rates. We also show how relative measures of the value of intangible capital can be used to reinterpret changes in aggregate stock market values over time and across industries.
Discussants:
Dirk Krueger
(University of Pennsylvania)
Lukasz Drozd
(University of Pennsylvania)
Andrew Atkeson
(University of California-Los Angeles)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 202-A
American Economic Association
Topics in Treasury Markets
(G1)
Presiding:
Monika Piazzesi
(Stanford University)
Risk Premia in the 8:30 Economy
Jon Faust
(Johns Hopkins University)
Jonathan Wright
(Johns Hopkins University)
[View Abstract]
Financial asset returns are widely agreed to be somewhat predictable. This paper is concerned with decomposing these predictable returns into those earned in short windows around the times of macroeconomic news announcements (which mostly come out at 8:30am) and the predictable returns that are earned at other times. The statistically significant predictability in bond returns appears to accrue only around news announcements. Were it not for the effects of news announcements, we could not reject the expectations hypothesis. This can be interpreted as direct evidence for a time-varying price of jump risk. It also motivates consideration of a trading strategy that takes a position in bonds only around news announcements.
The Impact of Quantitative Easing on the United States Term Structure of Interest Rates
Robert Jarrow
(Cornell University)
Hao Li
(Cornell University)
[View Abstract]
[Download Preview] This paper estimates the impact of the Federal Reserve's 2008 - 2011 quantitative easing (QE) program on the U.S. term structure of interest rates. Different from other studies, we estimate an arbitrage-free term structure model that explicitly includes the quantity impact of the Fed's trades on Treasury market prices. As such, we are able to estimate both the magnitude and duration of the QE price effects. We show that the Fed's QE program affected forward rates without introducing arbitrage opportunities into the Treasury security markets. Short- to medium- term forward rates were reduced (less than twelve years), but the QE had little if any impact on long-term forward rates. This is in contrast to the Fed's stated intentions for the QE program. The persistence of the rate impacts increased with maturity up to 6 years then declined, with half-lives lasting approximately 4, 6, 12, 8 and 4 months for the 1, 2, 5, 10 and 12 year forwards, respectively. Since bond yields are averages of forward rates over a bond's maturity, QE affected long-term bond yields. The average impacts on bond yields were 327, 26, 50, 70, and 76 basis points for 1, 2, 5, 10 and 30 years, respectively. These yield impacts are consistent with those estimated in the existing literature.
Risk and Return Trade-Off in the United States Treasury Markets
Eric Ghysels
(University of North Carolina-Chapel Hill)
Anh Le
(University of North Carolina-Chapel Hill)
Sunjin Park
(University of North Carolina-Chapel Hill)
Haoxiang Zhu
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper characterizes the risk-return trade-off in the U.S. Treasury markets. We propose a discrete-time no-arbitrage term structure model, in which bond prices are solved in closed form and the conditional variances of bond yields are decomposed into a short-run component and a long-run component, each of which follows a GARCH-type process. Estimated using Treasury yields data from January 1962 to August 2007, our model simultaneously matches the conditional volatility dynamics and the deviation from the expectations hypothesis in the data. We find that a higher short-run volatility component of bond yields significantly predicts a higher future excess return, above and beyond the predictive power of the yields. The long-run volatility component does not predict bond excess returns.
Trend and Cycle in Bond Premia
Monika Piazzesi
(Stanford University)
Juliana Salomao
(Stanford University)
Martin Schneider
(Stanford University)
[View Abstract]
[Download Preview] Common statistical measures of bond risk premia are volatile and countercyclical. This paper uses survey data on interest rate forecasts to construct subjective bond risk premia. Subjective premia are less volatile and not very cyclical; instead they are high only around the early 1980s. The reason for the discrepancy is that survey forecasts of interest rates are made as if both the level and the slope of the yield curve are more persistent than under common statistical models.
Discussants:
Pierluigi Balduzzi
(Boston College)
Tobias Adrian
(Federal Reserve Bank of New York)
Torben Andersen
(Northwestern University)
Gregory Duffee
(Johns Hopkins University)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 204-B
American Economic Association
Understanding the Auction Process: New Theories and Empirical Evidence
(L2)
Presiding:
Ulrike Malmendier
(University of California-Berkeley)
Sales Mechanisms in Online Markets: What Happened to Internet Auctions?
Liran Einav
(Stanford University)
Chiara Farronato
(Stanford University)
Jonathan Levin
(Stanford University)
Neel Sundaresan
(eBay Research Labs)
[View Abstract]
[Download Preview] Consumer auctions were very popular in the early days of internet commerce, but today online sellers mostly use posted prices. Data from eBay shows that compositional shifts in the items being sold, or the sellers offering these items, cannot account for this evolution. Instead, the returns to sellers using auctions have diminished. We develop a model to distinguish two hypotheses: a shift in buyer demand away from auctions, and general narrowing of seller margins that favors posted prices. Our estimates suggest that the former is more important. We also provide evidence on where auctions still are used, and on why some sellers may continue to use both auctions and posted prices.
Bid Takers or Market Makers? The Effect of Auctioneers on Auction Outcomes
Nicola Lacetera
(University of Toronto)
Bradley Larsen
(Massachusetts Institute of Technology)
Devin G. Pope
(University of Chicago)
Justin R. Sydnor
(University of Wisconsin - Madison)
[View Abstract]
[Download Preview] A large body of research has explored the importance of auction design and information structure for auction outcomes. Much less work has considered the importance of the auction process. For example, in many auctions, auctioneers are present and can impact the process of the auction by varying starting prices, level of price adjustments, the speed of the auction, the way they interact with auction participants, or their characteristic chant that is intended to excite buyers. We explore the importance of auction process by testing whether auctioneers can have a systematic difference on auction outcomes. We analyze more than 850,000 wholesale used car auctions and find large and significant differences in outcomes (probability of sale, price, and auction speed) across auctioneers. The performance heterogeneities are stable across time and correlate with subjective evaluations of auctioneers provided by the auction house. Although the available data here do not allow us to conclusively isolate mechanisms, a range of evidence suggests a role for tactics that generate excitement among bidders. Overall, these findings illustrate the complexities of auction environments and how outcomes can be impacted by subtle changes in process.
"Setting the Tone" and "Drawing the Line" in Chittagong Tea Auctions
Tanjim Hossain
(University of Toronto)
Fahad Khalil
(University of Washington)
Matthew Shum
(California Institute of Technology)
[View Abstract]
[Download Preview] We characterize the impact of the auctioneer in a large market in the context of tea auctions in Chittagong, Bangladesh. Rather than naïvely applying agency logic, we argue that the auctioneer's behavior is better understood using the lens of market design. In a rapidly moving auction, with four lots of teas sold per minute, we find that there is positive externality on subsequent lots from raising the acceptable price for a lot. Hence, an auctioneer, who must prevent auction prices from collapsing, will attempt to withdraw teas that are not fetching high prices, incurring short run costs. Because the auctioneer needs to keep the sellers' trust that he is taking the best actions for them, he implements such a withdrawal policy mainly with the tea produced by estates in which he has a stake. While these teas receive a high price when sold, they sell less frequently creating an overall positive impact on market prices. Thus, it is the auctioneer's desire to appear non-opportunistic, rather than opportunism, which results in his differential treatment of tea from estates which are related and not related to him.
Noise Bidders in Auctions
Ulrike Malmendier
(University of California-Berkeley)
Adam Szeidl
(Central European University)
[View Abstract]
How large is effect of biased agents on market outcomes? We show that, contrary to common arbitrage or 'noise-traders' intuition, even a small share of biased agents can have a large impact in several empirically important market settings. First, we show that, in auctions, a few overbidders disproportionately increase prices because the auction format "fishes" for overbidders. Their overbidding can create large welfare losses by crowding out the demand of rational bidders with higher values. More generally, any market that is "thin" in the sense of a high buyer-to-seller ratio generates similar amplification effects in prices and welfare. Second, sellers endogenously increase the amplification of biases by choosing thin markets even when they are less efficient. Specifically, sellers have incentives to separate transactions in space and time in order to create thin local markets where biased agents are more likely to become marginal and set high prices. Third, dynamically, the fishing mechanism creates bubbles when there is an inflow of biased agents, and crashes when these agents purchase and exit. We relate the amplification, selection, dynamic effects of fishing for fools to stylized facts in several thin markets, including mergers and acquisitions, IPOs, spectrum auctions, and the housing market, and provide direct evidence from eBay auctions.
Discussants:
David Reiley
(Google Inc.)
Jennifer Brown
(Northwestern University)
Mallesh Pai
(University of Pennsylvania)
Steven Tadelis
(University of California-Berkeley and eBay Research Labs)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
A Woman's Touch: Women in Senior Leadership Positions
(G3)
Presiding:
Paola Sapienza
(Northwestern University)
Breaking the Glass Ceiling: The Effect of Board Quotas on Female Labor Market Outcomes in Norway
Marianne Bertrand
(University of Chicago)
Sandra Black
(University of Texas-Austin)
Sissel Jensen
(Norwegian School of Economics)
Adriana Lleras-Muney
(University of California-Los Angeles)
Lehman Sisters
Renne Adams
(University of New South Wales)
Vanitha Raguratham
(University of Queensland)
[View Abstract]
[Download Preview] Would the crisis have happened if Lehman Brothers had been Lehman Sisters? Evidence on population gender differences in risk-aversion suggest not. Consistent with the idea that female managers need not be more risk-averse than men, we find that listed banks with more female directors did not engage in fewer risk-taking activities around the crisis and did not have lower risk than other banks. However, banks with more diverse boards had better performances, even in instrumental variable regressions. Our results suggest that more gender diversity is not necessarily associated with less risk. However, diversity may be valuable in crisis situations.
What Drives Women Out of Entrepreneurship? The Joint Role of Testosterone and Culture
Luigi Guiso
(Einaudi Institute for Economics and Finance )
Aldo Rustichini
(University of Minnesota)
[View Abstract]
The ratio of second to fourth digit (2D4D) has been shown to correlate negatively with entreprenurial skills and financial success. We document that in a sample of entrepreneurs women have a lower 2D4D ration than men, in sharp contrast with the features of the distribution in random samples. Exploiting variation across communities in indicies correlated with women emancipation, we show that in regions where women are less emancipated their average DR is lower than that of men compared to regions with higher indices. This finding is consistent with the existence of gender related obstacles into entrepreneurship so that only women with well above aberage entrepreneurial skills find it attractive to self-select into entrepreneurship.
This finding can rationalize three facts: a) fewer women than men are entrepreneurs; b) the proportion of women among entrepreneurs tends to be higher in countries with higher women emancipation; c) women who break the barrier into entrepreneurship seem
Discussants:
Lori Beaman
(Northwestern University)
Geoffrey Tate
(University of North Carolina)
David A. Matsa
(Northwestern University)
David Cesarini
(New York University)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Financial Analysts
(G1)
Presiding:
Harrison Hong
(Princeton University)
Does the Size of Sell-Side Analyst Industry Matter? An Examination of Bias, Accuracy and Information Content of Analyst Reports
Kenneth Merkley
(Cornell University)
Roni Michaely
(Cornell University)
Joseph Pacelli
(Cornell University)
[View Abstract]
[Download Preview] This paper examines factors related to changes in the scope of the sell-side analyst industry and whether such changes affect the quality of analyst reports as well as how information is impounded into prices. We find that factors commonly associated with economic and financial market growth and profitability within the financial services industry are positively associated with growth in the analyst industry. We also find evidence of a differential growth pattern for analysts that work for investment banks compared with those that do not based on a quasi-natural experiment using changes in financial regulations. Furthermore, increased analyst presence results in better functioning markets across several dimensions: forecasts are more accurate and less biased, and their information is impounded into prices faster. These results are consistent using both standard regression analysis and quasi-natural experiments that attempt to examine causality more precisely. Overall, the findings suggest that analysts provide positive externalities to financial markets.
On the Performance of Financial Analysts
Byoung-Hyoun Hwang
(Purdue University)
Jose Liberti
(DePaul University)
Jason Sturgess
(DePaul University)
[View Abstract]
[Download Preview] We study the degree to which performance of financial analysts is person-specific, i.e., independent of the brokerage employing the analyst in question, versus broker-resource related, which influences performance through research support, relationships with companies, and spillovers with the set of in-house colleagues the analyst can interact with. Using brokerage house mergers and “real†firm mergers as shocks to the analyst work environment, we provide evidence that most performance is tied to the analyst him-/herself, but also that spillovers can affect individual performance. The findings imply that human capital is portable and that human-capital theories of the firm might explain individual performance in knowledge-based industries, such as the financial industry.
Is Sell-Side Research More Valuable in Bad Times?
Roger Loh
(Singapore Management University)
René M. Stulz
(Ohio State University)
[View Abstract]
[Download Preview] In bad times, uncertainty is high, so that investors find it more difficult to assess the prospects of the firms they invest in. Learning models suggest that in such times investors should, everything else equal, value informative signals such as analyst forecasts and recommendations more than in good times. However, the higher uncertainty in bad times and career concerns stemming from troubled employers may make the task of analysts harder, so that analyst output is noisier and hence less valuable in bad times. Consequently, whether analyst forecasts and recommendations are more valuable during bad times is an empirical matter. We examine a large sample of analyst output from 1983 to 2011. We find that analysts work harder in bad times, but their earnings forecasts accuracy is worse and that they disagree more. Despite more inaccurate earnings forecasts, revisions to earnings forecasts and stock recommendations have a more influential stock-price impact during bad times as predicted by a learning model.
Common Analyst -Based Method for Defining Peer Firms
Markku Kaustia
(Aalto University)
Ville Rantala
(Aalto University)
[View Abstract]
[Download Preview] We develop a method for defining groups of peer firms based on having sufficiently many common sell-side analysts. Besides industry boundaries, analysts' coverage choices can reflect other important aspects of firm relatedness. We find that the common analysts -method produces substantially more homogenous groups of firms compared to standard industry classifications, and has a number of other desirable properties. The paper has two broader implications. First, it demonstrates the advantages of a self-organizing approach to classification, as opposed to a hierarchical system. Second, it illustrates a new potential positive information production externality generated by the institution of security market analysis.
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
High Frequency Trading
(G1)
Presiding:
Barbara Rindi
(Bocconi University and IGIER)
High Frequency Quoting: Short-Term Volatility in Bids and Offers
Joel Hasbrouck
(New York University)
[View Abstract]
[Download Preview] High-frequency changes, reversals, and oscillations can lead to volatility in a market?s bid and offer quotes. This volatility degrades the informational content of the quotes, exacerbates execution price risk for marketable orders, and impairs the reliability of the quotes as reference marks for the pricing of dark trades. This paper examines variance on time scales as short as fifty milliseconds for the National Best Bid and Offer (NBBO) in the US equity market. On average, in a 2011 sample, NBBO variance at the fifty millisecond time scale is approximately four times larger than can be attributed to long-term fundamental price variance. The historical picture is complex. There is no marked upward trend in short-term quote volatility over 2001-2011. Its character, though, has changed. In the early years (and especially prior to Reg NMS) quote volatility is driven by large spikes in bids and offers. In later years it is more a consequence of high-frequency oscillations comparable to t
Tick Size Constraints, Market Structure, and Liquidity
Jiading Gai
(University of Illinois-Urbana Champaign)
Chen Yao
(University of Warwick)
Mao Ye
(University of Illinois-Urbana Champaign)
[View Abstract]
[Download Preview] We argue that a one-penny minimum tick size for all stocks priced above $1 (SEC rule 612) encourages high-frequency trading and taker/maker–fee markets. We find that non-high frequency traders (non-HFTers) are 2.7 times more likely than HFTers to provide best prices, thereby establishing price priority. However, while relatively large tick sizes constrain non-HFTers from providing better prices, HFTers’ speed advantage helps them establish time priority over non-HFTers. Because liquidity providers can undercut prices by paying a maker fee, non-HFTers enter the taker/maker market more frequently than HFTers; this tendency is even stronger when tick size constraints are high. When stock splits increase relative tick size, speed competition in liquidity provision increases and volume shifts to the taker/maker market, although without improving liquidity. Thus recent proposals to increase tick size will not improve liquidity. Instead, they will generate further speed competition and taker/marker markets.
High-frequency Trading around Macroeconomic News Announcements: Evidence from the US Treasury Market
George Jiang
(Washington State University)
Ingrid Lo
(Bank of Canada)
Giorgio Valente
(University of Essex)
[View Abstract]
[Download Preview] This paper examines high-frequency (HF) trading in the US Treasury market around major macroeconomic news announcements. Using a comprehensive tick-by-tick data set, we identify HF trades and limit orders based on the speed of submission that is deemed beyond manual capacity. Our results show that HF trading increases market volatility during pre- and post-announcement periods. Amid information uncertainty, HF trading has an adverse effect on market liquidity and does not enhance the price efficiency of US Treasury securities. On the other hand, following information arrival, HF trading narrows bid-ask spreads and has a positive effect on price efficiency.
Discussants:
Jeffrey Russell
(University of Chicago)
Gideon Saar
(Cornell University)
Charles Jones
(Columbia University)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom B
American Finance Association
Managerial Agency Costs
(G3)
Presiding:
Bruce Carlin
(University of California-Los Angeles)
Does Family Control Matter? International Evidence from the 2008-2009 Financial Crisis
Karl V. Lins
(University of Utah)
Paolo Volpin
(London Business School)
Hannes F. Wagner
(Bocconi University)
[View Abstract]
[Download Preview] We study whether and how family control affects valuation and corporate decisions
during the 2008–2009 financial crisis using a sample of more than 8,500 firms from
35 countries. We find that family-controlled firms underperform significantly, they cut investment more relative to other firms, and these investment cuts are associated with greater underperformance. Further, we find that within family groups liquidity shocks are passed on through investment cuts across the group. Our evidence is consistent with families taking actions to increase the likelihood that the firms under their control and their control benefits survive the crisis, at the expense of outside shareholders.
Performance Share Plans: Valuation, Optimal Design, and Empirical Tests
Craig W. Holden
(Indiana University)
Daniel S. Kim
(Peking University)
[View Abstract]
[Download Preview] Performance share plans are an increasingly important component of executive compensation. A performance share plan is an equity-based, long-term incentive plan where the number of shares to be awarded is a quasi-linear function of a performance result over a fixed time period. A special case is a performance-vested share plan, which provides a fixed number of shares whenever a performance result exceeds a threshold goal. We begin by documenting the size and importance of performance share plans and performance-vested share plans. Next, we derive closed-form formulas for the value of a performance share plan or performance-vested share plan when the performance measure is: (1) a non-traded measure following an Arithmetic Brownian Motion (e.g., earnings per share), (2) a non-traded measure following a Geometric Brownian Motion (e.g., revenue), or (3) the price of a traded asset following a Geometric Brownian
Motion (e.g., a stock price). Next, in a principal-agent setting we solve for the optimal design of a performance share plan that maximizes outside shareholder wealth while accounting for the incentive effect on executive effort. We find that the optimal performance share plan is linear (has no upper bound) and that performance-vested share plans are not optimal. Next, we compare the actual plan parameters to optimal parameters. We conclude that a standard principal-agent model cannot rationalize observed performance share plans or observed performance-vested share plans. Finally, we compare the perfect foresight value of plans to our new valuation formulas, the reported values on proxy statements, and heuristic values. We find that our valuation formulas do better or tie reported value and heuristic value in matching the magnitude of perfect foresight value. We find that our valuation formulas are generally more accurate, but not always. The policy implication is that FASB should require that grant date fair value be estimated using valuation formulas such as ours.
The Agency Costs of Managerial Indiscretions: Sex, Lies, and Firm Value
Brandon N. Cline
(Mississippi State University)
Ralph A. Walkling
(Drexel University)
Adam S. Yore
(Northern Illinois University)
[View Abstract]
[Download Preview] We examine a sample of executives accused of indiscretions in their personal lives for actions explicitly unrelated to the operations of their firm. These include accusations of violence, substance abuse, dishonesty, and sexual misadventure. While these actions are personal in nature, we find that they signal substantial agency costs for the firm. Companies of accused executives experience significant short-term and long-term wealth losses, and reduced operating performance in the period surrounding the alleged indiscretion. These firms are also more likely to be involved in shareholder-initiated lawsuits, DOJ/SEC investigations, and are significantly more likely to manage their earnings. While a large proportion of our executives keep their jobs after an alleged indiscretion, we do find that CEOs are significantly more likely to be fired for their missteps.
Discussants:
Margarita Tsoutsoura
(University of Chicago)
Barney Hartman-Glaser
(Duke University)
Amit Seru
(University of Chicago)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
Managerial Incentives II
(G3)
Presiding:
Bilge Yilmaz
(University of Pennsylvania)
Swinging for the Fences: Executive Reactions to Quasi-Random Option Grants
Kelly Shue
(University of Chicago)
Richard Townsend
(Dartmouth College)
[View Abstract]
[Download Preview] The financial crisis renewed interest in the potential for pay-for-performance compensation to affect managerial risk-taking. We examine whether paying top executives with stock options induces them to take more risk. To identify the causal effect of options, we exploit two distinct sources of variation in option compensation that arise from institutional features of multi-year grant cycles. We find that a 10 percent increase in the value of new options granted leads to a 2-6 percent increase in firm equity volatility. This increase in risk is driven largely by an increase in leverage. We also find that an increase in stock options leads to lower dividend growth, with mixed effects on investment and firm performance.
Management Influence on Investors: Evidence from Shareholder Votes on the Frequency of Say on Pay
Fabrizio Ferri
(Columbia University)
[View Abstract]
[Download Preview] We exploit a unique empirical setting enabling us to provide a direct estimate of management's influence on investors. Analyzing shareholder votes on the frequency of future say on pay votes, we find that a management recommendation for a particular frequency is associated with a 26% increase in voting support for that frequency. Additional tests suggest that the documented association is likely to capture a causal effect. Management influence varies across firms and is smaller at firms where perceived management credibility is lower. Compared to firms adopting an annual frequency, firms following management's recommendation to adopt a triennial frequency are significantly less likely to change their compensation practices in response to an adverse say on pay vote.
Information Acquisition, Resource Allocation and Managerial Incentives
Oguzhan Ozbas
(University of Southern California)
Heikki Rantakari
(University of Southern California)
[View Abstract]
[Download Preview] A manager's incentives to acquire information about different investment alternatives and then to choose how to allocate resources among them are jointly influenced by his compensation contract and the level of resources allocated to him. We show that the optimal compensation contract induces investment allocations that are more aggressive than the first-best allocation conditional on the precision of information, while the optimal level of resources may be set above or below the first-best level, depending on whether the desired level of investment is increasing or decreasing in the precision of information. Both distortions are used to motivate further information acquisition by the manager. Finally, we show how the choice of the level of resources can be delegated to the manager without any loss in efficiency through appropriately linking managerial compensation to the level of resources requested.
Discussants:
Mark Jenkins
(University of Pennsylvania)
Nadya Malenko
(Boston College)
Robert Marquez
(University of California-Davis)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Payout Policy
(G3)
Presiding:
Roni Michaely
(Cornell University)
Dividend Payments as a Response to Peer Influence
Jillian Popadak
(University of Pennsylvania)
[View Abstract]
[Download Preview] I show peer firms play an important role in determining the timing and magnitude of U.S. corporate dividends. In particular, dividend changes by peer firms accelerate the time to a dividend change by 132 days. Peer firm dividend changes lead to increases in dividend payments of 15% - an effect that is larger than many previously identified dividend determinants. At the industry level, peer effects alter dividend yields; if expected yields are 3%, peer effects inflate (deflate) yields to 3.4% (2.6%). Cross-sectional heterogeneity suggests elements of strategic behavior and behavioral biases are producing the estimated peer effects. Excess-variance, instrumental variable and partial identification strategies are used to address the difficult challenge of establishing peer effects, and because each strategy uses different identifying assumptions, the conclusions are not fragile to any single identifying assumption.
The Dynamics of Investment, Payout and Debt
Bart Lambrecht
(University of Cambridge)
Stewart Myers
(Massachusetts Institute of Technology)
[View Abstract]
We present a dynamic agency model of the financial management of a mature corporation operating in perfect financial markets. Managers implement a joint inter-temporal strategy for investment, borrowing, payout and managerial rents. Corporate governance forces payout and rents to move in lockstep. The change in borrowing must be the residual decision: there is no feedback from the borrowing decision to decisions about investment and payout plus rents. Managers do not rebalance capital structure, so shocks to debt levels persist. Managers under-invest, compared to the value-maximizing optimum, because of risk aversion. They smooth rents and payout. These results are derived for any risk-averse managerial utility function and for any stochastic process for profitability. We also present closed-form solutions for a specific utility function and stochastic process. Our model generates empirical predictions that differ from conventional agency models, which usually consider investment, borr
Corporate Payout, Cash Retention, and the Supply of Credit: Evidence from the 2008-09 Credit Crisis
Barbara Bliss
(Florida State University)
Yingmei Cheng
(Florida State University)
David Denis
(University of Pittsburgh)
[View Abstract]
Using the financial crisis as a natural experiment, we analyze the extent to which firms adjust financial policies on the margin in response to a credit supply shock. We document significant reductions in corporate payouts ? both dividends and (to a larger extent) share repurchases - during the 2008-2009 financial crisis. Payout reductions are more likely in firms with higher leverage, more valuable growth options, and lower cash balances ? i.e., those more susceptible to the negative consequences of a credit supply shock. Moreover, firms appear to use the proceeds from the reduction in payout to maintain cash levels and to fund investment. These findings are consistent with the view that an exogenous shock to the supply of credit during the financial crisis increased the marginal benefit of cash retention, leading some firms to reallocate funds that would otherwise be distributed to shareholders.
Payout Policy under Heterogeneous Beliefs: A Theory of Dividends versus Stock Repurchases, Price Impact, and Long-Run Stock Returns
Onur Bayar
(University of Texas-San Antonio)
Thomas Chemmanur
(Boston College)
Mark Liu
(University of Kentucky)
[View Abstract]
[Download Preview] We analyze a firm's choice between dividends and stock repurchases in an environment of heterogeneous beliefs and short sale constraints. We study a setting in which the insiders of a firm, owning a certain fraction of its equity and having a certain amount of cash to distribute to shareholders, choose between paying out cash dividends and buying back equity, as well as the scale of investment in their firm's new project. Outside equity holders in the firm have heterogeneous beliefs about the probability of success of the firm's project and therefore its long-run prospects; they may also disagree with firm insiders about this probability. We show that, depending on the beliefs of firm insiders versus outsiders, the firm may distribute value through cash dividends alone; through a repurchase alone; or through a combination of a cash dividend and a stock repurchase. We also show that, in many situations, it is optimal for firm insiders to underinvest in the firm's positive net present value project and undertake a stock repurchase with the amount of cash saved by underinvesting. We then analyze the price impact of a cash dividend versus a share repurchase, where the price impact is defined as the abnormal return to the firm's equity upon the actual payment of a cash dividend or the implementation of a share repurchase respectively (rather than upon the announcement of these events). Finally, we analyze the long-run returns to a firm's equity following dividend payments and stock repurchases. Our model generates a number of testable predictions different from asymmetric information models of a firm's choice between dividends versus stock repurchases.
Discussants:
Mark Leary
(Washington University-St. Louis)
Jean-Charles Rochet
(University of Zurich)
Michael Roberts
(University of Pennsylvania)
Anjan Thakor
(Washington University-St. Louis)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Washington A
American Real Estate & Urban Economic Association
Neighborhoods, Amenities, and Education
(R2)
Presiding:
Stephen Ross
(University of Connecticut)
Do Art Galleries Transform Neighborhoods?
Jenny Schuetz
(University of Southern California)
[View Abstract]
[Download Preview] New York City is often held up as a successful example of arts-led economic development: over the past half century, concentrations of avant-garde artists and galleries have formed in the previously sketchy but now trendy neighborhoods of Greenwich Village, SoHo, the East Village and Chelsea. Case studies have documented the succession of artists and galleries followed by yuppies and boutiques in some of these neighborhoods, and some researchers have used these examples to argue that the arts can spur gentrification. An alternative explanation is that galleries choose to locate in neighborhoods with a higher level of exogenous amenities. In this paper, I combine data on the location of Manhattan art galleries with land use and building stock characteristics to examine whether galleries lead to physical changes in surrounding neighborhoods. Results suggest that galleries do locate in neighborhoods with more exogenous amenities, particularly high quality building stock, retail-friendly zoning and cultural institutions. The analysis indicates that galleries are not associated with changes in building stock or land use at the census tract level, while results at the city block level are mixed.
High Stakes in the Classroom, High Stakes on the Street: The Effects of Community Violence on Students' Standardized Test Performance
Ingrid Gould Ellen
(New York University)
Johanna Lacoe
(University of Southern California)
Amy Schwartz
(New York University)
Patrick Sharkey
(New York University)
[View Abstract]
This article examines the effect of exposure to violent crime on students' standardized test performance among a sample of students in New York City public schools. To identify the effect of exposure to community violence on children's test scores, we compare students exposed to an incident of violent crime on their own blockface in the week prior to the exam to students exposed in the week after the exam. The results show that such exposure to violent crime reduces performance on English Language Arts assessments, and no effect on Math scores. The effect of exposure to violent crime is most pronounced among African Americans, and reduces the passing rates of black students by approximately 3 percentage points.
Strong versus Weak Ties in Education
Eleonora Patacchini
(Syracuse University)
Edoardo Rainone
(Banca d'Italia and La Sapienza University of Rome)
Yves Zenou
(Stockholm University)
[View Abstract]
We develop a network model where we focus on the role of weak and strong ties in education decisions. The empirical salience of the model is tested using the information contained in different waves of the AddHealth data by looking at the impact of school peers nominated in the first two waves (in 1994-1995 and 1995-1996) on the educational outcome of teenagers reported in the fourth wave (in 2007-2008 when adult). We find that there are strong and persistent peer effects in education but peers tend to be influential only when they are strong ties (friends in both waves I and II) and not when they are weak ties (friends in only one wave). We also find that this result does not hold in the short run where both weak and strong ties have an impact on current grades.
Gayborhoods: Economic Development and the Concentration of Same-sex Couples in Neighborhoods Within Large American Cities
Janice Madden
(University of Pennsylvania)
Matt Ruther
(University of Colorado)
[View Abstract]
[Download Preview] This paper uses census tract data from the 2000 U.S. Census and the 2005-2009 American Community Survey to examine the locations of gay male and lesbian partnerships in 38 large U. S. cities. Surprisingly, both the extent and the regional patterns of residential segregation of gays are similar to those for African Americans. There is little evidence, however, to support the common assertions that gays concentrate in more racially and ethnically diverse neighborhoods. Evidence for the popular notion that concentrations of gays lead to more rapid development of central city neighborhoods is mixed. Census tracts that start the decade with more gay men experience significantly greater growth in household incomes (and, therefore, presumably housing prices) and, for the Northeastern and Western cities, also greater population growth over the next decade than those census tracts with fewer gay men. Census tracts with more lesbians at the start of the decade see no difference in population or income growth.
Discussants:
Gabrielle Fack
(Universitat Pompeu Fabra)
Rebecca Diamond
(Stanford University)
Adi Mayer
(Washington College)
Susane Leguizamon
(Western Kentucky University)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Real Estate Market Microstructure
(R4)
Presiding:
Joseph Gyourko
(University of Pennsylvania)
What is the Role of the Asking Price for a House?
Lu Han
(University of Toronto)
William Strange
(University of Toronto)
[View Abstract]
[Download Preview] This paper considers the role of the asking price in housing transactions both theoretically and empirically. Significant fractions of housing transactions involve sales prices that are either below or above the asking price, which might suggest that asking price has limited relevance. However, many housing transactions involve a sales price equal to asking price (a previously unnoticed fact), strongly suggesting that asking price does matter. The paper develops a model where asking price is neither a binding commitment nor even a ceiling yet still directs buyer search and thus impacts sales price. Using novel survey data, the paper provides empirical evidence consistent with asking price playing a directing role in buyer search.
On Optimal Acceptance Strategies in Real Estate
Thomas Emmerling
(Syracuse University)
Abdullah Yavas
(University of Wisconsin-Madison)
Yildiray Yildirim
(Syracuse University)
[View Abstract]
We consider the problem of a seller who faces an unknown number of offers where each offer is a random draw from a known distribution. The objective of the seller is to maximize the probability that the highest offer is chosen. We identify the optimal selling strategy using the technique of Porosinski (1987) and general optimal stopping theory. This optimal strategy can be characterized by a non-increasing stochastic set of reservation prices in contrast to the classical search theory models. Our analysis also provides theoretical support to the observation that first offers in residential real estate markets should be accepted more often since they tend to be higher than subsequent offers.
To our knowledge, this is the first theoretical paper in real estate that allows for an uncertain number of offers. The enclosed very rough draft of the paper derives the proofs of some of the results we already have. We are working on additional results and will be revising the paper to beef up the discussion of the problem, our results, and relevance to the existing literature.
How Many Listings Are Too Many? The Impact of Agent Inventory Externalities
Xun Bian
(Longwood University)
Geoffrey Turnbull
(University of Central Florida)
Bennie Waller
(Longwood University)
Scott Wentland
(Longwood University)
[View Abstract]
This research examines potential principal-agent issues arising from a listing agent's inventory. Specifically, how does an agent's inventory impact the outcomes of individual client's selling price and liquidity? A theoretical model illustrates how an agent's effort may be diluted on individual properties as listing inventory increases. Using a sample of residential properties listed for sale between 1999 and 2009 from an east coast multiple listing service (MLS), we empirically test this prediction by analyzing the effect of agent inventory level on both selling price and marketing duration. Results indicate that higher agent inventory significantly reduces selling price and increases marketing duration.
Timing the Housing Market
Todd Sinai
(University of Pennsylvania)
Cindy Soo
(University of Michigan)
[View Abstract]
We create reliable measures of the cost of owning and the cost of renting that enable us to compare the level of rents and ownership costs across MSAs. We show that households can predict whether renting or owning will end up being less expensive ex post. This exercise is more robust than trying to predict house price changes or housing returns because much of that uncertainty is inframarginal in the optimal own/rent decision, which depends only on the which tenure mode is cheaper. We show that households can profitably time the home ownership decision. Using several simple trading rules, we estimate that households can save as much as 50 percent of annual rental costs over a five-year period by timing the decision of when to buy a home. The potential savings varies across cities.
Discussants:
Christopher Mayer
(Columbia University)
Cindy Soo
(University of Michigan)
Andrew Paciorek
(Federal Reserve Board of Governors)
Andrew Haughwout
(Federal Reserve Bank of New York)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Urban Public Policy
(R5)
Presiding:
Leah Brooks
(Federal Reserve Board)
Did the Stand Your Ground Law Make Floridians More Trigger Happy?
Mouhcine Guettabi
(University of Alaska-Anchorage)
Harounan Kazianga
(Oklahoma State University)
Abdul Munasib
(Oklahoma State University)
[View Abstract]
This paper examines if the passage of the Stand your Ground Law in Florida led to an increase in gun deaths. We use the Synthetic Control Method which allows us to mimic what the outcome would have been in the absence of the law. A comparison of the actual and the synthetic Florida shows a spike in gun-deaths (net of suicides) after the law was passed. We estimate that, in Florida, an additional 158 gun-deaths per year (144 per year if accidental/unintentional gun-deaths are excluded) may be attributed to the passage of the law. These findings support the notion of increased "trigger happiness" as a result of this expansion of the self defense provision.
The Effects of School Impact Fees on Commercial and Residential Land Values
Gregory Burge
(University of Oklahoma)
[View Abstract]
[Download Preview] Development impact fees are a controversial method of financing local public infrastructure. While their effects on home values have been examined extensively, very few studies have investigated how they influence the price of undeveloped land. A 16 year panel is used to investigate the effects of impact fee programs in Florida on the value of residentially and commercially zoned parcels. Three main findings are obtained. First, school impact fee programs decrease the value of residentially zoned land but increase the value of commercially zoned parcels. Second, fees for water and sewer reduce the price of residentially zoned parcels but have no significant effect on commercially zoned land values. Finally, fees for other traditional categories seem to have stronger negative effects on commercially zoned properties than on residential parcels.
Distributional Effects of the Federal Empowerment Zone Program
C. Lockwood Reynolds
(Kent State University)
Shawn Rohlin
(Kent State University)
[View Abstract]
[Download Preview] The previous literature on the federal Empowerment Zone (EZ) program has focused primarily on estimating average effects of the program on outcomes. We argue that such mean estimates can mask important effects that the program has on the distribution of households across various outcomes which are important to understand for generating policy conclusions. Using census tract data on the distributions of households relative to the poverty line, we find that the federal EZ program had a polarizing effect on poverty. Specifically, we find an increase of households whose income is less than half the poverty rate as well as an increase in households making more than twice the poverty rate. Further evidence suggests that previously estimated mean impacts on income, gross rent and house values are driven by increases in the upper portion of the respective distributions which our analysis suggests is due to in-migration to the area of higher income households. Lastly, this paper finds that improvements in the zones were concentrated in those portions of the EZ areas that were relatively more well-off prior to EZ designation. The results confirm the prior literature findings that the areas, on average, became more attractive but also suggest that the benefits of the program likely did not accrue to the lower-income residents of the EZ areas.
Redistribution, Delegation, and Regulators' Incentives: Evidence from the Clean Air Act
Antonio M. Bento
(Cornell University)
Matthew Freedman
(Cornell University)
Corey Lang
(University of Rhode Island)
[View Abstract]
[Download Preview] Taking advantage of the structure of the 1990 Clean Air Act Amendments (CAAA), we study the tradeoff between efficiency and equity associated with different levels of discretionary power when delegating regulatory authority to lower levels of government. Exploiting an instrumental variables approach, we provide evidence that the benefits of the 1990 CAAA were highly localized and accrued disproportionately to poorer households. Further, under the current structure of the 1990 CAAA, it costs at most about $1.30 for every $1 worth of air quality improvements transferred from richer to poorer areas, suggesting that the program does not entail a large tradeoff between efficiency and equity.
Discussants:
Erdal Tekin
(Georgia State University)
John Anderson
(University of Nebraska-Lincoln)
Zackary Hawley
(Texas Christian University)
Justin Gallagher
(Case Western University)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon I
Association for Comparative Economic Studies
Financial Stability and Cross-Border Capital Flows During the Great Recession
(F3)
Presiding:
Paul Wachtel
(New York University)
The Euro and the Geography of International Debt Flows
Galina B. Hale
(Federal Reserve Bank of San Francisco)
Maurice M. Obstfeld
(University of California-Berkeley)
[View Abstract]
[Download Preview] Greater financial integration between core and peripheral EMU members had an effect on both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. We analyze the geography of international debt flows using multiple data sources and provide evidence that Core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.
Banking in Emerging Europe: A Bank Level Balance Sheet View
Marcel Tirpak
(European Central Bank)
Adrian Babin
(Charles University Prague)
[View Abstract]
[Download Preview] Using a novel bank-level dataset we document key developments in banking sector of the Central, Eastern and Southeastern Europe (CESEE) region during 2004-2011. We found that banks behaved relatively prudently prior to the Great Recession, as the rapid expansion of their balance sheet was coupled with strengthening of their capital. Bank's profitability was important factor explaining the changes in their capitalisation. We found that banks in the CESEE region built-up their non-deposit funding as credit growth accelerated prior to the Great Recession. This exposed them to shocks originating in money markets of the mature economies worldwide. In general, this paper contributes to the available literature on credit developments in CESEE countries by applying the methodological concepts found in papers analysing management of bank balance sheet.
Powerful Parents? The Local Impact of Banks' Global Business Models
Ralph De Haas
(EBRD)
Karolin Kirschenmann
(Aalto University)
[View Abstract]
[Download Preview] We collect information about multinational banks’ internal capital markets from interviews with over 400 bank CEOs across emerging Europe. Using these unique data, we document substantial variation in how banks financially manage foreign subsidiaries and then assess how this variation affected local credit growth during the Great Recession. We show that subsidiaries grew faster if the parent bank set explicit growth targets; supported these targets with relatively cheap funding; and was less involved in local risk management. We then combine our data with firm-level information about credit constraints during the crisis. In line with our bank-level evidence, we find that in localities where foreign banks received cheap parent funding, firms were less credit constrained. These results point to the importance of banks’ business models—over and above funding structure—as a determinant of crisis transmission in integrated banking markets.
Does Excessive Liquidity Creation Trigger Bank Failures?
Zuzana Fungacova
(Bank of Finland)
Rima Turk Ariss
(Lebanese American University)
Laurent Weill
(University of Strasbourg)
[View Abstract]
This paper introduces the "Excessive Liquidity Creation Hypothesis," whereby a rise in a bank's core liquidity creation activity increases its probability of failure. Russia experienced many bank failures over the past decade, making it an ideal natural field experiment for testing this hypothesis. Using Berger and Bouwman's (2009) liquidity creation measures, we find that excessive liquidity creation significantly increased the probability of bank failure during our observation period (2000-2007). This finding survives multiple robustness checks. Our results further suggest that regulatory authorities can mitigate systemic distress and reduce the costs to society from bank failures through early identification and enhanced monitoring of excessive liquidity creators.
Discussants:
Timo Korkeamäki
(Hanken School of Economics)
Vladimir Sokolov
(Higher School of Economics Moscow)
Iikka Korhonen
(Bank of Finland)
Christopher A. Hartwell
(Moskow School of Management SKOLKOVO)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
Social Control and Sustainability
(B5)
Presiding:
Janice Peterson
(California State University-Fresno)
Institutions of Economics and Institutions in the Economy
David Dequech
(University of Campinas)
[View Abstract]
Institutions are socially shared systems of rules of behavior and thought. This paper discusses the relations between the institutions of economics and institutions in the economy, highlighting policy issues. The institutions of economics are not often treated as such, but deserve much attention, because they interact with reality, including the institutions in the economy. Particularly important are the mental models socially shared by academic economists. Conformity with these institutions and their sharing can be explained by various social factors, such as the social perception of legitimacy or naturality, social sanctions, or imitation due to uncertainty, informational differences, and increasing returns to adoption, as well as habits. A conventional model (1) is adopted at least in part because other agents also adopt it, and (2) is arbitrary, in the sense that an alternative is conceivable which is not necessarily inferior. A cognitive social norm implies the possibility of sanctions and may be internalized as legitimate. Among the institutions in the economy that may be influenced by the institutions of economics are the socially shared mental models used by policy makers and private agents (including rating agencies) to interpret reality and guide their actions, including the proposal of formal rules by policy makers and the reactions of private agents to these policies. There are, in particular, institutionalized conceptions of the economic role of the State, the deficit and fiscal policy. Even methodological norms about the use of formal models affect the economy and policy making, as illustrated by models of risk assessment.
Towards the Institutional Legitimation of Sustainability
Daniel Underwood
(Peninsula College)
Dan Friesner
(North Dakota State University)
Jason Cross
(University of Washington)
[View Abstract]
A three-fold test for sustainability is presented to assess outcomes of polices addressing environmental and natural resource management. The first, ecological holism, requires management of natural systems to not only ensure long term viability of ecosystem functions, but also facilitate the provision of a wide range of services and enhanced diversity of wildlife within that ecosystem. Second, policies should improve economic well-being of local populations (employment and income) and promote improvements in the quality of life for the community as a whole. Third, policies and their outcomes must ensure some level of justice that appropriately encompasses the entire community. In this paper, we posit that policies are just if they satisfy Rawl's "Veil of Ignorance" test. Three alternative policies for forest management are used to exemplify how these criteria can be used for comparative assessment of policy proposals and associated outcomes: the Northwest Forest Plan, which currently governs management of national forests; the Wild Olympics Wilderness and Scenic Rivers Act of 2012 (Wild Olympics), and The Third Way, an alternative management option. While each policy may satisfy the test of ecological holism, relative success in this regard can be differentially ranked: the relative impacts are not neutral. The Northwest Forest Plan and Wild Olympics fail the test of promoting community well-being. Of the three alternatives, only The Third Way satisfies the tests of ecological holism and community well-being. It is conjectured that, as a result, it would likely meet Rawl's test for justice.
Re-Imagining Climate Change Remediation by Monetary Authorities
F. Gregory Hayden
(University of Nebraska-Lincoln)
[View Abstract]
The U.S. Treasury and Federal Reserve are two powerful economic planning agencies with regard to monetary policy. Yet, their policies do not consider climate change remediation. Their policy emphasis is limited to concern for investment, production, and jobs while climate change from investment, production, and jobs is creating natural disaster impacts, agricultural changes, and sea level increases.
The double-entry accounting system utilized by banks and production corporations is not designed to record the impact of their finance, investment, and production activities on climate change. Reimagining Treasury and Fed policy regarding climate change is not possible without an accounting system that provides relevant indicators because banks, corporations, and monetary authorities are captured by an accounting system that does not take into consideration the needs of our ecological challenge.
This paper explains how double-entry accounting can be converted into single-entry accounting so that additional single-entry accounts-such as those that account for the production processes impact on climate change-can be added and utilized by monetary authorities to guide investment into green technology. Accountants have already completed the conversion of double-entry into single-entry accounting. This paper explains how new single-entry accounts that record ecological impacts can be designed and integrated into the traditional single-entry accounts in order to demonstrate the environmental impact of particular corporate activities. Furthermore, the paper explains how monetary authorities can require banks to consider such corporate accounts when making loans and, in turn, consider that database in their relationships with the banks.
WPA for Today
Scott McConnell
(Eastern Oregon University)
[View Abstract]
The Great Recession of 2008, of which the contemporary economy is presently struggling to break free, seeks an answer to the problem of unemployed workers. The job gap, when considering not only those officially unemployed, but also those who have given up looking for work and those that are underemployed is well above 20 million workers. This issue is reminiscent of The Great Depression of the 1930s, when there were calls for federal assistance to aid in finding jobs for those unemployed, including direct job creation through programs such as the Civilian Conservation Corp and the Workers Progress Administration. These "emergency workers" as they were called, were employed by the federal government under the Federal Emergency Relief Act, which allocated $500 million for immediate grants to the states. In this "second new deal," President Franklin Roosevelt, attempted to combat the Depression directly through federal intervention.
This paper seeks to imagine a WPA for today by analyzing the costs to the federal government in providing these emergency workers in the 1930s and outlining what level of investment by the federal government would be required to replicate the program today. This analysis will include the cost to the government in todays dollars, the benefits received by the emergency workers in todays dollars and the estimated immediate effects on the macroeconomy that would result if such a jobs program were put into effect. The second part of the paper will briefly consider new entrants to the military as the U.S. entered World War II as "emergency workers" and the level of government spending relative to GDP that was required through the war years in bringing the U.S. out of the Great Depression.
Suburban Retrofit & Keynesian Stimulus after Peak Oil
Bruce McFarling
(Fortis College)
[View Abstract]
Keynesian stimulus has focused on labor employment, but with given technology will also increase natural resource consumption. This is problematic for an oil-dependent economy after the peak of global petroleum production. The collapse of the US Housing Bubble in 2007 has left a substantial excess housing stock, in car-dependent outer suburbs. A suburban retrofit strategy is identified that establishes sustainable common carrier transport corridors, with reorientation of suburban trips to local, multi-use center at the corridor point of access. The policy aims to thread the needle between increased labor employment and improved strategic resource efficiency. The principle obstacle to the policy is the accommodation of existing institutions of residential zoning and transport corridor funding to the previous growth regime of extensive single-use property development, and so institutional reforms in support of the policy are identified.
Discussants:
Janice Peterson
(California State University)
Eric Hake
(Catawba College)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Congress A
Association for Social Economics
Law and Social Economics: Applications
(K1)
Presiding:
Andrew Yuengert
(Pepperdine University)
The Impact of Laws on the Egyptian Economic Performance, 1960-2010
Eman Selim
(Tanta University)
[View Abstract]
[Download Preview] The purpose of the paper is to investigate the effects of laws on the Egyptian economic performance over the period 1960-2010. Specifically the paper analyzes the impact of different laws including nationalization, privatization and liberalization laws during three periods of the Egyptian economy. The first period of nationalization laws 1960-1973. The second period of open door policy and tax preference laws 1974-1990 and the third period of privatization and liberalization laws 1991-2010. The first period was characterized by nationalizing private enterprises. The Egyptian president, Abdel Nasser, nationalized the Suez Canal in 1956. After that came a large-scale nationalization in 1961 which was a very limited private-sector and its activities concentrated to agriculture, real estate, and the informal economy. The government also controlled prices, marketing, the provision of raw materials, and foreign exchange available to the private sector. Besides, the banking sector, the manufacturing sector, and foreign trade, as well as the means of public transportation sector were all owned by the government. By the labor law the government provided employment for all secondary school and university graduates. According to social solidarity laws the government provided subsidies for a variety of goods, including basic foodstuffs, utilities, electricity, and water. In the second period beginning in 1974 Al-Sadat, introduced what was called the October Paper, which put the first step toward reversing the direction of the Egyptian economy from state-led economy to market led economy. ...
Divergent Outcomes of Land Rights Claims of Indigenous Peoples in the United States
Wayne Edwards
(Middlebury College)
[View Abstract]
The United States government has a long history of land rights disputes with indigenous peoples. The outcomes (success) of land rights claims of individual groups varies widely. This paper surveys divergent experiences of both broad categories of indigenous peoples and a few select groups by focusing on legislation and legal action as it relates to land claims. The broad categories are American Indians, Native Alaskans, and Native Hawaiians whose land rights claims have resulted in very different outcomes including the establishment of reservation lands for some groups of American Indians, corporate-like stewardship of regional areas for Native Alaskans, and the complete denial of all claims for Native Hawaiians. The individual group analysis focuses on Western Abenaki groups in Vermont. The Abenaki are an example of peoples who have been denied land rights in the past because of historic diaspora and a failure to establish legal group identity.
The Language of Social Constraints
David George
(La Salle University)
[View Abstract]
The conservative project to deregulate in the economic realm stands as one instance of a spreading belief that market forces will ensure socially acceptable outcomes. At the same time that the law is characterized as "burdensome" in the market sphere, the law is gaining strength as a social mechanism within organizations and other non-market spheres of human interaction. Whether there is a law prohibiting some activities or not, social stigma often serves as an adequate mechanism for steering people from such activities. Most of us refrain from drinking while walking down the street from stealing something of value when someone's back is turned less from fear of legal actions than from an ethical sense or a sense of shame. In this paper, I will be exploring trends in the relative importance given to legal and moral inhibitors of anti-social behaviors. At this time I plan to investigate what changes in our language habits reflect the movement from "compact" to "contract." More specifically, I intend to make use of databases that allow the tracking of word usage to explore discernible trends away from the former and toward the latter.
Institutionalist Method and Forensic Proof
Robert M. LaJeunesse
(Equal Employment Opportunity Commission)
[View Abstract]
[Download Preview] This paper argues that forensic economic analysis is more consonant with the positivist method of economic inquiry followed by Institutionalists and other heterodox schools than the formalism of the Neoclassical paradigm. Drawing upon the methodological differences delineated by Wilbur and Harrison (1978), one can show that a method of "pattern modeling, storytelling, and holism" provides a better description of reality and truth than relying on a formal model that is more prescriptive than descriptive. The formal models of the Neoclassical paradigm (deductive methods) - which amount to parables of an abstract ideal - are of little use in litigation. Abstracting from reality, the Neoclassical approach insulates itself from validation of its theories. Relying on broad assumptions, formal models cannot easily manage the range of variables, the specificity of institutions, and the idiosyncrasies of behavior. Formalism therefore poses the risk that adjudicators will get swept away by the logic or simplicity of theories that tell inaccurate stories (historically/empirically). Probative forensic analysis requires a holistic melding of anecdotal evidence and empirical validation. The inductive method of considering a variety of cases/observations and replicating outcomes to arrive at credible conclusions is given greater store in litigation than rational or logical theory. Akin to the "storytelling" method, a holistic method investigates what patterns emerge that can support a probabilistic inference about a theory/explanation. Moreover the empirical proof required in litigation may be held to more rigorous standards than academic work, requiring repetition of models against multiple or evolving data sets
Jan 05, 2014 10:15 am, Philadelphia Marriott, Grand Ballroom - Salon L
Association of Environmental & Resource Economists
Habit Formation and Voluntary Approaches to Environmental Policy
(Q5)
Presiding:
John List
(University of Chicago)
Pigouvian Taxes with Intermittent Billing and Habits
Benjamin Gilbert
(University of Wyoming)
Joshua Graff Zivin
(University of California-San Diego)
[View Abstract]
[Download Preview] This paper derives an optimal Pigouvian tax framework for goods whose consumption is habit-forming and socially costly, and whose true costs are only intermittently salient. Habit formation is an empirical feature of several prominent goods that have external costs, such as gasoline, electricity, and unhealthy foods. Habits are exacerbated when payment for consumption of these goods occurs intermittently and therefore prices are usually not salient; electricity use is typically billed monthly, and driving and food consumption decisions are often made at higher frequency than payment - particularly if consumers pay with credit cards that are billed monthly. The intermittency of payment creates time periods in which prices of individual decisions are more and less salient. Optimization errors when prices are not salient lead to inefficiently large habit stocks. When bills arrive, households minimize the consequences of future errors by making new habits in the present. An optimal Pigouvian tax must match the timing and degree of price inattention and is therefore not practical to implement. We characterize a second-best constant tax and the deadweight loss associated with it. Using a household-level panel of daily electricity use and monthly bills, we provide evidence that residential electricity consumption is consistent with habit formation and we show how the habit parameters change when prices are more and less salient.
Third Party Certification and the Effectiveness of Voluntary Pollution Abatement Programs: Evidence from Responsible Care
Martina Vidovic
(Rollins College)
Neha Khanna
(Binghamton University)
Michael Delgado
(Purdue University)
[View Abstract]
[Download Preview] This paper updates the literature on the effectiveness of voluntary pollution abatement in the United States. We use the structural changes in the RC program to ask whether the introduction of independent third party certification from 2005 onwards has yielded lower emissions from RC plants compared to statistically equivalent non-RC plants in the US chemical industry. Our identification strategy relies on the fact that independent third party certification was made mandatory from 2005 onwards. We use a difference-in-difference approach to estimate the average treatment effect of third party certification by comparing RC plants before and after third party certification was introduced to other plants in the US chemical industry between 1995 and 2010 who were not remembers of RC and were not subject to third party certification. We find a negative but statistically insignificant average treatment effect.
Evaluating the Effectiveness of Voluntary Programs: Did Ohio's ToxMinus Program Affect Participants' TRI Emissions?
Charles Griffiths
(US Environmental Protection Agency)
Will Wheeler
(US Environmental Protection Agency)
Ann Wolverton
(US Environmental Protection Agency)
[View Abstract]
[Download Preview] In this paper we evaluate whether Ohio’s Tox-Minus program had a discernible effect on participants’ emission reductions relative to non-participants. We expect this to be the case if there are private benefits of program participation that outweigh its costs. To investigate whether the Tox-Minus initiative resulted in greater reductions in TRI-reported air emissions from the top 100 emitters, we use a difference-in-difference approach to compare emissions before and after the program. This is done using both the simple difference in emissions between 2003 and 2011 and a fixed-effects, panel regression. We also examine whether simply being invited to the program, regardless of participation, had an impact. To form an appropriate comparison for our participants, we use a propensity score matching estimation techniques based on pre-participation attributes to select a comparison group. Our results suggest that there may be two effects at play. First, it may be that participation in the Tox-Minus program produced a significant percent reduction in air emissions, possibly because many facilities expressed their reduction goals in percentage terms. Second, it appears that being invited to the program, regardless of whether a facility joined the Tox-Minus program, produced a significant decline in the absolute level of air emissions. A sensitivity analysis including the ratio of Clean Air Act emissions to total emission offers additional support for this second effect.
A Theory of Multi-Tiered Ecolabels
Thomas Lyon
(University of Michigan)
Carolyn Fischer
(Resources for the Future)
[View Abstract]
[Download Preview] Certification schemes for credence goods can be binary in structure or have multiple tiers. We present a theory explaining how standard-setting organizations choose between these two forms, and compare the differing incentives of industry trade associations and non-governmental organizations (NGOs) in setting standards. For either type of scheme in autarky, the choice between a binary and a multi-tier label depends upon industry structure in subtle ways. When the two types of organization compete, however, there exists a unique multi-tier equilibrium, which can be implemented by each organization offering a binary label. Surprisingly, the trade association may offer a more stringent label than the NGO.
Discussants:
Hunt Allcott
(New York University)
George Deltas
(University of Illinois)
Anna Alberini
(University of Maryland)
Jill J. McCluskey
(Washington State University)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Congress C
Association of Financial Economists
Corporate Investment
(G3)
Presiding:
Anthony Saunders
(New York University)
CEO Investment Cycles
Yihui Pan
(University of Utah)
Tracy Yue Wang
(University of Minnesota)
Michael Weisbach
(Ohio State University)
[View Abstract]
[Download Preview] This paper documents the existence of a CEO Investment Cycle, in which firms disinvest early in a CEO’s tenure and increase investment subsequently, leading to “cyclical†firm growth in assets as well as in employment over CEO tenure. The CEO investment cycle is present for both firings and non-performance related CEO turnovers, and its magnitude is substantial: The estimated difference in investment rate between the first three years of a CEO’s tenure and subsequent years is close to the differences caused by business cycles or financial constraints. This investment cycle appears to be best explained by a combination of agency-based theories. Early in his tenure the CEO disinvests poorly performing assets that his predecessors established and was unwilling to sell. Subsequently, the CEO overinvests when he gains more control over his board. There is no evidence that the investment cycles occur because of shifting CEO skill or productivity shocks. Overall, the results imply that public corporations’ investments deviate substantially from the first-best, and that governance-related factors internal to the firm are as important as economy-wide factors in explaining firms’ investments.
Managerial Labor Market Frictions and Corporate Investment
Ashwini Agrawal
(New York University)
Alexander Ljungqvist
(New York University)
[View Abstract]
This paper presents evidence that information asymmetry in the labor market for corporate managers impacts firm investment. We construct a novel employer-employee matched dataset of firms in the venture capital (VC) industry and find that VC firms invest more capital in portfolio companies overseen by a given VC partner when firms can better assess the partner's human capital. Firms appear to gather hard and soft information about partners' abilities during their tenures and utilize this information when allocating capital across projects overseen by different partners. The results suggest that information frictions in the managerial labor market have a significant impact on corporate investment policy.
Corporate Financial and Investment Policies In the Presence of a Blockholder on the Board
Anup Agrawal
(University of Alabama)
Tareque Nasser
(Kansas State University)
[View Abstract]
[Download Preview] We examine the relation between the presence of an independent director who is a blockholder (IDB) and corporate policies, risk-taking and market valuation. After accounting for endogeneity, firms with an IDB have significantly (1) lower levels of cash holdings and payout, (2) higher levels of capital expenditures,
and (3) lower risk. The market appears to value IDB presence and the associated decrease in dividend yield. About 75% of the IDBs in our sample are individual investors, who drive most of our results. Our findings suggest that IDBs play a valuable role in reallocating corporate resources and reducing agency
costs.
Discussants:
Daniel Wolfenzon
(Columbia University)
Paige Ouimet
(University of North Carolina-Chapel Hill)
Lalitha Naveen
(Temple University)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 401
Econometric Society
Applied Econometrics and Schooling
(C1)
Presiding:
Arnaud Maurel
(Duke University)
Are University Admissions Academically fair?
Debopam Bhattacharya
(University of Oxford)
Shin Kanaya
(University of Aarhus)
Margaret Stevens
(University of Oxford)
[View Abstract]
[Download Preview] We develop a method of testing whether selective universities admit candidates with the highest academic potential and identifying the extent of "nonacademic bias" when they don't. We assume that applicants who are better-qualified along every observable indicator will, stochastically, appear better to admission-tutors based on characteristics observable by them but not by us. This assumption yields informative bounds on differences in admission-thresholds faced by different demographic groups. An application to admissions-data at a selective British university, using blindly-marked exam-performance as outcome, shows that males and private-school applicants face higher admission-thresholds, although admission success-rates are equal across gender and school-type.
Evaluating the Distributional Effects of Performance-Based Educational Policies, with an Application to Grade Retention
Xavier D'Haultfoeuille
(CREST)
Arnaud Maurel
(Duke University)
Jean-Marc Robin
(Sciences-Po)
[View Abstract]
In this paper, we develop a framework to evaluate the effects of performance-based educational policies, such as grade retention or ability tracking, on student achievement. Our identification strategy does not require any instrument nor discontinuity rule. Instead, the key identifying assumption states that the probability of being treated tends to zero for the highest-ability individuals, and is positive for the lowest-ability individuals. These conditions, which are arguably natural in this context, are the only restrictions that we impose on the selection process, thus allowing for very general forms of essential heterogeneity. Along with the assumption that the outcomes depend linearly on a set of unobserved factors, this enables to identify the full distribution of treatment effects on the overall, treated and untreated populations. We further propose a multi-step semiparametric estimation method that follows our identification strategy. Finally, we apply our method to analyze the effect of grade retention between grade 1 and 3 in the context of French primary schools.
Identifying the Effect of Changing the Policy Threshold in Regression Discontinuity Models
Yingying Dong
(University of California-Irvine)
Arthur Lewbel
(Boston College)
[View Abstract]
[Download Preview] Regression discontinuity models, where the probability of treatment jumps discretely when a running variable crosses a threshold, are commonly used to nonparametrically identify and estimate a local average treatment effect. We show that the derivative of this treatment effect with respect to the running variable is nonparametrically identified and easily estimated. Then, given a local policy invariance assumption, we show that this derivative equals the change in the treatment effect that would result from a marginal change in the threshold, which we call the marginal threshold treatment effect (MTTE). We apply this result to Manacorda (2012), who estimates a treatment effect of grade retention on school outcomes. Our MTTE identifies how this treatment effect would change if the threshold for retention was raised or lowered, even though no such change in threshold is actually observed.
Discussants:
Aleksey Tetenov
(Collegio Carlo Alberto)
Salvador Navarro
(University of Western Ontario)
Pedro Carneiro
(University College London)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 402
Econometric Society
Economic Growth and Development
(E2)
Presiding:
David Lagakos
(Arizona State University)
Economic Development and the Organization of Production
Nicolas Roys
(University of Wisconsin-Madison)
Ananth Seshadri
(University of Wisconsin)
[View Abstract]
How important is managerial talent in accounting for cross country income differ- ences? We address this question using a model that distinguishes between workers human capital and manager human capital. In our model, the ablest indviduals lever- age their talent and this has important consequences for a country's standard of living. The paper presents an overlapping generations economy where each individual chooses to be a manager or a worker depending on his human capital (as in Lucas, 1978), individuals accumulate human capital both in school and on the job (as in Ben-Porath, 1967), and production occurs in teams where there is sorting between workers and managers (as in Garicano and Rossi-Hansberg, 2006). By nesting a model of managerial occupational choice and endogenous skill accumulation in a framework in which the span of control is endogenous, we develop a rich framework that yields a number of empirical implications. We calibrate the model to the US economy and show that it can rationalize simultaneously the life-cycle of wages of managers and workers as well as the life-cycle of firms within a country. We then ask how much variation do we need to account for output per capita differences? We find that modest distortions can lead to large income differences.
Productivity Growth and Structural Transformation
Roberto Samaniego
(George Washington University)
Juliana Sun
(Singapore Management University)
[View Abstract]
[Download Preview] Economies tend to diversify and then re-specialize as they develop. An economy with many industries with different productivity growth rates may display these "stages of diversification" as a result of productivity-driven structural change if initially resources are concentrated in industries other than those that dominate economic structure in the long run. A calibrated multi-industry growth model with many countries replicates the main features of the "stages of diversification". We also present evidence that countries systematically shift resources towards manufacturing industries with rapid productivity growth, and towards sectors with low productivity growth, consistent with the model.
Sector Biased Technical Change, Perpetual and Transient Structural Change
Pengfei Zhang
(Peking University)
[View Abstract]
[Download Preview] We contrast a two-sector growth model, which could not only generate sector unbiased technical change but also could generate sector biased technical change. Economic growth must be non-balanced at the sectoral level and perpetual structural change will take place when technical change is sector biased. However, when technical change is sector unbiased, economic growth must be balanced at the sectoral level and only transient structural change could occur between the two sectors. A model that features sector biased change and perpetual structural change could be more empirically based than that features sector unbiased technical change and transient structural change.
Do Supply Restrictions Raise the Value of Urban Land? The (Neglected) Role of Production Externalities
Satyajit Chatterjee
(Federal Reserve Bank of Philadelphia)
Burcu Eyigungor
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] Restriction on the supply of new urban land is commonly thought to raise the value of existing urban land. Our paper questions this view. We develop a tractable production-externality-based circular city model in which firms and workers choose locations and intensity of land use. Consistent with evidence, the model implies exponentially decaying density and price gradients. For plausible parameter values, an increase in the demand for urban land can lead to a smaller increase in urban rents in cities that cannot expand physically because they are less able to exploit the positive external effect of greater employment density.
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 403
Econometric Society
Life-Cycle Decision-Making with Intergenerational Interactions and Health/Life Expectations
(I1)
Presiding:
Donna Gilleskie
(University of North Carolina)
Bequest Motives in a Life-Cycle Model with Intergenerational Interactions
Loretti Isabella Dobrescu
(University of New South Wales)
Fedor Iskhakov
(University of New South Wales)
[View Abstract]
[Download Preview] This paper revisits the debate on altruism vs exchange motive for bequest and studies to what extent the saving behavior of elderly Europeans is different in the presence or absence of adult children. To this purpose, we develop a structural model with two overlapping generations, namely elderly parents and their adult children. For each generation, we formulate a separate lifecycle model in which individuals consume and save. Children care about their elderly parents' health and may choose to support them via money transfers and time assistance. Parents, on the other hand, must cover the health costs resulting from heterogeneous health and medical spending shocks, and they can do so via formal insurance (purchased beforehand), informal insurance (provided through time and money transfers by their children) and out-of-pocket. We join the two lifecycle models in a dynamic game between parents and children, which we show has a unique Markov perfect equilibrium. We estimate the model on SHARE data using the simulated method of moments. Preliminary results show a significant bequest motive for savings in Europe. In an altruistic world, children have a considerable incentive to provide both time and financial help, and this greatly impacts the parents' savings behavior. Moreover, health, medical spending and health insurance also appear to be crucial in determining the old age saving patterns. Finally, counterfactual experiments show that considering only the strategic motive for bequest cannot explain the slow wealth decumulation in old age or the children's transfers patterns.
Social Security Benefits, Life Expectancy and Early Retirement
Maria Casanova
(University of California-Los Angeles)
Daifeng He
(College of William and Mary)
Qi Li
(University of Chicago)
Juan Pantano
(Washington University-St. Louis)
[View Abstract]
The Social Security Administration computes individual pension benefits using the average survival in the population. However, less educated individuals, and those with lower lifetime incomes, have lower life expectancies than their more educated and richer counterparts. We investigate how heterogeneity in longevity interacts with homogenous social security rules in shaping retirement patterns. In particular, the increase in Social Security benefits for each additional year of work after early retirement age is approximately actuarially fair for individuals with the average longevity. Thus, it is less than actuarially fair for individuals whose life expectancy is lower than average. As a result, individuals with below average longevity have lower incentives to delay retirement past early retirement age. We estimate a structural dynamic programming model of retirement using microdata from the Health and Retirement Study. We then use the estimated model to simulate retirement behavior under a counterfactual social security system in which individual specific survival odds are used to compute individual benefits. This allow us to investigate the role actuarial unfairness plays in shaping the observed patterns of early retirement.
The Effects of Parental Health Shocks on Adult Offspring Smoking Behavior: Evidence from a Long Panel
Michael Darden
(Tulane University)
Donna Gilleskie
(University of North Carolina)
[View Abstract]
[Download Preview] A continued policy focus on smoking cessation incentives is a stronghold in U.S. efforts to encourage healthy lifelong habits. In order to understand initiation and habituation of risky behaviors, economic researchers have studied financial disincentives, smoking bans and restrictions, peer reinforcement, and health information campaigns. We examine the role of health expectations and health signals. In particular, if adult smokers view parental health shocks -- smoking-related or otherwise -- as foreshadowing of their own health outcomes, then there may be room for anti-smoking policy advocates to capitalize on and emphasize this relationship. In this paper, we merge the Original Cohort and the Offspring Cohort of the Framingham Heart Study (FHS) to study how adult offspring smoking behavior and subjective health expectation vary with elder parent smoking behavior and health outcomes. Our data allow us to model the smoking behavior of adult offspring over a 30-year period contemporaneously with parental behaviors and outcomes. We find that women in our sample are significantly more likely to smoke when their mothers smoke. While adult offspring smoking behavior is not found to be responsive to parent cardiovascular shocks or cancer diagnoses, the subjective health assessment of current smokers declines dramatically after a health shock to a parent who smokes. This finding suggests that smokers internalize the health effects of cigarette smoking, but do not quit smoking as a result. We also find adult offspring are much less likely to smoke and more likely to report worse subjective health when they themselves experience a cardiovascular shock or cancer diagnosis.
Discussants:
David Blau
(Ohio State University)
Clement Joubert
(University of North Carolina)
Dan Silverman
(Arizona State University)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 404
Econometric Society
Political Economy
(F5)
Presiding:
Aleh Tsyvinski
(Yale University)
Endogenous Property Rights
Daniel Diermeier
(Northwestern University)
Georgy Egorov
(Northwestern University)
Konstantin Sonin
(Higher School of Economics-Moscow)
[View Abstract]
[Download Preview] It is often argued that additional checks and balances provide economic agents with better protection from expropriation of their wealth or productive capital. We demonstrate that in a dynamic political economy model this intuition may be flawed. Surprisingly, increasing the number of veto players or the majority requirement for redistribution may reduce property right protection on the equilibrium path. The reason is the existence of two distinct mechanisms of property rights protection. One are formal constraints that allow individuals or groups to block any redistribution which is not in their favor. The other occurs in equilibrium where agents without such powers protect each other from redistribution. Players without formal blocking power anticipate that the expropriation of other similar players will ultimately hurt them and thus combine their influence to prevent redistributions. Yet, such incentives can be undermined by adding formal constraints. The flip-side of this effect is that individual investment efforts might require coordination. The model also predicts that the distribution of wealth in societies with weaker formal institutions (smaller supermajority requirements) among players without veto power will tend to be more homogenous.
Efficiency, Welfare, and Political Competition
Felix Bierbrauer
(University of Cologne)
Pierre Boyer
(University of Mannheim)
[View Abstract]
We study political competition under the assumption that voters have private information on their valuation of publicly provided goods. We show that equilibrium policies are surplus-maximizing. This result would not hold if preferences were observable. This is in contrast to the conventional wisdom that incentive compatibility constraints make it harder to obtain surplus-maximizing outcomes. Our result extends to a Mirrlees (1971)-model of income taxation if we assume that preferences are quasi-linear in consumption. In this model, however, the surplus-maximizing outcome can be interpreted as a political failure to provide for welfare-enhancing redistribution among individuals who differ in their productive abilities.
Immunity
Vasiliki Skreta
(New York University)
[View Abstract]
[Download Preview] Legal provisions that protect politicians from arrest and prosecution exist throughout much of the modern democratic world. Why, and with what effects, do societies choose to place their politicians above the law? We examine the institution of immunity both theoretically and empirically. Our theoretical model demonstrates that immunity is a double-edged sword; while statutory immunity provisions protect honest politicians from politically-motivated charges, they may also incentivize corrupt behavior. Which effect dominates depends on the quality of the judicial system. In order to empirically analyze the effects of immunity provisions, we quantify the strength of immunity protection enjoyed by heads of government, ministers, and legislators in 73 democracies. We find empirical evidence that though stronger immunity protection is associated with greater corruption where the judicial system is independent, this relationship has more ambiguous effects where the legal system is weak and susceptible to politicization. These effects remain after controlling for standard determinants of corruption.
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 405
Econometric Society
Pragmatic Modeling and Robust Design under Limited Probabilistic Sophistication
(D8)
Presiding:
Sylvain Chassang
(Princeton University)
Corruption, Intimidation and Whistleblowing: A Theory of Inference from Unverifiable Reports
Sylvain Chassang
(Princeton University)
Gerard Padro i Miquel
(London School of Economics)
Abstract
Robust Trade in Lemons Markets
Gabriel Carroll
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] A buyer and seller have the opportunity to exchange an indivisible good at a prespecified price. Each agent may be imperfectly informed, in an arbitrary way, about both his own value for the good and the other agent's value. An observer knows the joint distribution of the two agents' values, but does not know their information structure. We determine what lower bounds the observer can confidently predict for the expected gains from trade that can be realized in equilibrium. In
particular, we show that the worst-case information — that minimizes the realizable gains from trade — involves no information asymmetries.
Media Power
Andrea Prat
(Columbia University)
[View Abstract]
[Download Preview] How much in‡fluence can the media exert on the political process and how can regulation reduce such in‡fluence? We defi…ne media power as the ability of subsets of jointly owned media outlets to affect electoral outcomes by providing biased information to voters. We characterize the worst-case scenario media power index over a range of assumptions on the beliefs and attention patterns of voters. We identify circumstances where the power of a media organization can be expressed in terms of attention share. Within our model, the power index can be used to assess the maximal damage produced by media mergers.
Optimal and Efficient Parametric Auctions
Pablo D. Azar
(Massachusetts Institute of Technology)
Costantinos Daskalakis
(Massachusetts Institute of Technology)
Silvio Micali
(Massachusetts Institute of Technology)
Matt Weinberg
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Consider a seller who seeks to provide service to a collection of interested parties, subject to feasibility constraints on which parties may be simultaneously served. Assuming that a distribution is known on the value of each party for service---arguably a strong assumption--- Myerson's seminal work provides revenue optimizing auctions~\cite{Myerson81}. We show instead that, for very general feasibility constraints, only knowledge of the {\em median} of each party's value distribution, or any other quantile of these distributions, or approximations thereof, suffice for designing simple auctions that simultaneously approximate both the optimal revenue and the optimal welfare. Our results apply to all downward-closed feasibility constraints under the assumption that the underlying, unknown value distributions are monotone hazard rate, and to all matroid feasibility constraints under the weaker assumption of regularity of the underlying distributions. Our results jointly generalize the single-item results obtained by Azar and Micali \cite{AzarMicali} on parametric auctions, and Daskalakis and Pierrakos \cite{DaskalakisPierrakos} for simultaneously approximately optimal and efficient auctions.
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 406
Econometric Society
Using Information Technology to Improve Health in Developing Countries
(O1)
Presiding:
Wesley Yin
(Boston University)
The Returns to Anti-Counterfeiting: Evidence from Text-Message Authentication of Pharmaceuticals
Daniel Bennett
(University of Chicago)
Seema Jayachandran
(Northwestern University)
Wesley Yin
(Boston University)
[View Abstract]
We examine the impacts of the introduction of an anti-counterfeiting technology on the pharmaceutical market in Nigeria. The technology allows consumers to authenticate the pharmaceutical drugs purchased via text message using a scratch code on the drug packaging. We examine impacts on the adopting drug and its competitors' price and sales as well as on drug quality using data from secret shopper purchases of drugs at pharmacies and from surveys of pharmacies in Lagos. Adopting the anti-counterfeiting technology is associated with an increase in both price and sales relative to competitor drugs, as well as an increase in drug quality. These effects are not seen for pharmacies in low-income neighborhoods, consistent with anti-counterfeiting technologies only driving out counterfeits and increasing the market share of an authenticated product when there is sufficiently high customer demand for authentic products.
Effectiveness and Spillovers of Online Sex Education: Evidence from a Randomized Evaluation in Colombian Public Schools
Alberto Chong
(University of Ottawa)
Marco Gonzalez-Navarro
(University of Toronto)
Martín Valdivia
(Grupo de Análisis para el Desarrollo)
Dean Karlan
(Yale University)
[View Abstract]
Sexual health problems cause negative externalities from contagious diseases and public expenditure burdens from teenage pregnancies. In a randomized evaluation, we find that an online sexual-health education course in Colombia leads to significant impacts on knowledge and attitudes and, for those already sexually active, fewer STIs. To go beyond self-reported measures, we provide condom vouchers six months after the course, and find a 10 percentage point increase in redemption. We find no evidence of spillovers to untreated classrooms, but we do observe a social reinforcement effect: the impact intensifies when a larger fraction of a student's friends is also treated.
The Effect of Monitoring on Health Care Providers in India
Iqbal Dhaliwal
(JPAL, Massachusetts Institute of Technology)
Rema Hanna
(Harvard University)
[View Abstract]
The Effect of Monitoring on Health Care Providers in India
Discussants:
Yi Qian
(Northwestern University)
Leigh Linden
(University of Texas-Austin)
Simone Gabrielle Schaner
(Dartmouth College)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 307
Economic History Association
Banking
(N2)
Presiding:
Hugh Rockoff
(Rutgers University)
American Banking and the Transportation Revolution Before the Civil War
Matthew Jaremski
(Colgate University)
Jeremy Atack
(Vanderbilt University)
Peter Rousseau
(Vanderbilt University)
[View Abstract]
[Download Preview] Studies have shown a connection between finance and growth, but most have not shown how financial and real factors interact to put a virtuous cycle into motion. As the main transportation development of the 19th century, rails by design connected areas with established financial and commercial centers, yet they also made unsettled areas along their routes candidates for development. We measure the connection between the expansion of railroads and banks in seven Midwestern states. An annual transportation GIS database linked to a census of banks shows that counties that already had a bank were more likely to see their first rail go through over the next decade, and new banks tended to enter a county a year or two after it got a railroad. The initial banking system thus helped establish the rail network, while the rapid development of railroads helped fill in the banking map in the American Midwest.
Central Bank Credibility and Reputation: An Historical Exploration
Pierre Siklos
(Wilfrid Laurier University)
Michael Bordo
(Rutgers University)
[View Abstract]
[Download Preview] Central Bank credibility refers to well articulated rules and policy goals. Credibility is tied to inflationary expectations, while reputation relates to the institutional environment. We develop measures of central bank credibility and reputation based on measures of inflation expectations, the mean reversion of inflation, term structure, and exchange rate risk. We examine 20 central banks around the world using annual data since the central banks were formed. We ask how credibility reacts to the past history of inflation, proxies for output performance, or the output gap, the stage and shape of particular business cycle events. We estimate a model using a factor-augmented GVAR model. Central bank reputation is determined by the quality of governance in the public sector. A quantile regression model is estimated to ascertain whether central banks that have particularly high reputations are associated with a type of policy regimes.
Bank Deregulation, Competition and Economic Growth: The US Free Banking Experience
Philipp Ager
(University of Southern Denmark)
Fabrizio Spargoli
(Erasmus University)
[View Abstract]
[Download Preview] We exploit the introduction of free banking laws in US states during the 1837-1863 period to examine the impact of removing barriers to bank entry on bank competition and economic growth. As governments were not concerned about systemic stability in this period, we are able to isolate the effects of bank competition from those of state implicit guarantees. We find that the introduction of free banking laws stimulated the creation of new banks and led to more bank failures. Our empirical evidence indicates that states adopting free banking laws experienced an increase in output per capita compared to the states that retained state bank chartering policies. We argue that the fiercer bank competition following the introduction of free banking laws might have spurred economic growth by (1) increasing the money stock and the availability of credit; (2) leading to efficiency gains in the banking market. Our findings suggest that the more frequent bank failures occurring in a competitive banking market do not harm long-run economic growth in a system without public safety nets.
Discussants:
Dominick Bartelme
(University of California-Berkeley)
Joshua Hausman
(University of Michigan)
Jonathan Rose
(Federal Reserve Board)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 105-A
International Association for Feminist Economics
Children, Family Structures, and Human Capital
(B5)
Presiding:
Ipek Ilkkaracan
(Istanbul Technical University)
'The Dust Was Long in Settling': Human Capital and the Lasting Impact of the American Dust Bowl
Vellore Arthi
(University of Oxford)
[View Abstract]
[Download Preview] I use variation in childhood exposure to the Dust Bowl, an environmental shock to health and income, as a natural experiment to explain variation in adult human capital. I find that the Dust Bowl produced significant adverse impacts in later life, especially when exposure was in utero, increasing rates of poverty and disability, and decreasing rates of fertility and college completion. Dependence on agriculture exacerbates these effects, suggesting that the Dust Bowl was most damaging via the destruction of farming livelihoods. This collapse of farm incomes, however, had the positive effect of reducing demand for child farm labor and thus decreasing the opportunity costs of secondary schooling, as evidenced by increases in high school completion amongst the exposed.
The Role of Family Structure in the Evolution of Health from Adolescence to Young Adulthood by Gender
Alexander N. Slade
(University of Illinois-Urbana-Champaign)
Andrea H. Beller
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] The incidence of the intact two-biological-parent (traditional) family has been steadily decreasing since the 1960s. Families with nontraditional structures often suffer from less income and time available, which can lower their investment in the children. The effects of single-parent family living on cognitive and educational outcomes are well established, but less is known about the effects on health. Using all four waves of the National Longitudinal Study of Adolescent Health (Add Health), we estimate both static logit and discrete-time hazard models to test hypotheses whether growing up in a nontraditional family leads to poorer physical and mental health outcomes, measured by self-reported health, weight, depression and smoking. We improve upon previous studies by measuring family structure by the timing of maternal relationships, extending analyses through young adulthood, and examining associations by gender. We find an adverse association between nontraditional family structures and adolescent smoking and health outcomes that is stronger for girls than for boys, and which persists into young adulthood for some outcomes. Compared to girls, boys face a greater association between family structure and adverse health transitions after adolescence. The presence of other adult males diminishes some of the adverse consequences of paternal absence for some outcomes.
Labor Market Conditions and United States Teen Birth Rates, 2001 to 2009
Robert Cherry
(Brooklyn College)
Chun Wang
(Brooklyn College)
[View Abstract]
This paper assesses the impact of economic, behavioral, and demographic influences on teen birth rates using state-level data for 2001-2009. Using unemployment rates as the sole labor market explanatory variable, most previous studies concluded that employment conditions do not systematically influence teen birth rates. By contrast, this study finds that birth rates are positively influenced by male employment rates (20 to 24 years old) and negatively influenced by the real minimum wage. Teen birth rates are also positively influenced by teen gonorrhea infection rates; and for the older teens (18 to 19 years old), by a measure of illegal drug use. By contrast, alcohol use has a negatively influences teen birth rates. These results are sustained even when we include demographic variables – the black and Hispanic share of the state's teen population. Our results differ sharply with the recent work by Melissa Kearney and Philip Levine who contend that teen birth rates reflect a deep sense of hopelessness suggesting that improving economic outlooks might be an effective policy. While our study finds some support for this hypothesis among 15-17 year olds, we reject it among 18-19 years olds where there is a tendency for teen birth rates to be positively correlated with birth rates. Given the persistence of high young adult birth rates, policy recommendations to eliminate the marriage penalty they face are offered.
Parents' Work Schedules and Time Spent with Children and Teenagers
Katie R. Genadek
(University of Minnesota)
[View Abstract]
The decision to enter the labor force for mothers is based on a variety of factors that includes characteristics of spouses. Husband's work schedules, work hours, and flexibility of work time play an important role in this decision to enter the labor force, and additionally, in the decision to work part-time or a set number of hours. The timing of husband's work is especially important for mothers because of time constraints imposed by schools and day care, and the desire to spend time with children. This paper uses detailed time-dairy and work schedules data to investigate the relationship between husband's work schedules and maternal employment. The results show married women with children are less likely to participate in the labor force when their husbands finish work after 6:00pm when compared to husbands that finish work before 6:00pm, even while controlling for simultaneous relationship between husband's work stopping time and wife's labor force participation. The results found suggest that day care and after school care timing has a large impact on the employment of women with children. Further investigation of this topic will look specifically at the timing of day care closures by using information on hours of operation for large day care companies throughout the United States, and time dairy evidence on picking up children from child care. This day care timing policy will be used with regression discontinuity design to estimate the effect of a husband working past day care hours on the labor force participation of his wife.
Discussants:
Robert E. Prasch
(Middlebury College)
Ipek Ilkkaracan
(Istanbul Technical University)
Nancy Folbre
(University of Massachusetts-Amherst)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association
Changing Conditions of Work: Garment Industry, Casinos, Self Service
(J5)
Presiding:
C. Waddoups
(University of Nevada-Las Vegas)
Unruly Laws: Social Connection and the Economics of Homeless Criminalization
Sarah Neeley
(University of Denver)
N/A
Industry Trends and Job Quality in Atlantic City's Casinos
Ellen Mutari
(Richard Stockton College of New Jersey)
Deborah M. Figart
(Richard Stockton College of New Jersey)
[View Abstract]
"For the more than 34,000 workers in Atlantic City s casinos, the changing fortunes of casino gaming in the local and national economies are profoundly shaping their opportunities and experiences. For this study, qualitative, in-depth interviews with current and former employees in Atlantic City s casinos are being supplemented with secondary and primary source material and some descriptive data analysis. We are finding that a workplace in an industry that seemed to promise a solid and stable livelihood is being transformed by competitive pressures, causing employees to lose their economic footing. What seemed like a good job one day becomes a bad job the next.
Changes in job security and job quality are often wrought by macroeconomic fluctuations of the nation s economy that impact specific industries or groups of workers. Gambling, however, was long touted as a recession-proof industry, offering relatively cheap entertainment akin to movies during the Great Depression. The economic crisis of 2008 disproved this contention. In an industry where line workers depend on tips for a good livelihood, shrinking demand had a direct and profound impact on living standards. There are also microeconomic dynamics within particular industries, as businesses strive to increase their market power and develop new markets. Even prior to the economic and financial crisis that began in 2008, the growth pace of gaming across the U.S. was slowing. Less than one fourth of the gaming industry is now centered in the U.S. The global casinos and gaming sector grew by 7.5 percent in 2010 at the same time the industry was shrinking by 0.7 percent in the United States. Atlantic City s casinos experienced the country s largest percentage decrease in Gross Gaming Revenue in 2010: (-ð ) 9.4 percent, along with a (-ð) 12.1 percent decline in tax contributions.
The End of the (Checkout) Line?: Automation, Self-Service, and Low-Wage Jobs in the Supermarket Industry
Christopher Andrews
(Drew University)
[View Abstract]
[Download Preview] Drawing on existing research on automation, computers, and the effects of technology in the workplace, this paper examines the effects of automated self-checkout lanes on employment in the retail food industry. Using BLS employment data as well as interviews with store managers and union officials, this paper finds that the overall effect of automation on cashiers' skills is mixed, reducing the need for some routine tasks (e.g., scanning) while enhancing others (e.g., supervising), a trend consistent with existing literature examining the effects of technology on skill demands. Similar to Walsh's (1991, 1993) previous research on technological innovation in the retail food industry, a combination of social and political factors shape and limit the use of self-checkout lanes in supermarkets including chronic turnover, concerns regarding theft and loss, perceptions of customer service, maintenance, and perhaps most importantly, specific labor contract provisions regarding the use of technology in the workplace. However, growing pressure from low-wage nonunion competitors (e.g., WalMart) may cause supermarkets to consider expanding automation beyond current levels, thereby significantly affecting current employment patterns.
Discussants:
Elaine McCrate
(University of Vermont)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Improving Health Care Jobs
(J5)
Presiding:
Eileen Appelbaum
(CEPR)
Job (In)Stability in the Long Term Care Services Sector in Europe
Marta Elvira
(IESE Business School)
Stefano Visintin
(IESE Business School)
Carlos Rodrigues-Lluesma
(IESE Business School)
[View Abstract]
Demographic changes, growing demand for higher quality healthcare and social transformations are making Long Term Care services (LTC) for senior citizens a key evolving sector in advanced economies. An increased labor demand and, in parallel, a systemic shortage of caregiving workers supply raises the level of uncertainty about the provision of these services in the short and long run. Adding to the fact that LTC services are not perceived as an attractive occupation, high turnover rates characterize this sector. Given the relevance of LTC workforce for performance of the social services sector, current turnover levels (or short employment spells) represent a central issue in the public and private sector debate, as well as a frequent headline in the policy-makers agenda.
Empirical studies in this field are challenged by the scarcity of long-term, comparable data allowing dynamic and/or cross-country comparisons. Building on recent studies, our analysis intends to explain the determinants of LTC contract length focusing on the idiosyncratic features of LTC workers (person- and position-specific characteristics). We estimate the survival functions for LTC workers employment spells and contrast them with all health care workers as well as other comparable occupations (e.g. nursing professionals). Then, we test the determinants of contract duration by means of hazard models. We observe that job spells in the sector are consistently shorter than those of the benchmark occupations. Estimated models, furthermore, indicate that job-specific characteristics (e.g. firm size, number of hours worked or types of contracts) can explain a great variance of the spell duration, and part of the differences between LTC and other workers. These outcomes suggest a crucial role played by firm-specific characteristics in the LTC setting.
Employer Motivations for Participation in Multi-Employer Labor-Management Health Care Worker Training Programs
Sally Klingel
(Cornell University)
David B. Lipsky
(Cornell University)
[View Abstract]
[Download Preview] Filling vacancies and retaining workers in staffing areas with chronic shortages of qualified applicants such as nursing and other allied health occupations remains a challenge in today’s health care industry. At the same time, low-wage workers in the healthcare industry often lack the educational credentials necessary to move into higher-paying occupations. This study examines the role of multi-employer joint labor-management health care worker training funds in meeting the needs of employers for career ladder advancement in their incumbent workforce. In particular, we examine the criteria employers in these funds use to evaluate their participation. The joint labor-management model differs from other models of incumbent workforce training because of its reliance on the labor-management relationship as a central organizing principle for its activities (Marschall and Scully-Ross, 2010). The model directly links workforce education with employment opportunities, through a labor-management partnership. While a number of joint labor-management health care multi-employer training funds exist, there has been little examination of the motivations of health care employers to join or remain in these partnerships.
Job Opportunities in Health Care for Minorities under the Affordable Care Act
Bianca Kiyoe Frogner
(George Washington University)
Joanne Spetz
(University of California-San Francisco)
[View Abstract]
[Download Preview] The health care industry has been an engine of job growth, and the Affordable Care Act of 2010 (ACA) is expected to stimulate further growth. We present descriptive statistics the racial/ethnic mix of the health care industry using the American Community Survey (ACS). Using the National Employment Matrix and a proprietary microsimulation model, we project that the health care industry could add 4.6 million jobs over the next decade. If we assume that the current racial/ethnic distribution of the health care workforce persists, we would expect that minorities will comprise at least one-third of all future health care jobs.
Discussants:
Randy Albelda
(University of Massachusetts-Boston)
Jan 05, 2014 10:15 am, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
Innovations in Workforce Development and Labor Market Intermediation
(J5)
Presiding:
Howard Wial
(University of Illinois-Chicago)
Adapting Multi-Employer Joint Apprenticeship for Advanced Manufacturing: The New App for Making It in America
Howard Wial
(University of Illinois-Chicago)
[View Abstract]
High technology manufacturing startups that are just beginning production face labor market conditions similar to those in the construction industry: the demand for labor is uncertain and unstable at the level of the individual firm. Like much of the construction industry, these startups also require high skill levels for production workers. The multi-employer joint labor-management apprenticeship model long used in the unionized portion of the construction industry offers a means of developing workers skills and matching workers to jobs under such conditions. In 2012, the Pennsylvania AFL-CIO, Carnegie Mellon University, the Three Rivers Workforce Investment Board, union-affiliated workforce training organizations, and Pittsburgh-area economic development organizations, with funding from the U.S. Department of Labor, began a three-year pilot project, called the New App for Making It in America, which adapts the joint apprenticeship model to meet the needs of Pittsburgh-area high tech manufacturing startups (firms in operation for 10 years or less, primarily spinoffs from Carnegie Mellon University labs) and workers seeking jobs with those startups. This paper reports on the design, implementation, and early employment and training outcomes of the New App. It documents the successes and challenges that the stakeholders faced in adapting multi-employer apprenticeship and creating a role for organized labor in a sector of the economy in which employers have not previously cooperated in developing workers skills and unions have not previously had a presence. It draws on the results of semi-structured interviews with workers and with the project s institutional stakeholders, on the author s first-hand observation of the New App design process, and on program data generated by the New App on participants skills, employment and earnings.
The Role of Non-Profit Staffing Services in Hiring Processes: Evidence from Employer Interviews
Françoise Carré
(University of Massachusetts-Boston)
Brandynn Holgate
(University of Massachusetts-Boston)
[View Abstract]
The job search process and getting hired have become increasingly challenging for job seekers at the bottom of the job market. The recession and slow employment recovery have also witnessed accounts of heightened hurdles for workers including, for example, more stringent credential requirements and background checks as well as screening for recent work experience. All indications point to employers having the upper hand. Yet, for some employers, notably those companies which conduct local hiring for entry-level positions, recruitment for entry-level jobs also presents challenges such as finding appropriate and affordable candidate screening and assessment mechanisms. An interesting insight is provided by the activities of non-profit staffing companies ( Alternative staffing organizations ) which use the staffing model to access entry-level and mid-level positions for job seekers who face obstacles to employment (e.g. lack of recent work record or credential, ex-offender status). In interviews with customer businesses which use these alternative staffing companies to staff entry-level positions, we explore the recruitment challenges that such employers seek to solve, and how they evaluate their options, including direct hiring, using conventional staffing companies, and using the services of a staffing service run by a community-based organization aiming to open job opportunities for their service population. Complementary information from worker focus groups is also considered. The paper draws on 40 employer interviews for two studies conducted between 2005 and 2010.
Multi-Stakeholder Partnerships as High Road Labor Market Intermediaries: The Wisconsin Regional Training Partnership
Trevor Young-Hyman
(University of Wisconsin-Madison)
[View Abstract]
The US manufacturing sector has received widespread recent attention as a potential source of high wage employment and national industrial competitiveness, but such a revival faces the challenge of a diminished manufacturing labor pool and the decline of the affiliated institutions that have historically prepared and connected workers to manufacturing firms. In other words, a US manufacturing revival will require effective labor market intermediaries. Multi-stakeholder sector partnerships between employers, unions, and community organizations offer a model distinct from other labor market intermediaries because they provide opportunities for resource pooling, information sharing, and collaborative problem solving. Nonetheless, such models are relatively rare compared to the increasingly prevailing temporary staffing agency model. This paper uses the exemplary case of the Wisconsin Regional Training Partnership, a longstanding multi-stakeholder sector partnership in Milwaukee, to compare the labor market environment facilitated through such a model with that produced by other models. Towards this end, we conducted in-depth narrative interviews with union representatives, human resource directors, and staffing agency representatives affiliated with firms that have used both types of labor market intermediaries. In particular, we inquired about pre-employment education, worker recruitment, worker assessment processes, on-the-job training programs like apprenticeships, and career pathways within the firm. By gathering detailed accounts of this range of stages and dimensions of the worker experience, we seek to highlight the broad impact of differences in labor market intermediaries.
Discussants:
Stephen Herzenberg
(Keystone Research Center)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Regency Ballroom C2
Latin American and Caribbean Economic Association
Illegal Markets and Violence
(K4)
Presiding:
Jens Ludwig
(University of Chicago)
Bushes and Bullets: Illegal Cocaine Markets and Violence in Colombia
Daniel Mejia
(Universidad de los Andes)
Pascual Restrepo
(Massachusetts Institute of Technology)
[View Abstract]
This paper proposes a new identification strategy in order to estimate the causal impact of illicit drug markets on violence in a panel of Colombian municipalities. Using a UNODC survey of Colombian rural households involved in the cultivation of coca crops, we estimate the determinants of land suitability for coca cultivation. With this, we create a measure of suitability for coca cultivation for the 1,052 Colombian municipalities that is based on altitude, erosion, soil aptitude, and water precipitation. We show that our exogenous suitability measure predicts the presence of coca crops in the cross section and it's expansion between 1994-2000. Furthermore, following an increase in the demand for Colombian cocaine caused by higher seizures in other producing countries, coca cultivation increased disproportionally in municipalities with a high suitability index. Thus, the suitability index combined with exogenous changes in the demand for Colombian cocaine provides us with an exogenous source of variation in the extent of coca cultivation that varies across municipalities and over time. We use this as an instrument to uncover the causal effect of illegal cocaine markets on violence. Using different measures for the extent of coca cultivation, we find that a 10% increase in the value of cocaine produced increases homicides by about 1%, forced displacement by about 3%, attacks by illegal armed groups by about 2%, and incidents with land mines by about 1%. Political forms of violence such as terrorist attacks and mass killings, or alternative forms of violence providing other sources of income such as kidnappings and extortion, all decrease when the value of cocaine markets increase. Our evidence is consistent with the view that claims that that prohibition creates large rents in illegal markets, and the fight over the control of these rents is a first order determinant of violence caused by armed groups that fight each other, the government and civilians over the control of land for coca cultivation and cocaine production.
Trafficking Networks and the Mexican Drug War
Melissa Dell
(Harvard University)
[View Abstract]
Drug trade-related violence has escalated dramatically in Mexico since 2007,
and recent years have also witnessed large-scale efforts to combat trafficking, spearheaded by Mexico's conservative PAN party. This study examines the direct and spillover eeffects of Mexican policy towards the drug trade. Regression discontinuity estimates show that drug-related violence increases substantially after close elections of PAN mayors. Empirical evidence suggests that the violence reflects rival traffickers' attempts to usurp territories after crackdowns have weakened incumbent criminals. Moreover, the study uses a network model of trafficking routes to show that PAN victories divert drug traffic, increasing violence along alternative drug routes
The Birth of the Organized Crime? The American Temperance Movement and Market-Based Violence
Emily Owens
(Cornell University)
[View Abstract]
Economic theory suggests that criminalizing a market will increase market-based violence, but the consumption of many currently illegal intoxicants also directly causes crime. The net impact of market legality on overall violence is therefore ambiguous. With modern crime data, I show that a policy that increased market-based violence while reducing violence associated with intoxication would likely raise homicide rates for 20 year-olds relative to older and younger people. Using a state level panel of age-specific homicides from 1900-1940, when many states and eventually the federal government criminalized alcohol markets, I demonstrate that the spread of the Temperance Movement similarly compressed the age distribution of homicide victims, primarily in northern, urban states with large immigrant populations.
The Use of Violence in Illegal Markets: Evidence from Mahogany Trade in the Brazilian Amazon
Ariaster Chimeli
(Ohio University)
Rodrigo Soares
(PUC-Rio)
[View Abstract]
[Download Preview] Agents operating in illegal markets cannot resort to the justice system to guarantee property rights. It is often argued that, in these contexts, violence is used to enforce previous agreements and to fight for market share. This argument plays a major role in the current debate on drug legislation, but lacks empirical support. This paper explores an episode of transition of a market from legal to illegal to provide evidence on the causal effect of illegality on systemic violence. Brazil has historically been the main world producer of big leaf mahogany (a tropical wood), but, starting in the 1990s, extraction and trade were restricted and eventually prohibited. First, we present evidence that large scale mahogany trade persisted after prohibition, through misclassification of mahogany exports as "other tropical timber species." Second, we document relative increases in violence after prohibition in areas with natural occurrence of mahogany. The increase in violence is particularly strong in states with higher share of mahogany exports before prohibition or with higher suspected illegal mahogany activity after prohibition. Trends in socioeconomic variables cannot account for this profile. We present the first documented experience of increase in violence following the transition of a market from legal to illegal.
Discussants:
Jeffrey Clemens
(University of California-San Diego)
Sebastian Galiani
(University of Maryland)
Jan 05, 2014 10:15 am, Philadelphia Marriott, Meeting Room 306
National Economic Association
The Economics of Race and Sports
(J7)
Presiding:
Kwabena Gyimah-Brempong
(University of South Florida)
Social Distance, Favoritism and Referee Bias: Evidence from the FIFA World Cup.
Fernando A. Lozano
(Pomona College)
[View Abstract]
In this paper I use variation on the national origin of players and referees from the FIFA World Cup to build an empirical test to distinguish between two sources of referee bias: bias due to differential treatments and bias due to differential outcomes. My outcome of in- terest is whether a player receives a yellow card from a referee or not. My main identification strategy consists in using the difference be- tween the national team that the player plays in the World Cup and the player’s professional club, and how the likelihood that a player receives a yellow card varies with the referee’s region of origin. I an- alyze whether black players born from region i are more likely to be yellow carded by a referee from region j, and whether this likelihood changes whether the player’s club is in region j. My results suggest that referee bias, or favoritism, is caused by social distance between the player and the referee, and increasing this distance increases the probability that a black player receives a yellow card.
The Grass is Not Always Greener: Pay Disparity at Wimbledon
Rhonda Sharpe
(Duke University)
[View Abstract]
As the participation of women in professional sports has increased, so has the number of studies on gender-wage and gender-performance gaps in sports. In 2007, Wimbledon ended its practice of unequal pay between men and women for championship prize money. This study contributes to the literature on gender-wage and gender-performance gaps by using a detailed data set to analyze championship prize money and performance at Wimbledon. We are particularly interested in the performance of Venus and Serena Williams, who have won 10 of the last 13 championships and have played in 11 of the 13 championships.
Do White NBA Players Suffer from Reverse Discrimination?
Gbenga Ajilore
(University of Toledo)
[View Abstract]
[Download Preview] The National Basketball Association (NBA) has been fertile ground for the study of discrimination due to demographic and cultural shifts in not only the teams but also the fan populace. The early research found evidence of black-white wage differentials and customer discrimination (Kahn and Sherer, 1988). However, this effect has gone away as customers have become more accustomed to African-Americans in the NBA. Recent research has now shown that the pendulum has swung in the other direction and find the existence of reverse discrimination (Groothuis and Hill, 2013; Yang and Lin, 2010). In this paper, I test whether there exists reverse discrimination with White athletes in the NBA. Following Altonji and Pierret (2001), I use a statistical discrimination with employer learning framework to estimate the model. Unlike previous work, I incorporate advanced basketball metrics like Player Efficiency Rating (PER) and Win Shares to measure player productivity.
Compensation Discrimination for Marginal Workers: Evidence from the National Football League
Johnny C. Ducking
(North Carolina A&T State University)
Peter Groothuis
(Appalachian State University)
James Richard Hill
(Central Michigan University)
[View Abstract]
[Download Preview] Using NFL data from 2000 to 2008, we test for compensation discrimination on career earnings in the NFL. We use both the traditional dummy variable technique applied to Ordinary Least Squares regression as well as quantile regression analysis to measure the effect of race on earnings. We focus on six positional groups: defensive backs, defensive linemen, linebackers, running backs, tight ends and wide receivers. Our analysis finds that a player's performance determines career earnings and not their race. Perhaps, using a Becker-like argument, market competition for the best players in a competitive environment to achieve a winning team has overcome personal prejudice.
Discussants:
Patrick Mason
(Florida State University)
William A. Darity, Jr.
(Duke University)
Kwabena Gyimah-Brempong
(University of South Florida)
Ana Cuesta
(University of Minnesota)
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Congress B
Society for Economic Dynamics
Networks in Macroeconomics and Finance
(G1)
Presiding:
Jennifer La'O
(Columbia University)
Shock Propagation in Production Networks: Evidence from Natural Disasters
Vasco Carvalho
(CREI and Universitat Pompeu Fabra)
tba
Systemic Risk and Stability in Financial Networks
Daron Acemoglu
(Massachusetts Institute of Technology)
Asuman Ozdaglar
(Massachusetts Institute of Technology)
Alireza Tahbaz-Salehi
(Columbia University)
[View Abstract]
[Download Preview] We provide a framework for studying the relationship between the financial network architecture and the likelihood of systemic failures due to contagion of counterparty risk. We show that financial contagion exhibits a form of phase transition as the extent of interbank interconnectivity increases: as long as the magnitude and the number of negative shocks affecting financial institutions are sufficiently small, a more equal distribution of interbank obligations enhances the stability of the system. However, beyond a certain point, such dense interconnections start to serve as a mechanism for the propagation of shocks and lead to a more fragile financial system. Our results thus highlight the "robust-yet-fragile" nature of financial networks: the same features that make the system more resilient under certain conditions may function as significant sources of systemic risk and instability under another.
Optimal Disclosure and Contagion for Interconnected Banks
Fernando Alvarez
(University of Chicago)
tba
Financial Frictions in Production Networks
Saki Bigio
(Columbia University)
Jennifer La'O
(Columbia University)
tba
Jan 05, 2014 10:15 am, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists
Heterodox Theories of the Business Enterprise
(B5)
Presiding:
Nina Shapiro
(St Peter's University)
Take the Money and Run: The Business Enterprise in the Age of Money Manager Capitalism
Tae-Hee Jo
(State University of New York-Buffalo State)
John F. Henry
(University of Missouri-Kansas City)
[View Abstract]
[Download Preview] Most heterodox theories of the business enterprise base themselves on the Veblenian business enterprise in which managers pursue the long-run survival and growth of the enterprise, whereas absentee owners are occupied with short-run financial interests. The changes in the capitalist social provisioning process toward money manager capitalism since the Veblen's era are not only directed by the business enterprise, but also govern the business activities. In this paper, we make a threefold argument. Firstly, while the Veblenian account of a going concern still holds true for many enterprises, more and more of the economy is being directed toward financial concerns. Secondly, such a change in business activities would make the social provisioning process more unstable and render people's welfare more vulnerable. Thirdly, the concept of a going concern is therefore to be reconsidered in order to put the business enterprise in the context of money manager capitalism.
From Capital to Market Capitalization: Industrial Change in the Connecticut River Valley, 1998-2012
Marie Duggan
(Keene State College)
[View Abstract]
Why has capital spending as a share of free cash flow declined in recent decades in the United States? Stockhammer (2004) identified a general decline in new capital spending as a share of operating profits in the United States. Dallery (2011) and Stockhammer both explains this as the result of increased dividends due to shareholder power. Orhangazi (2007) agrees, and suggests that stock buy-backs have also reduced funds available for capital investment. Through a case study of the capital goods sector of one town in the Connecticut River Valley, we find that the trade-off is not between dividends and new capital spending, but rather between new capital spending and acquisitions. This correlates to two strategies, one of growth through innovation, and the other of growth through market capitalization. Growth through market capitalization is an option open only to publicly held firms, and indeed there has been a shift from private to public ownership in the town since 1998. We update the post-Keynesian theory of the firm to reflect this distinction between two meanings of "capital."
Market Governance and the Boundaries of the Firm: The Case of the United States Software Industry
Erik Dean
(Portland Community College)
[View Abstract]
This paper will address how the principles of heterodox microeconomics translate to a heterodox theory of the firm. It will be argued that, in contrast to the extant Marginalist theories of the firm that presently dominate the economics discourse, the boundaries of modern firms are defined not through processes of individual contracting, but principally through the coevolution of business and technological practices, chiefly in the interest of the former over the latter. It will furthermore be argued that this process, in a socioeconomic system defined by the firm as a going concern, is more akin to the gerrymandering of congressional districts than to an efficient allocation of material transactions between the firm and market spheres. The history of the US software industry from the 1950s through the 1990s will be provided as an illustrative case. In particular, it will be shown that this industry owes its structure, and indeed its existence, to the evolution of business strategies concerning the technological relationships surrounding the provision and use of computer systems. The industry's history corroborates the general hypotheses that 1) markets tend to be governed by the concerns operating therein with due regard to challengers, potential and actual; and 2) the resulting governance structures necessarily involve state sanctioning, including the administration of appropriate property rights over the relevant technological relationships.
Learning, Upgrading and Innovation in the Telecommunication Industry in Vietnam: A Rent Management Analysis
Christine Ngoc Ngo
(Drew University)
[View Abstract]
[Download Preview] This paper analyzes the industrial success of the telecommunications industry in Vietnam using developmental rent management analysis (DRMA). The empirical evidence for this study is primarily based on 42 semi-structured interviews with government officials, firm managers, suppliers, workers, and industry experts from 2010 to 2012. DRMA suggests that the industry’s success was based on a number of rent management factors that corrected certain market failures and encouraged significant effort for learning and technology adoption. These factors were fundamentally based on: (1) favorable political supports for rent creation from the state, (2) an effective structure of rent allocation and implementation, and (3) credible incentives and pressures that encouraged industrial upgrading. While each factor by itself was insufficient to ensure the success of the industry, their synthesis was such that Vietnamese telecom operators, in particular Viettel Group, were motivated and compelled to rapidly expand their industrial capability through technical learning and upgrading.
Impact of Firm Governance During Recessions
Kenneth Levin
(City University of New York-Borough of Manhattan Community College)
[View Abstract]
[Download Preview] While recessions manifest as market imbalance, deeper underlying causes always exist. At the firm level, governance structure can matter more in a crisis than others have thought. The specific dynamics of recessionary profit challenges essential pillars of conventional theory. Extra firm revenue undermines the image of market forces as an equilibrating, efficient, and unbiased mechanism. In such a context, firms become exposed as a reservoir for profit in several forms. Tendencies arising around distributions of such revenues can exacerbate a crisis and prevent recovery. Multilevel coordination failure licenses a rival model of the firm as a microfoundation for improved macroeconomic performance.
Discussants:
Lynne Chester
(University of Sydney)
Henning Schwardt
(University of Bremen)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Grand Ballroom - Salon B
American Economic Association
Accountability, Collective Action, and Information in Economic Development
(O1)
Presiding:
Karla Hoff
(World Bank)
Community-based monitoring of schools. Evidence from Uganda
Abigail Barr
(University of Nottingham)
Frederick Mugisha
(Economic Policy Research Center)
Pieter Serneels
(University of East Anglia)
Andrew Zeitlin
(Georgetown University)
[View Abstract]
Community-based monitoring of public services provides a possible solution to accountability problems when state oversight is limited. However, the mechanisms through which such policies can be effective are not well understood. Are community-monitoring interventions successful because they improve information alone, or do they also need to overcome collective action problems? We investigate this question by implementing a combined field and lab experiment in 100 Ugandan primary schools, which randomly assigns schools and their Management Committees (SMCs) either to standard community-based monitoring, to a participatory variation that addresses coordination problems, or to a control group. We find substantial impacts of the participatory treatment on pupil test scores as well as pupil and teacher absenteeism, while the standard treatment has small and insignificant effects, and we develop a test using randomization inference to show that differences in these outcomes between treated groups are statistically significant. Combining this evidence with SMC member behavior in laboratory games, we find evidence that improved collective action explains these differences. The results have implications for the design of community based monitoring policies, and help to explain their variable effectiveness across contexts.
Collective Action in Diverse Sierra Leone Communities
Rachel Glennerster
(Massachusetts Institute of Technology)
Edward Miguel
(University of California-Berkeley)
Alexander Rothenberg
(University of California-Berkeley)
[View Abstract]
Scholars have pointed to ethnic divisions as a leading cause of underdevelopment, due in part to their adverse effects on public goods. We investigate this issue in post-war Sierra Leone, one of the world's poorest and most ethnically diverse countries, and a reasonable setting to test whether ethnic divisions would stifle cooperation and local collective action. To address concerns over endogenous local ethnic composition, we use an instrumental variables strategy relying on earlier census data on ethnic composition, and include a rich set of historical and geographic covariates. Perhaps surprisingly, we find that local diversity is not associated with worse public goods provision across a variety of outcomes, specifications, and diversity measures, with precisely estimated zeros. There is, however, a negative relationship between local diversity and stated trust. We investigate the role of historical and institutional factors in Sierra Leone in generating the findings.
Can the Poor be Organized? Evidence from Rural India
Raj M. Desai
(Georgetown University)
Shareen Joshi
(Georgetown University)
Anders Olofsgard
(Georgetown University)
[View Abstract]
In response to the problems of high coordination costs among low-income households, efforts are underway in many countries to organize the poor through "self-help groups" (SHGs)-membership-based organizations that aim to promote social cohesion through a mixture of education, access to finance and linkages to wider development programs. We randomly selected 32 of 80 villages in one of the poorest districts in rural India in which to establish SHGs for women. After two years of exposure to the intervention, women in treatment villages were more likely to participate in group savings programs, exerted greater control over household decisions, and displayed greater civic engagement than women in control villages. To investigate the sources of cooperation further, we conducted a simple multi-round public goods game in 14 villages. We find that players who have been exposed to SHGs converge towards a cooperative equilibrium faster than those who have not. We also find that SHG women discount the risk of noncooperation by others more than women in control villages. We conclude that SHGs and other membership-based organizations for the poor, where they promote collective action do so not by enforcing a commonality of tastes, but by reducing uncertainty surrounding cooperation.
Why Women Participate Less in Civic Activity: Evidence from Mali
Jessica Gottlieb
(Texas A&M University)
[View Abstract]
[Download Preview] Civic engagement fails to foster democratic representation and accountability when women or other marginalized groups face barriers to participation, as they do in many developing countries. Rather than flattening access to participation, a randomly assigned civic education course in Mali widened the gender gap when it increased civic activity among men while decreasing that among women. Qualitative evidence reveals mechanisms by which the information intervention generated perverse consequences for women. In a place where women are traditionally unwelcome actors in the public sphere, the course heightened the salience of civic activity, thus increasing social costs for female participators. Women report implicit and explicit threats of sanctions from male relatives and village elders. The intervention did, however, work to close the gender gap in civic and political knowledge. Together, these findings suggest that information asymmetries constrain civic participation, but information alone cannot overcome discriminatory gender norms – and may even exacerbate them.
Discussants:
Karla Hoff
(World Bank)
Andrew Zeitlin
(Georgetown University)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 103-A
American Economic Association
Deforestation, Land-Use Change and Contracts
(Q5)
Presiding:
Paul Scott
(Tolouse School of Economics)
Demand for Deforestation in the Amazon
Eduardo A. Souza-Rodrigues
(University of Toronto and Harvard University)
[View Abstract]
[Download Preview] The paper estimates the demand for deforestation on private properties in the Brazilian Amazon. To recover this demand, I exploit the fact that regional variation in transportation costs can be used to infer variation in the value of agricultural land relative to forested land. By rescaling these costs, I am able to value the difference between these land-uses in dollars per hectare. The results suggest that both Pigouvian taxes on agricultural land and payments to avoid deforestation (and/or emissions) would have been effective in preserving the rainforest. Large landholders' behavior and the unequal distribution of land suggest that these policies are unlikely to reduce poverty and deforestation simultaneously. A carbon tax at the social cost of carbon would virtually eliminate the agricultural land in the Amazon.
Dynamic Discrete Choice Estimation of Agricultural Land Use
Paul T. Scott
(Tolouse School of Economics)
[View Abstract]
[Download Preview] I develop a new framework for analyzing land use change with dynamically optimizing
landowners. My empirical approach allows for unobservable heterogeneity and avoids the burden of explicitly modeling the evolution of market-level state variables like input and output prices. Using a rich new data set on land use in the United States, I estimate a relatively large long-run cropland-price elasticity of 0.3. Compared to static estimates using the same data, my dynamic estimates suggest that biofuels production leads to dramatically more land use change and substantially smaller price increases in the long run.
Uncertainty, Self-Selection and the Design of Subsidies: Evidence from Zambia
Elizabeth Walker
(Harvard University)
B. Kelsey Jack
(Tufts University)
Paulina Oliva
(University of California-Santa Barbara)
Samuel Bell
(Cornell University)
Christopher Severen
(University of California-Santa Barbara)
[View Abstract]
Subsidies are often used to increase the adoption of impure public goods, such as environment- or health-improving technologies, particularly in developing countries. Where the public good requires sustained effort investments, performance incentives may be more effective than one-time subsidies. We use a field experiment in Zambia to test a model of farmer responses to a threshold incentive contract that rewards environmentally-beneficial land use outcomes and charges a (potentially subsidized) fee for participation. Farmers have heterogeneous private benefits from provision of the public good and incur stochastic effort costs associated with its production. While the response of both participation and land use outcomes to exogenous variation in the input cost and the rewards is consistent with the model, we find little evidence of self selection on either of these margins. This implies that idiosyncratic shocks to effort costs are relatively important in our setting. We use the results to identify the marginal or additional land use change associated with the rewards, and draw the associated carbon supply curves. The findings have implications for the design of contracts for land use based carbon offsets, where the social benefits depend on sustained effort investments.
Can Payments for Environmental Services Save the Forest? The Effects of an Avoided Deforestation Initiative in the Brazilian Amazon
Alan Barreca
(Tulane University)
Silvia Helena Barcellos
(RAND Corporation)
Leandro S. Carvalho
(University of Southern California)
Michael Greenstone
(Massachusetts Institute of Technology and NBER)
[View Abstract]
--- Presentation canceled ---
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Grand Ballroom - Salon K
American Economic Association
Empirical Studies in International Trade
(F1)
Presiding:
Linda Tesar
(University of Michigan)
Why Did the Equity Home Bias Fall During the Financial Panic of 2008?
Matthew M. Wynter
(Ohio State University)
[View Abstract]
[Download Preview] Theories of home bias and of portfolio choice under uncertainty both predict that the home bias should increase during a financial crisis. In contrast to these theories, using a sample of 45 countries, I document that the equity home bias fell during the financial panic of 2008. Employing a novel methodology to disentangle the active and passive component of portfolio holdings, I find that the trades of investors (the active component) increased the home bias, but the changes due to returns and exchange rates (the passive component) subsumed the active changes and reduced the home bias. Across countries, the change in home bias is consistent with portfolio rebalancing, increased information asymmetries, and familiarity bias during the crisis. The U.S. is the exception to the general global pattern because U.S. active changes outweighed U.S. passive changes, causing the U.S. home bias to increase. I show that U.S. investors reduced their holdings of foreign and domestic stocks, but reduced their holdings of foreign stocks at a higher rate.
Does Marketing Widen Borders? Cross-Country Price Dispersion in the European Car Market
Georg Strasser
(Boston College)
Eyal Dvir
(Boston College)
[View Abstract]
[Download Preview] Pricing-to-market (PTM), the practice of differentiating the price of a good across markets, is commonly attributed to differential distribution and border costs. In this paper we show that some of this price differentiation is sustained by manufacturers selling different versions of an otherwise identical good in different markets. We study price differences across countries in the European car market, using a rich data set which includes detailed technical information on each car model. Relative car prices show no sign of convergence during the period 2003 - 2011. PTM is pervasive: model-specific real exchange rates for mechanically identical cars differ significantly from unity. They also vary significantly across countries and, within countries, across car manufacturers. We find strong evidence that car manufacturers price discriminate by manipulating the menu of included car options and features available in each country, e.g. by including air conditioning as a standard feature as opposed to pricing it separately. We find that such bundling decisions sustain cross-country price differences of 10% and more.
Trade and Towns: On the Uneven Effects of Trade Liberalization
Marius Brülhart
(University of Lausanne)
Céline Carrère
(University of Geneva)
Frédéric Robert-Nicoud
(University of Geneva)
[View Abstract]
[Download Preview] Trade liberalization is often believed to benefit urbanized regions more than rural regions. We explore the effects of trade liberalization on employment and wage growth of different-sized towns within a country. A multi-region model of intra-national adjustment predicts that small towns have more elastic labor-force responses to trade liberalization. We examine this predictions in fine-grained regional data for Austria. The fall of the Iron Curtain in 1990 represented a large exogenous trade shock to the Austrian economy, providing us with a quasi-experimental setting for the exploration of trade-induced spatial effects. We find improved access to foreign markets to boost both employment and nominal wages, but large towns tended to have larger wage responses and smaller employment responses than small towns. In terms of aggregate income responses, the two effects cancel out: we find no statistically significant differences in the effects of trade liberalization on the wage bills of small and large towns.
Trade Adjustment: Worker Level Evidence
David H. Autor
(Massachusetts Institute of Technology)
David Dorn
(CEMFI, Madrid)
Gordon H. Hanson
(University of California-San Diego)
Jae Song
(Social Security Administration)
[View Abstract]
[Download Preview] In the past two decades, China's manufacturing exports have grown spectacularly. U.S. imports from China have surged, while U.S. exports to China have increased more modestly, consistent with the two countries' divergent current account imbalances. Using data on individual earnings by employer from the Social Security Administration, we examine how exposure to import competition affects the long-term earnings and employment trajectory of workers initially employed in manufacturing industries. We find that workers who in 1991 were employed in industries that experienced high subsequent levels of import growth garner lower cumulative earnings over the subsequent sixteen years (1992 through 2007) and are at substantially elevated risk of obtaining Social Security Disability Insurance benefits as the only recorded source of income in a given year. More exposed individuals spend less time working for their initial employers, less time working in their initial two-digit manufacturing industries, and more time working elsewhere in manufacturing and outside of manufacturing. Effects on earnings and employment are larger for individuals whose initial employers were relatively large, whose initial wages where below their firm's average, and who in the pre-sample period worked part time or intermittently. We obtain similar results using alternative measures of trade exposure. Our findings suggest that there is significant worker-level adjustment cost to import shocks and that adjustment is highly uneven across individuals according their conditions of employment in the pre-shock period.
The Causal Impact of Common Native Language on International Trade: Evidence from a Spatial Regression Discontinuity Design
Peter H. Egger
(ETH Zurich)
Andrea Lassmann
(ETH Zurich)
[View Abstract]
This paper studies the causal effect of sharing a common native language on international trade. Switzerland is a multilingual country that hosts four official language groups of which three are major (French, German, and Italian). These groups of native language speakers are geographically separated, with the corresponding regions bordering countries which share a majority of speakers of the same native language. All of the three main languages are understood and spoken by most Swiss citizens, especially the ones residing close to internal language borders in Switzerland. This unique setting allows for an assessment of the impact of common native (rather than spoken) language as a cultural aspect of language on trade from within country-pairs. We do so by exploiting the discontinuity in various international bilateral trade outcomes based on Swiss transaction-level data at historical language borders within Switzerland. The effect on various margins of imports is positive and significant. The results suggest that, on average, common native language between regions biases the regional structure of the value of international imports towards them by 18 percentage points and that of the number of import transactions by 20 percentage points. In addition, regions import 102 additional products from a neighboring country sharing a common native language compared to a different native language exporter. This effect is considerably lower than the overall estimate (using aggregate bilateral trade and no regression discontinuity design) of common official language on Swiss international imports in the same sample. The latter subsumes both the effect of common spoken language as a communication factor and of confounding economic and institutional factors and is quantitatively well in line with the common official (spoken or native) language coefficient in many gravity model estimates of international trade.
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Meeting Room 307
American Economic Association
Energy in the Developing World
(Q4)
Presiding:
Meredith Fowlie
(University of California-Berkeley)
Powering Up China: The Drivers of Residential Energy Consumption
Maximilian Auffhammer
(University of California-Berkeley)
Catherine Wolfram
(University of California-Berkeley)
[View Abstract]
[Download Preview] Since 2000, energy demand in China has grown by more than 10% per year on average. China surpassed the U.S. in terms of greenhouse gas emissions in
2006 and in terms of total quads of energy consumed in 2009. It today emits more CO2 from coal alone than the US does overall. Forecasts of China's energy
growth vary significantly. At a very conservative 3% growth rate, China would account for 25% of global energy demand by 2035. China's emissions have had
a relatively steady share of 72% from coal over the past 50 years, so, without dramatic changes to its energy production, greenhouse gas emissions are likely
to grow as well.
Given the importance of China's energy consuming sectors for climate change and world energy markets, there is surprising little research on energy
consumption patterns in China at a subnational and sector level. It is crucial to understand the drivers of energy consumption in order to improve forecasts.
Also, given the level of central planning in the country, a first-order question is how well neoclassical models of household consumption apply to China.
In this paper, we focus on provincial residential energy and electricity consumption and investigate how income growth, particularly among households close
to the bottom of the income distribution, affects appliance adoption rates as well as total residential electricity consumption. We combine detailed provincelevel
data, reported separately for rural and urban households, on appliance saturation levels and total residential electricity consumption with similar data on
income distributions. In spite of the tremendous decline in poverty, China's poverty alleviation has been uneven, so we have rich variation in changes in
income distributions across provinces. We will use cross-province variation to investigate the relationship between poverty alleviation and growth in residential
energy consumption.
The Economic Cost of Global Fuel Subsidies
Lucas Davis
(University of California-Berkeley)
[View Abstract]
[Download Preview] By 2015, global oil consumption will reach 90 million barrels per day. In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel subsidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline assumptions about supply and demand elasticities, the total annual deadweight loss worldwide is $44 billion. Incorporating external costs increases the economic costs substantially.
Are Power Plants in India Less Efficient than Power Plants in the United States?
Ron H.S. Chan
(University of Maryland)
Maureen Cropper
(University of Maryland)
Kabir Malik
(University of Maryland)
[View Abstract]
[Download Preview] India's coal-fired generating capacity more than doubled between 1990 and 2010 and currently accounts for 70% of electricity produced. Despite this, thermal efficiency at state-owned coal-fired power plants in India is significantly lower than at plants in the US. When matched on age, vintage, capacity and load factor, we find that heat input per kWh was 6-7% higher at Indian plants between 1997 and 2009. This can only partly be explained by the lower heat content of Indian coal. Restructuring of the electric utility sector in the US improved thermal efficiency slightly at investor-owned plants; however, electricity sector restructuring in India has not yet improved thermal efficiency at state-owned coal-fired power plants.
Discussants:
Shanjun Li
(Cornell University)
Gilbert Metcalf
(Tufts University)
Jim Bushnell
(University of California-Davis)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 103-C
American Economic Association
Experiments with Small Enterprises
(O1)
Presiding:
Nathan Fiala
(DIW Berlin)
Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco
Dean Karlan
(Yale University)
Manuela Angelucci
(University of Michigan)
Jonathan Zinman
(Dartmouth College)
[View Abstract]
Theory and evidence have raised concerns that micro-credit may do more harm than good, particularly when offered at high interest rates. We use randomized program placement to evaluate impacts of the group lending offered by Compartamos, a publicly-traded for-profit lending at 100% APR. We measure impacts on borrowers and potential borrowers using survey data on dozens of outcomes. Mean effects are generally positive. Credit expansion also shifts the distribution of several outcomes, and more so in the tails than in
the middle. There is some, statistically weak, evidence of harm to some individuals: no evidence of significant effects on the likelihoods that outcomes worsen over time, but some evidence that a handful of 16 sub-groups-segmented on baseline demographics and preferences-- experience negative effects on-balance.
Windfall or Downfall: Capital, Credit and Micro-Entrepreneurs' Returns
Cynthia Kinnan
(Northwestern University)
Emily Breza
(Columbia University)
Esther Duflo
(Massachusetts Institute of Technology)
Abhijit Banerjee
(Massachusetts Institute of Technology)
Prathap Kasina
(JPAL)
[View Abstract]
There is an ongoing debate about which features of financial products are most important to poor entrepreneurs: liquidity, discipline, borrowing groups, low interest rates, simplicity, and product flexibility have all received attention, but no single product can offer all at once. In October 2010, microfinance institutions abruptly ceased lending in Andhra Pradesh, India, and provided a "windfall" in that repayments ceased on outstanding loans. This episode offers a unique opportunity to examine returns to capital, and to examine the role of microcredit in microentrepreneurs' portfolios: is its "commitment device" feature important? Is it more important for entrepreneurs who face temptation problems? When microcredit is withdrawn, does informal credit (moneylenders, loans from suppliers, relatives, etc.) fill the gap? How do informal credit terms for entrepreneurs change when microcredit is withdrawn? What role do social networks play when entrepreneurs must learn to navigate a new financial landscape? We leverage previously-collected data on approximately 2,000 affected urban microentrepreneurs, who we resurveyed two years after the ordinance. We identify windfall and credit withdrawal effects using two sources of variation. First, in previous research, the MFI Spandana randomized its roll-out into these study neighborhoods, providing random variation in the stock of microfinance in October 2010. Second, because of the cyclical nature of microloans, some microentrepreneurs were able to default on a larger fraction of their outstanding loans, providing variation in the benefits of default. While we study the withdrawal of microcredit, the lessons learned have implications for designing a range of financial products (credit, savings, insurance, grants, etc.).
Stimulating Microenterprise Growth: Results from a Loans, Grants and Training Experiment in Uganda
Nathan Fiala
(DIW Berlin)
[View Abstract]
[Download Preview] Small enterprises may face a number of challenges to growth, including capital constraints, lack of skills and poor self-control. This paper presents the results of a randomized experiment involving microenterprise owners in Uganda designed to explore these constraints. Individuals from a pool of business owners who expressed interest in expanding their enterprises were randomly selected to receive loans, cash grants, business skills training or a combination of these programs. Participants were then followed quarterly to determine the short-run effects on business and household outcomes. I find that six and nine months after the interventions, men with access to loans with training report 54% greater profits. This effect increases slightly over time and is driven by men with higher baseline profits and ability. The loan-only intervention had some initial impact, but this is gone by the nine month follow-up. I find no impacts from the unconditional grant interventions. Markedly, there are no effects for women from any of the interventions. Family pressure on women appears to have significantly negative effects on business investment decisions: married women with family living nearby perform worse than those in the control group in a number of the interventions. Men instead benefit from close family proximity and demand labor from the household. The results suggest that highly motivated and skilled male-owned microenterprises can grow through finance, but the current finance model does not work for female-owned enterprises.
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Grand Ballroom - Salon J
American Economic Association
Gender in Organizational Hierarchies
(J7)
Presiding:
Amalia Miller
(University of Virginia)
Do Female Executives Make a Difference? The Impact of Female Leadership on Firm Performance and Corporate Practices
Luca Flabbi
(IDB, Georgetown University, IZA)
Mario Macis
(Johns Hopkins University, IZA)
Fabiano Schivardi
(LUISS University, EIEF, CEPR)
[View Abstract]
A growing theoretical and empirical literature has convincingly shown that CEOs and leadership at the firm are important determinants of firm performance, and a significant influence on corporate practices. However, it is not clear which particular characteristics and abilities are important in shaping this link. We consider one specific characteristic which is promising in starting to explain this relation: gender. Gender is a promising characteristic because it is linked to systematic differences in the labor market in general, and to dramatic differences in the executive labor market in particular. To correct for selection in the match between firms and executives, we perform regressions controlling for both firm fixed effects and CEOs and Executives fixed effects, on top of an exhaustive list of controls for firm characteristics and workforce characteristics. We are able to do so thanks to a unique longitudinal matched employer-employee data set of Italian firms containing detailed firm-level information and the entire labor market careers of all the workers in each firm over a 17-year period. Results show a positive, significant effect of female CEOs on various measures of firm performance. Importantly, the results switch sign if the selection of executives into firms is not taken into account. Results on corporate practices are more mixed. We conclude by linking our results to the debate looking at resoluteness and overconfidence versus empathy and communication in explaining the impact of executives on firms' outcomes, and to the issue of the massive under-representation of women in top positions at the firm.
Female Leadership and Gender Equity: Evidence from Plant Closure
Geoffrey Tate
(University of North Carolina)
Liu Yang
(University of Maryland)
[View Abstract]
[Download Preview] We use unique worker-plant matched panel data to measure differences in wage changes experienced by workers displaced from closing plants. We observe larger losses among women than men, comparing workers who move from the same closing plant to the same new firm. However, we find a significantly smaller gap in hiring firms with female leadership. The results are strongest among women who are displaced from male-led plants and from less competitive industries. Our results suggest an important externality to having women in leadership positions: They cultivate more female-friendly cultures inside their firms.
Women Helping Women? Evidence from Private Sector Data on Plant Hierarchies
Astrid Kunze
(Norwegian School of Economics, IZA)
Amalia R. Miller
(University of Virginia)
[View Abstract]
This study investigates whether increased employment of women in the higher ranks of an organization has spillover effects on career progression of women at lower ranks. We use employer-employee matched data on the population of white-collar workers in a large sample of plants in the private sector in Norway. Our data include unusually detailed descriptions of the hierarchies within these plants, which we use to explore career advancement. We first find that female workers are significantly less likely than male workers to advance to a higher rank from one year to the next (either by promotion within their work establishment or at a new establishment), even after controlling for a wide range of individual characteristics (education, tenure, experience, part-time status, and pay) and fixed effects for current rank, year, industry, and plant. These differences are present at both higher and lower ranks. Next, we find positive gender spillovers across ranks (from higher-ranking to lower-ranking women) but negative spillovers within ranks for female workers.
Peer Groups and Employment Outcomes: Evidence Based on Conditional Random Assignment in the United States Army
Pinar Karaca-Mandic
(University of Minnesota)
David Powell
(RAND)
Nicole Maestas
(RAND Corporation)
[View Abstract]
[Download Preview] In studies of employment outcomes, it is typical to relate outcomes to personal attributes, such as race and gender; less often do we consider the race and gender composition of the group in which the person works. Yet interactions between group members may have powerful effects on an individual's job performance. Although we might believe groups matter, it is difficult to credibly measure group effects because individuals usually self-select into groups or are assigned to them on the basis of unobservable characteristics. In fact, the dearth of evidence on this subject is likely explained by difficulties in isolating the impact of peer composition from the assignment mechanism. In this paper, we use confidential U.S. Army personnel records, and exploit the conditional random assignment of newly enlisted young adults by the Army to their first work units. Our dataset contains a panel of approximately 66,000 new enlistees during 2002, with 2 million person-month observations up to 2005. Our primary outcome variable is time to promotion and we observe the peer composition of each enlistee, providing us with a rare opportunity to estimate the effect of group composition on employment outcomes. Our estimates suggest that an increase in the percentage of female peers decreases the time to promotion of men relative to women, whereas an increase in the percentage of women among the leadership in a unit decreases the time to promotion of women relative to men. We find similar effects for race. An increase in own-race peers disproportionately increases time to promotion for blacks and Asians. Hispanics, on the other hand, experience reductions in promotion time when grouped with a higher fraction of Hispanics. All racial groups analyzed benefit from more own-race peers in leadership positions.
Discussants:
Manuel Bagues
(Universidad Carlos III)
Mario Macis
(Johns Hopkins University, IZA)
Francine D. Blau
(Cornell University)
Fidan Ana Kurtulus
(University of Massachusetts-Amherst)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Grand Ballroom - Salon C
American Economic Association
Heterogenous Firms and Job Search
(J6)
Presiding:
John Kennes
(Aarhus University)
Wage and Productivity Dispersion: The Roles of Rent Sharing, Labor Quality and Capital Intensity
Jesper Bagger
(University of London-Royal Holloway)
Bent Jesper Christensen
(Aarhus University)
Dale T. Mortensen
(Northwestern University)
[View Abstract]
Considerable heterogeneity has been documented for both firm labor productivity and average wages paid by firms within developed industrial countries and the two are positively correlated across firms. These observations can be rationalized by either exogenous heterogeneity in firm productivity and a wage setting mechanism with rent sharing or by differences in capital intensity and in the quality of labor inputs. The purpose of this paper is to ascertain the extent to which these factors provide an explanation of the observations using matched employer-employee data for Denmark. Using the worker fixed effect in a wage equation as a
measure of worker quality, we find that capital intensity and labor input quality differences explain little of the observed labor productivity heterogeneity in manufacturing but are the principal explanation for differences in firm wages paid. However, both labor quality differences and rent sharing are important in explaining the positive correlation between average firm wage and labor productivity. Somewhat more mixed results hold for the other four industry groups considered.
Efficient Firm Dynamics in a Frictional Labor Market
Leo Kaas
(University of Konstanz)
Philipp Kircher
(London School of Economics)
[View Abstract]
[Download Preview] The introduction of firm size into labor search models raises the question how wages are set when average and marginal product differ. We develop and analyze an alternative to the existing bargaining framework: Firms compete for labor by publicly posting long-term contracts. In such a competitive search setting, firms achieve faster growth not only by posting more vacancies, but also by offering higher lifetime wages that attract more workers which allows to fill vacancies with higher probability, consistent with empirical regularities. The model also captures several other observations about firm size, job flows, and pay. In contrast to bargaining models, efficiency obtains on all margins of job creation and destruction, both with idiosyncratic and aggregate shocks. The planner solution allows a tractable characterization which is useful for computational applications.
Bidding for Teams
John Kennes
(Aarhus University)
Benoit Julien
(University of New South Wales)
Moritz Ritter
(Temple University)
[View Abstract]
The production possibility frontier of an organization can exhibit either increasing, constant, or decreasing returns to scale, depending on its current workforce. This paper considers the hiring problem of an organization in a competing job auction environment where each organization can set a reserve price at each date in its life cycle. We find (i) increasing returns to scale organizations advertise negative reserve prices for new slots, which is equivalent to advertising an amenity (for example, free health club mem- bership), (ii) constant returns to scale organizations advertise zero reserve prices (Wages are determined by simple Bertrand competition), and (iii) decreasing returns to scale organizations advertise positive reserve prices, which is equivalent to an insider-outsider wage schedule.
Discussants:
Ian King
(University of Melbourne)
Moritz Ritter
(Temple University)
Daniel le Maire
(University of Copenhagen)
Benoit Julien
(University of New South Wales)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 105-B
American Economic Association
Households and Allocation Decisions
(E2)
Presiding:
Wenli Li
(Federal Reserve Bank of Philadelphia)
A Theory of Macroprudential Policies in the Presence of Nominal Rigidities
Emmanuel Farhi
(Harvard University)
Ivan Werning
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We provide a unifying foundation for macroprudential policies in financial markets for economies with nominal rigidities in goods and labor markets. Interventions are ben- eficial because of an aggregate demand externality. Ex post, the distribution of wealth across agents affect aggregate demand and the efficiency of equilibrium through Key- nesian channels. However, ex ante, these effects are not privately internalized in the financial decisions agents make. We obtain a formula that characterizes the size and di- rection for optimal financial market interventions. We provide a number of applications of our general theory, including macroprudential policies guarding against deleveraging and liquidity traps, capital controls due to fixed exchange rates or liquidity traps and fis- cal transfers within a currency union. Finally, we show how our results are also relevant for redistributive or social insurance policies, such as income taxes or unemployment benefits, allowing one to incorporate the macroeconomic benefits associated with these policies.
Does Relative Risk Aversion Vary with Wealth? Evidence from Households' Portfolio Choice Data
Zongwu Cai
(University of Kansas)
Xuan Liu
(East Carolina University)
Fang Yang
(Louisiana State University)
[View Abstract]
[Download Preview] In this article, we explore whether relative risk aversion varies with wealth. First, we derive theoretical predictions on how risky shares respond to wealth fluctuations in a portfolio choice model with both external habits and time-varying labor income. Our analytical results indicate that: (1) for each household, there are two channels through which the risky share responds to wealth fluctuations, the habit channel and the income channel; (2) across households, there are heterogeneous responses through the habit channel: those who experience large negative income shocks reduce their share of risky assets; and (3) two potential mis-identification problems arise when both the heterogeneity in responses through the habit channel and the income channel are ignored. We then test the theoretical predictions with data from the Panel Study of Income Dynamics. Contrary to the existing literature, our empirical findings show evidences of relative risk aversion varying with wealth over time after correcting those two mis-identification problems.
Precautionary Saving and Aggregate Demand
Edouard Challe
(Ecole Polytechnique)
Xavier Ragot
(Paris School of Economics)
Julien Matheron
(Banque de France)
Juan Rubio-Ramirez
(Duke University)
[View Abstract]
This paper introduces incomplete insurance against idioyncratic labour income risk
into an otherwise standard New Keynesian business cycle model with involuntary
unemployment. Following an adverse monetary policy shock that lowers aggregate
demand, job creation is discouraged and unemployment risk persistently rises. Im-
perfectly insured households rationally respond to the rise in indosyncratic income
uncertainty by increasing precautionary saving, thereby cutting consumption and de-
pleting aggregate demand even further; this in turn magnifies the initial labour market
contraction, further raises unemployment risk, and so on. A calibrated version of the
model suggests that the aggregate demand-precautionary saving feedback loop may
significantly amplify the impact of aggregate shocks on unemployment, relative to the
full-insurance case.
Household Risk and Insurance over the Life Cycle
Gueourgui Kambourov
(University of Toronto)
Luisa Fuster
(Universidad Carlos III de Madrid)
Andres Erosa
(Universidad Carlos III de Madrid)
[View Abstract]
The household, as an entity, is important for understanding the individual and aggregate labor supply responses to changes in the economic environment. Explicitly modelling the household could, for example, provide insights into the various risks which individuals face, the way household members react to and insure against these risks through changes in their labor supply behavior, and the effects of various government policies and aggregate business cycle shocks. We begin the analysis by estimating, on U.S. data from 1984 till 2010, a quarterly household wage process in which we allow for correlation between the shocks of husbands and wives and explicitly correct for selection bias in male and female labor market participation. In addition, we estimate the household wage process for four separate household groups -- depending on the spouses' education levels. We proceed by building a life-cycle model of the household which features a quarterly model period, four distinct household groups, an intensive and extensive labor supply margin, labor market risk and incomplete markets, correlated wage shocks between husbands and wives, and unemployment shocks and labor market frictions. The model is calibrated to U.S. data from the Survey of Income and Program Participation (SIPP) and the Panel Study of Income Dynamics (PSID). First, we use the model to analyze the individual and aggregate labor supply response to a temporary or permanent aggregate productivity shock. Second, we study the effects of various government policies, such as unemployment insurance and social assistance programs. Finally, in order to capture the recent severe recession in the United States, we simulate a negative aggregate productivity shock which lasts for at least six years and study the various mechanisms through which household labor supply reacts to such a change in the economic environment.
Quantifying the Growth in Services:The Role of Skills, Scale, and Female Labor Supply
Joseph P. Kaboski
(University of Notre Dame)
Francisco J. Buera
(University of California-Los Angeles)
Min Qiang Zhao
(Xiamen University)
[View Abstract]
[Download Preview] This paper quantifies the role that increases in the demand for skill intensive goods and services, the efficient scale of production of services, and female labor supply have in explaining the growth of services. We extend the model in Buera and Kaboski (2012a,b) to a two-person household model, incorporating a joint household decision on home and market production into the model, and allow for skill and sectoral biased technology progress. The calibrated analysis shows that the channels emphasized in the theory are quantitatively important. The rising scale of services, the rising demand for skill-intensive output stemming from rising incomes, skill-biased technical change, and rising female labor supply all play important quantitative roles and together account for the majority of the growth of services. The extended model provides a direct link between female labor supply and the growth of service economy, which is shown to be important in the data.
Household Formation, Credit, and Trustworthiness
Geng Li
(Federal Reserve Board)
Jane Dokko
(Federal Reserve Board)
[View Abstract]
This paper provides new evidence on the role of credit scores in the formation and dissolution of households. First, we document substantial positive assortative mating along creditworthiness, which suggests that the market for partners, on average, preserves individual-level differences in access to credit. Second, we find that credit score match quality, which we measure as the absolute difference in partners' credit scores at the time of household formation, and the within-couple average credit score are strongly predictive of household dissolution. Finally, we find that within-couple credit score differentials are smaller and converge after household formation among couples that stay together but are larger and remain divergent for households that dissolve. One mechanism for this result is that couples with better match quality are more likely to engage in similar financial behaviors both prior to and after household formation.
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 201-A
American Economic Association
Information and Learning in Over-the-Counter and Online Drug Markets
(D8)
Presiding:
Sofia Villas-Boas
(University of California-Berkeley)
Do Pharmacists Buy Bayer? Sophisticated Shoppers and the Brand Premium
Bart J. Bronnenberg
(Tilburg University)
Jean-Pierre Dube
(University of Chicago and NBER)
Matthew Gentzkow
(University of Chicago and NBER)
Jesse M. Shapiro
(University of Chicago and NBER)
[View Abstract]
[Download Preview] We estimate the effect of information on consumers' willingness to pay for branded goods in physically homogeneous consumer packaged goods categories. In a case study of headache remedies, we find that college education, working in a healthcare occupation, and other proxies for product knowledge predict more purchases of private labels relative to brands. Pharmacists devote almost 90 percent of headache remedy purchases to private labels, against 71 percent for the average consumer. The effect of knowledge is similar across a broad set of health products, and in a set of relatively homogeneous food products, but smaller for food and drink products overall. We conclude that a significant share of the willingness to pay for brands in these categories would disappear in a world where consumers were fully informed.
Generic Aversion and Observational Learning: A Field Experiment in the Over-the-Counter Drug Market
Mariana Carrera
(Case Western Reserve University)
Sofia Villas-Boas
(University of California-Berkeley)
[View Abstract]
[Download Preview] In a set of four-week labeling interventions at six locations of one national retailer, we tested three hypotheses for consumer aversion to generic OTC drugs: lack of information on the comparability of generic and brand drugs, inattention to the price difference between generic and brand drugs, and biased priors about quality that can be shifted through information on peer purchase rates. We use a difference-in-differences approach to measure the average treatment effects of each type of label. We do not find evidence that consumers are unaware of the existence or the stated comparability of the generic products. Our results are consistent with the other two hypotheses. In particular, observational learning, through posted information on the purchases of other customers, increases generic purchase shares by twenty percent. Furthermore, information on peer purchase rates is the only type of information that affects the purchasing decisions of customers who have previously purchased only brand drugs.
The Effect of Deceptive Advertising on Consumption of the Advertised Good and Its Substitutes: The Case of Over-the-Counter Weight Loss Products
John Cawley
(Cornell University)
Rosemary Avery
(Cornell University)
Matthew Eisenberg
(Carnegie Mellon University)
[View Abstract]
[Download Preview] This paper is the first to estimate the impact of exposure to deceptive advertising on consumption of the advertised product and its substitutes. We study the market for over-the-counter (OTC) weight-loss products, a market in which deceptive advertising is rampant and products are generally ineffective with potentially serious side effects. We control for the targeting of ads using indicator variables for each unique magazine read and television show watched.
Our estimates indicate that exposure to deceptive advertising is associated with a lower probability that women, and a higher probability that men, consume OTC weight loss products. We find evidence of spillovers; exposure to deceptive print ads is associated with a higher probability of dieting and exercising for both men and women. We also find evidence that better-educated individuals are more sophisticated consumers of advertising and use it to make more health-promoting decisions.
Consumer Protection or COnsumer Frustration? The Impact of Banning Foreign Pharmacies from Sponsored Search
Matthew Chesnes
(Federal Trade Commission)
Weijia Dai
(University of Maryland)
Ginger Zhe Jin
(University of Maryland)
[View Abstract]
[Download Preview] Increased competition from the Internet has raised a concern of online product quality. The concern is particularly acute for online prescription drugs, a market where poor product quality may lead to adverse health outcomes. The Food and Drug Administration (FDA) prohibits the importation of unapproved drugs into the US and the National Association of Boards of Pharmacy (NABP) emphasizes their illegality and cites examples of unsafe drugs from rogue pharmacies. Because of heightened concern to protect consumers, Google agreed to ban non-NABP-certified pharmacies from their sponsored search listings in February 2010 and settled with the Department of Justice (DOJ) in August 2011. We study how the ban on non-NABP-certified pharmacies from sponsored search listings appearing in the US affects US consumer search on the Internet.
Using click-through data from comScore, we find that non-NABP-certified pharmacies receive fewer clicks after the ban, and this effect is heterogenous. In particular, pharmacies not certified by the NABP but certified by other sources -- referred to as tier-B sites -- experience a reduction in total clicks, and some of their lost paid clicks are replaced by organic clicks. These effects do not change significantly after the DOJ settlement. In contrast, pharmacies not certified by any of the four major certification agencies -- referred to as tier-C sites -- suffer greater reduction in both paid and organic clicks, and the reduction was exacerbated after the DOJ settlement. These results suggest that the ban has increased search cost for tier-B sites but at least some consumers overcome the search cost by switching from paid to organic links. In addition to search frustration, the ban has increased health concerns for tier-C sites and discouraged consumers from reaching them via both paid and organic links.
Discussants:
Sara Ellison
(Massachusetts Institute of Technology)
Liran Einav
(Stanford University)
Justine Hastings
(Brown University)
Benjamin R. Handel
(University of California-Berkeley)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 202-A
American Economic Association
Labor Supply
(J2)
Presiding:
Matthew Notowidigdo
(University of Chicago)
The Effect of Wealth on Household Labor Supply: Evidence from Swedish Lotteries
David Cesarini
(New York University)
Erik Lindqvist
(Stockholm School of Economics)
Matthew J. Notowidigdo
(University of Chicago)
Robert Östling
(Institute of International Economic Studies and Stockholm University)
[View Abstract]
[Download Preview] We study the effect of unearned income on labor earnings and retirement behavior using a large sample of lottery participants in Sweden. Our analysis uses three separate samples of Swedish lottery players - comprising roughly 2.5 million individuals in total - matched to administrative data on labor earnings and pension income.
Overall, we find that winning a lottery prize immediately and permanently reduces labor earnings, with effects roughly constant over time and lasting more than 10 years. In our main specification, winning a prize of 1 million Swedish krona (SEK) -- about 160,000 US$ -- reduces total labor earnings over 10 years by roughly 100,000 SEK, or approximately one-half of the average annual real income during our sample period.
We find both intensive and extensive margin responses to the prizes, with less than one-half of the overall earnings response accounted for by extensive margin adjustments. We find no evidence of nonlinear effects across any of our earnings measures.
The reduction in household labor earnings is larger than the individual responses of winners, implying that spouses of winners reduce their labor earnings, as well; however, we find significantly larger labor earnings declines for winners than for their spouses, regardless of the gender of the winner. This is inconsistent with the pooling of exogenous unearned income within the household, which is a necessary condition of unitary models of household labor supply.
Retirement, Home Production and Labor Supply Elasticities
Richard Rogerson
(Princeton University)
Johanna Wallenius
(Stockholm School of Economics)
[View Abstract]
[Download Preview] In a life cycle model that features home production and an endogenous retirement decision, we show that the change in time allocations between home production and leisure at retirement imposes a tight relationship between two key preference parameters that determine labor supply elasticities: the willingness of an individual to substitute leisure over time and the elasticity of time and goods in generating current utility. This relationship is robust to allowing for many features, such as human capital accumulation, borrowing constraints for younger workers, non-linear taxation and the presence of private pensions and social security. We estimate how allocations change at retirement using data from the recently available American Time Use Survey, and use these estimates to explore the quantitative implications of the restriction implied by our model. Even assuming a lower bound of one for the elasticity of substitution between time and goods, our model implies a value of the intertemporal elasticity of substitution that exceeds one.
Estimating Labour Supply Elasticities Based on Cross-Country Micro Data: A Bridge Between Micro and Macro Estimates?
Markus Jäntti
(Swedish Institute for Social Research and Stockholm University)
Jukka Pirttilä
(University of Tampere)
Håkan Selin
(Uppsala University)
[View Abstract]
[Download Preview] Macroeconomic research, including the provocative paper by Prescott (2004), suggest that tax differences explain virtually all the differences in working hours between the US and Europe. Microdata-based research typically shows that intensive margin labour supply and taxable income elasticities are fairly low, and that extensive margin elasticities are larger. We examine the tension between 'micro' and 'macro' elasticities by utilising repeated cross sections of micro data from several countries, available from the Luxembourg Income Study (LIS), to estimate intensive and extensive margin labour supply elasticities. These data span over four decades, provide consistently measured income and demographic variables, and include many tax reform episodes in several OECD countries, providing tax rate variation both within and across countries. We investigate whether micro and macro estimates differ in a systematic way.
An important contribution relative to earlier cross-country studies of labour supply is that the model is based on a correctly specified (static) labour supply model, since we use mean marginal tax rates and virtual income, not artificial constructs or average tax rates. We compute effective marginal tax rate schedules, including both taxes and some sources of transfer income, by combining information from tax tables and non-parametric regression estimates. In estimating the elasticities, we use the grouping estimator developed by Blundell, Duncan and Meghir (1998). The results challenge the view that elasticities at the macro level are higher than the corresponding micro elasticities, with the possible exception of hours at the intensive margin.
Structural Differencing Estimation with Nonlinear Budget Sets
Che-Yuan Liang
(Uppsala University)
[View Abstract]
[Download Preview] I develop a reform evaluation method for evaluating labor supply in nonlinear budget sets which is both structural and quasi-experimental. The model only requires preferences to be convex on the budget frontier and results in a simple three-dimensional labor supply function. The estimation exploits only the between-individual variation provided by tax reforms. I apply the method to evaluate earned income effects of the Swedish earned income tax credit introduced between 2007 and 2010. I find a positive extensive margin effect for married individuals but also negative intensive margin effects due to the absence of a phase-out region.
Discussants:
Che-Yuan Liang
(Uppsala University)
Håkan Selin
(Uppsala University)
Johanna Wallenius
(Stockholm School of Economics)
Erik Lindqvist
(Stockholm School of Economics)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 201-B
American Economic Association
Macro, Money and Financial Fragility
(E5)
Presiding:
Yuliy Sannikov
(Princeton University)
Financial Stability, Price Stability and Fiscal Debt Sustainability
Markus K. Brunnermeier
(Princeton University)
Yuliy Sannikov
(Princeton University)
[View Abstract]
This paper highlights the linkages between the three stability concepts: financial stability, price stability, and fiscal debt sustainability. Liquidity spirals and Fisher deflationary spirals link the financial stability concept with price stability. Marrying insights from the Fiscal Theory of the Price Level with the I Theory of Money highlights the close connection between fiscal debt sustainability and financial stability. Under monetary dominance fiscal default is more likely. This reduces the value of government securities and therefore weakens banks' balance sheets. Weakened banks reduce their lending. The resulting credit crunch lowers GDP growth and fiscal authorities' tax revenue. The so called diabolic loop between sovereign and banking risk emerges. Under fiscal dominance, inflation expectations rise opposing the Fisher deflationary forces. Both, the inflationary and deflationary forces become increasingly powerful in downturns making the system difficult to govern.
A Macroeconomic Framework for Quantifying Systemic Risk
Arvind Krishnamurthy
(Northwestern University)
Zhiguo He
(University of Chicago)
[View Abstract]
[Download Preview] Systemic risk arises when shocks lead to states where a disruption in financial intermediation adversely affects the economy and feeds back into further disrupting financial intermediation. We present a macroeconomic model with a financial intermediary sector subject to an equity capital constraint. The novel aspect of our analysis is that the model produces a stochastic steady state distribution for the economy, in which only some of the states correspond to systemic risk states. The model allows us to examine the transition from "normal" states to systemic risk states. We calibrate our model and use it to match the systemic risk apparent during the 2007/2008 financial crisis. We also use the model to compute the conditional probabilities of arriving at a systemic risk state, such as 2007/2008. Finally, we show how the model can be used to conduct a macroeconomic "stress test" linking a stress scenario to the probability of systemic risk states.
Booms and Systemic Banking Crises
Frederic Boissay
(European Central Bank)
Fabrice Collard
(University of Bern)
Frank Smets
(European Central Bank)
[View Abstract]
The empirical literature on systemic banking crises (SBCs) has shown that SBCs are rare events that break out in the midst of credit intensive booms and bring about particularly deep and long-lasting recessions. We attempt to explain these phenomena within a dynamic general equilibrium model featuring a non-trivial banking sector. In the model, banks are heterogeneous with respect to their intermediation skills, which gives rise to an interbank market. Moral hazard and asymmetric information on this market may generate sudden interbank market freezes, SBCs, credit crunches and, ultimately, severe recessions. Simulations of a calibrated version of the model indicate that typical SBCs break out in the midst of a credit boom generated by a sequence of positive supply shocks rather than being the outcome of a big negative wealth shock. We also show that the model can account for the relative severity of recessions with SBCs and their longer duration.
Discussants:
Sebastian DiTella
(Stanford University)
Matteo Maggiori
(New York University)
Valentin Haddad
(Princeton University)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 204-B
American Economic Association
Marketing and Finance: Are Financial Products Bought or Sold?
(G2)
Presiding:
Antoinette Schoar
(Massachusetts Institute of Technology)
Competition for Attention
Nicola Gennaioli
(Bocconi University)
Andrei Shleifer
(Harvard University, Department of Economics)
Pedro Bordalo
(University of London)
[View Abstract]
[Download Preview] We present a model of market competition and product differentiation in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. With salience, strategic positioning of each product affects how all other products are perceived. With this attention externality, depending on the cost of producing quality some markets exhibit "commoditized" price salient equilibria, while others exhibit "de-commoditized" quality salient equilibria. When the cost of producing quality changes, innovation can lead to a radical change in markets. In the context of financial innovation, the model generates the well documented phenomenon of "reaching for yield".
Advertising Expensive Mortgages
Umit Gurun
(University of Texas-Dallas)
Gregor Matvos
(University of Chicago)
Amit Seru
(University of Chicago)
[View Abstract]
We use a unique dataset that combines information on advertising and mortgages originated by subprime lenders to study whether advertising helped consumers find cheaper mortgages. Lenders who advertise more within a region sell more expensive mortgages, measured as the excess rate of a mortgage after accounting for a broad set of borrower, contract, and regional characteristics. These effects are stronger for mortgages sold to less sophisticated consumers. We exploit variation in mortgage advertising induced by the entry of Craigslist across different regions as well as a battery of other tests to demonstrate that the relation between advertising and mortgage expensiveness is not spurious. Our estimates imply that consumers pay on average $7,500 more when borrowing from a lender who advertises. Analyzing advertising content reveals that initial/introductory rates are advertised frequently in a salient fashion in contrast to reset rates, which are rarely advertised. Moreover, the advertised price (APR) is at best uncorrelated with mortgage expensiveness. Our facts reject the canonical models of informative advertising and are instead more consistent with persuasion models, in which the reset rate is shrouded/not salient and advertising is used steer unsophisticated consumers into bad choices by increasing the salience of the initial interest rate.
Credit Card Advertising and Borrower Screening
Antoinette Schoar
(Massachusetts Institute of Technology)
Hong Ru
(Massachusetts Institute of Technology)
[View Abstract]
This paper documents how credit card companies use advertising content as well as card features, such as miles and points, to shroud unattractive features of a card offer. We find that shrouding increases with the level of competition in the market. But it is importantly mitigated by the credit risk of borrowers. The results suggest that shrouding is used to screen for applicants who are not price sensitive (or are being confused by the card features) but are of high credit quality. We use a unique data set that provides detailed information on all credit card offers in the US over the last decade. We also run a lab experiment to verify the role that different card features have on an applicants ability to process the information.
Discussants:
Colin Camerer
(California Institute of Technology)
Christopher Mayer
(Columbia University)
David Laibson
(Harvard University)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 204-C
American Economic Association
Patents, Innovation and Growth
(O3)
Presiding:
Mark Schankerman
(London School of Economics)
Patents and Cumulative Innovation: Causal Evidence from the Courts
Alberto Galasso
(University of Toronto)
Mark Schankerman
(London School of Economics)
[View Abstract]
[Download Preview] Cumulative innovation is central to economic growth. Do patent rights facilitate or impede such follow-on innovation? This paper studies the causal effect of removing patent protection through court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeal for the Federal Circuit to control for the endogeneity of patent invalidation. We find that patent invalidation leads to a 50 percent increase in subsequent citations to the focal patent, on average, but the impact is highly heterogeneous. Patent rights appear to block follow-on innovation only in the technology fields of computers, electronics and medical instruments. The effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.
Innovation, Reallocation and Growth
Daron Acemoglu
(Massachusetts Institute of Technology)
Ufuk Akcigit
(University of Pennsylvania)
Nicholas Bloom
(Stanford University)
William Kerr
(Harvard University)
[View Abstract]
[Download Preview] We build a model of firm-level innovation, productivity growth and reallocation to investigate the economic implications of "industrial policy" supporting incumbent firms. We estimate the parameters of the model using simulated methods of moments on detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of the instrumental-variable estimates of the impact of R&D tax credits and increases in skilled labor supply on innovation. We find that policies that subsidize R&D by incumbents not only increase economic growth but are essentially as effective as subsidizing entrants: a subsidy equivalent to 1% of GDP to either entrants or incumbents increases the growth rate of the economy by about 0.13 percentage points and welfare by 1.5-2% in consumption equivalent terms. However, a non-R&D subsidy to the continued operation of incumbents of the same magnitude has a large negative effect on growth, reducing it by about 0.27 percentage points and welfare by 4.3% in consumption equivalent terms.
Economic Spillovers from Publicly-Funded Biomedical Research
Pierre Azoulay
(Massachusetts Institute of Technology)
Joshua Graff Zivin
(University of California-San Diego)
Danielle Li
(Northwestern University)
Bhaven Sampat
(Columbia University)
[View Abstract]
We measure the extent to which NIH investments in basic science affect the research choices of private sector firms. Using newly available data on patent-publication links and exploiting the structure of NIH grant review, we address two key econometric challenges to identifying spillovers. First, we measure the pool of knowledge relevant for a firm by directly linking a firm's patent output to the publications those patents cite, to the grants that fund those publications, and ultimately to a pool of related research supported by the same grant funding committee. Second, we address concerns about the endogeneity of federal funding for disease areas by instrumenting investments in particular disease area with changes in funding arising from other disease areas that use similar methods. This is possible because the review committee an application is evaluated in tells us about the methods the application uses, while the patenting firm and funding institute tell us about the disease area of application. This analysis allows us to examine what kinds of firms are most likely to take advantage of publicly funded research and to quantify the impact of basic science investments on applied innovation.
Patent Rights, Product Market Reforms and Innovation
Philippe Aghion
(Harvard University)
Peter Howitt
(Brown University)
Susanne Prantl
(Cologne University)
[View Abstract]
[Download Preview] Can patent protection and product market competition complement each other in enhancing incentives to innovate? In this paper, we address this question by investigating how innovation responses to a substantial policy initiative increasing product market competition interact with the strength of patent rights. We provide empirical evidence of innovation responding positively to the product market reform in industries of countries where patent rights are strong, not where these are weak. The positive response to the reform is more pronounced in industries in which innovators rely more on patenting than in other industries, and in which the scope for deterring entry through patenting is not too large. Our empirical findings are in line with step-by-step innovation models predicting that product market competition enhances innovation and, more importantly, that patent protection can complement competition in inducing innovation.
Discussants:
Heidi L. Williams
(Massachusetts Institute of Technology)
Samuel Kortum
(Yale University)
John Van Reenen
(London School of Economics)
Benjamin Jones
(Northwestern University)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 201-C
American Economic Association
Perspectives on Consumption
(E2)
Presiding:
Alisdair McKay
(Boston University)
The Economic Stimulus Payments of 2008 and the Aggregate Demand for Consumption
Jonathan A. Parker
(Northwestern University)
Christian Broda
(Duquesne Capital Management)
[View Abstract]
This paper uses the randomized timing of the disbursement of the Economic Stimulus Payments (ESPs) of 2008 and a supplemental survey of households in the Nielsen Consumer Panel to estimate the causal effect of the receipt of an ESP on spending. Household spending rises by 10 percent the week of receipt, and roughly four percent during the two months during and following receipt. Spending effects are large and significant only for households without high past income and without adequate liquid wealth. There are no noticeable spending effects for households that expect their ESPs at the time when they first learned about them. Extrapolating from these estimates to aggregate demand implies a significant stimulative effect during the second quarter of 2008 and a similar statistically weak but economically significant effect during the third quarter.
The Distribution of Wealth and the MPC: Implications of New European Data
Christopher D. Carroll
(Johns Hopkins University)
Jiri Slacalek
(European Central Bank)
Kiichi Tokuoka
(International Monetary Fund)
[View Abstract]
[Download Preview] Using new micro data on household wealth from fifteen European countries, we first document the substantial cross-country variation in how various measures of wealth are distributed across individual households. Through the lens of a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks we then study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). We find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks and (iii) when we consider households only use liquid assets (rather than net wealth) to smooth consumption.
Measuring How Fiscal Shocks Affect Durable Spending in Recessions and Expansions
David Berger
(Northwestern University)
Joseph Vavra
(University of Chicago)
[View Abstract]
[Download Preview] When will durable expenditures respond strongly to economic stimulus? We build from micro evidence and show that in a heterogeneous agent business cycle model with fixed costs of durable adjustment, responsiveness is substantially dampened during recessions. Our model estimates imply that during the Great Recession, durable expenditures were half as responsive to additional stimulus as during the boom in the 1990s. This procyclical responsiveness is driven by changes in the distribution of households desired durable holdings over the cycle. We directly test our model by estimating this distribution empirically using PSID micro data and find that the distribution in the data moves cyclically as predicted. In addition to this micro evidence, we also provide support for our model's procyclical responsiveness using aggregate time-series data, and we show this time-series evidence is inconsistent with simpler models featuring smooth adjustment costs.
A Tale of Two Stimulus Payments: 2001 vs 2008
Greg Kaplan
(Princeton University)
Gianluca Violante
(New York University)
[View Abstract]
[Download Preview] Recently, significant progress has been made in measuring the consumption responses to the U.S. stimulus payment episodes of 2001 and 2008. In both episodes, the consumption response is strong: between 15 and 25 percent of rebates are spent by households on nondurables in the quarter that they are received. Moreover, the findings point systematically to lower consumption responses in 2008 compared to 2001, by 5 to 10 percentage points. These two episodes differ in the policy design and the macroeconomic environment. In this paper, we show that the two-asset (liquid and illiquid asset) version of the life-cycle incomplete markets model (as in Kaplan-Violante, 2013) is consistent with this evidence.
Discussants:
Sam Schulhofer-Wohl
(Federal Reserve Bank of Minneapolis)
Toshihiko Mukoyama
(University of Virginia)
Dirk Krueger
(University of Pennsylvania)
Jeffrey R. Campbell
(Federal Reserve Bank of Chicago)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 202-B
American Economic Association
Politics and Finance
(G3)
Presiding:
Raymond Fisman
(Columbia University)
The Mortality Cost of Political Connections
Yongxiang Wang
(University of Southern California)
Raymond Fisman
(Columbia University)
[View Abstract]
[Download Preview] We study the relationship between the political connections of Chinese firms and work place fatalities. The worker death rate for connected companies is five times that of unconnected firms; this result also holds when we exploit executive turnover to generate within-firm estimates. The connections-mortality relationship is attenuated in province where officials' promotion is contingent on meeting safety quotas. Fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. Our findings emphasize the social costs of political connections.
Valuing Changes in Political Networks: Evidence from Campaign Contributions to Close Congressional Elections
Pat Akey
(London Business School)
[View Abstract]
[Download Preview] This paper investigates the value of firm political connections to US congressional candidates using a regression discontinuity design. In a sample of close special elections occurring at times unrelated to firm-specific economic events or broader political events, I compare the abnormal returns of firms that contributed to winning candidates to those of firms that contributed to losing candidates. I find the wedge between these firms to be 1.7% to 6.8% of firm equity value. To assess which areas of policy matter most, I test which congressional committee assignment seats are the most valuable. In particular, the loss of a connection to the Senate Appropriations committee leads to a loss of $1.9 billion in sales in the following year. Finally, I examine additional actions that firms take to develop political networks—directly hiring former government employees and engaging professional lobbyists—and find that these actions complement their contribution strategies.
Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital
Brandon Julio
(London Business School)
Youngsuk Yook
(Federal Reserve Board)
[View Abstract]
[Download Preview] We examine the effects of government policy uncertainty on cross-border capital flows. FDI flows from US companies to foreign affiliates drop significantly during the period just before an election. The election effect for FDI is larger than election cycles in domestic investment. The electoral patterns in FDI flows are more pronounced in countries with higher propensities for policy reversals and when election outcomes are more uncertain. Our identification strategy compares variation in different types of capital flows into the same country around the timing of national elections. The electoral cycles are present in relatively irreversible FDI flows but not in foreign portfolio investment flows, suggesting a likely causal link from political uncertainty to capital flows.
When Talk Isn't Cheap: The Corporate Value of Political Rhetoric
Art Durnev
(University of Iowa)
Larry Fauver
(University of Tennessee)
Nadini Gupta
(Indiana University)
[View Abstract]
[Download Preview] Does political rhetoric matter for firms and investors? We conduct a textual analysis of all 388 gubernatorial “State of the state†speeches given between 2002 and 2010 across U.S. states, to examine this question. Political speeches may reduce policy uncertainty (eg. Pastor and Veronesi, 2012), reflect the politician’s views regarding the economic future of the state, and contain new information regarding future policies that affect the business environment. Using data on 5,721 firms matched based on their location of their headquarters and main operations, we undertake an event study examining the market reaction to the tone of the State of the state addresses, and also changes in their investment and employment decisions. Controlling for speech, firm, and state-level characteristics, the results show a statistically significant and positive association between the level of optimism expressed in a Governor’s speech, and the abnormal returns of firms headquartered in that Governor’s state. We also find that a more optimistic gubernatorial speech is associated with a statistically significant increase in investment and employment, relative to firm size, whereas a more pessimistic speech is associated with a decline in investment and employment for firms located in that state. To establish identification, we show that the results are robust to identifying the geographic focus of firms’ operations, using a matched sample of firms located in neighboring states as a control group, and instrumental variables. To identify channels by which the content of the speech may have an impact, we show that firms that obtain state-government contracts, and those that are more dependent on skilled human capital and therefore education spending, significantly increase investments if the budget-related and education-related parts of the speech are more optimistic. We also find that political rhetoric is most informative during periods of economic uncertainty, when government policy has had a greater impact.
Discussants:
Lauren H. Cohen
(Harvard University)
Ran Duchin
(University of Washington)
Jun Qian
(Boston College)
Oguzhan Karakas
(Boston College)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 203-A
American Economic Association
Structural Estimation
(D0)
Presiding:
Petra Todd
(University of Pennsylvania)
Estimating the Value of Reducing Health Insurance Reclassification Risk for the Nonelderly
Amanda E. Kowalski
(Yale University)
[View Abstract]
One of the most popular provisions of the recent national health reform—the Affordable Care Act (ACA) of 2010—is the guaranteed issue provision, which will require insurers to offer health insurance to all, regardless of preexisting health conditions. Prior to the implementation of the guaranteed issue provision, individuals in some states are subject to “reclassification risk” – the risk that they will get so sick in a given year that they will be rejected by health insurers in future years. The media offers several portraits of individuals who have been reclassified. However, little is known about the empirical magnitude of reclassification risk in health insurance given the lack of availability of longitudinal data the follows the same individuals for a long time period.
We have data that allows us to follow the same nonelderly individuals for a fifteen year period. These data, the Statewide Planning and Research Cooperative System (SPARCS) data, contain comprehensive information on individual expenditures and utilization for all individuals who visited almost all hospitals in the state of New York. As long as individuals do not differentially move out of the state of New York after a health event, attrition is likely to be much less of a problem than it is in other data sets.
Given the unique nature of our data, we are able to characterize the evolution of medical expenditures for individuals. Using a model of agent utility, the actual data, and simulated data that exhibit other patterns of health risk, we perform a series of counterfactual simulations to explore the value of reducing reclassification risk. Our findings provide a useful depiction of how medical expenditures evolve over time, and they inform the value of reducing reclassification risk with the ACA.
Hospital Choices, Hospital Prices, and Financial Incentives to Physicians
Kate Ho
(Columbia University)
Ariel Pakes
(Harvard University)
[View Abstract]
[Download Preview] We estimate a preference function which rationalizes hospital referrals for privately-insured birth episodes in California. The function varies across insurers and is additively separable in: a hospital price paid by the insurer, the distance traveled, and plan and severity-specific hospital fixed effects (capturing various dimensions of hospital quality). We use an inequality estimator that allows for errors in price and detailed hospital-severity interactions and obtain markedly different results than those from a logit. The inequality estimator indicates that insurers with more capitated physicians are more responsive to hospital prices. Capitated plans are willing to send patients further to utilize similar-quality lower-priced hospitals; but the trade-off between quality and costs does not vary with capitation rates.
All Units Rebates: Experimental Evidence from the Vending Industry
Julie Mortimer
(Boston College)
Christopher Conlon
(Columbia University)
[View Abstract]
[Download Preview] We study an All-Units Discount, in which a downstream firm pays a linear wholesale price up to a quantity threshold, beyond which a discount applies to all future and previous units. The result of the contract is that marginal cost downstream is effectively negative over a quantity range. Such contracts are common in many industries, and we implement a field experiment in one such industry (confections), in which we remove top-selling products from a market in order to identify the potential efficiency effect of the contract. We combine the experimental variation with a structural model of demand and a dynamic model of the retailer's re-stocking decision to identify cases in which the contract results in either efficient or inefficient exclusion of competing products. We show how the contract allocates the cost of a stock-out between upstream and downstream firms, and find evidence of inefficient exclusion. Finally, we point out that the impact of upstream mergers in these markets is likely to be felt not through the price in the final-goods market, but rather in the wholesale market. We examine the impact of various upstream mergers on the willingness of the dominant firm to offer rebate contracts, and the impact that the rebate contracts have on social welfare.
Retirement Plan Type and Employee Mobility: The Role of Selection and Incentive Effects
Colleen Flaherty Manchester
(University of Minnesota)
Gopi Shah Goda
(Stanford University)
Damon Jones
(University of Chicago)
[View Abstract]
[Download Preview] Employer-provided pension plans may affect employee mobility both through an "incentive effect," where the bundle of benefit characteristics such as vesting rules, pension wealth accrual, risk, and liquidity affect turnover directly, and a "selection effect," where employees with different underlying mobility tendencies select across plans or across firms with different types of plans. In this paper, we quantify the role of selection by exploiting a natural experiment at a single employer in which an employee's probability of transitioning from a defined benefit (DB) to a defined contribution (DC) pension plan was exogenously affected by default rules. Using regression discontinuity as well as differences-in-regression-discontinuities (DRD) methods, we find evidence that employees with higher mobility tendencies self-select into the DC plan. Our results suggest that selection likely contributes to the observed positive relationship between the transition from DB to DC plans and employee mobility in settings where employees sort into plans or employers. Counter to conventional wisdom, we find a negative direct effect of the DC plan on turnover relative to the DB plan, which underscores the multi-dimensional difference between these plans.
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 203-B
American Economic Association
Subjective Longevity Risk and Life-Cycle Decision Making
(D1)
Presiding:
Michael Hurd
(RAND)
Die young or live long: modeling subjective survival probabilities
Shang Wu
(University of New South Wales)
Ralph Stevens
(University of New South Wales)
Susan Thorp
(University of Technology Sydney)
[View Abstract]
[Download Preview] Modeling of subjective survival is critical to the use of mortality expectations in economic models and the life insurance industry. Subjective scaling factors that are used to adjust average survival probabilities for individual expectations are often based on a single observation of personal life expectancy and assumed to be constant for any projected target age. Using survey data on subjective survival probabilities over a range of target ages and from an array of age cohorts, we estimate individual subjective scalings of population mortality probabilities. We show that both cohort age and target age matter: respondents are generally pessimistic about overall life expectancy, but are optimistic about their probability of surviving to advanced ages; and that older respondents in our middle-aged sample are more optimistic than younger ones. Individuals tend to expect to either die young or to live long. We propose a new model to incorporate cohort- and target age-varying subjective survival beliefs and illustrate the effect of these variations on optimal life cycle consumption plans. The proposed model contributes to the explanation of both the retirement savings puzzle and conservative spending patterns in retirement.
Individuals' Survival Expectations and Actual Mortality
Vesile Kutlu-Koc
(Utrecht University)
Adriaan Kalwij
(Utrecht University)
[View Abstract]
[Download Preview] Using a combination of Dutch survey and administrative data, we show that individuals’ life expectancy measured by their subjective probabilities of survival predicts actual mortality and that this predictive power disappears once controlled for self-rated health status and smoking behavior. Overall, we find that people underestimate their remaining life duration, and the more so do women than men, and that individuals underestimate the risks from smoking, obesity, and alcohol consumption. Our results suggest that for individuals’ long term economic decisions that require knowledge on their own life expectancy, such as those on retirement and savings, the outcomes may be suboptimal.
Can Longevity Risk Alleviate the Annuitization Puzzle? Empirical Evidence from Survey Data
Federica Teppa
(De Nederlandsche Bank)
[View Abstract]
[Download Preview] This paper provides new evidence on individual preferences over annuities and lump sum payments based on hypothetical questions posed in the DNB Household Survey in 2010. In contrast to the majority of papers in the annuitization puzzle literature, this study controls explicitly for the subjective survival probability (SSP) which, as a perceived measure of longevity risk, is key in deciding about whether to annuitize. We model this decision in a life-cycle framework in the spirit of Brown and Poterba (2000) and compute a utility-based measure of annuity value for singles and couples. However, we depart from them in the way we account for the uncertainty of the time horizons agents face in this decision. We find that people expecting to live longer claim to prefer the
annuity. This finding is robust to controlling for bequest motives and for
far-off target ages. In addition, we find that individual preferences are
consistent with subjective survival probabilities but not with actuarial ones. Combined with the empirical evidence that individuals tend to underestimate systematically their life expectancy, our findings have strong policy implications. Most importantly, helping individuals better estimate their longevity risk may resolve the annuitization puzzle more effectively than forcing their actions.
Subjective Life Expectancy and Private Pensions
Tabea Bucher-Koenen
(Max-Planck-Institute)
Sebastian Kluth
(Max-Planck-Institute)
[View Abstract]
We examine the market for private annuities in Germany and evaluate potential selection effects based on subjective life expectancy. Thus, we analyze selection effects based on an ex ante perspective, i.e. before the risk materializes. The German market is particularly interesting because the government grants generous state subsidies to individuals with so called Riester annuity contracts. One crucial parameter in the decision process when buying such a contract is individuals' subjective life expectancy, because it directly influences the expected rate of return. We find a significant selection effect for women between those invested in the Riester market and those without such an annuity contract. For men there seems to be no difference in subjective life expectancy by Riester ownership. Comparing the size of this selection effect with the underlying mark ups in life expectancy that are charged by the insurance industry shows that the latter appears to be in line for women but too high for men.
Discussants:
John Piggott
(University of New South Wales)
Olivia S. Mitchell
(University of Pennsylvania)
Jeffrey R. Brown
(University of Illinois)
Tobias Klein
(Tilburg University)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Grand Ballroom - Salon A
American Economic Association
Welfare Policies in Latin American
(I3)
Presiding:
Flavio Cunha
(University of Pennsylvania)
Tackling Social Exclusion: Evidence from Chile
Rita Ginja
(Uppsala University)
Pedro Carneiro
(University College London)
Emanuela Galasso
(World Bank)
[View Abstract]
Even though most anti-poverty programs consist mainly in the provision of cash or inkind transfers, poverty involves disadvantage in multiple other dimensions. In 2002 Chile introduced an innovative program which involved psycho-social support through frequent home visits to very poor households, and a re-design of the local supply of social services to serve the needs of indigent families more adequately. We find program impacts on access to subsidies and training programs (especially large for those without access to subsidies before CS came to exist), but not on employment nor on housing conditions. These results indicate that even though CS was successful in approximating indigent families to the welfare network provided by the state, it was unable to produce substantive changes in their lives.
Evaluating a Universal Health Insurance Program: Lessons from Mexico
Gabriella Conti
(University of Chicago)
Rita Ginja
(Uppsala University)
[View Abstract]
Seguro Popular (SP) was introduced in 2002 to provide health insurance to the 50 million Mexicans without Social Security. We use the fact that number of families to serve in each state is set federally at the start of each year to identify the effects of the program on the use of health services and mortality. We find no response of supply of care to introduction and expansion of program and there is no evidence of changes on the total volume of admissions to hospitals or on the length of stay. We find evidence of improved care for very small children, measured by a decrease in hospital admissions due to preventable conditions. We find a
decrease in child mortality, due to the decrease in mortality from preventable conditions and conditions covered by the program.
Does Higher Education Cause Political Participation? Evidence from a Regression Discontinuity Design
Alex Solis
(University of California-Berkeley)
[View Abstract]
Education has been considered by political economy and political science literature one of the most important factors explaining political participation: voter turnout, civic engagement, political knowledge, and democratic attitudes. However, only few papers have explored the causal link with contradictory findings. In this paper, I use the eligibility criteria for two loan programs in Chile, that produce an exogenous variation on higher education enrollment, to test the causal effects of higher education and college on two measures of political participation: voter registration and affiliation with a political party. Using administrative individual data from the universe of voters, I find evidence that the relationship is statistically zero. Moreover, the relationship is zero when the data is analyzed by income, sex or by different background measures. A survey from a representative sample of the population allows a RD analysis that indicates that higher education do not cause changes in attitudes towards democracy, political knowledge, participation in demonstrations or in civic organizations, but it does cause overreporting on voting registration.
Learning about the Enforcement of Conditional Welfare Programs: Evidence from the Bolsa Familia Program in Brazil
Katja Kaufmann
(Bocconi University)
Eliana La Ferrara
(Bocconi University)
Fernanda Brollo
(University of Warwick)
[View Abstract]
[Download Preview] We study the implementation of a large-scale government program, "Bolsa Familia" in Brazil, which conditions transfers to poor families on children's school attendance. In particular, we attempt to disentangle the role of formal rules from the enforcement of these rules by analyzing whether and how people learn about the quality of enforcement and how this affects their behavior. We find that individuals finetune their behavior in response to signals about the quality of enforcement. Children's attendance increases after the family receives a warning or punishment for failure to comply in the past. The attendance response, on the other hand, is attenuated when punishments are delayed or waived with ad hoc justifications. We show that families learn both from own signals, observing the consequences of own noncompliance, and from peers' signals, that is, observing the consequences of peers' noncompliance. Enforcement thus has important spillover effects on other families, who learn from the experiences of their children's peers.
Discussants:
Renata Narita
(World Bank)
Alex Solis
(Uppsala University)
Rita Ginja
(Uppsala University)
Pedro Carneiro
(University College London)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Commonwealth Hall D
American Finance Association
Asset Pricing Theory
(G1)
Presiding:
Leonid Kogan
(Massachusetts Institute of Technology)
Market Turmoil and Destabilizing Speculation
Marco Di Maggio
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper explores how speculators can destabilize financial markets by amplifying negative shocks in periods of market turmoil, and confirms the main predictions of the theoretical analysis using data on money market funds (MMFs). I propose a dynamic trading model with two types of investors -- long-term and speculative -- who interact in a market with search frictions. During periods of turmoil created by an uncertainty shock, speculators react to declining asset prices by liquidating their holdings in hopes of buying them back later at a gain, despite the asset's cash flows remaining the same throughout. Interestingly, I show that a reduction in trading frictions leads to more severe fluctuations in asset prices. At the root of this result are the strategic complementarities between speculators expected to follow similar strategies in the future. Using a novel dataset on MMFs' portfolio holdings during the European debt crisis, I gauge the strength of funds' strategic interactions
A Labor Capital Asset Pricing Model
Lars Kuehn
(Carnegie Mellon University)
Mikhail Simutin
(University of Toronto)
Jessie Jiaxu Wang
(Carnegie Mellon University)
[View Abstract]
[Download Preview] We show that labor search frictions are an important determinant of the cross-section of equity returns. In the data, sorting firms by loadings on labor market tightness, the key statistic of search models, generates a spread in future returns of 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make optimal employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time variation in the efficiency of the matching technology. Firms with low loadings are not hedged against adverse matching efficiency shocks and require higher expected stock returns.
Asset Pricing with Entry and Imperfect Competition
Erik Loualiche
(Northwestern University)
[View Abstract]
I study the implications of fluctuations in new firm creation across industries for asset prices and macroeconomic quantities. I write a general equilibrium model with heterogeneous industries, allowing for firm entry and time variation in markups. Firms entering an industry increase competition and displace incumbents' monopoly rents. This mechanism is strongest in industries that exhibit high profit margins and high elasticity of innovation to the cost of entry. A positive shock to the aggregate cost of entry increases the marginal utility of consumption --- the price of entry risk is negative. Therefore, firms with more exposure to rents' displacement have higher expected excess returns. Using micro-level data on entry rates, I trace out the impact of firm creation on incumbent firms' profitability and stock returns. The effect is strongest for the types of industries the model predicts. I confirm aggregate entry risk is priced: differential exposure to the aggregate entry shock exp
Discussants:
Dimitri Vayanos
(London School of Economics)
Frederico Belo
(University of Minnesota)
Nicolae Garleanu
(University of California-Berkeley)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Regency Ballroom B
American Finance Association
Board Composition and Firm Performance
(G3)
Presiding:
Daniel Ferreira
(London School of Economics)
Does the Gender of Directors Matter?
Miriam Schwartz-Ziv
(Michigan State University and Harvard University)
[View Abstract]
[Download Preview] I examine relatively gender-balanced boards of business companies in which the Israeli government holds a substantial equity interest. I construct a novel database based on the detailed minutes of 402 board and committee meetings of eleven such companies for a one year period. I find that boards that included critical masses of at least three directors of each gender, and particularly of three women, were approximately twice as likely to request further information and to take an initiative, compared to boards without such critical masses. At the level of the individual director, both men and particularly women directors were more active when at least three women directors were in attendance. The ROE and particularly the net-profit-margin of these companies are also significantly larger if they have at least three directors of each gender. In addition, companies with boards that included a critical mass of women directors were more likely to experience CEO turnover when firm performance was weak. Moreover, gender-balanced boards were particularly active in periods they were especially needed – during periods their companies were in the process of replacing their CEOs.
The Labor Market for Directors and Externalities in Corporate Governance
Doron Levit
(University of Pennsylvania)
Nadya Malenko
(Boston College)
[View Abstract]
[Download Preview] This paper studies how directors' reputational concerns in the labor market affect board structure, corporate governance, and firm value. In our setting, directors affect their firms' governance, and governance, in turn, affects firms' demand for new directors. Whether the labor market rewards a shareholder-friendly or management-friendly reputation is thus endogenous and depends on the aggregate quality of corporate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of governance across firms. As a result, an equilibrium with strong aggregate governance can co-exist with a weak governance equilibrium, suggesting that countries or industries with similar characteristics can have very different governance systems. We also show that directors' reputational concerns amplify the governance system: strong systems become stronger and weak systems become weaker. We derive implications for regulations restricting multiple directorships, b
Labor Representation in Governance as an Insurance Mechanism
E. Han Kim
(University of Michigan)
Ernst Maug
(University of Mannheim)
Christopher Schneider
(University of Mannheim)
[View Abstract]
[Download Preview] We investigate how Germany?s mandated 50% labor representation on supervisory boards affects layoffs and wage cuts during industry shocks. We hypothesize that parity codetermination helps the implementation of implicit contracts that insure employees against adverse shocks. We estimate difference-in-differences in employment and wages using panel data at the establishment level. The results show white-collar and skilled blue-collar workers employed by firms with parity codetermination are protected against layoffs and wage cuts during shock periods. Moreover, white-collar workers and skilled blue-collar workers pay an insurance premium of about 3% in the form of lower wages. In contrast, we find no evidence of insurance for unskilled blue-collar workers; they are neither protected against industry shocks, nor do they pay an insurance premium in the form of lower wages.
Reputation Concerns of Independent Directors: Evidence from Individual Director Voting
Wei Jiang
(Columbia University)
Hualin Wan
(Shanghai Lixin University of Commerce)
Shan Zhao
(Grenoble Ecole de Management)
[View Abstract]
[Download Preview] Using a unique dataset of board proposal voting by individual independent directors of public companies in China from 2004 to 2009, we analyze the effects of career concerns and current reputation stock on independent directors’ propensity to confront management. Younger directors and directors in their second (and last) terms, who have stronger outside career concerns, are more likely to be aligned with investors rather than the managers. Directors with higher reputation stocks (measured by mentions in news articles and the number of board seats) are also more likely to dissent. Their dissenting behavior is eventually rewarded in the market place in the form of more outside career opportunities and the avoidance of regulatory sanctions. Finally, we find that career concerns are significantly stronger among directors who already enjoy higher reputation.
Discussants:
Andrew Ellul
(Indiana University)
Denis Gromb
(INSEAD)
Daniel Ferreira
(London School of Economics)
Holger Mueller
(New York University)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Regency Ballroom A
American Finance Association
Structural Estimation in Finance
(G3)
Presiding:
Christopher Hennessy
(London Business School)
The Marginal Value of Cash and Corporate Savings
Patrick Bolton
(Columbia University)
Huntley Schaller
(Carleton University)
Neng Wang
(Columbia University)
[View Abstract]
This paper provides a non-parametric empirical analysis of the structural model of corporate savings and investment by Bolton, Chen and Wang (2011). The key variable of that model is the firm's cash-to-capital ratio w. Firm value is increasing and concave in w, and the firm's marginal value of cash is decreasing in w. As a result, investment is increasing in w. These predictions and other less obvious results of the model are confirmed by our empirical analysis. A major finding of our analysis is that on average, the value of capital for a firm is increasing and concave in the corporation's cash-to-capital ratio. Moreover, the slope of this value function, which measures the corporation's marginal value of cash, is decreasing in the cash-to-capital ratio w as predicted by the model. Together, these findings provide a parsimonious and powerful explanation of US corporate savings and investment behavior.
Contingent-Claim-Based Expected Stock Returns
Zhiyao Chen
(University of Reading)
Ilya Strebulaev
(Stanford University)
[View Abstract]
[Download Preview] We develop and test a parsimonious contingent claims model for cross-sectional returns of stock portfolios formed on market leverage, book-to-market equity, asset growth rate, and equity size. Since stocks are residual claims on firms' assets that generate operating cash flows, stock returns are cash flow rates scaled by the sensitivities of stocks to cash flows. Our model performs well because the stock-cash flow sensitivities contain economic information. Value stocks, high-leverage stocks and low-asset-growth stocks are more sensitive to cash flows than growth stocks, low-leverage stocks and high-asset-growth stocks, particularly in recessions when default probabilities are high.
Firm Policies and the Cross-Section of CDS spreads
Andrea Gamba
(University of Warwick)
Alessio Saretto
(University of Texas-Dallas)
[View Abstract]
[Download Preview] We study the relation between Credit Default Swaps (CDS) spreads and corporate policies in the context of a structural model of firm's default that accounts for firm heterogeneity, and real and financial frictions. First, we estimate and test the model using simulated method of moments. We find that the model cannot be rejected by the data and successfully matches the cross section of empirically observed CDS spreads, while addressing the credit spread puzzle. Second, we study how CDS spreads are related to observable characteristics of the firms in the simulated economy and in the observed data. We find that, controlling for financial leverage, CDS spreads are positively related to operating leverage, and negatively related to growth opportunities. Consistent with the idea that growth options reduce the credit riskiness of firms, we find that investments are negatively related to changes in CDS spreads.
Estimating the Effects of Contracting Frictions
Shaojin Li
(Shanghai University of Finance and Economics)
Toni Whited
(University of Rochester)
[View Abstract]
We quantify the extent to which contracting frictions affect firms' real and financial decisions. To this end, we estimate a dynamic contracting model based on limited entrepreneurial commitment. In the model a firm seeks financing from an intermediary, but the firm can renege on the financing contract. The optimal contract is self-enforcing, so that financial constraints arise endogenously. The model uses relatively few parameters to reconcile many features of the data across young and old firms. Our counterfactual exercises show that endogenous financial constraints affect investment only when the financial constraint binds. These constraints always have an effect on firm leverage, and these effects are quantitatively important.
Discussants:
Michael Roberts
(University of Pennsylvania)
Joao Gomes
(University of Pennsylvania)
Sergey Tsyplakov
(University of South Carolina)
Erwan Morellec
(Ecole Polytechnique Federale de Lausanne)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Millennium Hall
American Finance Association
Takeovers
(G3)
Presiding:
Micah Officer
(Loyola Marymount University)
Do Acquisitions Relieve Target Firms? Financial Constraints?
Isil Erel
(Ohio State University)
Yeejin Jang
(Ohio State University)
Michael Weisbach
(Ohio State University)
[View Abstract]
Managers often claim that an important source of value in acquisitions is the acquiring firm?s ability to finance investments for the target firm. This claim implies that targets are financially constrained prior to being acquired and that these constraints are eased following the acquisition. We evaluate these predictions on a sample of 5,187 European acquisitions occurring between 2001 and 2008, for which we can observe the target?s financial policies both before and after the acquisition. We examine whether target firms? post-acquisition financial policies reflect improved access to capital. We find that the level of cash target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline significantly, while investment significantly increases following the acquisition.
These effects are stronger in deals that are more likely to be associated with financing improvements. These findings are consistent with the view that acquisitions e
How Do Acquirers Choose between Mergers and Tender Offers?
David Offenberg
(Loyola Marymount University)
Christo Pirinsky
(George Washington University)
[View Abstract]
[Download Preview] We present a theoretical framework and supporting empirical evidence for the choice of acquisition method in takeovers. Under existing regulations, tender offers provide the advantage of substantially faster completion times than mergers. In our model, bidders have a preference for speedy execution to minimize competition for the target. However, a tender offer signals to the target higher demand for its shares and raises its reservation price. In equilibrium, bidders trade-off speed and cost. We show that deals in more competitive environments and deals with fewer external impediments on execution are more likely to be structured as tender offers. Furthermore, the rivals of the bidding firm exhibit significantly lower announcement returns in tender offers than in mergers.
Motivated Monitors: The Importance of Institutional Investors' Portfolio Weights
Eliezer Fich
(Drexel University)
Jarrad Harford
(University of Washington)
Anh Tran
(City University London)
[View Abstract]
We hypothesize that institutional monitoring will be greatest when the target firm represents a significant allocation of funds in the institution?s portfolio. We show that this measure is important in reconciling mixed findings for total institutional ownership in the prior literature. The results indicate that our measure of institutional holdings leads to greater bid completion rates, higher premiums and lower acquirer returns. This empirical evidence provides support for theories predicting a beneficial effect of blockholders in monitoring the firm in general and in enhancing the gains to takeover targets in particular.
Prior Client Performance and the Choice of Investment Bank Advisors in Corporate Acquisitions
Valeriy Sibilkov
(University of Wisconsin-Milwaukee)
John McConnell
(Purdue University)
[View Abstract]
[Download Preview] Contrary to earlier studies, we find that prior client performance is a significant determinant of the likelihood that an investment bank will be chosen as the advisor by future acquirers and that prior client performance is a significant determinant of the changes through time in banks’ shares of the advisory business. Further, we find that the changes in the market values of acquirers at the announcement of acquisition attempts are positively correlated with contemporaneous changes in the market values of their advisors. Two implications arise: (1) managers of acquiring firms consider advisors’ prior client performance when choosing their advisors and (2) market forces work to align advisors’ and clients’ interests in the acquisition market.
Discussants:
Micah Officer
(Loyola Marymount University)
Mattias Nilsson
(University of Colorado-Boulder)
Felix Meschke
(University of Kansas)
Carrie Pan
(Santa Clara University)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Commonwealth Hall C
American Finance Association
The Challenge of Banking Regulation
(G2)
Presiding:
Anat Admati
(Stanford University)
The Value of Implicit Guarantees
Zoe Tsesmelidakis
(University of Oxford)
Robert Merton
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Firms considered "too big to fail" (TBTF) benefit from access to cheaper funding during crises. Using a comprehensive data set of bond characteristics and prices in the primary and secondary market for a sample of 74 U.S. financial institutions, we investigate how reduced debt capital costs affect the positions of shareholders and creditors. Issue and transaction prices are revalued on the basis of a funding advantage estimated using a structural model. Our results indicate that wealth transfers to investors sum up to $365bn and that banks shifted to fixed-rate short-term funding to take advantage of their TBTF status.
Mortgage Companies and Regulatory Arbitrage
Yuliya Demyanyk
(Federal Reserve Bank of Cleveland)
Elena Loutskina
(University of Virginia)
[View Abstract]
Mortgage companies (MCs) do not fall under the strict regulatory regime applicable to depository institutions. We empirically show that the resulting regulatory arbitrage allowed bank holding companies (BHCs) to circumvent capital requirements and avoid loan-related losses.
MC subsidiaries of BHCs originated riskier mortgages (than bank subsidiaries), characterized by borrowers with lower credit scores, lower incomes, higher loan-to-income ratios, and higher default rates. Our results imply that regulation had the capacity to prevent the deterioration of pre-crisis lending standards, but only if consistently applied and enforced. The higher involvement of MCs in subprime lending and securitization do not explain our results.
The End of Market Discipline? Investor Expectations of Implicit State Guarantees
Viral Acharya
(New York University)
Deniz Anginer
(Virginia Tech)
A. Joseph Warburton
(Syracuse University)
[View Abstract]
[Download Preview] We find that bondholders of major financial institutions have an expectation that the government will shield them from losses and, as a result, they do not accurately price risk. While bond credit spreads are sensitive to risk for most financial institutions, credit spreads lack risk sensitivity for the largest institutions. This expectation of public support constitutes a subsidy to large financial institutions, allowing them to borrow at government-subsidized rates. We find that passage of Dodd-Frank did not eliminate expectations of government support. The issue of too-big-to-fail remains unresolved.
Depositors' Perception of "Too-Big-To-Fail"
Raquel Oliveira
(Central Bank of Brazil)
Rafael Schiozer
(Getulio Vargas Foundation)
Lucas Barros
(University of Sao Paulo)
[View Abstract]
We examine if depositors respond to the perception of a too-big-to-fail policy by exploiting the exogenous shock to the Brazilian banking system caused by the international turmoil of 2008. We find evidence that a run to systemically important banks is better explained by the perception of a too-big-to-fail policy than by bank fundamentals. Among depositors, institutional investors are more prone to run, and their presence in the deposit base affects the decision to run by nonfinancial firms. Our evidence indicates that the extra inflow of deposits that systemically important banks receive during a crisis gives them an important competitive advantage.
Discussants:
Hanno Lustig
(University of California-Los Angeles)
Atif Mian
(Princeton University)
Stefan Nagel
(Stanford University)
Daniel Paravisini
(London School of Economics)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Commonwealth Hall B
American Finance Association
Volatility and Returns
(G1)
Presiding:
Tyler Shumway
(University of Michigan)
Signal or noise? Uncertainty and learning about whether other traders are informed
Snehal Banerjee
(Northwestern University)
Brett Green
(University of California-Berkeley)
[View Abstract]
[Download Preview] We develop a model in which uninformed rational traders (speculators) are uncertain about whether other market participants are trading on informative signals or noise. This uncertainty generates a non-linear price that reacts more strongly to bad news than it does to good news. In fact, the price can even decrease following good news about fundamentals. We incorporate this uncertainty into a dynamic setting where speculators learn gradually about other traders, and show that this leads to a rich set of return dynamics. Expected returns and volatility are stochastic but predictable, and vary non-monotonically with disagreement across investors. The model also generates volatility clustering in which large return realizations, associated with dividend surprises, are followed by higher future volatility and expected returns. Finally, we show that the relation between returns and information quality varies endogenously and derive empirical predictions for turnover on asset prices.
The Term Structure of Variance Swaps and Risk Premia
Yacine Ait-Sahalia
(Princeton University)
Loriano Mancini
(EPFL)
Mustafa Karaman
(University of Zurich)
[View Abstract]
[Download Preview] We study the term structure of variance swaps, equity and variance risk premia. A model-free analysis reveals a significant jump risk component embedded in variance swaps. A model-based analysis shows that the term structure of variance risk premia is negative and downward sloping. Investors' willingness to ensure against volatility risk increases after a market crash. The effect is stronger over short horizons and more persistent over long horizons. Variance risk premia over short horizons mainly reflect investors' fear of a market crash. A simple trading strategy with variance swaps generates significant returns.
The Long-Run Risks Model: What Differences Can an Extra Volatility Factor Make?
Guofu Zhou
(Washington University-St Louis)
Yingzi Zhu
(Tsinghua University)
[View Abstract]
In this paper, we extend the long-run risks model of Bansal and Yaron (2004) by allowing both a long- and a short-run volatility components in the evolution of economic fundamentals. While the Bansal and Yaron model has received increasing attention recently, it has major difficulties in explaining a large negative market variance risk premium, the predictability of consumption growth by price-dividend ratio, the predictability of market volatility by price-dividend ratio, and the importance of discount rate risk relative to cash flow news. By adding one more volatility factor, our extension not only makes the new model consistent with the volatility literature that the stock market is driven by two, rather than one, volatility factors, but also resolves all the aforementioned challenging issues facing the original Bansal and Yaron model.
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Washington B
American Real Estate & Urban Economic Association
Housing Markets and Returns
(R3)
Presiding:
Paul Carrillo
(George Washington University)
Fear and Loathing in the Housing Market: Evidence from Search Query Data
Marcelle Chauvet
(University of California-Riverside)
Stuart Gabriel
(University of California-Los Angeles)
Chandler Lutz
(Copenhagen Business School)
[View Abstract]
[Download Preview] We use Google search data to develop a broad-based and real-time index of housing distress. Unlike established indicators, this new Housing Distress Index (HDI) directly reflects agent sentiment revealed through search queries. Research findings indicate that our measure of housing sentiment provides important new insights in determination of national and city specific housing returns, the VIX index, foreclosures, and returns on subprime mortgage credit default swaps. The predictive effects of the HDI on national housing returns are asymmetric and stronger during times of market crisis. Overall, results suggest that housing and related derivative markets are highly sensitive to vulnerabilities in household finances as captured by our measure of housing distress.
Structural Estimates of Housing Supply Elasticity across Chinese Cities
Yuming Fu
(National University of Singapore)
Hongyu Liu
(Tsinghua University)
Siqi Zhen
(Tsinghua University)
[View Abstract]
[Download Preview] We present a structural model of urban growth in a spatial equilibrium setting to aid the separation of the effects of demand shocks from those of the spatial variation in housing supply elasticity. The model is applied to an analysis of urban growth across Chines cities between 1998 and 2004, to evaluate the determinants of housing supply elasticity. The variation in supply, via urban expansion or price elasticity, is found to play a greater role in accounting for cross-city differences in population growth, but a lesser role for the differences in wage-rate and price growth, than do the demand shocks. The housing supply elasticity is lower in denser and more expensive cities but greater in cities of higher political status or with denser roads. Furthermore, our results show that local governments can raise the housing supply elasticity by lowering regulatory costs and improving land-use equity.
The Effect of Listing Price Strategy on Transaction Selling Prices
Eli Beracha
(University of Wyoming)
Michael Seiler
(Old Dominion University)
[View Abstract]
While true underlying home values are expected to be randomly distributed, actual residential listing prices tend to be highly clustered. Particularly, more than 75% of the homes in our sample are associated with a round or "just below" round asking price. This study provides a theoretical and empirical examination of how the thousands digit in a home's asking price is related to the final transaction price relative to its true underlying value. Our findings suggest that, on average, homes listed using a "just below" pricing strategy are associated with the greatest discount negotiated relative to the asking price. However, the higher initial degree of list overpricing reflected in "just below" pricing compared with other strategies more than offsets the greater discount. Therefore, "just below" is the most effective pricing strategy for the seller in terms of a greater dollar yield relative to value. These empirical findings have economic significance and are robust across both "buyer" and "seller" housing markets, new versus existing homes, and across multiple home price ranges.
Do "Productive" Agents Really Deliver for their Clients?
Geoffrey Turnbull
(University of Central Florida)
Bennie Waller
(Longwood University)
[View Abstract]
This study examines whether certain agent are capable of obtaining higher selling prices and/or shorter marketing durations for their clients. This paper examines the impact of high performing real estate agents on selling price and liquidity of residential real estate. Results indicate that productive agents (Star2%) have no significant impact on selling prices or marketing durations. However, highly productive agents (Star5%) do have a significant impact on both selling price and liquidity. Specifically, Star5% agents can significantly and positively impact selling price by approximately 3% while reducing marketing durations by over 40 percent. Propensity matching models provide further evidence that these highly productive agents (Star5%) do deliver superior selling and liquidity results. Similarly, agents with a focus on higher valued properties ($MIL) also sell for a premium of approximately 1.4% as well as selling more expeditiously (27%). However, propensity matching model results provide some evidence that such performance may be indicative of selection bias effect.
Discussants:
Jaren Pope
(Brigham Young University)
Jonathan Rothbaum
(US Census Bureau)
Benjamin Williams
(George Washington University)
C. Lockwood Reynolds
(Kent State University)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Washington C
American Real Estate & Urban Economic Association
Urban Economics
(R1)
Presiding:
Jan Brueckner
(University of California-Irvine)
Tax Reform, Housing Tenure, and Sprawl
Thomas Davidoff
(University of British Columbia)
[View Abstract]
[Download Preview] This paper shows that the fraction of new housing units that are multifamily is highly correlated with tax incentives for rental landlords. Combined with the total number of building permits issued, CPI growth and first-year depreciation allowances multiplied by top marginal tax rates explain almost 80% of time series variation in the multifamily share. Consistent with these facts, the multifamily share of new building permits plummeted after the Tax Reform Act of 1986.
Because multifamily housing is built in dense locations, we expect to find, and indeed do find, that the average locational convenience of jurisdictions issuing building permits fell after 1986, and the fraction of permits issued in the multifamily-friendly Northeastern and California coastal markets plunged, with the latter two effects occurring with a lag related to relative price movements.
Patterns of Growth in Chinese Cities: Implications of the Land Lease
Paul Anglin
(University of Guelph)
David Dale-Johnson
(University of Alberta)
Yanmin Gao
(City University of Hong Kong)
Guozhong Zhu
(Peking University)
[View Abstract]
[Download Preview] A special feature of China's housing market is land use rights in the form of land leasehold contracts granted by the government. Using a model in which a representative developer may choose to redevelop existing centrally located housing or develop new housing at the periphery of the city, we show that as the city grows, the land leasehold system results in the city center being developed less intensely and more land being used on the outskirts of the city when compared to a fee simple environment. Thus, cities in China are likely to be relatively more spread out, with city centers relatively older than would be the case with "fee simple" ownership. Our model suggests that excess residential land use is about 6 percent. In addition, compared with the ownership case, housing supply will grow more quickly in the near future, but more slowly later on during the transition of the Chinese economy. Parallel to the supply growth pattern, equilibrium price grows relative slowly in the near future, but more quickly later on. While we focus on residential uses, we believe our model can be applied to other land uses.
Demolition-Forced Moves from Public Housing to Voucher Housing: Effects on Youth's Long-Term Employment Outcomes
Fredrik Andersson
(Office of the Comptroller of the Currency)
John Haltiwanger
(University of Maryland)
Mark Kutzbach
(US Census Bureau)
Giordano Palloni
(University of Maryland)
Henry Pollakowski
(Harvard University)
Daniel Weinberg
(US Census Bureau)
[View Abstract]
This paper examines the effects on the long-term employment outcomes of youth whose families had been forced to move from demolished public housing, with emphasis those who moved to voucher-supported private housing. These demolitions provide a "natural experiment" in that arbitrary sets of public housing resident households are "chosen" to be movers at a given point in time. We use demolitions, as does Jacob (2004) for Chicago, to deal with the issue of selectivity bias: long-term economic outcomes of youth whose families moved from a demolished building are compared to outcomes of youth who remained in place in other buildings in the same housing project. Using a composite measure of "neighborhood quality," we next compare outcomes for youth whose families moved to voucher-supported housing in several different types of neighborhoods. While our identification strategy follows Jacob's, we extend this type of work by (1) focusing on long-term employment outcomes of youth, (2) focusing on households moving to voucher supporting housing (Jacob uses of school records and cannot determine subsidy category for movers), and (3) use national microdata to consider a wide variety of housing scenarios. This research is made possible by use of a newly-built national Census-based dataset that combines confidential household-level data with administrative data for all HUD housing subsidy recipients, for virtually all employment records over a 15-year period, and Census residential address data. This very large dataset is limited in size by only two factors: (1) the initial youth and household data are drawn from the 2000 Census confidential long form information which covers one-sixth of the U.S. population; and (2) we limit ourselves to youth of age 13-18 in 2000 in order to reasonably follow them into the labor force up to the present.
Skill Intensity and City Size: Is it all House Prices?
Daniel Broxterman
(George Washington University)
Anthony Yezer
(George Washington University)
[View Abstract]
The positive relation between population and education is an established empirical characteristic for U.S. cities. Recent research by Elvery (2010) and Hendricks (2011) have provided convincing evidence that the relation between city size and skill intensity persists when employment is disaggregated by industrial sector. This paper provides equally convincing evidence that the relation between city size and skill intensity is a result of the effects of house prices which vary directly with city size. The theory is remarkably straightforward. Estimates of the income elasticity of demand for a primary residence generally range from 0.25 to 0.40. If the income elasticity is less than unity, the ratio of skilled to unskilled worker wages must fall when house prices rise with city size. This induces a substitution effect in production that is common across all industries causing the skill intensity of the labor force to rise. The house price effect on skill intensity has been confused with a city size effect because of the close association between urban population and housing prices. These results have implications for: the validity of Rosen-Roback models, the measurement of productivity differences across cities; claims regarding human capital externalities in cities; optimal city size; and attempts to characterize and understand agglomeration economies.
Discussants:
Donald Haurin
(Ohio State University)
Jeffrey Zax
(University of Colorado-Boulder)
Michael Eriksen
(University of Georgia)
Jeffrey Lin
(Federal Reserve Bank of Philadelphia)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Grand Ballroom - Salon I
Association for Comparative Economic Studies
Shall I Fear Thou? Theoretical and Empirical Evidence on the Determinants, Effects, and Persistence of Aggression vs. Cooperation
(Z1)
Presiding:
Pauline Grosjean
(University of New South Wales)
Terrorism: A Tale of Reputation and Intimidation
Sambuddha Ghosh
(Boston University)
Gabriele Gratton
(University of New South Wales)
Caixia Shen
(Shangai University of Finance and Economics)
[View Abstract]
[Download Preview] This paper uses a reputational model to study the strategic core of terrorism: intimidation. The model consists of a negotiation phase and a conflict phase. Failure of negotiations leads to the conflict phase, which we model as war-of-attrition with two-sided incomplete information. For any level of discounting there is a unique equilibrium, where conflict can be prolonged but wasteful. Our results suggest that religious terrorists fight shorter but more frequent wars, while secular terrorists fight longer wars but less frequently. If the government appears tougher, the terrorist starts a conflict with lower probability. Yet, conditional on a first attack, the government's continuation payoff is independent of its perceived toughness. Our model provides insights into why and how negotiations fail and conflicts begin.
Homicide and Work: The Impact of Mexico's Drug War on Labor Market Participation
Ariel Ben Yishay
(University of New South Wales)
Sarah Pearlman
(Vassar College)
[View Abstract]
[Download Preview] We estimate the impact of the escalation of the drug war in Mexico on the mean hours worked among the general population. We focus on homicides, which have increased dramatically since 2006. To identify the relationship between changes in homicides and hours worked, we exploit the large variation in the trajectory of violence across states and over time. Using panel and instrumental variables regressions, we find that the increase in homicides has negatively impacted labor force activity. An increase in homicides of 10 per 100,000 in a given state is associated with a decline between 0.3 and 0.6 weekly hours worked among the state's population. For states most impacted by the drug war, this implies an average decline of one to three worked per week. These impacts are larger for the self-employed, specifically those who work from home. This provides evidence that the fear of violence can lead to behavioral changes that lower economic activity.
The Wild West is Wild: The Homicide Resource Curse
Mathieu Couttenier
(University of Lausanne)
Pauline Grosjean
(University of New South Wales)
Marc Sangnier
(University of Aix-Marseille)
[View Abstract]
[Download Preview] We uncover interpersonal violence as a dimension and a mechanism of the resource curse. We rely on a historical natural experiment in the United States, in which mineral discoveries occurred at various stages of governmental territorial expansion. "Early'" mineral discoveries, before full-fledge rule of law is in place in a county, are associated with higher levels of interpersonal violence, historically and today. The persistence of this homicide resource curse is partly explained by the low quality of -subsequent- judicial institutions. The specificity of our results to violent crime also suggests that a private order of property rights did emerge on the frontier, but that it was enforced by high levels of interpersonal violence. The results are robust to state-specific effects, to comparing only neighboring counties, and to comparing only discoveries within short time intervals.
Cultural Integration: Experimental Evidence of Changes in Immigrants' Preferences
Lisa Cameron
(Monash University)
Nisvan Erkal
(University of Melbourne)
Lata Gangadharan
(Monash University)
Marina Zhang
(University of Melbourne)
[View Abstract]
Cultural traits play a significant role in the determination of economic outcomes and institutions. This paper presents evidence from laboratory experiments on the cultural integration of individuals of Chinese ethnicity in Australia, focusing on social preferences, preferences for competition, and risk attitudes. We show that the greater the share of education an individual receives in the West, the more they behave like Western subjects and the less they behave according to the norms of their Eastern heritage. Increased exposure to Western education has a strong negative impact on altruism, trust, and trustworthiness. For risk and competitive preferences, our results are gender-specific. These results have important implications for policy making and institution building in multi-cultural societies.
Discussants:
Marc Sangnier
(University of Aix-Marseille)
Emily Owens
(Cornell University)
Karen Clay
(Carnegie Mellon University)
Yan Chen
(University of Michigan)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Regency Ballroom C1
Association for Evolutionary Economics
What Social Control Principles and Related Institutional Framework to Mitigate the Inherent Instability of Financialized Capitalism?
(B5)
Presiding:
Anna Klimina
(University of Saskatchewan)
Financial Regulation, Endogenous Money, and the Nexus of Control
Eric Hake
(Catawba College)
[View Abstract]
Something more dramatic than a run up in real estate prices has happened to global finance over the past 30 years. In an environment of deregulation and the removal of constraints on financial innovation, a new system of creating credit has increased the ability of the financial
system to leverage itself and increase current purchasing power for financial assets. This increasing endogeneity of the money supply has been accompanied with a theory based argument that more sophisticated and deeper financial markets and instruments would be capable of accurately pricing risk and improving the allocation of capital. The destabilization of global financial markets in 2007-2009, the asset bubble and the macroeconomic effects of its deflation, suggest this theory and historical development do not provide a sufficient basis for the proper functioning of finance, monetary policy, and private sector investment. This paper describes the rise of this new system of credit/money creation, evaluates the recent financial market regulations implemented after the collapse of the last asset bubble (2006), and explains why these new regulations are insufficient to address the problems of asset inflation and deflation caused by the current organization of financial markets.
Money-Manager Capitalism after the Subprime Crisis: Can Social Control Tame Financial Instability?
Fadhel Kaboub
(Denison University)
Avraham Baranes
(Denison University)
[View Abstract]
This paper builds on the work of Minsky & Whalen (1996-97) to identify the institutional prerequisites for a less unstable form of capitalism in the aftermath of the subprime financial crisis. First, we examine how the already unstable money-manager capitalist system became increasingly unstable with the developments starting with the 1999 Gramm-Leach-Bliley Act. The analysis will focus on identifying how power structures have changed over this time, particularly with respect to control over the social provisioning process. Recognizing the evolutionary nature of institutions and the slow pace of the process of institutional adjustment, the second part of the paper argues for a particular set of institutional reforms that are necessary to restore a stability that is comparable to that of the post-war era of managerial capitalism. With a critical lens on the ongoing reforms, we argue that the current policy agenda is merely focused on restarting the same failed mechanisms that have led to the subprime crisis. What the paper proposes, however, is a fundamental set of institutional reforms to address the root causes of financial instability.
Rise of Money Manager Capitalism and What it Means for Economic Theory and Policy
Robert E. Prasch
(Middlebury College)
[View Abstract]
Veblen (1904) and Berle and Means (1932) famously argued that modern corporations are, for the most part, no longer managed by their owners but by professional managers. Their insight, and its implications for the postwar economy, was developed into a full-fledged theory of "The New Industrial State" by John Kenneth Galbraith (rev. ed. 1973). However, since the publication of Galbraith's book, we have seen the emergence of a new institutional formation. This is the rise to hegemony of what Hyman Minsky and Randy Wray term "Money Manager Capitalism."
The proposed presentation will begin by exploring the history and meaning of money market capitalism and its role in promoting the "financialization" of virtually every element of American life. It will then show how a recognition of this new institutional arrangement can illuminate a variety of subjects, from bloated executive compensation to "control fraud," that might otherwise be perceived as "puzzles" that are "deviations" from an otherwise "normal" and "socially efficient" organization of modern business enterprise. As will be shown, the implications go well beyond financial firms and are pervasive throughout the "real" sectors of the economy. The paper will close with a discussion of what this new concept means for our understanding of economic theory and policy, including the regulation of financial markets, workplaces, and consumer products.
Banking Sector Viability and Fiscal Austerity Policy: From the Rhetoric to the Reality of Bank Behavior
Mario Seccareccia
(University of Ottawa)
[View Abstract]
The present crisis has brought to the forefront the role of the banking sector in financial instabilities plaguing market economies, as in the US and the Eurozone over the last five years. As Minsky (1986) emphasized, the banking sector in market economies ought to be considered a public-private partnership because of the benefits resulting from the State institutions (especially the central bank as purveyor of liquidity and LoLR). However, it is less clear what role the State plays through its fiscal actions. When bank economists comment on the public budgetary policy, they speak uniformly in favor of "sound finance" and the need to balance public sector books, which pits the financial sector and the State. This is especially so when the State delivers its budgets annually, during which time the financial sector often comments about problems of public debt stability and the need to sustain the "confidence" of markets. The purpose of this paper is to turn on its head somewhat this, by empirically analyzing what is the role of public sector net spending and the banking sector's financial stability/profitability. Special attention is paid to the experience of the Canadian banking sector, which has been widely applauded for having one of the world's most stable financial systems and that, apparently, so little benefited from the largesse of the public sector during the crisis. To address this issue, the paper also analyzes the type of institutional structure that would make this banking sector/public sector relation more transparent.
How to Guide the Economy towards Socially Desirable Directions: Some Institutional Lessons from the 2007 Financial Turmoil
Faruk Ulgen
(University of Grenoble)
[View Abstract]
[Download Preview] The limits of massive rescue policies to cure the current "Great Disarray" and insure a welfare creating growth shows that the socio-economic stability cannot be spontaneously reached through free market mechanisms and often call for institutions consistent with the aim to control, adjust and compensate the consequences of individual decisions/actions. Institutions as "systems of established and prevalent social rules" (Hodgson, 2006) structure social interactions in order to make them globally compatible with the survival of a given society. Their design intends to make relations among people sustainable in order to allow the society to evolve in a coherent way. In light of the ongoing crisis this paper highlights links between the institutional frame of financial markets (regulatory schemes) and the occurrence of crises. It points to the role of liberal regulation policies of the last decades in the eruption of the current crisis and argues that the design/implementation of alternative policies necessitates institutional modifications in the financial structure. New (social) control mechanisms through macro-regulatory devices must aim at designing efficient social environment to make individual decisions consistent with social welfare: preventing speculative activities and directing financial practices towards job-creating productive activities.
Discussants:
Phillip Anthony O'Hara
(Global Political Economy Research Unit)
Charles Whalen
(Congressional Budget Office)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Grand Ballroom - Salon L
Association of Environmental & Resource Economists
Political Economy in Climate Policy
(Q5)
Presiding:
Andreas Lange
(University of Hamburg)
How Disagreement Regarding Climate Change Affects Federal and State Efforts to Address It
Joel Landry
(Cornell University)
[View Abstract]
[Download Preview] This paper seeks to empirically answer a fundamental question: which level of government--federal or state--should act to address climate change? To answer this, I develop a spatially and sectorally disaggregated equilibrium model of the US economy that accounts for how heterogeneity in environmental preferences with respect to climate change is likely to impact the distortions that emerge from federal and state decisionmaking. Using an environmental preference parameter that is recovered from my model of federal decisionmaking given the observed cap, permit allocation, and votes for the American Clean Energy and Security Act of 2009 (ACESA), I am able to conduct a positive revealed welfare analysis of federal and state climate policy that reflects policymakers' revealed valuation for emissions reductions. The central result of this analysis is that state policy results in a substantially smaller welfare loss than federal policy, although both policies lead to lower welfare relative to the policy that maximizes national aggregate surplus. Federal policy results from a majority coalition of climate 'believers' who establish an especially stringent cap that reflects their preferences for emissions reductions as well as free permits (green pork), resulting in a cap that is 31.4% lower than the emissions level which maximizes aggregate surplus and a welfare loss of $67.0 billion. State policy, in contrast, results in a smaller cumulative emissions reduction that is 21.4% below the aggregate surplus maximizing emissions level, and has a corresponding welfare loss of $27.3 billion. I then complement this analysis taking the policies from the revealed analysis as given but that instead uses a scientific estimate of the external costs of climate change of $25 per ton CO2e. From the perspective of scientific welfare, the revealed federal climate policy results in a welfare gain of $90.4 billion which is greater than the welfare gain from revealed state policy of $80.1 billion. I also discuss the distributional implications of federal and state policies and show how the choice of allocation rule under federal decisionmaking both critically impacts the likelihood that federal climate policy will pass as well as the distortionary implications of revealed federal policy.
Estimating the Cost of Climate Policy using Prediction Markets and Lobbying Records
Kyle Meng
(Columbia University)
[View Abstract]
[Download Preview] Estimates of climate policy costs have been constrained by limited policy experience to date. This paper develops an empirical method that combines prediction market prices with stock returns to estimate the expected cost to firms of the Waxman-Markey climate bill proposed in 2009. My results suggest that Waxman-Markey would have reduced the value of listed firms by $150 billion with greater losses for carbon and energy intensive sectors. A regression discontinuity design finds sectors entitled to free allowances under the bill experienced larger stock returns. For unlisted firms, I use lobbying expenditures to bound costs within a partial identification framework.
Market-based emission performance standards in a multi-sector context: An assessment of Alberta's Specified Gas Emitters Regulation
Deepak Rajagopal
(University of California-Los Angeles)
[View Abstract]
[Download Preview] In the policymaker's toolkit of instruments to reduce greenhouse gas (GHG)-related externalities, emission intensity targets appear a politically more palatable alternative to economist's prescriptions for carbon tax or emission targets. Although emission intensity standards (EIS) and more generally performance standards are common place, they are relatively scarce in the context of GHG emissions. In this paper, we analyze alternative designs of EIS in a multi-sector context and compare them to cost-effective policies. We also perform an empirical analysis assessment of the performance of one particular design of EIS that has been adopted in the Canadian province of Alberta, called the Specified Greenhouse gas Emitters Regulation (SGER). Comparing the EIS to carbon tax we show how the choice of the additional policy parameters of the EIS such as the penalty for non-compliance and the baseline relative to which the level of non-compliance is determined can allow policy-makers to design an EIS to approach cost-effectiveness. Analyzing the compliance data from regulated facilities to estimate the effect of the SGER, we discuss the heterogenous effect on actual onsite emissions, effective emissions,(which refers to emissions net of abatement achieved through the purchase of emission credits, offsets and penalty) and output in the different regulated sectors. Finally, we analyze the compliance strategies of the regulated facilities in different sectors to see if it provides evidence in support of the large literature on engineering estimates of abatement cost of GHG emissions from industrial sources.
Adaptation Technology and Free-Riding Incentives in International Environmental Agreements
Hassan Benchekroun
(McGill University and CIREQ)
Walid Marrouch
(Lebanese American University and CIRANO)
Amrita Ray Chaudhuri
(University of Winnipeg and Tilburg University)
[View Abstract]
[Download Preview] This paper sets up a game theoretic framework, which incorporates both adaptation and participation in a global agreement on emission reduction as strategies available to individual countries dealing with a global pollutant. We show that the existence of a more efficient adaptation technology reduces the incentive of a coalition member to free-ride and leave the grand coalition, that is, the coalition that includes all countries. Moreover, we show that this positive impact of increased efficiency of adaptation technology can be accompanied by an increase in the gains from cooperation over the control of emissions.
Discussants:
Ian Parry
(International Monetary Fund)
Mark Jacobsen
(University of California-San Diego)
Derek Lemoine
(University of Arizona)
Andreas Lange
(University of Hamburg)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Meeting Room 401
Econometric Society
Asset Pricing-Theory
(G1)
Presiding:
Amir Yaron
(University of Pennsylvania)
Robust Contracts in Continuous Time
Jianjun Miao
(Boston University)
Alejandro Rivera
(Boston University)
[View Abstract]
[Download Preview] We study two types of robust contracting problem under hidden action in continuous time. In type I problem, the principal is ambiguous about the project cash flows, while he is ambiguous about the agent's beliefs in type II problem. The principal designs a robust contract that maximizes his utility under the worst-case scenario subject to the agent's incentive and participation constraints. We implement the optimal contract by cash reserves, debt and equity. In addition to receiving ordinary dividends when cash reserves reach a threshold, outside equity holders also receive special dividends or inject cash in the cash reserves to hedge against model uncertainty. Ambiguity aversion lowers outside securities value and raises the credit yield spread. It generates equity premium for type I problem, but not for type II problem. The equity premium and the credit yield spread are state dependent and high for distressed firms with low cash reserves.
Dynamic Equilibrium with Two Stocks, Heterogeneous Investors, and Portfolio Constraints
Georgy Chabakauri
(London School of Economics)
[View Abstract]
[Download Preview] We study dynamic general equilibrium in a Lucas economy with two trees, one consumption good, two CRRA investors with heterogeneous risk aversions, and portfolio constraints. We focus on margin and leverage constraints, which restrict access to credit markets. We find positive relationship between the amount of leverage in the economy and magnitudes of conditional stock return correlations and volatilities. Tighter constraints give rise to rich saddle-type patterns in correlations and volatilities, make them less countercyclical, increase risk premia proportionally to assets' margins, and increase price-dividend ratios of low-margin assets more than those of high-margin assets. The paper offers a new methodology for solving models with constraints, and derives closed-form solutions for the unconstrained case and the case of leverage constraints.
A Theory of Rational Short-Termism with Uncertain Betas
Christian Gollier
(University of Toulouse)
[View Abstract]
[Download Preview] How should one evaluate investment projects whose CCAPM betas are uncertain? This question is particularly crucial for projects yielding long-lasting impacts on the economy, as is the case for example for many green investments. We define the notion of a certainty equivalent beta. We show that its term structure is not constant and that, for short maturities, it equals the expected beta. If the expected beta is larger than a threshold (which is negative and large in absolute value in all realistic calibrations), the term structure of the certainty equivalent beta is increasing and tends to its largest plausible value. This comes from the fact that more promising scenarii (large beta) are also riskier, and are therefore more heavily discounted for long maturities. If current beliefs concerning the asset's beta are represented by a normal distribution, the certainty equivalent beta becomes infinite for finite maturities.
Pricing Large Financial Products
Andrews Carvajal
(University of Western Ontario)
Marek Weretka
(University of Wisconsin-Madison)
[View Abstract]
This paper develops a method to price risky assets that are in non-negligible supply. The introduction of large financial products affects consumption; hence, Arrow prices and the original pricing kernel become obsolete in the counterfactual experiment. Thus, the standard Arrow pricing approach cannot be applied in this context. This paper contributes to the literature on the differentiated product markets. Contrary to the commonly used discrete choice approach, our model gives predictions in settings in which agents are allowed to simultaneously trade arbitrary quantities of many financial products.
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Meeting Room 402
Econometric Society
Estimation of Models of Wage Determination and Wage Dynamics
(J3)
Presiding:
Christopher Taber
(University of Wisconsin-Madison)
Job Dispersion and Compensating Wage Differentials
Ted To
(Bureau of Labor Statistics)
Paul Sullivan
(Bureau of Labor Statistics)
[View Abstract]
[Download Preview] The empirical literature on compensating wage differentials has a mixed history.
While there have been some successes, much of this research finds weak support for the theory of equalizing differences. We argue that these negative results can be explained by bias in estimated compensating wage differential regressions. The source of this bias is dispersion in total job values, or "job dispersion." We begin by using a simple theoretical model to demonstrate how dispersion in wages and non-wage values of jobs can lead to biased hedonic estimates of the marginal-willingness-to-pay (MWP) for non-wage job characteristics. Next, we quantify this bias by estimating a structural on-the-job search model that allows jobs to be differentiated by both wages and job-specific non-wage utility. Using simulated data from the model, we conduct a detailed analysis of the sources of bias in traditional hedonic wage estimates. Estimates of the MWP for non-wage job characteristics are severely attenuated. While worker heterogeneity and job dynamics are important sources of bias, a significant proportion can only be explained by randomness in job offers.
Unobserved Worker Quality and Inter-Industry Wage Differentials
Suqin Ge
(Virginia Tech)
Joao Carlos Macieira
(Virginia Tech)
[View Abstract]
[Download Preview] This paper provides quantitative assessment of two alternative explanations of inter-industry wage differentials: worker heterogeneity in the form of unobserved quality and firm heterogeneity in the form of firm's willingness to pay (WTP) for workers' productive attributes. We develop an empirical model of labor demand and apply a two-stage, non-parametric procedure to recover worker and firm heterogeneity. In the first stage we recover the unmeasured worker quality by estimating a nonparametric hedonic wage function. In the second stage we infer each firm's WTP parameters for worker attributes using first order conditions from the demand model. We apply our approach to quantify inter-industry wage differentials using individual data from NLSY79 and find that worker quality accounts for approximately two-third of the inter-industry wage differentials.
Wage Dynamics with Private Learning-by-Doing and On-the-Job Search
Seung-Gyu (Andrew) Sim
(University of Tokyo)
[View Abstract]
[Download Preview] This paper develops an equilibrium job search model in which the employed worker privately accumulates human capital and continually searches for a better paying job. Firms encourage production and discourage turnover by rewarding with bonus payments and long service allowances, respectively, workers with better performance and longer job tenure. Wage growth attends human capital accumulation
(productive promotion) and job tenure (non-productive promotion) as well as job-to-job transition. The model is estimated using indirect inference to investigate the effect of human capital accumulation on individual wage growth. In NLSY79 data, the average wage of white male high school graduates after 20 years of market experience is 1.88 times higher than the average of the first full-time wages. A counterfactual experiment using the structural parameter estimates
shows that the wage of a typical worker unable to accumulate human capital would grow by 41.8%.
Acquired Skill and Learned Ability: Wage Dynamics in Internal Labor Markets
Masaki Nakabayashi
(University of Tokyo)
[View Abstract]
[Download Preview] The signaling role of schooling decreases as employers learn about workers' abilities from their experience. Since learning is asymmetric between current and potential employers, the market expects that experience and schooling be complements for workers who have not been promoted, which hides the learning effect, and be substitutes for promoted workers. This market expectation in turn affects workers' skill acquisition. Due to asymmetric learning and its effects on skill acquisition, (1) the employer learning effect is hidden during experience outside of internal labor markets and (2) is apparent within internal labor markets, but (3) attenuates with tenure upon joining internal labor markets.
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Meeting Room 403
Econometric Society
Inference and Statistical Decision Theory
(C1)
Presiding:
Xu Cheng
(University of Pennsylvania)
Statistical Hypothesis Testing and Private Information
Aleksey Tetenov
(Collegio Carlo Alberto)
[View Abstract]
[Download Preview] This paper provides a rationalization for using classical one-sided hypothesis tests for approving innovations, such as new drugs or treatment programs. I consider statistical testing as a strategy of the regulator in a game against informed proponents who can profit from the regulator's acceptance decision even for ineffective innovations. Lower test size deters proponents from attempting costly clinical trials to gain approval of innovations they know ex ante to be ineffective. I show that test size equal to the ratio of the proponents' cost of collecting data to their benefit from approval of a null innovation achieves minimax optimality for a regulator who prefers not to place any prior on the quality of potential innovations. It is also the limit of decision rules for Bayesian regulators as the assumed share of potential proponents with bad innovations converges to one.
Using data to inform policy
Maximilian Kasy
(Harvard University)
[View Abstract]
[Download Preview] In this paper, a general framework is proposed for the use of (quasi-) experimental data when choosing policies such as tax rates or the level of inputs in a production process. The data are used to update expectations about social welfare as a function of policy, and the policy is chosen to maximize expected social welfare.
We characterize the properties of the implied decision function.
For settings where experimentation is feasible, we characterize experimental designs maximizing expected social welfare, assuming policies are chosen based on the data.
We discuss several economic settings which are covered by our framework, and apply our methods to data from the RAND health insurance experiment. In this application, we obtain much smaller estimates of the optimal copay (18% vs. 50%) than those obtained using a conventional sufficient-statistic approach.
Our approach combines optimal policy theory, statistical decision theory, and nonparametric Bayesian methods.
It explicitly takes into account economic theory, does not rely on restrictions of functional form or heterogeneity, and provides a transparent mapping from observations to policy choices. This mapping is optimal in finite samples.
Bayesian Regression with Nonparametric Heteroskedasticity
Andriy Norets
(Princeton University)
Semi-Parametric Bayesian Partially Identified Models Based on Support Function
Yuan Liao
(University of Maryland)
Anna Simoni
(CNRS and Université de Cergy-Pontoise)
[View Abstract]
[Download Preview] We provide a comprehensive semi-parametric study of Bayesian partially identified econometric models. While the existing literature on Bayesian partial identification has mostly focused on the structural parameter, our primary focus is on Bayesian credible sets (BCS's) of the unknown identified set and the posterior distribution of its support function. We construct a (two-sided) BCS based on the support function of the identified set. We prove the Bernstein-von Mises theorem for the posterior distribution of the support function. This powerful result in turn infers that, while the BCS and the frequentist confidence set for the partially identified parameter are asymptotically different, our constructed BCS for the identified set has an asymptotically correct frequentist coverage probability. Importantly, we illustrate that the constructed BCS for the identified set does not require a prior on the structural parameter. It can be computed efficiently for subset inference, especially when the target of interest is a sub-vector of the partially identified parameter, where projecting to a low-dimensional subset is often required. Hence, the proposed methods are useful in many applications.
The Bayesian partial identification literature has been assuming a known parametric likelihood function. However, econometric models usually only identify a set of moment inequalities, and therefore using an incorrect likelihood function may result in misleading inferences. In contrast, with a nonparametric prior on the unknown likelihood function, our proposed Bayesian procedure only requires a set of moment conditions, and can efficiently make inference about both the partially identified parameter and its identified set. This makes it widely applicable in general moment inequality models. Finally, the proposed method is illustrated in a financial asset pricing problem.
Discussants:
Jose Motiel Olea
(New York University)
Xiaoxia Shi
(University of Wisconsin-Madison)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Meeting Room 404
Econometric Society
Mechanism Design
(D8)
Presiding:
Amanda Friedenberg
(Arizona State University)
Optimal Reserve Prices in Anonymous Asymmetric Auctions
Sergei Izmalkov
(NES)
Valery Topinsky
(National Research University-HSE)
[View Abstract]
If a seller wants to maximize the expected revenue she should run the Myerson's optimal auction Myerson (1981). This auction is practically infeasible in asymmetric settings, as optimal allocation and payment functions are non-trivial functions of the distributions of buyers' valuations. In practice, sellers can use simple auction formats with the appropriately chosen reserve price. We characterize optimal reserve prices for the uniform price auction in an asymmetric independent private values setting with single-unit demand and with different assumptions about the seller's knowledge. We consider four information treatments ranging from the detailed knowledge of every bidder's distribution to complete ignorance, that is, knowledge of the average distribution corresponding to the belief that all bidder's valuations come from the same distribution. We show that finer knowledge of distribution types of buyer's valuations helps the seller only if she also knows how many buyers have specific distributions. Any other knowledge beyond that, e.g. being able to assign a specific distribution to a specific buyer, is useless. Generally, the optimal reserve price is higher when more detailed knowledge is available. We show that extra revenue stemming from the knowledge of distributions and aggregate numbers of types can be substantial.
On the Equivalence of Bayesian and Dominant Strategy Implementation: The Case of Correlated Types
Alexey Kushnir
(University of Zurich)
[View Abstract]
[Download Preview] We consider general social choice environments with private values and correlated types. Each agent's matrix of conditional probabilities satisfies the full rank condition. We show that for any Bayesian incentive compatible mechanism there exists a dominant strategy incentive compatible mechanism that delivers the same interim expected utilities to all agents and generates at least the same social surplus. In addition, if there is a social alternative that is inferior to the other alternatives for all agents the dominant strategy incentive compatible mechanism matches exactly the social surplus. These results extend to environments with interdependent values satisfying the single crossing condition.
Revenue Management without Commitment: Dynamic Pricing and Periodic Fire Sales
Fei Li
(University of North Carolina)
[View Abstract]
We consider a market with a profit-maximizing monopolist seller who has K identical goods to sell before a deadline. At each date, the seller posts a price and the quantity available but cannot commit to future offers. Over time, potential buyers with different reservation values enter the market. Buyers strategically time their purchases, trading off (1) a possibly lower price in the future with the risk of being rationed and (2) the current price without competition. We analyze equilibrium price paths and buyers' purchase behavior. We show that incentive compatible price paths decline smoothly over the time period between sales and jump up immediately after a transaction. In equilibrium, high-value buyers purchase immediately on arrival. Crucially, before the deadline, the seller may periodically liquidate part of his stock via a fire sale to secure a higher price in the future. Intuitively, these sales allow the seller to 'commit' to high prices going forward. The possibility of fire sales before the deadline implies that the allocation may be inefficient. The inefficiency arises from the scarce good being misallocated to low value buyers, rather than the withholding inefficiency that is normally seen with a monopolist seller.
Dynamic Mechanism Design for a Global Commons
Rodrigo Harrison
(Pontificia Universidad Católica de Chile)
Roger Lagunoff
(Georgetown University)
[View Abstract]
[Download Preview] This paper studies dynamic mechanisms for a global commons with environmental externalities. A leading example is carbon consumption. At each date, each country benets from both from the use and the aggregate conservation of an open access resource. Conservation is benecial because it reduces each country's environmental costs from consumption. The relative benets of consumption compared to conservation are summarized by a privately observed parameter | the country's resource type | which evolves stochastically each period. An optimal quota system is an international agreement over resource consumption that maximizes world welfare subject to the constraint that it be implementable by Perfect Bayesian equilibrium compliance and disclosure strategies. Not surprisingly, with complete information the optimal quota allocates more of the resource each period to those countries with high value of consumption (and low value for conservation). However, under incomplete information, we show that the optimal quota is invariant to the country's resource type at every point in time. In the case of CO2, this means that all ex ante identical countries receive the same emissions restrictions despite having dierently evolved environmental costs and resource needs. We refer to this property as extreme quota compression, and show that extreme compression is robust to the distributional process on private shocks.
Discussants:
Mallesh Pai
(University of Pennsylvania)
Vasiliki Skreta
(New York University)
Maher Said
(Washington University-St. Louis)
Luciano Irineu de Castro
(Northwestern University)
Jan 05, 2014 1:00 pm, Philadelphia Marriott, Meeting Room 405
Econometric Society
Topics in Taxation
(D6)
Presiding:
Aleh Tsyvinski
(Yale University)
A Duality Approach to Continuous-Time Contracting Problems with Limited Commitment
Yuzhe Zhang
(Texas A&M University)
[View Abstract]
[Download Preview] We propose a duality approach to solving contracting models with either one-sided or two-sided limited commitment in continuous time. We establish weak and strong duality theorems and provide a dynamic programming characterization of the dual problem. The dual problem gives a linear Hamilton-Jacobi-Bellman equation with a known state space subject to free-boundary conditions, making analysis much more tractable than the primal problem. We provide three explicitly solved examples of a consumption insurance problem. We characterize the optimal consumption allocation in terms of the marginal utility ratio. We find that neither autarky nor full risk sharing can be an optimal contract with either one-sided or two-sided limited commitment, unlike in discrete-time models. We also derive an explicit solution for the unique long-run stationary distribution of consumption relative to income.
Robust Optimal Taxation and Environmental Externalities
Ted Temzelides
(Rice University)
[View Abstract]
[Download Preview] We study optimal taxation in a dynamic stochastic general equilibrium model where agents are concerned about model uncertainty regarding climate change. An externality from Green House Gases adversely affects the economy's capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, and we adapt and use techniques from robust control theory in order to study effciency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality and we characterize dynamic optimal taxation. A small increase in the concern about model misspecification can cause a significant drop in optimal energy extraction. The optimal tax which restores the social optimal allocation is Pigouvian. Under more general assumptions, we develop a recursive method and solve the model computationally. We find that the introduction of uncertainty matters both qualitatively and quantitatively. We study optimal GDP growth in the presence and in the absence of concerns about robustness and find that these can lead to very different results.
Simple Labor Income Tax Systems with Endogenous Employment Contracts
Anqi Li
(University of Pennsylvania)
Yiqing Xing
(Stanford University)
[View Abstract]
[Download Preview] In this paper, we use an anonymous and time-invariant progressive labor income tax system to implement the constrained social optimum in a setting where workers privately experience both persistent ability shocks and transient productivity shocks. We propose a framework to capture the interplay between welfare policies and firms' contractual choices. In particular, we use the tax system to achieve two goals: directly, to redistribute the life-cycle income between workers of different ability types; indirectly, to induce firms to absorb transient productivity shocks through efficiency wage contracts.
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 105-A
International Association for Feminist Economics
Household Dynamics and Divisions
(B5)
Presiding:
Sakiko Fukuda-Parr
(New School)
Shifting Gender Power Dynamics: Agricultural Commercialisation and Its Impacts on Gender Relations in Yekemi
Afolabi M. Mojirayo
(University of Hull)
[View Abstract]
[Download Preview] Patriarchal forms of social organisation and normative gender relations exist in Nigeria. Men are regarded as dominant decision-makers and heads of the households. Agricultural activities are perceived as male activities, hence subject to male authority. Despite the fact that in many contexts women constitute the majority of agricultural workers and produce most of Africa's food for subsistence, they are regarded as farm assistants or subsistence farmers with little or no economic value or power. Little attention is paid to women's role within agricultural production and their economic contribution to national economies through commercial agriculture. There is little or no gender-segregated data on agricultural outputs. Societal job demarcations and cultural expectations are major traditional factors which maintain women's perceived status as subordinate. Research conducted in 2012 on gender relations in cash crop production in Yekemi village in Nigeria reveals the power dynamics associated with female cash crop farmers. Yekemi, though a traditional rural setting, has overcome some of the traditional gender segregation in agricultural labour. It was discovered that women in Yekemi empower themselves through their involvement in production and commercialisation of cash crops. This grants them social recognition and ability to exercise agency in decision-making within their households. This paper examines the impact of women's involvement in commercialisation of agriculture on gender relations, using processes of agricultural commercialisation and rural change as a lens through which to explore shifting gender power dynamics. It concludes that if participation in commercialisation could be responsible for economic independence and shifts in gender power dynamics beyond traditional norms, then African women should be motivated to get more involved in commercial agriculture.
Common Law Marriage and male/female convergence in labor supply and time use
Victoria Vernon
(Empire State College)
Shoshana Amyra Grossbard
(San Diego State University and University of Zaragoza)
[View Abstract]
[Download Preview] This paper investigates whether availability of common law marriage (CLM henceforth) in the U.S helps explain variation in the labor force participation and hours of work of men and women over time and across states. To the extent that CLM facilitated specialization and trade in households following traditional gender roles the abolition of CLM could help explain some of the gender convergence in labor supply and time in household production that has been observed in recent decades. In addition we also investigate the association between CLM and hours of household production. Common law marriage (CLM) is controversial and it has not been studied by social scientists, even though 11 states and the District of Columbia currently recognize this form of marriage. In those states, a cohabiting couple can be considered married if partners publicly refer to each other as spouses. Some of our findings support a well-known argument based on specialization combined with traditional gender roles. In addition, the finding of positive effects of CLM on the labor supply of single young menâ€â€especially those without a college education--is compatible with a scenario of men preparing themselves to pay the price of marriage or cohabitation. When CLM was abolished it may have created some cases of “discouraged husbands†who were willing to work towards a relatively cheap CLM marriage but not towards a regular marriage. The abolition of CLM in three states may thus have contributed to the convergence in labor supply of men and women, especially among respondents without college education, whites, and Hispanics for whom CLM was more likely to reinforce traditional gender gaps in labor supply. Our marriage-market based analysis also applies to the divergent findings we obtain for black women (who work more in the labor force when CLM is available) to the extent that black women are less likely to get paid for being household producers than is the case with white and Hispanic women.
Land Rights and Domestic Violence against Women in Rural China
Song Yueping
(Renmin University)
Xiao-Yuan Dong
(University of Winnipeg)
Tao Ye
(Renmin University)
[View Abstract]
[Download Preview] In the late 1970s, land user rights were allocated to men and women on an equal basis following the dismantling of the commune system in rural China. Since then a series of reform measures have been introduced to increase the security of land user rights. An unintended outcome of the land rights reform is that a growing number of rural women relative to men have either never had claim to land user rights or lost the claim and the incidence of landlessness is particularly prevalent among those women who were married, divorced or lost husbands after the initial land allocation. In this paper we examine how the claim to land user rights affects women's status at home, measured by the risk for experiencing domestic violence, using data from the Third Survey of Chinese Women's Status conducted in 2010. Our analysis focuses on the regions where agricultural production remains a main source of household incomes. The analysis indicates that 11 percent of the women in the sample had been beaten by husbands; 20 percent had encountered verbal abuse; and 6 percent had been forced to have sex with husband. Of the women in the sample, 22 percent did not have land claims in their names and two thirds of these women either never had a claim to land or lost the claim after changing their marital status. The regression estimates show that having no claim to land user rights places women at markedly higher risk for being beaten or verbally abused by their husbands.
Wellbeing Transformations of the Applai Women and Their Households in Northern Sagada, Philippines through Time Use Case Studies
Karryl Mae Ngina
(Benguet State University)
[View Abstract]
The Applai women's households have been undergoing transformations brought about by changes in economic activities, socio-cultural dynamics, land use patterns and climate. Using time use case studies, key informant interviews and focus group discussions wellbeing transformations were explored via the modified millennium ecosystems framework of wellbeing which were conducted in the Northern Part of Sagada, Mountain Province, Philippines. Wellbeing categories included health, material/livelihood, security/ safety issues, environment, social relationships and freedom of choice.
Traditionally sika, an indigenous economic indicator which means economic and psychological fullness of the status of individual, families and the community has always been the indicator of wellbeing of the Applai people with only subsistence agriculture sustaining them governed by their agricultural calendar that dictates their socio-cultural activities. However, with the advent of migration and globalization, additional livelihood activities such as mining, tourism, business and practice of professions are changing the wellbeing of Applai women and their households. Sika is diminishing but then the socio-cultural practices are helping them redefine their wellbeing in the midst of changes.
Gender Roles in Socioeconomic Development in Nepal: Micro and Macro Linkages
Bina Pradhan
(Federation of Business and Professional Women, Nepal)
[View Abstract]
This study examines the changing roles of women and men, and their contributions to the household economy for sustenance and family welfare. It investigates on whether and how such contributions translate into effective socioeconomic and human development gains at the macro level development. It is based on Nepal's experiences with socioeconomic development in the conflict and post conflict context. The attempt is to examine the links between the micro level efforts made at the household level (measured in hours of labour input in HH care and market activities, educational attainment, and income from remittance) and macro level outcomes of socioeconomic development (measured by levels of poverty, and human development) inspired primarily by our current knowledge of gender as a variable determining socioeconomic development outcomes. The conclusion show the important links between women's work performed at HH level and macro level socioeconomic development and suggests some rethinking of macro policies (theories) and their underlying assumptions. The research is carried out using the existing quantitative survey data, Nepal Labor Force Surveys (NLFS) of 1999 and 2007/8, conflict-related and human development data, supplemented by collection of qualitative data at the Village Development Committee (VDC) level.
Discussants:
Shoshana Amyra Grossbard
(San Diego State University and University of Zaragoza)
Sakiko Fukuda-Parr
(New School)
Radhika Balakrishnan
(Rutgers University)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 104-A
Labor & Employment Relations Association
Do Unions (Still) Matter?
(J5)
Presiding:
Matthew Bodah
(University of Rhode Island)
25 Years of Right to Work in Idaho
Charles Scott Benson, Jr.
(Idaho State University)
[View Abstract]
[Download Preview] After the initial wave of states adopting Right To Work Laws in the 1940 s and 1950 s interest waned. Idaho became the 20th state to adopt Right to Work in the mid 1980 s. There are now 24 states who have adopted Right to Work laws, the most recent two occurring in 2012. It seems interest in right to work is increasing as more state legislatures navigate the way toward prosperity in what has largely been a jobless recovery. There are ample anecdotal stories in support of or opposition to right to work. The rhetoric is fueled by passionate sentiments but little rigorous study.
This paper differs from typical studies by not comparing right to work states to non-right to work states. Right to work states are heterogeneous, so suggesting there are sufficient similarities within this group to draw a comparison to non-right to work states is unreasonable. Rather, the paper focuses solely on Idaho. Further, with now 25 years of data available since the passage of right to work in Idaho, the paper takes a historical approach analyzing wages and socio-economic trends. Not all of the changes in Idaho are solely the response to the enactment of right to work. It is still important to determine if the alleged improved business climate would create the promised jobs. Further, the issue of the pattern of relative wages in Idaho is important.
While the study focuses on Idaho, the example provides lessons on the benefits and costs of right to work. States now contemplating becoming the next state to adopt right to work legislation may learn something from Idaho s experiences.
Recent Longitudinal Evidence of Size and Union Threat Effects across Genders
Phanindra V. Wunnava
(Middlebury College and IZA)
[View Abstract]
[Download Preview] Abstract: Based on data from the National Longitudinal Surveys of Youth covering years 2000 through 2008, it is evident that both male and female workers in medium/larger establishments receive not only higher wages but also have a higher probability of participating in benefit programs than those in smaller establishments. This reinforces the well-documented size effect. Further, the firm size wage effects are much larger for men than women. The union wage effect decreases with establishment size for both genders. This supports the argument that large nonunion firms pay higher wages to discourage the entrance of unions (i.e., the threat effect argument). In addition, the union wage premium is higher for males for small and medium firm sizes relative to females. This implies that unions in the large establishments may have a role to play in achieving a narrowing of the gender union wage gap. In other words, the threat of unionization could reduce union wage premiums for both genders as firm size increases. Given the presence of noticeable gender differences in estimated union effects on the different components of the compensation structure, unions should not treat both genders similarly with respect to wages and benefits.
Unionizing Publicly Traded Companies via the Stock Market
Bryan Engelhardt
(College of the Holy Cross)
Robert Baumann
(College of the Holy Cross)
David L. Fuller
(Concordia University)
[View Abstract]
Can large publicly traded companies be unionized? Unionizing them, such as Walmart s 2.2 million employees, would stem the decline of unions. To do so, we propose how a financial strategy can provide an important incentive for unionization. Specifically, unions have the best inside information about the likelihood of a firm being unionized. Given unionization significantly reduces a firm's market capitalization, the inside information could be sold and the profits used to fund unionization drives and potentially compensate entering union members. As a result, the strategy is self-reinforcing and provides important incentives to union leaders and workers to unionize. Given the number of unionized firms per year and a reasonable estimate on the value of such information, we find the AFL-CIO, its members, and other unions can immediately profit millions of dollars per year without any change in their organizing behavior. If the number of organizing drives or likelihood of unionization increases as a result of the new incentives, then the payoffs would increase substantially.
Discussants:
Dan Montgomery
(American Federation of Teachers)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 102-A
Labor & Employment Relations Association
Labor Market Policy and the Workplace
(J5)
Presiding:
Ellen Mutari
(Richard Stockton College of New Jersey)
Labor Market Consequences of Job Security and Labor Laws in the Era of Flexicurity: Implications for Turkey and USA
Meltem Ince Yenilmez
(Yasar University)
[View Abstract]
Labor Market Consequences of Job Security and Labor Laws in the Era of Flexicurity: Implications for Turkey and USA
Impact of Firing Restrictions on Firm Performance: Evidence from Indonesia
Peter Brummund
(University of Alabama)
[View Abstract]
This paper investigates the impact of an increase in the cost of firing employees on the performance of manufacturing establishments in Indonesia. This analysis uses semi-parametric difference-in-differences methods to measure the heterogenous impact of the policy change on the output, employment, wages, and input mix of firms. The new law applied to all formal sector manufacturing establishments in Indonesia, and increased both the size of severance payouts the firms were required to pay and the number of occasions for which they were required to do so. Hence, in order to identify treatment and control groups, I argue the government is unable to enforce the law equally across all firms. I use the firms that are most likely to comply with the new law as the treatment group, and the firms that less likely to comply as the control group. I use two complementary approaches to define the treatment and control groups. The first approach assumes firms located in the same district as the provincial capital are more likely to comply, and the second approach assumes larger firms are more likely comply with the new laws. I find that firms respond to the policy and the resulting increase in total labor costs as theory would predict, decreasing output and employment, and increasing their capital-labor ratio.
Workplace Interventions under the Canada Labour Code and Disabling Injuries
Craig Eschuk
(Employment and Social Development, Canada)
Jiong Tu
(Employment and Social Development, Canada)
Eyob Fissuh
(Employment and Social Development, Canada)
[View Abstract]
Using Canadian administrative data, the study examines how inspections and other worksite interventions by government occupational health and safety officers affect workplace injuries. Interventions include those selected in response to a complaint or a reported hazardous occurrence (reactive ones) and otherwise (proactive ones). The data allows for measurement of the number of hours spent by health and safety officers at a worksite for a given visit or set of related visits (a single intervention). The administrative data covers industries under the jurisdiction of the Canadian federal government, particularly, transportation, telecommunications, and courier and postal services and starts in 1982. The study uses panel data regression techniques that take account of workplace specific effects.
When Rules are Made to be Broken
Zev J. Eigen
(Northwestern University)
Nicholas Menillo
(Cornell University)
David S. Sherwyn
(Cornell University)
[View Abstract]
When do judges follow rules expected to produce unjust results, and when do they intentionally misapply such rules to avoid injustice? It is easy to observe and explain judicial rule-breaking when national dignity and morality are at stake (such as with abolitionist judges charged with applying federal fugitive slave laws) or when lives hang in the balance (such as applications of criminal sentencing rules). However, less is known about judicial rule-breaking in quotidian civil litigation, in spite of the sizeable impact on litigants and potential litigants, as well as the frequency with which judges face the decision to apply rules that must be ignored to produce just results at the expense of appearing incompetent and risking the creation of poor quality precedent. This Article is the first to theoretically assess and empirically analyze judicial rule-breaking with respect to two judge-made rules regarding sexual harassment. Judges tend to follow one rule where the impact on those affected by the rule is low, but tend to ignore another rule where the expected impact is great. The likelihood of rule-breaking increases when judges perceive that pleas to legislatively or judicially correct the rule would go unanswered.
Discussants:
Francoise Carre
(University of Massachusetts-Boston)
Ellen Mutari
(Richard Stockton College of New Jersey)
Jan 05, 2014 1:00 pm, Pennsylvania Convention Center, 104-B
Labor & Employment Relations Association
What Impact Do Managers Really Have?
(J5)
Presiding:
Lonnie Golden
(Pennsylvania State University-Abington)
Do Agents Game Their Agents Behavior? Evidence from Sales Managers
Alan Benson
(University of Minnesota-Twin Cities)
[View Abstract]
[Download Preview] This paper explores intermediary agency problems, specifically the use and misuse of authority and incentives in organizational hierarchies. Through a principal-supervisor-agent model inspired by sales settings, I propose organizations delegate authority over salespeople to front-line sales mangers because they can decompose performance measures into ability and luck. The model yields the result that managers on the cusp of a quota have a unique personal incentive to retain and adjust quotas for poor performing subordinates, permitting me to distinguish managers' interests from those of the firm. I parametrically estimate the model using detailed person-transaction-level microdata from 244 firms that subscribe to a "cloud"-based service for automating transaction processing and compensation. I estimate 13-15% of quota adjustments and retentions among poor performers are explained by the managers' unique personal interest in meeting a quota. I use agency theory to discuss firms' mitigation practices.
Women In Charge: The Impact of Female Managers on Gender Inequality
Mabel Lana Abraham
(Massachusetts Institute of Technology)
[View Abstract]
Existing research examining the intersection of gender inequality and management has largely focused on women's access to managerial positions. These studies have focused on identifying patterns of gender inequality in organizational advancement, often concluding that there exist "glass ceilings" barring women from obtaining high-status, or management positions. As women continue to gain access to these organizational roles, however, it becomes increasingly important to understand the effects that women in management have on both organization- and individual-level outcomes. Specifically, do women in positions of organizational power reduce gender inequality among their subordinates? To the extent that female managers do ameliorate gender inequality, we have one potential avenue for attaining greater equality for men and women in the workplace - namely increasing the presence of women among organizational management teams. While a few recent studies have attempted to explore this relationship, none have directly examined actual manager-subordinate relationships in a setting where managers have the necessary power to impact employee outcomes. As a result, findings from these studies have been mixed. Furthermore, the focus of existing studies has largely been limited to the impact of female managers on wage inequality. Using unique panel data from a large retail financial services firm, I construct manager-subordinate reporting relationships to better understand the broader implications of female managers for workplace gender inequality. This direct examination in a setting where manager power over relevant outcomes is explicit provides new evidence that female managers do not reduce gender inequality in terms of wages, job segregation, or use of flexible work arrangements.
That First Manager's Influence on Work Ethic
Gayle Porter
(Rutgers University)
[View Abstract]
Based on focus groups and interviews in both Ireland and the US, comments from managers across a variety of levels and from many companies indicate that employees' work ethic may have roots in family and school training but, also, can be influenced by a manager. Additionally, managers in these samples often suggested that the first manager has the greatest opportunity for influence. This is discussed in relations to educational research on "teachable moments," as well as organizational topics of newcomer adjustment and organizational commitment.
Discussants:
Peter Cappelli
(University of Pennsylvania)
Matthew Bidwell
(University of Pennsylvania)
Jan 05, 2014 1:00 pm, Loews Philadelphia Hotel, Tubman
Union for Radical Political Economists
Eurozone Crisis
(E3)
Presiding:
Gary Dymski
(Leeds University)
Eurozone Crisis: A Critical Perspective on the Impact of the Proposed Banking Union and the European Central Bank's Unconventional Policies on Economic Recovery in the Eurozone
Ismail Ertürk
(University of Manchester)
[View Abstract]
The emphasis of policy response to the eurozone crisis has shifted from the creation of a fiscal union to the creation of a banking union that will be led by the European Central Bank. European Central Bank has gained a central policy role in solving the eurozone crisis ever since December 2011 when ECB started using the trillion Euros policy tool Long Term Refinancing Operations. In this paper I will argue that ECB's unconventional policies prolong the structural economic problems in the eurozone and therefore sow the seeds of new fragilities where the financial infrastructure of the eurozone is becoming an obstacle to economic reforms and competitiveness in the eurozone. I will use insight and evidence from the financialization and bank business model literatures to discuss the distributive and allocative inefficiencies that ECB unconventional policies cause in the eurozone.
Central Bank Interventions in the Present Crisis
Esther Jeffers
(Université Paris 8)
[View Abstract]
The global crisis that started in 2007 in the United States before spreading to the rest of the world has highlighted the importance of central bank intervention. Never before has such a focus been given to central banking. However the issues involved in central banking are numerous. The purpose of this article is to examine how central banking intervention has evolved during the present crisis from a point of view of the Lender of last resort function (LoLR). It focuses (I) on the LoLR of the central bank from a theoretical point of view, (II) tries to understand how the crisis has been managed both by the FED and the ECB, (III) what difficulties are encountered, and what we have learned concerning actions by the lender of last resort in a globalized world.
In Search of Sustainable Paths for the Eurozone
Jacques Mazier
(Université Paris 13)
[View Abstract]
[Download Preview] The diversity in the Eurozone has costs and advantages respectively for countries whether they are confronted with an overvalued or undervalued euro. Rough estimations of these costs and benefits help to assess the adjustments that could lead to a sustainable Eurozone. A purely financial type of federalism, set up under the pressure of financial markets, risks falling short of the objective. A budgetary federalism, if it is based on long-term investment programs with an enlarged political support, is more likely to meet the objective. A scheme of multispeed Europe could constitute a fallback solution if the political support for a budgetary federalism is not attained.
The Role of Ordoliberalism in the German Eurozone Crisis Management
Brigitte Young
(Universität Münster)
[View Abstract]
The paper provides an explanation for Germany's strict adherence to austerity measures to resolve the sovereign debt crisis against strong opposition from many European governments and large demonstrations from those affected in indebted countries. In contrast to existing explanations (fear of Weimar inflation, coordinated market economy, asymmetric power relations between creditor and debtor nations), the article argues that the German orthodox belief in a rule-based legalistic ordoliberal doctrine is an important veto player and agenda setter to prevent alternative ideas (such as Keynesian) from challenging the austerity discourse. This will be demonstrated by analyzing the German Economist Streit (Clash) between ordoliberal economists (such as Hans-Werner Sinn and 200 supporters) and Keynesian economists which was played out in newspapers in July 2012 in response to the introduction of a "banking union" across the Eurozone. Ordoliberals reject government intervention to shore up indebted countries, since this would violate the mandate of the ECB. to ensure price stability. In the present Euro crisis resolution scenario, the influence of ordoliberalism is most evident in the German position on price stability and austerity policies. Ordoliberals hold the trump of veto power against Keynesians who try to change the status quo and demand "more Europe". The question is however, at what social and political costs?
The Banking Union and the Eurozone Crisis
Dominique Plihon
(Université Paris 13)
[View Abstract]
[Download Preview] To put an end to the crisis of the euro zone European authorities have set up a banking union alongside the European fiscal pact. The goal is to no longer make taxpayers pay for bank bailouts and to consolidate the European banking sector. This presentation aims to analyze the logic behind the banking union, and to demonstrate that it is insufficient given the stakes of the current period.
Discussants:
Gary Dymski
(Leeds University)
Malcolm Sawyer
(Leeds University)