NOTE: Everyone must register for the meeting, including speakers.
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
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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
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Jan 02, 2015 5:30 pm, Sheraton Boston, Constitution Ballroom B
Econometric Society
Presidential Address
Manuel Arellano
(CEMFI)
On the Econometrics of Household Income and Consumption Dynamics
Jan 02, 2015 6:30 pm, Boston Marriott Copley, Grand Ballroom--Salon E
Association for Social Economics
Opening Plenary Session and Reception
(A1, B5) (Panel Discussion)
Panel Moderator:
Ellen Mutari
(Richard Stockton College of New Jersey)
Guy Standing
(University of London)
A Precariat Charter: Building a New Distribution System
Jan 03, 2015 8:00 am, Sheraton Boston, Gardner Room
African Finance & Economics Association
Trade and Africa's Structural Transformation
(O1, F1)
Presiding:
Leonce Ndikumana
(University of Massachusetts-Amherst)
Can Export Promotion Agencies Stem the Deindustrialisation in Sub-Saharan Africa?
Malokele Nanivazo
(UN-WIDER)
Isaac Marcelin
(University of Maryland-Eastern Shore)
[View Abstract]
We investigate how Export Promotion Agencies (EPAs) affect manufacturing outcomes in Sub-Saharan Africa using difference-in-differences methodology. Results indicate that three and seven years following EPA’s adoption, industry value added to GDP ratio increased by 3.24% and 14.64%, respectively. The joint effects of EPAs and Export Processing Zones (EPZs) are a reduction in customs and trade regulations. EPA countries’ manufacturing firms post lower level of collaterals for bank loans. Private credit is significantly higher in EPA countries. EPA facilitated credit enables industrial firms’ access to trade credit and working capital financing. Results are confirmed by placebo and average treatment effects tests.
Is Regional Integration Beneficial For Agricultural Productivity in Sub-Saharan Africa? The Case of CEMAC and WAEMU
Juliet Elu
(Morehouse College)
Gregory Price
(Langston University)
[View Abstract]
[Download Preview] This paper examines the effects of regional euro-currency integration on agricultural productivity in Sub-Saharan Africa. We utilize a propensity score matching estimator to
estimate the treatment effect of Sub-Saharan African countries joining the CFA Franc Zone
on agricultural value-added. Our parameter estimates reveal that CFA Franc Zone membership has positive effects on agricultural value-added. This suggests that as an institutional arrangement, regional currency union membership can improve agricultural productivity in Sub-Saharan Africa, which is an important component of achieving economic growth that is effective in reducing poverty.
What Can Trade Tell Us about Economic Transformation? Composition of Trade and Structural Transformation in African Countries
Mina Baliamoune-Lutz
(University of North Florida)
Abdoul Mijiyawa
(World Bank)
[View Abstract]
In its inaugural flagship report, the 2014 African Transformation Report, the African Center for Economic Transformation (ACET) argues that while the recent high economic growth in Africa is welcome, it will not by itself sustain development on the continent and that in order to ensure that growth is sustainable and continues to improve the lives of most people, African countries need to vigorously promote economic transformation. Page (2012) also notes that Africa must industrialize otherwise the continent cannot sustain high growth rates that it experienced recently. Hausmann et al. (2007), Hidalgo (2009), and Hidalgo and Hausmann (2009), among others, have emphasized the importance of structural transformation in economic growth and development. These authors argue that different products have different consequences for development. In this paper, we use 1990-2010 disaggregated import and export data for 21 African countries that were studied in ACET’s recent work on economic transformation in Africa and develop a new trade intensity index (TII) which is then used in empirical estimations to investigate the role of trade in specific subsectors in explaining structural transformation. More specifically, we use the TII as our variable of primary focus to shed light on these two questions: (1) Can the type (capital goods versus other goods) of major imports predict structural transformation? (2) Can the type of exports (manufacturing or services versus primary commodities) predict structural transformation? Our indicator of structural transformation is ACET’s African Transformation Index (see the 2014 African Transformation Report). We perform IV and Arellano-Bond dynamic panel GMM estimations and, in addition to TII on the right-hand-side, we control for a number of relevant variables, including institutional quality, natural resource dependence, ethnic tensions, regime change, human capital, openness to trade, financial development, inward foreign direct investment, and per-capita income. The empirical results suggest that the composition of imports matters more than the composition of exports for explaining structural transformation in natural-resource-dependent countries, while the composition of exports matters more in the case of countries that are relatively natural-resource scarce. In addition, the impact of trade is found to be influenced by institutional quality and income. We discuss the lessons we can learn from the role trade and trade policies, as well as the institutional arrangements influencing them, in shaping the pathways to economic transformation in Africa. In particular, we contrast trade and institutional arrangement patterns in two SSA countries (Mauritius and South Africa) that have high scores on ACET’s African Transformation Index to the patterns in a group of SSA countries that have very low ATI scores. Our study aims to complement the literature by providing further evidence on the drivers of structural transformation in the African context. More specifically, our paper will make three main contributions. First, it will be the first to utilize two new indicators, the African Transformation Index (developed by ACET) and a new trade intensity index to investigate the drivers of structural transformation in Africa. Second, our paper is a cross-sectional analysis, which allows identifying the drivers of structural transformation in the average African country. In other words, our study allows identifying factors that on average, contribute to structural transformation in Africa. Third, in addition to our variables of interest, our approach allows controlling for the effects of other factors, including policy-related factors on structural transformation in Africa. Indeed, beside trade-related variables –i.e., composition of exports and imports- which are our variables of interest, we also control for the effects of policy and institutional variables that have the potential to contribute to structural transformation in Africa
Some Determinants of Inter-Country Variations in the Growth Performance of African Countries
Steve Onyeiwu
(Allegheny College)
Mackensie Bluedorn
(Allegheny College)
[View Abstract]
African countries have achieved impressive growth rates within the past decade. Amid this performance, however, are inter-country variations in the region’s economic growth, with some countries still grappling with lackluster growth rates. How might Africa’s growth performance be explained, and why are some countries still lagging behind?
This paper uses fixed effects panel regressions, embedded within an endogenous growth model, to explore some of the determinants of growth in Africa. Using a panel dataset from 31 Sub-Saharan African countries covering the period 2000-2012, the paper investigates the role of innovation and institutional factors in Africa’s economic growth. Results from the empirical analysis suggest that institutional factors are just as important for growth in Africa as stylized factors such as physical capital and openness of the economy. Specifically, the paper confirms the notion that political stability is important for economic growth in the region. The empirical analysis also reveals that the ability to absorb technological knowledge is more important for economic growth in Africa than the ability to innovate.
Linking Gender Diversity, Economic Performance and Sustainability within the Microfinance Industry
Darline Augustine
(Rochester Institute of Technology)
Christopher O. Wheat
(Rutgers University)
Danielle T. Smith
(Rochester Institute of Technology)
Charles A. Malgwi
(Bentley University)
[View Abstract]
[Download Preview] This study examines the effects of gender diversity on economic performance within the microfinance industry. We use ROA to capture financial performance and OpEx to capture operating efficiency. We measure gender diversity at two hierarchical levels: gender diversity within the Board represents the decision-making level; gender composition within the rank of loan officers embodies the operational level. Approximately 1700 observations suggest that gender diversity enhances economic performance, especially in Africa. These findings advocate that policy makers and practitioners place a stronger emphasis on training and developing women for various hierarchical positions in microfinance firms.
Towards Economic Growth and Development in Sub-Saharan Africa: Does That Mar the Environment?
Solomon Aboagye
(University of Ghana)
Paul Adjei Kwakwa
(Presbyterian University College Ghana)
[View Abstract]
[Download Preview] Abstract
Ensuring environmental sustainability amidst the quest to stimulate growth in Sub Saharan Africa (SSA) remains an issue of great concern. In spite of this, the evidence for SSA is sparse, both at the theoretical and empirical level as literature has not adequately interrogated the effects of economic growth process on the sustainability of the environment in SSA. Using a panel dataset from 1985-2010 covering 35 Sub Saharan Africa (SSA) countries this study examined the environmental impact of economic growth and growth-enhancing factors such as trade openness, Foreign Direct Investment (FDI) and industrialization under the Environmental Kuznet Curve (EKC) framework. The environmental variables employed are CO2 emissions, Adjusted Net Savings (ANS) and energy consumption per capita. Employing the system Generalized Method of Moment, trade openness was found to reduce pollution/degradation through reduced CO2 emissions and energy consumption per capita while at the same time reducing environment sustainability of SSA through reduced ANS. Industrialization was also found to unambiguously harm the environment while rapid urbanization is revealed to increase pollution/degradation through increased CO2 emissions and energy consumption. FDI is the only component found to be accompanied by a fall in pollution/environmental degradation through reduced CO2 emissions and energy consumption and a rise in environmental sustainability through increased ANS. Finally, while the Environmental Kuznet Curve (EKC) is confirmed for ANS and energy consumption, it is not established for CO2 emissions.
Keywords: Environmental degradation, Economic growth, Sub-Saharan Africa, System Generalized Method of Moment.
JEL Classification: F1, O4, Q4, Q5
Discussants:
Danielle T. Smith
(Rochester Institute of Technology)
Oluyemisi Kuku-Shittu
(NSSP-IFPRI)
Inoussa Boubacar
(Clarion University)
Samuel Amponsah
(Tokyo International University)
Malokele Nanivazo
(UN-WIDER)
Jan 03, 2015 8:00 am, Westin Copley, St. George D
Agricultural & Applied Economics Association
Risk Mitigation Tools in Agriculture: Crop Insurance and Contract Farming
(Q1)
Presiding:
David Zilberman
(University of California-Berkeley)
Using Prospect Theory to Explain Anomalous Crop Insurance Decisions
Bruce Babcock
(Iowa State University)
[View Abstract]
[Download Preview] Farmers’ decisions about how much crop insurance to buy are not generally consistent with either expected profit or utility maximization. They do not pick coverage levels that maximize expected subsidy nor do they demand full insurance coverage. In addition, the absolute size of farmer-paid premium seems to influence the type of insurance product farmers buy. Understanding demand drivers for crop insurance has taken on new importance because of the expanded role Congress has designated for crop insurance as a key part of Federal farm policy. By modeling financial outcomes as gains and losses, prospect theory offers an appropriate framework to better understand farmers’ purchase decisions. Because insured events are best modeled as continuous random variables, cumulative prospect theory is used to find a theoretical foundation that can explain farmers’ anomalous decisions. The role of the reference point that defines outcomes as either a gain or a loss, the degree of loss aversion, and the probability weighting function are explored under typical distributions of price, yield, and revenue for a corn producer. Choice of reference points that are consistent with farmers using crop insurance to manage risk are not consistent with observed purchase decisions. Choosing the reference point to make crop insurance akin to a stand alone investment generates optimal choices that are consistent with observed decisions and with the way that insurance agents sell the product.
The Effects of Crop Insurance on Specialty Crop Acreage: A Focus on CAT using Unique Individual Policy Holder Data
Daniel A. Sumner
(University of California-Davis)
Hyunok Lee
(University of California-Davis)
Jisang Yu
(University of California-Davis)
[View Abstract]
[Download Preview] Total liabilities for crop insurance policies covering specialty crops are more than $13 billion and Congress has mandated coverage of additional crops in additional regions, so that the subsidies and the influence of such subsidies are growing. We develop conceptual models to consider how a particular type of crop insurance important for specialty crops specialty crop acreage. We formalize implications of crop insurance subsidy on crop acreage response, separate from demand for insurance, to help assess the causal impact of crop insurance on crop choice. We derive acreage response to insurance from model that recognizes differences across farms and locations in alternative crops and risk of crop loss. Catastrophic Risk Protection (CAT) insurance provides at zero farmer premiums relatively small indemnities per dollar of revenue based on yield losses over 50 percent. CAT is the most widely adopted insurance plan for specialty crops, especially in irrigated areas. Since the full premium for CAT is paid by USDA, and is thus a subsidy to producers (and insurers, if the supply of insurance is upward sloping), we use CAT premium subsidies across crops and counties to identify supply response to insurance premium subsidies. In our estimation strategy, we make use of individual policy-holder information from a unique data set.
The Pricing of Community Supported Agriculture (CSA) Contracts: Evidence from New England
Thomas W. Sproul
(University of Rhode Island)
Jaclyn D. Kropp
(University of Florida)
[View Abstract]
This study develops a model of the risk-management features of CSA and CSF-style production contracts, and predicts when unfavorable substitutions will be most severe. Using surveys of local food and fisheries in Florida and in New England, we apply the model to identify cases where efficiency and adoption could be improved by updating contracts in line with local consumer preferences. The contribution of this paper to the
literature is that we discuss a contractual relationship in the context of community supported agriculture and we extend the idea to fishery contexts as well.
How Does Crop Insurance Purchase Affect Marketing Contracts Participation
Xiaoxue Du
(University of California-Berkeley)
Jennifer Ifft
(Cornell University)
Liang Lu
(University of California-Berkeley)
David Zilberman
(University of California-Berkeley)
[View Abstract]
[Download Preview] Agricultural contracts and crop insurance are important ways for farmers to mitigate risks in
modern U.S. agriculture. In this paper, we investigate the effect of crop insurance enrollment on
farmers’ participation of marketing contracts. Following Ligon (2003), we setup a mechanism
design framework to demonstrate an integrator’s contract design problem where farmers are assumed
to be expected utility maximizing agents. We use a Babcock (2012) style specification to
depict farmers’ optimal choice of insurance coverage and the incentive compatibility and participation
constraints for the integrator. Our model shows that, under certain assumptions, a lower crop
insurance premium rate could induce higher compensation from integrators. Moreover, crop insurance
subsidy allows for higher marketing contract participation. The rationale is that when farmers
purchase crop insurance, they rely less on contracts to mitigate risk and become more independent
from integrators. Therefore, integrators may revise their contract offers so that the they are more
attractive and incentive compatible. This result indicates that the use of one risk management tool
may not crowd out the use of the other.
For the empirical estimation, we use various data sources and 2SLS to see how crop insurance
enrollment affects farmers’ participation in marketing contracts. We use pre-growing season
weather variables as IV for insurance enrollment. The second stage result indicates that farms with
higher possibility of insurance enrollment will have about 40 percent higher chance of participation
in marketing contracts as well. Moreover, we show that the subsidy effect of crop insurance is
heterogeneous among different crops.
Jan 03, 2015 8:00 am, Sheraton Boston, Independence Ballroom
American Economic Association
A Discussion of Thomas Piketty's "Capital in the 21st Century"
(D3)
Presiding:
N. Gregory Mankiw
(Harvard University)
Capital and Wealth in the 21st Century
David N. Weil
(Brown University)
[Download Preview] TBD
Capital Taxation in the 21st Century
Alan J. Auerbach
(University of California-Berkeley)
Kevin Hassett
(American Enterprise Institute)
[Download Preview] TBD
Yes, r>g. So what?
N. Gregory Mankiw
(Harvard University)
[View Abstract]
[Download Preview] Piketty argues that r>g is the “the central contradiction of capitalism” and that it will lead to an “endless inegalitarian spiral.” As a result, he argues for a new global tax on capital. In this brief essay, I explain why I am not persuaded by either his prediction or his prescription.
About Capital in the 21st century
Thomas Piketty
(Paris School of Economics)
[Download Preview] TBD
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 202
American Economic Association
Analyzing the Dynamics of Social Networks in Developing Economies - Methods of Linking Theory to Data
(O1, O3)
Presiding:
Veronika K. Bertram-Huemmer
(DIW Berlin)
Modeling and Measuring Information Asymmetry in the Context of Senegalese Migrants’ Remittances
Marlon Seror
(Paris School of Economics)
[View Abstract]
[Download Preview] Much optimism has been invested in the developmental role of migrants’ remittances. Altruism and frequent interactions should indeed make intra–household resource allocation efficient. But geographical dispersion may breed information asymmetry and jeopardize efficiency. We develop a model of transfers from the
Senegalese diaspora based on socio–anthropological evidence of remittances earmarked by migrants for investments or expenditures by their households of origin, especially assets and housing. The model allows for information asymmetry and monitoring by the migrant. It shows that under some conditions it may be optimal for recipients to behave strategically and we may observe systematic discrepancies between recipients’ and senders’ reports of the goods to be financed by transfers. Novel matched data enable us to test and find support for the model’s predictions.
Networks and Manufacturing Firms in Africa: Initial Results from a Randomized Experiment
Marcel Fafchamps
(Stanford University)
Simon Quinn
(University of Oxford)
[View Abstract]
[Download Preview] We run a controlled experiment to link managers of manufacturing firms in three African countries. The experiment features exogenous link formation, exogenous seeding of information and exogenous assignment to treatment and placebo. We study the impact of the experiment on firm business practices outside of the lab. We find that the experiment successfully created new variation in social networks. When we designed the experiment we specified two primary regression specifications to measure peer diffusion. We estimate both of these specifications on a range of outcomes and we find only limited evidence of diffusion. We find suggestive evidence of positive diffusion in activities that may be characterized as relatively low risk and low cost (such as having a bank account or having an overdraft facility). We also find suggestive evidence of negative diffusion in activities that present higher risks and higher costs (such as exporting and introducing new products).
Perceived Neediness and Risk Sharing
Friederike Lenel
(DIW Berlin)
[View Abstract]
Mutual support in village economies is often analyzed in the light of risk sharing. One particular focus is the formation and the sustainability of risk sharing. Yet, the complex nature of support relationships makes it challenging to test the theoretical predictions of risk sharing formation empirically. In this paper, I focus on the role of expected neediness for the sustainability of risk sharing, and investigate the potential of analyzing risk sharing with a network model approach. Based on a model of favor exchange in networks (Jackson et al., 2012), I predict that under strategic link formation a strong positive relationship should be observed between the likelihood of neediness and mutual support. The predictions are tested using data on support networks in a fishing village on the Philippines. Determinants for mutual support are assessed with the help of dyadic regression models and exponential random graph techniques. I find that there is substantial difference between reciprocated and unreciprocated support. The estimated role of neediness points into the direction the risk sharing model predicts: households are less likely to engage in mutual support arrangements when the predicted likelihood to become needy differs substantially between the partners. Data limitations make the specification challenging. By addressing some of the key issues of estimating link formation models empirically, this paper contributes to the emerging literature on linking network theory and empirics.
Mis-measurement and Social Networks: Evidence from Survey and Census data from Ethiopia
Pramila Krishnan
(University of Cambridge)
Irina Shaorshadze
(University of Cambridge)
[View Abstract]
[Download Preview] We use data on informal networks of relatives and people relied upon for help obtained from both a household survey and a separate census in a single village in Ethiopia to examine the robustness of data on sampled networks. We study three issues:
first, we examine the role of measurement error in links; second, we examine the difficulties of ascribing unilateral and bilateral links and
finally, we examine the relationship between degree and economic outcomes and contrast the sample data with information from the census.
Discussants:
Friederike Lenel
(DIW Berlin)
Irina Shaorshadze
(University of Cambridge)
Stefano Caria
(University of Oxford)
Marcel Fafchamps
(Stanford University)
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 204
American Economic Association
Behavioral Political Economy
(D7)
Presiding:
Erik Snowberg
(California Institute of Technology)
Overconfidence in Political Behavior
Pietro Ortoleva
(Columbia University)
Erik Snowberg
(California Institute of Technology and NBER)
[View Abstract]
This paper studies, theoretically and empirically, the role of overconfidence in political behavior. Our model of overconfidence in beliefs predicts that overconfidence leads to ideological extremeness, increased voter turnout, and increased strength of partisan identification. Moreover, the model makes many nuanced predictions about the patterns of ideology in society, and over a person's lifetime. These predictions are tested using unique data that measure the overconfidence, and standard political characteristics, of a nationwide sample of over 3,000 adults. Our numerous predictions find strong support in these data. In particular, we document that overconfidence is a substantively and statistically important predictor of ideological extremeness and voter turnout.
Electoral Control with Behavioral Voters
Daniel Diermeier
(Northwestern University)
Christopher Li
(Northwestern University)
[View Abstract]
[Download Preview] We present a model of electoral control with behavioral voters. The model is intended to capture the main regularities of voting behavior found in empirical studies. Specifically, the voters' propensity to keep an incumbent in office is governed by a stochastic reinforcement process instead of strategic reasoning. The likelihood of a positive feedback for a voter depends on the effort level exercised by the public official. Our model generates comparative statics that are consistent with the main empirical regularities of electoral accountability. We then show that despite the lack of rational responses by voters, the electoral control of public officials can be substantial. Indeed, electoral control is the highest when voters are most forgetful. Forgetfulness, however, may limit electoral control if voters adjust their evaluation of a candidate repeatedly during a term.
Collective Self-Control
Leeat Yariv
(California Institute of Technology)
Alessandro Lizzeri
(New York University)
[View Abstract]
Behavioral economics presents a "paternalistic" rationale for a benevolent government's intervention. We consider an economy where the only "distortion" is agents' time inconsistency. We study the desirability of various forms of collective action, ones pertaining to costly commitment and ones pertaining to the timing of consumption, when government decisions respond to voters' preferences via the political process. If only commitment decisions are centralized, commitment investment is more moderate than if all decisions are centralized. Commitment investment is minimal when only consumption is centralized. First-period welfare is highest under either full centralization or laissez faire, depending on the populations' time-inconsistency distribution.
Correlation Neglect, Voting Behavior and Polarization
Ronny Razin
(London School of Economics)
Gilat Levy
(London School of Economics)
[View Abstract]
We analyze a voting model with voters who have correlation neglect, that is, they sometimes fail to appreciate that different sources of information might be correlated. While correlation neglect has the effect of polarizing opinions, we show that this doesn't translate directly to inefficient outcomes. Indeed we show that compared with a rational electorate, when the distribution of preferences in society is heterogeneous and sufficiently balanced, a society composed of voters with correlation neglect may aggregate information in a more efficient way. Moreover, we show that the polarization in opinions does not necessarily translate into policy polarization.
Discussants:
Steven Callander
(Stanford University)
Scott Ashworth
(University of Chicago)
Scott Page
(University of Michigan)
Stephen Ansolabehere
(Harvard University)
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 208
American Economic Association
Capital Flows, Credit and Assets Cycles, and Macroprudential and Exchange Rate Policies
(F3, F4)
Presiding:
Nicolas Ernesto Magud
(International Monetary Fund)
Exchange Rate Flexibility and Credit during Capital Inflow Reversals: Purgatory...not Paradise
Nicolas Ernesto Magud
(International Monetary Fund)
Esteban Rodrigo Vesperoni
(International Monetary Fund)
[View Abstract]
[Download Preview] We document the behavior of macro and credit variables during episodes of capital inflows reversals in economies with different degrees of exchange rate flexibility. We find that exchange rate flexibility is associated with milder credit growth during the boom but, even though smaller than in more rigid regimes, it cannot completely shield the economy from a credit reversal. Furthermore, we observe what we dub as a recovery puzzle: credit growth in economies with more flexible exchange rate regimes remains tepid well after the capital flow reversal takes place. This results stress the complementarity of macro-prudential policies with the exchange rate regime. More flexible regimes could help smoothing the credit cycle through capital surcharges and dynamic provisioning that build buffers to counteract the credit recovery puzzle. In contrast, more rigid exchange rate regimes would benefit the most from measures to contain excessive credit growth during booms, such as reserve requirements, loan-to-income ratios, and debt-to-income and debt-service-to-income limits.
Macroprudential Regulation Versus Mopping Up After the Crash
Olivier Jeanne
(Johns Hopkins University)
Anton Korinek
(Johns Hopkins University)
[View Abstract]
This paper studies with a tractable model the policies to deal with systemic financial crises that are amplified by a fire sale pecuniary externality. We focus on the optimal mix between ex-ante policy measures (macroprudential regulation), and ex-post policy interventions (such as low interest rate policy, bailouts, and other forms of financial safety nets). We find that: (i) both types of interventions should be used in equilibrium; (ii) ex-post interventions may increase or decrease the need for ex-ante macroprudential policy, depending on how they are designed; (iii) one benefit of macroprudential policy is to allow more discretion in the use of ex-post policies; (iv) for small crisis risk the welfare gains from financial safety nets dominate those of macroprudential policy by an order of magnitude; (v) using the proceeds from ex-ante macroprudential taxes to finance the ex-post safety nets decreases welfare.
Reserve Requirement Policy over the Business Cycle
Carlos Vegh
(Johns Hopkins University)
Guillermo Vuletin
(Brookings Institution)
[View Abstract]
[Download Preview] Based on a novel quarterly dataset for 52 countries for the period 1970-2011, we analyze the use and cyclical properties of reserve requirements (RR) as a macroeconomic stabilization tool and whether RR policy substitutes or complements monetary policy. We find that (i) more than 50 percent of developing countries have used RR policy as a macroeconomic tool compared to no industrial country; (ii) 74 percent of developing countries use RR policy counteryclically compared to just 35 percent that have engaged in countercyclical monetary policy; and (iii) in most developing countries, RR policy has substituted monetary policy as a countercyclical tool. We interpret the latter finding as reflecting the reluctance of many emerging markets to reduce interest rates in bad times for fear of letting their currency depreciate rapidly or raising interest rates in good times for fear of attracting even more capital inflows and currency appreciation. Under these circumstances, RR policy provides a second instrument that substitutes for monetary policy. RR could increase (decrease) during booms (busts) to cool off (spur) the economy by increasing (reducing) the lending spread. Evidence from expanded Taylor rules supports these mechanisms.
Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies.
Alessandro Rebucci
(Johns Hopkins University)
Luis Felipe Cespedes
(Universidad Adolfo Ibanez)
[View Abstract]
In this paper we build a new comprehensive, quarterly house price data set comprising 57 advanced and developing economies—representing more than 95 percent of world GDP—with varying time-coverage from 1970 to 2012. We show that house prices in emerging markets grow slower, are more volatile and less persistent, and are more correlated with the real effective exchange rate and the current account, than in advanced economies. We provide evidence that indicates that house price booms are much larger and are more closely associated with capital inflows, loose global liquidity conditions, shallow domestic financial systems in emerging economies than in advanced economies. Finally, we find that while an exogenous change in global liquidity has a sizable impact on consumption, house prices and the current account in emerging markets, it has a much smaller and economically not significant impact on the same variables in advanced economies. We interpret our empirical evidence as suggesting that while global imbalances would have played a lesser role in explaining house price boom in developed economies in the period previous to the Great Recession, the increase in global liquidity in response to it may be playing an important role explaining recent house price dynamics in emerging markets.
What are the Real Effects of QE Driven Capital Flows? Evidence from Firm-Bank Matched Data in an Emerging Market
Yusuf Soner Baskaya
(CBRT)
Julian di Giovanni
(Universitat Pompeu Fabra, BGSE, CREI & CEPR)
Sebnem Kalemli-Ozcan
(University of Maryland, CEPR & NBER)
Josse-Luis Peydro
(Universitat Pompeu Fabra, BGSE, CREI & CEPR)
Mehmet Fatih Ulu
(CBRT)
N/A
Discussants:
Pierre-Olivier Gourinchas
(University of California-Berkeley)
Alberto Martin
(CREI, Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
Mark Spiegel
(Federal Reserve Bank of San Francisco)
Thomas Helbling
(International Monetary Fund)
Gurnain Pasricha
(Bank of Canada)
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 201
American Economic Association
Children and Labor Market Outcomes
(J1, J2)
Presiding:
Claudia Olivetti
(Boston University)
Parental Responses to Child Support Obligations: Causal Evidence from Administrative Data
Maya Rossin-Slater
(University of California-Santa Barbara)
Miriam Wust
(Danish National Centre for Social Research (SFI))
[View Abstract]
[Download Preview] We leverage non-linearities in Danish child support guidelines together with rich administrative data to provide causal estimates of parental behavioral responses to child support obligations. We estimate that a 1,000 DKK ($183) increase in a father's annual obligation is associated with a 507 DKK ($85) increase in his annual payment. However, we also show that an increase in the obligation reduces the likelihood that the father lives with his child, pointing to some substitution between financial and non-pecuniary investments. Further, we find that larger obligations are associated with higher new-partner fertility among both parents. The maternal fertility response is consistent with a positive income-fertility relationship, while the paternal fertility response may reflect increased demand for new offspring as a result of reduced contact with existing children. Finally, we find evidence that some fathers reduce their labor supply to avoid facing higher support obligations. Our findings suggest that government efforts to increase child investments through mandates on parents can be complicated by their behavioral responses to them.
Parental Time Investments in Children: The Role of Competition for University Places in the UK
Cristina Borra
(University of Sevilla)
Almudena Sevilla
(Queen Mary University of London)
[View Abstract]
[Download Preview] This paper explores whether increased competition for college places in the UK can explain the distinct trends in time investments by parents with different educational attainments in the UK over the past three decades.
Using five 24-hour diary surveys covering 1974-2005, the research finds that the average amount of time spent by parents with their children increased over the period. However the education gradient in time investments did not follow a monotonic trend. Our analysis reveals a divergence in time investments by parental education until the mid-90s, fading away towards 2005. Although by the end of the period, all parents, regardless of their education levels, invested about the same amount of time in childcare, parents with some college spent more of that time (around half an hour per week more) on educational activities than less than college educated parents.
Children's homework time more than doubled, but whereas in the 70s children devoted the same amount of time to homework regardless of their parents’ educational background, at the end of the period children from more educated backgrounds spent almost twice as much time doing homework as children from less educated family backgrounds.
We rule out standard explanations for the differential trends in parental and children's time investments, such as income effects, working arrangements, safety concerns, or parenting values. Novel data on student enrolment numbers and examination results is used to show that the trends in the education gradient in parental time investments closely coincided with the trends in the competition for college slots at elite universities. As previously found for the US, competition for college admissions may also be a plausible explanation for the trends in parental time investments for parents with different educational attainment in the UK over the 1974-2005 period. Additionally, the fact that UK college admission processes are based on previous academic performance to a larger extent than US processes may also explain why parents and children invest in more intensive educational activities in the UK.
Given that parental time investments have quantifiable effects in children's long-term outcomes, understanding the extent of inequality in parental time resources invested in children by parental educational background and its likely causes is crucial from a child development perspective and for policies aimed at reducing inequality.
The Labor Supply Effects of Delayed First Birth
Jane Leber Herr
(Harvard University)
[View Abstract]
[Download Preview] In this paper I explore the relationship between first-birth timing and post-birth labor supply, and how it is influenced by family and career characteristics. Given that pre-birth wages are increasing in fertility delay, the rising opportunity cost of time would suggest that later mothers work more. Yet I only find this pattern for high school graduates. For college graduates, I instead find surprisingly no relationship between first-birth timing and post-birth hours worked, despite strongly increasing pre-birth wages. Furthermore, after controlling for family and career factors, many of which influence hours worked and are correlated with fertility timing, this different pattern by education remains.
Discussants:
Elizabeth Peters
(Urban Institute)
Lucie Schmidt
(Williams College)
Christina Felfe
(University of St. Gallen)
Jan 03, 2015 8:00 am, Sheraton Boston, The Fens
American Economic Association
Curriculum and Assessment of Economic Principles
(A2)
Presiding:
Carlos Asarta
(University of Delaware)
Modeling and Measuring of Economics Knowledge among Freshman Students in German Higher Education
Manuel Foerster
(Johannes Gutenberg University Mainz)
Olga Zlatkin-Troitschanskaia
(Johannes Gutenberg University Mainz)
Roland Happ
(Johannes Gutenberg University Mainz)
Sebastian Brueckner
(Johannes Gutenberg University Mainz)
[Download Preview] N/A
Grades, Coursework, and Student Characteristics in High School Economics
William Walstad
(University of Nebraska-Lincoln)
Ken Rebeck
(St Cloud State University)
N/A
Motivating College-Level Immersion: The AP Economics Programs and Exams
David A. Anderson
(Centre College)
[View Abstract]
[Download Preview] Each year more than 190,000 students participate in the AP Economics programs. This report briefly explains the structure of the AP exams, how AP content is aligned with college courses, how the AP exams are developed, how student essays and graphs are graded, and what the results may reveal about strengths and weaknesses in pre-college economic education. The report also touches on professional development programs for high school teachers and past research on AP grades as a predictor of success in college.
Economics Assessment in the IB Diploma Programme
Susan James
(International Baccalaureate)
[Download Preview] N/A
Discussants:
Georg Schaur
(University of Tennessee)
John Swinton
(Georgia College and State University)
Paul W. Grimes
(Pittsburg State University)
William Bosshardt
(Florida Atlantic University)
Jan 03, 2015 8:00 am, Sheraton Boston, Constitution Ballroom B
American Economic Association
Does Household Debt Act as a Transmission Mechanism for Long-Run Trends, Macroeconomic Shocks, and Policy?
(E3, J2)
Presiding:
Heather Boushey
(Washington Center for Equitable Growth)
House Price Gains and United States Household Spending from 2002 to 2006
Amir Sufi
(University of Chicago)
Atif Mian
(Princeton University)
The Impact of Loan Modifications on Repayment, Bankruptcy, and Labor Supply: Evidence from a Randomized Experiment
Will Dobbie
(Princeton University)
[View Abstract]
This paper uses information from a randomized experiment matched to administrative tax and bankruptcy records to estimate the effect of loan modifications on subsequent repayment, bankruptcy, and labor supply. A large non-profit credit counseling organization and eleven unsecured creditors offered a subset of distressed borrowers lower interest rates and longer repayment periods. After five years, borrowers offered lower interest rates were more likely to have repaid their debts and less likely to have filed for bankruptcy protection. For the most heavily indebted borrowers, lower interest rates also modestly increased the probability of being employed. In contrast, there was little impact of a longer repayment period on repayment, bankruptcy, or labor supply. These results suggest that debt overhang, and not liquidity constraints, is the most important problem facing borrowers in our data.
The Impact of Consumer Credit Access on Unemployment
Kyle Herkenhoff
(University of Minnesota)
Interest Rates and Equity Extraction during the Housing Boom
Benjamin Keys
(University of Chicago)
Neil Bhutta
(Federal Reserve Board of Governors)
[View Abstract]
[Download Preview] Monetary policy is perhaps the most important tool the government has to quickly affect the trajectory of the economy. This paper estimates the impact of policy-driven short-term mortgage rates on home equity based borrowing. Using credit record panel data from 1999-2010, we show that the likelihood of equity extraction peaked in 2003 when mortgage rates hit historic lows, and estimate that a 100 basis point rate decline leads to a 25 percent rise in extraction. Exploiting geographic variation in house price fluctuations, we find this rate effect is half the magnitude
of the house price effect. Additionally, differential responses by age and credit score provide new evidence of financial frictions. Finally, equity extraction increases default risk, most strikingly for those extracting in 2006 when both interest rates and house prices were peaking. Conditional on many factors including credit score, zip code house price changes and county fixed effects, those who extracted in 2006
were 90 percent more likely to become delinquent on a mortgage than non-extractors over the next four years.
Discussants:
Claudia Sahm
(Federal Reserve Board of Governors)
Ben Zipperer
(Washington Center for Equitable Growth)
Jeffrey Thompson
(Federal Reserve Board of Governors)
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 209
American Economic Association
Empirical Market Design
(D4)
Presiding:
Ramesh Johari
(Stanford University)
Quality Externalities and the Limits of Reputation in Two-Sided Markets
Chris Nosko
(University of Chicago)
Steven Tadelis
(University of California-Berkeley)
[View Abstract]
Buyers in two-sided marketplace platforms may draw conclusions about the quality of the platform from any single transaction. This induces an externality across sellers that reputation mechanisms will not alleviate. Furthermore, buyers who abandon the platform without leaving feedback will cause seller reputations to be biased. Using data from eBay, we document this externality and argue that platforms can mitigate it by actively screening sellers and promoting the prominence of better quality sellers. Exploiting the bias in feedback, we create a measure of seller quality and demonstrate the benefits of our approach through a controlled experiment that prioritizes better quality sellers to a random subset of buyers. We thus highlight the importance of externalities in two-sided markets and chart an agenda that aims to create more realistic models of two-sided markets.
At What Quality and What Price? Inducing Separating Equilibria as a Market Design Problem
John Joseph Horton
(New York University)
Ramesh Johari
(Stanford University)
[View Abstract]
All markets must facilitate coordination: buyers and sellers must know where to find each other to trade goods and services of a certain type. Notably, market participants naturally have an incentive to disclose information about their preferences with respect to horizontal differentiation---one aspect of the coordination problem. However, the incentive to disclose preferences with respect to vertical differentiation (“quality”) is more fraught with strategic considerations, as it is “close” to information about willingness-to-pay.
Surprisingly, we find that endogeneous communication of quality preferences is a powerful tool to induce coordination.
We investigate a large-scale field experiment in which a tool was introduced to an online labor market that allowed buyer-side vertical differentiation preferences to be communicated to sellers. In the treatment cells of the experiment, upon posting a job, buyers chose what expertise level they seek, and are told that higher expertise will command a higher wage. We find that buyers readily reveal their preferences and this revelation---which itself was experimentally manipulated---strongly affected seller-side sorting. In other words, we induce a separating equilibrium. However, the strategic concerns of buyers are not second-order: sellers who learned a buyer’s preferences substantially altered their bids in the expected direction.
Changing the Course Allocation Mechanism at Wharton
Eric Budish
(University of Chicago)
Judd Kessler
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper reports on an experiment conducted at the Wharton School of the University of Pennsylvania, testing a new mechanism for matching students to schedules of courses. The experiment compared Budish’s (2011) approximate competitive equilibrium from equal incomes (CEEI) to the incumbent, a fake-money auction used by Wharton and numerous other professional schools. CEEI outperformed the auction on quantitative measures of efficiency and fairness and qualitative measures of perceived strategic simplicity and student satisfaction. The experiment succeeded in the Roth (1986) sense of “whispering in the ears of princes”, persuading the Wharton administration to adopt CEEI and guiding real-world implementation.
The Economics of the Common Application
Christopher Avery
(Harvard University)
Parag A. Pathak
(Massachusetts Institute of Technology)
[View Abstract]
Common application systems are a growing part of recent education reforms. This paper develops a model to study the effects of moving from a decentralized application system to a common application system in the presence of application costs. We then exploit an unusual policy change in Chicago Public Schools where magnet school admissions went from a decentralized application process to a common application process in 2011 to examine the welfare effects of common application systems.
Discussants:
Ali Hortacsu
(University of Chicago)
Steven Tadelis
(University of California-Berkeley)
Eduardo Azevedo
(University of Pennsylvania)
Eric Budish
(University of Chicago)
Jan 03, 2015 8:00 am, Sheraton Boston, Public Garden
American Economic Association
Experimental Evidence of the Impact of Online Education on Student Outcomes
(I2, A2)
Presiding:
Rebecca Maynard
(University of Pennsylvania)
Virtually Large: The Effects of Class Size in Online College Courses
Eric Bettinger
(Stanford University)
Christopher Doss
(Stanford University)
Susanna Loeb
(Stanford University)
Eric Taylor
(Stanford University)
[View Abstract]
Class size is a first-order consideration in the study of education production and education costs. How larger (smaller) classes affect student outcomes is especially relevant to the growth and design of online classes. We study a field experiment in which college students were randomly assigned to either a large or a small class. All classes were conducted online. Large classes had, on average, about ten percent more students than small classes (mean increase 9.3 percent, standard deviation 4.1 percent). The experiment was conducted at DeVry University, one of the nation's largest for-profit post-secondary institutions, and included over 100,000 students in nearly 4,000 classes across 102 different undergraduate and graduate courses. First, we examine main effects on student success in the course, and student persistence in college during subsequent terms. Second, theoretical arguments, like Lazear (2001), suggest the effects of class size are likely heterogeneous by student ability. We test whether class size effects are due the increase in number of students per se, or a change in the quality of peers, or both. Finally, we compare the University's direct cost savings from increased class sizes with the implied losses from reduced student persistence.
Does Classroom Time Matter? A Randomized Field Experiment of Hybrid and Traditional Lecture Formats in Economics
Ted Joyce
(Baruch College)
Sean Crockett
(Baruch College)
David Jaeger
(City University of New York)
Onur Altinag
(City University of New York)
[View Abstract]
[Download Preview] Little experimental evidence exists on the causal impact of class time on academic performance when students have access to extensive course material online. We randomized 725 college students into traditional twice-per-week and compressed once-per-week lecture formats in introductory microeconomics. Students in the traditional format scored 3.2 out of 100 points higher (0.21 standard deviations) on the midterm than those in the compressed format but a statistically insignificant 1.6 points higher (0.11 standard deviations) on the final. There were no differences in non-cognitive outcomes. Students in the middle tercile of predicted test scores performed worst in the compressed format relative to those in the traditional format but there was little difference in test scores by format in the top tercile of predicted performance. Compressed lecture formats supplemented with online material can lessen the need for traditional amounts of face-to-face time with modest impact on student performance.
Online, Blended and Classroom Teaching of Economics Principles: A Randomized Experiment
William Alpert
(University of Connecticut)
Kenneth Couch
(University of Connecticut)
Oskar Harmon
(University of Connecticut)
[View Abstract]
This paper contains a field study of learning outcomes and delivery modality for principles of economics. The experimental design randomly assigns students to one of three delivery modalities: online, blended, or classroom based instruction. In the classroom, students meet with an instructor, once in a lecture session and once in a discussion session. In the blended format students meet weekly with the instructor in a discussion session, and view online lecture materials. In the online course students view online lectures as their course instruction and have access to extensive online materials developed to be consistent with a set of external standards for best practices in online education.
With University IRB approval, data is being collected on academic achievement, demographic characteristics, and personality traits on four consecutive semesters. The class size for each arm of the experiment is capped at 35. The experiment began in fall 2012. Three semesters of data collection are complete. The fourth and final semester of data collection is being collected during the spring 2014 term. Power analyses were conducted prior to running the experiment to assure we would be able to detect reasonably small changes in academic outcomes across the types of course offerings.
The learning outcomes based on the first three semesters of data collection on exam scores are not, at a statistically significant level, different between the control group (traditional modality) and blended treatment group. However, the exam scores for the control group are higher, at a statistically significant level, than for the purely online treatment group. The preliminary results suggest that if equivalence of learning outcomes is a goal, then as higher education moves forward with purely online education more instructional resources should be directed at online relative to traditional instruction.
Discussants:
David Deming
(Harvard University)
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 203
American Economic Association
Experimental Finance and Neuroeconomics
(G1, D8)
Presiding:
Alon Brav
(Duke University)
Socioeconomic Status and Learning from Financial Information
Camelia M. Kuhnen
(University of North Carolina)
Andrei Miu
(Babes-Bolyai University)
[View Abstract]
[Download Preview] We investigate the role of socioeconomic status (SES) on people’s ability to learn from information in financial markets. In an experimental setting we find that low SES participants, relative to medium or high SES ones, form more pessimistic beliefs about the distribution of outcomes of financial investments when, objectively, these investments are likely to be good. This pessimism bias regarding risky investments that is induced by coming from a low SES environment is particularly strong if participants are actively investing, rather than passively learning, and if financial losses are possible. These results suggest that SES shapes in predictable ways people’s perception of financial news, which in turn may help explain differences in households’ propensity to participate in financial markets.
Does Aggregated Returns Disclosure Increase Portfolio Risk-Taking?
John Beshears
(Harvard Business School)
James Choi
(Yale University)
David Laibson
(Harvard University)
Brigitte C. Madrian
(Harvard University)
[View Abstract]
[Download Preview] Many previous experiments have found that participants invest more in risky assets if they see their returns less frequently, see portfolio-level (rather than segregated asset-by-asset) returns, or see long-horizon (rather than one-year) historical asset class return distributions. In contrast to these other studies, we find that such aggregated returns disclosure does not increase equity allocations in an experiment where—in contrast to previous experiments—participants invest in real mutual funds over the course of one year. We show that previously documented aggregation effects are sensitive to the distribution of the risky asset’s returns and how much time elapses between the portfolio choice and the viewing of the returns.
What Drives Peer Effects in Financial Decision-Making? Neural and Behavioral Evidence
Cary Frydman
(University of Southern California)
[View Abstract]
[Download Preview] We use neural data collected from an experimental asset market to test the underlying mechanisms that generate peer effects. Despite the fact that subjects are randomly assigned to pairs and endowed with the same information set, we find substantial evidence of peer effects in investment decisions. We then use the neural data to construct empirical tests that can separately identify a social learning mechanism and a relative wealth concern mechanism. We observe neural activity that indicates both mechanisms contribute to peer effects. The neural activity that we use in the empirical tests is measured at the time when subjects receive information about a peer’s investment decision. Our results therefore demonstrate how neural data generated in the absence of choice can be used to distinguish between competing theories of financial decision-making.
Discussants:
Stephan Siegel
(University of Washington)
Michaela Pagel
(Columbia University)
Shimon Kogan
(University of Texas-Austin)
Jan 03, 2015 8:00 am, Sheraton Boston, Constitution Ballroom A
American Economic Association
External Validity of Field Experiments
(B4, O1)
Presiding:
John List
(University of Chicago)
Do Field Experiments Afford Researchers More or Less Control than Laboratory Experiments? A Simple Model
John List
(University of Chicago)
Omar Al-Ubaydli
(George Mason University)
[View Abstract]
A commonly held view is that laboratory experiments provide researchers with more control over an environment than do natural field experiments, and that this advantage is to be balanced against the disadvantage that laboratory experiments are less generalizable. This paper presents a simple model that explores circumstances under which natural field experiments provide researchers with more control than do laboratory experiments. This stems from the covertness of natural field experiments: laboratory experiments provide researchers with a high degree of control in the environment which participants agree to be in; when participants systematically opt out of laboratory experiments, the researcher’s ability to manipulate certain variables is limited. In contrast, natural field experiments can bypass the participation decision altogether and allow for a potentially more diverse participant pool. This is important when treatment effects are thought to interact with participant characteristics.
Site Selection Bias in Program Evaluation
Hunt Allcott
(New York University)
[View Abstract]
[Download Preview] “Site selection bias” occurs when the probability that partners adopt or evaluate a program is correlated with treatment effects. I test for site selection bias in the context of the Opower energy conservation programs, using 111 randomized control trials (RCTs) involving 8.6 million households across the United States. Predictions based on rich microdata from the first ten replications substantially overstate efficacy in the next 101 sites. There is evidence of two positive selection mechanisms. First, local populations with stronger preferences for environmental conservation both encourage utilities to adopt the program and are more responsive to the treatment. Second, program managers initially target treatment at the most responsive consumer sub-populations, meaning that efficacy drops when utilities expand the program. While it may be optimal to initially target an intervention toward the most responsive populations, these results show how analysts can be systematically biased when extrapolating experimental results, even after many replications. I augment the Opower results by showing that microfinance institutions (MFIs) that run RCTs differ from the global population of MFIs and that hospitals that host clinical trials differ from the national population of hospitals.
Heterogeneous Treatment Effects in Impact Evaluation
Eva Vivalt
(New York University)
[View Abstract]
Impact evaluations often aim to explain human behaviour so as to better predict what would occur in the future. However, they are rooted in particular contexts and results may not generalize across settings. This paper models the context-dependence and provides the first estimates of how much one can generalize from impact evaluations across a wide variety of interventions in development. I find results from impact evaluations on similar interventions have significant predictive power for studies done in different contexts, however, government-executed programs fare worse and are not well-predicted by other programs, suggesting problems for scale-up. Specification searching and publication bias may threaten the credibility of a study’s results, and the second part of this paper examines to what extent these issues pose a problem. Contrary to findings in other disciplines, impact evaluations in development economics do not appear to suffer from much manipulation.
Learning from Experiments when Context Matters
Lant Pritchett
(Harvard University)
Justin Sandefur
(Center for Global Development)
[View Abstract]
[Download Preview] Suppose a policymaker is interested in the impact of an existing social program. Impact estimates using observational data suffer potential bias, while unbiased experimental estimates are often limited to other contexts. This creates a practical trade-off between internal and external validity for evidence-based policymaking. We explore this trade-off empirically for several common policies analyzed in development economics, including microcredit, migration, and education interventions. Based on mean-squared error, non-experimental evidence within context outperforms experimental evidence from another context. This advantage declines, but may not reverse, with experimental replication. We offer four reasons these findings are of general relevance to policy evaluation.
Discussants:
Rachel Glennerster
(Massachusetts Institute of Technology and Poverty Action Lab)
Edward Miguel
(University of California-Berkeley)
David McKenzie
(World Bank)
Rema Hanna
(Harvard University)
Jan 03, 2015 8:00 am, Sheraton Boston, Back Bay Ballroom C
American Economic Association
Firm Dynamics and Growth
(O4, E6)
Presiding:
Philippe Aghion
(Harvard University)
The Importance of Customer Relationships for U.S. Retailer Size and Growth
Liran Einav
(Stanford University)
Jonathan Levin
(Stanford University)
Peter Klenow
(Stanford University)
N/A
Lack of Selection and Imperfect Managerial Contracts: Firm Dynamics in Developing Countries
Ufuk Akcigit
(University of Pennsylvania)
Harun Alp
(University of Pennsylvania)
Michael Peters
(London School of Economics)
[View Abstract]
Firm dynamics in poor countries show striking differences to those of rich countries. While some firms indeed experience growth as they age, many firms are simply stagnant in that they neither exit nor expand. We interpret this fact as a lack of selection, whereby producers with little growth potential survive because innovating firms do not expand enough to force them out of the market. Our theory stresses the role of imperfect managerial contracts. If managerial effort provision is non-contractible, firms will endogenously limit managerial authority to reduce the extent of hold-up. As large producers will have a higher incentive to put such inefficient monitoring policies in place, the returns to innovation decline rapidly. Improvements in the degree of contract enforcement will therefore raise the returns of growing large and increase the degree of creative destruction; innovative firms will replace inefficient producers quickly. To discipline the quantitative importance of this mechanism, we incorporate such incomplete managerial contracts into an endogenous growth model and calibrate it to firm level data from India. Improvements in the contractual environment can explain a sizable fraction of the difference between US and Indian lifecycles of plants. The model also suggests that policies targeted toward small firms could indeed be detrimental to welfare as they slow down the process of selection.
Why Doesn't Technology Flow from Rich to Poor Countries?
Harold L. Cole
(University of Pennsylvania)
Jeremy Greenwood
(University of Pennsylvania)
Juan M. Sanchez
(Federal Reserve Bank of St. Louis)
[View Abstract]
[Download Preview] What determines the technology that a country adopts? While many factors affect technological adoption, the efficiency of the country's financial system may also play a significant role. To address this question, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The ability of an intermediary to monitor and control the cash flows of a firm plays an important role in the technology adoption decision. Can such a theory help to explain the differences in total factor productivity and establishment-size distributions across India, Mexico, and the United States? A quantitative illustration suggests the answer is yes.
Keywords: Costly cash-flow control; costly state verification; dynamic contract theory; economic development; establishment-size distributions; finance and development; financial intermediation; India, Mexico, and the United States; monitoring; productivity; self-finance; technology adoption; ventures
Constraints to the Growth of Firms: All in the Family?
David Atkin
(Yale University)
Francisco J. Buera
(Federal Reserve Bank of Chicago)
Amit Khandelwal
(Columbia University)
Yongseok Shin
(Washington University-St. Louis)
[View Abstract]
We model a firm as a collection of managers who coordinate on joint production. The firm-level production technology features increasing returns to the number of managers and complementarity across managers of heterogeneous skills. Individuals are born into families that differ in size and managerial skill endowment. Each member of a family has the option to (i) work as a manager in the family firm; (ii) work as a manager in a non-family firm; or (iii) supply non-managerial labor for a wage. Non-family firms are constrained by a basic moral-hazard constraint: individual managers can steal a fraction of the joint output and forgo their managerial remunerations. The fraction that they may steal can be reduced by costly monitoring, which determines the optimal size of the firm. The limitation of family firms is, naturally, that the size and the managerial skill endowment of a family are exogenously given and immutable. We use a rich dataset of family and non-family firms from Ethiopia to test and quantify the parameters of the model.
Discussants:
Sam Kortum
(Yale University)
John Haltiwanger
(University of Maryland)
Joseph P. Kaboski
(University of Notre Dame)
Rocco MacChiavello
(University of Warwick)
Jan 03, 2015 8:00 am, Sheraton Boston, Back Bay Ballroom B
American Economic Association
Impacts of the Great Recession on Low-Income Households
(I3)
Presiding:
Diane Schanzenbach
(Northwestern University)
The Great Recession and Credit Trends Across Income Groups
Eugene Amromin
(Federal Reserve Bank of Chicago)
Leslie McGranahan
(Federal Reserve Bank of Chicago)
[View Abstract]
In this paper, we document trends in credit use across income groups in the period surrounding the Great Recession. We investigate trends in the use of different credit products such as mortgages, auto loans, and credit card debt. We compare credit outcomes across areas with different labor and housing market paths. Our findings may provide insight into the well-being of different income groups in the context of the Great Recession.
Heterogeneity in the Impact of Economic Cycles and the Great Recession: Effects Within and Across the Income Distribution
Marianne Bitler
(University of California-Irvine)
Hilary Hoynes
(University of California-Berkeley)
[View Abstract]
[Download Preview] In this paper, we examine the effects of economic cycles on low- to moderate-income families. We use variation across states and over time to estimate the effects of cycles on the distribution of income, using fine gradations of family income-to-poverty. We also explore how the effects of cycles affect the risk of falling into poverty across demographic groups, focusing on age, race/ethnicity and family type. We conclude by testing to see whether these relationships have changed in the Great Recession. We discuss the results in light of the changes in the social safety net in recent decades.
Changes in Safety Net Use During the Great Recession
Patricia Anderson
(Dartmouth College)
Kristin Butcher
(Wellesley College)
Diane Schanzenbach
(Northwestern University)
[View Abstract]
[Download Preview] We examine how participation in social safety net programs differs by income-to-poverty levels, and how that relationship differs before and after the Great Recession. We define income-to-poverty level based on the average of two years of merged CPS data. We find changes in both the level and the distribution of safety-net program participation during the Great Recession.
Where Do Children from Rich and Poor Families Go to College? Parental Income across U.S. Higher Education 1999-2012
Raj Chetty
(Harvard University)
John N. Friedman
(Harvard University)
Emmanuel Saez
(University of California-Berkeley)
Nicholas Turner
(U.S. Treasury Department)
Danny Yagan
(University of California-Berkeley)
[View Abstract]
We use administrative data on parental income and child college attendance to document the distribution of parental income across higher education institutions 1999-2013. We find that students at top schools are drawn very disproportionately from families at the very top of the income distribution. We compare parental income distributions at private schools and at equivalently ranked public schools as well at junior, community, and for-profit colleges. We conclude by documenting how these parental income distributions have changed over time.
Discussants:
Jesse Rothstein
(University of California-Berkeley)
Jon Guryan
(Northwestern University)
Kristin Butcher
(Wellesley College)
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 207
American Economic Association
Intergenerational Mobility over Time and Across Locations: Establishing the Facts and Explaining the Mechanisms
(J6, D3)
Presiding:
Miles Corak
(University of Ottawa)
From Great Gatsby to Norway's Equal Society
Kjell G. Salvanes
(Norwegian School of Economics)
Daron Acemoglu
(Massachusetts Institute of Technology)
Matti Sarvimäki
(Aalto University and VATT)
[View Abstract]
This paper examines the associations between intergenerational mobility and cross-sectional inequality in Norway over four generations. Similar to Chetty et al. (2014, NBER WP 19843), we ask whether the “Great Gatsby curve” – the negative association between mobility and inequality documented across countries (Corak, 2013, JEP) – is present also across regions within a country. Our main contribution, however, is to examine the stability of this relationship over time. We do this for a particularly interesting period when Norway transforms from a poor, rural and unequal country into a rich, urbanized and highly redistributive welfare state.
Our analysis builds on two new datasets. We have collected the first from historical tax records that report detailed information on the distribution of income at the level of hundreds of municipalities from 1930 onwards. The second dataset is at individual-level and has been created by linking information from several Censuses, the Pension Register, the registers of the Norwegian Armed Forces and other administrative registers. Apart from the information from the Armed Forces (which is available only for men), these sources cover the entire Norwegian population and contain information on income, occupation, education, residence municipality, cognitive ability test scores and demographics. They allow us to measure intergenerational associations between father-son pairs starting with fathers born in the turn of the 20th century and ending with sons born in the late 1970s (for income) or early 1990s (for education). We can estimate these intergenerational mobility measures separately for each cohort and municipality and thus link them to the local level of inequality at the time when the sons were growing up.
Interpreting Trends in Intergenerational Mobility
Martin Nybom
(Stockholm University)
Jan Stuhler
(Universidad Carlos III Madrid)
[View Abstract]
[Download Preview] Shifts in the intergenerational transmission of economic status are commonly attributed to contemporaneous institutional, technological or social change. We argue that mobility shifts may, instead, be caused by events in the more distant past. First, we examine the dynamic response of income mobility to structural changes in a theoretical model of intergenerational transmission. We find that mobility today depends on current but also past policies and institutions. Mobility variation across groups or countries can thus be a lingering consequence of former structural differences, and institutional reform or technological change may generate mobility trends that last over multiple generations. These trends are often non-monotonic – changing returns to skills or a shift towards a more meritocratic economy, for instance, tend to raise mobility initially while generating a negative trend over subsequent generations. Times of change are thus times of high mobility, and declining mobility today may reflect past gains rather than a recent deterioration of “equality of opportunity”. Second, we study a compulsory school reform in Sweden to test the dynamic implications of our model empirically. Exploiting register data over three generations we document a non-monotonic effect on income and educational mobility. The reform reduced the transmission of economic disparities from parents to their offspring by up to one fourth in directly affected cohorts (born in the 1940/50s). However, the same policy increased measures of intergenerational persistence in the next generation. Of comparable magnitude, this second-generation effect is likely to persist up to very recent birth cohorts.
Human Capital Spillovers and the Geography of Intergenerational Mobility
Giovanni Gallipoli
(University of British Columbia)
Brant Abbott
(Yale University)
[View Abstract]
[Download Preview] We write and estimate an equilibrium model of geographic variation in the intergenerational earnings elasticity (IGE). The theory extends the Becker-Tomes model, introducing a production sector in which human capital inputs are strategic complements. We show that the equilibrium return to human capital investments is lower in places where strategic complementarity is more intense, and that this is associated to less intergenerational persistence (lower IGEs). Furthermore, optimal education policies are more progressive where these complementarities are stronger, leading to a negative correlation between progressive public policy and IGEs. Using microdata we construct various location-specific measures of skill complementarity and document that the patterns of geographic variation in IGEs are consistent with our hypothesis. Quantitatively, geographic differences in skill complementarity account for up to 1/5 of cross-country variation in intergenerational earnings persistence. Governments in countries where prominent industries exhibit greater skill complementarities tend to spend larger fractions of GDP on public education, suggesting that underlying technology differences may indirectly explain an even larger proportion of cross-country IGE variation.
The Causal Effect of Parental Human Capital on Children's Human Capital
Ananth Seshadri
(University of Wisconsin)
Sang Yoon (Tim) Lee
(University of Mannheim)
Nicolas Roys
(University of Wisconsin)
[View Abstract]
[Download Preview] We present a structural model of life-cycle human capital accumulation to isolate the direct effect of parents' human capital on children's human capital. Identification of this spillover term comes from the model delivering a relationship between parental human capital, and both the schooling and earnings of the child. We demonstrate identification is achieved by comparing the earnings levels of individuals with the same schooling level but different parental schooling levels. A generalized version of the model with taste shocks for schooling is estimated using HRS data, and we find substantial evidence of strong parental spillover effects. We conduct a policy experiment to examine the impact of compulsory schooling laws. These laws have been used as an instrument to isolate the causal effect parental schooling on children's schooling. We find that a large parental spillover term is consistent with both a large OLS coefficient from regressing child schooling on parent schooling, as well as a (close to) zero IV coefficient. Nonetheless, the reform has a positive impact on earnings. This is because much of schooling variation is explained by taste shocks, and higher parental human capital has a level effect, reducing the need for children to spend more time in school. Contrary to some recent debates that put less emphasis on nurture, we conclude that parental spillovers can explain more than half of the human capital transmission from parents to children.
Discussants:
Jo Blanden
(University of Surrey)
Yanos Zylberberg
(CREI and Universitat Pompeu Fabra)
Thibaut Lamadon
(University of Chicago)
Marit Rehavi
(University of British Columbia)
Jan 03, 2015 8:00 am, Hynes Convention Center, Room 206
American Economic Association
International Trade with Global Value Chains
(F1, F2)
Presiding:
Davin Chor
(National University of Singapore)
The Margins of Global Sourcing: Theory and Evidence from U.S. Firms
Pol Antras
(Harvard University)
Teresa Fort
(Dartmouth College)
Felix Tintelnot
(University of Chicago)
[View Abstract]
[Download Preview] This paper studies the extensive and intensive margins of firms' global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm imports, as well as those countries' characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourcing decisions naturally interact through the firm's cost function. In particular, the marginal change in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible parametric restrictions, selection into importing features complementarity across markets and firms' sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country's potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential benefits of sourcing from a country leads to significant and heterogeneous changes in sourcing across both countries and firms.
The Global Production Line Position of Chinese Firms
Davin Chor
(National University of Singapore)
Kalina Manova
(Stanford University)
Zhihong Yu
(University of Nottingham)
[View Abstract]
A key trend in international trade over the last two decades has been the rising fragmentation of production across countries. We use transaction-level Chinese customs data, matched Chinese census data, and Chinese Input-Output tables, to better understand where and why firms operate along the global value chain. We characterize firms’ production line position with two measures: the number of production stages between output industries and final consumers (“upstreamness”), and the number of production stages between any pair of input and output industries (“distance”). First, we document the evolution of firms’ production line position over time, and in response to China’s accession to the WTO. Second, we show how it correlates with firm performance (value added, profitability) and with firm characteristics that likely determine the choice of production line position (productivity, ownership). Finally, we study how supply chains differ across source countries, destination countries, and Chinese provinces depending on per capita income, factor endowments and institutional conditions.
Multinational Production and Comparative Advantage
Vanessa Alviarez
(University of British Columbia)
[View Abstract]
This paper first assembles a unique industry-level dataset of foreign affiliate sales to document a new empirical regularity: multinational production is disproportionately allocated to industries where local producers exhibit comparative disadvantage. Then, it shows analytically and quantitatively that multinational production raises average productivity and lowers sectoral productivity dispersion in the host economy. By inducing a larger transfer of technology in sectors where the host economy is relatively less productive, multinational production weakens the host country's comparative advantage. To measure these channels, this paper incorporates sectoral heterogeneity into a Ricardian general equilibrium model of trade and multinational production. The model is estimated to measure the extent of technology transfers across countries and sectors as well as to quantify the welfare effects of multinational activity. The heterogeneity of foreign affiliate sales across sectors is quantitatively important in accounting for welfare gains from multinational activity. In particular, gains from multinational production are 15 percentage points higher compared with a counterfactual scenario in which foreign affiliate sales are homogeneous across sectors. Furthermore, as a consequence of the impact of multinational production on comparative advantage, gains from trade are about half of what they would be without sectoral heterogeneity in multinational activity (10 percent rather than 19 percent).
Global Supply Chains and Trade Policy
Emily Blanchard
(Dartmouth College)
Chad Bown
(World Bank)
Robert C. Johnson
(Dartmouth College)
[View Abstract]
How do global supply chain linkages modify countries' incentives to impose unilateral import protection? Are these linkages empirically important determinants of tariffs and other policy barriers to trade? To answer these questions, we integrate supply chain linkages into the terms-of-trade model of trade policy, and we develop testable predictions that relate observed bilateral final goods tariffs to domestic and foreign value-added content. We test the predictions using a new database of bilateral applied tariffs and value-added content derived from global input-output tables for 14 major economies and 15 sectors over the 1995-2009 period. We find that domestic content in foreign final goods production lowers bilateral tariffs on final goods imports, consistent with the theory. We also find that foreign value added in domestic final goods production raises import protection for final goods. We find similar results for non-tariff barriers as well.
Discussants:
Stephen Redding
(Princeton University)
Peter Schott
(Yale University)
Lorenzo Caliendo
(Yale University)
Ralph Ossa
(University of Chicago)
Jan 03, 2015 8:00 am, Sheraton Boston, Boston Common
American Economic Association
Medical Patient Behavior
(I1)
Presiding:
Jessica Holmes
(Middlebury College)
Malpractice Laws and Incentives to Shield Assets: Evidence from Nursing Homes
Susan F. Lu
(University of Rochester)
James Brickley
(University of Rochester)
Gerard Wedig
(University of Rochester)
[View Abstract]
Previous empirical studies of the incentive effects of medical malpractice liability have largely ignored the incentives of providers to restructure to protect assets. This study uses a large panel database to provide evidence on asset-shielding responses to the enactment of pro-plaintiff tort laws in the nursing home industry. The evidence suggests two important asset-shielding responses. First, large chains sold many homes in the affected states to smaller, more judgment-proof owners (with fewer assets, little or no insurance coverage and protective legal structures). Second, chains became relatively less likely to brand their homes with names that linked them directly to the central corporation or sister units (we provide legal and informational explanations for why branding units is likely to increase expected tort liability). In addition to extending the empirical literature on malpractice, the paper provides evidence on the horizontal ownership of service establishments, branding and the choice of business names.
Medicaid Asset Look-Back Policy and the Elderly's Asset Holding Decisions
Padmaja Ayyagari
(University of Iowa)
Daifeng He
(College of William and Mary)
[View Abstract]
The theoretical literature suggests that means-tested welfare programs reduce individuals’ savings. Such effects have important public policy implications. Empirical evidence on this, however, is sparse. In this paper, we provide evidence that the elderly decumulate large amount of assets in anticipation of Medicaid nursing home benefits.
In 2006, Medicaid tightened its eligibility rules related to asset transfer and nursing home use. First, the asset look-back window increased from three to six years. Second, the penalty period, if any, starts from the date of nursing home use rather than from the date of asset transfer. Using data from the Health and Retirement Study (HRS), we examine whether this Medicaid policy change affected the elderly’s asset holding decisions.
We find that married elderly at high risk of using nursing homes significantly decreased their total asset holding by about $100k, or 20%, after the policy change, relative to those at low risk of using nursing homes. The majority of the decumulation occurred with non-protected assets under Medicaid policy. Our findings are not driven by pre-trending. We also find that single elderly decreased their asset holdings too, though at a slower rate and the estimates are not precise. We examine heterogeneous effects by various factors including asset levels, financial literacy, and financial planning horizon. Finally, we use the off-year HRS consumption data to examine whether the observed assets decumulation is accounted for by increased consumption or by asset transfer. Our results are consistent with the elderly behaving strategically to transfer assets at a faster rate when facing tightened Medicaid eligibility rules.
Income Manipulation to Subsidized Health Insurance Programs: Evidence from Massachusetts
Julie Shi
(Harvard University)
[View Abstract]
[Download Preview] This paper analyzes the income manipulation to cutoffs in eligibility for a subsidized program in the Massachusetts health insurance reform, the state-level precursor to federal health care reform. Using data from the American Community Survey, I test for the existence of income manipulation and find clear evidence around the cutoffs of 150 percent and 300 percent of Federal Poverty Level. The lower cutoff falls between plans with zero and non-zero out-of-pocket premiums, and the effect is concentrated among the self-employed. The higher cutoff falls between plans with the largest difference of out-of-pocket premiums, and is concentrated among wage workers. Based on the evidence of manipulation, I estimate the elasticity of labor supply with respect to wage rate, and calculate the welfare loss due to the subsidized program.
Is Health Care an Individual Necessity? Evidence from Social Security Notch
Yuping Tsai
(Centers for Disease Control and Prevention)
[View Abstract]
[Download Preview] This paper exploits Social Security legislation changes to identify the causal effect of Social Security income on out-of-pocket medical expenditures of the elderly. Using the household-level consumption data from the 1986-1994 Consumer Expenditure Survey and an instrumental variables strategy, the empirical results show that the estimated income elasticities of out-of-pocket total medical costs, medical service expenses, and prescription drug expenses are about 0.89, 1.03, and 0.91, respectively. The estimated elasticities increase substantially and are statistically significant for elderly individuals with less than a high school education. The corresponding income elasticities are 2.40, 3.46, and 1.41, respectively. These findings are in sharp contrast to existing studies and provide empirical evidence that
health care expenditures are highly income sensitive among the low educated elderly.
Why Do Americans Spend So Much More on Health Care than Europeans?
Kevin X.D. Huang
(Vanderbilt University)
Hui He
(Shanghai University of Finance and Economics)
[View Abstract]
[Download Preview] Empirical evidence suggests that both leisure time and medical care are
important for maintaining health. We develop a general equilibrium macroeconomic
model in which taxation is a key determinant of the composition of
these two inputs in the endogenous accumulation of health capital. In our
model, higher taxes lead to using relatively more leisure time and less medical
care in maintaining health. We find that difference in taxation between the
US and Europe can account for a large fraction of their difference in health
expenditure-GDP ratio and almost all of their difference in time input for
health production.
Jan 03, 2015 8:00 am, Sheraton Boston, Beacon B
American Economic Association
Microeconomics
(D8)
Presiding:
Kyung Park
(Wellesley College)
Machiavellian Delegation
Harry Di Pei
(Massachusetts Institute of Technology)
Shoshana Vasserman
(Harvard University)
[View Abstract]
[Download Preview] We show that delegating decision rights to a third party can overcome the negative consequences of reputation concerns and improve social welfare. Delegation is valuable by making public signals noisy, and therefore, mitigates the long run players' incentives in reputation building. Our result explains why politicians can shift public blame by delegating unpopular decisions to agents, and establishes a novel role of delegation, which is in sharp contrast to the bulk of literature where the delegated agent has superior information or the ability to acquire information.
Simultaneous Adverse Selection and Moral Hazard
Daniel Gottlieb
(University of Pennsylvania)
Humberto Moreira
(Fundacao Getulio Vargas)
[View Abstract]
We study a principal-agent model with moral hazard and adverse selection. Agents have private information about the distribution of outputs conditional on each effort (and, possibly, the cost of effort). We prove existence, characterize the solution, and establish several general properties of the resulting multidimensional screening problem. A positive mass of types with low conditional probabilities of success gets a constant payment and zero rents. Exclusion is desirable if and only if it is first-best efficient. When agents are risk neutral, an intermediate mass of types is also pooled, although they are offered contracts with variable payments and get positive rents. In addition, the region of types who exert high effort is contained in the interior of the first-best high-effort region and, unlike in pure adverse selection models, there is distortion everywhere. Under additional conditions, the optimal mechanism offers only finitely many contracts. We apply our framework to multidimensional generalizations of canonical models in insurance, regulation, and optimal taxation and show that it generates novel results.
Shrouded Transaction Costs
Renato Gomes
(Toulouse School of Economics)
Jean Tirole
(Toulouse School of Economics)
Helene Bourguignon
(La Banque Postale)
[View Abstract]
[Download Preview] The proliferation of new payment methods on the Internet rekindles the old and unsettled debate about merchants’ incentive and ability to differentiate price according to payment choice. This paper develops an imperfect-information framework for the analysis of platform and social regulation of card surcharging and cash discounting. It makes three main contributions. First, it identifies the conditions under which concerns about missed sales induce merchants to perceive that they must take the card. Second, it derives a set of predictions about cash discounts, card surcharges and platform fees that match, and shed light on existing evidence. Finally, it studies regulation when surcharging is allowed, showing that (i) capping merchant fees reduces welfare if surcharges are unconstrained, (ii) recent reforms to cap surcharges at or above merchant cost ignore the merchant’s benefit from card payments and are accordingly too lenient; indeed surcharges should be banned when the merchant fee is regulated optimally.
How to Boost Revenues in First-Price Auctions? The Magic of Disclosing Only Winning Bids from Past Auctions
Philippe Jehiel
(Paris School of Economics and University College London)
Peter Katuscak
(CERGE-EI)
Fabio Michelucci
(CERGE-EI)
[View Abstract]
[Download Preview] Consider an auctioneer that repeatedly sells identical or similar items using a first-price sealed-bid auction. The auctioneer has a choice of what information about past auctions to disclose. We hypothesize that disclosing winning bids generates more revenue in the steady state than disclosing all bids. This is due to some bidders not realizing that winning bids are not representative of all bids and hence best-responding to the historical distribution of winning bids. We test this hypothesis using a laboratory experiment in which bidders repeatedly compete in pairs drawn from a group of 12 subjects and receive feedback only about the aggregate distribution of bids or winning bids in the group before the next repetition of bidding. Bidders receive no feedback about the outcome of their individual auctions until the end of the experiment. After 11 repetitions of bidding, we observe that the distribution of bids in the winning-bids treatment first-order stochastically dominates the distribution of bids in the all-bids treatment. Under the uniform distribution of valuations, the average revenue is 8 percent higher in the winning-bids treatment, consistently with our hypothesis. To test our hypothesis further, we perform a structural estimation of best-responses. Using bids from the all-bids treatment, we estimate a CRRA risk aversion parameter for each subject. We repeat the same exercise for the winning-bids treatment, with the exception that the estimated parameters now represent a combination of risk aversion and bias in best-responding. Comparing the two distributions of parameters allows us to identify the average extent of the bias in perceiving the distribution of competing bids. We find that a significant fraction of bidders are subject to such bias, consistently with our hypothesis. Moreover, the ones who are not are also affected since they respond to higher competing bids.
Intertemporal Substitution and Self Control
Petra Geraats
(University of Cambridge)
[View Abstract]
[Download Preview] Evidence from behavioral experiments suggests that consumers suffer from self-control problems and that intertemporal preferences reflect hyperbolic rather than exponential discounting. This paper shows that in the presence of self-control problems, consumers tend to have a lower elasticity of intertemporal substitution. Furthermore, in contrast to the standard case of exponential discounting with iso-elastic utility, the elasticity of intertemporal substitution for quasi-hyperbolic consumers depends on the duration of the change in the intertemporal relative price. In particular, lasting changes in the real interest rate are likely to generate a smaller degree of intertemporal substitution in consumption than temporary changes. For plausible parameter values, the extent of intertemporal substitution is about 20% smaller for a permanent change than for a temporary change, so the effect is economically significant and has potentially important public policy implications.
Jan 03, 2015 8:00 am, Sheraton Boston, Riverway
American Economic Association
Structural Demand Models of Attention: Theory and Applications
(L2, D8)
Presiding:
Sebastien Houde
(University of Maryland)
Positive Spillovers and Free Riding in Advertising of Prescription Pharmaceuticals: The Case of Antidepressants
Bradley T. Shapiro
(University of Chicago)
[View Abstract]
[Download Preview] Television advertising of prescription drugs is controversial, and it remains illegal in all but two countries. Much of the opposition stems from concerns that advertising directly to consumers may inefficiently distort prescribing patterns toward the advertised product. Despite the controversy surrounding the practice, its effects are not well understood. Exploiting a discontinuity in advertising along the borders of television markets, I estimate that television advertising of prescription antidepressants exhibits significant positive spillovers on rivals' demand. I then construct and estimate a multi-stage demand model that allows advertising to be pure category expansion, pure business stealing or some of each. Estimated parameters indicate that advertising has strong market level demand effects that tend to dominate business stealing effects. Spillovers are both large and persistent. Using these estimates and a simple supply model, I explore the consequences of the positive spillovers on firm advertising choice. I solve for the Markov Perfect Equilibrium and compare that to counterfactuals whereby firms work together to set advertising. In a full industry cooperative advertising campaign, simulations suggest that the co-operative would produce four times as much advertising as the competitive equilibrium, resulting in a 18 percent increase in category size and a 14 percent increase in category profits.
A/B Testing and Welfare
Benjamin Handel
(University of California-Berkeley)
Jonathan Kolstad
(University of Pennsylvania)
Neale Mahoney
(University of Chicago)
[View Abstract]
This paper studies experimental A/B testing in the context of a large e-commerce insurance broker. The broker sells insurance plans across a wide range of insurance markets, including ACA Exchanges, Medicare Part D, Medicare Advantage, and Medigap, among others. We perform a sequence of large scale field experiments that focus on increasing the number and quality of consumer purchases through this large online broker. We present evidence related to search costs, consumer attention, and consumer heterogeneity in the context of different specific experiments. We then consider the experimental A/B testing process in sum, and set up a framework to determine the benefits of sequential and repeated experimentation on consumer welfare, firm profits, and social welfare. We compare the sales and welfare of consumers in the presence of a large private e-commerce company doing A/B testing to the case where there is a government run website (as for the ACA exchanges) that cannot do such testing.
Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model
Alisdair McKay
(Boston University)
Filip Matejka
(CERGE-EI)
[View Abstract]
[Download Preview] Individuals must often choose among discrete actions with imperfect information about their payoffs. Before choosing, they have an opportunity to study the payoffs, but doing so is costly. This creates new choices such as the number of and types of questions to ask. We model these situations using the rational inattention approach to information frictions. We find that the decision maker's optimal strategy results in choosing probabilistically in line with a generalized multinomial logit model, which depends both on the actions' true payoff s as well as on prior beliefs.
How Consumers Respond to Environmental Certification and the Value of Energy Information
Sebastien Houde
(University of Maryland)
[View Abstract]
[Download Preview] The ENERGY STAR certification is a voluntary labeling that favors the adoption of energy efficient products. In the US appliance market, the label is a coarse summary of otherwise readily accessible information. Using micro-data of the US refrigerator market, I develop a structural demand model and find that consumers respond to certification in different ways. Some consumers have a large willingness to pay for the label, well beyond the energy savings associated with certified products; others appear to pay attention to electricity costs, but not to the certification, and still others appear to be insensitive to both electricity costs and ENERGY STAR. The findings suggest that the certification acts as a substitute for more accurate, but complex energy information.
Discussants:
Gautam Gowrisankaran
(University of Arizona)
Michael Grubb
(Boston College)
Matthew Harding
(Duke University)
Mark Dean
(Brown University)
Jan 03, 2015 8:00 am, Westin Copley, Essex North
American Finance Association
Asset Pricing Theory
(G1)
Presiding:
Jessica Wachter
(University of Pennsylvania)
Leisure Preferences, Long-Run Risks, and Human Capital Returns
Robert Dittmar
(University of Michigan)
Francisco Palomino
(University of Michigan)
Wei Yang
(University of Indiana)
[View Abstract]
[Download Preview] We analyze the contribution of leisure preferences to a model of long-run risks in leisure and consumption growth. The marginal utility of consumption is affected by short- and long-run risks in leisure under non-separable and recursive preferences, respectively. Our model matches equity risk premia and macroeconomic moments with plausible coefficients of relative risk aversion. Further, the incorporation of leisure in utility allows us to examine the optimal tradeoff between labor and leisure and derive model implications for the price of and return on human capital. Human capital exhibits returns that are significantly less volatile than and positively correlated with stock returns, implies expected returns that are between 45% and 60% of the equity premium, and has a Sharpe ratio that is 30% higher than that of the equity return.
New Entropy Restrictions and the Quest for Better Specified Asset Pricing Models
Gurdip Bakshi
(University of Maryland)
Fousseni Chabi-Yo
(Ohio State University)
[View Abstract]
[Download Preview] In this paper, we feature alternative entropy-based restrictions on the permanent component of stochastic discount factors to evaluate asset pricing models. Specifically, our entropy bound on the square of the permanent component of stochastic discount factors is intended to capture the time-variation in the conditional volatility of the log permanent component as well as distributional non-normalities. Extending extant treatments, we develop entropy codependence measures, our bounds generalize to multi-period permanent component of stochastic discount factors, are based on pricing the risk-free bond, the long-term discount bond, and a set of risky assets, and are substantially sharper. Our empirical application to some state-of-the-art asset pricing models indicates that the search for properly specified asset pricing models is far from over.
Asset Prices and Business Cycles with Financial Shocks
Mahdi Nezafat
(Michigan State University)
Ctirad Slavik
(Goethe University Frankfurt)
[View Abstract]
We construct a general equilibrium model with heterogeneous firms, financial frictions, and financial shocks to explain the observed high asset price volatility. Firms face two shocks: classic productivity shocks and financial shocks that affect the tightness of the financial constraint. We calibrate the model to the U.S. data and find that productivity shocks generate only modest asset price volatility. However, our model with both productivity shocks and financial shocks generates a volatility in the price of equity comparable to the observed aggregate stock market volatility while also fitting key aspects of the behavior of aggregate quantities.
Discussants:
Stijn Van Nieuwerburgh
(New York University)
Adrien Verdelhan
(Massachusetts Institute of Technology)
Zhiguo He
(University of Chicago)
Jan 03, 2015 8:00 am, Westin Copley, America North
American Finance Association
Dynamic Agency
(G3)
Presiding:
Michael Fishman
(Northwestern University)
Uncertainty Shocks and Dynamic Compensation
Felix Feng
(Duke University)
[View Abstract]
[Download Preview] This paper studies optimal dynamic compensation when firms are subject to uncertainty shocks but have only limited ability to commit to long-term contracts. I analyze a continuous-time dynamic principal-agent model with private effort and regime switching in cash flow volatility and characterize the optimal managerial compensation and termination policy. In high volatility times, firms are forced to expedite payments to managers because sufficient deferred compensation is no longer credible. At the same time, contract length shortens, that is, termination becomes more likely. This relation between the timing of payments and expected contract length may explain the sizeable cash bonuses observed in crises times. In contrast, with full commitment firms defer compensation more when volatility is high.
A Theory of Liquidity and Risk Management Based on the Inalienability of Risky Human Capital.
Patrick Bolton
(Columbia University)
Neng Wang
(Columbia University)
Jinqiang Yang
(Shanghai University of Finance and Economics)
[View Abstract]
[Download Preview] We formulate a dynamic financial contracting problem with risky inalienable human capital. We show that the inalienability of the entrepreneur's risky human capital not only gives rise to endogenous liquidity limits but also calls for dynamic liquidity and risk management policies via standard securities that firms routinely pursue in practice, such as retained earnings, possible line of credit draw-downs, and hedging via futures and insurance contracts.
Delegated Investment in a Dynamic Agency Model
Florian Hoffman
(Goethe University Frankfurt)
Sebastian Pfeil
(Goethe University Frankfurt)
[View Abstract]
We analyze a continuous time multi-task problem of a manager who has to take care of the day-to-day business and also invest to maintain in the long-term profitability of his operation. That is, the manager controls unobservable investment spending which stochastically affects the firm's future profitability. The interaction of these two tasks generates dynamic agency costs of investment without assuming private costs of investment or empire-building preferences. This results in investment distortions under the optimal long-term contract which depend both on the manager's performance record as well as on the firm's returns to investment. That is, firms with high returns to investment will overinvest relative to first best and firms with low returns to investment will underinvest. As the manager's performance record improves, the agency problem is relaxed, thus reducing investment distortions. Hence, in the overinvestment case, investment decreases in realized cash flows while it increases with cash flows in the underinvestment case. A similar effect has an improvement in corporate governance measures: As better governance makes the underlying agency problem less severe, it reduces the "amplitude" of investment distortions. That is, investment decreases in the overinvestment case and it increases in the underinvestment case.
Discussants:
Alexei Tchistyi
(University of California-Berkeley)
Adriano Rampini
(Duke University)
Konstantin Milbradt
(Northwestern University)
Jan 03, 2015 8:00 am, Westin Copley, America South
American Finance Association
Financial Stability (Sponsored by the Office for Financial Research (OFR))
(G2)
Presiding:
Patricia Mosser
(Office of Financial Research)
CoMargin
Jorge Cruz Lopez
(Bank of Canada)
Jeffrey Harris
(American University)
Christophe Hurlin
(Universite d'Orleans)
Christophe Perignon
(HEC Paris)
[View Abstract]
[Download Preview] We present CoMargin, a new methodology to estimate collateral requirements in derivatives central counterparties (CCPs). CoMargin depends on both the tail risk of a given market participant and its interdependence with other participants. Our approach internalizes trading externalities and enhances the stability of CCPs, thus, reducing systemic risk concerns. We assess our methodology using proprietary data from the Canadian Derivatives Clearing Corporation that include daily observations of the actual trading positions of all of its members from 2003 to 2011. We show that CoMargin outperforms existing margining systems by stabilizing the probability and minimizing the shortfall of simultaneous margin‐exceeding losses.
Crowded Trades: An Overlooked Systemic Risk for Central Clearing Counterparties
Albert Menkveld
(VU University Amsterdam)
[View Abstract]
Counterparty default risk might hamper trade and trigger a financial crisis. The introduction of a central clearing counterparty (CCP) benefits trading but pushes systemic risk into CCP default. Standard risk management strategies at CCPs currently overlook a risk associated with crowded trades. This identifies it, measures it, and proposes a margin methodology that accounts for it. The application to actual CCP data illustrates that this hidden risk can become large, in particular at times of high CCP risk.
Financial Firm Bankruptcy and Contagion
Jean Helwege
(University of South Carolina)
Gaiyan Zhang
(University of Missouri-St. Louis)
[View Abstract]
[Download Preview] The Lehman bankruptcy highlights the potential for interconnectedness to cause negative externalities through counterparty contagion, but the externalities may also arise from information contagion. We examine troubled financial firms and find that both channels are significant factors in creating spillover effects. Counterparty contagion is greater in cases of riskier firms and larger and more complex exposures. However, the counterparty exposures are small, especially among banks that face diversification regulations, and do not typically cause a cascade of failures. Information contagion is stronger for rivals in the same markets and has a larger impact in cases of distress than in bankruptcies.
Lending Pro-Cyclicality and Macro-Prudential Policy: Evidence from Japanese LTV Ratios
Arito Ono
(Mizuho Research Institute)
Hirofumi Uchida
(Kobe University)
Gregory Udell
(Indiana University)
Iichiro Uesugi
(Hitotsubashi University)
[View Abstract]
[Download Preview] Using a large and unique micro dataset compiled from the official real estate registry in Japan, we examine the loan-to-value (LTV) ratios for business loans from 1975 to 2009 to draw some implications for the ongoing debate on the use of LTV ratio caps as a macro-prudential policy measure. We find that the LTV ratio exhibits counter-cyclicality, implying that the increase (decrease) in loan volume is smaller than the increase (decrease) in land values during booms (busts). Most importantly, LTV ratios are at their lowest during the bubble period in the late 1980s and early 1990s. The counter-cyclicality of LTV ratios is robust to controlling for various characteristics of loans, borrowers, and lenders. We also find that borrowers that exhibited high-LTV loans performed no worse ex-post than those with lower LTV loans, and sometimes performed better during the bubble period. Our findings imply that a simple fixed cap on LTV ratios might not only be ineffective in curbing loan volume in boom periods but also inhibit well-performing firms from borrowing. This casts doubt on the efficacy of employing a simple LTV cap as an effective macro-prudential policy measure.
Discussants:
Haoxiang Zhu
(Massachusetts Institute of Technology)
Takeo Hoshi
(Stanford University)
Phillip Monin
(Office of Financial Research)
Matt Pritsker
(Federal Reserve Bank of Boston)
Jan 03, 2015 8:00 am, Westin Copley, Essex Center
American Finance Association
Frontiers in Corporate Decision-Making
(G1)
Presiding:
Francisco Perez-Gonzalez
(Stanford University and Instituto Tecnologico Autonomo de Mexico)
CEO Gender and Corporate Risk-Taking
Mara Faccio
(Purdue University)
Maria-Teresa Marchica
(University of Manchester)
Roberto Mura
(University of Manchester)
[View Abstract]
[Download Preview] We complement the literature on how managerial traits relate to corporate choices by documenting that firms run by female CEOs have lower leverage, less volatile earnings, and a higher chance of survival than otherwise similar firms run by male CEOs. Additionally, transitions from male to female CEOs (or vice-versa) are associated with economically and statistically significant reductions (increases) in corporate risk-taking. The results are robust to controlling for the endogenous matching between firms and CEOs using a variety of econometric techniques. We also discuss some theoretical mechanisms that might explain our results.
Beauty is Wealth: CEO Appearance and Shareholder Value
Joseph T. Halford
(University of Wisconsin-Milwaukee)
Hung-Chia Scott Hsu
(University of Wisconsin-Milwaukee)
[View Abstract]
[Download Preview] This paper examines whether and how the appearance of chief executives officers (CEOs) relates to shareholder value. We obtain a Facial Attractiveness Index of 667 CEOs based on their facial geometry. CEOs with a higher Facial Attractiveness Index are associated with better returns around their job announcements, and higher acquirer returns upon acquisition announcements. To mitigate endogeneity concerns, we compare stock returns surrounding news dates with CEOs’ images to returns surrounding news dates without CEOs’ images. Facial Attractiveness Index positively affects returns only around news dates with CEOs’ images. These findings suggest that CEO appearance matters for shareholder value.
Hard Marriage with Heavy Burdens: Labor Unions as Takeover Deterrents
Xuan Tian
(Indiana University)
Wenyu Wang
(Indiana University-Bloomington)
[View Abstract]
[Download Preview] We examine the causal effect of unionization on a firm’s takeover exposure and merger gains. To establish causality, we use a regression discontinuity design that relies on “locally” exogenous variation generated by elections that pass or fail by a small margin of votes. Barely passing a union election leads to a significant reduction in a firm’s probability of receiving takeover bids. Conditional on receiving a takeover bid, barely unionized targets enjoy a lower announcement return, receive a lower offer premium, and experience longer bid duration. The negative effect of unions on targets’ takeover exposure and merger gains is more pronounced when the mergers are horizontal, the firms have large unions, and the unions locate in states without right-to-work laws or states with more union-friendly successor statutes. Bidders of unionized targets seem to have more experience in making merger deals, possess a higher bargaining power, and face less union threat by themselves. Our paper provides new insights into the real effects of unionization regarding the market for corporate control.
State Capitalism vs. Private Enterprise
Donghua Chen
(Nanjing University)
Dequan Jiang
(Wuhan University and Nanjing University)
Alexander Ljungqvist
(New York University)
Haitian Lu
(Hong Kong Polytechnic University)
Mingming Zhou
(University of Colorado-Colorado Springs and New York University)
[View Abstract]
[Download Preview] We study the efficiency of internal capital markets at state-controlled and privately owned business groups in China. Using highly granular data on within-group capital flows, we document stark differences: while private groups allocate more capital to units with better investment opportunities, state groups do the opposite. Product market competition and external monitoring by minority private shareholders help discipline state groups’ tendency to ignore investment opportunities. We conjecture that capital allocations at state groups reflect the private career objectives of their chairmen. We show that promotion depends not on increasing profitability but on avoiding layoffs. Consistent with a career motive, we find that capital allocations are used to prop up large and struggling employers, but only if the chairman has a realistic chance of being promoted and if the cost of self-interested behavior is not too high.
Discussants:
Ulrike Malmendier
(University of California-Berkeley)
Kelly Shue
(University of Chicago)
David A. Matsa
(Northwestern University)
Daniel Wolfenzon
(Columbia University)
Jan 03, 2015 8:00 am, Westin Copley, Essex South
American Finance Association
Mutual Funds and Management Skill
(G1)
Presiding:
Laura Starks
(University of Texas-Austin)
Identifying Skilled Mutual Fund Managers by Their Ability to Forecast Earnings
Hao Jiang
(University of Texas-Austin)
Lu Zheng
(University of California-Irvine)
[View Abstract]
[Download Preview] We propose a new measure, the Ability to Forecast Earnings (AFE), to identify skilled fund managers. AFE focuses on stock performance during a short window around earnings announcements, in which price movements are predominantly due to firm-specific information revealing fundamental values. It is thus less affected by noise and other shocks in the market. Over the period 1984–2008, we find strong persistence in AFE for skilled funds in the subsequent three years. Moreover, funds in the top decile with the highest AFE subsequently outperform those with the lowest AFE by 2 to 3 percent per year.
On the Demand for High-Beta Stocks: Evidence from Mutual Funds
Susan Christoffersen
(University of Toronto)
Mikhail Simutin
(University of Toronto)
[View Abstract]
[Download Preview] Prior studies have documented that pension plan sponsors rigorously monitor a fund’s performance relative to a benchmark. We use a first-difference approach to show that in an effort to beat benchmarks, fund managers controlling large pension assets reduce fees and increase their exposure to high-beta stocks. Managers increase beta without affecting tracking error because they strategically substitute low-beta stocks for high-beta stocks with low idiosyncratic volatility. The findings support theoretical conjectures that benchmarking pressures increase demand for high-beta stocks and help to explain their low returns. Managerial risk-taking responses to benchmarking pressures complicate financial planning for investors.
Mutual Fund Investment Horizon and Performance
Chunhua Lan
(University of New South Wales)
Russ Wermers
(University of Maryland)
[View Abstract]
[Download Preview] This paper proposes several new holdings-based measures of fund investment horizon, and examines the relation between manager skills and fund holding horizon.
We find that both aggregate holdings and trades of long-horizon funds are informative about superior future long-term stock returns, whereas aggregate trades, but not holdings, of short-horizon funds are associated with future short-term stock returns.
Specifically, stocks that are largely held by long-term funds outperform stocks that are largely held by short-term funds by roughly 3% per year over the following five-year period.
This superior performance of fund managers with long investment horizons stems from their ability to identify superior long-term firm fundamentals. In contrast, short-term funds predict short-term earnings or use simple mechanical strategies, such as momentum strategies, to select stocks.
Discussants:
Richard Sias
(University of Arizona)
Clemens Sialm
(University of Texas-Austin)
Jeffrey Pontiff
(Boston College)
Jan 03, 2015 8:00 am, Westin Copley, America Center
American Finance Association
Searching for Market Mistakes
(G1)
Presiding:
Lauren Cohen
(Harvard Business School)
Analysts' Forecast Bias and the Mispricing of High Credit Risk Stocks
Mark Grinblatt
(University of California-Los Angeles)
Gergana Jostova
(George Washington University)
Alexander Philipov
(George Mason University)
[View Abstract]
[Download Preview] This paper investigates whether financial analysts' power to move prices arises from investors' tendency to blindly follow analyst earnings estimates. Analyst forecasts are often overly optimistic. This optimism is predictable and may generate temporarily inflated stock prices. In addition, for high credit risk stocks, the quintile predicted to have the most optimistic forecasts outperforms the quintile with the least optimistic forecasts by about 19% per year. Certain types of firms attract significantly more analyst optimism than others—namely those with poor credit quality. For these firms, the price distortions caused by analyst optimism are so large and frequent that they account for the negative credit risk-return relation observed in the cross section of U.S. stocks.
Pictures are Worth a Thousand Words: Graphical Information Disclosure and Investment Decision Making
Peter de Goeij
(Tilburg University)
Timo Hogendoorn
(Achmea Holding)
Geert Van Campenhout
(KU Leuven)
[View Abstract]
[Download Preview] We show that in an experimental research setting individual mutual fund investors invest sub-optimally and suffer from behavioral biases when only provided with summarized textual and tabulated mutual fund information. They perceive the risk level of mutual fund incorrectly, follow return-chasing strategies and as a result incur unnecessary fees. Adding real-life graphical risk and returns representations to the disclosed information significantly de-bias individuals’ investment decision. The incurred unnecessary fees drop by 7 to 24 percent relative to the control group depending on the treatment information, while funds’ average perceived risk level improves and return-chasing strategies become less popular. Our results suggest that including graphical representations helps investors to make cheaper investment decisions and should therefore seriously be considered by financial regulators when deciding upon the disclosure policy of financial products.
Stock Duration, Analysts Recommendations, and Misvaluation
Martijn Cremers
(University of Notre Dame)
Ankur Pareek
(Rutgers University)
Zacharias Sautner
(Frankfurt School of Finance and Management)
[View Abstract]
[Download Preview] This paper empirically studies how the interaction between short-term investors and analyst recommendations is related to a speculative component in stock prices. Using a new measure of the holding duration of institutional investors (called Stock Duration), we document that frequently traded stocks with optimistic (pessimistic) analyst recommendations have large negative (positive) future alphas that follow large positive (negative) past outperformance. Using Russell 2000 index reconstitutions to capture exogenous changes in institutional ownership, Stock Duration and analyst coverage, we conclude that strong analyst recommendations serve as a coordination mechanism among short-term, likely speculative, traders, causing significant misvaluations and subsequent price reversals.
The Geographic Dispersion of Google Search and the Market Reaction to Earnings Announcements
Sabrina Chi
(University of Arkansas)
Devin Shanthikumar
(University of California-Irvine)
[View Abstract]
[Download Preview] We examine the impact of distance on investor search behavior, and the effect of geographic dispersion of investor search on the stock market response around earnings announcements. We find significant “local bias” in Internet search behavior. While more visible firms have more geographically dispersed search, there is significant additional variation in search dispersion. Motivated by theories of network effects and psychological distance, we predict and find that firms with a higher geographic dispersion of search experience higher abnormal trading volume, lower abnormal bid-ask spreads, and larger earnings response coefficients at the time of earnings announcements, as well as weaker post-earnings-announcement drift. These results hold both cross-sectionally and when examining changes in dispersion or propensity-score matched pairs. In addition, path analysis suggests that both network effects and investor psychology are significant drivers of the return results. Overall, our results suggest that geographic proximity affects search, and that firms with more geographically dispersed search experience better market responses to earnings announcements.
Discussants:
Umit Gurun
(University of Texas-Dallas)
Christa Bouwman
(Texas A & M University)
Breno Schmidt
(Emory University)
Joey Engelberg
(University of California-San Diego)
Jan 03, 2015 8:00 am, Westin Copley, Great Republic
American Real Estate & Urban Economic Association
House Price Dynamics
(R3, G1)
Presiding:
Richard Green
(University of Southern California)
Bubbles, Post-Crash Dynamics, and the Housing Market
Stuart Rosenthal
(Syracuse University)
Crocker Liu
(Cornell University)
Adam D. Nowak
(West Virginia University)
[View Abstract]
[Download Preview] This paper documents and explains previously unrecognized dynamics following the collapse of a housing bubble. A simple model predicts that supply adjustments by speculative developers ensure stable pre-crash relative prices between low- and high-quality segments of the market. Post-crash exit of developers removes that disciplining effect which allows relative prices to potentially diverge, in which case lower quality segments must fall further so that the rank order in prices across quality segments is preserved. Market recovery implies the return of developers causing relative prices to revert back to their pre-crash levels.
We implement the model using size-stratified repeat sales measures of house price inflation for Phoenix, Arizona. Although home prices doubled 2004-2006, relative prices of small-to-large homes remained stable. Post-crash, a striking monotonic pattern of relative prices appears, with smaller home values falling further than larger home values prompted in part by increased turnover associated with distressed sales in smaller home market segments. As markets have begun to recover since 2011, much of the divergence in relative prices has disappeared. Anticipated mean reversion indicates that cities can reduce post-crash volatility and possible mispricing by publicizing size-stratified repeat sale house price indexes.
Investor Confidence as a Determinant of China’s Urban Housing Market Dynamics
Matthew Kahn
(University of California-Los Angeles)
Weizeng Sun
(Tsinghua University)
Siqi Zheng
(Tsinghua University)
[View Abstract]
[Download Preview] Macro economists have documented the association between consumer confidence dynamics and durables purchases. A similar dynamic exists in China’s urban housing market. At any point in time Chinese consumer confidence hinges on beliefs about the state of the macro economy and the resolution of policy uncertainty related to the national and local housing policies. We build a 35 Chinese city real estate confidence index. All else equal, this index predicts subsequent house price appreciation and new housing construction. Given that housing plays a key role in China’s marriage market, we document that in cities with more skewed sex ratios that this index has a stronger association with market price dynamics. In cities featuring a more inelastic housing supply, we document a stronger association between price dynamics and the confidence index. We supplement this city panel research with results from our household level expectations survey.
United States House Prices over the Last 30 Years: Bubbles, Regime Shifts and Market (In)Efficiency
Robert Van Order
(George Washington University)
Rose Lai
(University of Macau)
[View Abstract]
[Download Preview] This paper studies the evolution of U.S. house prices across 45 metropolitan areas from 1980-2012. It uses a lagged version of the Gordon dividend discount model, modeling price as present value of imputed rents along lines in Lai and Van Order (2010). This allows for a very parsimonious specification, using only lagged rents, property values and interest rates to explain property values. Rents are in effect a summary statistic for all sort s of variables commonly used in modeling real estate. We use Pooled Mean Group (PMG) estimation, which allows panel data such as ours to have different adjustment speeds across, in our case, cities, but forces long run coefficients to be the same. In our case we assume that every city converges to a price given by the Gordon model except for fixed effects, which allow some cities to be “growth stocks” relative to others. This allows us to impose standard asset pricing theory in the long run, while allowing for well-known sluggishness of price adjustment and variation of adjustment speeds across cities. We use this structure to analyze regime shifts over the period and differences in “bubbles” across cities, and we test whether the Gordon model applies consistently in the long run and speed of adjustment to the long run.
A More Timely House Price Index
Steven M. Laufer
(Federal Reserve Board)
Elliot Anenberg
(Federal Reserve Board)
[View Abstract]
[Download Preview] We construct a new "list-price index" that uses the repeat-sales approach to measure
house prices but for recent months uses listings data instead of transactions data.
Because listings data describe the current offering price and are available essentially
in real time, our index is more timely than existing house price indices in two ways.
First, our index describes house values at the contract date when the price is determined
rather than at the closing date when the property is transferred. As a result of this
difference in timing, our index displays a stronger correlation with stock prices and
less short term serial correlation than a standard repeat-sales index. Second, our
index accurately reveals trends in house prices several months before existing sales
price indices like Case-Shiller become available. In a sample of nine large MSAs over
the years 2008-2012, our index (i) accurately forecasts the Case-Shiller index several
months in advance, (ii) outperforms forecasting models that do not use listings data, and (iii) outperforms the market's expectation as inferred from prices on Case-Shiller
futures contracts.
Discussants:
Lu Han
(University of Toronto)
Kerry Vandell
(University of California-Irvine)
Stephen Malpezzi
(University of Wisconsin-Madison)
Christian Redfearn
(University of Southern California)
Jan 03, 2015 8:00 am, Westin Copley, Empire
American Real Estate & Urban Economic Association
Real Options
(G1, R3)
Presiding:
Timothy Riddiough
(University of Wisconsin-Madison)
Do Value-Added Real Estate Investments Add Value?
Liang Peng
(University of Colorado-Boulder)
Thomas Thibodeau
(University of Colorado-Boulder)
[View Abstract]
Not really. This paper compares the unlevered returns on value added and core investments of private commercial real estate equity in the National Council of Real Estate Investment Fiduciaries (NCREIF) database. We use capital expenditures on building improvements to identify value added investments, and use a difference in differences approach to control for mismatch in holding periods and locations of investments. The results provide no evidence for difference in average returns on value added and core investments, despite higher perceived risk for the former. We also find that value added investments have lower unlevered returns when “value creation” starts in booming real estate markets and when “value creation” costs more, which suggests possible systematic mispricing of the real options embedded in value added investments.
Real Estate Risk, Corporate Investment and Financing Choice
Xiaoying Deng
(Wuhan University)
Seow Eng Ong
(National University of Singapore)
Meijun Qian
(National University of Singapore)
[View Abstract]
[Download Preview] This paper examines how asset risk impacts corporate investment and financing decisions. We derive a general model that incorporates risk, adjustment cost, and depreciation features of assets-in-place into investment decisions. The model suggests that the risk and adjustment cost of assets-in-place reduce both corporate investment and financing. We empirically test the model in a panel of US firms from 1985 to 2010 with data on real estate risk exposure. Evidence shows that real estate risk is negatively associated with firms’ long-term investments and long-term external financing in equity and debt. However, the effect on leverage depends on risk measures and asset types. Overall, in contrast to previously documented effect of the real estate value, real estate risk exposure exhibits mostly the opposite effects on investment, financing, and capital structure.
Characteristics of Depreciation in Commercial and Multi-Family Property: An Investment Perspective
Sheharyar Bokhari
(Massachusetts Institute of Technology)
David Geltner
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper reports empirical evidence on the nature and magnitude of real depreciation in commercial and multi-family investment properties in the United States. The paper is based on a much larger and more comprehensive database than prior studies of depreciation, and it is based on actual transaction prices rather than appraisal estimates of property or building structure values. The paper puts forth an “investment perspective” on depreciation, which differs from the tax policy perspective that has dominated the previous literature in the U.S. From the perspective of the fundamentals of investment performance, depreciation is measured as a fraction of total property value, not just structure value, and it is oriented toward cash flow and market value metrics of investment performance such as IRR and HPR. Depreciation from this perspective includes all three age-related sources of long-term secular decline in real value: physical, functional, and economic obsolescence of the building structure. The analysis based on 107,805 transaction price observations finds an overall average depreciation rate of 1.5%/year, ranging from 1.82%/year for properties with new buildings to 1.12%/year for properties with 50-year-old buildings. Apartment properties depreciate slightly faster than non-residential commercial properties. Depreciation is caused almost entirely by decline in current real income, only secondarily by increase in the capitalization rate (“cap rate creep”). Depreciation rates vary considerably across metropolitan areas, with areas characterized by space market supply constraints exhibiting notably less depreciation. This is particularly true when the supply constraints are caused by physical land scarcity (as distinct from regulatory constraints). Commercial real estate asset market pricing, as indicated by transaction cap rates, is strongly related to depreciation differences across metro areas.
Commercial Real Estate Market Property Level Capital Expenditure: An Options Analysis
James Shilling
(DePaul University)
Shaun Bond
(University of Cincinnati)
Charles Wurtzeba
(DePaul University)
[View Abstract]
[Download Preview] Option pricing theory predicts that capital improvement expenditures are positively linked with high or increasing market lease rates. Ceteris paribus, when the market lease rate is high, or when there is an expectation of higher lease rates in the future, owners are encouraged to increase investment to capture a
larger profit. In contrast, when the market lease rate is low, or when there is an expectation of lower lease rates in the future, owners are encouraged to defer capital improvements, causing a skewness in the cash flows. However, not all capital improvement decisions are made on this basis. Some capital expenditures are defensive investments, made when the market lease rate is low, or when there is an expectation of lower lease rates in the future. Defensive investments can, in theory, improve cash flow, reduce vacancies, reduce leasing and repair costs, and preserve building value. Still, defensive investments can be shared growth options, easily replicated by others with minimal effort. Consequently, it is possible for any routine cost reductions or any economic rent associated with defensive investments to be dissipated over time, or at least so the theory goes. We test these predications using property-level data during the period from 2003 to 2012. The evidence supports the conjecture that capital improvements lead to higher incomes. The evidence does not, however, provide support for the conjecture that capital expenditures are fully capitalized into market values. In point of fact, the evidence argues just the opposite. Nonetheless, despite this result, the same data provide evidence that investors are fully, or more than fully, compensated in terms of overall total return on investment for the differing expenditures.
Discussants:
Jeffrey Fisher
(University of Indiana)
Moussa Diop
(University of Wisconsin)
David Barker
(University of Iowa)
John Clapp
(University of Connecticut)
Jan 03, 2015 8:00 am, Westin Copley, Defender
American Real Estate & Urban Economic Association
The Liquidity of Real Estate
(G1, R3)
Presiding:
Brent Smith
(Virginia Commonwealth University)
Commonality in Liquidity and Real Estate Securities
Anjeza Kadilli
(University of Geneva)
Martin Hoesli
(University of Geneva)
Kustrim Reka
(University of Geneva)
[View Abstract]
[Download Preview] We conduct an empirical investigation of the pricing and economic sources of commonality in liquidity in the U.S. REIT market. Taking advantage of the specific characteristics of REITs, we analyze three types of commonality in liquidity: within-asset commonality, cross-asset commonality (with the stock market), and commonality with the underlying property market. We find evidence that the three types of commonality in liquidity are priced in REIT returns but only during bad market conditions. We also find that using a linear approach, rather than a conditional, would have underestimated the role of commonality in liquidity risk. This explains (at least partly) the small impact of commonality on asset prices documented in the extant literature. Finally, our analysis of the determinants of commonality in liquidity favors a demand-side explanation.
Real Estate Fund Flows and the Flow-Performance Relationship
David Downs
(Virginia Commonwealth University)
Steffen Sebastian
(University of Regensburg)
Christian Weistroffer
(Goethe University Frankfurt)
Ren Woltering
(University of Regensburg)
[View Abstract]
[Download Preview] This paper examines the flow-performance relationship for direct real estate investment funds. Combining a unique data set with a VAR model framework, we find evidence that investors chase past returns at the aggregate level. However, we find against a market timing hypothesis - real estate fund flows do not seem to predict subsequent returns. Additional findings indicate aggregate flows into direct real estate funds are serially correlated and negatively related to changes in the risk free rate. Our analysis of individual fund flows is motivated by a growing body of literature that addresses the flow-performance relationship and the effect of illiquid assets. Overall, we find the flow-performance relationship for direct real estate investment funds is convex. This finding is consistent with studies based on funds with more liquid underlying assets such as equity funds. More importantly, we find that the flow-performance shape varies with fund-level liquidity. Individual fund flows are less sensitive to poor performance as liquidity increases. The flow-performance sensitivity is higher for high performing funds as liquidity increases. Together these results imply that fund liquidity increases the flow-performance convexity of real estate funds. The implications are that investors are more sensitive to fund-level underperformance (i.e., more likely to sell), when there is increased liquidity risk.
Foreclosure Externalities and Real Estate Liquidity
Xun Bian
(Longwood University)
Raymond Brastow
(Longwood University)
Bennie Waller
(Longwood University)
Scott Wentland
(Longwood University)
[View Abstract]
[Download Preview] The real estate and urban economics literature has consistently shown that foreclosed homes adversely impact the selling price of surrounding real estate. In this study, we examine the external impact of foreclosures on nearby real estate liquidity in particular. In addition to using more traditional binary measures, we construct a continuous distance-weighted foreclosure externality measure that incorporates temporal overlap between a listed property’s marketing period and nearby foreclosures. This approach allows us to estimate effects of nearby foreclosed homes at various points in a property’s marketing period, allowing the spillover to vary in intuitive ways. While much of the literature shows that foreclosed properties have a modest effect on nearby home prices, our results show that foreclosed homes adversely impact the liquidity of nearby homes substantially, increasing a nearby home’s time on market and significantly reducing the probability that it will sell. Further, the results suggest that foreclosure externality on liquidity is primarily driven by a disamenity effect, as the estimated external supply effect of a foreclosed property is approximately the same as a non-foreclosed property.
Liquidity Pricing of Illiquid Assets
Gianluca Marcato
(University of Reading)
[View Abstract]
[Download Preview] So far the main body of the asset pricing literature has computed liquidity risk premia for either markets or single assets. The vast majority of these studies have been focused on fairly liquid assets, but recently a greater attempt to price such an important component of the asset pricing factors in markets with high illiquidity (especially in real estate) has also started to take place.
The present paper brings these recent studies together, and estimates the liquidity premium of illiquid assets looking at three main sources – time on market, liquidation bias and market liquidity – using three main empirical estimation models and several liquidity measures suggested in the literature. We find strong evidence of a high premium that varies across sectors and periods. This estimation is robust to different measures of liquidity and model specifications.
Discussants:
Peng (Peter) Liu
(Cornell University)
Piet Eichholtz
(University of Maastricht)
Vincent W. Yao
(Fannie Mae)
Steve Slezak
(University of Cincinnati)
Jan 03, 2015 8:00 am, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Intangible Capital, Creative Destruction, and Prospects for China's Continued Economic Growth
(D2, O3)
Presiding:
Belton Fleisher
(Ohio State University)
Is China’s “Great Wall” of Patents a Barrier to Sustained Growth?
Jun Du
(Aston University)
Ying Zhou
(UK Enterprise Research Centre)
[View Abstract]
We examine the extent to which innovation and patenting activity in China is inefficiently skewed toward the State Sector (SOEs), slowing technology advance and productivity growth. The past decade has witnessed a surge in patent applications and grants in China, and SOEs’ share in patent activity has been disproportionately high. SOEs’ investment in R&D has surged, much of it benefitting from state subsidies on innovation. Anecdotal evidence suggests that SOEs’ patenting activities have been in part a response to government pressure. However, there is mounting evidence that SOEs’ patent grants lag in their impact on productivity and financial performance and that there is a misallocation of intangible investment between the state- and non-state sectors is serious and deteriorating (Du, et al 2014).
We follow Melitz and Polanec (2012) in decomposing firm-level TFP growth based on a time-varying index of resource misallocation over the period 1998-2008. We relate a firm’s position in the resource reallocation hierarchy affects innovative outputs as measured by innovation patents, utility patents (which are lower in innovation content), intangible asset growth, and new product sales. We show that the cheap credit and other subsidies to SOEs leads to resource misallocation and lowers firm-level and aggregate TFP growth, with obvious implications for the sustainability of China’s progress beyond the “middle income trap”.
China-United States Productivity Catch-Up: Escaping the Middle-Income Trap?
Gary Jefferson
(Brandeis University)
Paul D. Deng
(Copenhagen Business School)
[View Abstract]
[Download Preview] China’s gap in industrial labor productivity with the United States has been steadily shrinking over recent decades. In this paper we examine the main sources of gap reduction and the potential for further catch-up. Using Chinese above-scale firm-level data during 1998-2007 period and BEA industry -level data in the US, we first document the respective rates of growth of labor productivity, gap reduction, and contributions to overall catch-up of China’s manufacturing sector during 1998-2007. We then aggregate the firm-level data to the 3-digit industry level to estimate a productivity gap reduction function and find that the key drivers for the productivity convergence are the initial technology gap, increased R&D spending, firm’s ownership restructuring, and industry level entry-exit ratio, a measure of competitive dynamism. A key finding is that the catch-up dynamic entails the break out of a small number of firms within each industry rather than catch-up of lagging firms. We then use these finding to investigate on-going patterns of catch-up during 2007 to 2011.
China's Patenting Surge from 2007 to 2011: More Innovation or Just More Patents?
Albert Guangzhou Hu
(China Europe International Business School and National University of Singapore)
[View Abstract]
China overtook the U.S. in 2011 to become the country filing the largest number of patent applications. Has China's patenting ascendancy been propelled by Chinese firms' increasing technological sophistication or their much greater propensity to seek patents? Using a unique and never before used data set, where the State Intellectual Property Office (SIPO) patent records have been matched to their applicant firms, we differentiate the two potential explanations by estimating a patents production function. Our main findings are 1) Chinese firms have intensified their R&D spending; 2) the patenting surge has been an across-the-board phenomenon, with more rapid growth coming from industries that were previously not seeking patents as actively as they are now; 3) the correlation between patents and R&D has become weaker, particularly for utility models and for domestic Chinese firms; 4) despite the weakening association between patents and R&D, the willingness to acquire patents has significantly increased; and 5) less innovative firms and firms from less innovative regions have shown a greater willingness to apply for patents.
Crisis as a Catalyst for Quality Upgrade: Evidence from Industrial Clusters in China
Jianqing Ruan
(Zhejiang University)
Xiaobo Zhang
(Peking University and IFPRI)
[View Abstract]
[Download Preview] The quality of manufactured products made in China has improved tremendously in the past several decades. In this paper, we argue that crises beget opportunities for quality upgrade. We first develop a theoretical framework to show that a crisis, if used wisely, could present good opportunities for entrepreneurs and local governments to form collective action to improve product quality. Next, we empirically test the hypothesis using a panel data set from 1990 to 2008 at the county level in Zhejiang Province, China, showing that after crises, the number of patents, trademarks, and ISO application spiked. Based on a survey in about 100 clusters, we also find that the type of collective action has shifted from promoting quantify explanation to facilitating quality upgrade after a crisis.
Discussants:
Belton Fleisher
(Ohio State University)
William McGuire
(University of Washington-Tacoma)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics/International Association for Feminist Economics
Public Policy and Social Provisioning
(I3)
Presiding:
Timothy A. Wunder
(University of Texas-Arlington)
Basic Income and the Social Provisioning Process: Some Polanyian/Keynesian Insights
Mario Seccareccia
(University of Ottawa)
[View Abstract]
Alan Gruchy’s broad description of social provisioning highlighted the importance of providing the flow of goods and services to meet the overall needs of its economic participants, including disadvantaged members whose activities tend to be immersed in the non-market sphere. Numerous economists, both institutionalist and mainstream, going back to the early postwar years have often pointed to the provision of some form of basic income as the next “evolutionary” policy step to ensure a crucial safety net for all, regardless of labor market participation. Inspired by the work of Polanyi (on the effects of “outdoor relief” under the Poor Laws), the “aid-in-wage” system generated labor market outcomes perhaps similar to those that could arise from the adoption of a guaranteed basic income. This is because income guarantees could spread deflationary wage pressures among low-income participants due to the compensation effect of the basic income. This would have not only important micro outcomes for employment income at the low end of the wage scale, but it could have an impact at the macro level under the crucial assumption of fiscal deficit neutrality of these basic income proposals. This directly links to the Keynesian view of the state, whereby a basic income guarantee without some form of fiscal policy of functional finance would be destabilizing at the macroeconomic level (a connection to social provisioning also emphasized by Todorova).
Women in a Financialization World: Microcredit, Empowerment and Profits
Alicia Giron
(National Autonomous University-Mexico)
[View Abstract]
[Download Preview] The financialization process around the world as part of the shadow financial system has arrived by different ways not only as part of an official dialogue in the macroeconomic field but also in the microcredit sphere. Microfinance institutions are part of the inclusion financial process especially for poor people in developing countries but must of these microcredit are used by women who needs to improved their income. Microcredit has been used by the dominant ideology as a mechanism for the empowerment of women throughout the last years. The empowerment from a gender perspective consists in transforming women into economic agents, capable beings with “freedom to choose”, not only to determine credit’s use and to get involved in productive projects, but also as entrepreneurs in administrative, social and political decisions of society. Microcredit with a woman’s face is one of the most important metamorphoses that came up from structural changes in financial circuits and labor-market circuits from late seventies until today. Microcredit not only encourages empowerment, it also leads women to become economically profitable subjects at microfinance’s service. At the same time the profits of the microfinance institutions are part of the financialization process around the world. Many of the microfinance institutions depend or are part of the big banks. The objective of the present paper is to point out the way in which microfinance acquire the face of women.
The Concept of Care in Institutional and Feminist Economics and Its Impact on Public Policy
Anna Zachorowska-Mazurkiewicz
(Jagiellonian University)
[View Abstract]
[Download Preview] Economic activity takes place within an institutional framework. People are not rational individuals whose main goal is to maximize profits or utility, but members of a society, and their behaviour is an outcome of rules that define this society. The economy, like society, represents a complex of institutions, ranging from the smallest, such as the family, to the largest and most comprehensive, namely the state. Institutional economics offers a broad perspective, which allows to bring forward the concept of gender, since gender is a fundamental organizing principle of institutions. A focus on social provisioning, typical for both feminist as well as institutional economists, leads to a broader understanding of economic activity. This broader approach includes activities, like caring and care labour, that cannot be entirely understood in terms of individual choices. Care and economy are interconnected. Care is important for the economy, which depends on care services and would not be able to develop or even to operate without it. On the other hand economic relations influence the quantity and quality of care provided in society. In the paper the relations between care and economy are explored from the perspective of institutional and feminist economic theory. Economic theories are basis for public policies, that have a major impact on people’s lives. In the paper I will argue that the change of dominating economic perspective into feminist-institutional would improve the situation of care providers, and that would contribute to the development of the society and the economy.
Transforming Consumers to Social Provisioners
Paula M. Cole
(University of Denver)
Valerie K. Kepner
(King's College)
[View Abstract]
Consumers today are under increasing pressure to make the “right” spending decisions. A “good” consumer is supposed to be environmentally conscious, support the local economy, and promote economic and social justice—all through the power of the dollars they spend. We explore the potential of transforming from consumers to social provisioners and shifting the conversation from individual choice and personal responsibility to social provisioning and caring relations. We analyze the spectrum of behavior displayed by economic individuals from the consumer to the social provisioner and the influence of ethics in their actions. Additionally, we contextualize understanding of the behavior of economic individuals within diverse economic theories and current realities. Finally, we examine how to challenge the materialist status quo through the use of government regulations, ethical and religious guidance, and social norms.
A Different Look at the Welfare Trap: Institutional Causes and Remedies
Necati Celik
(University of Utah)
[View Abstract]
[Download Preview] This paper investigates the institutional nexus of Welfare Support Programs (WSPs) in the US and households’ access to social needs, particularly affordable healthcare and education. A close look at the Survey of Consumer Finances (SCF) reveals that households that were turned down when they applied for credit in the past are more likely to receive welfare support in the survey year. Moreover, welfare recipient households report lower status of health and lower years of education regardless of their income and demographic attributes. These results support the hypothesis that WSPs limit households’ access to healthcare and education due to the institutional set-up of the two in the US. Constrained-households find themselves in the welfare trap because their limited access to better health care and education are reflected in their household income, pushing them further down the ladder and increasing their dependency on WSPs for subsistence. Neither the repeal nor the expansion of WSPs will solve this dilemma unless the US government enacts institutional policies to address the way higher education and healthcare is provided and financed in the country. Affordability of health care and higher education should be the main target of these policies to enable households to pull themselves out of the welfare trap by finding and maintaining jobs without regressing back in to welfare support.
Discussants:
Swarna S. Vepa
(Madras School of Economics)
Siobhan Austen
(Curtin University)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Social Economics
Ethical Challenges Facing the Academic Economist: Theoretical Work and Pedagogy
(A1, B4)
Presiding:
Deirdre N. McCloskey
(University of Illinois-Chicago)
Economists’ Odd Stand on the Positive-Normative Distinction: A Behavioral Economics View
John B. Davis
(Marquette University)
[View Abstract]
[Download Preview] This paper examines economists’ indefensible attachment to the positive-normative distinction, and suggests a behavioral economics explanation of their behavior on the subject. It traces the origins of the distinction to Hume’s guillotine and logical positivism, and argues they contributed to Robbins’ understanding of value neutrality. It connects philosophers’ rejection of logical positivism and their rejection of the positive-normative distinction, explains and modifies Putnam’s view of fact-value entanglement, and identifies four main ethical value judgments that contemporary economists employ. The behavioral explanation of economists’ denial of these value judgments emphasizes loss aversion and economists’ social identity as economists.
After Samuelson: Liberal Education for Economists
Robert Garnett
(Texas Christian University)
[View Abstract]
[Download Preview] Most economics majors today, like their counterparts fifty years ago, are unable to demonstrate retained understanding of economic principles or to apply them to real-life situations (Stigler 1963; Bice et al. 2015). Yet the Samuelsonian mode of economics education persists, due in part to limited cooperation among educators who would favor reforms to enhance students’ capacities for self-directed analysis and learning. The author argues that economists’ shared commitment to the Enlightenment aim of teaching students to think for themselves could facilitate broad-based conversations about and support for liberal revisions to the learning goals, teaching strategies, and curricular structures of the economics major. In support of this claim, the paper demonstrates that liberal education ideals are native to virtually every branch of modern economics and explores how undergraduate economics education might be enhanced if economists of diverse theoretical traditions were to engage in more conversations about how to expand students’ intellectual capabilities.
Poisoning the Well, or How Economic Theory Damages Moral Imagination
Julie Nelson
(University of Massachusetts-Boston)
[View Abstract]
[Download Preview] Contemporary mainstream economics has widely “poisoned the well” from which people get their ideas about the relationship between economics and ethics. The image of economic life as inherently characterized by self-interest, utility- and profit-maximization, and mechanical controllability has caused many businesspeople, judges, sociologists, philosophers, policymakers, critics of economics, and the public at large to come to tolerate greed and opportunism, or even to expect or encourage them. This essay raises and discusses a number of counterarguments that might be made to the charge that current dominant professional practice is having negative ethical effects, as well as discussing some examples of the harms inflicted in the areas of law, care work, the environment, and ethics itself. (The attached file is a 2012 working paper version; the final version is forthcoming in The Oxford Handbook of Professional Economic Ethics, edited by George DeMartino and Deirdre McCloskey.)
Alternative Ethical Perspectives on the Financial Crisis: Lessons for Economists
Irene van Staveren
(Erasmus University Rotterdam)
[View Abstract]
[Download Preview] This paper analyses the financial crisis from three ethical perspectives. It starts from utilitarianism, the ethical theory underlying neoclassical economics, which has partly driven the crisis. The best-known alternative is deontology, a rule-based ethics. This has failed to prevent the crisis because the dominant utilitarianism has undermined professionals’ belief in universal rules. The third approach is the ethics of care, a relational ethics grounded in moral commitments between people in their particular contexts, which emerged from research on families, households, and healthcare. There are two case studies that illustrate that the ethics of care is not necessarily limited to micro practices shaped by women’s traditional roles as caregivers. One case is on ‘caring finance’ in Rabobank, and the other is on gender differences in financial behavior. They illustrate that the ethics of care deserves more attention from economists.
Jan 03, 2015 8:00 am, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Energy and Energy-Intensive Industry
(Q4, L2)
Presiding:
Meredith Fowlie
(University of California-Berkeley)
The Value of Transmission in Electricity Markets: Evidence from a Nuclear Power Plant Closure
Catie Hausman
(University of Michigan)
Lucas Davis
(University of California-Berkeley)
[View Abstract]
[Download Preview] In this paper, we exploit the abrupt closure of the San Onofre Nuclear Generating Station to estimate the value of electricity transmission. Following the plant's closure in February 2012, we find that as much as 75% of lost generation during high demand hours was met locally. Although lower-cost production was available elsewhere, transmission constraints and other physical limitations of the grid severely limited the ability of other producers to sell into the southern California market. These constraints also made it potentially more profitable for certain plants to exercise market power, and we find evidence consistent with one company acting non-competitively.
The Causal Effects of the European Union Emissions Trading Scheme: Evidence from French Manufacturing Plants
Ralf Martin
(Imperial College London)
Ulrich Wagner
(University of Madrid)
Mirabelle Muuls
(Imperial College London)
Jonathon Colmer
(London School of Economics)
[Download Preview] See Paper
The Effect of Electricity Taxation on the German Manufacturing Sector: A Regression Discontinuity Approach
Benjamin Johannes Lutz
(Centre for European Economic Research)
Florens Flues
(Organization for Economic Cooperation and Development)
[View Abstract]
[Download Preview] During the last two decades many countries have recognized the challenges posed by resource scarcity, environmental pollution, and climate change and sought for policies to foster more sustainable energy consumption. In this spirit Germany introduced a new ad-quantum excise tax on electricity consumption in 1999. The goals were twofold. First, to encourage improvements in energy efficiency and second, to foster economic growth by using the revenues from the electricity tax to lower labor costs. We examine the impact of the electricity tax on the economic performance of firms in the manufacturing sector. We propose a nonparametric regression discontinuity design that exploits sharp discontinuities in the marginal electricity tax rate. A year by year evaluation during the period 1999-2005 shows, that the causal impact of the electricity tax on firms’ revenues, employment, investment, and exports are economically and statistically insignificant. Our findings suggest, that eliminating the reduced marginal electricity tax rates would increase revenues for the government without significantly harming firms.
A one-two punch: Joint effects of natural gas abundance and renewables on coal-fired power plants
Harrison Fell
(Colorado School of Mines)
Daniel Kaffine
(University of Colorado-Boulder)
[View Abstract]
[Download Preview] Since 2007, coal-fired electricity generation in the US has declined by a stunning 25%.
At the same time, natural gas-fired generation and wind generation have dramatically
increased due to technological advances and policy interventions. We examine the
joint impact of natural gas prices and wind generation on coal generation, with a
particular focus on the interaction between low natural gas prices and increased wind
generation. Exploiting detailed daily unit-level data, we estimate the response of coal-
fired generation across four transmission regions within the US. Low natural gas prices
and increased wind generation have both led to reductions in coal-fired generation.
Furthermore, we find evidence that the interaction between natural gas prices and wind
generation is statistically and economically significant, and led to a greater reduction in
coal-fired generation than would be explained by either factor alone. In some regions,
marginal responses of coal-fired generation to natural gas prices in 2013 were several
times what they would have been had wind generation remained at 2008 levels. Similar
sensitivities were found for responses to wind generation. As a consequence, our results
suggest that policies such as carbon pricing combined with those that increase wind
generation would be complementary in terms of their impact on coal-fired generation.
Discussants:
James Bushnell
(University of California-Davis)
Meredith Fowlie
(University of California-Berkeley)
Ralf Martin
(Imperial College London)
Kevin Novan
(University of California-Davis)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon I
Association of Financial Economists/American Economic Association
Culture, Social Transmission, and Arbitrage in Financial Markets
(G1, D7)
Presiding:
Paola Sapienza
(Northwestern University)
Does Diversity Lead to Diverse Opinions? Evidence from Languages and Stock Markets
Yen-Cheng Chang
(Shanghai Advanced Institute of Finance)
Harrison Hong
(Princeton University)
Larissa Tiedens
(Stanford University)
Na Wang
(Hofstra University)
Bin Zhao
(Shanghai Advanced Institute of Finance)
[View Abstract]
[Download Preview] Diversity of opinions among investors plays a crucial role in models of financial market speculation and bubbles. Yet, little is known about the origins of investor disagreement. Using unique data from China, we identify an important cultural and linguistic factor. We show that investors living in linguistically diverse areas express more diverse opinions on stock message boards and trade stocks more actively. We use geographical isolation of an area due to hilly terrain as an instrument for linguistic diversity. We then discriminate in favor of a differential interpretations mechanism and against slow news diffusion due to language barriers.
Social Trust and Differential Reactions of Local and Foreign Investors to Public News
Chunxin Jia
(Peking University)
Yaping Wang
(Peking University)
Wei Xiong
(Princeton University)
[View Abstract]
[Download Preview] This paper uses the segmented dual-class shares of Chinese firms---A shares traded inside mainland China by local investors and H shares traded in Hong Kong by foreign investors---to compare reactions of local and foreign investors to the same public news. We find that local investors react more strongly to earnings forecast revisions by local analysts, while foreign investors react more strongly to forecast revisions of foreign analysts. This finding cannot be explained by local investors being more informed about local firms, earnings forecasts of local analysts being more precise, or local investors having better access to forecasts of local analysts. Instead, it supports the notion that local investors have more trust for local analysts while foreign investors have more trust for foreign analysts, and highlights social trust as an important force driving people with different social backgrounds to react differently to the same information.
Visibility Bias in the Transmission of Consumption Norms and Undersaving
Bing Han
(University of Toronto)
David Hirshleifer
(University of California-Irvine)
[View Abstract]
[Download Preview] We study how bias in the social transmission process affects the
spread of time preference norms. In the model, consumption is more
salient than non-consumption. This visibility bias causes people to
perceive that others are consuming heavily and to infer that a high
discount rate is normative. The transmission of norms for high
discounting increases consumption and the interest rate. Information
asymmetry about the wealth of others dilutes the inference from high
observed consumption that the discount rate is high. In consequence,
in contrast with the Veblen wealth-signaling approach, information
asymmetry about wealth *reduces* overconsumption.
How Constraining Are Limits to Arbitrage?
Alexander Ljungqvist
(New York University)
Wenlan Qian
(National University of Singapore)
[View Abstract]
[Download Preview] We examine to what extent institutional frictions such as short-sale constraints deter entry into informational arbitrage ex ante and reduce informational efficiency ex post. We focus on small arbitrageurs who target hard-to-short companies with correspondingly high potential for overvaluation. Being price-takers, they cannot correct mispricing through trading. Instead, they reveal their information to the market in an effort to induce long investors to sell so that prices fall. As long as the information is credible, revealing it accelerates price discovery and so reduces noise trader risk. By implication, even extreme short-sale constraints need not constrain arbitrage, as is often assumed.
Discussants:
Luigi Zingales
(University of Chicago)
Rene M. Stulz
(Ohio State University)
Alberto Bisin
(New York University)
Robin Greenwood
(Harvard Business School)
Jan 03, 2015 8:00 am, Sheraton Boston, Beacon G
Econometric Society
Aggregate Implications of International Capital Flows and Offshoring
(F2)
Presiding:
Johannes Boehm
(London School of Economics)
The Risky Capital of Emerging Markets
Joel M. David
(University of Southern California)
Espen Henriksen
(University of California-Davis)
Ina Simonovska
(University of California-Davis)
[View Abstract]
[Download Preview] Emerging markets exhibit high returns to capital, the `Lucas Paradox,' alongside volatile growth rate regimes. We investigate the role of long-run risks, i.e., risk due to fluctuations in economic growth rates, in leading to return differentials across countries. We take the perspective of a US investor and outline an empirical strategy to identify risky growth shocks and quantify their implications. Long-run risks account for 60-70% of the observed return disparity between the US and a group of the poorest countries. At the individual country level, our model predicts average returns that are highly correlated with those in the data (0.61).
The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity
Johannes Boehm
(London School of Economics)
[View Abstract]
[Download Preview] Legal institutions affect economic outcomes, but how much? This paper documents how costly supplier contract enforcement shapes firm boundaries, and quantifies the impact of this transaction cost on aggregate productivity and welfare. I embed a contracting game between a buyer and a supplier in a general-equilibrium macro-model. Contract enforcement costs lead suppliers to underproduce. Thus, firms will perform more of the production process in-house instead of outsourcing it. On a macroeconomic scale, in countries with slow and costly courts, firms should buy relatively less inputs from sectors whose products are more specific to the buyer-seller relationship. I first present reduced-form evidence for this hypothesis using cross-country regressions. I use microdata on case law from the United States to construct a new measure of relationship-specificity by sector-pairs. This allows me to control for productivity differences across countries and sectors and to identify the effect of contracting frictions on industry structure. I then proceed to structurally estimate the key parameters of my macro-model. Using a set of counterfactual experiments, I investigate the role of contracting frictions in shaping productivity and income per capita across countries. Setting enforcement costs to US levels (alternative: zero) would increase real income by an average of 3.6 percent (7 percent) across all countries, and by an average of 10 percent (13.3 percent) across low-income countries. Hence, transaction costs and firm boundaries are important on a macroeconomic scale.
Offshoring and the Shortening of the Quality Ladder: Evidence from Danish Apparel
Valerie Smeets
(Aarhus School of Business)
Sharon Traiberman
(Princeton University)
Frederic Warzynski
(Aarhus School of Business)
[View Abstract]
[Download Preview] Recently a small and growing empirical literature has attempted to analyze the role that quality plays in our understanding of trade. In particular, the recent work of Khandelwal (2010) has brought the insights of structural IO models of demand to bear into trade data. Our work builds on this new structural literature; we use similar demand estimation techniques on a panel of Danish apparel firms from 1997 to 2010 in order to analyze how firms responded to China’s entry to the WTO and the dismantling of the Multi-Fibre Agreement. We explore the implications of offshoring and import competition on the distribution of apparel quality within Denmark, and demonstrate the firm-level mechanisms that induced the observed aggregate changes. In particular, we show that the quality ladder tightens in response to trade shocks as initially low quality firms upgrade their quality relative to other firms while initially middle and high quality downgrade their output quality. An important qualification is that the quality of exports from the source country is a key determinant in both the uptake of offshoring and resultant decisions regarding quality. Finally, import competition appears to spur entry of higher quality firms and exit of lower quality producers. Nevertheless, the reallocation pattern is imperfect, suggesting that two sources of heterogeneity – the productivity and the quality margin – are key to understanding these patterns.
Offshoring, Low-Skilled Immigration and Labor Market Polarization
Federico 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. 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 asymmetric 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 aggregate productivity. As the income of high-skill occupations rises, so does the demand for complementary services provided by the low-skill workers. However, low-skill wages remain depressed due to the surge in unskilled immigration. Native workers react to immigration by upgrading the skill content of their labor tasks as they invest in training, which further boosts aggregate productivity over time. The model is estimated with multilateral trade-weighted macroeconomic indicators and data on enforcement at the U.S.-Mexico border.
Jan 03, 2015 8:00 am, Sheraton Boston, Beacon H
Econometric Society
Discounting for Climate Change Economics
(G1, Q5)
Presiding:
Robert E. Hall
(Stanford University)
Long-Run Discount Rates: Applications to Climate Change Policies
Stefano Giglio
(University of Chicago)
Matteo Maggiori
(Harvard University)
Johannes Stroebel
(New York University)
[View Abstract]
[Download Preview] We provide direct estimates of how agents trade off immediate costs and uncertain future benefits that occur in the very long run, 100 or more years away. We exploit a unique feature of housing markets in the U.K. and Singapore, where residential property ownership takes the form of either leaseholds or freeholds. The difference between leasehold and freehold prices reflects the present value of perpetual rental income starting at leasehold expiry, and is thus informative about very long-run discount rates. Agents discount very long-run cash flows at low rates, assigning high present values to cash flows hundreds of years in the future. Given the riskiness of rents, this suggests that both long-term risk-free discount rates and long-term risk premia are low. We discuss how the estimated very-long run discount rates are informative for climate change policy.
Environmental Protection and Rare Disasters
Robert Barro
(Harvard University)
[View Abstract]
[Download Preview] The Stern Review’s evaluation of environmental protection relies on extremely low discount rates, an assumption criticized by many economists. The Review also stresses that great uncertainty is a critical element for optimal environmental policies. An appropriate model for this policy analysis requires sufficient risk aversion and fat-tailed uncertainty to get into the ballpark of explaining the observed equity premium. A satisfactory framework, based on Epstein-Zin/Weil preferences, also separates the coefficient of relative risk aversion (important for results on environmental investment) from the intertemporal elasticity of substitution for consumption (which matters little). Calibrations based on existing models of rare macroeconomic disasters suggest that optimal environmental investment can be a significant share of GDP even with reasonable values for the rate of time preference and the expected rate of return on private capital. Optimal environmental investment increases with the coefficient of relative risk aversion and the probability and typical size of environmental disasters but decreases with the degree of uncertainty about policy effectiveness. The key parameters that need to be pinned down are the proportionate effect of environmental investment on the probability of environmental disaster and the baseline probability of environmental disaster.
Gamma Discounters are Short-termist
Christian Gollier
(Toulouse School of Economics)
[View Abstract]
[Download Preview] Weitzman (1998, 2001) proposed a simple “gamma discounting” method to characterize the term structure of discount rates today from the sole distribution of future spot interest rates. This rule which justifies using a smaller discount rate for longer maturities is now used for long-term policy evaluations in the UK, France, Norway, and potentially in the US. But we show that there is no social preference within the discounted expected utility framework that generically supports this pricing model and its underlying criterion, the expected net present value rule. Considering a standard Lucas tree economy, we characterize the term structure from a coherent joint distribution of future spot interest rates and future consumption levels. When future growth rates are positively serially correlated, efficient discount rates today are decreasing with maturity, and the gamma discounting rule yields discount rates that are larger than the efficient ones.
Discounting in a High Saving Economy
William Nordhaus
(Yale University)
[View Abstract]
There is a close linkage between optimal saving rare and the optimal discount rate. This paper examines the discount rate issue in the context of the optimal savings rate. Using new measures of national saving, it asks whether the US savings rate is consistent with the hypothesis that the national discount rate is too high.
Discussants:
Robert E. Hall
(Stanford University)
Xavier Gabaix
(New York University)
Derek Lemoine
(University of Arizona)
Maureen Cropper
(University of Maryland)
Jan 03, 2015 8:00 am, Sheraton Boston, Beacon E
Econometric Society
Financial Contracts and the Macro Economy
(G3)
Presiding:
Efraim Benmelech
(Northwestern University)
Financial Contracts and the Macro Economy
Efraim Benmelech
(Northwestern University)
[View Abstract]
We exploit a 2004 credit reform in Brazil that simplified the sale of repossessed cars used as collateral for auto loans. We show that the reform expanded credit to riskier, self-employed borrowers who purchased newer, more expensive cars. The legal change has led to larger loans with lower spreads and longer maturities. While the credit reform improved riskier borrowers’ access to credit, it also led to increased incidences of delinquency and default. Our results shed light on the consequences of a credit reform, highlighting the crucial role that collateral and repossession play in the liberalization and democratization of credit.
Short-Term Debt and Financial Crisis: What We Can Learn from United States Treasury Supply
Arvind Krishnamurthy
(Stanford University)
Annette Vissing-Jorgensen
(University of California-Berkeley)
[View Abstract]
[Download Preview] We present a theory in which the key driver of short-term debt issued by the financial sector is the portfolio demand for safe and liquid assets by the non-financial sector. This demand drives a premium on safe and liquid assets that the financial sector exploits by owning risky and illiquid assets and writing safe and liquid claims against those. The central prediction of the theory is that government debt (in practice this is predominantly Treasuries) should crowd out the net supply of privately issued short-term debt (the private supply of short-term safe and liquid debt, net of the financial sector’s holdings of Treasuries, reserves and currency). We verify this prediction in U.S. data from 1914 to 2011. We take a series of approaches to address potential endogeneity concerns and omitted variables issues: Testing additional predictions of the model (notably that checking deposits should be crowded in by government debt supply), including controls for the business cycle, exploiting a demand shock for safe/liquid assets, and exploring the impact of government supply on the composition of consumption expenditures. We also show that accounting for the impact of Treasury supply on bank money results in a stable estimate for money demand and can help resolve the “missing money” puzzle of the post-1980 period. Finally, we show that short-term debt issued by the financial sector predicts financial crises better than standard measures such as private credit/GDP.
Securitization and Asset Prices
Yunus Aksoy
(University of London)
Henrique S. Basso
(Bank of Spain)
[View Abstract]
[Download Preview] During the 15 years prior to the global financial crisis the volume of securitized assets transacted in the US has grown substantially, reflecting a change in the nature of the financial intermediation process. Together with increased securitization, financial entities, who participate more heavily in the asset-backed security (ABS) market and hold a diversified portfolio of assets, have also become more relevant. As a result, the volume of securitization, although traditionally associated with credit markets, influences the outcomes of other asset markets. We investigate the link between securitization and asset prices and show that increases in the growth rate of the volume of ABS issuance lead to a decline in both the bond and equity premia. We then build a model of bank portfolio choice where the creation of synthetic securities may occur. The pooling and tranching of credit assets relaxes both the funding and the risk constraints financial entities face allowing them to increase balance sheet holdings. This increase in asset demand depresses the compensation for undertaking risk in the economy, confirming our empirical results. We show that financial intermediation is linked with asset prices through this portfolio mechanism, whose strength depends on the volume of deals in the securitization market.
Covenant-Light Contracts and Creditor Coordination
Bo Becker
(Stockholm School of Economics)
Victoria Ivashina
(Harvard Business School)
[View Abstract]
A typical loan contract includes a series of covenants that serve as a governance mechanism for its lenders, requiring borrower to renegotiate when covenants are (close to being) violated. The incidence of corporate loans with covenant-light provisions -- i.e., loan contracts with weaker enforcement features that allow corporations more financial leeway in various ways -- has been interpreted as a sign of easy credit conditions, and even overheating, in the loan market. We point out that there is another possibility, based on the increasing involvement of non-bank institutions in the syndicated loan market including hedge funds, mutual funds, structured products, and, to a lesser degree, pension funds and insurance companies. Based on the (narrower) skills and diverse preferences of the institutional lenders, optimal contracts between them and corporate borrowers likely involve fewer monitoring tools and weaker control rights. In short, these lenders are similar to bond investors, and the optimal debt contract is likely to look more like a bond, i.e. covenant light. We compare these two explanations of covenant light contract provisions in a large sample of U.S. loans. We document that proxies for fund flow into institutional lenders are associated with more covenant light provisions, but not necessarily easing in loan pricing terms or speed of syndication.
Discussants:
Michael Weisbach
(Ohio State University)
Samuel Hanson
(Harvard Business School)
Adi Sunderam
(Harvard Business School)
Jennifer Dlugosz
(Washington University-St. Louis)
Jan 03, 2015 8:00 am, Sheraton Boston, Beacon F
Econometric Society
High Dimensional Methods in Consumer Demand Models
(C5)
Presiding:
Arthur Lewbel
(Boston College)
BLP-LASSO: Demand Estimation with Complex Products
Benjamin Gillen
(California Institute of Technology)
Hyungsik Roger Moon
(University of Southern California)
Matthew Shum
(California Institute of Technology)
[View Abstract]
Structural demand estimation founded on the Berry, Levinsohn, and Pakes (1995) (BLP) model utilizes variation in product market shares to infer the influence of product attributes on consumer tastes. We consider this analysis in settings with complex products and sparse consumer preferences. That is, though products are characterized by a high-dimensional set of attributes, relatively few of a these characteristics effectively influence consumer tastes. Sparsity introduces two complications to the standard inference problem. First, it allows for more efficient estimation through a pre-estimation model selection step to impose the zero restrictions implied by sparsity. We automate this selection exercise by adopting a penalized GMM criterion function and augmenting the selected variables by a set of "amelioration" controls to prevent omitted variable bias. Second, sparsity indicates many BLP instruments, particularly those related to unselected product characteristics, are not relevant demand shifters. For complex products, the large number of irrelevant instruments introduces a many-moment bias in the GMM problem. We find using optimal instruments for the selected attributes in an unpenalized post-model selection estimator effectively controls for this source of bias.
Analysis of High Dimensional Random Coefficient Models with Applications to Consumer Demand
Stefan Hoderlein
(Boston College)
[View Abstract]
This paper analyzes Random Coefficient (RC) models in high-dimensional settings. High-dimensional data have become increasingly available in Economics, especially in microeconomic applications. Online sales and computer-based sales systems, e.g., enable to collect plentiful information about consumer behavior and demand of individuals. Therefore there is a need for econometric models tailored to this kind of data. Specifically, RC models have become popular in many consumer demand applications, both with discrete choices (see BLP (1995)) and continuous choices (see Lewbel and Pendakur (2014)). RC are popular as they allow to model heterogeneity in setups.
We propose an estimator for the RC density in high-dimensions based on a Lasso type l₁-penalization scheme. Besides estimation, testing remains challenging in high-dimensional settings. Fitting high-dimensional statistical models requires the use of non-linear parameter estimation procedures and, as a consequence, it is generally impossible to obtain the exact distribution of the parameter estimates. We adopt very recently proposed algorithms for quantifying the uncertainty associated with parameter estimates which have nearly optimal size in order to address the specific features that arise in the corresponding testing problem. For instance, it is important to test for rationality, heterogeneity and endogeneity. We also show that our procedures have good small sample properties in a simulation study. Finally, we apply the method to continuous choice demand data, as in Lewbel and Pendakur (2014).
Are High Advertising to Sales Ratios Justified by Advertising Elasticities? Evidence from Consumer Panel Data with Model Section
Jeremy Fox
(University of Michigan)
Yuya Sasaki
(Johns Hopkins University)
Stefan Hoderlein
(Boston College)
[View Abstract]
Advertising to sales ratios in consumer packaged goods categories can be very high, around 10%. Dorfman and Steiner (1954) derive the optimal static level of advertising to sales ratios as a function of the elasticities of advertising and price. In this paper, we use German household panel data on television advertising exposure and purchases for the laundry detergent category to estimate advertising elasticities. We estimate a new panel data, semiparametric discrete choice model where both aggregate advertising campaigns and individual advertising exposure can be correlated with aggregate and consumer-specific unobservables. We allow the functional form for how advertising enters the model to be chosen in a data-driven way using techniques from model selection.
Optimal Instruments for Differentiated Product Demand Systems
Amit Gandhi
(University of Wisconsin-Madison)
Jean-Francois Houde
(University of Pennsylvania)
[View Abstract]
In this paper we show how to estimate substitution patterns in differentiated product demand models. The standard model in the literature suggests a conditional moment restriction based on the orthogonality between observed product characteristics and demand errors. Yet empirical work relies on translating this moment restriction into unconditional moments that identify substitution patterns. Most empirical studies to date have yielded imprecise estimates of these substitution patterns, leading to the perception that local substitution patterns are not relevant. We show the problem relies on the construction of instruments. We adapt Lasso to the problem of constructing optimal instruments based on a natural expansion of the mean projection of share on product characteristics using the economic restrictions of the model. We show these instruments perform well in practice and apply it to show the importance of local substitution patterns in scanner data.
Discussants:
Bruce Hansen
(University of Wisconsin)
Christian Hansen
(University of Chicago)
Marc Rysman
(Boston University)
Arthur Lewbel
(Boston College)
Jan 03, 2015 8:00 am, Sheraton Boston, Beacon D
Econometric Society
Tail Risks
(D8, G1)
Presiding:
Laura Veldkamp
(New York University)
Understanding Uncertainty Shocks and the Role of the Black Swan
Anna Orlik
(Federal Reserve Board)
Laura Veldkamp
(New York University)
[View Abstract]
[Download Preview] A fruitful emerging literature reveals that shocks to uncertainty can explain asset returns, business cycles and financial crises. The literature equates uncertainty shocks with changes in the variance of an innovation whose distribution is common knowledge. But how do such shocks arise? This paper argues that people do not know the true distribution of macroeconomic outcomes. Like Bayesian econometricians, they estimate a distribution. Using real-time GDP data, we measure uncertainty as the conditional standard deviation of GDP growth, which captures uncertainty about the distribution’s estimated parameters. When the forecasting model admits only normally-distributed outcomes, we find small, acyclical changes in uncertainty. But when agents can also estimate parameters that regulate skewness, uncertainty fluctuations become large and counter-cyclical. The reason is that small changes in estimated skewness whip around probabilities of unobserved tail events (black swans). The resulting forecasts resemble those of professional forecasters. Our uncertainty estimates reveal that revisions in parameter estimates, especially those that affect the risk of a black swan, explain most of the shocks to uncertainty.
On the Measurement of Economic Tail Risk
Steven Kou
(National University of Singapore)
Xianhua Peng
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] This paper attempts to provide a decision-theoretic foundation for the measurement of economic tail risk, which is not only closely related to utility theory but also relevant to statistical model uncertainty. The main result is that the only tail risk measure that satisfies a set of economic axioms proposed by Schmeidler (1989, Econometrica) and the statistical property of elicitability (i.e. there exists an objective function such that minimizing the expected objective function yields the risk measure; see Gneiting (2011, J. Amer. Stat. Assoc.)) is median shortfall, which is the median of tail loss distribution. Elicitability is important for backtesting. Median shortfall has a desirable property of distributional robustness with respect to model misspecification. We also extend the result to address model uncertainty by incorporating multiple scenarios. As an application, we argue that median shortfall is a better alternative than expected shortfall for setting capital requirements in Basel Accords.
Interest Rate Uncertainty and Economic Fluctuations
Drew Dennis Creal
(University of Chicago)
Jing Cynthia Wu
(University of Chicago)
[View Abstract]
[Download Preview] Uncertainty associated with the monetary policy transmission mechanism is a key driving force of business cycles. To investigate this link, we propose a new term structure model that allows the volatility of the yield curve to interact with macroeconomic indicators. The data favors a model with two volatility factors that capture short-term and long-term interest rate uncertainty. Increases in either of them lead higher unemployment rates, but they interact with inflation in opposite directions.
Sovereign Tail Risk
Antonio Moreno
(Universidad de Navarra)
[View Abstract]
[Download Preview] We provide a new measure of sovereign country risk exposure to global sovereign tail
risk (SCRE) based on information incorporated in 5-year sovereign CDS spreads. Our
panel regressions with quarterly data from 53 countries show that macro risks have strong
explanatory power for SCRE. After controlling for liquidity conditions and financial market
variables, SCRE increases for countries with higher interest rates, public debt, public
deficit, credit-to-GDP, lower economic growth and looser monetary policy. We show that
our risk exposure variable reacts significantly more than mean (median) CDS spreads
to macro-financial risks. Our results therefore imply that good fundamentals protect
countries against sovereign risk especially in times of global distress.
Jan 03, 2015 8:00 am, Boston Marriott Copley, Provincetown
Health Economics Research Organization/American Economic Association
Health Insurance and Labor Market Outcomes
(I1)
Presiding:
Donald E. Yett
(University of Southern California)
Medicaid as an Investment In Children: What is the Long-Term Impact on Tax Receipts?
David Brown
(U.S. Treasury Department)
Amanda Kowalski
(Yale University)
Ithai Lurie
(U.S. Treasury Department)
[View Abstract]
[Download Preview] We examine the long-term impact of expansions to Medicaid and the State Children's Health Insurance Program that occurred in the 1980's and 1990's. With administrative data from the IRS, we calculate longitudinal health insurance eligibility from birth to age 18 for children in cohorts affected by these expansions, and we observe their longitudinal outcomes as adults. Using a simulated instrument that relies on variation in eligibility by cohort and state, we find that children whose eligibility increased paid more in cumulative taxes by age 28. These children collected less in EITC payments, and the women had higher cumulative wages by age 28. Incorporating additional data from the Medicaid Statistical Information System (MSIS), we find that the government spent $872 in 2011 dollars for each additional year of Medicaid eligibility induced by the expansions. Putting this together with the estimated increase in tax payments discounted at a 3% rate, assuming that tax impacts are persistent in percentage terms, the government will recoup 56 cents of each dollar spent on childhood Medicaid by the time these children reach age 60. This return on investment does not take into account other benefits that accrue directly to the children, including estimated decreases in mortality and increases in college attendance. Moreover, using the MSIS data, we find that each additional year of Medicaid eligibility from birth to age 18 results in approximately 0.58 additional years of Medicaid receipt. Therefore, if we scale our results by the ratio of beneficiaries to eligibles, then all of our results are twice as large.
The Impact of the Affordable Care Act Young Adult Provision on Labor Market Outcomes: Evidence from Tax Data
Bradley Heim
(Indiana University)
Ithai Lurie
(U.S. Treasury Department)
Kosali Simon
(Indiana University)
[View Abstract]
[Download Preview] We use a panel data set of U.S. tax records spanning 2008-2012 to study the impact of the Affordable Care Act (ACA) requirement to allow young adult dependents to be covered by their parents’ insurance policies on labor market-related outcomes. How health insurance expansions affect young adults through employment and education have important implications for public finance. Since tax data record access to employer provided fringe benefits on W-2 forms, we are able to examine the impact of this coverage expansion by comparing young adults whose parents have access to benefits to other similar aged young adults, before and after the law, and to young adults who are slightly older than the age threshold of the law. The use of tax data to identify families who have fringe benefits through their employer is an important advantage because the law was implemented during a labor market recovery in which outcomes could differ by age, even absent the law. Despite sizable increases documented elsewhere in insurance coverage resulting from this law, we find no meaningful changes in labor market related outcomes. We examine a comprehensive set of outcomes (including measures of employment status, job characteristics, and post-secondary education), and are the first to use a triple difference strategy to examine labor market effects of this law; we are also the first we know of to use tax data to examine the impact of the ACA on labor market outcomes. Although it is possible that labor market outcomes have changed in ways not captured by tax data (e.g. a change in hours of work while holding total wages constant, or a change in non-reported self-employment), our evidence suggests that the extension of health insurance to young adults did not substantially alter their labor market outcomes thus far.
How Do Providers Respond to Public Health Insurance Expansions? Evidence from Adult Medicaid Dental Benefits
Thomas Buchmueller
(University of Michigan)
Sarah Miller
(University of Notre Dame)
Marko Vujicic
(American Dental Association)
N/A
Discussants:
John N. Friedman
(Harvard University)
Colleen Carey
(University of Michigan)
Seth Freedman
(Indiana University)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon D
International Banking Economics & Finance Association
Central Bank Policy and CCP's
(G2, E5)
Presiding:
S. Wayne Passmore
(Federal Reserve Board)
Does a CCP Reduce Counterparty Risk in a Heterogeneous Network?
Rodney Garratt
(Federal Reserve Bank of New York)
Peter Zimmerman
(Bank of England)
[View Abstract]
Novating a single asset class to a central counterparty impacts both the mean and variance of total net exposures between counterparties in an OTC derivatives trading network. In the case of homogeneous networks where the number of asset classes is small relative to the number of dealers, central clearing reduces both the mean and variance of net exposures. However, when the number of asset classes is large relative to the number of dealers there is a tradeoff: an increase in expected net exposures is accompanied
by a reduction in variance. Most real-world financial networks are not homogeneous.
We therefore construct heterogeneous networks using the network formation process described in Dorogovtsev, Mendes and Samukhin (2000). The introduction of central clearing produces a tradeoff between increased expected net exposures and reduced variance for all non-trivial DMS networks. This paper builds on and generalizes aspects of Duffie and Zhu (2010).
The Risk-Taking Channel of Monetary Policy - Exploring All Avenues
Diana Bonfim
(Bank of Portugal)
Carla Soares
(Bank of Portugal)
[View Abstract]
It is well established that when monetary policy is accommodative, banks tend to grant more credit. However, only recently attention was given to the quality of credit granted and, naturally, the risk assumed during those periods. This article makes an empirical contribution to the analysis of the so-called risk-taking channel of monetary policy. We use bank loan level data and different methodologies to test whether banks assume more credit risk when monetary policy interest rates are lower. Our results
provide evidence in favor of this channel through different angles. We show that banks, most notably smaller banks, grant more loans to non-fi
nancial corporations with recent defaults or without credit history when policy interest rates are lower. We also find that loans granted when interest rates are low are more likely to default in the hiking phase of the interest rate cycle. However, the level of policy interest rates at the moment of loan concession does not seem to be relevant for the ex-post
probability of default of the overall loan portfolio.
Do Central Bank Interventions Limit the Market Discipline from Short-Term Debt?
Viral Acharya
(New York University)
Diane Pierret
(New York University)
Sascha Steffen
(European School of Management and Technology)
[View Abstract]
In this paper, we investigate the impact of European Central Bank (ECB) interventions on the private short-term funding of European banks and asset prices of sovereign bonds and bank stocks during the sovereign debt crisis. We show that consistent with a market discipline role of wholesale funding “runs,” the U.S. money market funds reduced unsecured funding for risky banks during summer 2011, and increased unsecured and repo funding to low risk non-Eurozone banks. This market discipline effect of risk on funding liquidity is reversed with a series of ECB interventions; Eurozone risky banks gain access to repos during the period of interventions, and recover part of their unsecured funding after the intervention period. Short-term funding flowing back to risky banks coincides with increasing sovereign bond prices of peripheral countries. Event studies around ECB intervention dates support this: We find that banks with large GIIPS holdings experience abnormal stock returns and get increased access to U.S. MMF following ECB interventions.
Federal Reserve Tools for Managing Rates and Reserves
Antoine Martin
(Federal Reserve Bank of New York)
Jamie McAndrews
(Federal Reserve Bank of New York)
Ali Palida
(Federal Reserve Bank of New York)
David Skeie
(Federal Reserve bank of New York)
[View Abstract]
Monetary policy measures taken by the Federal Reserve as a response to the 2007-
09 financial crisis and subsequent economic downturn led to a large increase in the level
of outstanding reserves. The Federal Open Market Committee (FOMC) has a range of
tools to control short-term market interest rates in this situation. We study several of
these tools, namely interest on excess reserves (IOER), reverse repurchase agreements
(RRPs), and the term deposit facility (TDF). We find that overnight RRPs (ON RRPs)
provide a better floor on rates than term RRPs because they are available to absorb daily
liquidity shocks. Whether the TDF or RRPs best support equilibrium rates depends on
the relative intensity of the frictions that banks face, which are bank balance sheet costs
and interbank monitoring costs in our model. We show that when both costs are large,
using the RRP and TDF concurrently most effectively raises short-term rates. While
public money supplied by the Federal Reserve in the form of reserves can alleviate bank
liquidity shocks by reducing interbank lending costs, large levels of reserve increase banks
balance sheet size and can induce greater bank moral hazard. RRPs can reduce levels of
costly bank equity that banks are endogenously required to hold as a commitment device
against risk-shifting returns on assets.
Discussants:
Cyril Monnet
(University of Bern)
Oliver de Groot
(Federal Reserve Board)
Ralf R. Meisenzahl
(Federal Reserve Board)
Wilko Bolt
(De Nederlandsche Bank)
Jan 03, 2015 8:00 am, Westin Copley, Helicon
Labor & Employment Relations Association
Research and Practice from Inside the Workforce Development and Unemployment Systems
(J3)
Presiding:
Mary Gatta
(Wider Opportunities for Women)
All I Want Is a Job: Unemployed Women Navigating the Public Workforce System
Mary Gatta
(Wider Opportunities for Women)
[View Abstract]
Mary Gatta will share her research in which she went undercover, posing as a client in a New Jersey One-Stop Career Center. One-Stop Centers, developed as part of the federal Workforce Investment Act, are supposed to be an unemployed worker's go-to resource on the way to re-employment. Weaving together her own account with interviews of jobless women and caseworkers, Gatta will share a revealing glimpse of the toll that unemployment takes and the realities of social policy. In this session she will highlight the promise and weaknesses of One-Stop Career Centers, and recommend key shifts in workforce policy, which will lead to a system that is less discriminatory, more human, and better able to assist women and their families in particular.
Flawed System/Flawed Self: Job Searching and Unemployment Experiences
Alex Vasquez
(Massachusetts Institute of Technology and Brandeis University)
[View Abstract]
Ofer Sharone will share his research exploring the world of job searching and unemployment. Through in-depth interviews and observations at job-search support organizations, Ofer Sharone reveals how different labor-market institutions give rise to job-search games like the chemistry games in the United States in which job seekers concentrate on presenting the person behind the résumé. By closely examining the specific day-to-day activities and strategies of searching for a job, Sharone develops a theory of the mechanisms that connect objective social structures and subjective experiences in this challenging environment and shows how these different structures can lead to very different experiences of unemployment.
Innovations in Workforce Development
Geri Scott
(Jobs for the Future)
Alexandra Waugh
(Jobs for the Future)
[View Abstract]
Geri Scott and Alexandra Waugh will share research and best practices of their experiences providing technical assistance and peer learning opportunities to facilitate and support the development of a national network of green workforce development expertise among participating communities. This support focuses on fostering effective employer engagement, strengthening the links of workforce partnerships to organized labor, improving training curricula and aligning workforce programs with union pre-apprenticeship standards, and increasing the enrollment and success of women and underserved minorities in these well-paying, nontraditional occupations.
Discussants:
Adrienne Eaton
(Rutgers University)
Jan 03, 2015 8:00 am, Westin Copley, Courier
Labor & Employment Relations Association
The Employee Ownership Approach to Shared Prosperity: New Research
(J3)
Presiding:
Joseph Blasi
(Rutgers University)
Employment Ownership and Firm Survival through the Great Recession
Fidan Ana Kurtulus
(University of Massachusetts-Amherst)
Douglas L. Kruse
(Rutgers University)
[View Abstract]
We examine the relationship between employee ownership and firm survival in the United States using Form 5500-CompuStat matched data on a panel of publicly-traded companies during 1999-2010.We examine how firms with employee ownership programs weathered the recessions of 2001 and 2008 in terms of firm survival relative to firms without employee ownership programs. We estimate Cox Proportional Hazards regressions to predict the likelihood of firm failure with employee ownership as the main dependent variable, and controls for firm size, union status, and industry. In our econometric analyses, we use a rich array of measures of employee ownership at firms, including the presence of employee ownership stock in pension plans, the presence of Employee Stock Ownership Plans (ESOPs), the value of employee ownership stock per employee, the share of the firm owned by employees, the share of workers at the firm participating in employee ownership, and the share of workers at the firm participating in ESOPs. Our findings indicate that employee ownership firms had significantly higher survival rates during 1999-2010.
The Effect of Employee Ownership on Effort and Supervision
Erik K. Olsen
(University of Missouri-Kansas City)
[View Abstract]
This paper presents a new way to assess the effect of employee ownership (EO) on employee behavior. It extends the contingent renewal model of the labor exchange to the case of the EO firm. Contrary to existing theoretical literature, which holds that EO is either inconsequential or detrimental to employee performance, this model predicts increased employee effort in EO firms relative to conventionally-owned ones. It also indicates that a profit-maximizing EO firm will respond to this increased effort by using fewer supervisory inputs. Effort is difficult or impossible to observe in complex settings, but this model indicates that the impact of EO on effort is observable through the effect on firm structure. To test for this a matched-pair sample of EO and conventionally-owned firms is constructed using a new database of US majority EO firms, and supervisory ratios are determined using firm filings with the US EEOC. This has important implications for economic theory and policy, not least of which is that conventional ownership may be pareto inferior to EO.
Best for Whom? Social Stratification, Employee Ownership, and Employee Outcomes in Fortune's Best Companies to Work For
Edward J. Carberry
(University of Massachusetts-Boston)
Joan S.M. Meyers
(University of the Pacific)
[View Abstract]
Popular claims that a workplace is good for its employees may overlook gender, ethnoracial, and class variation in employee reactions and experiences. This paper analyzes variation in employee perceptions of organizations that have been promoted as best places to work. Our empirical analysis is based on a unique dataset of all firms that applied to be one of Fortune s 100 Best Companies to Work For (BCTW) between 2006 and 2011, and includes over 600,000 employees in 1,052 companies. Our analysis focuses on the effects of gender, race/ethnicity, and occupational level on perceptions of trust, empowerment, and justice, and whether working for a BCTW firm or for a firm with employee ownership results in different perceptions. Our findings reveal that 1) BCTW firm employees from historically marginalized groups (white women, nonwhite men and women, and working-class employees) perceive their firms as more just than similar employees of non-BCTWF firms; 2) hourly workers react most positively to BCTWF firms; and 3) employee ownership has mixed effects on employees from marginalized groups.
Employee Ownership: A View from the Lab
Phil Mellizo
(College of Wooster)
[View Abstract]
[Download Preview] This paper examines how experimental economics might advance our understanding of employee ownership. Theorists must invoke a behavioral model to analyze how individuals might respond to a given set of firm institutions, yet our current understanding of what this behavioral model is, or should be, is in flux. Further, conventional empirical analysis often draws from data that is insufficiently disaggregated and prone to biases stemming from self-selection and unobservable heterogeneity. Experiments complement theory by aiding in the development of new behavioral foundations, and they also complement conventional empirical analysis, particularly in cases where naturally occurring data does not exist.
Discussants:
Richard B. Freeman
(Harvard University)
Christopher Mackin
(Rutgers University)
Jan 03, 2015 8:00 am, Westin Copley, North Star
Labor & Employment Relations Association
The Evolution of White Collar Occupations and Professions
(J1)
Presiding:
Paul Osterman
(Massachusetts Institute of Technology)
The Changing Structure of White Collar Employment: A Review of Recent Trends
Françoise Carré
(University of Massachusetts-Boston)
[View Abstract]
The paper will examine trends and changes in the structure of white-collar employment over the past two decades. The structure of white-collar employment career ladders, compensation, and employment arrangements has experienced changes over the last 20 years, accompanying evolving products, the diffusion of information and telecommunication technologies, and the organization of service activities on broader geographic scope (e.g. ability to coordinate the outsourcing of data entry, coding, and paralegal research to other countries). The paper will review recent evidence on the employment impacts of these longer term trends as well as further changes triggered by the great recession and its legacy of chronic underemployment, particularly among recent cohorts of high-school and college graduates. The focus will be on entry-level and mid-level white-collar occupations in service producing industries, insurance and banking (e.g. Customer relationship manager and underwriter assistants), as well as general clerk jobs across industries. This review will place changes in the structure of white-collar work in the context of changes in employment structures within firms across industrial sectors.
The Evolution of Legal Careers: The Case of Big Law Associates
Christine Riordan
(Massachusetts Institute of Technology)
[View Abstract]
The legal profession, long an example of a well established professional occupation, has been remade by a combination of technology, which permits outsourcing of work, as well as changing economics within Big Law as customers become more sophisticated and demanding regarding staffing a billing. As a consequence the careers of young associates have been transformed with the probability of making partner diminished. At the same time outsourcing of low level work, such as document review, has the potential for enabling associates to do more interesting work that better develops their skills. This paper, based on interviews with a sample of Big Law associates, will explore the changing nature of legal careers and the implications of these changes for the life chances of young lawyers.
The Changing Contours of Managerial Careers: The Case of Non-Profits
Diane Burton
(Cornell University)
Jae Eun Lee
(Cornell University)
[View Abstract]
As organizations change their shape and boundaries due to restructuring, layoffs, and outsourcing the nature of managerial work changes as do career trajectories. Through archival research, the paper will link changes in public and private funding to changes in the normative organizational structures within the sector and document shifts in the archetypal career trajectories of the managers who lead non-profit human services organizations. The argument is that as managerial professionals dominate human service organizations, they bring a bureaucratic logic that proliferates administrative roles, increases administrative intensity, and diminishes career prospects for the non-executive professional staff members. The argument is tested through a quantitative longitudinal study of over 200 human service non-profits as well as qualitative interviews with non-profit leaders with different career backgrounds.
Discussants:
Michael J. Piore
(Massachusetts Institute of Technology)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom--Salons J & K
National Association for Business Economics
The Outlook for the United States and Global Economy: Headwinds, Tailwinds, and Whirlwinds
(E6) (Panel Discussion)
Panel Moderator:
John Silvia
(Wells Fargo)
R. Glenn Hubbard
(Columbia University)
Ellen Hughes-Cromwick
(University of Michigan)
John E. Silvia
(Wells Fargo)
Lawrence H. Summers
(Harvard University)
John C. Williams
(Federal Reserve Bank of San Francisco)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Tufts
Society of Government Economists
New Insights from Government Statistics
(B4, C8)
Presiding:
Amelie F. Constant
(Institute for the Study of Labor and George Washington University)
Measuring the Risk: Medical Care Economic Risk and the Supplemental Poverty Measure
Joelle Abramowitz
(U.S. Census Bureau)
Brett O’Hara
(U.S. Census Bureau)
[View Abstract]
For many families, facing an unexpected adverse health event and as a result incurring large medical expenditures could cause significant financial distress. Medical care economic risk is the risk of incurring these large unexpected medical expenditures; this paper uses the 2013 Current Population Survey Annual Social and Economic Supplement (CPS ASEC) to develop this concept. We first estimate future medical expenditures and then examine risk as measures of the dispersion of these future expenditures. We examine this risk across different groups, including health insurance status as well as individuals’ and families’ classification by the Supplemental Poverty Measure (SPM) income-to-poverty ratios (IPR), since these are especially relevant for examining the implementation of the Patient Protection and Affordable Care Act (ACA).
We are interested in exploring a number of policy implications with our results. A particular interest is to identify people ineligible for subsidy, but at risk for large expenses and those who would be in the eligible range for subsidy after accounting for expenses. Since the SPM deducts from income the resources spent on medical care while the Poverty Guidelines and Thresholds do not, examining the risk of expenses using the SPM framework is useful. We are also especially interested in using the SPM to explore how including in the family unit unrelated individuals outside of the health insurance unit affects the risk for the individuals in those family units. In addition, results could be used to consider the tax treatment of expenses and the appropriateness of retrospective payments if actual medical expenses exceed some threshold of the estimated expected medical expenses.
The Recent Decline in Single Quarter Jobs
Henry Hyatt
(U.S. Census Bureau)
James Spletzer
(U.S. Census Bureau)
[View Abstract]
In our 2013 paper “The Recent Decline in Employment Dynamics,” we documented that the incidence of short-duration jobs has been declining during the past 15 years; see Hyatt and Spletzer (2013). Using employment measures derived from quarterly wage records, we define short-duration jobs as those jobs that start and end in the same calendar quarter. We there show that short-duration jobs have fallen from 11.4 percent of employment in 1998:Q4 to 6.0 percent in 2010:Q3, and much of this decline occurs during recessions.
This decline in short-duration jobs is not well-known amongst labor economists, yet undoubtedly reflects fundamental changes in the labor market. Since completing our analysis on the declines in the rates of worker flows (hires and separations), job flows (job creation and destruction), and job-to-job flows (worker movements from one employer to another), we have turned our attention to the decline in single-quarter jobs, which accounts for roughly half of the decline in gross worker flows from the late 1990s to 2010. The goal of our research is to characterize the nature of the decline in single-quarter jobs and explore its implications.
We explore data from the U.S. Census Bureau’s Longitudinal Employer-Household Dynamics (LEHD) program. We present new evidence that shows what LEHD data can tell us about the decline in short duration jobs. Our contributions are as follows: (1) we provide basic descriptive statistics on the types of individuals and the types of employers engaged in short-duration jobs, (2) we examine how the decline in short duration jobs has changed the tenure distribution during the past decade, and (3) we assess whether short-duration jobs are “stepping-stone jobs” that allow individuals to gain work experience and move on to more stable jobs.
Job Creation, Small vs. Large vs. Young, and the SBA
J. David Brown
(U.S. Census Bureau)
Emin Dinlersoz
(U.S. Census Bureau)
John S. Earle
(George Mason University and Central European University)
[View Abstract]
[Download Preview] Using a linked database based on a list of all Small Business Administration (SBA) loans in 1992 to 2011 and annual information on all U.S. employers from 1976 to 2012, we apply detailed matching and regression methods to estimate the variation in SBA loan effects on job creation across firm age and size groups. The firm-level proportional impact of loan receipt is estimated to fall with pre-loan firm size and age, and is largest for start-ups and very young and very small firms. The number of jobs created per million dollars of loans is also estimated to be highest for start-ups but otherwise generally increases with size and age. The estimated survival impact of loan amount is larger for smaller and younger firms.
Discussants:
Anne Hall
(U.S. Bureau of Economic Analysis)
Leo Sveikauskas
(U.S. Bureau of Labor Statistics)
Jay Stewart
(U.S. Bureau of Labor Statistics)
Jan 03, 2015 8:00 am, Sheraton Boston, Exeter Room
Transportation & Public Utilities Group
Topics in Transportation Economics
(L9)
Presiding:
Patrick McCarthy
(Georgia Institute of Technology)
Congesting the Commons: A Test for Strategic Congestion Externalities in the Airline Industry
Alejandro Molnar
(Vanderbilt University)
[View Abstract]
Access to scarce runway capacity at most U.S. airports is allocated by queuing, creating the scope for congestion externalities. Unlike a classic “tragedy of the commons”, congestion externalities from airline decisions can be strategic. Airlines regularly schedule more departures than an airport’s runways can handle without delay. I develop an empirical framework for airline schedule choices that accounts for benefits from scheduling flights close together in time – such as enabling connections and serving demand at preferred times of day – and the effect of congestion. I use an engineering model of runway capacity and queuing to construct measures of marginal congestion, but the measures are endogenous in an airline’s scheduling choice because they depend on other schedules. I exploit variation in runway capacity due to weather patterns within the day and across seasons, together with excluded variation in the schedules of rival users of the runway to estimate the effect of marginal congestion on airline scheduling at hub and spoke airports. I find that airlines trade-off benefits from connections and passenger preferred times against the cost of increase congestion, but this cost is outweighed at hubs by the strategic entry deterrence benefit of congesting peak times. The effect is larger at times that are more valuable to competitors.
The Impact of Gulf Carrier Competition on U.S. Airlines
Martin Dresner
(University of Maryland)
Christian Hofer
(University of Arkansas)
Fabio Mendez
(Loyola University-Maryland)
Kerry Tan
(Loyola University-Maryland)
[View Abstract]
[Download Preview] Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded aggressively and are creating an increasingly dense global network. These carriers’ future growth prospects, however, hinge on their ability to gain access to markets in Europe and America, for example. Existing bilateral agreements stifle the Gulf carriers' ambitious expansion plans in some instances, and incumbent carriers lobby to restrict further market access. To contribute to this debate, the objective of this research is to empirically examine the effects of Gulf carrier competition on U.S. carriers’ passenger volumes and fares in international route markets. Based on data obtained from the U.S. Department of Transportation, the empirical results suggest that greater competition by Gulf carriers in U.S. international markets is associated with 1) significant growth in U.S.-Middle East traffic volumes and 2) small but statistically significant traffic losses and fare reductions for U.S. carriers in route markets connecting the U.S. with Africa, Asia, Australia and Europe.
The Determinants of Motorcycle Fatalities: Are All Helmet Laws the Same?
Richard Fowles
(University of Utah)
Peter Loeb
(Rutgers University-Newark)
William A. Clarke
(Bentley University)
[View Abstract]
Most studies of motorcycle fatalities attribute deaths to avoidance of wearing helmets and the lack of universal helmet laws, speed, and alcohol usage. The effectiveness of helmet laws, although usually found to have a significant effect on fatality rates, has been questioned. This study makes use of a rich data set to establish the impact, not only of helmet laws on motorcycle fatalities, but also the effects of speed, cell phone use, alcohol, and suicidal propensities after adjusting for a whole host of socioeconomic and driving related factors. In addition, the paper differentiates between the effects of a universal helmet law and a partial helmet law. The analysis is conducted using a panel data set for the period 1980 to 2010 by state with a classical fixed effect model and with the use of Extreme Bounds Analysis and Bayesian Model Averaging as well as a ranking scheme for variable importance.
Determinants of Passenger Vessel-Accident Damage Severity and Injuries
Tsz Lueng Yip
(Hong Kong Polytechnic University)
Di Jin
(Woods Hole Oceanographic Institution)
Wayne Kenneth Talley
(Old Dominion University)
[View Abstract]
Determinants of vessel-accident damage severity and injuries of ferry and cruise vessel accidents are investigated using probit analysis and Poisson regression analysis, respectively. Vessel-accident damage severity is hypothesized to be a function of the type of vessel, type of vessel accident, cause of accident, vessel characteristics and operating conditions of the vessel. Crew vessel-accident injuries are hypothesized to be a function of vessel-accident damage severity, Passenger vessel-accident injuries are hypothesized to be a function of vessel-accident damage severity and crew injuries. The empirical results indicate that the vessel-accident damage severity for ocean cruise and river cruise vessels is greater than that for ferry vessels, all else held constant. Also, the number of injured crew in a vessel accident has a positive effect on the number of passenger injured in a vessel accident for ferry vessel accidents. The latter result has not appeared heretofore in the literature.
Discussants:
Kerry Tan
(Loyola University-Maryland)
Alejandro Molnar
(Vanderbilt University)
Jeffrey Cohen
(University of Connecticut)
Wesley Wilson
(University of Oregon)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Orleans
Union for Radical Political Economics
Inequality in America: Reflections on or Reactions to Piketty
(E6)
Presiding:
David Barkin
(Universidad Autonoma Metropolitana)
Seeing Inequality in the First World from the Third World
David Barkin
(Universidad Autonoma Metropolitana)
[View Abstract]
Inequality in the rich countries is inextricably bound to the continuing impoverishment and the growing polarization in the Third World that is exacerbated by a pattern of consumption and foreign investment that extend poverty and environmental devastation. Picketty’s focus on conditions within the richer countries deflects attention from the mechanisms within the world system that exacerbate the process, reproducing the same dynamics within the Global South.
Thomas Piketty on Capitalism and Inequality: A Radical Economics Perspective
Gary Mongiovi
(St. Johns University)
[View Abstract]
Thomas Piketty’s immensely successful recent book on Capital in the Twenty-first Century has focused attention on the explosion of income inequality that has occurred since the post-war golden age came to an end in early 1970s. Piketty contends that the rise of inequality is an embedded feature of the normal functioning of capitalism: the post-war episode, in which both labor and capital shared in the benefits of productivity growth, was an exception, unlikely to be repeated in the foreseeable future. Private wealth tends to accumulate faster than the rate of growth of the economy; as a consequence the share of income from property (in particular profits) will tend to rise relative to the wage share. Furthermore, the share of property income itself will tend to become increasingly concentrated in the hands of a small elite segment of the population. This paper will assess Piketty’s argument from a radical political economics perspective, paying particular attention to his critique of neoclassical accounts of income distribution.
Piketty: Analyzing Polarization of Income and Wealth: The Tax Haven Gorilla and Other Stories
Mehrene Larudee
(Al Quds Bard College-Palestine)
[View Abstract]
This paper discusses how Piketty’s results on increasing inequality might be altered and strengthened by accounting for the historical growth of wealth in tax havens, as well as accounting for the use of tax haven entities to further exacerbate wealth inequality in a variety of ways. It explores more deeply other mechanisms by which inequality is perpetuated, and explains ways in which Piketty’s analysis and findings strengthen, elaborate on, or contradict traditional Marxist analysis.
Piketty's Political Economy: The Dynamics of Distribution in 21st Century Capitalism
Victor Lippit
(University of California-Riverside)
[View Abstract]
[Download Preview] Piketty’s prescription for the future of capitalism assumes that the inner dynamic of the system generates rising inequality akin to that produced over the past 30-odd years (he sees the previous, postwar decades as an anomaly due to unique circumstances that are unlikely to be repeated). In this sense, he revives a grand vision of the dynamics and direction of capitalism unseen since the writings of Marx. His work has already generated a great deal of discussion. Is there indeed a systemic tendency for profits to grow relative to labor income? Can global taxation for a capitalist world economy reverse the current tendency toward rising inequality? Are Piketty’s policy prescriptions meaningful or utopian? This presentation will seek to draw out the implications of Piketty’s analysis and contribute accordingly to the ongoing debate.
Discussants:
Marlene Kim
(University of Massachusetts-Boston)
Robert McKee
(Independent Scholar)
Jan 03, 2015 8:00 am, Boston Marriott Copley, Hyannis
Union for Radical Political Economics
Theory and Practices of Cooperatives
(P1)
Presiding:
Christopher Gunn
(Hobart and William Smith Colleges)
Credit Union Cooperatives and Job Growth
Mark Klinedinst
(University of Southern Mississippi)
[View Abstract]
Credit union cooperatives are the most common financial institution in the U.S. Using a unique data set on all credit unions, commercial banks and savings institutions in the U.S. for the last twenty years, the success of the credit unions in generating jobs relative to other intermediaries is explored. The “natural experiment” created by Hurricane Katrina will be the micro area examined, using the national data on all institutions as a comparison. Ten years after one of the most devastating natural disasters in U.S. history is also a good time to report on the continued success of the relatively little known struggle for democratic financial institutions.
Financing Workers’ Cooperatives
Daniel Fireside
(Equal Exchange Cooperative)
Christopher Gunn
(Hobart and William Smith Colleges)
[View Abstract]
The history of workers’ cooperatives in the United States has shown mixed results for them. While workers’ co-ops have displayed a remarkable record of social entrepreneurship, they have also faced problems in finding sources of finance capital that would enable them to remain under the control of those who work in the organization. This paper explores the use of non-voting preferred stock as a means of overcoming this problem, with examples of its use by several contemporary cooperatives.
The Multi-Anchor Model as a Co-operative Incubator: Achievements and Limitations of the Evergreen Model in Cleveland.
Julia Poznik
(University of Missouri-Kansas City)
Ruchira Sen
(University of Missouri-Kansas City)
Jonathan Ramse
(University of Missouri-Kansas City)
[View Abstract]
Evergreen in Cleveland, OH is an innovative approach to economic development which has arisen as a project of the Greater University Circle Initiative, a multi-anchor model. The mission of Evergreen is to leverage resources from anchor institutions to create wealth building opportunities through worker-ownership. Our paper looks at the evolution of the Evergreen project since its inception and evaluates its achievements and limitations. We achieve this through the application of the Future Economy Analytical Framework which emphasizes the social justice, environmental, and egalitarian aspects of economic initiatives.
On the Relative Absence of Worker Ownership/Management: A Taxonomy
Jonathan Jenner
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] This paper reviews, categorizes, and evaluates various theories on why worker owned/managed firms have remained peripheral in modern capitalist economies, in order to inform further research and strategy for the development of worker ownership/management. Rather than an exhaustive treatment of the entire literature, this paper situates various theories into broad groups that can be meaningfully evaluated. Theories on the relative absence of worker ownership/management are categorized by the location of the limiting agent of the worker owned/managed firms, in three broad genera:
(I) Firm Efficiency – worker owned/managed firms are peripheral because they are inherently inefficient, and lose out to efficient capital owned/managed firms in the long run.
(II) Institutional Relationships – worker owned/managed firms are peripheral because institutional relationships systematically inhibit their growth and development
(III)The Structure of Capitalism – worker owned/managed firms are peripheral because the structure of capitalism either competes them out or turns them into capital owned/managed firms.
This paper then evaluates each category. The first genus, firm efficiency, is not a sufficient answer to the relative absence of worker owned/managed firms, due to empirical evidence and logical flaws of the genus. The next two categories present difficulties for empirical verification. However, the third genus, the structure of capitalism, contains qualitative premonitions about the structure of the firm that could be avoided, particularly with a shift in institutional relationships explored in the second genus, institutional relationships. This paper finds the most convincing answer to the question of the paucity of worker ownership/management is that certain types of institutional relationships have systematically held back worker ownership/management. The implication is that the growth and development of worker ownership/management is possible by focusing on key institutional relationships that define worker ownership/management and its environment.
Discussants:
Al Campbell
(University of Utah)
Ulla Garpard
(Colgate University)
Jan 03, 2015 10:15 am, Westin Copley, St. George D
Agricultural & Applied Economics Association
The Nature and Importance of Commodity and Relational Good Exchanges
(Q1)
Presiding:
Scott Swinton
(Michigan State University)
Commodity and Relational Good Exchanges and Commodification and Decommodification
Lindon Robison
(Michigan State University)
Ken Frank
(Michigan State University)
Jeffrey Oliver
(Michigan State University)
[View Abstract]
Economic exchange theory focuses on commodity/commodity exchanges. However, much of what we exchange is relational goods whose values are created in relationships. Failing to distinguish between commodities and relationships can lead to ineffective policies which are designed to encourage/discourage certain types of exchanges. This paper distinguishes between commodities and defines three kinds of relational goods: social capital, socio-emotional goods, and attachment value goods. Then this paper describes the processes in which commodities are converted into relational goods (decommodification) and relational goods are converted into commodities (commodification). Continuing, we describe the conditions required for and the benefits and costs associated with commodity and relational good exchanges. Finally, we describe some criteria for discouraging (encouraging) some kinds of commodity and relational good exchanges.
The Hidden Cost of Regulation: Emotional Responses to Command and Control
David Just
(Cornell University)
Andrew Hanks
(Ohio State University)
[View Abstract]
[Download Preview] In economic models of behavior consumers are assumed to value the goods and services they purchase based on stable preferences over externally identifiable attributes such as quality. These models predict that consumers will respond to changes in price in a way that is independent of the source of the price change. Yet research in the behavioral sciences indicates that consumers that are emotionally attached to a consumption good or other behavior might respond with resistance when policies threaten their consumption or behavior. Moreover, policies that in fact validate some emotional attachments can stir a stronger preference for the good or behavior. Reviewing both survey and experimental data from the literature, we demonstrate how such emotional responses can create hidden costs to policy implementation that could not be detected using standard welfare economic techniques. Building upon Rabin’s work on fairness in games, we propose a partial equilibrium model of emotional response to policy whereby preferences are endogenous to policy choices. In accordance with evidence both from our own analysis and the field, we propose that confrontational policies (such as a sin tax) increase the marginal utility for a good, and that validating policies (such as a subsidy) also increases the marginal utility for a good. A social planner that ignores potential emotional responses to policy changes may unwittingly induce significant dead weight loss. Using our model, we propose a feasible method to determine if emotional deadweight costs exist, and to place a lower bound on the size of these costs.
Selfishness and Social Capital Motives and Recycling Behavior
Satish Joshi
(Michigan State University)
Shaun Jin
(Michigan State University)
Lindon Robison
(Michigan State University)
Richard Winder
(Michigan State Bar Foundation)
Robert Shupp
(Michigan State University)
[View Abstract]
[Download Preview] Prior research on recycling behavior has focused on how policy variables (such as variable pricing, curbside collection), demographic factors (age, gender, education) and attitudes (towards recycling and other environmental activities), affect recycling rates and frequency. This article draws on the emerging social capital theory and hypothesizes that social capital motives such as self-respect, goodwill, belongingness, and caring influence recycling behavior. The hypotheses are empirically tested using survey data from 782 occupants of 66 buildings on a University campus. Results support the hypothesized relations and indicate that variations in recycling rates at both individual and building level can be explained by variations in social capital motives even after controlling for traditional policy, demographic and economic factors.
Discussants:
Norbert Wilson
(Auburn University)
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 206
American Economic Association
Buyer-Supplier Relationships in International Trade
(F1, F6)
Presiding:
James Tybout
(Pennsylvania State University)
International Buyer-Seller Networks with Two-Sided Search
Jonathan Eaton
(Brown University)
David Jinkins
(Pennsylvania State University)
James Tybout
(Pennsylvania State University)
Daniel Xu
(Duke University)
[View Abstract]
We first generate descriptive statistics that characterize business networks between U.S. firms and their foreign suppliers. These statistics are constructed using customs records from the U.S., China, and Colombia, matched to establishment-level panel data from each of these countries. They include copula-based summary measures of association between buyer characteristics and seller characteristics, the distribution of numbers of buyers across sellers, the analogous distribution of numbers of sellers across buyers, and the transition probabilities with which individual buyers and sellers move through these distributions. Using these statistics as targeted moments, we next estimate a simple continuous-time model of international buyer-seller networks. The model describes equilibrium matching patterns between heterogeneous buyers and sellers with two-sided search. Among other things, it allows us to study the relationship between search frictions and buyer-seller network structures. It also provides a basis for counter-factual experiments that add or subtract a particular type of producer from one side of the market. In this respect it provides a new perspective on the implications of integrating Chinese exporters into U.S. buyer-seller networks.
Two-sided Heterogeneity and Trade
Andrew B. Bernard
(Dartmouth College)
Andreas Moxnes
(Dartmouth College)
Karen Helene Ulltveit-Moe
(University of Oslo)
[View Abstract]
[Download Preview] Empirical studies of firms within industries consistently report substantial heterogeneity in measures of performance such as size and productivity. This paper explores the consequences of joint heterogeneity on the supply side (sellers) and the demand side (buyers) in international trade using a novel transaction-level dataset from Norway. Domestic exporters as well as foreign importers are explicitly identified in each transaction to every destination. The buyer-seller linked data reveal a number of new stylized facts on the distributions of buyers per exporter and exporters per buyer, the matching among sellers and buyers and the variation of buyer dispersion across destinations. The paper develops a model of trade with heterogeneous importers as well as heterogeneous exporters where matches are subject to a relation-specific fixed cost. The model matches the stylized facts and generates new testable predictions emphasizing the importance of importer heterogeneity in explaining trade patterns.
Supervisory Management and Productivity Dispersion in the Bangladeshi Garment Sector
Rocco Macchiavello
(University of Warwick)
Christopher Woodruff
(University of Warwick)
[View Abstract]
There is growing evidence that manufacturing activities in developing countries exhibit higher variance in productivity and management performance. We use what we believe are the most detailed, within-firm, daily production data from about 75 large factories to analyse productivity dispersion in the ready-made garment sector in Bangladesh. The sector has grown at rates of around 15 percent per year for the past decade, and accounting for around 80 percent of Bangladeshi exports and 13 percent of GDP. A typical factory in Bangladesh has around 1000 workers organised on 20 production lines. Using output and quality data
at the level of the production line, we first show that there is substantial productivity dispersion even within factories. That dispersion remains even after controlling for the buyer and style being produced on the line. Initial analysis indicates a 90/10 ratio of around 1.65 – that is, on a typical production floor containing 10 lines, the most efficient line is two-third again as productive as the least efficient line. We then examine the role of supervisory management in determining the level of productive efficiency and quality defects. We use data from two interventions which provided training to line supervisors, the
lowest level of management in the factories. The first intervention trained sewing machine operators to be line supervisors, and the second provided training to existing line supervisors. The detailed production data provided by the participating factories is matched with surveys of operators, supervisors and higher-level managers. The survey data allow us to identify mechanisms for changes in productivity. We also exploit transaction-level trade data which allow us to rank buyers by adjusted unit prices. Initial
analysis shows that the productivity of lines increases with the the quality of the buyer for whom the output is being produced, and that this relationship holds even within factory.
Assortative Matching of Exporters and Importers
Yoichi Sugita
(Stockholm School of Economics)
Kensuke Teshima
(Instituto Tecnológico Autónomo de México (ITAM))
Enrique Seira
(Instituto Tecnológico Autónomo de México (ITAM))
[View Abstract]
[Download Preview] This paper examines the mechanism behind matching of exporting firms and importing firms.
From transaction data of Mexican textile/apparel exports to the US, we report two new facts on exporter-
importer matching at the product level. First, matching is approximately one-to-one. Second, in response
to the entry of Chinese exporters into the US induced by the end of the Multi-Fiber Arrangement, US
importers switch their Mexican partners to those with higher capability while Mexican exporters switch
their US partners to those with lower capability. To explain these facts, we present a model combining
Becker-type positive assortative matching of final producers and suppliers with the standard Melitz-type
model. The model interprets the observed changes in matching as evidence for a previously undocumented source of gains from trade associated with firm heterogeneity.
Discussants:
Costas Arkolakis
(Yale University)
Bernardo Blum
(University of Toronto)
Amit Khandelwal
(Columbia University)
James Rauch
(University of California-San Diego)
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 203
American Economic Association
Efficient Pricing in Health Care Markets
(I1)
Presiding:
Joseph Doyle
(Massachusetts Institute of Technology)
Externalities and Taxation of Supplemental Insurance: A Study of Medicare and Medigap
Marika Cabral
(University of Texas-Austin)
Neale Mahoney
(University of Chicago)
[View Abstract]
[Download Preview] Most health insurance uses cost-sharing to reduce excess utilization. Supplemental insurance can blunt the impact of this cost-sharing, increasing utilization and exerting a negative externality on the primary insurer. This paper estimates the effect of private Medigap supplemental insurance on public Medicare spending using Medigap premium discontinuities in local medical markets that span state boundaries. Using administrative data on the universe of Medicare beneficiaries, we estimate that Medigap increases an individual’s Medicare spending by 22.2%. We calculate that a 15% tax on Medigap premiums generates savings of $12.9 billion annually. A Pigouvian tax generates annual savings of $31.6 billion.
Paying for Quality in Healthcare
Joseph Doyle
(Massachusetts Institute of Technology)
John Graves
(Vanderbilt University)
Jonathan Gruber
(Massachusetts Institute of Technology)
[View Abstract]
Quality measures are playing an increasingly large role in the reimbursement of medical providers in the U.S., despite concerns that quality measures may be confounded by patient selection. This paper aims to estimate the causal relationship between measured hospital quality, reimbursement, and patient outcomes. To compare similar patients across hospitals in the same market, we exploit ambulance company preferences as an instrument for patient assignment. Our primary measure of hospital quality is the hospital’s risk-adjusted mortality rate over the prior three years, and we find that this measure is significantly related to subsequent mortality, as well as hospital readmissions. Nevertheless, we find that high-reimbursement hospitals achieve lower mortality rates even conditional on these quality measures, suggesting that “reference pricing”—paying hospitals at rates set by the lowest-cost provider within quality groupings—may have negative implications for patient health. Meanwhile, we use this lens to compare hospitals that rely on different types of spending over the following 90 days after an acute episode. The results suggest that hospitals with higher-intensity treatments on an inpatient basis, and lower-intensity treatments outside of the hospital setting have better health outcomes. This is consistent with the current sentiment that efforts to coordinate care outside of the hospital hold the potential to lower costs and improve patient health.
Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments
Liran Einav
(Stanford University)
Amy Finkelstein
(Massachusetts Institute of Technology)
Heidi Williams
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We present a simple framework to illustrate the welfare gains from a health insurance policy that allows patients to pay the incremental price for more expensive treatment options, and contrast it with common alternative policies that require essentially no incremental payments for more expensive treatments (as in the United States) or require patients to pay the full costs of more expensive treatments (as in the United Kingdom). We provide an empirical illustration of this welfare analysis in the context of treatment choices among breast cancer patients, where lumpectomy with radiation therapy is a more expensive treatment with similar average health benefits to mastectomy. We use variation in distance to the nearest radiation facility to estimate the relative demand for lumpectomy and mastectomy. Extrapolating the resultant demand curve (grossly) out of sample, we are able to quantify the welfare gains from the efficient “top-up” policy which reimburses the cost of the mastectomy, but makes patients pay the incremental cost of lumpectomy, relative to the current US-type policy and relative to the UK-type policy. While we caution against putting too much weight on these specific estimates, this illustrative example underscores the potential welfare gains from moving to a more efficient reimbursement policy for medical treatments.
Behavioral Hazard in Health Insurance
Katherine Baicker
(Harvard University)
Sendhil Mullainathan
(Harvard University)
Joshua Schwartzstein
(Dartmouth College)
[View Abstract]
This paper develops a model of health insurance that incorporates behavioral biases. In the traditional model, people who are insured overuse low-value medical care because of moral hazard. There is ample evidence, though, of a different inefficiency: people overuse low-value care and underuse high-value medical care because they make mistakes. Such “behavioral hazard” changes the fundamental tradeoff between insurance and incentives. With only moral hazard, lowering copays increases the insurance value of a plan but reduces its efficiency by generating overuse. With the addition of behavioral hazard, lowering copays may both increase insurance value and increase efficiency by reducing underuse. Estimating the demand response is no longer enough for setting optimal copays; the health response needs to be considered as well. This provides a theoretical foundation for value-based insurance design: for some high-value treatments, copays should be zero (or even negative); and for some low-value treatments, copays should equal (or even exceed) cost. We show that ignoring behavioral hazard can lead to welfare estimates that are both wrong in sign and off by an order of magnitude, highlighting the importance of incorporating both moral hazard and behavioral hazard in evaluating insurance plan design.
Discussants:
Joshua Gottlieb
(University of British Columbia)
Amitabh Chandra
(Harvard University)
Douglas Staiger
(Dartmouth College)
Benjamin Handel
(University of California-Berkeley)
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 202
American Economic Association
Financial Architecture and Regulation
(G2, L1)
Presiding:
Robert Townsend
(Massachusetts Institute of Technology)
Spatial Competition among Financial Service Providers and Optimal Contract Design
Robert Townsend
(Massachusetts Institute of Technology)
Victor Zhorin
(University of Chicago)
[View Abstract]
[Download Preview] We present a contract-based model of industrial organization that allows us to consider in a unified way both different information frictions (moral hazard, adverse selection, both) and a variety of market structures (monopoly, imperfect competition, various strategic interactions). We show how this method can be applied to the spread of the banking industry in emerging market countries, emphasizing observed transitions, namely the geographic locations of branches. Local collusive monopoly organizations and Bertrand-like competitive environments in location and utility space are considered alongside with frictions affecting the outcome, namely provincial spatial costs and the information structure. Mixed environments with fully informed local incumbents and entrants facing adverse selection are analyzed. Our larger goal, beyond calibrated numerical examples, is to develop a framework with an operational toolkit for empirical work.
Inefficient Financial Market Formation
Daron Acemoglu
(Massachusetts Institute of Technology)
Asuman Ozdaglar
(Massachusetts Institute of Technology)
Alireza Tahbaz-Salehi
(Columbia University)
[View Abstract]
We study the formation of counterparty relations among banks in the presence of the risk of financial contagion. Using the framework developed in our earlier work, which enables a characterization of the impact of the structure of the financial network on systemic risk, we derive a new financial externality: under natural contracting assumptions, even though banks take the effects of their lending, risk-taking and failure on their immediate creditors into account, they do not internalize the consequences of their actions on the rest of the network. We show how this network externality leads to socially inefficient network formation. Interestingly, the equilibrium network may be excessively or insufficiently dense relative to the socially optimal network, and we provide results on when the equilibrium network is likely to involve excessive connections.
Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act
Victor Aguirregabiria
(University of Toronto)
Robert Clark
(HEC Montreal)
Hui Wang
(Peking University)
[View Abstract]
[Download Preview] In this paper we study the role of diversification of geographic risk in the branch location decisions of US retail banks between 1994 and 2006. Historically, the US banking industry has been much more fragmented than elsewhere, composed of many small, locally concentrated banks. A key factor in explaining this market structure is the history of stringent restrictions on banks' ability to expand geographically. The 1994 Riegle Neal Act (RN) laid the foundation for the removal of restrictions on interstate banking and branching. We propose an approach to measure banks' geographic risk and use this measure to present new empirical evidence on the possibilities for geographic risk diversification available to banks, on the effects that RN had on these possibilities, and on the extent to which banks took advantage of these opportunities for diversification before and after RN. We identify bank preferences towards geographic risk separately from the contribution of the costs of geographic expansion. Counterfactual experiments based on the estimated structural model reveal that the gains from additional geographic diversification are negligible for large banks but are an important determinant of network expansion for banks with medium and small size. However, for small banks, any concern for risk diversification is counterbalanced by economies of density and the costs of expansion. The smallest banks benefit most from geographic diversification, but these are the banks for which it is also the most costly to expand. Our results help to explain the rash of bank failures that have occurred since the beginning of the financial crisis. Many of the failures were single-state or single-county banks that were overly exposed to local risk without being geographically diversified. Our estimation results point out reasons why banks may not have taken advantage of the opportunities for diversification afforded them by RN.
Welfare Consequences of Capital Requirements in a Simple Quantitative Model of Banking Industry Dynamics
Dean Corbae
(University of Wisconsin-Madison)
Pablo D'Erasmo
(University of Maryland)
[View Abstract]
We develop a quantitative dynamic general equilibrium model with heterogeneous banks to study the impact of a set of regulatory changes (minimum capital requirements and liquidity requirements) on bank risk taking, loan rates, commercial bank failure, and the bank size distribution. In our environment, a nontrivial size distribution of banks arises out of endogenous entry and exit, as well as banks’ buffer stocks of securities to smooth liability shortfalls. In our first counterfactual, we find that a rise in minimum capital requirements from 4% to 6% as proposed by Basel III leads to a substantial reduction in exit rates of small banks at the expense of higher interest rates and a more concentrated industry. In our second counterfactual, we analyze the effects of differential minimum capital requirements by bank size (as it is proposed in the latest Basel III). In particular, large banks (as measured by their asset size) or commonly defined as systemically important financial institutions (SIFI’s) are required to hold a capital surcharge of 2.5% above the minimum required to other banks. Finally, in our third counterfactual, we study the effects of introducing a minimum liquidity requirement (as it is also proposed in Basel III). This requirement is intended to ensure banks have an adequate stock of liquid assets to cover unexpected or infrequent losses.
Discussants:
Ariel Zetlin-Jones
(Carnegie Mellon University)
Michael Gofman
(University of Wisconsin-Madison)
Borghan Narajabad
(Federal Reserve Board)
Saki Bigio
(Columbia University)
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 201
American Economic Association
Financial Frictions and the Macroeconomy
(E3)
Presiding:
Ayse Sapci
(Colgate University)
Measuring De Facto Financial Openness: A New Index
Andreas Steiner
(University of Osnabrueck)
[View Abstract]
The sum of foreign assets and liabilities over GDP has been proposed as a measure of de facto financial openness (Lane and Milesi-Ferretti, 2003, 2007). It has been widely used in empirical applications, both as dependent variable and covariate explaining, for instance, economic growth, crisis incidence or economic productivity.
We propose an adjusted measure called private financial openness: It measures financial openness of an economy with respect to private capital by excluding official claims and liabilities. Large inflows of development aid or a central bank's accumulation of reserves do not stem from private investors' decisions and are excluded from this measure. In this sense, private financial openness quantifies private agents' willingness and ability to invest abroad and to incur foreign debt.
We show statistically that our measure differs significantly from the standard one in developing countries and in emerging markets, in the latter especially since the 2000s. As an example, according to total financial openness China and Korea are similarly open since 1990. However, if we consider private financial openness China is much more closed than Korea. To highlight that the new index matters, we use a cross-country panel data set to estimate standard regressions of the relationship between financial openness and economic growth and show the both measures may lead to different conclusions.
Financial Markets, Industry Dynamics, and Growth
Raoul Minetti
(Michigan State University)
Pietro Peretto
(Duke University)
Maurizio Iacopetta
(Sciences Po and Skema)
[View Abstract]
[Download Preview] We study the impact of corporate governance frictions on growth in an economy where growth is driven both by the foundation of firms that offer new products and by the in-house investment of incumbent firms. Managers can engage in tunnelling and empire building activities at the expense of firms' shareholders. Firm founders can monitor managers on behalf of all shareholders, but can shirk on their monitoring, damaging minority shareholders. We investigate the effects of these conflicts among firms' stakeholders and financiers on both the entry of new firms and the investment of existing firms. The analysis also characterizes conditions under which the effects of corporate governance frictions on growth boost or reduce welfare.
Financial Shocks, Credit Regimes, and Global Spillovers
Norbert Metiu
(Deutsche Bundesbank)
Michael Grill
(European Central Bank)
Bjoern Hilberg
(Deutsche Bundesbank)
[View Abstract]
[Download Preview] We investigate whether credit constraints facilitate the international propagation of financial shocks that originate from the United States. The US economy is modeled jointly with global macro and financial variables using a threshold vector autoregression. This model captures regime-dependent dynamics conditional on the tightness of credit market conditions, gauged by a risk premium on US corporate bonds. The economy switches from a regime of unconstrained access to credit to one characterized by tight credit whenever the bond risk premium exceeds a critical threshold. Our results reveal that US financial shocks lead to a tightening of global financial conditions and to a decline in global trade, which trigger a significant worldwide output contraction in periods when borrowers face stringent credit constraints.
Banks, Capital Flows and Financial Crises
Ozge Akinci
(Federal Reserve Board)
Albert Queralto
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper proposes a macroeconomic model with financial intermediaries (banks), in which banks face occasionally binding leverage constraints and may endogenously affect the strength of their balance sheets by issuing new equity. The model can account for occasional financial crises as a result of the nonlinearity induced by the constraint. Banks' precautionary equity issuance makes financial crises infrequent events occurring along with ``regular'' business cycle fluctuations. We show that an episode of capital inflows and rapid credit expansion, triggered by low country interest rates, leads banks to endogenously decrease the rate of equity issuance, contributing to a higher likelihood of future crises. Macroprudential policies directed at strengthening banks' balance sheets, such as capital requirements, are shown to lower the probability of financial crises and to enhance welfare.
The Financing of Ideas and the Great Deviation
Daniel Garcia-Macia
(Stanford University)
[View Abstract]
[Download Preview] Why do financial crises lead to very slow recoveries? First, I document that firms which are intensive in innovation are less able to engage in volatile external financing flows. The effect is primarily due to debt financing; equity financing acts as a partial substitute. Then, I develop a business cycle model with endogenous innovation that incorporates these facts in order to explain the short and medium-run effects of financial shocks. The increases in the cost of debt and venture capital financing during the Great Recession can explain an important part of the ensuing Great Deviation of output from trend, as the reduction in innovation amplifies persistence.
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 208
American Economic Association
Growth and Trade
(F1, O1)
Presiding:
Stephen Redding
(Princeton University)
Management Practices and International Trade: Firm-Level Evidence from China
Nicholas Bloom
(Stanford University)
Kalina Manova
(Stanford University)
John Van Reenen
(London School of Economics)
Zhihong Yu
(Nottingham University)
[View Abstract]
Management practices and participation in international trade vary substantially across firms and countries. We provide the first evidence on the links between managerial competence, export performance and import activity using detailed data on the management practices, balance sheets and customs transactions of 485 Chinese firms in 2000-2006. Better managed firm are significantly more likely to engage in exporting. Conditional on doing so, they have higher export revenues, trade more products, transact with more destination countries, and sell to richer markets. Unpacking management into various components, monitoring/targets management matters for all aspects of trade activity, while people management only for the choice of trade partner countries. Symmetric patterns hold for firms’ imports. Managerial quality is more important for export success in sectors that require more external finance, especially in Chinese provinces with less developed credit markets. By contrast, the role of management does not depend on sectors’ capital, skill, R&D and contract intensity. These results suggest that superior managerial practices enhance firms’ trade performance by allowing them to produce goods of higher quality, as well as to raise more external finance and/or use it more efficiently. Inferior managerial practices may thus be an important obstacle for developing nations that depend on trade for economic growth.
The Dynamics of Firm Capabilities
Stephen Redding
(Princeton University)
Peter Schott
(Yale University)
[View Abstract]
In the period since the early 1960s, the U.S. economy has undergone a major structural transformation, as employment has reallocated, both within manufacturing, and away from manufacturing to services. Yet we have relatively little evidence on the microeconomic processes through which such structural transformation occurs. To what extent does it occur within firms, within plants, and within versus across geographic regions? The relative importance of these margins informs the relative magnitude of adjustment costs, both within and across firms, and the extent of misallocation of resources from their most productive use. The relative importance of these margins also sheds lights on the dynamics of firm growth. We find an important role of within-firm relocation for aggregate structural transformation and find that a firm’s flexibility in reallocating resources plays an important role in addition to its productivity in determining its long-run success.
Sources of Firm Heterogeneity
Colin Hottman
(Columbia University)
Stephen Redding
(Princeton University)
David E. Weinstein
(Columbia University)
[View Abstract]
[Download Preview] This paper develops a structural model of heterogeneous multi-product firms which enables a decomposition of the firm size distribution into the model's components of costs, qualities, product scope, and markups. We use detailed Nielsen barcode data to document that virtually all output in packaged goods industries is produced by multi-product firms, and these firms exhibit extreme heterogeneity in terms of sales. Taking our model to the data, we find that variation in firm quality explains 60-80 percent of the variation in firm sales depending on the specification. Cost, and therefore productivity, differences explain at most 20 percent of the US firm size distribution. The fact that firms that produce the highest quality output tend to have the lowest marginal cost tends to support a complementarity between between quality and productivity. Finally, we find that although the output of multi-product firms is differentiated, cannibalization is be quantitatively important for the largest firms.
Impacts of Foreign Competition on Domestic Innovation: Evidence from United States Patents
David Autor
(Massachusetts Institute of Technology)
David Dorn
(CEMFI)
Gordon Hanson
(University of California-San Diego)
Pian Shu
(Harvard Business School)
Gary Pisano
(Harvard Business School)
[View Abstract]
We study how increased import competition from China affects domestic innovation in U.S. firms. On the one hand, foreign competition may increase innovation within industries by encouraging U.S. establishments to concentrate on product segments that are more intensive in R&D or to engage defensive innovation within existing segments. On the other hand, greater import penetration resulting from deepening supply chains in Asia may reduce overall U.S. presence in the key industries (computers, semiconductors, other electronics) where opportunities for innovation are most abundant. We examine firm and industry dynamics by combining data on patenting at the firm level with measures of trade exposure at the industry level.
Jan 03, 2015 10:15 am, Sheraton Boston, Riverway
American Economic Association
Heterogeneous Externalities
(Q5, H2)
Presiding:
Christopher Knittel
(Massachusetts Institute of Technology)
Step on It: Evidence on the Variation in On-Road Fuel Economy
Ashley Langer
(University of Arizona)
Shaun McRae
(University of Michigan)
[View Abstract]
[Download Preview] In this paper we attempt to understand how policy interventions could improve the fuel economy of drivers without changing the vehicles they drive or the trips they take. To do this, we use high-resolution driving data to document the large variation in actual on-road fuel economy achieved by drivers of identical vehicles. We analyze this variation using a model that links driver behavior to vehicle fuel consumption. The physical vehicle model, estimated econometrically from data on acceleration and speed choices, predicts observed fuel consumption extremely well. We combine this physical model with a model of optimizing behavior by drivers, in which drivers trade-off higher fuel consumption for shorter trip times. Using the variation in value of time for the drivers in our data set, we simulate route choice and driving behavior on a stylized set of trips. We find that drivers have little incentive to change their driving behavior to improve fuel economy, since the time cost of driving more efficiently generally outweighs the value of fuel savings. This means that gasoline taxes, while internalizing environmental externalities, are not as effective at reducing overall fuel use as policies that allow for smoother traffic flow (fewer accelerations and decelerations) such as stoplight timing, infrastructure improvements, or the increased use of vehicle automation.
Location, location, location? \\What drives variation in the marginal benefits of renewable energy and demand-side efficiency
Duncan Callaway
(University of California-Berkeley)
Meredith Fowlie
(University of California-Berkeley)
Gavin McCormick
(University of California-Berkeley)
[View Abstract]
[Download Preview] Greenhouse gas mitigation efforts in the electricity sector emphasize accelerated deployment of energy efficiency measures and renewable energy resources. Short-run benefits associated with incremental investments in energy efficiency or renewables manifest indirectly as reductions in the economic operating costs and emissions of marginal electricity generating units. We evaluate different renewable energy (RE) and energy efficiency (EE) technologies across regional power systems. Using standard social cost of carbon assumptions, our estimates of emissions-related benefits comprise a significant share of estimated returns on investment in some regions. On a per-MWh basis, regional variation in emissions displaced and costs avoided is more significant than variation across technologies within individual regions. This implies that the choice of location, more than the technology choice, determines the value generated by these investments. We also find that regional variation in avoided carbon benefits generates significant regional variation in the implied abatement costs associated with each technology. These results underscore the importance of designing policy incentives that accurately capture regional differences in emissions-related returns on RE and EE investments.
Measuring the Spatial Heterogeneity in Environmental Externalities from Driving: A Comparison of Gasoline and Electric Vehicles
Stephen Holland
(University of North Carolina-Greensboro)
Erin Mansur
(Dartmouth College)
Nicholas Z. Muller
(Middlebury College)
Andrew Yates
(University of North Carolina)
[View Abstract]
[Download Preview] Electric vehicles offer the promise of reduced environmental externalities relative to their gasoline counterparts. We determine the
spatial heterogeneity in these externalities and evaluate several spatially-differentiated policies to correct them. To do this, we combine a discrete-choice model of new vehicle purchases, an econometric analysis of the electric power industry, and the AP2 air pollution model. We find three main insights. First, there is considerable spatial variation in the environmental benefit of electric cars, ranging from a positive \$2144 in California to a negative \$2607 in North Dakota. Second, the vast majority of environmental externalities from driving an electric car in one place are exported to other places, implying that electric cars may be subsidized locally, even though they may lead to negative environmental benefits overall. Third, spatially differentiated policies can raise welfare, but the effect is much stronger for
taxes on miles driven than for subsidies on vehicle purchases.
The Implications of Heterogeneity for the Regulation of Energy-Consuming Durable Goods
Mark Jacobsen
(University of California-San Diego)
Christopher Knittel
(Massachusetts Institute of Technology)
James Sallee
(University of Chicago)
Arthur van Benthem
(University of Pennsylvania)
[View Abstract]
[Download Preview] Many of the most important policies that aim to reduce greenhouse gas emissions and other environmental externalities do so by regulating the energy efficiency of energy-consuming durable goods. We document a hitherto unexplored connection between heterogeneity in the utilization of such durable goods and the economic efficiency of this class of policies. Inefficiency arises because products with the same energy efficiency rating have different lifetime utilizations, and hence different lifetime emissions, are given equal policy treatment. We develop a model that characterizes sufficient statistics for the deadweight loss from using these second-best policies in lieu of efficient Pigouvian taxes in the presence of such utilization heterogeneity. Most notably, under some plausible assumptions, the R2 from a regression of the lifetime emissions of products on their energy efficiency ratings is equal to the fraction of the first-best welfare gain that can be achieved by energy efficiency regulations that, like Corporate Average Fuel Economy standards, impose an (implicit) linear tax on energy efficiency. We explore the quantitative importance of heterogeneity for the case of automobile fuel economy regulations using data on vehicle mileage shortly before scrappage. We document significant dispersion in lifetime mileage of different types of vehicles that share a common fuel economy rating. We estimate that this heterogeneity implies that fuel-economy regulations can achieve only about one quarter of the welfare gain from an optimally designed policy.
Discussants:
Joseph S. Shapiro
(Yale University)
Ryan Kellogg
(University of Michigan)
Don Fullerton
(University of Illinois-Urbana‑Champaign)
Steve Cicala
(University of Chicago)
Jan 03, 2015 10:15 am, Sheraton Boston, Back Bay Ballroom C
American Economic Association
High Stakes Energy and Environmental Problems in Developing Countries
(Q4, Q5)
Presiding:
Michael Greenstone
(University of Chicago)
Growth, Pollution, and Life Expectancy: China from 1991-2012
Avraham Ebenstein
(Hebrew University of Jerusalem)
Maoyong Fan
(Ball State University)
Michael Greenstone
(University of Chicago)
Guojun He
(Hong Kong University of Science and Technology)
Maigeng Zhou
(Chinese Center for Disease Control and Prevention)
TBD
Impacts of Climate Change on Low-Lying and Flood-Prone Areas: The Case of Bangladesh
Raymond Guiteras
(University of Maryland)
Amir Jina
(University of Chicago)
Ahmed Mushfiq Mobarak
(Yale University)
TBD
Pre-Paid Metering and Electricity Access in the Developing World
B. Kelsey Jack
(Tufts University)
Grant Smith
(University of Cape Town)
N/A
Moving up the Energy Ladder: The Effect of an Increase in Economic Well-Being on the Fuel Consumption Choices of the Poor in India
Rema Hanna
(Harvard University)
Paulina Oliva
(University of California-Santa Barbara)
[View Abstract]
Rising household wealth may potentially impact both total fuel consumption and fuel-type composition, resulting in significant health and environmental implications. We explore the effects of a transfer program that provided poor, rural households with greater levels of assets and cash. The shift in household well-being that arose from the program increased total fuel consumption: a one standard deviation in household assets led to a 41 percent increase in fuel consumption. Households that experienced a rise in well-being shifted from using electricity rather than kerosene as their primary form of lighting, even though the total value of kerosene consumption also rose. In contrast, we did not observe a shift to cleaner cooking fuels.
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 204
American Economic Association
Housing Finance
(D1, G2)
Presiding:
Luigi Guiso
(Ente Luigi Einaudi)
The Effectiveness of Mandatory Mortgage Counseling: Can One Dissuade Borrowers from Choosing Risky Mortgages?
Sumit Agarwal
(National University of Singapore)
Eugene Amromin
(Federal Reserve Bank of Chicago)
Itzhak Ben-David
(Ohio State University)
Souphala Chomsisengphet
(Office of the Comptroller of the Currency)
Douglas Darrell Evanoff
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] We explore the effects of mandatory third-party review of mortgage contracts on consumer choice— including the terms and demand for mortgage credit. Our study is based on a legislative pilot carried out by the State of Illinois in a selected set of zip codes in 2006. Mortgage applicants with low FICO scores were required to attend loan reviews by financial counselors. Applicants with high FICO scores had to attend counseling only if they chose “risky mortgages.” We find that low-FICO applicants for whom counselor review was mandatory did not materially change their contract choice. Conversely, applicants who could avoid counseling by choosing less risky mortgages did so. Ironically, the ultimate goals of the legislation (e.g., better loan terms for borrowers) were only achieved among the population that was not counseled. We also find significant adjustments in lender behavior as a result of the counseling program.
The Supply Side of Housing Finance
Gabriele Foà
(Yale University)
Leonardo Gambacorta
(Bank for International Settlements)
Luigi Guiso
(Ente Luigi Einaudi)
Paolo Emilio Mistrulli
(Bank of Italy)
[View Abstract]
[Download Preview] We propose a new, data-based test of the presence of biased financial advice when household choose between Fixed Rate Mortgages (FRM) and Adjustable Rate Mortgages (ARM). If households are wary, the relative cost of fixed and variable rate mortgages should be a sufficient statistics for a household mortgage choice and the identity of the bank originating the loan should play no role, even if banks differ in the relative cost of originating the two types of mortgages. If households are naïve and rely on banks advice to guide their choice, banks may be tempted to bias advice in a direction that is most convenient to them. The relative cost of the two mortgages is no longer a sufficient statistic: characteristics of the bank, proxying for its relative advantage to originate fixed versus adjustable rate mortgages, play a role. We test this implication on a random sample of 2.4 million mortgages originated in Italy between 2004 and 2010 featuring information on the borrower, the originator and the price at origination. We find that the choice between ARM and FRM is systematically and significantly affected by banks’ characteristics especially at times when they cannot modify the relative price of the two mortgage types. This supports the view that banks are able to affect household mortgage choices not only through a price but also through an advice channel.
Inattention and Inertia in Household Finance: Evidence from the Danish Mortgage Market
Steffen Andersen
(Copenhagen Business School)
John Campbell
(Harvard University)
Kasper Meisner Nielsen
(Hong Kong University of Science and Technology)
Tarun Ramadorai
(University of Oxford)
[View Abstract]
[Download Preview] This paper studies the refinancing behavior of Danish households during a recent period of declining interest rates. Danish data are particularly suitable for this purpose because the Danish mortgage system imposes few barriers to refinancing, and demographic and economic characteristics of mortgage borrowers can be accurately measured. The paper finds that household characteristics affect both inattention (a low responsiveness of mortgage refinancing to financial incentives) and inertia(a low unconditional probability of refinancing. Many characteristics move inattention and inertia in the same direction, implying a high cross-sectional correlation of 0.76 between these two household attributes.
Middle-aged and older households show greater inertia and inattention than young households.
Education and income reduce both inertia and inattention, but the effect of education is greater among more educated households, while the effect of income is greater among poorer households. Housing and financial wealth have opposite effects on inertia, consistent with the view that households manage their mortgages more actively when housing is relatively more important to them.
Mortgage Rates, Household Balance Sheets, and the Real Economy
Benjamin Keys
(University of Chicago)
Tomasz Piskorski
(Columbia University)
Amit Seru
(University of Chicago)
Vincent W. Yao
(Fannie Mae)
[View Abstract]
[Download Preview] This paper investigates the impact of lower mortgage rates on household balance sheets and other economic outcomes during the housing crisis. We use proprietary loan-level panel data matched to consumer credit records using borrowers' Social Security numbers, which allows for accurate measurement of the effects. Our main focus is on borrowers with agency loans, which constitute the vast majority of U.S. mortgage borrowers. Using a difference-in-differences framework that exploits variation in the timing of rate resets of adjustable rate mortgages with different fixed-rate periods, we find that a sizable decline in mortgage payments ($150 per month on average) induces a significant drop in mortgage defaults, an increase in new financing of durable consumption (auto purchases) of more than 10% in relative terms, and an overall improvement in household credit standing. We identify important heterogeneity in the ability of monetary policy to stimulate households' consumption: Low-wealth borrowers are especially responsive to reductions in mortgage payments, while credit-constrained households use more than 70% of their increased liquidity to deleverage, dampening their consumption response. These findings also qualitatively hold in a sample of less-prevalent borrowers with private non-agency loans. We then use regional variation in mortgage contract types to explore the impact of lower mortgage rates on broader economic outcomes. Regions more exposed to mortgage rate declines saw a relatively faster recovery in house prices, increased durable (auto) consumption, and increased employment growth, with responses concentrated in the non-tradable sector. Our findings have implications for the pass-through of monetary policy to the real economy through mortgage contracts and household balance sheets.
Discussants:
Brigitte C. Madrian
(Harvard University)
Umit Gurun
(University of Texas-Dallas)
Xavier Gabaix
(New York University)
Karen Pence
(Federal Reserve Board)
Jan 03, 2015 10:15 am, Sheraton Boston, The Fens
American Economic Association
Information Disclosure in Financial Markets
(G1, E5)
Presiding:
Gary Gorton
(Yale University and NBER)
Runs versus Lemons: Information Disclosure, Fiscal Capacity and Financial Stability
Miguel de Faria e Castro
(New York University)
Joseba Martinez
(New York University)
Thomas Philippon
(New York University and NBER)
[View Abstract]
[Download Preview] We study how a government should optimally disclose information about banks’ assets during a financial crisis. The government can also use its resources to stop runs and unfreeze credit markets. Disclosure improves welfare by reducing adverse selection, but it can also create runs on weak banks. A credible fiscal backstop mitigates these risks and allows the government to pursue efficient but risky strategies. A strong fiscal position makes it possible to provide a candid assessment of financial health while providing guarantees to banks that are run on. A weak fiscal position can make it optimal not to reveal too much information. We argue that our theory provides an explanation for the different choices that countries make in response to financial crises.
Mandatory Disclosure and Financial Contagion
Fernando Alvarez
(University of Chicago and NBER)
Gadi Barlevy
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] This paper analyzes the welfare implications of mandatory disclosure of losses at financial institutions when it is common knowledge that some banks have incurred losses but not which ones. We develop a model that features contagion, meaning that banks not hit by shocks may still suffer losses because of their exposure to banks that are. In addition, we assume banks can profitably invest funds provided by outsiders, but will divert these funds if their equity is low. Investors thus value knowing which banks were hit by shocks to assess the equity of the banks they invest in. We find that when the extent of contagion is large, it is possible for no information to be disclosed in equilibrium but for mandatory disclosure to increase welfare by allowing investment that would not have occurred otherwise. Absent contagion, mandatory disclosure cannot raise welfare, even if markets are frozen. Our findings provide insight on when contagion is likely to be a concern, e.g. when banks are highly leveraged against other banks, and thus when mandatory disclosure is likely to be desirable.
Government Intervention and Information Aggregation by Prices
Philip Bond
(University of Washington)
Itay Goldstein
(University of Pennsylvania)
[View Abstract]
[Download Preview] Governments intervene in firms’ lives in a variety of ways. However, efficient interventions
depend on economic conditions, about which a government often has only limited information.
Consequently, many researchers and policymakers call for the government to at least
partially “follow the market” and make intervention decisions based on the information revealed
by stock market prices. We analyze the implications of governments’ reliance on
market information for market prices and government decisions, and show that the use of
market information might not come for free. A key point is that price informativeness is
endogenous to government policy. In some cases, it is optimal for the government to commit
to limited reliance on market prices in order to avoid harming traders’ incentives to trade
and the concomitant aggregation of information into market prices. For similar reasons, it
is optimal for the government to limit transparency in some dimensions.
How Central Banks End Crises
Gary Gorton
(Yale University and NBER)
Guillermo Ordonez
(University of Pennsylvania and NBER)
[View Abstract]
[Download Preview] To end a financial crisis, the central bank is to lend freely, against good collateral, at a high rate, according to Bagehot’s Rule. We argue that in theory and in practice there is a missing ingredient to Bagehot’s Rule: secrecy. Re-creating confidence requires that the central bank lend in secret, hiding the identities of the borrowers, to prevent information about individual collateral from being produced and to create an information externality by raising the perceived value of average collateral. Ironically, the participation of “bad” borrowers, with low quality collateral, in the central bank’s lending program is a desirable part of re-creating confidence because it creates stigma. Stigma is critical to sustain secrecy because no borrower wants to reveal his participation in the lending program, and it is limited by the central bank charging a high rate for its loans.
Discussants:
Guido Lorenzoni
(Northwestern University and NBER)
Bengt Holmstrom
(Massachusetts Institute of Technology and NBER)
Laura Veldkamp
(New York University and NBER)
Mark Gertler
(New York University and NBER)
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 209
American Economic Association
Political Economy
(D8)
Presiding:
Mark Crain
(Lafayette College)
Do Politicians Change Public Attitudes?
Dan-Olof Rooth
(Linnaeus University)
Gordon Dahl
(University of California-San Diego)
Magnus Carlsson
(Linnaeus University)
[View Abstract]
[Download Preview] A large theoretical and empirical literature explores whether politicians change their policy positions in response to voters' preferences. This paper asks the reverse question: do politicians affect voters' attitudes on important policy issues? However, the problems of reverse causality and omitted variable bias make this a difficult question to answer empirically.
We study whether politicians affect public attitudes on nuclear energy and immigration in Sweden. We combine panel data for 290 municipal election units with attitudinal surveys measured at the municipality level. To identify causal effects, we take advantage of large non-linearities in the way seats are assigned. Using a regression discontinuity approach we compare otherwise similar elections where one party either barely wins or loses an additional seat.
The presence of small, issue-focused parties in Sweden provides an ideal setting for this identification approach, as it is clear which attitudes might be affected. We estimate that a one seat increase for the environmental party reduces support for nuclear energy in that municipality by 16%. On the contrary, when anti-immigration politicians get elected, negative attitudes towards immigration decrease by 6%, which is opposite the party's policy position. The reason for this result is found in post-election media coverage being negative.
These findings have important implications for both the theory and estimation of how voter preferences enter into political economy models. Our causal estimates indicate that politicians are not merely responding to voters' preferences, but that political representation has the power to mold and alter public attitudes on important policy issues. Forward-looking politicians should take this into account when calculating how to trade off preferred policy platforms and the probability of election. More broadly, our results point to the important influence those in positions of power have to change public opinion.
The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries
Thomas Lambert
(UC Louvain)
Hans Degryse
(KU Leuven and CEPR)
Armin Schwienbacher
(Université Lille Nord de France - SKEMA)
[View Abstract]
[Download Preview] Initially, voting rights were limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development as this new electorate has lower financial holdings and benefits less from the riskiness and financial returns from stock markets. Our panel data evidence covering 1830-1999 shows that tighter restrictions on the voting franchise induce a greater stock market development, whereas a broader voting franchise is more conducive towards the banking sector, consistent with Perotti and von Thadden (2006). Our results are robust to controlling for other institutional arrangements and endogeneity.
Why Culture Matters Most
David C. Rose
(University of Missouri-St. Louis)
[View Abstract]
[Download Preview] This paper explores why culture – not genes, geography, institutions, or policies – is the key to maximizing prosperity and freedom, and therefore best explains the differential success of societies. This is because only culture can overcome the most fundamental obstacle to human flourishing and advancement: rational self-interest undermining the common good.
Prosperity requires large group cooperation but the larger the group, the more likely rational self-interest and tribalism undermine the common good. My central claim is that human flourishing requires a high trust society. This is because a high trust society is required for the development of crucial free market and democratic institutions.
A key element of any high trust society is trust in the system. Trust in the system is having confidence that society's "rules of the game" will not be changed in arbitrary or self-serving ways. I explain why in a free market democracy trust in the system becomes increasingly harder to sustain the more successful a society becomes. This is because the democratic process becomes increasingly prone to facilitating redistributive and regulatory favoritism.
Unfortunately, the larger a society is the more likely institutional safeguards will fail to keep voters from demanding ever more redistribution and regulation. I explain how culture uniquely circumvents this problem by aligning self-interest with the common good through moral beliefs that function pre-rationally and scientific beliefs that suppress tribalism. The earlier in life such beliefs are inculcated, the less susceptible we are to being persuaded by arguments that exploit tribalism for narrow political ends.
How Social Networks Shape Our Values? A Natural Experiment among Future French Politicians
Yann Algan
(Sciences Po)
Quoc-Anh Do
(Sciences Po)
Alexis Le Chapelain
(Sciences Po)
[View Abstract]
We study social network formation and social network influences over individual opinions and values in a natural experiment, where freshmen of a prestigious French college, of whom many will become future politicians, are assigned almost randomly into first-year study groups. We use an incentive-compatible network elicitation game to obtain the social network among same-cohort students. The randomly assigned common membership to a first-year study group is shown to be a strong predictor of reported friendships between two students. It is used as instrument to estimate first year friendships’ effects on outcome variables including political opinions, past electoral behaviors, and social norms and values. We then use an individual's total number of friends of friends within the study group as instrument for her own centrality in the whole social network, to estimate the effect of centrality on individual opinions and values. To our knowledge, this is the first attempt to identify social network effects (beyond peer effects) using a quasi-random experiment that could fully avoid homophily issues.
From Green Users to Green Voters
Diego Comin
(Harvard University)
Johannes Rode
(Technische Universität Darmstadt)
[View Abstract]
We study whether the diffusion of photovoltaic (PV) systems has led to an increase in the fraction of votes obtained by the German Green Party. Taking advantage of the logistic diffusion of PV systems and of the exogenous impact of solar radiation on PV adoption, we identify the effect of the adoption rate on the increment in green votes. We find that the diffusion of domestic PV systems caused 25 per- cent of the increment in green votes between 1998 and 2009. Our findings are confirmed with individual-level data where we observe that after adopting a PV system, the owner of a house is 70% more likely to change his attitudes in favor of the green party, but not the other way around. Similarly, we find no effect for non-household owners. We interpret our findings as evidence of cognitive dissonance.
Jan 03, 2015 10:15 am, Sheraton Boston, Beacon B
American Economic Association
Productivity
(O1)
Presiding:
Shawn Sprague
(Bureau of Labor Statistics)
Misallocation, Establishment Size, and Productivity
Pedro Bento
(West Virginia University)
Diego Restuccia
(University of Toronto)
[View Abstract]
[Download Preview] We construct a new dataset using census, survey, and registry data from hundreds of sources to document a clear positive relationship between aggregate productivity and average establishment size in manufacturing across 134 countries. We rationalize this relationship using a standard model of reallocation among production units that features endogenous entry and productivity investment. The model connects small operational scales to the prevalence in poor countries of correlated distortions (the elasticity between wedges and establishment productivity). The model also rationalizes the finding in poor countries of low establishment-level productivity and low aggregate productivity investment. A calibrated version of the model implies that when correlated distortions change from 0.09 in the U.S. to 0.5 in India, establishment size and productivity fall by a factor of more than five, and aggregate productivity by a factor of three. These substantial size and productivity losses are large compared to the existing literature and more in line with actual data for the differences in size and productivity between India and the United States.
Crowdsourced Digital Goods and Firm Productivity: Evidence from Open Source Software
Frank Nagle
(Harvard Business School)
[View Abstract]
[Download Preview] As crowdsourced digital goods become more widely available and more frequently used as key inputs by firms, understanding the impact they have on productivity becomes of critical importance. This study measures the firm-level productivity impact of one such good, non-pecuniary (free) open source software (OSS). The results show a positive and significant return to the usage of non-pecuniary OSS that has gone unmeasured in prior studies of the economics of IT. The study addresses the endogeneity issues inherent in productivity studies by using inverse probability weighting, an instrumental variable approach, and firm fixed effects to add support for a causal interpretation. Across firms, a 1% increase in the amount of non-pecuniary OSS used by a firm leads to a .073% increase in productivity. This translates to a $1.38 million increase in value-added production for the average firm in the sample. This effect is greater for larger firms and for firms in the services industry. These findings suggest that firms willing to take on the risks associated with non-pecuniary OSS reap benefits from collective intelligence and labor spillovers. Further, the results indicate that existing studies underestimate the amount of IT used at the firm.
Harris-Todaro Meets Roy: Employment Risk, Selection, and Productivity Differences
Wenbiao Cai
(University of Winnipeg)
[View Abstract]
[Download Preview] Two puzzles about international productivity differences are (1) across countries, the difference in PPP output per worker is much larger in agriculture than in non-agriculture; (2) within a country, the difference in output per worker at domestic prices between agriculture and non-agriculture decreases systematically with income.
This paper develops a model that is capable of explaining these two empirical facts that existing research have difficulty reconciling. The model augments the classic Roy(1951) model of occupational choice with employment risks that differ across occupations. Specifically, I consider a setting where risk-averse individuals decide to work in agriculture or non-agriculture, where there are employment risks in non-agricultureas as in HarrisTodaro (1970). The employment risks take the form of idiosyncratic shocks to income of individuals working in non-agriculture.
I first analyze equilibrium self-selection under complete markets and incomplete markets. I show that individuals working in non-agriculture are more specialized in non-agricultural production in the incomplete market case. I then show that the difference in specialization is more pronounced when individual preferences are non-homothetic, i.e., there is a minimum consumption requirement.
I use the model to study the productivity difference between rich and poor countries. I restrict my analysis to countries with available census data from IPUMS-International. I assume employment risks in each country has the same parametric form as the one calibrated to US data, but has country-specific distributional parameters. Then for each country, I pick their country-specific TFP and distributional parameter such that the model matches two moments in the data: (1) difference in GDP per worker between US and the base country and (2) the distribution of wage in non-agriculture in the base country. Then I assess the difference in labor allocation as well as real output per worker in agriculture and non-agriculture between the base country and the US.
Good Firms, Worker Flows and Local Productivity
Michel Serafinelli
(University of Toronto)
[View Abstract]
[Download Preview] Localized knowledge spillovers are a common explanation for the productivity advantages of agglomeration. Nevertheless if information can easily flow out of firms, the question of why the effects of spillovers are localized must be clarified. If knowledge is embedded in workers and diffuses when workers move between firms, the strong localized aspect of knowledge spillovers may arise at least in part from the propensity of workers to change jobs within the same local labor market. In this paper I present direct evidence on the role of firm-to-firm labor mobility in enhancing the productivity of firms located near highly productive firms. Using Social Security earnings records for workers matched to detailed financial data for their employers in Veneto, a region of Italy with many successful industry clusters, I first identify a set of highly productive firms. I then show that hiring a worker with experience at highly productive firms significantly increases the productivity of other (non-highly productive) firms. I do so using different techniques, including an instrumental variable strategy which exploits downsizing events at highly productive firms. Back-of-the-envelope calculations suggest that worker flows can explain around 10% of the productivity gains experienced by other firms when new highly productive firms are added to a local labor market.
How Organizational Hierarchy Affects Information Production
Janis Skrastins
(London Business School)
Vikrant Vig
(London Business School)
[View Abstract]
[Download Preview] This paper empirically investigates how organizational hierarchy affects the allocation of credit within a bank. Using an exogenous variation in organizational design, induced by a reorganization plan implemented in roughly 2,000 bank branches in India during 1999-2006, and employing a difference-in-difference research strategy, we find that increased hierarchization of a branch decreases its ability to produce “soft” information on loans. Specifically, we observe that increased hierarchy leads to increased standardization of loans and rationing of “soft information” loans. Furthermore, this standardization brings about a reduction in performance on loans: delinquency rates and returns on similar loans are lower in more hierarchical branches. We also document how hierarchical structures perform better in environments that are characterized by a high degree of corruption, thus highlighting the benefits of hierarchical decision making in restraining rent seeking activities.
Jan 03, 2015 10:15 am, Sheraton Boston, Constitution Ballroom A
American Economic Association
Reflections on New Growth Theory
(O4)
Presiding:
Charles I. Jones
(Stanford University)
Human Capital and Growth
Robert Lucas, Jr.
(University of Chicago)
TBD
Mathiness in Economic Theories of Growth (Revised Title)
Paul Romer
(New York University)
[View Abstract]
If politicians collected supporters by using both words and formal symbolic notation, they would not do math; they would give speeches resplendent in mathiness. The tell would be the junctures where formal statements buttress words that persuade by misleading. By tightly linking formal statements to natural language equivalents, mathematical theory restricts and sharpens natural language. In contrast, mathiness encourages slippage that lets natural language run free so it can be used for full persuasive effect. Two recent papers from different academic factions, Lucas-Moll (2014) and Piketty-Zucman (2014), show that mathiness enjoys broad acceptance in economic discourse about growth. This suggests that the incentives economists face do not encourage the convergence toward broad professional consensus that is characteristic of science. The rapid shift in the United States from coal to natural gas as fuel for generating electricity is just one example progress in the benefits that can come from technological progress. It is the most recent of many reminders that people can be optimistic about the scope for continued economic progress and about their ability to both speed up and direct progress. Nevertheless, under the prevailing incentives in academic economics, the same people should probably not be optimistic about scientific progress in the economic analysis of either abstract theories of growth or specific growth policies. One way to change these incentives might be to broaden the conversation about growth to include people who influence decisions about the trend in such variables as total annual emissions of greenhouse gases and inequality between nations in the per capita consumption of energy. We might have both better policy and more scientific progress in academic economics if growth theorists had to compete not just for supporters, but also for users.
Lessons from Schumpeterian Growth Theory
Philippe Aghion
(Harvard University)
Ufuk Akcigit
(University of Pennsylvania)
Peter Howitt
(Brown University)
[Download Preview] TBD
Globalization and Growth
Gene Grossman
(Princeton University)
Elhanan Helpman
(Harvard University)
[View Abstract]
[Download Preview] How does globalization affect economic growth? The modern growth literature has focused on knowledge accumulation as the engine of growth. We discuss theoretical mechanisms that link international economic integration to the incentives for knowledge accumulation and the efficacy of that process. Several mechanisms feature prominently in the literature. First, integration of peoples and cultures facilitates the flow of knowledge across national borders. Foreign ideas may be useful for inventing new products, for improving existing products, or for producing goods at lower cost. Second, integration of product markets via international trade affords those who invent or improve products a greater potential market on which to reap returns even as it subjects them to additional competition from foreign rivals. Third, the integration of world markets has general-equilibrium implications for input prices and relative output prices. These price changes affect the cost of innovation as well as the relative attractiveness of alternative directions for industrial research. Finally, international interactions affect not only the incentives for creation of new knowledge, but also those for technological diffusion, with analogous implications for productivity growth. Taken together, the literature offers many theoretical insights. Some progress has also been made on the empirical side, although data and methodological impediments have left assessment and measurement lagging behind.
Jan 03, 2015 10:15 am, Sheraton Boston, Back Bay Ballroom B
American Economic Association
Talking the Talk: Communicating Economics to a Broader Audience
(A1, Y1) (Panel Discussion)
Panel Moderator:
Donald Marron
(Urban Institute)
Jonathan Schwabish
(Congressional Budget Office)
How Economists Can Present Data and Graphics Effectively
Amanda Cox
(New York Times)
Using Data to Tell Stories at the New York Times
Jim Tankersley
(Washington Post)
Combining Data and Narratives at the Washington Post
Justin Wolfers
(University of Michigan and Brookings Institution)
Using Social Media to Distribute Economic Research
Jan 03, 2015 10:15 am, Sheraton Boston, Constitution Ballroom B
American Economic Association
The Economics Major and Economics Education Research - The Past 20 Years, Panel Discussion
(A2) (Panel Discussion)
Panel Moderator:
Wendy Stock
(Montana State University)
Sam Allgood
(University of Nebraska-Lincoln)
John Siegfried
(Vanderbilt University)
William Walstad
(University of Nebraska-Lincoln)
Jan 03, 2015 10:15 am, Sheraton Boston, Independence Ballroom
American Economic Association
The Undismal Science
(A1)
Presiding:
Richard Thaler
(University of Chicago)
Tackling Temptation
Katherine L. Milkman
(University of Pennsylvania)
TBD
Design and Effectiveness of Public Health Subsidies in Poor Countries
Pascaline Dupas
(Stanford University)
TBD
Racial Inequality in the 21st Century: The Declining Significance of Discrimination
Roland Fryer
(Harvard University)
TBD
The Micro of Macro
Amir Sufi
(University of Chicago)
TBD
Jan 03, 2015 10:15 am, Hynes Convention Center, Room 207
American Economic Association
Thriving Through Balance
(H8, Z1)
Presiding:
Robert A. Johnson
(Institute for New Economic Thinking)
Striving for Balance: Inequality and Consumption
Joseph E. Stiglitz
(Columbia University)
[View Abstract]
Our beliefs and even our preferences, and thus our behavior, are, in part at least, socially determined; they are affected by the beliefs, behavior, and preferences of those around us, and the position of an individual within society. This paper explores several aspects of the social determination of behavior. There can be social contagion, where the beliefs or behavior of one group cascades throughout the economic system. This in turn can give rise to multiple equilibria: there may, for instance, be a high consumption-low leisure equilibrium, and another low consumption-high leisure equilibrium. The paper explores some of the factors that might lead a society towards one or the other. In societies marked by high inequality, lower income individuals may attempt to emulate life-styles of the rich, leading to a high consumption society.
The analysis suggests the possibility of policy interventions: by affecting the behavior of key individuals in society that are seen as role models, societal equilibria can be altered.
Since individuals define themselves at least in part by their position vis a vis other individuals in society, the behavior of individuals (at the top, middle, and bottom) in societies with greater inequality may differ from those with lesser inequality—again leading to the possibility of multiple equilibria.
This analysis sheds light on the marked differences in patterns of consumption and leisure that have opened up between US and Europe over the past 35 years.
The analysis undermines conventional approaches not only to positive economics, but also to normative economics.
Achieving the Right Balance: The Optimal Mix of Economic and Social Motivations
George Akerlof
(University of California-Berkeley)
[View Abstract]
Achieving a society that works well requires a balance of economic and social motivations. Without sufficient economic motivation, the economic needs of the society will not be met. But without sufficient social motivation, individuals lose sense of purpose, which is a major determinant of well-being. Additionally, the discipline necessary for the maintenance of trust, which is a prerequisite for high levels of economic activity, also requires social motivation. A balance between economic and social motivation is optimal. These results will be demonstrated in a model which is an application of identity economics.
Cooperation, Motivation and Reflexive Social Balance
Dennis James Snower
(Kiel Institute for the World Economy)
Tania Singer
(Max Planck Institute)
Steven Bosworth
(Kiel Institute)
[View Abstract]
The paper presents a model of the reflexive interplay between individual decisions and social forces to analyze the evolution of cooperation in the face of social dilemmas. We begin from the premise that all economic decisions are motivated and that people have access to multiple, discrete motivation systems. We examine how these motivations serve their social interactions, characterized by strategic complementarities or substitutabilities. Our model allows for both trait- and state-based changes in motivation. Agents can choose their social interactions and can shape their identities in accordance with their social contexts. The identities and social contexts, in turn, affect their motivations. Changes in the frequencies of social contexts influence the evolution of identities. Policy interventions can affect the reflexive relation between microeconomic decisions and macro-social forces.
Public Self and Private Self: The Virtuous Balance
Herbert Gintis
(Santa Fe Institute)
[View Abstract]
[Download Preview] The private sphere is the locus of social transactions in civil society. The public
sphere is the locus of social transactions that create, maintain, and transform the rules of the game that define society itself. The public sphere includes running for office, toppling a
government, voting in elections, engaging in political information-gathering and exchange, and
participating in collective action. Models of rational choice in the private
sphere are predicated on the notion that agents treat choices as instrumental in achieving their private ends, be they self-regarding, other-regarding, or dictated by purely moral concerns. Behavior in the public sphere, by contrast, is largely non-instrumental because it is
non-consequential: individuals as voters in large elections or participants in large
collective actions have a vanishingly small effect on outcomes. We call agents whose behavior in the public sphere is non-consequential canonical participants. This paper extends the
rational actor model to the behavior of canonical participants in the public sphere by locating such behavior in a multi-dimensional taxonomy of rational choice. We apply this model to explain why collective action is generally motivated by violations of principles of
procedural justice and rarely motivated by the statistical distribution of social outcomes,
such as poverty rates, growth rates, or coefficients of social inequality or intergenerational
mobility.
Discussants:
Steven Bosworth
(Kiel Institute for the World Economy)
William Dickens
(Brookings Institution)
George Akerlof
(University of California-Berkeley)
John Roemer
(Yale University)
Jan 03, 2015 10:15 am, Sheraton Boston, Republic Ballroom Foyer
American Economic Association
Topics in Macroeconomics
(E1) (Poster Session)
Presiding:
Edward Gamber
(Lafayette College)
Does Deflation Threaten the Global Economy?
Azhar Iqbal
(Wells Fargo)
John E. Silvia
(Wells Fargo)
[Download Preview] On the Stability of Calvo-Style Price-Setting Behavior
Margarita Zabelina
(Emory University)
Stéphane Lhuissier
(Panthéon-Sorbonne University)
[Download Preview] News Shocks and Business Cycles: Bridging the Gap from Different Methodologies
Christoph Gortz
(University of Birmingham)
John Tsoukalas
(University of Glasgow)
Business Cycle Dynamics under Sticky Information
Fabio Verona
(Bank of Finland)
[Download Preview] Countercyclical Unemployment Benefits under Incomplete Markets
Michael Horvath
(University of Oxford)
Charles Nolan
(University of Glasgow)
Corporate hedging, regime changes, and credit supply
Matthias Pelster
(TU Dortmund University)
The Role of Consumer Leverage in Financial Crises
Dilyana Dimova
(Oxford University and International Monetary Fund)
[Download Preview] Credit Contractions and Unemployment
Mihaly Tamas Borsi
(Universidad de Alicante)
[Download Preview] Regime-Switching Perturbation for Non-Linear Equilibrium Models
Nelson Lind
(University of California-San Diego)
[Download Preview] Raising the Inflation Target to Manoeuvre the Zero Lower Bound: The Role of Fiscal Policy
Raju Huidrom
(University of Virginia)
[Download Preview] Can Internet Search Behavior Help to Forecast the Macro Economy?
Taoxiong Liu
(Tsinghua University)
Bin Xu
(Tsinghua University)
[Download Preview] Government Spending, Entry and the Consumption Crowding-In Puzzle
Vivien Lewis
(KU Leuven)
Roland Winkler
(TU Dortmund University)
[Download Preview] Technological Revolutions and the Three Great Slumps: A Medium-Run Analysis
Dan Cao
(Georgetown University)
Jean-Paul L'Huillier
(EIEF)
[Download Preview] Learning About the Permanence of Shocks and Asset Pricing Puzzles
Daniel Louis Tortorice
(Brandeis University)
[Download Preview] Learning, Unlearning, and Relearning Keynes
Fabio Milani
(University of California-Irvine)
Mario Silva
(University of California-Irvine)
The Welfare Cost of Real Volatility: A Comparative Analysis
Rafael Lopez-Monti
(George Washington University)
Forecasting in a DSGE Model with Banking Intermediation: Evidence from United States
Alessia Paccagnini
(Università degli Studi di Milano-Bicocca)
Roberta Cardani
(Università degli Studi di Milano-Bicocca)
Stefania Villa
(University of Foggia and KU Leuven)
[Download Preview] Rational Bias in Inflation Expectations
Robert G. Murphy
(Boston College)
Adam Rohde
(Charles River Associates)
[Download Preview] What Explains Japan's Persistent Deflation?
Carlos Carvalho
(Pontifical Catholic University-Rio)
Andrea Ferrero
(University of Oxford)
[Download Preview] Job Polarization and Structural Change
Zsofia Luca Barany
(Sciences Po)
Christian Siegel
(University of Exeter)
[Download Preview] Jan 03, 2015 10:15 am, Sheraton Boston, Commonwealth
American Economic Association
Twenty Years of Present Bias
(D1, D9)
Presiding:
Ted O'Donoghue
(Cornell University)
Present Bias and Paternalism
David Laibson
(Harvard University)
TBD
Present Bias: Lessons Learned, and To Be Learned
Ted O'Donoghue
(Cornell University)
Matthew Rabin
(Harvard University)
TBD
Judging Experimental Evidence on Dynamic Inconsistency
Charles Sprenger
(Stanford University)
TBD
Discussants:
Nava Ashraf
(Harvard Business School)
Daniel Benjamin
(Cornell University)
Jan 03, 2015 10:15 am, Sheraton Boston, Public Garden
American Economic Association
Unions and the Labor Market
(J5, J2)
Presiding:
David Card
(University of California-Berkeley)
Who Do Unions Target? Unionization over the Life-Cycle of United States Businesses
Emin Dinlersoz
(U.S. Census Bureau)
Jeremy Greenwood
(University of Pennsylvania)
Henry Hyatt
(U.S. Census Bureau)
[View Abstract]
What type of businesses do unions target for organizing and when? A dynamic model of the
union organizing process is constructed to answer this question. A union monitors establishments in an industry to learn about their productivity, and decides which ones to organize and when. An establishment becomes unionized if the union targets it for organizing and wins the union certification election. The model predicts two main selection effects: unions target larger and more productive establishments early in their life-cycles, and among the establishments targeted, unions are more likely to win elections in smaller and less productive ones. These predictions find support in union certification elections data for 1977-2007 matched with data on establishment characteristics.
The Surprising Impacts of Unionization on Establishments: Accounting for Selection in Close Union Representation Elections
Brigham Frandsen
(Brigham Young University)
[View Abstract]
[Download Preview] Using administrative data matching individual worker earnings to employers in a regression discontinuity design based on close union representation elections, this study presents new evidence on the impacts of unionization on establishment and worker outcomes. The paper first shows evidence that close union elections are subject to nonrandom selection, with large discontinuities in pre-election characteristics at the majority threshold. Estimates accounting for this selection show, perhaps surprisingly, that unionization significantly and substantially decreases establishment-level payroll, employment, average worker earnings at the establishment, and the probability of establishment survival. Estimates show the decreases in payroll and earnings are driven by union impacts on the composition of workers at unionization establishments, with older and higher-paid workers more likely to leave and younger workers more likely to join or stay. Worker-level effects on the earnings of workers who stay are small. The distinction between the large negative establishment-level effects and small worker-level effects is interpreted in a model of employer and employee selection into union jobs.
Union Organizing Decisions in a Deteriorating Environment: The Composition of Representation Elections
Henry S. Farber
(Princeton University)
[View Abstract]
[Download Preview] It is well known that the organizing environment for labor unions in the U.S. has deteriorated dramatically over a long period of time, contributing to the sharp decline in the private sector union membership rate and resulting in many fewer representation elections being held. What is less well known is that, since the late 1990s, average turnout in the representation elections that are held has dropped substantially. These facts are related. I develop a model of union decision making regarding selection of targets for organizing through the NLRB election process with the clear implication that a deteriorating organizing environment will lead to systematic change in the composition of elections held. The model implies that a deteriorating environment will lead unions not only to contest fewer elections but also to focus on larger potential bargaining units and on elections where they have a larger probability of winning. A standard rational-voter model implies that these changes in composition will lead to lower turnout. I investigate the implications of these models empirically using data on turnout in over 140,000 NLRB certification elections held between 1973 and 2009. The results are consistent with the model and suggest that changes in composition account for about one-fifth of the decline in turnout between 1999 and 2009.
Unions in a Frictional Labor Market
Per Krusell
(Stockholm University)
Leena Rudanko
(Federal Reserve Bank of Philadelphia)
[View Abstract]
We analyze a labor market with search and matching frictions where wage setting is controlled by a monopoly union. Frictions render existing matches a form of firm-specific capital which is subject to a hold-up problem in a unionized labor market. We study how this hold-up problem manifests itself in a dynamic infinite horizon model, with fully rational agents. We find that wage solidarity, seemingly an important norm governing union operations, leaves the unionized labor market vulnerable to potentially substantial distortions due to hold-up. Introducing a tenure premium in wages may allow the union to avoid the problem entirely, however, potentially allowing efficient hiring. Under an egalitarian wage policy, the degree of commitment to future wages is important for outcomes: with full commitment to future wages, the union achieves efficient hiring in the long run, but hikes up wages in the short run to appropriate rents from firms. Without commitment, and in a Markov-perfect equilibrium, hiring is well below its efficient level both in the short and the long run, with endogenous real stickiness in the dynamics of wages.
Discussants:
Mathieu Taschereau-Dumouchel
(University of Pennsylvania)
Suresh Naidu
(Columbia University)
Richard B. Freeman
(Harvard University)
Baris Kaymak
(Université de Montréal)
Jan 03, 2015 10:15 am, Sheraton Boston, Beacon A
American Economic Association
Wage Rigidities and Equilibrium Unemployment
(J6)
Presiding:
David Garman
(Tufts University)
The Declining Labor Income Share: The View from the States
Owen Zidar
(University of California-Berkeley)
Daniel Wilson
(Federal Reserve Bank of San Francisco)
Robert Chirinko
(University of Illinois-Chicago and CESifo)
[View Abstract]
The share of national income accruing to labor has been declining steadily over the 30 years. Despite much careful research, a large part of the decline in the labor share remains unaccounted for.
To further understanding of labor share’s secular movement, we examine data at the state level, both for the state as a whole and for the manufacturing sectors within states. These rich, state- level micro-data afford comparisons that involve small differences in some salient characteristics, such as aggregate prices, institutions, and monetary policy, but large differences in labor shares and the underlying driving forces.
We begin by documenting that the labor share in the manufacturing sector exhibits a secular decline very similar to the national decline. We then filter the state-level data by removing state and time fixed effects and document that the trend in the filtered labor share exhibits a great deal of heterogeneity across states. For example, economically dissimilar states such as Wyoming and Oregon have similar large trends, while economically dissimilar states such as Massachusetts and Idaho have similar small trends. Nearly all states have negative growth rates in the labor share.
These results suggest the benefits of our micro/state approach to uncovering driving factors of the labor share. We are investigating their effects in two ways. First, we undertake a traditional panel analysis relating the labor share to several state-specific factors, such as capital income taxes, unions, globalization via trade flows, industrial competition via neighboring states, state fiscal policies, and political factors.
Second, we use the state-level data on capital formation, capital tax data, and other state-level data to estimate structural production relations to quantify the role of capital augmented technical change in a nested-CES model similar to Greenwood, Hercowitz, and Krusell (AER, 1997).
Unemployment Crises
Nicolas Petrosky-Nadeau
(Carnegie Mellon University)
Lu Zhang
(Ohio State University)
[View Abstract]
[Download Preview] A search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the unemployment crisis in the Great Depression. The limited responses of wages from credible bargaining to labor market conditions, along with the congestion externality from matching frictions, cause the unemployment rate to rise sharply in recessions but decline gradually in booms. The frequency, severity, and persistence of unemployment crises in the model are quantitatively consistent with U.S. historical time series. The welfare gain from eliminating business cycle fluctuations is large.
Wage Rigidity and Labor Market Dynamics with Sorting
Bastian Schulz
(Ifo Institute-Munich)
[View Abstract]
[Download Preview] This paper adds two-sided ex ante heterogeneity and a production technology inducing sorting to the canonical Diamond-Mortensen-Pissarides (DMP) search and matching model. This modification considerably improves the model's empirical performance. Due to assortative matching, match-specific wages are non-monotonous in firm type, as illustrated by Eeckhout and Kircher (2011); that is, an optimal, wage-maximizing employer exists for every worker. In a frictional labor market, however, wage-maximizing matches are unlikely to materialize, resulting in mismatch and output loss compared to the first-best allocation of workers to jobs. A lower expected value of match-specific wages, in turn, provides additional incentives for firms to create vacancies in response to a favorable productivity shock. Thus, ex ante heterogeneity and sorting have important implications not only for the equilibrium but also for the dynamic properties of the model. Specifically, the modifications solve the problem that standard DMP models do not generate enough volatility in response to shocks, also known as the ''Shimer Puzzle'' (Shimer, 2005). The necessary amplification to overcome the volatility puzzle stems from an endogenously generated wage rigidity, which is of reasonable magnitude given empirical evidence from the U.S. labor market.
Wage Rigidity: A Quantitative Solution to Several Asset Pricing Puzzles
Jack Favilukis
(University of British Columbia)
Xiaoji Lin
(Ohio State University)
[View Abstract]
[Download Preview] In standard production models wage volatility is far too high and equity volatility is far too low. A simple modification - sticky wages due to infrequent resetting together with a CES production function - leads to both (i) smoother wages and (ii) higher equity volatility. Furthermore, the model produces several other hard to explain features of financial data: (iii) high Sharpe ratios, (iv) low and smooth interest rates, (v) time-varying equity volatility and premium, (vi) a value premium, and (vii) a downward-sloping equity term structure. Pro-cyclical, volatile wages are a hedge for firms in standard models, smoother wages act like operating leverage, making profits and dividends more risky.
Worker Churning and Wage Rigidity during the Financial Crisis: The Role of Firm Quality
Mario Centeno
(Banco de Portugal)
Alvaro Novo
(Banco de Portugal)
[View Abstract]
[Download Preview] This paper studies the quality of employment and wage adjustments over the business cycle.
We do this evaluating the two possible mechanisms that firms have to adjust their labor costs: worker flows and wage changes. The most distinctive feature of the impact of the current crisis on the labor market is the reduction in hirings and churning and the increase in wage cuts for continuing workers.
We show that churning, the replacement of departing workers with new ones, has decreased substantially during the crisis and that hirings have a larger contribution to the Portuguese
business cycle than separations.
Low-quality firms dominate the reaction of the labor market to the economic conditions. The effect of increased unemployment is a reduction in hirings and separations, inducing a substantial reduction in churning. These adjustments are all concentrated in firms that pay lower wages. The observed halt in labor market flows was compensated by wage flexibility. There is a great deal of wage flexibility in Portuguese firms and there is no evidence that wage rigidity indicators increase with the business cycle. On the contrary, we show that high-paying firms reduce the share of minimum wage workers in recessions, while low-quality firms increase it. Our results show that in recessions jobs become stickier in low-quality firms, they reduce churning, and simultaneously there is a shift in employment towards high-paying firms. Thus, Portuguese recessions are characterized by a cleansing effect: the shedding in jobs in recessions is concentrated in low-paying firms, contributing to a positive impact of recessions in labor productivity and explains the counter-cyclical behavior of match quality.
Jan 03, 2015 10:15 am, Westin Copley, America Center
American Finance Association
CEO Incentives and Compensation
(G3)
Presiding:
Paul Povel
(University of Houston)
CEOs and the Product Market: When are Powerful CEOs Beneficial?
Minwen Li
(Tsinghua University)
Yao Lu
(Tsinghua University)
Gordon Phillips
(University of Southern California)
[View Abstract]
[Download Preview] We find that in rapidly changing, competitive product markets, CEO power has a positive impact on the value of the firm. Additionally, firms with powerful CEOs tend to invest and advertise more in these markets. In addition to whether the CEO also chairs the board and is the company founder, CEO “soft” power, as captured by the CEO’s connections to executives and the board of directors through appointment decisions, helps a firm react more efficiently to product market changes and threats. Our findings imply that product markets play an important role in affecting the benefits and costs of CEO power.
Out-of-the-Money CEOs: Inferring Private Control Premium from CEO Option Exercise
Vyacheslav Fos
(University of Illinois-Urbana-Champaign)
Wei Jiang
(Columbia University)
[View Abstract]
[Download Preview] When a proxy contest is looming, the rate at which CEOs exercise options in order to sell (hold) the resulting shares slows down by 80% (accelerates by 60%), consistent with their desire to maintain or strengthen voting rights when facing control challenges. Such deviations are closely aligned with features unique to proxy contests such as the record dates and nomination status. Moreover, a contest triples the probability that an insider exercises options out-of-the-money, an irrational strategy under conventional models. The various distortions suggest that incumbents value their stocks 5%-10% higher than the market price when the voting rights embedded in the shares are valuable for defending control and preserving private benefits.
Say on Pay Laws, Executive Compensation, Pay Slice, and Firm Value around the World
Ricardo Correa
(Federal Reserve Board)
Ugur Lel
(Virginia Tech)
[View Abstract]
[Download Preview]
Using a sample of about 90,000 observations from 38 countries over the 2001-2012 period, we find evidence that following say on pay (SoP) laws, CEO pay growth rates decline and the sensitivity of CEO pay to firm performance improves. Further, the portion of total top management pay captured by CEOs is lower in the post-SoP period, which is associated with higher firm valuations. Overall, our results suggest that SoP laws are associated with significant changes in CEO pay policies.
Relative Performance Evaluation in CEO Compensation: A Non-Agency Explanation
David De Angelis
(Rice University)
Yaniv Grinstein
(Cornell University)
[View Abstract]
[Download Preview] We offer a novel explanation for the use of performance-based compensation in CEO contracts: the provision of competitive compensation to retain talent. Under mild assumptions regarding distribution of talent at the tail (Gabaix and Landier, 2008), the functional form of the pay-performance relation is approximated with relative-performance evaluation (RPE) based on CEO performance rank relative to talent peers. We examine RPE terms in CEO compensation contracts and find support for these predictions: Firms converge to similar rank-based RPE contracts, RPE peers overlap with talent peers, and RPE prevails when CEO talent is transferable.
Discussants:
Alex Edmans
(University of Pennsylvania)
Dirk Jenter
(Stanford University)
Kenneth Ahern
(University of Southern California)
Michael Faulkender
(University of Maryland)
Jan 03, 2015 10:15 am, Westin Copley, Essex North
American Finance Association
Credit Ratings and Credit Risk
(G2)
Presiding:
Bo Becker
(Stockholm School of Economics)
Does It Matter Who Owns Moody's?
Xing Zhou
(Rutgers University)
Simi Kedia
(Rutgers University)
Shivaram Rajgopal
(Emory University)
[View Abstract]
[Download Preview] This paper examines the potential influence of Moody's ownership structure on its rating policies. During the ten years following Moody's IPO in 2000, Moody's had two stable large shareholders, Berkshire Hathaway and Davis Selected Advisors, who collectively own about 23.5% of Moody's. We document that Moody's ratings on corporate bonds issued by important investee firms of these two large shareholders were more favorable relative to S&P's ratings on the same bonds. We also find favorable treatment by Moody's towards its owners in their ratings on commercial mortgage backed securities (CMBS). The results cannot be explained by issuer characteristics or by greater informativeness of Moody's ratings. Lastly, indirect ownership by an institution through a large shareholding in McGraw-Hill, S&P's parent, does not affect S&P's ratings. The evidence suggests that direct and stable large shareholders affect the ratings process. These findings are consistent with regulatory concerns about the public ownership of credit rating agencies.
Did Government Regulations Lower Credit Rating Quality?
Patrick Behr
(Getulio Vargas Foundation)
Darren Kisgen
(Boston College)
Jerome Taillard
(Boston College)
[View Abstract]
[Download Preview] SEC regulations in 1975 gave select ratings agencies increased market power by increasing barriers to entry and increasing reliance on ratings for regulations. We test whether these regulations led to lower ratings quality. We find that defaults and other negative credit events are more likely for firms given the same rating if the rating was assigned after the SEC action compared to before. The default likelihood is also stronger for smaller firms, as these firms are less visible and less likely to harm reputational capital. These results indicate that the market power derived from the SEC led to ratings inflation.
The Quality of Expertise
Edward Van Wesep
(Vanderbilt University)
[View Abstract]
Policy-makers and managers often turn to experts when in need of information: because they are more informed than others of the content and quality of current and past research, they should provide the best advice. I show, however, that we should expect experts to be systematically biased, potentially to the point that they are less reliable sources of information than non-experts. This is because the decision to research a question implies a belief that research will be fruitful. If priors about the impact of current work are correct, on average, then those who select into researching a question are optimistic about the quality of current work. In areas that are new, or feature new research technologies (e.g., data sources, technical methods, or paradigms), the selection problem is less important than the benefit of greater knowledge: experts will indeed be experts. In areas that are old and lack new research technologies, there will be significant bias. Furthermore, consistent with a large body of empirical research, this selection problem implies that experts who express greater confidence in their beliefs will be, on average, less accurate. This paper provides many empirical implications for expert accuracy, as well as mechanism design implications for hiring, task assignment, and referee assignment.
Do Bond Investors Price Tail Risk Exposures of Financial Institutions?
Sudheer Chava
(Georgia Institute of Technology)
Rohan Gandhuri
(Georgia Institute of Technology)
Vijay Yerramili
(University of Houston)
[View Abstract]
[Download Preview] We analyze whether bond investors price tail risk exposures of financial institutions using a comprehensive sample of bond issuances by U.S. financial institutions. Although primary bond yield spreads increase with an institutions' own tail risk (expected short-fall), systematic tail risk (marginal expected shortfall) of the institution doesn't affect its yields. The relationship between yield spreads and tail risk is significantly weaker for depository institutions, large institutions, government-sponsored entities, politically-connected institutions, and in periods following large-scale bailouts of financial institutions. Overall, our results suggest that implicit bailout guarantees of financial institutions can exacerbate moral hazard in bond markets and weaken market discipline.
Discussants:
Todd Gormley
(University of Pennsylvania)
Marcus M. Opp
(University of California-Berkeley)
Luigi Zingales
(University of Chicago)
Bryan Kelly
(University of Chicago)
Jan 03, 2015 10:15 am, Westin Copley, America South
American Finance Association
Finance and Climate Risk (AFA Panel)
(G1) (Panel Discussion)
Panel Moderator:
Kent Daniel
(Columbia University)
Kent Daniel
(Columbia University)
Robert Barro
(Harvard University)
Rajnish Mehra
(Arizona State University)
Lars Hansen
(University of Chicago)
Robert Litterman
(Kepos Capital)
Jan 03, 2015 10:15 am, Westin Copley, America North
American Finance Association
Macro Asset Pricing
(G2)
Presiding:
Lorenzo Garlappi
(University of British Columbia)
Index Option Returns and Generalized Entropy Bounds
Yan Liu
(Duke University)
[View Abstract]
[Download Preview] I develop a continuum of new nonparametric bounds. They stem from the solution of an optimization problem that is complementary to the Hansen and Jaganathan (1991) approach and are shown to complete the nonparametric bound universe the literature has so far discovered. Through the lens of these bounds, I estimate rare event distributions using index option returns. Standard disaster models and their perturbations are shown unable to meet the bounds implied by simple static option trading strategies. My results suggest more sophisticated modeling of disaster models in order to reconcile with the index option data.
Assessing Asset Pricing Models Using Revealed Preferences
Jonathan Berk
(Stanford University)
Jules van Binsbergen
(Stanford University)
[View Abstract]
[Download Preview] We propose a new method of testing asset pricing models that does not rely on prices and returns but on quantities (flows) instead. Under the assumption that capital markets are competitive and investors rational, an asset pricing model can only be correct if investors are using it in their capital allocation decisions. Therefore, any investment opportunity that the model identifies as having a nonzero alpha must be accompanied by capital flows of the same sign as the alpha. We use the data on active mutual funds to identify such flows, and find that the recent alternatives to the Capital Asset Pricing Model do not improve upon the original model.
Mutual Fund Competition, Managerial Skill and Alpha Persistence
Gerard Hoberg
(University of Southern California)
Nitin Kumar
(Indian School of Business)
Nagpurnanand Prabhala
(University of Maryland)
[View Abstract]
[Download Preview] Whether fund managers can generate positive alpha and do so persistently are key questions in the mutual fund literature. We propose a new economic force that limits persistence in alpha: competition from other funds that cater to similar segments of investor demand. We make three contributions. First, we use new spatial methods to identify the dynamic competition faced by funds. Second, we develop a new measure of fund manager skill, viz., the ability of a fund to beat its spatially close rivals. The skill measure predicts alphas for at least four quarters ahead. Finally, we show that alpha is persistent only when a fund has few rivals. This new persistence is not driven by diseconomies of scale, is economically large, and lasts up to four quarters. Thus, besides the scale diseconomies emphasized by Berk and Green (2004), competition between funds is a potent force that limits the persistence of alpha.
The Booms and Busts of Beta Arbitrage
Shiyang Huang
(London School of Economics)
Dong Lou
(London School of Economics)
Christopher Polk
(London School of Economics)
[View Abstract]
[Download Preview] Historically, low-beta stocks deliver high average returns and low risk relative to high-beta stocks, offering a potentially profitable investment opportunity for professional money managers to “arbitrage” away. We argue that beta-arbitrage activity instead generates booms and busts in the strategy’s abnormal trading profits. In times of relatively little activity, the beta-arbitrage strategy exhibits delayed correction, taking up to three years for abnormal returns to be realized. In stark contrast, in times of relatively-high activity, short-run abnormal returns are much larger and then revert in the long run for the stocks in question. Importantly, we document a novel positive-feedback channel operating through firm-level leverage that facilitates these boom and bust cycles. Namely, when arbitrage activity is relatively high and beta-arbitrage stocks are relatively more levered, the cross-sectional spread in betas widens, resulting in stocks remaining in beta-arbitrage positions significantly longer with short-run abnormal returns more than tripling in value. Our findings are exclusively in stocks with relatively low limits to arbitrage (large, liquid stocks with low idiosyncratic risk), consistent with excessive arbitrage activity destabilizing prices.
Discussants:
Ravi Jagannathan
(Northwestern University)
Sheridan Titman
(University of Texas-Austin)
Tobias Moskowitz
(University of Chicago)
Jessica Wachter
(University of Pennsylvania)
Jan 03, 2015 10:15 am, Westin Copley, Essex Center
American Finance Association
Mergers
(G3)
Presiding:
Matthew Rhodes-Kropf
(Harvard Business School)
Currency Appreciation Shocks and Shareholder Wealth Creation in Cross-Border Mergers and Acquisitions
Chen Lin
(University of Hong Kong)
Micah Officer
(Loyola Marymount University)
Beibei Shen
(Chinese University of Hong Kong)
[View Abstract]
[Download Preview] Using a comprehensive sample of cross-border mergers, we find that acquirers from countries experiencing large currency appreciations realize higher abnormal announcement stock returns during both the announcement period and the post-merger period. Importantly, this shareholder wealth creation effect mainly comes from those acquirers in countries with strong shareholder rights and those acquirers with better corporate governance. We further find that acquirers from countries with weak shareholder rights tend to overpay a foreign target following a currency appreciation. Collectively, this evidence suggests that the interaction of currency appreciation and agency conflicts plays an important role in acquirer shareholder value creation.
The Bonding Hypothesis of Takeover Defenses: Evidence from IPO Firms
Jonathan Karpoff
(University of Washington)
William Johnson
(Suffolk University)
Sangho Yi
(Sogang University)
[View Abstract]
[Download Preview] We propose and test an efficiency explanation for why firms deploy takeover defenses using IPO firm data. Takeover defenses bond the firm's commitments by reducing the likelihood that an outside takeover will change the firm's operating strategy and impose costs on its trading partners. This bond, in turn, encourages the firm's trading partners to invest in their business relationship with the firm. Consistent with this hypothesis, we find that IPO firms deploy more takeover defenses when they have customers, suppliers, or strategic partners that are vulnerable to changes in the firm's operating strategy. An IPO firm's valuation and subsequent operating performance both are positively related to its use of takeover defenses, particularly when it has dependent customers, suppliers, or strategic partners. Share values at the IPO firm's large customers are affected by the IPO announcement, and the effect is positively related to the IPO firm's use of takeover defenses. We also find that the IPO firm's use of takeover defenses is positively related to the longevity of its business relationships, indicating that defenses do in fact help to bond the IPO firm's commitments to its business partners. These results indicate that takeover defenses are one mechanism by which IPO firms can ameliorate the hold-up problem that arises when firms develop close working relationships with customers, suppliers, and strategic partners.
Entry and Competition in Takeover Auctions
Matthew Gentry
(London School of Economics)
Caleb Stroup
(Grinnell College)
[View Abstract]
[Download Preview] We show that in many cases target shareholders would obtain higher prices if their company was sold via a negotiation, rather than an auction. Accounting for the endogenous determination of the size and composition of the bidder pool, we show that possible bidders in takeover auctions face substantial uncertainty prior to their entry into an auction and that fewer than half of invited potential acquirers choose to participate in competitive bidding for the target. We find that higher pre-entry uncertainty encourages participation in competitive bidding, thus making auctions preferable when uncertainty is high. In negotiations, uncertainty reduces the effectiveness of upward bid-shading to deter potential competitors, so negotiations are preferable when the selling company is relatively opaque to potential bidders. Our results call into question claims that target directors violate their fiduciary duty by selling a company via a negotiated transaction, even in the absence of a formal market check.
Discussants:
Andrey Malenko
(Massachusetts Institute of Technology)
Isil Erel Koksal
(Ohio State University)
Dalida Kadyrzhanova
(University of Maryland)
Jan 03, 2015 10:15 am, Westin Copley, Essex South
American Finance Association
Monetary Policy and Financial Markets
(G2)
Presiding:
Arvind Krishnamurthy
(Stanford University)
High Frequency Identification of Monetary Non-Neutrality
Emi Nakamura
(Columbia University)
Jon Steinsson
(Columbia University)
[View Abstract]
[Download Preview] We provide new evidence on the responsiveness of real interest rates and inflation to monetary
shocks. Our identifying assumption is that the increase in the volatility of interest rate news in a 30-minute window surrounding scheduled Federal Reserve announcements arises from news about
monetary policy. Nominal and real interest rates respond roughly one-for-one several years out
into the term structure at these times, implying that changes in expected inflation are small. At
longer horizons, the response of expected inflation grows. Accounting for "background noise" in
interest rates on FOMC days is crucial in identifying the effects of monetary policy on interest
rates, particularly at longer horizons. We show that in conventional business cycle models with
nominal rigidities our estimates imply that monetary non-neutrality is large. We also find evidence that FOMC announcements provide the public with information not only about monetary policy but also about the evolution of exogenous economic fundamentals.
A Model of Monetary Policy and Risk Premia
Itamar Drechsler
(New York University)
Alexi Savov
(New York University)
Philipp Schnabl
(New York University)
[View Abstract]
[Download Preview] We present a dynamic heterogeneous-agent asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk tolerant agents (banks) borrow from risk averse agents (depositors) and invest in risky assets subject to a reserve requirement. By varying the nominal interest rate, the central bank affects the spread banks pay for external funding (i.e., leverage), a link that we show has strong empirical support. Lower nominal rates result in increased leverage, lower risk premia and overall cost of capital, and higher volatility. The effects of policy shocks are amplified via bank balance sheet effects. We use the model to implement dynamic interventions such as a "Greenspan put" and forward guidance, and analyze their impact on asset prices and volatility.
Expecting the Fed
Anna Cieslak
(Northwestern University)
Pavol Povala
(University of London-Birkbeck)
[View Abstract]
[Download Preview] We study private sector expectations about the short-term interest rate. We uncover persistent differences
between the ex-ante real rate perceived by agents in real-time and its full-sample counterpart estimated by the econometrician. Entering recessions, agents systematically overestimate the real rate, and underestimate future unemployment and the degree of monetary easing. These forecast errors induce persistence in identified monetary policy shocks and cause the econometrician to overstate the variation in Treasury risk premia. Our evidence offers a new interpretation of the unspanned factors phenomenon in the yield curve, emphasizing the key role of information rigidities for the dynamics of real interest rates.
Resolving the Spanning Puzzle in Macro-Finance Term Structure Models
Michael Bauer
(Federal Reserve Bank of San Francisco)
Glenn Rudebusch
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] Previous macro-finance term structure models (MTSMs) imply that macroeconomic state variables are spanned by (i.e., perfectly correlated with) model-implied bond yields. However, this theoretical implication appears inconsistent with regressions showing that much macroeconomic variation is unspanned and that the unspanned variation helps forecast excess bond returns and future macroeconomic fluctuations. We resolve this contradiction--or "spanning puzzle"--by reconciling spanned MTSMs with the regression evidence, thus salvaging the previous macro-finance literature. Furthermore, we statistically reject "unspanned" MTSMs, which are an alternative resolution of the spanning puzzle, and show that their knife-edge restrictions are economically unimportant for determining term premia.
Discussants:
Eric Swanson
(Federal Reserve Bank of San Francisco and University of California-Irvine)
Stefan Nagel
(University of Michigan)
Yuriy Gorodnichenko
(University of California-Berkeley)
Anh Le
(University of North Carolina)
Jan 03, 2015 10:15 am, Westin Copley, Defender
American Real Estate & Urban Economic Association
Innovations to the Hedonic Model
(R2, R1)
Presiding:
Maisy Wong
(University of Pennsylvania)
What’s in a Loan Yield? The Construction of a Hedonic Index of Yields for Commercial Real Estate Mortgages
Serguei Chervachidze
(CBRE Econometric Advisors)
Mark Gallagher
(CBRE Econometric Advisors)
William Wheaton
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] In this paper we investigate the utility of using a hedonic model to construct an index of yields on commercial mortgage loans. The use of a hedonic model represents an innovation in that this technique is never used in the creation of financial indexes. We utilize a large unique proprietary dataset of mortgage originations from CBRE Capital Markets from 2000Q3 – 2012Q4 to construct a hedonic model of yields as a function of loan characteristics as well as time effects.
We deal with the inherent endogeneity of LTV’s as a loan characteristic by constructing an instrument variable that represents a lender’s average LTV profile and estimating the hedonic via 2SLS. We find that the loan characteristics play a significant role in the pricing of the loan and have the expected signs. We also find that the instrumented LTV has a positive effect on yields, which we interpret as evidence that the loan hedonic specification traces out the supply curve of loans. Comparing the estimates of the hedonic using OLS and 2SLS approaches, we find the bias from OLS to be small for practical purposes of index construction. In terms of term structure of loan yields, we find that while the yield curve on commercial loans generally follows the shape of the yield curve on Treasury bonds up until the start of financial crisis in 2007, this relationship breaks down post-crisis, with the loan term structure having a negative slope for yields on short-term loans.
Next, we use the estimated model to construct an index of loan yields (thus controlling for variation in loan characteristics) and contrast it with a simplistic average of yields. Specifically, we utilize a battery of cointegration tests with various US debt yield indexes to test whether a hedonic index performs better in uncovering underlying equilibrium relationships with other yield variables than a simple average of yields. We find evidence that is strongly in favor of a hedonic index. We confirm the validity of our cointegration tests by building a VECM model between a hedonic index and a Bank of America Merrill Lynch Bond Yield index. Taken together, our findings offer strong evidence for the superiority of hedonic indexes over simplistic averaging techniques in both tracking the movement of mortgage of yields over time, as well as in uncovering the underlying equilibrium relationships between mortgage yields and related economic variables.
Estimating Hedonic Equilibrium for Metropolitan Housing Markets with Multiple Household Types
Luis E. Quintero
(Carnegie Mellon University)
[View Abstract]
This paper provides a new estimation and flexible solution method for a generalized class of sorting hedonic models that incorporates heterogeneity in preferences. The models deliver hedonic pricing functions with a consistent connection in equilibrium between house values and rents, incorporating the investment and consumption motives for housing consumption. We take into account the difficulty of measuring complete housing quality and treats it as latent in their estimation. As application, we carry out empirical analysis using household level datasets in several metropolitan areas in the US. We use clustering techniques to learn categorization of households into types using data on age and number of children, and use the estimates to contrast preferences for overall quality in each type. Alternatively, we define household types as households with and without children, and obtain the robust result that the presence of children lowers the preference for housing quality as well increases the sensitivity to changes in income and price, supporting that children further raise the relative desired levels of non housing consumption. Obtained price functions al- low us to construct more refined price indices that measure change across time and metropolitan areas and all quality levels. Also, these methods are of interest to those concerned with making welfare evaluations of policies that affect housing markets differently for households with different demographics.
How Sensitive are Sales Prices to Online Price Estimates in the Real Estate Market?
Yong Suk Lee
(Stanford University)
Yuya Sasaki
(Johns Hopkins University)
[View Abstract]
This paper investigates how sensitive sales prices are to online price estimates in the real estate market. With our preliminary national and MSA-level analysis, we fail to reject the null hypothesis that online price estimates do not affect actual transaction prices. This macro-level evidence is followed by
microeconometric analysis using house level data. To account for correlated house specific unobservables, we use the differences between listing prices and online price estimates as proxies to form a partial linear model. To account for correlated neighborhood specific unobservables, we use neighborhood first differencing. Using house price estimates and sales prices collected from Zillow.com, we find that the elasticity of sales price with respect to the Zillow estimate is one, controlling for the aforementioned unobservables as well as observed house attributes. Our results imply that online price estimates can have a large impact on real estate price dynamics.
Incorporating Dynamic Behavior into the Hedonic Model
Alvin Murphy
(Arizona State University)
Kelly Bishop
(Arizona State University)
[View Abstract]
The property value hedonic model, which has been used extensively in the environmental and urban literature, has long been considered the "workhorse" model of amenity valuation. Derived using the household's first-order conditions associated with choosing where to live, this model is both intuitive and straightforward to estimate. However, a recognized drawback of the existing literature is that the model assumes a static framework (i.e., it assumes that there are no costs associated with moving and that agents do not look to the future when choosing where to live today). This is clearly an unrealistic assumption; real estate fees alone usually stand at six percent of a property's sales price and households typically have strong emotional ties to both their home and neighborhood. Facing such high costs, households will behave dynamically when choosing where to live today (and when choosing how much of each housing amenity to consume). In this paper, we develop the first approach that incorporates dynamic behavior into the traditional Rosen-style hedonic model of demand. In an application, we use this dynamic model to estimate the willingness to pay to avoid violent crime and air pollution and find evidence of significant bias in the static model.
Discussants:
Jaren Pope
(Brigham Young University)
Nicolai Kuminoff
(Arizona State University)
Daniel Fetter
(Wellesley College)
Christopher Palmer
(University of California-Berkeley)
Jan 03, 2015 10:15 am, Westin Copley, Empire
American Real Estate & Urban Economic Association
Labor Productivity in Cities
(R1, J2)
Presiding:
Jeffrey Lin
(Federal Reserve Bank of Philadelphia)
Rural-Urban Migration, Structural Change, and Housing Markets in China
Ping Wang
(Washington University-St. Louis)
Carlos Garriga
(Federal Reserve Bank of St. Louis)
Yang Tang
(Nanyang Technological University)
[View Abstract]
[Download Preview] This paper explores the role of structural transformation and the induced rural-urban migration in the recent housing boom in China. This process fosters an ongoing increase in urban housing demand that combined with a relatively inelastic supply (land and entry restrictions) raises housing and land prices. This is analyzed using a multi-sector dynamic general-equilibrium model with rural-urban migration and housing. Our quantitative findings suggest that this process accounts for two-thirds of housing and land price movements in the entire urban area. The performance of the model calibrated to the two largest cities improves substantially, indicating the essentiality of market fundamentals.
Heterogeneous Returns to Knowledge Exchange: Evidence from the Urban Wage Premium
Christopher Cunningham
(Federal Reserve Bank of Atlanta)
Michaela Patton
(University of Alabama)
Robert Reed
(University of Alabama)
[View Abstract]
[Download Preview] Abstract: This paper explores whether different types of knowledge experience greater returns to agglomeration. We posit that some kinds of knowledge are harder to exchange remotely and thus certain workers benefit more from close physical proximity to others. We first present a theoretical framework in which individuals randomly search for partners to exchange ideas, but that the returns to finding a partner are heterogeneous. In particular, some knowledge is more dependent on interpersonal exchange and most productive when shared with similar individuals. In this manner, we propose that agglomerative environments favor individuals with knowledge that is typically associated with “soft skills” where creativity and informal networking are important. We test this prediction using the most recent sample of the American Community Survey (ACS) in which college graduates are asked about their undergraduate major. Controlling for demographic and regional productivity effects and instrumenting for city size, we find that the urban wage premium varies considerably across majors. In line with the predictions of our model, the highest wage premiums are observed in majors linked to soft skills. This finding is consistent with the notion that large cities are particularly good at facilitating informal networking and promoting creativity whereas majors typically associated with “hard” skills tend to experience a smaller urban wage premium. We also study how the urban wage premium varies by terminal degree. Our estimates imply that the largest urban wage premium is associated with a master’s degree. In the spirit of our results for majors, terminal degrees associated with the mastery of any existing cannon of knowledge such as a JD or MD experience a smaller urban wage premium.
House Price and Population Composition of Cities: Testing Models Using the Location of Hispanic Workers
Daniel Broxterman
(George Washington University)
[View Abstract]
[Download Preview] Recent research has related variation in the labor force composition of cities to the cost of housing. First, workers with more human capital tend to locate in cities with high housing costs (income elasticity effect). Second, households with low demand for housing also select into expensive cities (housing preference effect).
This paper applies both effects to the location patterns of Hispanic versus non-Hispanic white workers across U.S. cities. Skill intensity in the labor force of both groups is expected to increase with the cost of housing according to the income elasticity effect. However, a number of low skill Hispanics are not permanent, long-term residents of cities and hence have relatively low demand for housing. This suggests an inverse relation between Hispanic skill intensity and house price based on the housing preference effect.
Empirical tests show that skill intensity varies positively with house price for non-Hispanic white workers as expected, and negatively for Hispanics (housing preference effect dominates income elasticity effect). The dominance of the housing preference effect means that the location patterns of Hispanic households by skill level are significantly different than those of non-Hispanic households. The results challenge models that assume homothetic or homogeneous preferences over housing, and show that the two effects together can explain the changing distribution of Hispanic households across U.S. cities.
Emergent Superstar Cities
Bochao Zhang
(National University of Singapore)
Yuming Fu
(National University of Singapore)
[View Abstract]
[Download Preview] An important insight in Gyourko, Mayer and Sinai (American Economic Journal: Economic Policy 5(4), 2013), that rising aggregate demand, rather than diverging local productivity, accounts for the widening house price dispersion across US cities after WWII, rests on the assumption of idiosyncratic location preferences and asymmetric housing supply elasticity across cities. Under such assumptions, cities with inelastic housing supply are “superstar” cities—they get more expensive, hence more exclusive to high-income households, as aggregate demand increases. We sharpen and extend this insight by presenting a model where “superstar” cities emerge from the interaction between increasing returns to local demand for differentiated non-traded services and non-homothetic preferences, instead of idiosyncratic location preferences and asymmetric housing supply elasticity. We consider an economy with heterogeneous workers differentiated by skill level, who earn income from employment either in the traded-good sector, where worker productivity depends on skill but not location, or in the non-traded-service sector, where worker productivity depends on local demand but not skill. A fixed cost is required for each variety of local service, giving rise to increasing return to local demand, which is income elastic. In equilibrium, high-skill workers share the location with a greater variety of local services and higher land rent, middle-skill workers prefer the location with less variety of local services and lower land rent, low-skill workers, who specialize in non-traded sector, are indifferent between locations. The model can also account for skill dispersion within cities, rising non-traded sector employment share, and a U-shaped welfare change across skill spectrum, as a result of increased skill disparity in the economy.
Discussants:
Wenli Li
(Federal Reserve Bank of Philadelphia)
Matthew Freedman
(Drexel University)
Kyle Mangum
(Georgia State University)
Sanghoon Lee
(University of British Columbia)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Maine
American Risk & Insurance Association/American Economic Association
Topics in Risk and Economics
(D8, G2)
Presiding:
David Cummins
(Temple University)
What Drives Tort Reform Legislation? Economics and Politics of the State Decisions to Restrict Liability Torts
Yiling Deng
(Georgia State University)
George Zanjani
(Georgia State University)
[View Abstract]
[Download Preview] This paper studies the timing of tort reform enactments on liability over between 1971 and 2005. Using discrete time survival analysis, we find the level of litigation activity, as measured by incurred liability insurance losses and number of lawyers at the state level, and tort cases commenced at the national level, to be the most important and robust determinant of tort reform adoption. Political-institutional factors and regional effects---such as 1) Republican control of the state government and 2) single party control of the legislature and governorship---are also associated with quicker reform adoption. Beyond this, however, we do not find evidence of the expected influence of interest groups---such as doctors, and insurance industry professionals---on tort reform adoption.
Life Cycle Patterns in the Design and Adoption of Default Funds in D.C. Pension Plans
Joachim Inkmann
(University of Melbourne)
Zhen Shi
(University of Melbourne)
[View Abstract]
[Download Preview] We argue that we should see a negative relationship between the share of risky assets in the default fund of a defi
ned contribution (DC) pension plan and the average plan member age if trustees design the default fund in line with predictions from the life-cycle portfolio choice theory. Adoption of the default fund should be low in DC plans with high member age dispersion if default funds are indeed designed for the average plan member and members become aware of this. From analyzing a panel dataset of Australian DC pension plans, we obtain results that are consistent with both hypotheses.
Adverse Selection in Secondary Insurance Markets: Evidence from the Life Settlement Market
Daniel Bauer
(Georgia State University)
Jochen Russ
(Ulm University)
Nan Zhu
(Illinois State University)
[View Abstract]
[Download Preview] We use data from a large US life expectancy provider to test for asymmetric information in
the secondary life insurance—or life settlement—market. We compare the average difference
between realized lifetimes and estimated life expectancies for a sub-sample of settled policies
relative to the entire sample. We find a significant positive difference indicating private information on mortality prospects. Using non-parametric estimates for the excess mortality and
survival regressions, we show that the informational advantage is temporary and wears off over
five to six years. We argue this is in line with adverse selection on an individual’s condition,
which has important economic consequences for the life settlement market and beyond.
Accounting and Actuarial Smoothing of Retirement Payouts in Participating Life Annuities
Raimond Maurer
(Goethe University Frankfurt)
Olivia Mitchell
(University of Pennsylvania)
Ralph Rogalla
(Goethe University Frankfurt)
Ivonne Siegelin
(Goethe University Frankfurt)
[View Abstract]
[Download Preview] Life insurers use accounting and actuarial techniques to smooth reporting of firm assets and
liabilities, seeking to transfer surpluses in good years to cover benefit payouts in bad years. Yet
these techniques been criticized as they make it difficult to assess insurers’ true financial status.
We develop stylized and realistically-calibrated models of participating lifetime annuities, an
insurance product that pays retirees guaranteed lifelong benefits along with variable nonguaranteed
surplus. Our goal is to illustrate how accounting and actuarial techniques for this
product shape policyholder wellbeing as well as insurer profitability and stability. We show that
smoothing adds value to both the annuitant and the insurer, so curtailing smoothing could
undermine the market for long-term retirement payout products.
CEO Overconfidence, Corporate Governance, and the Demand for Directors and Officers Insurance
Jeffrey Boles
(Temple University)
Yevgeniy Davydov
(Temple University)
Jacqueline Volkman-Wise
(Temple University)
[View Abstract]
[Download Preview] Previous work has demonstrated the adverse consequences of CEO overconfidence and has separately shown that information about a firm’s directors’ and officers’ (D&O) liability insurance coverage can provide insight into a firm’s governance and risk-taking. In this paper, we develop a theoretical model to show how CEO overconfidence impacts D&O insurance decisions and find that firms with overconfident CEOs have a lower demand for D&O insurance. The CEO overestimates his/her own decision-making ability and thereby underestimates the need for D&O insurance. Using an options-based measure for CEO overconfidence, we then test this model and find that over the 2000-2006 period, firms with overconfident CEOs have a lower demand for D&O liability insurance. We find this effect even when controlling for litigation risk, CEO characteristics, firm characteristics, and corporate governance. These findings shed light on the different mechanisms underlying the demand for D&O insurance, including a combination of CEO overconfidence and corporate governance channels. Additionally, as D&O insurance is seen as a proxy for corporate risk, this work gives further insight into the impact of CEO overconfidence upon corporate risk, which has implications for shareholders.
Discussants:
J. Tyler Leverty
(University of Wisconsin-Madison)
George Vachadze
(City University of New York)
Martin Boyer
(HEC Montreal)
Joachim Inkmann
(University of Melbourne)
Richard J Butler
(Brigham Young University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Comparative Economic Institutions: Households, Firms, and Governments
(P5, O1) (Poster Session)
Presiding:
Dennis Yang
(University of Virginia)
Growing Unequal: Why Do Bigger Cities Have Higher Income Disparity in China?
Binkai Chen
(Central University of Finance and Economics)
Dan Liu
(Shanghai University of Finance and Economics)
Ming Lu
(Shanghai Jiao Tong University)
Exports and Capacity Constraints – A Smooth Transition Regression Model for Six Euro Area Countries
Ansgar Belke
(University of Duisburg-Essen)
Anne Oeking
(University of Duisburg-Essen)
Ralph Setzer
(European Central Bank)
[Download Preview] Sources of Productivity Growth in Eastern Europe and Russia after Transition
Ilya B. Voskoboynikov
(Higher School of Economics Moscow)
[Download Preview] The Effect of Public Pension Wealth on Saving and Expenditure: Evidence from Poland's 1999 Pension Reform
Marta Lachowska
(W.E. Upjohn Institute and Stockholm University)
Michal Myck
(Centre for Economic Analysis)
Globalization and the Environmental Spillovers of Sectoral FDI
Nadia Doytch
(City University of New York-Brooklyn College and Asian Institute of Management )
Merih Uctum
(Brooklyn College)
[Download Preview] Portfolio Choice Model with Borrowing: An Analytical Analysis
Nick Lei Guo
(University of Wisconsin-Whitewater)
Value Added in Import Competition and United States Labor Markets: Does China Really Matter?
Leilei Shen
(Kansas State University)
Peri da Silva
(Kansas State University)
Giving across Borders: Philanthropy or Business as Usual?
Abigail S. Hornstein
(Wesleyan University)
Minyuan Zhao
(University of Michigan)
Public Childcare Provision and Female Labor Market Participation: The Case of Georgia
Maka Chitanava
(Tbilisi State University)
Norberto Pignatti
(Tbilisi State University)
Firm-level Human Capital and Innovation: Evidence From China
Xiuli Sun
(Georgia Institute of Technology)
Haizheng Li
(Georgia Institute of Technology)
[Download Preview] China's Growth and Productivity Performance Debate Revisited
Harry X. Wu
(Hitotsubashi University)
[Download Preview] Does Democracy Change the Environmental Kuznets Curve? Evidence from Air Visibility
Jia Yuan
(University of Macau)
International Trade and Economic Catch-Up
Guglielmo Maria Caporale
(Brunel University)
Christophe Rault
(University of Orléans)
Robert Sova
(Sorbonne University)
[Download Preview] Migration and the Informal Sector
Ilhom Abdulloev
(Open Society Institute Assistance Foundation)
Melanie Khamis
(Wesleyan University)
Ira N. Gang
(Rutgers University)
John Landon‐Lane
(Rutgers University)
The Effect of Bank Mergers on Client Firm Value and Bank-Firm Relationships
Heather Montgomery
(International Christian University)
Yuki Takahashi
(State University of New York)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics/Union for Radical Political Economics
Class and the Social Provisioning Process
(B5)
Presiding:
John F. Henry
(University of Missouri-Kansas City)
Payday Lending on the Prairie: Deregulation, Predation, and a Potential Populist Response
Reynold F. Nesiba
(Augustana College)
Lauren Thompson
(Augustana College)
[View Abstract]
Paul Volcker, Governor Bill Janklow, and Citibank all played prominent roles in the dismantling of usury ceilings in South Dakota in 1980 and 1981. Three decades later, the wake of those policy decisions continues to influence both the banking and fringe banking industries. According to the Center for Responsible Lending in 2010, South Dakota was home to 118 payday lenders originating over $150 million in short-term high interest rate loans. A recent Pew study confirms that South Dakota—because of its unregulated interest rates—is one of the most expensive places in the nation take out a payday loan. Lenders there charge an average annual rate of interest of 575%. That rate is almost four-and-half-times higher than Colorado’s 129%. Drawing on historical documents, interviews, loan application documents, and court records, the authors explain the history, economic impact, and adverse effect payday lending has had on South Dakota borrowers, charitable agencies, and the broader community. Opponents of predatory lending have proposed an initiated measure for the 2016 election cycle to cap payday loan rates at 35%. The paper concludes with a brief analysis of this proposal.
Role of Economic Class in Understanding Social Provisioning Process in Post-Soviet Transition: The Case of the Ukraine
Anna Klimina
(University of Saskatchewan)
[View Abstract]
Using the economy of Ukraine as illustration, this paper argues that economic class, defined in relation to its actual control over the economy’s productive assets, and thus, over social organization of surplus, is the most useful lens for exposing the neoliberal nature of the social provisioning process in post-Soviet transition and making clear that only ownership empowerment of propertyless working class can democratize the current oligarchic and corrupt Ukraine. Beginning with a historical overview of primitive capital accumulation in Ukraine, the paper clarifies that even at the start of transition, control over assets, in fact, belonged to an elite group of bureaucrats and former enterprise directors, while the labouring class remained propertyless and alienated. As a result of neoliberal reforms of 1996-2005 in the context of a highly concentrated industrial structure, privatization of large-scale state property has resulted in highly concentrated private equity ownership dominated by oligarchic groups. Meanwhile, the increasing impoverishment of a weakened working class resulted in the absence in modern Ukraine of an influential Left capable of altering established social standing. Consequently, to restructure Ukraine’s social provisioning along more equitable and inclusive lines, comprehensive restructuring of large-scale oligarchic companies must be conducted, not through forced division into smaller companies, but first through their nationalization and then through a progressive reformation of large-scale state property to include shared ownership and worker participation in economic decision making. To secure equitable sharing of surplus, new property in social investment should also be generated through state-guaranteed jobs and state-funded social benefits.
Commodification of Waste: LDC's, Global Capitalism, Polanyi and Marx
Tara Natarajan
(Saint Michael's College)
[View Abstract]
At the very extreme edge of commodification is the commodification of waste. Countries such as Bangladesh, India, and China are leaders in processing global waste. The Bangladeshi coast just north of Chittagong is where ships from all over the world are breached and dismantled. This Bangladeshi coastline of mangroves have been completely cleared to create ship breaking yards which employ the youngest and poorest people from that region. China’s Guangdong province has long been the region known for recycling and processing electronic waste that cannot be processed in developed countries due to prevailing environmental regulations and standards. Entire domestic regional economies in low income and some middle income countries become the drivers for growth and the primary markets for what this paper calls the commodification of waste. Polanyi argued that traditional economics becomes the logic of economizing and thus attached the words “logical” or “formal”. But he also attached “substantive” to economics. In the context of countries that are commodifying waste, the work of Polanyi helps explore the contextual meaning of provisioning with respect to the prevailing socioeconomic structures of accumulation and global class hierarchy. This paper discusses Polanyi to understand the provisioning role of markets albeit in a perverse context -- the commodification of waste in a global context and the reproduction of social structures of accumulation as the conceptual framework. This paper thus brings together Polanyi and the social structures of accumulation to study the commodification of waste and questions the nature of the provisioning mechanism therein.
Social Classes and Social Agency in the Heterodox Approaches to the Social Provisioning Process
Tae-Hee Jo
(State University of New York-Buffalo State)
[View Abstract]
Heterodox economics offers radical insights to the understanding of the capitalist social provisioning process. Radical in that heterodox economics is critical of the status quo and the vested interests of the ruling class. Central to heterodoxy is thus the recognition of both social classes and social agency that lend themselves to the transformation of capitalism. However social classes and social agency are often absent or treated as secondary in some heterodox theories and models. This paper examines this particular issue focusing on the approaches framed by institutionalists and Marxist-radical political economists. In particular, the social surplus approach, the social fabric matrix approach, the social accounting matrix approach, and the systems of provision approach are compared and contrasted with the aim of advancing a more relevant heterodox approach in an integrative manner.
Economic and Social Class in Theorizing Unpaid Household Activities under Capitalism
Zdravka Todorova
(Wright State University)
[View Abstract]
Economic class and social class are two of the processes within social provisioning. The article discusses the importance of making an analytical distinction between both and the implications for theorizing unpaid household activities in social provisioning under capitalism. The first section presents a brief overview of the contested landscape of unpaid household work, including some terminological issues. The second section explains why the distinction between economic and social class ought to be made; and why both need to be developed in a social provisioning framework. The third section discusses the implications for analysis of unpaid household activities. One of those implications is the nexus between unpaid household work, conspicuous consumption/leisure/waste, and recreation. The article argues that within a social provisioning framework the processes of economic and social class reveal avenues to critically analyze unpaid activities on equal footage with monetary production. This means that both the invidious and transformative potentials of unpaid activities ought to be theorized. The transformational potential of unpaid domestic activities then depends on the ways that these are cultivated – for the purpose of invidious distinction (based on gender, race, and social class for example); or for the purpose of non-invidious recreation of community based on the life-process.
Discussants:
David Kotz
(University of Massachusetts-Amherst)
Shaianne Osterreich
(Ithaca College)
Julie Matthaei
(Wellesley College)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Social Economics
Motivations and Ethics in Global Markets
(B4, O1)
Presiding:
Mark D. White
(College of Staten Island)
The Micro-Foundations of a Modest Proposal to Eat the Unemployed
Kevin W. Capehart
(American University of Paris)
[View Abstract]
When unemployed workers were lining up for bread during the Great Depression of the 1930s, the writer Clarence Day proposed a policy that could have shortened those bread lines. The unemployed should be eaten, he proposed. Eating the unemployed could eliminate unemployment while providing food for others, Day argued. A similar policy was famously if only modestly proposed by Johnathan Swift at a time when the poor of Ireland were unable to provide for themselves or their children. Swift proposed that the poor should sell their children to the rich as food. Under such an arrangement, the rich would receive a meal in return for some of their riches, the poor would be relieved of a burden while receiving some income, and the children who were sold would be spared from a life of squalor. Despite their similarities, Day's proposal is nevertheless different than Swift's. Whereas Swift's proposal can be seen as a way to confront t he Malthusian trap from which most societies have escaped, Day's proposal confronts the problem of unemployment, which still persists in even the most advanced economies, especially today in the aftermath of one of the greatest recessions since the Great Depression. There is however an obvious problem with Day's proposal. The proposal lacks proper micro-foundations. We therefore provide micro-foundations for Day's proposal while pointing out strengths and limitations of his proposal within that framework. In doing so, we explore the commodification of labor and the ethical principles that guide the exchange of that "commodity."
Achieving Fair Trade through a Social Tariff Regime: A Policy Thought Experiment
Kate Watkins
(Cornell University)
George DeMartino
(University of Denver)
[View Abstract]
Trade policy can be viewed as a framework establishing the rules of engagement regarding the exchange of commodities between countries. Trade policy can shape and even promote the processes that contribute to the commodification of goods and services, depending on the incentives a given policy promotes. Over the past decade, an interest in fair trade has been revived in the USA—not principally by activists or heterodox economists, but by policymakers in Washington D.C. The abrupt turn in trade policy, coupled with shifting ideas among leading trade economists, opens up for debate an urgent set of theoretical and policy questions, such as: What objectives should fair trade policy seek to achieve? What ethical principles should guide the fair trade? And what kind of new international trade architecture might best promote fair trade? This paper pursues a fair trade policy thought experiment that engages these questions and presents the Social Index Tariff Structure (SITS) regime, an alternative fair trade regime that seeks to promote strong labor and environmental standards and other initiatives that engender human development, equality, and sustainability. Consistent with this year's theme of the ASE sessions at the ASSA, our paper encourages dialogue regarding alternative means of exchange at the macro-level, the ethical principles that guide this policy architecture, and the incentives that the policy creates.
Women and Social Entrepreneurship in India and China
Tonia Warnecke
(Rollins College)
[View Abstract]
Much research on gender equality has focused on integrating women into the workforce, but in so doing, women’s source of dependence partially shifts from their partner to the marketplace—it does not disappear. Although in many cases access to personal income is associated with greater bargaining power in the household, we cannot assume that engaging in paid labor increases female empowerment. This depends on job quality, social policy/protection, and the gender division of unpaid labor, among other factors. The recent focus on female entrepreneurship as a source of female empowerment illustrates this dichotomy, given the difference between informal sector-based necessity entrepreneurship (which is not associated with upward mobility) and formal sector-based opportunity entrepreneurship (which is). One response has been the growing popularity of social entrepreneurship, which focuses on the creation of social value, not wealth. This paper will discuss the evolution of social enterprise in China and India (from both domestic and international sources) and discuss the ways these businesses have impacted women’s employment opportunities and experiences in these countries, particularly in the informal sector.
Understanding the Financial Incentives for Microfinance Lending
Josie Chen
(Brown University)
Louis Putterman
(Brown University)
[View Abstract]
Microfinance refers to financial services that help low-income individuals become self-supporting entrepreneurs. Most studies focus on the effects of microfinance on borrowers; a few studies investigate the factors that affect lending decisions of existing lenders (the suppliers’ side). In our project, we develop a novel lab experiment in which we use a free-standing web interface to study the factors that affect the lending decisions of potential lenders, including (1) how financial incentives affect lending decisions; (2) how factors such as borrower and lender ethnicity and gender affect choice of borrowers; and (3) whether the choice of borrower will change based on financial incentives. A virtue of our design is that the subject pool includes many who may have been unlikely to seek out participation in microfinance programs or in philanthropy directed to the global poor. In addition, we include tasks to generate controls for ris k aversion and time preference. Tentative results of the data we currently have show that financial returns do not discourage lending, but the magnitude of how it matters decreases when lenders recognize that the loan would go to borrowers in developing countries. The results also show that a needy borrower would be ranked higher than a less needy borrower, especially when lenders would not get repayments from borrowers. Finally, we find that a less risky borrower would be ranked higher than a riskier borrower, especially when lenders would get repayments from borrowers.
Integrating Human Capital with Human Development: Toward a Broader and More Human Conception of Human Capital
John Tomer
(Manhattan College)
[View Abstract]
[Download Preview] A serious deficiency of the mainstream human capital (HC) concept is that it does not help one gain an adequate understanding of how human capacities develop or fail to develop during an individual’s lifespan. To remedy this, this paper proposes to integrate the concepts of HC and human development (HD). This allows one to appreciate that much of HC formation is psychological, social, and emotional in nature.. Existing HC theory not only neglects this important noncognitive development but neglects very important brain development. A key feature is that HD is represented as a three-sided pyramid. Each triangular side represents a major developmental pathway. The three interdependent developmental pathways are: 1) educational and cognitive development, 2) psychosocial, biological development, and 3) brain (or neuro) development. Humans developing along the pathways may get stuck or partially stuck at certain developmental stages and may fail to develop further without special developmental interventions (investments in HC). Four main noneducational situations are examined: 1) adverse early childhood experiences often involving trauma, 2) blockage of body and brain network pathways, 3) failure to develop important emotional competencies, 4) failure to develop needed personality traits. Integrating HC with HD has important implications for HC strategy. This integration should lead to more rational and efficient decision making with respect to HC as well as to decisions that are more caring.
Jan 03, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon D
Association for the Study of Generosity in Economics
Altruism and Religiosity
(H4, D6)
Presiding:
Daniel Hungerman
(University of Notre Dame)
Developing Hope: The Impact of International Child Sponsorship on Self-Esteem and Aspirations
Paul Glewwe
(University of Minnesota)
Phillip H. Ross
(Boston University)
Bruce Wydick
(University of San Francisco)
[View Abstract]
[Download Preview] Recent research (Wydick, Glewwe, and Rutledge, 2013) finds positive and statistically significant impacts on adult life outcomes from child sponsorship, including large impacts on schooling outcomes, the probability and quality of employment, occupational choice, and community leadership. This paper uses data from two countries to explore whether these impacts may be due not only to a relaxation of external constraints, but also to higher aspirations among sponsored children. We use survey data from Kenya and Indonesia, and psychological data from Indonesian children’s self-portraits, to test whether sponsorship significantly affects psychological variables in children that are likely to foster better economic outcomes in the future. We exploit an eligibility rule setting a maximum age for newly sponsored children. We use a child’s age at program rollout in his or her village as an instrument for sponsorship to establish a causal link between sponsorship and higher levels of self-esteem, as well as educational and occupational aspirations. We find a causal link between child sponsorship and large increases in educational and vocational aspirations among children in Kenya, and higher levels of happiness, self-efficacy, and hopefulness based on children’s self-portrait data from Indonesia.
Holier Than Thou? Social Motivations for Religious Giving
James Andreoni
(University of California-San Diego)
Marta Maras
(Bocconi University)
Matt Goldman
(University of California-San Diego)
[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. We exploit this unique setup to present evidence about the role of publicity and complementarity in preferences for altruism. We find strong evidence that individuals are more inclined to donate when donation is publicized more loudly, is associated with positive information about the individual's donation history, and simultaneously with other individuals in the same reference group. Our results are well explained by a model of individual preferences over warm glow and social comparison.
Religious Participation and Pro-Social Behavior: Lessons from an Event-Study Analysis of the U.S. Catholic-Clergy Scandals
Nico Bottan
(University of Illinois)
Ricardo Pérez-Truglia
(Harvard University)
[View Abstract]
[Download Preview] Although several studies document a strong correlation between religious participation and pro-social behavior, there is no consensus about the direction of causality. We provide novel evidence by examining variations in religious participation induced by the Catholic-clergy abuse scandals in the United States. To estimate the causal effects of the scandals on various outcomes, we conduct an event-study analysis that exploits the fine distribution of the scandals over space and time. First, we show that a scandal causes a significant and long-lasting decline in religious participation in the location where it occurs. Second, we test whether the decline in religious participation translates into a decline in pro-social beliefs and behavior. On the one hand, we find a long-lasting decline in charitable contributions. Indeed, this drop in charitable giving is an order of magnitude larger than the direct costs of the scandals to the Catholic churches (e.g., lawsuits). On the other hand, the scandals do not have a significant effect on religious beliefs, pro-social beliefs, and other forms of pro-social behavior.
Discussants:
Rebecca Thornton
(University of Michigan)
Sarah Smith
(University of Bristol)
Angela Dills
(Providence College)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Massachusetts
Association of Christian Economists
The Economy of Ancient Israel
(N9)
Presiding:
John Lunn
(Hope College)
Rational Peasant Strategy in Biblical Israel: Reconciling Theory with Archaeological Evidence
Albino Barrera
(Providence College)
[View Abstract]
Biblical texts support the conclusions of theories of ancient political economies. Given the nature of the Iron Age II monarchy, peasants in ancient Israel are believed to have been impoverished. Archaeological finding do not support this prediction. There is ample evidence that markets and peasants were thriving all the way up to the Babylonian conquest.
This paper suggests that a possible way of reconciling biblical text and models of ancient political economies, on the one hand, and archaeological evidence, on the other hand, is to look at the rational economic strategy undergirding Old Testament laws. There was an underlying principle of restoration in these practices whereby the goal was to maintain the viability and cohesion of extended families as independent entities. Thus, the disparity between the archaeological evidence and the predictions of theories of ancient political economies may turn out to be indirect evidence that the nation Israel was observing the economic norms of the Old Testament Law.
Defending or Depriving the Rights of the Poor? Opportunism, Economic Justice, and the Civil Authority in Pre-Exilic Israel
Edd Noell
(Westmont College)
[View Abstract]
The Hebrew Scriptures and the legal codes in the scriptures require that the rights of the poor be considered and honored in Israelite society. There are questions as to whether Israel,in practice, honored these laws or not. This question is examined in detail by appeal to both scripture, economic analysis, and archaeological evidence.
Husband, Wife, Parent, Child, Master, Slave: The Economic Context of the New Testament Household Codes
Kurt Schaefer
(Calvin College)
[View Abstract]
[Download Preview] The New Testament's "household codes"--passages dealing with household relationships among husband, wife, slaves and children--are all references to the default economic text of first-century Mediterranean culture, the household codes that derive from Aristotle. The household was taken to be the natural basic element of the economy, and its proper ordering was a fundamental economic and moral issue. By reading the New Testament documents in this cultural context, a fresh alternative to interpreters who find in the New Testament codes an oppressive patriarchy can be provided. Since the most fully developed New Testament code is found in I Peter, A close paragraph-by-paragraph reading of the epistle's code, in parallel with Aristotle's code is offered. Peter's code emerges as something of a satire on Aristotle. This satire offers wisdom for issued surrounding gender and race that have deeply divided the Christian community.
Markets and Prophets: An Examination of the Silver Hypothesis
John Lunn
(Hope College)
Barry Bandstra
(Hope College)
[View Abstract]
In his book, MARKETS AND PROPHETS, Morris Silver argues that the Hebrew prophets who argued that Israel was failing to fulfill God's law because the poor were exploited by the rich, and the land was increasingly held by a small group of landowners. They argues God's judgment was coming unless Israel repented and engaged in reform. Silver argues that the government responded to the messages of the prophets, engaged in land reform, and this resulted in economic inefficiency that made Israel more vulnerable to the major powers of the region--first Assyrian and then Babylon. We examine the evidence Silver cites, as well as more recent archaeological evidence and literary evidence, to determine whether Silver's controversial argument is supported or not.
Discussants:
Victor Claar
(Henderson State University)
Douglas W. Allen
(Simon Fraser University)
Jan 03, 2015 10:15 am, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Energy: Renewables, Electricity Usage and the Energy Efficiency Gap
(Q4, L9)
Presiding:
Kenneth Gillingham
(Yale University)
Effectiveness of Capacity-Dependent Rooftop Solar Subsidies: Lessons from California
Evan Rogers
(North Carolina State University)
[View Abstract]
[Download Preview] Governments around the world provide direct capital subsidies for solar energy technology adoption to lessen the externalities associated with fossil energy consumption. This paper analyses the efficiency of the largest customer-oriented program in the U.S., the $2 billion California Solar Initiative. An analytical model identifies limited conditions in which the program’s declining rebate rate is preferred to a single, one-shot subsidy. Further, by exploiting exogenous changes in rebate levels over time, we estimate a rebate elasticity of approximately 0.4, suggesting a public cost per additional watt of more than half the total cost, and a cost per avoided ton of carbon of about $200. Using high resolution satellite imaging and ground-level weather data, we further identify rebate responsiveness by exploiting exogenous variation in subsidy amounts based on exogenous solar irradiance and weather that the subsidy program used in calculating payouts. This radiance data is then used to estimate that suboptimal siting of the program’s installed solar capacity sacrifices 15-25% efficiency. These results indicate that greater emissions reductions could be achieved by public funding of optimally sited utility-scale solar projects.
Empowering Consumers through Smart Technology: Experimental Evidence on the Consequences of Time-of-Use Electricity Pricing
Matthew Harding
(Duke University)
Carlos Lamarche
(University of Kentucky)
[View Abstract]
This paper investigates the extent to which technology used to automate household responses to time-of-use pricing for electricity leads to higher energy savings than simply providing households with information on current prices and quantities. Using a large randomized field trial, we find that informed households with “smart” thermostats achieve impressive reductions in consumption during on-peak periods of up to 60%, but also engage in substantial load shifting to off-peak hours. While this reduces the cost of supplying electricity, it may have negative environmental consequences, since marginal CO2 emissions during the off-peak hours are larger, thereby offsetting the reductions achieved during on-peak hours. We also document the extent to which household responses to time-of-use pricing are heterogeneous and vary significantly by demographics, weather, and across the conditional consumption distribution.
Does Information Provision Shrink the Energy Efficiency Gap? A Cross-City Comparison of Energy Benchmarking and Disclosure Laws
Margaret Walls
(Resources for the Future)
Matthew Leisten
(Northwestern University)
Karen Palmer
(Resources for the Future)
[View Abstract]
This paper evaluates the effect of information disclosure and benchmarking laws for commercial properties on energy expenditure. Information failures may be a major factor in explaining the “energy efficiency gap”, particularly for buildings. Building owners are unlikely to fully understand the factors that affect the energy use of their buildings, may only have partial information about how to make cost-effective improvements and may have difficulty communicating building energy performance to prospective renters and buyers. Energy disclosure and benchmarking laws may lead owners to become more attentive to energy use and increase the rents and sales prices for more efficient buildings. Using building level panel data on utility expenses, this paper shows that these laws led to a meaningful reduction in utility expenditures, all else equal.
Prices versus Nudges: A Large Field Experiment on Energy Efficiency Fixed Cost Investments
Scott Holladay
(University of Tennessee)
Jacob Lariviere
(University of Tennessee)
David Novgorodsky
(University of Chicago)
Michael Price
(Georgia State University)
[View Abstract]
[Download Preview] This paper reports the results of a large scale field experiment which we designed to parse the effects of different social comparison frames and subsidies for electricity use, uptake of in-home energy audits and energy efficient durable good installations. Households were randomized into treatments in which they received letters comparing their electricity usage to their neighbors. We used three comparison frames: relative electricity usage in KWhs, relative monthly expenditures in dollars and relative CO2 emissions from electricity usage in tons. In addition, we randomized the price of an in-home energy audit. We find that frames which affected electricity use did not affect audit uptake, and vice versa. Mean use effects varied significantly by household type, as measured by political affiliation. We price out the value of a social comparison at $40. Our results have several implications for the mechanisms driving how households' electricity consumption patterns respond to non-pecuniary signals.
Discussants:
Kenneth Gillingham
(Yale University)
Koichiro Ito
(Boston University)
Nils Kok
(Maastricht University)
Dmitry Taubinsky
(Harvard University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Harvard
Chinese Economic Association in North America/American Economic Association
Exchange Rates, Trade and the Chinese Economy
(F1, F3)
Presiding:
Larry Qiu
(University of Hong Kong)
An Anatomy of Welfare Effects of Trade Liberalization: the Case of China's Entry to WTO
Wen-Tai Hsu
(Singapore Management University)
Yi Lu
(National University of Singapore)
Guiying Laura Wu
(Nanyang Technological University)
[View Abstract]
This paper develops a structural model of international trade with variable mark-ups. Using this model, we estimate welfare gains from trade of China's entry into WTO. The welfare gains are decomposed into a productive efficiency component, a terms-of-trade markup level effect, and allocative efficiency component. The first component corresponds to the ACR statistic (Arkolakis, Costinot, Rodriguez-Clare 2012), and the second and third components captures the effects of the level and dispersion of mark-ups, respectively. In our quantitaive exercise, pro-competitive effect (the two components of markups combined) accounts for 33.8% of the total gains from trade, whereas allocative efficiency accounts for 18.2%.
The Structural Behavior of China-US Trade Flows
Yin-Wong Cheung
(City University of Hong Kong)
Menzie D. Chinn
(University of Wisconsin-Madison)
Xingwang Qian
(State University of New York-Buffalo State)
[View Abstract]
[Download Preview] We examine Chinese-US trade flows over the 1994-2012 period, and find that, in line with the conventional wisdom, the value of China’s exports to the US responds negatively to real renminbi (RMB) appreciation, while import responds positively. Further, the combined empirical price effects on exports and imports imply an increase in the real value of the RMB will reduce China’s trade balance. The use of alternative exchange rate measures and data on different trade classifications yields additional insights. Firms more subject to market forces exhibit greater price sensitivity. The price elasticity is larger for ordinary exports than for processing exports.
Finally, accounting for endogeneity and measurement error matters. Hence, the purging the real exchange rate of the portion responding to policy, or using the deviation of the real exchange rate from the equilibrium level yields a stronger measured effect than when using the unadjusted bilateral exchange rate.
A Model of Real Exchange Rate for Transition Economies
Jiandong Ju
(University of Oklahoma and Tsinghua University)
Justin Yifu Lin
(Peking University)
Qing Liu
(Tsinghua University)
Kang Shi
(Chinese University of Hong Kong)
[View Abstract]
Despite fast economic growth in the past thirties year, Chinese real exchange rate does not exhibit a persistent and stable appreciation since 1990s. This seems to be puzzling and inconsistent with theories. This paper document several stylized facts during the economic transition and argue that faster TFP growth in export sector than import sector and excess supply of unskilled labor may help explain the Chinese real exchange rate dynamics. We construct a small open economy model with H-O trade structure. Our simple model shows that, due to heterogeneous skilled labor intensity in export and import sector, faster TFP growth in export sector than import sector will lead to the decline of the return to capital and the rise of skilled wage. Therefore, the decrease of the return to capital and the persistent low unskilled wage, which is caused by excess supply of unskilled labor, inhibit the rise of relative price of non-traded goods to traded goods and the appreciation of real exchange rate. To accounts quantitatively for Chinese real exchange rate, we develop a dynamic model with Eaton-Kortum framework, and show that the model does fairly well in explaining Chinese real exchange rate and other stylized facts in the economic transition.
What Affects Trade Disputes
Tan Li
(University of Hong Kong)
Larry Qiu
(University of Hong Kong)
[View Abstract]
[Download Preview] This paper investigates the determinants of trade disputes, with the focus on the impacts of free trade agreements (FTAs) on trade disputes between FTA member countries. To this end, we collect a comprehensive and unique dataset on trade disputes between countries from 1995 to 2007. The dataset covers 121 countries and 1130 trade disputes. We find that the incidences of trade disputes between two countries are positively associated with their economic size, economic growth and trade share. These findings lend support to the “power hypothesis” and “capacity hypothesis”. More importantly, we obtain that FTA between two countries reduces the occurrences of trade disputes. Finally, we observe that FTAs relying on the WTO dispute settlement mechanisms further reduce trade disputes between their members, compared to FTAs without provisions on trade dispute settlement, whereas FTAs with their own dispute settlement mechanisms have the opposite effect. The above results hold for both primary trade disputes and WTO trade disputes. The main results are robust to the controlling for possible measurement error and endogeneity problem.
Discussants:
Liugang Sheng
(Chinese University of Hong Kong)
Qing Liu
(TsingHua University)
Kanda Naknoi
(University of Connecticut)
Tsz-Nga Wong
(Bank of Canada)
Jan 03, 2015 10:15 am, Sheraton Boston, Clarendon Room
Cliometrics Society
Occupations and Mobility over Time and Distance
(N3)
Presiding:
Laura Salisbury
(York University)
The lasting impact of grandfathers: Class, occupational status, and earnings over three generations (Sweden 1815-2010)
Jonas Helgertz
(Lund University)
Martin Dribe
(Lund University)
[View Abstract]
[Download Preview] Most research on social and economic mobility follows a two-generation approach, studying the correlations between the socioeconomic status of, for example, fathers and sons. Much less attention has been given to transmissions of status beyond two generations. This issue is of considerable relevance both for our understanding of societal openness and the stability of class structures. In this paper we look at socio-economic mobility across three generations in Sweden in the period 1813-2010. Using longitudinal micro-level data from the Scanian Economic-Demographic Database, we identify three-generation genealogies (grandfather, father, son) that we are able to observe in their prime working ages. We examine the multigenerational transmission of socio-economic status according to three different dimensions; social class, occupational status, and earnings, through estimated lifetime earnings, the HISCLASS scheme, and the HISCAM scale. We find clear associations between grandparental class and occupational status and grandchildren’s outcomes, when controlling for the associations between fathers and sons. These associations are remarkably stable over time, and do not appear to be contingent upon close interaction between grandfathers and grandchildren. For earnings, on the other hand, we find no association at all between grandfathers and grandsons, regardless if we are looking at grandparental influence on the paternal or maternal side, or both sides combined
Early-Life Disease Exposure and Occupational Status: The Impact of Yellow Fever during the 19th Century
Martin Saavedra
(Oberlin College)
[View Abstract]
[Download Preview] Using city-of-birth data from the 100-percent sample of the 1880 Census merged to city-level fatality counts, I estimate the effect of early-life yellow fever exposure on adult occupational status. I find that in utero, neonatal, or postnatal yellow fever exposure decreased adult occupational status for white males with foreign-born mothers, whereas white males with US-born mothers were relatively unaffected. For example, whites with immigrant mothers born during the 1853 epidemics were 8.5 percentage points less likely to enter professional occupations. Furthermore, I find no evidence that epidemics 2 to 4 years after birth affect adult occupational status.
Migrant Self-Selection: Anthropometric Evidence from the Mass Migration of Italians to the United States, 1907—1925
Ariell Zimran
(Northwestern University)
Yannay Spitzer
(Brown University)
[View Abstract]
[Download Preview] We study immigrant self-selection using data on Italians entering the United States between 1907 and 1925. Exploiting the relationship between average stature and living standards, we test for self-selection by comparing the heights of migrants to the height distributions of their respective birth cohorts and provinces of origin. We find that the average Italian immigrant was shorter than the average Italian of the same birth cohort---suggesting negative self-selection at the national level---but taller than the average Italian of the same birth cohort and province of origin---indicating positive self-selection at the local level. This difference is driven by positive self-selection in shorter provinces and birth cohorts, which were primarily located in south Italy, and which were the origins of a disproportionately large share of immigrants. We also find evidence consistent with positive self-selection being driven by liquidity constraints that can be moderated through chain migration.
Geographic Determinants of Intergenerational Mobility
Jorgen Modalsli
(Statistics Norway)
[View Abstract]
[Download Preview] Intergenerational mobility in Norway, 1865-2011
* * *
Using a novel data set of 835,990 linked census records, this paper documents a large increase in intergenerational occupational mobility in Norway between 1865 and 2011. Long-run changes in mobility are found to be most pronounced outside farming; in this way Norway is different from the United States. The changes did contribute to equalization of the distribution of economic welfare across families; however, in this respect, changes in the income distribution appear to be quantitatively more important than changes in occupational mobility. There are no indications of major contributions from convergence between Norwegian regions to the increase in mobility.
No long-run estimates of social mobility have so far been available for any European country outside Great Britain, and the present study is the first to show massive increases in social mobility in a data set covering the entire transition from a predominantly agricultural society to a modern economy. The high occupational persistence documented for nineteenth-century Norway shows that high mobility need not be present at the beginning of a development path leading to a modern welfare state.
Discussants:
Laura Salisbury
(York University)
Greg Niemesh
(Miami University of Ohio)
Taylor Jaworski
(Queen's University)
Steven Nafziger
(Williams College)
Jan 03, 2015 10:15 am, Sheraton Boston, Beacon G
Econometric Society
Assessing Unconventional Monetary Policies in the United States, Europe and Japan
(E5)
Presiding:
Athanasios Orphanides
(Massachusetts Institute of Technology)
Macroeconomic Effects of the Federal Reserve's Unconventional Monetary Policies
Eric Engen
(Federal Reserve Board)
Thomas Laubach
(Federal Reserve Board)
David Reifschneider
(Federal Reserve Board)
[View Abstract]
[Download Preview] After reaching the effective lower bound for the federal funds rate in late 2008, the Federal Reserve turned to two unconventional policy tools—quantitative easing and increasingly explicit and forward-leaning guidance for the future path of the federal funds rate—in order to provide additional monetary policy accommodation. We use survey data from the Blue Chip Economic Indicators to infer changes in private-sector perceptions of the implicit interest rate rule that the Federal Reserve would use following liftoff from the effective lower bound. Using our estimates of the changes over time in private expectations for the implicit policy rule, and estimates of the effects of the Federal Reserve’s quantitative easing programs on term premiums derived from other studies, we simulate the FRB/US model to assess the actual economic stimulus provided by unconventional policy since early 2009. Our analysis suggests that the net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case. Our analysis implies that the peak unemployment effect—subtracting 1¼ percentage points from the unemployment rate relative to what would have occurred in the absence of the unconventional policy actions—does not occur until early 2015, while the peak inflation effect—adding ½ percentage point to the inflation rate—is not anticipated until early 2016.
A Non-Standard Monetary Policy Shock: The ECB's 3-Year LTROs and the Shift in Credit Supply
Roberto A. De Santis
(European Central Bank)
Darracq Paries
(European Central Bank)
[View Abstract]
[Download Preview] We study the macroeconomic effects of the 3-year long-term refinancing operations (LTROs) introduced by the ECB in December 2011 with the aim of reducing the obstacles to credit supply through the mitigation of liquidity and funding risks in the euro area banking system. Therefore, we interpret the measure as a credit supply shock, which is identified both recursively and with sign restriction methods using the euro area Bank Lending Survey (BLS). The size of the shock due to the LTROs is computed using both the April 2012 BLS and the special ad-hoc questions on the LTROs conducted in February 2012. The counterfactual exercises suggest that the 3-year LTROs lifted prospects for real GDP and loan provision to non-financial corporations over the next two-to-three years, thereby avoiding a major credit crunch.
Can the Provision of Long-Term Liquidity Help to Avoid a Credit Crunch? Evidence from the Eurosystem's LTROs.
Philippe Andrade
(Banque de France)
Christophe Cahn
(Banque de France)
Henri Fraisse
(Banque de France)
Jean-Stephane Mesonnier
(Banque de France)
[View Abstract]
[Download Preview] We build an exceptionally rich set of data on individual firms and banks operating in France to assess whether the 3-year Long-Term Refinancing Operations (LTROs) implemented by the Eurosystem in December 2011 and February 2012 had a positive impact on banks' supply of credit to firms. We control for firms' demand and risk factors by looking at firms which borrow at least from two banks and we also control for risk factors at the level of banks. We find that (i) LTROs had a positive impact on loan supply in France: on average, everything else being constant, one billion euros borrowed translated into 95 millions of additional bank credit to firms; (ii) the transmission took place with the first round of the LTROs to which financially more constrained banks were more likely to bid; (iii) the opportunity to swap short-term central bank borrowing for long-term one was instrumental in this transmission; and (iv) this increase in loan supply did not benefit to small firms, but only to the top decile of the largest borrowers.
Exiting from QE
Fumio Hayashi
(University of Tokyo)
Junko Koeda
(University of Tokyo)
[View Abstract]
[Download Preview] We develop a regime-switching SVAR (structural vector autoregression) in which the monetary policy regime, chosen by the central bank responding to economic conditions, is endogenous and observable. QE (quantitative easing) is one such regime. The model incorporates the exit condition for terminating QE. We apply it to Japan, a country that has experienced three QE spells. Our impulse response analysis shows that an increase in reserves raises output and inflation and that exiting from QE can be expansionary.
Discussants:
Refet Gurkaynak
(Bilkent University)
Juan Rubio-Ramirez
(Duke University)
James Vickery
(Federal Reserve Bank of New York)
Frank Smets
(European Central Bank)
Jan 03, 2015 10:15 am, Sheraton Boston, Beacon H
Econometric Society
Choice Theory
(D8)
Presiding:
Marciano Siniscalchi
(Northwestern University)
Confidence Models of Incomplete Preferences
Morgan McClellon
(Harvard University)
[View Abstract]
This paper introduces and axiomatizes a new class of representations for incomplete preferences called confidence models. Confidence models describe decision makers who behave as if they have probabilistic uncertainty over their true preferences, and are only willing to express a binary preference if it is sufficiently likely to hold. Confidence models are flexible enough to model behavior on a variety of domains, and they are general enough to nest the popular multi-utility models of incomplete preferences. Most importantly, they provide a natural way to connect incomplete preferences with stochastic choice. This connection is characterized by a simple condition that serves to identify the behavioral content of incomplete preferences.
Coarse, Efficient Decision-Making
Michael Mandler
(University of London)
[View Abstract]
Suppose an agent uses a set of criteria to build a choice function, which need not maximize a rational preference. For each pair of a criterion's categories, the agent has to decide whether one of the categories is superior and, if so, which one. The cost of the entire set of criteria is given by the total number of these decisions. Agents in practice use coarse criteria that use only a few categories, seemingly due to their cognitive limitations. But coarse criteria turn out to be more efficient: it is always cheaper to use coarser criteria even though the agent, in order to maintain the same number of choice distinctions, will then have to use a longer list of criteria. The most efficient criteria are therefore the binary criteria that use only two categories each. Decision-making efficiency frequently therefore leads to rational choice: for many procedures, binary criteria generate choice functions that maximize rational preferences.
Random Serial Dictatorship: The One and Only
Sophie Bade
(University of London)
[View Abstract]
[Download Preview]
Fix a Pareto optimal, strategy proof and non-bossy deterministic matching mechanism and define a random matching mechanism by assigning agents to the roles in the mechanism via a uniform lottery. Given a profile of preferences,
the lottery over outcomes that arises under the random matching mechanism is identical to the lottery that arises under
random serial dictatorship, where the order of dictators is uniformly distributed. This result extends the celebrated equivalence between the core from random endowments and random serial dictatorship to the grand set of all Pareto optimal, strategy proof and non-bossy matching mechanisms.
Optimal Stopping and Stochastic Choice
Drew Fudenberg
(Harvard University)
Philipp Strack
(Microsoft Research New England)
Tomasz Strzalecki
(Harvard University)
[View Abstract]
We model the joint distribution of choice probabilities and decision times in binary choice tasks as the solution to a problem of optimal sequential sampling, where the agent is uncertain of the utility of each action. The resulting optimal policy better matches the observed correlation between decision time and choice probability than does the classical drift-diffusion model, where the agent is uncertain which of two actions is best but knows the utility difference between them.
Jan 03, 2015 10:15 am, Sheraton Boston, Beacon F
Econometric Society
Conflict and Development
(O1)
Presiding:
David Yanagizawa-Drott
(Harvard University)
Reconciliation, Conflict and Development: Evidence from Sierra Leone
Jacobus Cilliers
(University of Oxford)
Oeindrila Dube
(New York University)
Bilal Siddiqi
(World Bank)
[View Abstract]
Can reconciliation generate social cohesion and economic development within societies emerging out of civil war? We conduct a randomized controlled trial of a community-based reconciliation intervention in post-conflict Sierra Leone. The program provides a forum for villagers to air war-time grievances, and also forges institutions designed to improve conflict resolution and build social capital. We find that individuals in treatment villages are more forgiving and charitable in their views of ex-combatants. In addition, they display greater satisfaction with conflict resolution and participate more actively in community organizations. However, there is no impact on overall levels of trust or social network formation. Most strikingly, psychological health, measured by depression, anxiety, and post-traumatic stress disorder deteriorated. Our study holds clear implications for the design of transitional justice programs, as well as programs that aim to promote institutional change.
The Legacy of Political Mass Killings: Evidence from the Rwandan Genocide
David Yanagizawa-Drott
(Harvard University)
[View Abstract]
We study how political mass killings affect later economic performance, using data from the Rwandan Genocide. To establish causality, we build on Yanagizawa-Drott (2012) and exploit village-level variation in reception of a state-sponsored radio station (RTLM) that explicitly, and successfully, incited killings of the ethnic Tutsi minority population. Our results show that households in villages that experienced higher levels of violence induced by the broadcasts have higher living standards six years after the genocide. They own more assets, such as land, livestock and durable goods. Output per capita from agricultural production is higher, and consumption levels are greater. These results are consistent with the Malthusian hypothesis that mass killings can raise living standards by reducing the population size and redistributing productive assets from the deceased to the remaining population. However, we also find that the violence affected the age distribution in villages, raised fertility rates among female survivors, and reduced cognitive skills of children. Together, our results show that political mass killings can raise living standards among survivors in the short run, but that these effects may disappear in the long run.
Path Dependence in Development
Melissa Dell
(Harvard University)
[View Abstract]
[Download Preview] This study exploits within-state variation in drought severity to identify how insurgency during the Mexican Revolution, a major early 20th century armed conflict, impacted subsequent government policies and long-run economic development. Using a novel municipal-level dataset on revolutionary insurgency, the study documents that municipalities experiencing severe drought just prior to the Revolution were substantially more likely to have insurgent activity than municipalities where drought was less severe. Many insurgents demanded land reform, and following the Revolution, Mexico redistributed over half of its surface area in the form of ejidos: farms comprised of individual and communal plots that were granted to a group of petitioners. Rights to ejido plots were non-transferable, renting plots was prohibited, and many decisions about the use of ejido lands had to be countersigned by politicians. Instrumental variables estimates show that municipalities with revolutionary insurgency had 22 percentage points more of their surface area redistributed as ejidos. Today, insurgent municipalities are 20 percentage points more agricultural and 6 percentage points less industrial. Incomes in insurgent municipalities are lower and alternations between political parties for the mayorship have been substantially less common. Overall, the results support a view of history in which relatively modest events can have highly nonlinear and persistent influences, depending on the broader societal circumstances.
Jan 03, 2015 10:15 am, Sheraton Boston, Beacon D
Econometric Society
High Frequency Financial Econometrics I
(C5)
Presiding:
Jia Li
(Duke University)
Nonparametric Test for a Constant Beta over a Fixed Time Interval
Markus Reiss
(Humboldt University-Berlin)
Viktor Todorov
(Northwestern University)
George E. Tauchen
(Duke University)
[View Abstract]
[Download Preview] We derive a nonparametric test for constant (continuous) beta over a fixed interval of time.
Continuous beta is defined as the ratio of the continuous covariation between an asset and observable risk factor (e.g., the market return) and the continuous variation of the latter. Our test is based on discrete observations of a bivariate Ito semimartingale with mesh of the observation grid shrinking to zero. We first form a consistent and asymptotically mixed normal estimate of beta using all the observations within the time interval under the null hypothesis that beta is constant. Using it we form an estimate of the residual component of the asset returns that is orthogonal (in martingale sense) to the risk factor. Our test is then based on the distinctive asymptotic behavior, under the null and alternative hypothesis, of the sample covariation between the risk factor and the estimated residual component of the asset returns over blocks with asymptotically shrinking time span. Optimality of the test is considered as well. We document satisfactory finite sample properties of the test on simulated data. In an empirical application based on 10-minute data we analyze the time variation in market betas of four assets over the period 2006–2012. The results suggest that (for likely structural reasons) for one of the assets there is statistically nontrivial variation in market beta even for a period as short as a week. On the other hand, for the rest of the assets in our analysis we find evidence that a window of constant beta of one week to one month is statistically plausible.
Principal Component Analysis of High Frequency Data
Yacine Ait-Sahalia
(Princeton University)
Dacheng Xiu
(University of Chicago)
[View Abstract]
We propose estimators for integrated spectral functions and in particular integrated eigenvalues of instantaneous covariance matrices with high frequency data. The estimators of eigenvalues, after bias-correction, achieve the desired asymptotic normality in the in-fill asymptotic setting, whether the eigenvalues are simple or repeated. Numerical simulations illustrate good finite sample performance despite the curse of dimensionality. Empirically, we apply principal component analysis to the constituents of Dow Jones Index. Our findings show that excluding variations of jumps, three factors on average explain around 50-60% of continuous variations of the stock returns, leaving 40-50% variations explained by idiosyncratic components. During crises, the first principal component can dominate up to 70% variations.
Assessment of Uncertainty in High Frequency Data: The Observed Asymptotic Variance
Per Aslak Mykland
(University of Chicago)
Lan Zhang
(University of Illinois-Chicago and University of Oxford)
[View Abstract]
[Download Preview] High frequency inference has generated a wave of research interest among econometricians and practitioners, as indicated from the increasing number of estimators based on intra-day data. However, we also witness a scarcity of methodology to assess the uncertainty -- standard error-- of the estimator. The root of the problem is that whether with or without the presence of microstructure, standard errors rely on estimating the asymptotic variance (AVAR), and often this asymptotic variance involves substantially more complex quantities than the original parameter to be estimated.
Standard errors are important: they are used both to assess the precision of estimators in the form of confidence intervals to create ``feasible statistics" for testing, and also when building forecasting models based on, say, daily estimates. The contribution of this paper is to provide an alternative and general solution to this problem, which we call Observed Asymptotic Variance. It is a general nonparametric method for assessing asymptotic variance (AVAR), and it provides consistent estimators of AVAR for a broad class of integrated parameters. The spot parameter process can be a general semimartingale, with continuous and jump component. The construction and the analytics of the observed AVAR work well in the presence of microstructure noise, and when the observation times are irregular or asynchronous in the multivariate case. The edge effect -- phasing in and phasing out the information on the boundary of the data interval -- of any relevant estimator is also analyzed and treated rigorously. As part of the theoretical development, the paper shows how to feasibly disentangle the effect from estimation error and the variation in the parameter alone. For the latter, we obtain a consistent estimator of the quadratic variation (QV) of the parameter to be estimated, for example, the QV of the leverage effect.
Bootstrapping High Frequency Jump Tests
Silvia Goncalves
(Université de Montréal)
[View Abstract]
In this paper, we consider bootstrap tests based on bipower variation, as originally proposed by Barndorff-Nielsen and Shephard (2006). Our aim is to improve the finite sample size while retaining good power. In order to do so, we generate the bootstrap observations under the null of no jumps, by drawing them randomly from a mean zero Gaussian distribution with a variance given by an efficient block multipower variation measure (Mykland, Shephard and Sheppard (2012)). A special case of this method is the local Gaussian bootstrap of Hounyo (2013), which relies on a block realized volatility to estimate the intraday returns variance. By appropriately selecting the exponents such that the maximum of any of them is less than two, we show that the bootstrap is able to mimic the null distribution of the jump test under both the null and the alternative hypothesis. Preliminary simulations show that the finite sample properties of the bootstrap are better than the asymptotic theory.
Jan 03, 2015 10:15 am, Sheraton Boston, Gardner Room
Econometric Society
Journal of Business and Economic Statistics Plenary
(C1)
Presiding:
Shakeeb Khan
(Duke University)
Simple Estimators for Semiparametric Multinomial Choice Models
James L. Powell
(University of California-Berkeley)
Discussants:
Andres Aradillas-Lopez
(Pennsylvania State University)
Bo Honoré
(Princeton University)
Hidehiko Ichimura
(University of Tokyo)
Jack Porter
(University of Wisconsin)
Elie Tamer
(Princeton University)
Jan 03, 2015 10:15 am, Sheraton Boston, Beacon E
Econometric Society
Policies to Foster Human Capital
(I2, J2)
Presiding:
Dirk Krueger
(University of Pennsylvania)
Optimal Capital and Progressive Labor Income Taxation with Endogenous Schooling Decisions and Intergenerational Transfers
Dirk Krueger
(University of Pennsylvania)
Andrew Ludwig
(Goethe University)
[View Abstract]
[Download Preview] In this paper we characterize quantitatively the optimal mix of progressive labor income and capital income taxes as well as and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk. and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogeneous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives to acquire higher education, generating a non-trivial trade-off for the benevolent utilitarian government. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current U.S. status quo.
Education Policy and Intergenerational Transfers in Equilibrium
Brant Abbott
(Yale University)
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.
Optimal Income-Contingent Student Loans with Moral Hazard
Lance J. Lochner
(University of Western Ontario)
Alexander Monge-Naranjo
(Federal Reserve Bank of St. Louis)
[View Abstract]
[Download Preview] We examine the optimal formation of human capital in economies in which moral hazard generates credit constraints and shapes labor market risks, two of the main barriers to schooling. We consider a two-stage investment problem: In the first stage, during school, individuals with heterogeneous ability and wealth decide their investment, effort, and consumption. In the second stage, labor market participation, individuals must find and maintain jobs. The optimal program maximizes initial utility of each individual by allocating credit in the first stage and specifying repayment in the second. The optimal program links investments and effort to the initial ability and wealth of the individual; it also provides unemployment insurance and collects wage taxes for the employed. While credit limitations and reduced investments arise endogenously from limited incentives to exert effort during both stages, the optimal dynamic provision of insurance and incentives can greatly enhance the investments, income, and welfare of low wealth individuals relative to the conventional student loan programs.
Human Capital Accumulation in a Federation
Daniele Coen-Pirani
(University of Pittsburgh)
[View Abstract]
[Download Preview] More than half of the variation across U.S. school districts in real
K-12 education expenditures per student is due to differences between,
rather than within, states. I study the welfare implications of redistribution of education expenditures by the Federal government, using an analytically tractable model of human capital accumulation with heterogeneous agents and endogenous state policies. The net welfare effect
of Federal redistribution depends on a trade-o¤ between the positive
effect of redistributing resources toward poorer states and the negative
effect resulting from misallocation of population across states. Federal
redistribution increases welfare in a calibrated version of the model.
Jan 03, 2015 10:15 am, Sheraton Boston, Boston Common
Economic History Association
Urban Issues in Historical Perspective
(N9)
Presiding:
Carola Frydman
(Boston University)
Resetting the Urban Network: 117-2012
Guy Michaels
(London School of Economics)
Ferdinand Rauch
(University of Oxford)
[View Abstract]
[Download Preview] Do locational fundamentals such as coastlines and rivers determine town locations, or can historical events trap towns in unfavorable locations for centuries? We examine the effects on town locations of the collapse of the Western Roman Empire, which temporarily ended urbanization in Britain, but not in France. As urbanization recovered, medieval towns were more often found in Roman-era town locations in France than in Britain, and this difference persists today. The resetting of Britain’s urban network gave it better access to natural navigable waterways when this was important, while many French towns remained without such access. We show that towns without coastal access grew more slowly in both Britain and France from 1200-1800, and calculate that with better coastal access, France’s urban network would have been up to 20-30 percent larger in 1800.
Lead Exposure, Socioeconomic Status, and the Propagation of Cognitive Disparities
Werner Troesken
(University of Pittsburgh)
Joseph Ferrie
(Northwestern University)
Karen Rolf
(University of Nebraska-Omaha)
[View Abstract]
[Download Preview] This paper uses a novel natural experiment to explore the extent to which children from disagdvantaged households are more vulnerable to environmental lead exposure than those from advantaged households. In contrast to previous research, our approach allows us to isolate the long-term effects of lead and shows how early life exposure impairs later life economic performance. The natural experiment we exploit involves variation in the acidity of public water supplies.
Ownership, Technology, and the Provision of Residential Electricity
Carl Kitchens
(University of Mississippi)
[View Abstract]
[Download Preview] Economists have long been interested in the implications of private versus public
ownership for the provision of services and consumer prices. Empirically, the challenge
is to disentangle the effect of ownership from other determinants of prices. In this
paper, we use detailed data on retail electricity in the United States to identify the
effect of private versus public ownership on prices. Our data include information on
thousands of markets, which allow us to control for observed differences in demand and
cost conditions. At typical consumption levels, we find that differences between public
and private rates were negligible. This suggests the gains from changing ownership type
were small in 1935. However, as new technology reduced minimum efficient scale and
incentivized private entry into smaller markets, we show that markets switched from
public to private ownership. We interpret these findings as evidence for the benefits
of maintaining organizational or contractual flexibility and increasing the prospect of
passing gains from technological progress on to consumers.
Discussants:
Richard Hornbeck
(Harvard University)
Douglas Almond
(Columbia University)
Edson Severnini
(Carnegie Mellon University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Wellesley
Economic Science Association
Social Networks Experiments
(C7, D8)
Presiding:
Tanya S. Rosenblat
(University of Michigan)
Mirror Mirror on the Network: Peer Selection and Endogenous Preferences
Erin Krupka
(University of Michigan)
Stephen Leider
(University of Michigan)
Carrie Wenjing Xu
(University of Michigan)
[View Abstract]
We use a longitudinal design, in which we follow participants through their first academic year at the university, to test and distinguish between selection based on preferences and a dynamic process of preference formation. We recruit incoming freshman to participate in three waves of an online experiment where we elicit subjects' social network using an incentive compatible mechanism and then measure subjects’ levels of altruism, willingness to take risks, and willingness to delay rewards (using common experimental protocols). Using this data we identify whether an individual’s generosity, risk preferences and impatience are (a) influenced by the preferences of others in their social network, and/or (b) influential in changes to their social network over time. We find that subjects' risk and time preferences are significantly positively correlated with the preferences of their friends. Additionally, we find that changes in subjects social networks are significantly influenced by social preferences. Subjects are more likely to add someone as a friend, and less likely to drop as a friend, the more similar their social preferences are.
An Experimental Study on Information Sharing Networks
Sergio Currarini
(University of Leicester and Università di Venezia)
Francesco Feri
(University of London and Università di Triestre)
Miguel A. Melendez-Jimenez
(Universidad de Málaga)
[View Abstract]
[Download Preview] We design an experiment to study how agents make use of different pieces of information in the lab, depending on how many others have access to them and the strategic nature of interaction. Agents receive signals about a payoff relevant parameter, and the information structure is represented by a non-directed network, whose nodes are agents and whose links represent sharing agreements. We compare the use of information in different information sharing networks, considering games in which strategies are substitutes, complements and orthogonal. We then study the incentives to share information across games by analyzing the scenario where subjects have the chance to modify the network prior to playing the game.
Making the Dynamics of Social Learning Visible
Abhijit Banerjee
(Massachusetts Institute of Technology)
Emily Breza
(Columbia University)
Arun Chandrasekhar
(Stanford University)
Sam Grondahl
(Microsoft Research)
Markus Mobius
(Microsoft Research and University of Michigan)
[View Abstract]
We study naive social learning in a model that incorporates uninformed agents by conducting a lab experiment. While some agents initially receive noisy signals about the state of the world, others do not. Agents are free, dynamically, to communicate their evolving beliefs to their neighbors and update their guesses about the state of the world. The precise, dynamic data allows us to estimate new features of the social learning process. Additionally, we develop a model in this environment to study the natural naive extension of one-period Bayesian updating. This new model, called Partial DeGroot learning (PDG), differs from the standard DeGroot models as the communication network evolves endogenously as agents become informed, which stems from the combination of percolation of information and averaging. We characterize the limit behavior and show that society keeps track of the mean but loses track of precision.
Do Friends Help Friends Get Jobs?
Sarah Adelman
(Mount Holyoke College)
Vivian Hoffmann
(University of Maryland and IFPRI)
Markus Mobius
(Microsoft Research and University of Michigan)
Tanya S. Rosenblat
(University of Michigan)
[View Abstract]
We conduct a field experiment in South Africa to analyze the role of social networks for hiring. We invite prospective applicants to (a) list their friends and (b) rank their friends in the order in which they would recommend them to the employment agency. We also vary whether referrers get no hiring incentive or a prize for every applicant who has a successful interview. We then use a deferred acceptance algorithm to invite one referred candidate for each referer. Our outcome measures for referrals include interview performance as well as completeness of the application materials. This allows us to measure to what extent referers have private information about applicants’ skills and whether referers actively help socially close friends in compiling the application materials.
Discussants:
Iwan Barankay
(University of Pennsylvania)
Gary Charness
(University of Santa Barbara)
Ragan Petrie
(George Mason University)
Lori Beaman
(Northwestern University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Provincetown
Health Economics Research Organization
Health Insurance Reform
(I1, I1)
Presiding:
Donald E. Yett
(University of Southern California)
Market Socialism and Community Rating in the Affordable Care Act
H. E. Frech
(University of California-Santa Barbara)
Peter Zweifel
(University of Zurich)
[View Abstract]
[Download Preview] The socialist calculation debate began almost 100 years ago when von Mises and Hayek argued that a socialist state could not determine marginal-cost prices and therefore could not allocate resources efficiently. Oscar Lange and Abba Lerner responded with the market socialist model, where a socialist planner in a government-ownership economy would adjust prices in response to excess demand and thereby achieve marginal cost pricing and allocative efficiency. There are mixed views on market socialism for an entire economy. (E.g Edmund Phelps is negative, while John Roemer is positive.) In this paper, we briefly review the debate and the market socialism response. Even among its supporters, market socialism is widely regarded as only an abstract idea. We disagree. We argue that market socialism exists, and is growing in importance, in major parts of modern economies—especially in health care and health insurance. In these sectors, prices are set centrally, while the ownership includes many state-owned, nonprofit, mutual firms. In this sector, we argue for applying market socialist principles to health care and health insurance policy. In particular, we argue that these principles imply that community rating of health insurance premiums is a source of major inefficiencies, harmful pressure on regulation and unnecessary difficulties in implementing the U.S. Affordable Care Act. We suggest moving in the market socialist direction—towards marginal cost pricing and therefore away from community rating. We suggest dealing with the desire for expanded coverage by explicit, politically transparent subsidies.
Insurer Participation and Premiums in Exchanges: The Roles of Regulation, Market Competition, and Product Characteristics
Jean Marie Abraham
(University of Minnesota)
Kosali Simon
(University of Indiana)
Jeffrey McCullough
(University of Minnesota)
Coleman Drake
(University of Minnesota)
[View Abstract]
This research has three objectives: (1) Describe patterns of insurer participation and premiums at the state and local levels; (2) Quantify the roles of benefit design and provider networks in explaining premium variation; (3) Analyze the impact of state regulatory decisions and insurer and provider market competition on participation and premiums during the first two years of exchange operation. To pursue this research, the team has built a comprehensive data infrastructure to monitor outcomes and investigate the role of regulatory and market factors on insurer participation and premiums.
Competitive Bidding in Medicare
Michael Chernew
(Harvard University)
[Download Preview] Forthcoming
Discussants:
Anthony Lo Sasso
(University of Illinois-Chicago)
Stephen T. Parente
(University of Minnesota)
Jan 03, 2015 10:15 am, Sheraton Boston, Berkeley Room
History of Economics Society
Keynes and Keynesian Economics in Light of the Financial Crisis
(B3, E1)
Presiding:
Robert Shiller
(Yale University)
Keynes and Financial Crises
Robert Dimand
(Brock University)
[View Abstract]
The global economic and financial crisis that began in 2007 has renewed interest in Keynes’s analysis of whether the economic system is self-adjusting and of his proposals for ending depression. This analysis is complemented by Keynes’s more specific accounts of financial crisis, notably in his incisive “The Consequences to the Banks of the Collapse in Money Values” (in his Essays in Persuasion, 1931) and his Harris Foundation Lectures, a body of work that is much less well-known.
Keynes, Wages and Employment in Light of the Great Depression
Harald Hagemann
(Universität Hohenheim)
[View Abstract]
[Download Preview] The wage-employment relationship is one of the central and most controversial issues in the General Theory. The beginning makes the assumption of a given money wage as a preliminary working hypothesis. “But this simplification, with which we shall dispense later, is introduced solely to facilitate the exposition. The essential character of the argument is precisely the same whether or not money-wages, etc., are liable to change” (JMK, CW VII, p. 27). Despite this clear statement Keynes has often been interpreted as assuming rigid money wages, a preliminary assumption with which he dispense in Chapter 19 “Changes in Money-Wages.” Here Keynes argues against the “classical doctrine” that a downward flexibility of money wages will systematically lead to full employment. The British wage debate arose after the return to the gold exchange standard in 1925 at the prewar parity, which was heavily opposed by Keynes. At the outbreak of the Depression, Keynes contributed an important but widely overlooked article “The Question of High Wages” (1930) in which he challenged the purchasing power theory represented by Maurice Dobb. Interestingly, Keynes advocated “squeezing the higher wages out of increased efficiency” (1930, p. 11), i.e. relative instead of absolute wage reductions to regain international price competitiveness, a proposal which is topical today. Finally, the more recent controversies over the Preface to the German language edition of the General Theory are based on only one passage which was added in the German translation to Keynes’s original English text. The additional text appears reasonable if one links it to an important distinction Keynes makes in Chapter 19 between democratic systems with decentralized wage bargaining and “highly authoritarian” systems for which the problem of destabilizing elastic price expectations in the process of deflationary wage policies does not exist (JMK, CW VII, p. 269).
James Meade and Keynesian Economics
Sue Howson
(University of Toronto)
[View Abstract]
James Meade (1907-1995), although Oxford-educated, was one of the very first Keynesians, a member of the Cambridge “circus” which met to analyze and criticize Keynes’s just published Treatise on Money in the early months of 1931. Not only did he use Keynesian ideas in his writings throughout his long career; he was a major player in the implementation of Keynesian policies in Britain during and immediately after World War II. My paper will discuss his encounters with Keynes and his use and development of Keynesian economics in his own academic and policy work.
Discussants:
Robert Shiller
(Yale University)
Rebeca Gomez Betancourt
(University of Lumière Lyon 2-France)
Robert Dimand
(Brock University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Yarmouth
International Association for Feminist Economics
Feminist Exploration in Labor Market, Discrimination and Care Needs
(J7)
Presiding:
Alice Kassens
(Roanoke College)
Occupational Segregation, Wage and Job Discrimination against Women in the Indian Labour Market, 1983-2012
Malathy Duraisamy
(Institute of Technology Madras)
Palanigounder Duraisamy
(University of Madras)
[View Abstract]
[Download Preview] Earlier studies by the authors and a small number of other works show evidence of labour market segmentation and wage differential between male and female adult workers in India. This paper focuses on the time trends and variation across states in occupational and wage discrimination against women for which there is a dearth of systematic work for India. The data for the study covers a period of about three decades and are drawn from the large (over 100,000 households) representative All India employment-unemployment survey data of the National Sample Survey Organisation from the quinquinnel rounds 1983, 1993/4, 2004/5 and 2011/12. Occupational segregation is examined based on dis-similarity (Duncan) and segregation indices and wage discrimination are analysed based on ordinary least squares and quantile regressions. The trends in wages and gender wage gap are also analyzed for the period 1983 to 2011-12. The empirical results show that occupational segregation is high and has increased over time, There is also substantial variation across states and employment categories. Our analysis of wages show that there has been a remarkable increase in wages in the past decade and female wage growth has been faster than male wag growth. We also examined the gender wage gap by age, education, sector, employment type, caste and religion. The unadjusted wage gap is decomposed using the familiar decomposition method. The estimates of wage functions not controlling for industry and occupation suggest that about 81% of the wage difference between males and females are unaccounted and could be due to discrimination and part of this may be due to difference in the choice of occupation and industry.
d over time.
Overall, the study reveals that discrimination against women has not reduced over the past three decades despite proactive policies. In fact occupational segregation has increased and this is a cause for concern and policy attention.
Discrimination against Trans People: Evidence from Italy
Fabrizio Botti
(University of Perugia)
Carlo D'Ippoliti
(Sapienza University of Rome)
[View Abstract]
[Download Preview] Few studies in the social sciences have explored the life experiences of transgender and transsexual individuals (henceforth “trans” people) and especially rare are quantitative analyses. Among the main challenges in studying this population are its very small size and condition of marginalization, as well as the conflicting views and lack of consensus on concepts and definitions relating to it. In the present study, we explore the agency, social exclusion, risk of stigma and discrimination of the trans population in Italy. We use data from an ad hoc sample, collecting information on trans individuals living in Southern Italy. We develop a synthetic index of social inclusion by aggregating several variables pertaining to the following domains: monetary poverty, labour market attachment, housing conditions, subjective well-being, and education. Next, we investigate the role of discrimination, social capital and trans people’s agency in affecting their social inclusion/exclusion. We document a strong negative role of stigma in determining trans people’s social inclusion, as well as a dramatically high frequency of discrimination episodes against trans people.
Kuznets’ Hypothesis and Gender Inequality
Eman Selim
(Tanta University)
[View Abstract]
[Download Preview] The purpose of the paper is to examine whether the Kuznets hypothesis of the inverted U-shape relationship between the level of income inequality and the level of gross domestic product per capita GDP per capita is also applicable on the relationship between gender inequality and the level of GDP per capita. The paper assumes that government intervention in the early stage of economic development is essential to reduce income inequality. The paper also assumes that government intervention especially via fiscal policy and public goods provision help to narrow the gender gap in education and health but not in employment and income. The paper looks for the evidence of Kuznets ‘hypothesis for gender inequality by examining the level of gender inequality in single countries over time and by looking at single points in time in a cross-section of countries with different level of income and economic development.
Absenteeism and Pension Reforms: A Gender Perspective
Flavia Coda Moscarola
(University of Turin)
Elsa Fornero
(University of Turin)
[View Abstract]
The paper contributes to the literature on labour supply effects of pension reforms from an unusual perspective. Epidemiological literature highlighted that perceived high strain at work and low social support are predictive of sick leaves (Moreau et al. 2004). In Mediterranean countries, like Italy, old age women are normally in charge of heavy tasks of informal care-giving towards grandchildren and elderly parents and many of them normally chose to retire early to better cope with these tasks. However, the pension reforms recently undertaken, significantly increased old age retirement age, especially for women in private employment. We indeed investigate whether old-age Italian women reacted to this mandatory postponement of retirement by increasing their resort to sick leaves. The analysis is based on a unique administrative data set provided by the Italian Social Security Institute.
MFI's Mission Change for Women Borrowers under Adverse Economy
So Young Sohn
(Yonsei University)
Eun Jeong Ji
(Yonsei University)
Eun Jin Han
(Yonsei University)
[View Abstract]
One of the main missions of Microfinance Institutions (MFIs) is to improve the status of under-privileged people. However, MFI’s mission drift or enhancement can occur under adverse economic condition. In this paper, we investigate the direction of changes in supporting women borrowers who make up the majority of the poor by using the lending patterns of Latin American and Caribbean MFIs during the recent global financial crisis. P control chart is applied to detect assignable changes in the lending rate to woman over different MFIs. In order to identify related characteristics to the outlying MFIs identified from the P control chart, we perform logistic regression analysis. Our study results can contribute to understand MFI’s mission change in terms of supporting women borrowers and identify the related characteristics of MFIs.
Jan 03, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom--Salon E
International Banking Economics & Finance Association/American Economic Association
Credit Availability 20 Years after Peek and Rosengren
(G2) (Panel Discussion)
Panel Moderator:
Eric Rosengren
(Federal Reserve Bank of Boston)
Diana Hancock
(Federal Reserve Board)
Stephen Oliner
(American Enterprise Institute and University of California-Los Angeles)
Joe Peek
(Federal Reserve Bank of Boston)
Jeremy Stein
(Harvard University)
Jan 03, 2015 10:15 am, Westin Copley, Courier
Labor & Employment Relations Association
Growing Older and Working Longer: Implications for Health and Retirement Time
(J3)
Presiding:
Richard McGahey
(New School)
Do Working Conditions at Older Ages Shape the Health Gradient?
Lauren Schmitz
(New School)
[View Abstract]
This study examines whether working conditions at the end of workers' careers contribute to health disparities. The impact of occupation on health in the years leading up to retirement is not well understood, partly because it is difficult to untangle feedback effects between health and socioeconomic status over the life course from the health impacts of job demands at older ages. Dynamic panel and instrumental variable (IV) methods are used in conjunction with rich panel data to estimate more robust associations between health and workplace characteristics. Health and employment information from ten waves (1992-2010) of the Health and Retirement Study (HRS) is merged with expert ratings of job demands from the Occupational Information Network (O*NET) and mid-career earnings records from the Social Security Administration’s (SSA) Master Earnings File (MEF). Results indicate physical demands, environmental hazards, and conditions of the psychosocial work environment are all associated with health outcomes after age 50. In particular, there is a strong relationship between the degree of control and influence exercised on the job and improved self-reported health status, blood pressure, musculoskeletal conditions, cognitive function, and depression.
Miracle Drug or Daily Vitamin? The Health Effects of Retirement over Time
Kevin Neuman
(University of Wisconsin-Stevens Point)
Jason Davis
(University of Wisconsin-Stevens Point)
[View Abstract]
[Download Preview] Using data from the HRS we test for duration effects of retirement on the probability of self-reporting good health. To control for the endogeneity of the retirement decision we exploit exogenous changes in retirement behavior over Social Security and private pension eligibility ages, as well as over the offering of early out windows. We find evidence of a positive effect of retirement on health that changes with time spent in retirement. Recent retirees experience a strong boost to self-reported health relative to non-retirees, with additional positive effects through the fourth year of retirement. The positive effect on health remains stable through the thirteenth year of retirement when the difference between the two groups disappears.
Socioeconomic Differences in Retirement Age, Mortality, and Retirement Time: Implications for Retirement Age Policy
Teresa Ghilarducci
(New School)
Katherine Moos
(New School)
[View Abstract]
An important dimension of well being is access to time at the end of a one's working life. We identify retirement time as a resource employees consume after permanently exiting the labor market: the time between retiring and dying. There are large socioeconomic differences in retirement time and they appear to have grown over time. The growing inequality of longevity by SES, coupled with the increased labor market effort of lower-income older people has caused retirement time to become more unequally distributed between socioeconomic status groups. The study discusses implications of growing retirement time differentials for one major area of pension policy: the pension eligibility age and retirement incentives.
How Does Retirement Impact Health? Health Behaviors and Investments
Norma B. Coe
(University of Washington)
Gema Zamarro
(University of Southern California)
[View Abstract]
Recent work has found that retirement may lead to improvements in health, although the size and significance of this finding varies between studies and countries. However, the underlying mechanism for this health improvement has yet to be identified, making it impossible to draw conclusions about how policy can influence the positive relationship between health and retirement, or whether it is possible to achieve the health gains without leaving the labor force. This paper aims to identify the causal pathways through which health is improved with retirement. We distinguish between behaviors individuals have direct control over (physical activity, eating, drinking, smoking) and those at least partially governed by the health care system (visits to the doctor, preventative care). This paper uses panel data and instrumental variable methods, exploiting variation in statutory retirement ages, to assess how retirement causally affects health-related investments and behaviors using the Health and Retirement Study (HRS) (United States), the English Longitudinal Study of Ageing (ELSA) (England), and the Survey of Health Aging and Retirement in Europe (SHARE) (continental Europe). The findings suggest that the positive relationship between health and retirement is likely caused by a change in health behavior. In both the U.S. and Europe, where we find a positive relationship between health and retirement, we also find a significant increase in the amount of self-reported vigorous exercise for those retiring from non-physical jobs, and a decrease in doctor visits. In England, where we find a weaker effect of retirement on health, we also find no change in vigorous activity. Finally, for the U.S., the only place where information is available, we find that retirement has a positive effect on preventive care, separate from Medicare eligibility. These findings suggest that interventions targeted to get near retirees to exercise more,
Discussants:
Christian E. Weller
(University of Massachusetts-Boston)
Richard McGahey
(New School)
Jan 03, 2015 10:15 am, Westin Copley, North Star
Labor & Employment Relations Association
On the Political Economy of Immigration in Europe and in the United States: The Importance of Skill
(J4)
Presiding:
Teresa Ghilarducci
(The New School for Social Research)
Global Skilled Migration Governance: On the Role of Civil Society Organizations
Petit Pascal
(University of Paris Nord)
[View Abstract]
[Download Preview] By Pascal Petit (CNRS-CEPN , University of Paris Nord , pascal.petit@univ-paris13.fr )
Abstract:
There is no proper Global Migration Governance scheme. Partial systems are dealing with migration of refugees and skilled migrations arrangements only concern a very specific and small part (mainly with tertiary education) of migration flows. Migrations are partly influenced by the situation of labor markets of host countries. The main determinants of migrations are country specific and tied with existing networks and attractiveness of social protection systems. To counter the backlashes of the present economic recession inducing populist movements to oppose migrations , the intermediation of CSOs engaged in promoting the rights and welfare of migrants at home and in host countries, is necessary and has t to be significantly supported.
Global Skilled Migration Governance: On the Role of Civil Society Organizations
High Skills Immigrants in United States: An Approach on Their Professional Status and Migration Interest to United States
Magaly Sanchez-R
(Princeton University)
[View Abstract]
High Skills Immigrants in United States: An Approach on Their Professional Status and Migration Interest to United States
Regimes of Migration and the Changing Nature of Migration from MENA countries after the Arab Uprisings
El Mouhoub Mouhoud
(University of Paris-Dauphine)
[View Abstract]
Regimes of Migration and the Changing Nature of Migration from MENA countries after the Arab Uprisings
After analyzing migration dynamics between the major regions over the past three decades, this paper analyzes regional immigration regimes by using a theoretical model to estimate elasticities of migration by major regions. It focuses then, on the determinants and the destination of the skilled migration from MENA countries in a post-Arab Uprisings perspective. It shows that in the case of Arab economies, there is a "brain drain" more pronounced than in other regions comparable in terms of per capita income. The main flows associated with migration of highly skilled workers come from countries of North Africa to Europe. North America is increasingly attracting the most qualified. This paper proposes a political economy analysis of this abnormally high expatriation rate of skilled in the context of the Arab revolutions which has sanctioned a breaking away from the old implicit internal pact whereby the elites of the Nomenklatura had a protected place on the skilled job markets and where the educated elite of the poor and middle class were relegated to declassified employment in the domestic economy or to international emigration.
Selective Migration Policy Models, Changing Realities of Implementation and the Recruitment of Foreign Students to Become High-Skilled Immigrants
Rey Koslowski
(State University of New York-Albany)
n/a
Discussants:
Lynne Chester
(University of Sydney)
Steven Pressman
(Monmouth University)
Jan 03, 2015 10:15 am, Westin Copley, Great Republic
Labor & Employment Relations Association
The Minimum Wage, Family Income and Poverty: New Research
(J3)
Presiding:
Patrick Belser
(International Labor Organization)
Minimum Wages and the Distribution of Family Incomes
Arindrajit Dube
(University of Massachusetts-Amherst)
[View Abstract]
I use data from the March Current Population Survey between 1990 and 2012 to evaluate the
effect of minimum wages on the distribution of family incomes for non-elderly individuals. I find robust evidence that higher minimum wages moderately reduce the share of individuals with
incomes below 50, 75 and 100 percent of the federal poverty line. The elasticity of the poverty
rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications
with alternative forms of time-varying controls and lagged effects; most of these estimates are
statistically significant at conventional levels. For my preferred (most saturated) specification,
the poverty rate elasticity is -0.24, and rises in magnitude to -0.36 when accounting for lags.
I also use recentered influence function regressions to estimate unconditional quantile partial
effects of minimum wages on family incomes. The estimated minimum wage elasticities are
sizable for the bottom quantiles of the equivalized family income distribution. The clearest
effects are found at the 10th and 15th quantiles, where estimates from most specifications are
statistically significant; minimum wage elasticities for these two family income quantiles range
between 0.10 and 0.43 depending on control sets and lags. I also show that the canonical two-way fixed effects model used most often in the literature insufficiently accounts for the spatial heterogeneity in minimum wage policies, and fails a number of key falsification tests. Accounting for time-varying regional effects, and state-specific recession effects both suggest a greater impact of the policy on family incomes and poverty, while the addition of state-specific trends does not appear to substantially alter the estimates. I also provide a quantitative summary of the literature, bringing together nearly all existing elasticities of the poverty rate with respect to minimum wages from 12 different papers. The range of the estimates in this paper is broadly
consistent with most existing evidence, including for some key subgroups, but previous
Minimum Wages and Poverty
Joseph J. Sabia
(San Diego State University)
Richard V. Burkhauser
(Cornell University)
Robert Nielsen
(University of Georgia)
[View Abstract]
Policymakers advocating increases in minimum wages often tout their ability to reduce poverty despite scant evidence of their poverty-alleviating effects. A wide body of scholarship has found that higher minimum wages have little effect on poverty rates because (i) many poor individuals do not work (Card and Krueger, 1995; Sabia and Nielsen 2014), (ii) minimum wages may cause adverse employment effects among low-skilled poor workers (Neumark and Wascher 2002; 2008), and (iii) poor target efficiency of minimum wages to the working poor (Burkhauser and Finegan 1996; Burkhauser and Sabia 2007; Sabia and Burkhauser 2010; Sabia and Nielsen 2014). Our new work draws data from the Current Population Survey and Survey of Income and Program Participation to explore the poverty effects of state minimum wages, with particular attention to poverty measurement and spatial heterogeneity. We will also explore the target efficiency of minimum wages over the business cycle.
The Effect of the Minimum Wage on Low Income Workers: What Do We Know?
Dale Belman
(Michigan State University)
Paul Wolfson
(Dartmouth College)
[View Abstract]
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 the more limited issue of 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 household structure and because it s longitudinal structure allows following households through increases in the minimum wage. We embed measures of minimum wage change at the federal and state level into conventional models of household income to estimate the impact of the minimum wage on household earned income as well as any indirect effects on the receipt of other forms of income.
The effect of the minimum wage on household income likely depends on the place of the household in the income distribution. While low income households income may be greatly affected by minimum wage increases, the minimum wage is likely to have little to no effect on the incomes of high income households. We allow for differences in effect by stratifying our sample into income quartiles and estimating our models with instrumental variable quartile regressions, selection corrected quartile regression, and recentered influence factor regression. Results from these estimates are contrasted with stratifications based on exogenous demographic characteristics such as education, age and gender. We also allow for the minimum wage to have lagged effects and for there to be scarring by state.
Wage Shocks and Technological Substitution
Brian Phelan
(DePaul University)
Daniel Aaronson
(Federal Reserve Bank of Chicago)
[View Abstract]
A common criticism of the minimum wage is that it expedites the technological substitution of labor due to changes in the relative prices of labor vis-a-vis capital. While there is anecdotal evidence that technology is replacing some low skill jobs (e.g. Bank Tellers and Cashiers), there has been no explicit attempt to understand the extent to which the minimum wage contributes to this process. In this paper, we use task data from the O*NET to proxy an occupation's substitutability by technology using the degree to which it includes routine tasks. We then examine the differential employment response (by the degree of routinization) to changes in the minimum wage using the Occupational Employment Statistics. To the extent that routinized occupations disappear when the minimum wage increases, we examine the individual employment response to this change using the Survey of Income and Program Participation. Principally, we are interested in the ability of these workers to find new jobs, what type of jobs they find, and the wage effects of this reorganization in the labor market.
Discussants:
Charles Brown
(University of Michigan)
Lawrence Kahn
(Cornell University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Tremont
Middle East Economic Association/American Economic Association
Coordination of Monetary and Fiscal Policies in MENA Transition Economies
(E6) (Panel Discussion)
Panel Moderator:
Stephen Cecchetti
(Brandeis University and former Chief Economist of BIS)
Ahmed Galal
(Economic Research Forum and former Finance Minister of Egypt)
The Experience of Egypt in Conducting Fiscal Policy during a Transitional Period and Populous Demand
Shantayanan Devarajan
(World Bank)
The Role of the World Bank in the MENA When Coordination is a Scarce Commodity
Bjoern Rother
(International Monetary Fund)
The IMF's Recent Experience in the Arab Countries in Transition and the Search for Coordination
Rania Al Mashat
(Egypt Central Bank)
The Central Banks Role in Coordinating Monetary and Fiscal Policy in Developing Economies
Jan 03, 2015 10:15 am, Boston Marriott Copley, Suffolk
National Association of Forensic Economics
Forensic Economics I
(K2, K2)
Presiding:
John Ward
(John Ward Economics)
Latent Earning Capacity: When Earning Capacity is Not Expected Earnings
Stephen Horner
(Economic Consulting)
Frank Slesnick
(Bellarmine University)
[View Abstract]
Latent Earning Capacity is the difference between earning capacity and expected earnings. This paper with both theoretical and practical applications defines latent earning capacity and explores the circumstances under which latent capacity will exist and the evidence for such existence.
Valuing Earning Capacity: Application of Methodology
Gary Skoog
(Legal Econometrics Inc.)
[Download Preview] tba
Valuing Earning Capacity: The Pennsylvania Case Law Perspective and with Consideration of Part-Time Work
James Rodgers
(Pennsylvania State University)
[View Abstract]
[Download Preview] This session is intended to further the discussion about earning capacity
growing out of having the first Ward/Piette Research Award given to the paper
by Stephen Horner and Frank Slesnick, "The Valuation of Earning Capacity:
Definition, Measurement and Evidence," Journal of Forensic Economics, Vol. 12,
No., 1, 1999. I will provide a treatment of how earning capacity seems to be
defined by some major Pennsylvania court decisions and also, examine the relationship between earning capacity and part-time employment.
Discussants:
Robert Thornton
(Lehigh University)
David Rosenbaum
(University of Nebraska-Lincoln)
Marc Weinstein
(Team Economics, LLC)
Jan 03, 2015 10:15 am, Boston Marriott Copley, New Hampshire
National Economic Association
Issues in African Development I
(O1)
Presiding:
Gregory Price
(Langston University)
Skills, Gender and Entrepreneurship in Africa
Mina Baliamoune-Lutz
(University of North Florida)
Zuzana Brixiova
(African Development Bank and IZA)
Mthuli Ncube
(African Development Bank and University of Witwatersrand)
[View Abstract]
Entrepreneurship as a component of economic growth is increasingly the subject of research by economists. This paper examines how the factors of skill and gender are related to entrepreneurial outcomes in Africa.
The Relationship of Financial Services Deepening and Risk and Remittances: A Panel Cointegration Analysis of African and Latin American Countries
Bichaka Fayissa
(Middle Tennessee State University)
Christian Nsiah
(Black Hills State University)
[View Abstract]
Applying panel fully modified OLS model to data for 87 countries from Africa and the Americas, this paper investigates the long-run relationship between remittances and financial services development. We find that the index of financial services deepening, index of risk improvement, exchange rate stability, and the host country GDP per capita have positive and significant impact on remittances. A policy implication of the study is that financial services deepening in terms of domestic credit expansion by the banking industry plays an important role for the continuation of a steady inflow of remittances to Africa and the Americas.
What Drives Foreign Direct Investments into West Africa?: An Empirical Investigation
John C. Anyanwu
(African Development Bank)
Nadege D. Yameogo
(African Development Bank)
[View Abstract]
[Download Preview] This paper analyzed drivers of foreign direct investments (FDI) to West Africa using a panel dataset from 1970 to 2010. OLS and GMM techniques are used for the estimations. The main results indicate that there is a U-shaped relationship between economic development and FDI inflows to West Africa. In summary, (i) The quadratic element of real per capita GDP, domestic investment, trade openness, first year lag of FDI, natural resources (oil and metals) endowment and exports, and monetary integration have positive and significant effect on FDI inflows to West Africa; and (ii) there is a negative relationship between FDI inflows to the sub-region and second-year lag of FDI, economic growth, level of economic development (real GDP per capita), and life expectancy.
Market Structure and Concentration of Sectoral Credit: Evidence from the Zambia Banking Industry
Anthony Simpasa
(African Development Bank)
Laureline Pla
(African Development Bank)
[View Abstract]
The financial crises of 2008-2009 resulted in changes in market structure and sectoral concentration of credit in many economies. This paper uses bank data from Zambia to explore the implications of recent changes in market structure and sectoral concentration.
Trade Finance in Africa: New Data on Usage, Trends and Constraints Faced by African Banks
Ousman Gajigo
(African Development Bank)
Thouraya Triki
(African Development Bank)
[View Abstract]
This paper presents new empirical evidence on recent changes in the use of trade finance in Africa. Of particular interest are analyses of new data and constraints faced by African banks.
Discussants:
Jane Karonga
(United Nations Economic Commission for Africa)
Kidaya Didier Ntoko
(Borough Manhattan Community College-City University of New York)
Adam B. Elhiraika
(United Nations Economic Commission for Africa)
Apkan Ekpo
(West African Institute for Financial and Economic Management)
Ruth Uwaifo Oyelere
(Emory University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon H
Peace Science Society International
Theories of Conflict
(F5, H8)
Presiding:
Solomon W. Polachek
(State University of New York-Binghamton)
Trading with the Enemy: Could the Classical Liberals Be Right?
Michelle Garfinkel
(University of California-Irvine)
Stergios Skaperdas
(University of California-Irvine)
Constantinos Syropolos
(Drexel University)
[View Abstract]
We embed resource insecurity into a Ricardian model in order to examine the consequences of trade openness for conflict. Our analysis features a terms-of-trade channel through which arming influences world prices and that feeds back into the countries' incentives to arm, thereby rendering security policies trade-regime dependent. Specifically, we demonstrate that trade between countries reduces their incentive to arm as compared with autarky. Thus, in the spirit of the classical liberal argument, we find that trade ameliorates conflict and promotes peace, bringing with it not only the familiar gains from trade but also a reduction in the amount of resources diverted to conflict. Our central findings are robust to the presence of trade costs. However, when the two adversarial countries do not trade with each other but instead with a third (friendly) country, a move from autarky to trade intensifies conflict between the two adversaries. If the added security costs are sufficiently large, then such a move can lower the countries' payoffs.
Evolution of Institutions Driven by Conflict
David K. Levine
(European University Institute-Villa San Paolo)
Salvatore Modica
(Università di Palermo)
[View Abstract]
[Download Preview] In a model of evolution driven by conflict between societies more powerful states have an advantage. When the influence of outsiders is small we show that this results in a tendency to hegemony. In a simple example in which institutions differ in their exclusiveness we find that these hegemonies will be inefficiently extractive in the sense of having inefficiently high taxes, high compensation for state officials, and low welfare. The theory also predicts that they are most likely overthrown by fanatic bands who maximize power ignoring incentive constraints.
Nation-Building Through War
Nicholas Sambanis
(Yale University)
Stergios Skaperdas
(University of California-Irvine)
William Wohlforth
(Dartmouth College)
[View Abstract]
[Download Preview] How do the outcomes of international wars affect domestic social change? In turn, how do changing patterns of social identification and domestic conflict affect a nation's military capability? We propose a "second image reversed" theory of war that links structural variables, power politics, and the individuals that constitute states. Drawing on experimental results in social psychology, we recapture a lost building block of the classical realist theory of statecraft: the connections between the outcomes of international wars, patterns of social identification and domestic conflict, and the nation's future war-fighting capability. When inter-state war can significantly increase a state's international status, peace is less likely to prevail in equilibrium because, by winning a war and raising the nation's status, leaders induce individuals to identify nationally, thereby reducing internal conflict by increasing investments in state capacity. In certain settings, it is only through the anticipated social change that victory can generate that leaders can unify their nation; and the higher anticipated payoffs to national unification makes leaders fight international wars that they would otherwise choose not to fight. We use the case of German unification after the Franco-Prussian war to demonstrate the model's value-added and illustrate the interaction between social identification, nationalism, state-building and the power-politics of interstate war.
A Theory of Power Wars
Massimo Morelli
(Columbia University)
Helios Herrera
(HEC Montreal)
Salvatore Nunnari
(Columbia University)
none
Discussants:
Jun Xiang
(Rutgers University)
Charles Anderton
(College of the Holy Cross)
Jan 03, 2015 10:15 am, Westin Copley, Staffordshire
Society for Policy Modeling/American Economic Association
When Will the Eurozone Crisis End?
(F3, F3)
Presiding:
Dominick Salvatore
(Fordham University)
Is the Euro Crisis Over?
Paul De Grauwe
(London School of Economics)
[View Abstract]
The paper analyzes three risks that cast doubts about the future of the Eurozone. The first risk arises from the legacy of the Euro crisis, i.e. unsustainably large government debt levels in a number of periphery countries. This calls for debt restructurings that will be difficult to organize as a result of strong political objections in the Northern Eurozone countries. The second risk follows from the recent ruling of the German constitutional court that may lead to an erosion of the ECB’s OMT-program. If the European court does not unambiguously support OMT, future sovereign debt crises are inevitable. The third risk arises from the fact that the monetary union is not embedded in a fiscal union. This will continue to make the Eurozone a fragile construction.
Ending the Euro Crisis
Martin Feldstein
(Harvard University)
[View Abstract]
Thee key ingredients are needed to reduce the risk of a renewed crisis of the euro. First, the countries with high ratios of debt to GDP are vulnerable to a rise in the interest rate that they must pay on their government debt. This source of a new euro crisis can be eliminated by reducing the primary deficits (or shifting to a primary surplus). Second, the risk of deflation can be reduced and the rate of GDP growth increased by devaluing the euro. This can be done by unsterilized intervention by the ECB. Third, the banking system needs to be strengthened. The stress tests being carried out now may be sufficient or more may be needed.
The Euro Crisis: Where to From Here?
Jeffrey Frankel
(Harvard University)
[View Abstract]
[Download Preview] Germans cannot agree to unlimited bailouts of profligate euro members. On the other hand, if they had insisted on the founding principles (fiscal constraints, “no bailout clause,” and low inflation as the sole goal of the ECB), the euro would not have survived the post-2009 crisis. It is especially important to recognize that the (predictable) impact of fiscal austerity has been to raise debt/GDP ratios among periphery countries, not lower them. The ECB began to take more effective actions in 2012. But neither the short-run problems nor the long-run problems have been adequately addressed. Fiscal policy has been pro-cyclical. The eurozone will endure, but through a lost decade of growth. It would help if the ECB further eased monetary policy, which it could do by buying US treasury bonds rather than eurozone bonds. Still missing is a long-run fiscal regime that addresses the now-exacerbated moral hazard problem. Two worthwhile ideas are the red-bonds/blue-bonds proposal and the delegation of forecasting to independent fiscal agencies.
When Will the Euro Crisis End?
Ronald McKinnon
(Stanford University)
[View Abstract]
In 1999, neither proponents or opponents of the new euro system recognized the potential serious interaction between sovereign risk and banking risk. True, sovereign risk was recognized as a serious problem, and the Maastricht Accord and follow-up Growth and Stability Pact both placed limits on government debt and deficits. (But Greece violated these accords by massive fudging of its national income accounts.) However, unlike American financial markets where government bond holding is disbursed among insurance companies, pension funds, bond funds, and so on, European countries’ national debts are heavily concentrated in that country’s commercial banks. With the loss of monetary power to the ECB, individual European central banks can no longer support their commercial banks facing either sovereign risk from fiscal deficits or banking risk from unwise lending. Thus, no clear end is in sight for the euro crisis.
The Euro Crisis Will End When Its Two Defects Are Corrected
Robert Mundell
(Columbia University)
[View Abstract]
The euro area suffers from two great defects. One is that there are 17 banking systems in the euro area, and the other is that there are 17 nations with treasury bills and bonds. The Eurozone crisis will end when its two defects are corrected. Correction of both defects requires a shift of sovereignty from the nation-states toward the centre. The creation of a unified banking system toward Europe is moving would result in substantial increases in efficiency and productivity. The other reform needed is the creation of eurobonds and eurobills. Euro area bills and bonds would give Europe a potential supply of international capital from central banks that are or will soon be overweight in dollars. The rest of the world would be a willing lender and happy to shift from other assets to those denominated in euros.
Discussants:
Dominick Salvatore
(Fordham University)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom--Salons J & K
Society for the Advancement of Behavioral Economics/American Economic Association
Behavioral Finance after 30 Years
(G1, G3) (Panel Discussion)
Panel Moderator:
Shabnam Mousavi
(Johns Hopkins University)
Hersh Shefrin
(Santa Clara University)
Behavioralizing Finance
Meir Statman
(Santa Clara University)
Foundation Blocks of Behavioral Finance
Malcolm Baker
(Harvard Business School)
Corporate Applications of Behavioral Finance
Terrence Odean
(University of California-Berkeley)
Individual Investors and Disposition Effect
William Goetzmann
(Yale University)
Behavioral Portfolio Theory
Jan 03, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon I
Society for the Study of Emerging Markets
Emerging Market Economies in the Global Economy: Financial Stability and Competiveness
(F6, O1) (Panel Discussion)
Panel Moderator:
Ali Kutan
(Southern Illinois University-Edwardsville)
Joshua Aizenman
(University of Southern California and NBER)
Campbell R. Harvey
(Duke University)
Kristin Forbes
(Massachusetts Institute of Technology)
Edward Kane
(Boston College)
Donald Lessard
(Massachusetts Institute of Technology)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Tufts
Society of Government Economists
Intangibles and Growth
(E2, O4)
Presiding:
Daniel Sichel
(Wellesley College)
Organizational Capital, R&D Assets, and Offshore Outsourcing
Wendy Li
(U.S. Bureau of Economic Analysis)
[View Abstract]
[Download Preview] The degree of offshore outsourcing in the high-tech industries has increased rapidly in past decades. Because of this trend, economists have been debating whether offshore outsourcing is hollowing out U.S. high-tech firms’ core competencies in intangibles. To contribute to the debate, I first develop a forward-looking profit model and use Compustat dataset to measure the capital stock and depreciation rate of R&D and organizational capital for major U.S. R&D-intensive industries. Then, I use the estimates to analyze whether industries with a higher degree of offshore outsourcing exhibit a different investment pattern in intangibles. In general, I find that industries with more intangibles are more competitive in the global market. Even in R&D intensive industries, the estimated size of organizational capital is larger than that of R&D assets. Moreover, in industries with a lower degree of offshore outsourcing, R&D assets and organizational capital are complementary. Lastly, industries with a higher degree of offshore outsourcing invest less in both R&D and organizational capital but have higher productivity growth.
Intangibles and Real Business Cycle
Guohua Feng
(University of North Texas)
Wendy Li
(U.S. Bureau of Economic Analysis)
Xueli Tang
(Deakin University)
[View Abstract]
[Download Preview] The recent financial crisis has created a significant deviation between real world and existing business cycle theories. Some economists have argued that the deviation is smaller when intangibles are incorporated into the business cycle analysis. In the U.S., the rate of business investments in intangibles has increased significantly and the estimated spending scale by Corrado et al. (2005) has reached to 13.1% of GDP by 2000. However, because of measurement difficulties, current business cycle models have not incorporated R&D assets and organizational capital jointly yet. To fill in the gap, we develop a modified neoclassical business cycle model and use a newly constructed time series on R&D assets and organizational capital to conduct our analysis. Our empirical analysis supports the argument by McGrattan and Prescott (2014) that intangibles are large and cyclically important. Moreover, both intangibles are not only complementary to production capacity but also complementary to each other.
Private and Public Intangible Capital: Productivity Growth and New Policy Challenges
Cecilia Jona-Lasinio
(ISTAT and LUISS Lab of European Economics)
Carol Corrado
(Conference Board)
Jonathan Haskel
(Imperial College, CEPR and IZA)
Mary O’Mahony
(King’s College)
[View Abstract]
[Download Preview] The measurement of intangible investment is a fundamental challenge in both sources-of-growth analysis and national accounting practice. Following the seminal work of Corrado, Hulten and Sichel (2005), major research efforts were undertaken to measure aggregate business sector intangible investment (CoInvest; INNODRIVE), and to develop an harmonized measurement framework (INTAN-Invest). At the same time, country specific estimates of intangibles have emerged.
As overall business intangible investment is large and growing in advanced countries (Corrado et al 2013) the development of harmonized methods and measures of intangible capital for the Public as well as the Business sector at an higher level of industry detail is essential for a deeper understanding of economic growth and for the design of macroeconomic policies aimed at stimulating sustained growth, competitiveness and sustainable development.
In this paper we present a theoretical framework for the capitalization of intangibles in the Public and non-profit sectors as developed under the SPINTAN project. We combine the project’s newly developed measures of “public” intangibles with INTAN-Invest’s new industry-level estimates and review their implications for the rate and trajectory of total, tangible, and intangible investment in the EU and US in recent years. We also evaluate econometrically the joint/disjoint role of public and business sector intangibles as sources of growth in a sample of EU15 member countries plus the US over the period 1995-2012. Finally, we evaluate how economic policy settings can be readjusted to favor intangible investment (where appropriate) and to stimulate efficient reallocation of resources to new sources of growth.
Are Intangibles More Productive in ICT Intensive Industries? Evidence from EU Countries
Wen Chen
(University of Groningen)
Thomas Niebel
(Center for European Economic Research)
Marianne Saam
(Center for European Economic Research)
[View Abstract]
[Download Preview] Using sectoral intangible investment data we confirm that intangible capital is a significant determinant of labour productivity growth. The sectoral setting further allows us to identify the differential impacts of intangible capital across industries with varying degrees of ICT intensity. Intangible capital appears to be significantly more productive in ICT-intensive sectors than in those that use little ICT. This finding remains robust across various alternative industry ICT intensity measures and aligns with the prior firm-level studies that place emphasis on the complementary role of intangible assets in ICT investment.
Discussants:
Lorin Hitt
(University of Pennsylvania)
Ellen McGrattan
(University of Minnesota)
Daniel Sichel
(Wellesley College)
Leonard Nakamura
(Federal Reserve Bank of Philadelphia)
Jan 03, 2015 10:15 am, Sheraton Boston, Exeter Room
Transportation & Public Utilities Group/American Economic Association
International Trade and Transportation
(L9, F6)
Presiding:
Wayne Kenneth Talley
(Old Dominion University)
Market Potential and Global Growth over the Long Twentieth Century
David S. Jacks
(Simon Fraser University and NBER)
Dennis Novy
(University of Warwick and CEPR)
[View Abstract]
The aim of this paper is to examine the evolution of market potential over the long run. On the theoretical side, we exploit the structural gravity model to derive closed-form expressions for existing measures of market potential. We are therefore able to express market potential as a function of observable variables. This allows us to compare countries' market potentials not only in the cross-section but also over time. On the empirical side, we collect a large data set of bilateral trade flows for 614 country pairs covering 53 countries over the period from 1910 to 2010 including new observations for World War I and World War II. We find that countries such as France and Japan experienced drastic declines in market potential in wartime but quickly reverted back to trend.
Transit Trade
Christian Volpe Martincus
(Inter-American Development Bank)
Jeronimo Carballo
(University of Maryland)
Alejandro Graziano
(Inter-American Development Bank)
Georg Schaur
(University of Tennessee)
[View Abstract]
[Download Preview] In this paper, we estimate the effects of the implementation of a regional transit system that substantially streamlined administrative processing of trade flows. In so doing, we use a unique dataset that consists of the entire universe of El Salvador’s export transactions over the period 2007-2013 and includes information on the transactions channeled under the new transit regime established with neighboring countries over the same period. Results suggest that this new transit system has been associated with decreased order servicing costs and variable trade costs in general and accordingly with increased firms’ exports, particularly of time-sensitive goods.
Why Containerization Did Not Reduce Ocean Trade Shipping Costs
Benjamin Bridgman
(U.S. Bureau of Economic Analysis)
[View Abstract]
[Download Preview] Ocean transportation costs did not decrease much despite containerization. Using a previously unused dataset of U.S. import freight costs, I show that flat freight rates are not an artifact of the poor data available. Data from major U.S. ports show that labor costs did not fall much despite enormous labor productivity gains. Market power in ports meant that dramatic productivity gains did not translate into dramatically lower freight rates.
Trade and Transportation Prices: Fronthaul and Backhaul Price Comparisons
Felix Friedt
(University of Oregon)
Wesley Wilson
(University of Oregon)
[View Abstract]
Seaborne transportation handles 90% of the volume of international trade and accounts for about 73% of the value of goods and services traded internationally. This study looks at the effect of varying front-haul and back-haul rates on the demand for containerized cargo transportation between major trading regions while accounting for the endogeneity of freight rates. It finds that front- and back-haul rates depend negatively on one another, while the trade imbalance has varying effects on freight rates across the defined markets. Further, the fairly robust estimates show negative price elasticities of demand for determining the impact of freight rates on the demand for containerized shipments.
Discussants:
Benjamin Bridgman
(U.S. Bureau of Economic Analysis)
Wesley Wilson
(University of Oregon)
Wayne Kenneth Talley
(Old Dominion University)
Georg Schaur
(University of Tennessee)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Orleans
Union for Radical Political Economics
Current Research on Marxian Value Theory
(B5)
Presiding:
Fred Moseley
(Mount Holyoke College)
Productive and Unproductive Labor in Marxian Theory. Rethinking the Distinction through the Value Theory of Labor
Antonino G. 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.
Money, Demand and Value: How Changes in Demand Affect the Monetary Expression of Value in Marx
David Kristjanson-Gural
(Bucknell University)
[View Abstract]
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.
Labor Time, Commodity, and State Money: Complimentary Approaches to Marxian Value Theory
Erik K. Olsen
(University of Missouri-Kansas City)
[View Abstract]
[Download Preview] The New Interpretation of Marxian value theory has a well-developed theory of money and price but is not a response to important critiques of Marxian value theory. Conversely the approach developed by Roberts and others, sometimes referred to as a ‘single system’ interpretation, is a comprehensive theory of value and price of production on a labor time standard, but is underdeveloped with regards to monetary phenomena. Both approaches use the principle of the conservation of value and the corollary that the price system distributes labor time. These are complimentary approaches and integrating them provides a labor theory that rigorously addresses value and price in an economy using commodity or state money. Roberts’s contribution is not well understood, and this paper clarifies aspects of the theory that are consistently misinterpreted. It concludes that modern approaches to Marxian value theory are characterized by large areas of agreement and convergence rather than rivalry.
The Transformation Problem: A Critical Review of Chinese Literature
Kuochih Huang
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] Since the 1980s, Chinese Marxian scholars present several new interpretations and solutions of the transformation problem, which are still unfamiliar to the Western literature. This paper provides an in-depth summary of four major Chinese transformation studies, followed by critical comments focusing on problems regarding methodology, implication and self-consistency. These studies are also compared with the Western literature in order to better understand their significance and limitations.
Discussants:
Fred Moseley
(Mount Holyoke College)
Bruce Roberts
(University of Southern Maine)
Jan 03, 2015 10:15 am, Boston Marriott Copley, Hyannis
Union for Radical Political Economics
Issues in Trade and Development Economics
(F4)
Presiding:
Firat Demir
(University of Oklahoma)
Effects of Bilateral FDI Flows on Growth: A Horse Race between Developed vs. Developing Country Investors
Firat Demir
(University of Oklahoma)
[View Abstract]
Foreign Direct Investment (FDI) flows to and from developing countries (i.e. the South) have reached $790 and $482 billion in 2012, accounting for 58% and 35% of global flows, respectively. Equally impressive has been the fact that for the first time in 2010 Chinese outward FDI flows exceeded those of Japan. Furthermore, within aggregate flows to and from the South, South – South FDI flows reached 63% of all outflows from developing countries by 2010. The increasing importance of South – South FDI flows and rising assertiveness of developing country multinationals in cross-border investments have also created a controversy regarding their comparative effects on economic growth in the South. In this paper, using a hand-gathered bilateral FDI flows database for the period of 1990 – 2009, we address this issue by exploring empirically the growth effects of South – South FDI flows compared to those of North – South flows. Given their higher manufactures orientation and closer similarity in skill and capital intensity to host country production structures we expect South – South flows to have larger growth effects than those of North – South flows.
The Effect of Inequality on Aggregate Demand and Economic Growth in Open Less-Developed Economies
Amitava Dutt
(University of Notre Dame)
[View Abstract]
This paper examines the effect of a change in inequality on aggregate demand and growth in open less-developed economies by revisiting the debate on wage-led and profit-led growth. It examines how characteristics of less-developed countries – including the importance of non-traded goods sectors, informal sectors, and the nature of trade linkages – is likely to affect the likelihood of equality-led growth in open economies.
Latin America After the Global Crisis: The Role of Export-led and Tradable-led Growth Regimes
Gonzalo Hernandez
(Pontificia Universidad)
[View Abstract]
[Download Preview] Is the ongoing economic slowdown in industrialized countries likely to impact
Latin American growth negatively in the medium- to long-run? This paper considers
various transmission channels that work through trade in goods and services,
and finds econometric evidence suggesting that shrinking global
imbalances may create problems for Latin America. Specifically, using panel
data analysis, we find that the trade balance as a proportion of GDP is positively
associated with Latin American economic growth over the period 1953–2009.
We then develop a simple dynamic model to help explain our main finding
through investment and saving behaviour.
The Balance of Payments Constraint in a Small Open Developing Economy
Arslan Razmi
(University of Massachusetts-Amherst)
[View Abstract]
Most developing countries suffer from some form of “original sin.” It is quite plausible, therefore, to assume that the typical low-income economy faces an external constraint in the sense that it cannot continuously borrow in foreign currency. The question, however, is: what factors loosen or relax this constraint? The Balance-of-Payments-Constrained Growth model (BPCG) assumes that the constraint originates from world demand for a country’s products. We identify potential problems with this approach, explore theoretical alternatives, and carry out a comprehensive econometric analysis in an attempt to identify the variables that tend to constrain developing country growth via the external accounts.
Discussants:
Arslan Razmi
(University of Massachusetts-Amherst)
Firat Demir
(University of Oklahoma)
Kevin Gallagher
(Boston University)
Amitava Dutt
(University of Notre Dame)
Jan 03, 2015 12:30 pm, Westin Copley, St. George D
Agricultural & Applied Economics Association
Immigration, Agricultural Employment, and Trade: International Perspectives
(F1)
Presiding:
Mary Ahearn
(USDA Economic Research Service (retired))
Changes in Migration Patterns of Agricultural Workers in the United States: Implications for Production and Trade
Ivan Kandilov
(North Carolina State University)
[View Abstract]
[Download Preview] Migration patterns of agricultural workers in the U.S., large share of whom are undocumented, have changed in the last two decades. We document these changes across the six agricultural regions in the U.S. (California, Southwest, Midwest, East, Northwest, and the Southeast) using data from the confidential version of the National Agricultural Worker Survey work history files. Analyzing data from more than 55,000 agricultural workers and more than 250,000 job transitions (within a year) from 1989 to 2012, we show that agricultural workers have become increasingly more stationary across all six regions in the U.S. Worker migration probabilities have declined significantly – on average, the likelihood that a worker remains in the same region without migrating to other regions over the period of a year has increased over 10 percentage points over the sample period. Also, the likelihood of migrating to any other regions (during the year before the survey interview) has declined over the sample period. We investigate a number of potential reasons behind this phenomenon – for example, the changing demographic composition of the farm labor force and the more restrictive labor and immigration policies adopted across some states. The change in migration patterns may have led to a shortage of farm labor in some geographic areas, especially in high-value crops (fruits and vegetables). This may have led to a production shift towards field crops, which may alter existing U.S. agricultural trade patterns.
Are Migrant Agricultural Workers Replacing the Local Workforce?
Ayal Kimhi
(Hebrew University of Jerusalem)
[View Abstract]
[Download Preview] Migration patterns in Israeli agriculture have gone through different phases. Labor flowed into farming until the country became self-sufficient in terms of food supply. Then, self-employed farmers exited gradually while production continued to increase, destined for export markets. This process intensified considerably when foreign labor was allowed to enter the country. Traditional production theory predicts that migrant workers will drive local workers to lose their jobs, but the Israeli data show that the number of Israeli hired farm workers has actually increased since the arrival of foreign labor. This paper develops a modified theoretical model in which farm labor is heterogeneous, so that changes in the number of foreign and local hired workers are not necessarily opposite in sign. The results of the model are consistent with the observation that the availability of foreign labor has led to an increase in the production and export of labor-intensive horticultural products. Farms have become larger and more specialized, and this has led to labor specialization, with foreign workers performing the manual tasks and Israeli hired employees performing the managerial and professional ones. We conclude that the inflow of foreign workers has led to an irreversible structural change in Israeli agriculture. Surrendering to the popular demand to reduce the number of foreign workers for the benefit of local workers will actually lessen the demand for local farm workers.
Urbanization’s Effect on Water, Land and Labor and China’s Agricultural Trade
Jikun Huang
(Chinese Academy of Sciences)
Scott Rozelle
(Stanford University)
[View Abstract]
As China’s economy begins the shift from middle to high income, the leadership is pushing pro-urbanization policies as a way to support the rapid development of the previous three decades. Policies are targeted at facilitating the transfer of land, water and labor from rural/agriculture to the city. At the same time as these resource transfers are expected to occur, food security concerns are rising. Since 2008, agricultural imports have exceeded exports. These two often in-conflict policy directions—urbanization and food security—are becoming the focus of concern to top policymakers. The overall goal of this study is to systematically evaluate the impact of urbanization in China on national food security. To meet this goal, we will have three specific objectives. First, we will assess the supply-side factors associated with urbanization that will affect China’s future production by examining the effect of urbanization (through water, land and labor) on the supply of agricultural production and trade. Second, we will examine the demand-side factors. Finally, we put it all together and assess the effect of urbanization on trade and food security. In this particular presentation, we will focus on the labor aspects of this issue.
Migration, Youth, and Agricultural Productivity in Ethiopia
Alan de Brauw
(International Food Policy Research Institute)
[View Abstract]
[Download Preview] This paper explores the relationship between migration and agricultural productivity in Ethiopia. Given that there are fairly significant returns to either rural-urban or international migration for labor in Ethiopia, it could be that credit constraints hindering migration start up are an unexplored constraint against migration. The paper primarily uses the Ethiopia Rural Household Survey panel and a migrant listing exercise completed after the 2009 survey round to explore whether past agricultural productivity (e.g. in 2004) explains later migration. It finds that among young migrants, there appears to be a positive, significant relationship between productivity and households sending out a migrant. This relationship holds even when proxies for credit are included in the model. However, the magnitude of this effect is small. The paper also considers feedback effects from migration to later agricultural productivity; this correlation is weaker suggesting that migration does not have negative productivity impacts.
Jan 03, 2015 12:30 pm, Sheraton Boston, Grand Ballroom
American Economic Association/American Finance Association
AEA/AFA Joint Luncheon -- Fee Event
Presiding:
Richard Thaler
(University of Chicago)
Olivier Blanchard
(International Monetary Fund)
Dark Corners: Reassessing Macroeconomics after the Crisis
Jan 03, 2015 12:30 pm, Sheraton Boston, Gardner Room
American Economic Association
European Economic Association Lecture
Presiding:
Daniele Paserman
(Boston University)
Eliana La Ferrara
(Fondazione Romeo ed Enrica Invernizzi Chair in Development Economics, Bocconi University, Milan)
Mass Media and Social Change: Can We Use Television To Fight Poverty?
Jan 03, 2015 12:30 pm, Westin Copley, Empire
American Real Estate & Urban Economic Association
Schools and the Housing Market
(R2, H2)
Presiding:
Daniel McMillen
(University of Illinois)
Do Housing Choice Voucher Holders Move Towards Better Schools?
Keren Horn
(University of Massachusetts-Boston)
Ingrid Ellen
(New York University)
Amy Schwartz
(New York University)
[View Abstract]
Housing Choice Vouchers provide low-income households with additional income to spend on housing. The assistance provided by vouchers is substantial. As an example, the median voucher household with children has a family size of four, earns approximately $13,000 annually and lives in a unit that rents at $1,000 per month. For this family the voucher is equivalent to an increase in post-tax income of approximately $8,000 annually, increasing their income by 60 percent. Thus, vouchers have the potential to dramatically widen the neighborhoods -- and associated schools -- that low-income households can reach. However, existing research on this program finds that housing voucher holders do not live near to better schools than other households with similar incomes (Horn, Ellen and Schwartz, 2014). This project takes a closer look at these findings, and examines whether households with children use vouchers to move towards better schools. We observe the quality of the school in the neighborhoods where voucher holders live when they first enter the program and then as they spend more years in the program. We then follow households as their children age. In particular, we focus on the age of a household’s oldest child as a key factor influencing the salience of school quality in a household’s residential decision. We then examine whether households that change residence within the voucher program are more likely to move towards higher performing schools. We find evidence that voucher households do move towards better schools when they have school aged children.
Values of Proximity to Schools: An Experiment with School Relocation Events in Singapore
Tien Sing
(National University of Singapore)
Sumit Agarwal
(National University of Singapore)
Satyanarain Rengarajan
(National University of Singapore)
[View Abstract]
Families’ Tiebout sorting into neighborhoods with better schools has been hypothesized as one factor that drives up housing prices in a school zone neighborhood. This study uses school relocation events and the unique 2 km home-school distance-based priority allocation rule to test the school zone capitalization effects in Singapore for the period from 1999 to 2009. We found significant school capitalization effects of 0.8% and - 0.6% for houses located in the new and the old school locations, after schools are relocated. We also find differential school capitalization effects between the private and public housing markets. The school relocation effects are reflected in housing price changes two quarters before schools are relocated. We also found significantly stronger price premiums of 1.1% and 0.9% in the private and the public housing units, if relocated schools are in the top 50 popularity ranking list. We also attempt to test for potential endogeneity of school proximity and home improvements effects using sample houses that are located in an overlapping zone where the priority allocation in this zone is not affected by the school relocation. We found positive price premiums in private houses located in the overlapping school zone. When the private housing samples in the overlapping zone are divided into different age groups, we found that houses of less than 15 years and houses above 20 years show positive school relocation effects in the post relocation periods. Our results could not rule out possible house-level changes, such as new furniture or replacing tiles during the school relocation periods.
Are Rising College Premiums Capitalized into House Prices? Evidence from China
Tracy Turner
(Kansas State University)
Leilei Shen
(Kansas State University)
[View Abstract]
[Download Preview] Many areas in China experienced steeply rising house prices beginning in 2003. We test whether a nationally mandated change in local residency requirements that took effect in that year may have played a role in driving up house prices by tying access to Chinese universities to local homeownership status in the presence of a rising college premium. We generate a novel dataset that combines China university admission data with household and housing market data. We find evidence of capitalization effects and a sizable increase in the likelihood of homeownership in places with preferential access to China’s elite universities.
Effect of Constraints on Tiebout Competition: Evidence from the Michigan School Finance Reform
Rajashri Chakrabarti
(Federal Reserve Bank of New York)
Joydeep Roy
(Columbia University)
[View Abstract]
[Download Preview] In 1994, Michigan enacted a comprehensive school finance reform that not only significantly increased state aid to low-spending districts, but also placed restraints on the growth of spending in high-spending districts. While a rich literature studies the impact of school finance reforms on resource equalization, test scores, and residential sorting, there is no literature yet on the impact of such reforms on resource allocation by school districts. This study begins to fill this gap. The Michigan reform affords us a unique opportunity to study the impacts of such reforms on resource allocation in districts located at different points of the pre-reform spending distribution, and we study this both theoretically and empirically. We find that the reform led the high spending districts to allocate a lower share of their total expenditure to support services and a higher share to instruction (relative to the low spending districts). To the extent that instructional expenditures are more productive and contribute to student achievement more than support services expenditures, these results suggest that the reform led to a relative increase in productivity in the high spending districts. This finding is robust in that it continues to hold in each of the seven years after the reform we analyze, is not sensitive to alternative specifications and controls, and survives a series of sensitivity tests. This finding has important policy implications, and this evidence of resource re-allocation by districts facing school finance reforms should be taken into account in the design of any school finance policy.
Discussants:
Michael Eriksen
(Texas Tech University)
Jaren Pope
(Brigham Young University)
Andrew Hanson
(Marquette University)
Eric Brunner
(University of Connecticut)
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Tufts
Association of Indian Economics & Financial Studies
Trade, Finance and Economic Growth
(F4, F1)
Presiding:
Chandana Chakraborty
(Montclair State University)
Technology, Learning, and Long Run Economic Growth in Leading and Lagging Regions
Amitrajeet A. Batabyal
(Rochester Institute of Technology)
Peter Nijkamp
(VU University Amsterdam)
[View Abstract]
[Download Preview] We use a dynamic model to study the effects of technology and learning on the long run
economic growth rates of a leading and a lagging region. New technologies are developed in the
leading region but technological improvements in the lagging region are the result of learning from
the leading region’s technologies. Our analysis sheds light on four salient questions. First, we
determine the long run growth rate of output per human capital unit in the leading region. Second,
we define a lagging to leading region technology ratio, study its stability properties, and then use
this ratio to ascertain the long run growth rate of output per human capital unit in the lagging region.
Third, for specific parameter values, we analyze the ratio of output per human capital unit in the
lagging region to output per human capital unit in the leading region when both regions have
converged to their balanced growth paths. Finally, we discuss the policy implications of our analysis
and then offer suggestions for extending the research described here.
Home Country Effect of FDI Outflows from the BRIC Countries: Study of Domestic Investment
Nandita Dasgupta
(University of Maryland Baltimore County)
[View Abstract]
The recent phenomenon of rising outward foreign direct investment (OFDI) flows has raised serious policy concerns about its effects on the domestic investment and capital formation in the source countries. Does OFDI stimulate domestic investment or does it crowd it out? The concern arises because OFDI activities could shift not only some of the production activities from home to foreign destinations but also could possibly threaten the availability of scarce financial resources at home by allocating resources abroad. All this have the potential to reduce domestic investment, thus lowering the long run economic growth and employment of the home economies. The central goal of this paper is to empirically explore the evidence of the macroeconomic relationship between OFDI and levels of domestic capital formation in the BRIC economies. Our study reveals that OFDI has both short run and long run positive causality with domestic investment and thus figures out to be a significant factor affecting domestic investment in the BRIC nations. It becomes imperative, therefore, that the BRIC countries make special effort to promote their OFDI through the designing of appropriate OFDI policies that would help stimulate their domestic investment and economic growth now and in the future.
Global Food Prices and Business Cycle Dynamics in an Open-Economy Macroeconomic Model for India
Oliver Holtemoeller
(Martin Luther University Halle-Wittenberg and Halle Institute for Economic Research (IWH))
Sushanta Mallick
(Queen Mary University of London)
[View Abstract]
This paper investigates a perception in the political debates as to what extent poor
countries get affected by price movements in the global commodity markets. To
test this perception, we establish in a standard SVAR model that global food prices
influence Indian aggregate prices and Indian food prices. To further analyze these
empirical results, we specify a small open economy model including oil and food
prices and estimate it using observed data over the period 1996Q2 to 2013Q2 by
applying Bayesian estimation techniques. The results suggest that big part of the
variation in inflation in India is due to cost-push shocks and, mainly during the years
2008 and 2010, also to global food price shocks. We conclude that the inflationary
supply shocks (cost-push, oil price, domestic food price and global food price
shocks) are important contributors of the inflationary pressure in India. Since the
monetary authority responds to these supply shocks with a higher interest rate which
tends to slow growth, this raises concerns about how such output losses can be prevented
by reducing exposure to commodity price shocks and thereby achieve higher
growth.
New Trade versus Trade Recovery in Indian Exports
Usha Nair-Reichert
(Georgia Institute of Technology)
[View Abstract]
Trade data reveals that firms often exit existing export and import relationships and then
reestablish or recover the same relationships after a period of time. Nair-Reichert (2014) has
documented the dynamics of trade gaps and the heterogeneity in recovery of dormant trading
relationships or the recovery margin of trade in US imports. This paper focuses on the dynamics
of Indian exports, and compares the features of new trade relationships with trade relationships
that have recovered after an export gap. This analysis is important because both firms and the
Indian government make large investments in promoting exports. A key to maximizing the
value of such investments lies in understanding whether to spend the marginal dollar on new
exports or in recovering a dormant export relationship.
The preliminary results indicate that a viable strategy in the case of India is to help firms recover
relationships that are in comparative advantage products, with markets where the country has a
large export presence, and where exit from the export relationship is relatively recent (less than 2
years). Export relationships that have been dormant for more than 4 years appear to face no
particular disadvantage or advantage as compared to similar new export relationships.
A Separate Debt Management Office
Charan Singh
(Indian Institute of Management Bangalore-India)
[View Abstract]
In the aftermath of recent global crisis, the issue of separation of monetary policy, fiscal policy and debt management has re-emerged. In many countries, during the period of crisis, scope of fiscal policy was expanded and debt to GDP ratios increased significantly. Consequently, debt management, in general, became difficult and coordination between monetary and debt management assumed significance.
Historically, a number of countries with liberalized financial markets and high levels of government debt sought to adopt professional debt management techniques to save cost and to provide policy signals to the market.
In India, traditionally, management of debt is diffused in different layers of different governments. The setting up of separate debt management office (DMO) will help to establish transparency, and assign specific responsibility and accountability on the debt manager. This could lead to an integrated and more professional management of all government liabilities, with a focused mandate to operate on sound economic and commercial principles. The strategy could ensure that resources are available to the government at competitive market rates of interest prompting expenditure prioritization and fiscal discipline in budget making.
What Determines the Share of Labor in National Income? A Cross-Country Analysis
Marta Guerriero
(University of Manchester)
Kunal Sen
(University of Manchester and IZA)
[View Abstract]
Recent evidence on functional income distribution suggests that the shares of capital and labour in national income vary considerably both over time and across countries. Specifically, there seems to be a general reduction in the labor share around the world, in particular from the mid-1980s onwards. Using fixed effects regression methods on a panel data set covering 89 countries – both developing and developed – over the period 1970-2009, this study examines the mechanisms underlying the variability in the labor share. In particular, it focuses on the relationships between the labor share and measures of international trade and technological change. The results are robust across different specifications, for yearly data as well as 3- and 5-year averages, and after performing instrumental variable estimation. They suggest that trade openness and technological innovation have a positive and significant effect on the labor share. However, Foreign Direct Investments inflows and mechanization seem to be negative drivers. Moreover, other factors, such as the level of economic development, education, and the strength of the regulations in the labor market, seem to also significantly influence functional distribution of income.
Discussants:
Banani Nandi
(AT&T Laboratories)
Sweta Saxena
(International Monetary Fund)
Aniruddha Mitra
(Bard College)
Valerie Cerra
(International Monetary Fund)
Raja Kali
(University of Arkansas)
Keshab Bhattarai
(University of Hull)
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Wellesley
Chinese Economists Society
Research on Urbanization in China
(R1)
Presiding:
Junfu Zhang
(Clark University)
Subnational Leaders and Economic Growth: Evidence from Chinese Cities
Yang Yaho
(Peking University)
Myuang Zhang
(Shanghai University of Finance and Economics)
[View Abstract]
This paper studies the role of subnational leaders in economic growth using a unique city-leader matched dataset of Chinese cities for the period 1994-2010. A unique feature of
China’s institutional setups is that local leaders are often moved from one city to another.
This allows us to compare leaders across cities. Adopting the decomposition method applied to employer-employee matched data we find that leaders matter for local economic growth.
We also study how leaders’ contributions to local economic growth impact on their chances of promotion in the Chinese hierarchy. We find that personal abilities become more important as a leader gets older and this effect is the most pronounced around the median age in the sample. Those results remain robust when we conduct full-information ML estimation of a system of equations consisting of both the growth and promotion equations.
Fiscal Reform, Land Expansion, and Urban Growth in China
Yongzheng Liu
(Renmin University of China)
James Alm
(Tulane University)
[View Abstract]
[Download Preview] The central government of the People’s Republic of China enacted a fiscal reform known as the “Province-Managing-County” (PMC) reform in the early 2000s. This reform eliminated the prefecture city government as the intermediate layer between the province and the county. We apply a difference-in-difference method using a panel data set of 263 cities nationwide over the period of 1999-2011 to examine how the introduction of the PMC reform affects the economic growth of the cities. Our results show that on average implementing the PMC reform moderately increases city growth by 0.8 percent. We argue that this unexpected positive growth effect of the reform is induced by the expansion of land supply of the reformed cities, which in the post-reform period have faced the need to look for revenues outside the budget system, mainly extra-budgetary funds in the form of leasing land. Our analysis provides evidence on this argument, and reveals that the reformed cities tend to expand land leasing at a speed that is 15 percent higher than the non-reformed cities. Furthermore, we show that the impacts of the reform tend to be strengthened over time following the introduction of the reform. Our results are quite robust across several robustness checks.
Land Supply and Money Growth in China
Taoxiong Liu
(Tsinghua University)
[View Abstract]
[Download Preview] China has experienced several episodes of inflation in the recent years. The popular arguments attribute them into the relative high growth rates of money, which were then mainly explained by the accumulation of Chinese international reserve and the undervaluation of RMB. We try to explain Chinese high money growth with the land supply. Under Chinese particular land system, land supply is controlled by the government and could be viewed as exogenous to the money system. The increase of money supply stimulates bank loans and then money growth. Both the error correction model and a simultaneous equations model is setup to explore the effect of land supply on money growth. The empirical results show that the effect of land supply on money supply is significantly positive and even excels that of the foreign exchange reserve. The essential meaning for money policy is that, under existing Chinese political economy system, not only the central bank but also the local governments should be responsible for money policy and the price level.
Understanding Floor-Area-Ratio Restrictions on Urban Land Development in China
Junfu Zhang
(Clark University)
Shihe Fu
(Southwestern University of Finance and Economics)
Yizhen Gu
(University of California-Berkeley)
[View Abstract]
During the rapid urbanization in recent years, local governments in China constantly sell land use rights to independent developers. The long-term land leaseholds always contain some floor-area-ratio restrictions, which specify the maximum allowed ratio of a building's total floor area to the size of the land upon which it is to be built. In this study, we seek to understand what factors determine the maximum allowed floor area ratios and how floor-area-ratio restrictions vary across locations and over time. Our model postulates that housing developments impose external costs on local communities and local governments use floor-area-ratio restrictions as a policy lever to correct the negative externalities. The model generates several testable hypotheses that relate floor-area-ratio restrictions to a set of economic variables. Guided by this theoretical framework, we draw information from two unique data sets to perform empirical analysis: One contains information on over 120,000 land transactions in more than 200 Chinese cities during 2002-2011 and the other covers land parcels in Beijing for which government officials revised the planned floor area ratios in response to changes in local conditions between 1999 and 2006. We find that urban land prices are positively correlated with maximum allowed floor area ratios and that planned floor area ratios tend to be adjusted upward for land parcels closer to newly constructed infrastructure, both consistent with the predictions of our model.
Discussants:
Adam Storeygard
(Tufts University)
Bo Zhao
(Federal Reserve Bank of Boston)
Shihe Fu
(Southwestern University of Finance and Economics)
Yuming Fu
(National University of Singapore)
Jan 03, 2015 12:30 pm, Sheraton Boston, Clarendon Room
Cliometrics Society
Events in Financial History
(N2)
Presiding:
Matthew Jaremski
(Colgate University)
Lottery Loans in the Eighteenth Century
Francois Velde
(Federal Reserve Bank of Chicago)
[View Abstract]
In the 18th century Britain repeatedly issued lottery loans, in which
investors bought bonds whose size was determined by a draw. The probability
distribution of these draws was perfectly known and highly skewed.
After the draw the bonds were indistinguishable from other bonds. I
collect market prices for the lottery tickets and show that investors
were paying a substantial premium to be exposed to this artificial risk.
Information about winners indicates that investors were well-to-do and
included many merchants and bankers. I turn to cumulative prospect
theory to make sense of these observations and estimate the equilibrium
model of Barberis and Huang (2008). The preference parameters can
account for the level of the lottery premium but not the bubble-like
pattern of prices over the course of the draws.
Political Uncertainty, Policy Uncertainty, and Market Liquidity: The NYSE during the Global Crisis of 1914-15
Caroline Fohlin
(Johns Hopkins University)
Zachary Mozenter
(University of North Carolina)
[View Abstract]
We study the reaction of the New York Stock Exchange to uncertainty shocks stemming from political and policy events during the early months of WWI. We find that market quality dropped most dramatically during the period of peak uncertainty about a wide-spread war in late July of 1914 but improved once the war started and stabilizing policies of the NYSE and the federal government had alleviated the financial crisis and near collapse of the gold standard. We then estimate the short-run impact of several subsequent uncertainty shocks: the reopening (January 1915) of the world’s dominant market, the London Stock Exchange, the removal (April 1915) of the price floors that the NYSE had imposed on its reopening, and the sinking of the British passenger ship Lusitania by a German submarine in May 1915. Despite the uncertainty shocks, we find growing volume and improving market quality, especially after spring 1915.
Politics or Precious Metal Production? The Emergence of the Classical Gold Standard, 1867-1896
Matthias Morys
(York University)
[View Abstract]
[Download Preview] Was the Classical Gold Standard (1870s-1914) the result of politics or of relative scarcity of gold and silver? We challenge two strands of literature: a US strand arguing that resumption in 1879 in gold and silver would have avoided the 1880s and 1890s global price deflation (Friedman 1990, Drake 1985); and a European one arguing that France would have been able to stabilise bimetallism despite rising silver production but chose not to do so for political reasons, sacrificing exchange-rate stability between gold and silver standard countries in the process (Flandreau 1996, Oppers 1996). Based on a model centred on world gold and silver supplies and specie stocks, we show that the late 19th century silver glut was such neither France nor the US were able to stabilise bimetallism individually; only collectively could they have done so, but political coordination was unlikely given prolonged US inconvertibility after the Civil War. In sum, we argue that the world was doomed to end up on the gold standard as a result of gold and silver supply fundamentals.
The Savings and Loan Insolvencies in the Shadow of the Great Recession
Alexander Field
(Santa Clara University)
[View Abstract]
[Download Preview] For financial firm failures to be macroeconomically significant, they must cause or threaten to cause a recession and slow recovery resulting in substantial cumulative output loss. Absent this, from an economic standpoint, they are of no greater or lesser concern than are failures of nonfinancial businesses. At the time they occurred, the savings and loan insolvencies were considered the worst financial crisis since the Great Depression. What was their actual or threatened damage to the real economy? I estimate cumulative output losses for 1981-1984, 1991-1995 and 2007-2024 (the latter utilizing forecasts and projections along with actual data through 2013). For a final comparison, I consider 1929-41. These estimates, along with other evidence that the failed thrifts lacked systemic importance, lead to the conclusion that the insolvencies, contrary to what was widely believed and/or implied at the time, and in sharp contrast with 2007-09, had little macroeconomic significance. The failures may have had political ramifications, but from the standpoint of national economic policy, the challenge they posed and the damage they threatened was, and has been, exaggerated.
Discussants:
Veronica Santarosa
(University of Michigan)
Marc Weidenmier
(Claremont McKenna College)
Michael Bordo
(Rutgers University)
Nicolas Ziebarth
(Iowa University)
Jan 03, 2015 12:30 pm, Sheraton Boston, Berkeley Room
History of Economics Society
Histories of Behavioral Economics
(B2, D1)
Presiding:
Andrej Svorenčík
(University of Mannheim)
The Behaviorist Myth in Economics
José M. Edwards
(Universidad Adolfo Ibáñez-Santiago)
[View Abstract]
[Download Preview] There seems to be confusion among economists about the meaning of behaviorism, especially in current discussions related to behavioral economics. This essay presents the main historical traits of behaviorism (1910s-1970s), as conceived by psychologists like J.B. Watson, B.F. Skinner and E.C. Tolman, who used “behavior control” methodologies. It is argued that the program advanced by Watson and his followers was fundamentally at odds with mainstream economics even in its alleged behaviorist versions, like Samuelson’s “Note on the pure theory of consumer’s behavior” (1938). Such versions have been many times described by economists as being forms of “behaviorist mainstream economics” (i.e. the “behaviorist myth”).
This paper claims that the main features of behaviorism were to methodologically control and predict behavior, rather than just “observing behavior” as most economists seem to believe. Even though economists and behaviorists drew both from P. Bridgman’s operationalism, they produced research programs that were poles apart from each other. Economists aimed at revealing preferences from choices, while behaviorists controlled animals, and in a few cases human infants, in order to produce desired forms of behavior. By pointing out a series of behavior control elements in unorthodox writings by economists like W.C. Mitchell, L.K. Frank and M.A. Copeland, the paper concludes that it is not possible to define such thing as a “behaviorist choice theory”.
Between the ‘Logic of Choice’ and the Behavioral Sciences: The Emergence of Rational Choice Theories in the 1950s
Catherine Herfeld
(Ludwig Maximilians University-Munich)
[View Abstract]
In this paper, I address the question why economists of the early post-war period favored a formal-mathematical theory of human behavior over a behavioral choice theory. I argue that the separation between economists and psychologists as well as the other behavioral sciences was not as clear-cut as it has been argued. Rather, the relationship between mathematical economists and psychologists was characterized by a protracted tension on the side of the economists. Focusing on Jacob Marschak and Tjalling Koopmans’ years at the Cowles Commission in the late 1940s and the ‘behavioral sciences movement’ emerging in the early 1950s, I show that this tension originated in the fact that, on the one hand, economists laid their primary focus on addressing problems that suggested a mathematical account of rational choice and thereby secured the status of economics as scientific endeavor comparable to the natural sciences. On the other hand, mathematical economists acknowledged psychologically more enriched accounts of human behavior in making at least frequent attempts to justify the assumptions of rational choice theories by reference to psychology. However, as they did not actually making efforts to modify these assumptions, mathematical economists exhibited an ambiguous attitude towards psychology. Revealing this tension contributes to answering the broader questions of how and for which purposes theories of choice were developed and modified in Post War American economics beyond the focus on the Cold War context, which has already been treated. By highlighting their epistemological role between economics and psychology during the Cold War period, it also contributes to the history of the relationship between economics and psychology. Finally, it allows drawing some conclusions about the determining factors of theory-development and -modification more generally.
Measuring Utility by Experiments and Axioms in Economics and Psychology, 1955-1965. The case of Suppes and Luce
Ivan Moscati
(University of Insubria-Varese)
[View Abstract]
[Download Preview] In the history of utility theory, the period 1955-1965 was characterized by significant interactions between economists and psychologists that concerned primarily the experimental attempts to measure utility, and the axiomatization of utility measurement. On the experimental side, psychologists such as Ward Edwards, Sidney Siegel, Duncan Luce and Stanley Smith Stevens, and economists such as Jacob Marschak and John Chipman designed various experiments to measure utility. On the axiomatic side, economists such as Gerard Debreu, psychologists such as Luce, and philosophers such as Patrick Suppes put forward various sets of axioms on preferences that implied that utility is cardinal, i.e., arbitrary only with respect to the zero point and unit of measurement. In this paper, I discuss the similarities and differences between economists' and psychologists' experimental attempts to measure utility. In particular, I contend that although these experiments introduced a number of insights, conceptualizations, and techniques from psychology into economics, they had only a minor impact on the economists’ take on utility measurement. In contrast, the axiomatizations of utility put forward by psychologists significantly contributed to the rehabilitation of cardinal utility in economic analysis.
The Behaviorist Psychology Tradition in Experimental Economics
Andrej Svorenčík
(University of Mannheim)
[View Abstract]
Within a span of a few years until his premature death in 1961, Sidney Siegel, a behaviorist psychologist, left an indelible mark on a generation of economists including Vernon Smith, Martin Shubik, and Reinhard Selten. It was not just Siegel’s emphasis on performance based monetary payments of experimental subjects that provided a backbone for subsequent burgeoning of experimental research. It was also the approach to decision making as an objectivist "black box" study of choices made under various controlled experimental conditions which eschewed the idea of studying decision as part of cognitive processes. This behaviorist perspective was particularly visible in the token and animal experiments of Ray Battalio and John Kagel, initially with behaviorist psychologists Howard Rachlin and Leonard Green, in the 1970s. This group of experimental economists and behaviorists did not shun the label “behavioral economics” as exemplified by the three volumes of Advances in Behavioral Economics edited by Kagel and Green (1987-96). However, it did not enjoy institutional funding support allowing it to develop a community of scholars with a shared identity of Skinnerian behavioral economics. In contrast, in the course of the 1990s, the label behavioral economics became associated with the work of economists such as Richard Thaler, George Leowenstein, Colin Camerer or Matthew Rabin that was spurred by Daniel Kahneman and Amos Tversky’s cognitive psychology of decision-making. This paper sheds light on the history of the interaction of behaviorist psychologists with experimental economists and shows why it did not affect contemporary behavioral economics.
Discussants:
E. Glen Weyl
(Microsoft Research New England)
Andreas Ortmann
(University of New South Wales)
Colin Camerer
(California Institute of Technology)
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Grand Ballroom—Salon H
Industrial Organization Society
Digital Media Economics
(L1)
Presiding:
Shane Greenstein
(Northwestern University)
E-Book Pricing and Vertical Restraints
Babur De los Santos
(Indiana University)
Matthijs Wildenbeest
(Indiana University)
[View Abstract]
[Download Preview] This paper empirically analyzes how the use of vertical price restraints has impacted retail prices in the market for e-books. In 2010 five of the six largest publishers simultaneously adopted the agency model of book sales, allowing them to directly set retail prices. This led the Department of Justice to file suit against the publishers in 2012, the settlement of which prevents the publishers from interfering with retailers' ability to set e-book prices. Using a unique dataset of daily e-book prices for a large sample of books across major online retailers, we exploit cross-publisher variation in the timing of the return to the wholesale model to estimate its effect on retail prices. We find that e-book prices for titles that were previously sold using the agency model decreased by 18 percent at Amazon and 8 percent at Barnes & Noble. Our results are robust to different specifications, placebo tests, and synthetic control groups. Our findings illustrate a case where upstream firms prefer to set higher retail prices than retailers and help to clarify conflicting theoretical predictions on agency versus wholesale models.
Using Markets to Measure the Impact of File Sharing on Movie Revenues
Koleman Strumpf
(University of Kansas)
[View Abstract]
[Download Preview] File sharing provides a useful laboratory for investigating the economic importance of intellectual property protection. There are two main empirical challenges: overcoming the non-random timing of the arrival date of illicit copies and dealing with low statistical power due to limited sample size. This paper uses markets to address these issues in the context of movies. I show forward-looking markets can be used to establish the unobserved counter-factual of how movie revenues would change on any possible file sharing leak date, particularly those prior to the theatrical premier. Using movie-level tracking stocks in conjunction with the arrival date of illicit copies, I find that file sharing has only a modest impact on box office revenue.
Panning for Gold: The Random Long Tail in Music Production
Luis Aguiar
(Institute for Prospective Technological Studies)
Joel Waldfogel
(University of Minnesota)
[View Abstract]
The long tail idea is that the Internet allows consumers access to the large number of products that already exist, rather than simply the popular products that a retailer might stock with limited shelf space. While this is clearly beneficial to consumers, the benefits are somehow limited: given the substitutability among differentiated products, the incremental benefit of obscure products – even lots of them – is generally small. The long tail in production is different. If the appeal is the new products is unpredictable at the time of investment, as is the case for cultural products such as books, movies, and music – then adding more products can have substantial benefits. Technology change in the recorded music industry has tripled the number of new products between 2000 and 2010. We quantify the effects of new music on welfare using an explicit structural model of demand and entry with potentially unpredictable product quality. Based on plausible forecasting models of expected appeal, a tripling of the choice set according to expected quality adds about 25 times as much consumers surplus and revenue as the usual long-tail benefits from a tripling of the choice set according to realized quality. We also use the model for a new empirical estimate of the excessiveness of free entry.
Super Returns? The Effects of Ads on Product Demand
Seth Stephens-Davidowitz
(Google, Inc.)
Hal Varian
(Google, Inc.)
Michael D. Smith
(Carnegie Mellon University)
[View Abstract]
This paper uses a natural experiment—the Super Bowl—to study the causal effect of advertising on product demand. Identification of the causal effect rests on two points: 1) Super Bowl ads are purchased before advertisers know which teams will play; 2) cities where there are many fans of the qualifying teams will have substantially more ad exposures per capita than other cities do. We compare product demand patterns for
advertised movies in cities with fans of qualifying teams to demand patterns in cities with fans of near-qualifying teams and find a substantial increases in opening weekend demand for those movies in cities with more ad exposures. On average, the movies in our sample experience incremental ticket sales of $8.4 million from a $3 million Super Bowl advertisement.
Discussants:
Ryan McDevitt
(Duke University)
Hong Luo
(Harvard Business School)
Julie Mortimer
(Boston College)
Jeffrey Prince
(Indiana University)
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Yarmouth
International Association for Feminist Economics
Gender Equality, Microfinance and Development
(I3)
Presiding:
Diana Strassmann
(Rice University)
Implications of Microfinance for Gender Inequality in Ghana
Theresa Owusu-Danso
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] The paper seeks to investigate whether increased access to microfinance by poor households in Ghana affects intra-household gender inequality and gender asset gap between male-headed households and female-headed households. The paper uses beta regression models and the Oaxaca decomposition to answer this question. The analysis is based on data obtained from household survey conducted in Ghana from May to July 2013. Comparative analysis of households with and without microfinance shows that on average female-headed households receiving micro-credit tend to spend equally on male and female children at the primary and secondary school levels whereas education expenditure is skewed in favor of male children relative to female children in the case of female-headed households without micro-credit. This result translates into higher years of schooling for children in female-headed households with micro-credit compared to their counterparts without micro-credit. On average, females in households receiving micro-credit have a higher share of household assets relative to females in households without micro-credit. The results from this paper suggest that microfinance helps to reduce intra-household gender inequality and gender asset gaps between male-headed and female-headed households.
Microfinance, Poverty and Employment Gender Gap: An Analysis from the Nigerian Perspective
Risikat Oladoyin S. Dauda
(University of Lagos)
[View Abstract]
[Download Preview] The objectives of this study are to examine the effects of microfinance and poverty on employment gender gap in Nigeria between 1992 and 2011 and also determine whether microfinance has helped to reduce poverty and improve the standard of living of customers. Both secondary and primary data were collected and analysed using a combination of descriptive and econometric analytic techniques. Analysis of secondary data revealed that the severity of poverty is evident in Nigeria. Between 2003 and 2011 employment gender gap was narrower compared with 1990-2002. It is most likely that the advent of democratic dispensation which coincided with improvement in macroeconomic conditions and women employment contributed to this. The Granger causality test showed that there exists unidirectional causality from employment gender gap to microfinance, that is, changes in employment gender gap influence microfinance. There is also unidirectional causality from poverty rate to employment gender gap and from microfinance to economic growth. This indicates that changes in poverty rate influence employment gender gap and changes in microcredit influence economic growth. Regression results showed that an increase in the incidence of poverty leads to an increase in employment gender gap. Increasing access to microcredit/finance has significant influence on the employment gender gap. Evidence from survey data revealed that low-income earners have derived the least benefits from microfinance banks’ operations in the Nigerian economy. There is therefore, the need for the government to be more proactive and make conscious efforts to use microfinance as an effective policy instrument to eliminate feminization of poverty and narrow employment gender gap with a view to promoting inclusive growth and development in Nigeria.
Cash or Cow: Bargaining Power in the Household and Child Outcomes in Four Developing Countries
Priscila Hermida
(Pontifícia Universidad Católica del Ecuador)
Jere R Behrman
(University of Pennsylvania)
Whitney Schott
(University of Pennsylvania)
[View Abstract]
[Download Preview] This study explores whether differences in mothers´ decision making power within the household have an effect on children´s health and cognitive development in Peru, India Ethiopia and Vietnam. We use a unique dataset containing information on which member of the household controls household income, animals and household goods collected by the Young Lives project. After controlling for child, community and household characteristics, the results show mother´s bargaining power has a positive effect on child outcomes. The effect is heterogeneous to child´s gender and urban/rural residency. However there are important differences among countries between rural and urban areas, and among bargaining power measures. Parental education gaps have a negative and significant effect over human capital acquisition in all countries, and most settings. Control over household income, earnings from wages, and earnings from land, is consistently associated with higher scores in cognitive tests (PPVT and CDA) in all countries. Control over household assets and animals results in higher HAZ in Ethiopia; and in rural areas in Vietnam, and Peru. The effects of maternal control over income and earnings are stronger in urban areas. In India, Vietnam and Peru, maternal control of assets translates into better outcomes for girls.
Intra-Household Financial Organisation and Microfinance: Evidence from High Frequency Panel Data in Kenya
Susan Johnson
(University of Bath)
Sunčica Vujić
(University of Bath)
[View Abstract]
Studies of intra-household financial organisation have repeatedly demonstrated the complexity of income and expenditure management at the household level. In sub-Saharan Africa there is ample evidence of separated management and partial pooling of income, which is then related to the division of expenditure responsibilities. In turn, these patterns of income and expenditure management give rise to gendered patterns of demand for microfinance services (both formal and informal financial services) as savings and credit instruments are used to bridge gaps between flows of income and expenditure that are not co-terminous in time.
Evidence on intra-household financial organisation has usually relied on how respondents qualitatively report that these arrangements operate. This paper will use a unique dataset of high-frequency panel data collected at approximately monthly intervals over a period of a year (2012-13) on incomes, expenditures and financial service use to examine the patterns of household financial organisation in a sample of 300 low income households in urban and rural settings. It will offer a detailed analysis of: how patterns of income and expenditure differ by gender in terms of sources, regularity, seasonality and amounts, and the size of income gaps; how intra-household transfers are organised and how and in what ways these relate to income gaps and expenditure patterns and develop an empirically based typology. It will use multi-variate probits to analyse how individual and household characteristics are associated with different dimensions of the income gap (sources, regularity, size), different patterns of intra-household transfers and differential gendered expenditure patterns. It will then analyse how financial service use differs by gender. Finally it will examine the relationship between financial service use patterns and the typology of gender income gaps and expenditure patterns.
A Feminist-Institutional Approach to Understanding the Challenges of Provisioning Aged Care Needs in the Presence of Dirt and Danger
Siobhan Austen
(Curtin University)
Therese Jefferson
(Curtin University)
Rhonda Sharp
(University of South Australia)
[View Abstract]
This paper utilises insights from feminist and institutional approaches to theorise about the provision of aged care by paid care workers. The paper’s context is an ageing population where the community’s need for aged care workers is growing strongly but high employee turnover rates and difficulty in recruitment are affecting the quality of care that can be provided. The paper addresses a key issue associated with the provisioning of aged care needs - the dirty and dangerous work associated with aged care – and the lack of compensation for the people who undertake this work. The instrumental aspects of caring labour - washing, dressing, and toileting - are commonly seen as dirty work when performed by aged care workers. The work can involve direct contact with bodily products and with the products of infection and, as such, can be dangerous. However, if the work is not performed with care the physical, social and emotional wellbeing of older people will be undermined. We utilise theoretical concepts relating to recognition and esteem, linked to formal and informal institutions, to develop an inquiry into how the feminine coding of aged care work and other factors contributing to the current failure to acknowledge the skill and difficulties associated with dirty and dangerous work in aged care. We also consider the challenges associated with redressing this problem. Our analysis draws on data collected from a mixed-methods project design, which included survey responses from almost 4000 Australian aged care workers and an integrated program of semi-structured interviews.
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Harvard
International Network for Economic Method
Book Symposium: Foundations of Economic Evolution by Carsten Herrmann-Pillath
(B4, Y8)
Presiding:
Don Ross
(University of Cape Town)
Economics as a Distinctive Province in the Kingdom of the Life Sciences: A Précis and Critique of Herrmann-Pillath’s Foundations of Economic Evolution
Don Ross
(University of Cape Town)
[View Abstract]
[Download Preview] I do three things. First, I summarize the main aims and conclusions of Herrmann-Pillath’s magnum opus for the benefit of those who haven’t read it. Second, I explain why I believe that it is among the half-dozen deepest works ever produced in economic methodology and philosophy of economics. This primarily revolves around the much broader and more sophisticated pictures of both psychology and biology with which it triangulates the subject matter of economics and the distinctive styles of modeling and explanation characteristic of economics. Third, I criticize Herrmann-Pillath’s rhetorical hostility to equilibrium explanation, and show economists how to read through that so as not to miss the important insights into economics that the book offers.
Ontological Axioms as Practical Devices for Economic Theory Construction: On Carsten Herrmann-Pillath´s “Foundations of Economic Evolution”
Kurt Dopfer
(University of St. Gallen)
[View Abstract]
What is natural philosophy, and what is its relevance for economics? Natural philosophy was identical with natural science for centuries. This has blurred the essential fact that there is a difference between science and philosophy – the difference between theoretical and ontological statements. Newton´s seminal work was not only a body of theories but it expounded the general view of an invariant world as well. This equating of theory and philosophy could not be maintained any longer in the light of new theoretical advances in evolutionary biology. Darwin´s “The Origin of Species” came along with the significant paradigmatic-ontological implication that the world was not unchanging but rather that it was changing continuously. Thus, ontological competition was bound to arise. A science such as economics could now be premised on two different ontological views: one mechanistic, the other evolutionary. Mainstream and heterodox economics approaches obtain their principal justification in the context of paradigmatic-ontological beliefs. My critique of Carsten Hermann-Pillath´s book will be based on two distinctions: between theoretical and ontological analysis, and, between mechanistic and evolutionary ontologies. A second topic of my critique focuses on the practical role that natural philosophy might play in economic theory development. I suggest that any ontological enquiry, to be useful for economics, must go beyond inferences drawn on the basis of “cross-disciplinary induction.” The results of such a program must also be translated into and communicated in a concise deductive format suitable for economic theorizing. Viewed from this practical vantage point, the ontological statements must be “worth” (in Greek “axio”) acceptance; for the theoretician, they should ideally generate clearly defined axioms. How does Herrmann-Pillath´s work contribute to the many practical tasks evolutionary economists face when devising their theories?
Naturalistic Economic Philosophy & the Devil in the Details: The Case of Knowledge
Ulrich Witt
(Max Planck Institute)
[View Abstract]
An encompassing naturalistic philosophy that aligns the foundations of economics with the worldview of the sciences is lacking. With his monumental Foundations of Economic Evolution Carsten Herrmann-Pillath (2013) has taken an important step to fill the gap. He offers a wide-ranging, state of the art tour d’horizon of naturalistic philosophy and reflects about what the place of the human economy in this grand view is. Herrmann-Pillath’s endeavor is as ambitious as his accomplishments are admirable. His encompassing approach raises many questions regarding the specific implications for economic research. To answer them requires going into the details. In doing so, I will argue, some of the basic unifying ontological assumptions underlying Herrmann-Pillath’s portrayal of economic evolution may have to be challenged. The case I shall discuss in making this point is the role of knowledge in nature and in human culture. Its role is a touchstone for any attempt to resolve the dichotomy between the sciences vs. the Geisteswissenschaften (which deal exclusively with human knowledge). As I want to show, even on the basis of a monistic ontology the dichotomy does not disappear entirely. It rather shows up in a new disguise in the form of natural vs. cultural evolution. This has significant implications for economics, which can be exemplified by consideration of issues in economic growth theory.
Economic Evolution as a Semiosis of Markets
Jason Potts
(RMIT University)
[View Abstract]
I discuss Carsten Hermann-Pillath's magisterial work - Foundations of Economic Evolution - which he presents as a treatise on the natural philosophy of economics. I focus in particular on his concluding argument that presents the study of economic evolution through the lens of a semiotics of markets.
Author Replies to Critics
Carsten Herrmann-Pillath
(Frankfurt School of Finance and Management)
[View Abstract]
I reply to the critical remarks of the other panelists on my book Foundations of Economic Evolution.
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Grand Ballroom--Salons J & K
International Trade & Finance Association
Europe's Economic Future?
(F1, G1) (Panel Discussion)
Panel Moderator:
Scheherazade Rehman
(George Washington University)
Carlo Bastasin
(Brookings Institution)
Antonio De Lecea
(Delegation of the European Union to the U.S.)
Douglas J. Elliott
(Brookings Institution)
Jacob Funk Kirkegaard
(Peterson Institute for International Economics)
Scheherazade Rehman
(George Washington University)
Jan 03, 2015 12:30 pm, Sheraton Boston, Beacon A
National Association of Economic Educators
Economic Education Research and the Principles Classroom
(A2)
Presiding:
Helen Roberts
(University of Illinois-Chicago)
Economic Education Retrospective: 25 Years of Contributions from The American Economist
Carlos Asarta
(University of Delaware)
Paul W. Grimes
(Pittsburg State University)
Austin Jennings
(University of Delaware)
[View Abstract]
[Download Preview] The American Economist has a long and significant history of publishing research in the field of economic education. This paper provides a review and synthesis of the 70 economic education articles published by the journal over the past 25 years. The authors discuss The American Economist’s contribution to the field of economic education according to four primary themes; program design, instructional and assessment methodology, instructional materials, and student outcomes.
Loss Aversion, Distributional Effects, and Asymmetric Gender Responses in Economics Education
Maria Apostolova-Mihaylova
(University of Mary Washington)
William Cooper
(University of Kentucky)
Gail Hoyt
(University of Kentucky)
Emily Marshall
(University of Kentucky)
[View Abstract]
[Download Preview] Do students behave differently when faced with alternative grading systems? This paper examines heterogeneous gender effects in response to a loss aversion-grading scheme in the economics classroom. Over the course of two semesters, we conducted an experiment with undergraduate students at the University of Kentucky that frames their final grade and all of its components as a loss rather than a gain of points. We find that, on average, students in the treatment class with the loss aversion grading scheme score approximately 1.20 percentage points higher on the final course grade compared to students in the control group. In addition, we conclude that males in the treatment group perform about 1.86 percentage points better than males in the control group. Using an ordered probit model, we evaluate the effect of this grading scheme on the probability distribution of final course grades. We expand on the finding of Apostolova-Mihaylova, Cooper, Hoyt, and Marshall (2015) of an asymmetric gender response of the loss framing of the grade by observing an economically significant favorable effect on the grade distribution for male students. Framing the grade as a loss increases the probability of receiving a B by 8 to 11% and decreases the probability of receiving a D by 4 to 9% for male students in the treatment classes compared to male students in the control classes. There is no evidence that the loss framing of the grade affects the grade distribution for female students.
Preconceptions of Principles Students
William Goffe
(Pennsylvania State University)
[View Abstract]
[Download Preview] Economic educators rarely study the ideas that principles students bring to our classes. Certainly experienced instructors have informally collected many student preconceptions, but the research literature is quite thin. In particular, there appears to be no survey data on what specific preconceptions students bring to class, their prevalence, and how they vary by type of institution or region of the country. Other disciplines, notably physics, chemistry, biology, and psychology have extensive literature on their student preconceptions and they often use this literature to improve instruction. They have found that unless student misconceptions are directly confronted, learning is hindered. Indeed, they have found that incorrect preconceptions are notoriously difficult to dislodge. Perhaps if economists took into account common misconceptions learning and retention of that learning might be enhanced. Walstad and Allgood (1999) demonstrate that students remember little from their economics courses; what they do remember ought to be accurate rather than their own persistent preconceptions. This paper is a first attempt to quantity principles students' preconceptions about economic concepts across institutions. Surveys were constructed for both macroeconomics (20 questions) and microeconomics (18 questions) principles classes by a group of experienced instructors. They were administered to students at eight widely varying institutions (Ivy League to a community college) at the start of the term. This paper reports their findings.
Discussants:
Helen Roberts
(University of Illinois-Chicago)
Rebecca Chambers
(University of Delaware)
Carlos Asarta
(University of Delaware)
Jan 03, 2015 12:30 pm, Boston Marriott Copley, New Hampshire
National Economic Association
Issues in African Development II
(O1)
Presiding:
Willene Johnson
(Komaza, Inc.)
Communication and coordination: Experimental evidence from farmer groups in Senegal
Angelino Viceisza
(Spelman College)
Kodjo Aflagah
(International Food Policy Research Institute)
Tanguy Bernard
(International Food Policy Research Institute)
[View Abstract]
[Download Preview] Coordination failure has been argued to be at the heart of development (poverty) traps. Communication has been proposed as a mechanism for reducing coordination failure. This paper reports artefactual field experiments that test the impact of communication on coordination using members of farmer groups in rural Senegal, a context where failure to coordinate on collective selling of agricultural production is common. In our baseline treatment, farmers played neutrally framed, high-stakes coordination games in randomly formed experimental groups of size N equal to 10 or 20, wherein all players in a given session belong to the same farmer group. In our communication treatment, a subset of these groups was exposed to N-way preplay communication in which farmers were able to signal their intended action. We find that communication significantly reduces coordination failure. Using treatment variation and additional survey data, we explore the mechanisms underlying this effect. (1) Communication only increases coordination in larger groups. (2) Communication increases (reduces) coordination due to reduced (increased) strategic uncertainty surrounding other players' actions. (3) By revealing information about other players' actions, communication establishes a norm of “equitable coordination”. Ours is one of few studies that experimentally assess the impact of communication on coordination in a context where coordination failure has been prevalent. Our experiments were designed as a precursor to a naturally occurring communication institution, implemented as a natural field experiment. We thus use the findings to predict the potential effects of such an institution.
Trust and Financial Inclusion
Kehinde Ajayi
(Boston University)
[View Abstract]
[Download Preview] This paper examines the effect of trust on financial inclusion. First, I document that trust in banks differs from other forms of trust. It is most strongly correlated with trust in other formal and external institutions (i.e., businesses, courts and local government institutions) and less strongly correlated with trust in proximate social relations and traditional cultural institutions (i.e., relatives, neighbors, traditional leaders, and people from the same ethnic group). Second, I establish how these alternative forms of trust affect financial inclusion. Using ethnic-level exposure to the transatlantic slave trade as an instrument, I find that trust in proximate social networks and traditional institutions may weaken incentives to participate in the formal financial sector and act as a barrier to financial inclusion.
Financial Access in Nigeria: Evidence from Household Surveys
Lisa D. Cook
(Michigan State University)
[View Abstract]
Reforms to the financial system in Nigeria since 2005 were, among other things, intended to broaden financial access among entrepreneurs and the poor. The first national household survey focused on financial access in Nigeria was conducted in 2008. Data from this survey and from a subsequent round in 2010 were explored to examine whether these reforms are having any and the intended effect. Our findings show that the evidence is mixed. Surprisingly, mobile banking, which has precipitated significant changes in access in other African countries such as Kenya, has not been adopted widely in Nigeria, despite high rates of adoption of mobile phones.
How Does Trade Liberalization Affect Racial and Gender Inequality in Employment? Evidence from Post-Apartheid South Africa
Bilge Erten
(Columbia University)
Fiona Tregenna
(University of Johannesburg)
[View Abstract]
[Download Preview] This paper analyzes whether trade liberalization in South Africa affected the racial and gender composition of employment in the mid-1990s. We identify the effects of liberalization on local employment by exploiting the variation in tariffs across industries and in industrial composition across regions. We show that districts that were exposed to higher loss of protection experienced larger employment losses than comparable districts. The employment of African and female workers was particularly negatively affected. These differential effects are highest in manufacturing, and particularly strong for low-skilled manufacturing workers. The results suggest that rapid trade liberalization can hurt disadvantaged groups.
Structural Change and Democratization: Evidence from Rural Apartheid
Laurence Wilse-Samson
(Columbia University)
[View Abstract]
[Download Preview] The relationship between economic development and democracy is key in political economy. Many commentators have suggested that economic growth increases support for democracy. One proposed mechanism is that modernization, by reducing the demand for low-skilled labor, increases the willingness of elites, particularly in agriculture, to extend the franchise. I use subnational variation in South Africa to test this mechanism. I employ national shocks to the mining sector’s demand for native black workers together with cross-sectional variation in labor market competition induced by apartheid to estimate the effect of black labor scarcity on wages, capital intensity, and changes in partisan voting preferences. I find that reductions in the supply of foreign mine labor following the sudden withdrawal of workers from Malawi and Mozambique (and the increased demand for native black workers) increased mechanization on the mines and on farms competing with mines for labor. There is also suggestive evidence that these changes increased support for political reform in districts forced to modernize by the shocks.
Discussants:
Willene Johnson
(Komaza, Inc.)
Suresh Naidu
(Columbia University)
Femi Elegbede
(Michigan State University)
John C. Anyanwu
(African Development Bank)
Romie Tribble
(Spelman College)
Jan 03, 2015 12:30 pm, Sheraton Boston, Beacon B
Omicron Delta Epsilon
Omicron Delta Epsilon Faculty Advisor Session
(A1)
Presiding:
Alan Grant
(Baker University)
Teaching and Learning Alternatives to a Comparative Advantage Motivation for Trade
James K. Self
(Indiana University)
William E. Becker
(Indiana University)
[View Abstract]
[Download Preview] Introductory economics courses emphasize opportunity cost, comparative advantage and specialization to show the benefits of trade. We assert that this emphasize leads to erroneous student mindset that trade requires specialization based on comparative advantage. We test students who have been exposed to the typical textbook and classroom presentation of specialization and trade with real but paradoxical situations where the same goods are both imported and exported by a country. Students are found to generally understand comparative advantage calculations but wrongfully apply the idea to this multiproduct trade situation for which specialization is not relevant.
A Classroom Property Title Experiment
Lauren Heller
(Berry College)
E. Frank Stephenson
(Berry College)
[View Abstract]
[Download Preview] Economists such as de Soto (2000) posit that property titles are among the institutions that enhance human well-being. Recent work by Field (2005) and Galiani and Schargrodsky (2010), among others, has provided empirical examples to support this contention. This paper presents a classroom property title exercise based on the events chronicled by Galiani and Schargrodsky (2010) in which players are faced with a series of rounds in which they must choose to build a low quality dwelling (shack) or a high quality dwelling (house). Players are initially titleless squatters but some property titles are randomly distributed between rounds. In each round, players receive a payoff from their housing investment but untitled properties also run the risk of confiscation. In doing so, students are able to uncover the potential benefits of property titling on investment incentives for themselves. The paper concludes with a discussion of possible extensions.
Directed Crib Sheet Development as a Test Preparation and Review Tool
Kara Smith
(Belmont University)
Colin Cannonier
(Belmont University)
[View Abstract]
Research in other fields is inconclusive with regards to whether cheat sheets improve student performance on tests. To our knowledge, research on the effectiveness of all three methods on students performance is absent in economics, a field in which logical and organized thought is paramount in successful learning. Consequently, we undertake such an investigation to address the following questions:
- Do students perform better using cheat-sheets relative to those students who use no test aid at all?
- Are students outcomes better when those crib sheets are prepared during class as a structured review session rather than prepared [or not] during the students own time?
- What are the possible mechanisms through which students performance is improved?
- What is the differential effect of the cheat sheet technique on students with different skills and learning styles?
We test this technique on three sections of Principles of Macroeconomics and three sections of Principles of Microeconomics. Students in each section are given three [3] multiple-choice tests and a comprehensive final exam. Students in each section are exposed to two variants of crib sheet testing aid and a closed-book exam. More specifically, students in one section are asked to develop crib sheets during class as directed review assignment; another section of students are allowed to develop their own crib sheets outside of the class, while for the third section students are given a closed-book test. A similar procedure is done for the second and third tests whereby the testing aid and closed-book option is rotated across sections. By adopting this approach, we exploit the impact of testing aid variants on student performance in the following ways: 1] We are able to measure performance of the same students while varying the incentive and 2] we are able to compare performance across incentives for the same test.
Student Effort and Learning Outcomes in Introductory Economics Courses
Nara Mijid
(Central Connecticut State University)
[View Abstract]
[Download Preview] The purpose of this study is to examine a controversial debate whether students who spend more time on completing the assignments perform better. More specifically, the study investigates the relationship between the time spent [as a measure of students' efforts] on an assignment and students' learning outcomes. The study compares results for online, hybrid and face-to-face classes in Principles of Economics courses using a unique dataset with the students out of class activities between 2012 and 2013 downloaded from Aplia, an online learning environment. The study contributes an existing literature on effectiveness of Aplia.
Discussants:
Lauren Heller
(Berry College)
James K. Self
(Indiana University)
Nara Mijid
(Central Connecticut State University)
Kara Smith
(Belmont University)
Jan 03, 2015 12:30 pm, Westin Copley, Staffordshire
Society for Policy Modeling
Are Emerging Markets Facing a New Financial Crisis?
(G1, G1)
Presiding:
Dominick Salvatore
(Fordham University)
Normalizing Financial Conditions, How Tight, How Far
Andrew Burns
(World Bank)
[View Abstract]
As the global economy exits from the financial crisis of 2008-9, financial conditions have begun to normalize, bringing with them higher interest rates and less liquidity and lower capital flows to developing countries. While an upward trajectory for interest rates appears to be a given, there is considerable uncertainty as to the extent of the increases, with one school of thought (Fuceri and Pescatori, 2014) arguing that aging populations in high-income countries and in many developing regions will boost global savings and limit long-term interest rate rises. A second view emphasizes that substantial increases in government indebtedness in recent years has substantially increased public demand for credit -- boosting long-term interest rates (CBO, 2014). This paper examines the relationship of developing country interest rates to high-income financial conditions, and explores the range of potential outcomes in developing countries given alternative high-income country scenarios.
How Vulnerable Are Emerging Markets to External Shocks
Rupa Dattagupta
(International Monetary Fund)
[View Abstract]
Emerging markets have grown at a remarkable pace since the late 1990s. This paper zooms in on the contribution of external factors to this performance over the past 15 years. It finds that external factors explain about half of the variance in emerging market growth. Higher growth in advanced economies boosts emerging markets, whereas a tighter external financing environment adversely affects them. However, internal factors and structural characteristics matter for growth as well: stronger growth in advanced economies have stronger effects on emerging markets that have deeper trade links with advanced economies, and weaker effects on economies that are financially open. The effects of external financing shocks are also more adverse for economies that are financially open, and those with limited policy space. Intra-emerging market and internal factors—particularly growth in China—have also become significant in driving macroeconomic fluctuations in emerging markets in recent years. However, these factors appear to be hampering rather than spurring growth in some countries. If the drag from these internal factors continues, and the external environment also turns sour, emerging markets may have to experience a weaker pace of economic performance than they had achieved in the period before the Great Recession.
How to Differentiate Vulnerability among Emerging Market Economies
Pingfan Hong
(United Nations)
[View Abstract]
Since the US Fed announced the plan to taper the quantitative easing in mid-2013, emerging market economies have already encountered two episodes of financial turbulence, featuring a broad sell off in their equity prices and sharp depreciation in their currencies. Nevertheless, underlying a general financial stress facing most emerging market economies, we have observed diverse performance among these economies. This presentation will investigate on how to differentiate vulnerability among emerging market economies through a number of indicators and discuss the implications for policies to mitigate different vulnerability
Hot Money Flows: Cycles in Primary Commodities and Financial Controls in Developing Countries
Ronald McKinnon
(Stanford University)
[View Abstract]
Because the U.S. Federal Reserve’s monetary policy is at the center of the world dollar standard, it has a first-order impact on global financial stability. However, except during international crises, the Fed focuses on domestic American economic indicators and generally ignores collateral damage from its monetary policies on the rest of the world. Currently, ultra-low interest rates on short-term dollar assets ignite waves of hot money into Emerging Markets (EM) with convertible currencies. When each EM central bank intervenes to prevent its individual currency from appreciating, collectively they lose monetary control, inflate, and cause an upsurge in primary commodity prices internationally. These bubbles burst when some accident at the center, such as a banking crisis, causes a return of the hot money to the United States (and to other industrial countries) as commercial banks stop lending to foreign exchange speculators. World prices of primary products then collapse.
Discussants:
Fred Campano
(Fordham University)
Dominick Salvatore
(Fordham University)
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Provincetown
Union for Radical Political Economics/American Economic Association
David Gordon Memorial Lecture: Capitalism and the Climate Crisis: Reducing Emissions Through Reductions in Working Hour
(J1) (Panel Discussion)
Panel Moderator:
Fred Moseley
(Mount Holyoke College)
Juliet Schor
(Boston College)
Capitalism and the Climate Crisis: Reducing Emissions Through Reductions in Working Hour
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 206
American Economic Association
Contributions of Economists to Public Policy: A Session in Honor of Walter Oi
(J1, A1)
Presiding:
Martin Feldstein
(Harvard University and NBER)
Walter Oi and His Contributions to the All-Volunteer Force: Theory, Evidence, Persuasion
Paul Hogan
(Lewin Group)
John Warner
(Lewin Group)
[View Abstract]
[Download Preview]
Professor Walter Y. Oi passed away late last year at the age of 84. The purpose of this session is to reflect on his many contributions to public policy. An important public policy issue in which Professor Oi played a key role was the debate that was occurring in the late 1960s and early 1970s over the military draft. From the end of World War II to the mid-1960s, the prospect of being drafted was a fact of life for male youth in America. After 1964, acrimony over the draft grew as the United States became more involved in Vietnam and draft calls began to increase. The Economics profession, which had largely been silent about how military manpower could be most efficiently and most fairly procured, began to offer analyses of the economics of conscription.
In retrospect, it is clear that Walter Oi was the economist who played the key role in the termination of conscription in the U. S. on June 30, 1973. This is so for two reasons. First, he provided the most thorough empirical analysis of the economics of conscription and the costs and consequences of an All-Volunteer Force (AVF). He estimated the budgetary cost of implementing an AVF and showed that it was much lower than many people in positions of responsibility at the time believed. He further demonstrated that the real resource cost of a draft force was higher than that of a volunteer force, and he provided empirical estimates of the size of those costs. Second, in various forums he was able to effectively communicate the results of his analyses to policymakers and politicians who had the authority to terminate conscription. In particular, his Congressional testimony in 1971 persuaded many politicians who were to that point opposed to the end of conscription to support it. Without that testimony, conscription might not have ended.
Early Challenges of the AVF
Bernard Rostker
(RAND Corporation)
[View Abstract]
It took about a decade for the all-volunteer force (AVF) to take hold and be on path where is would produce a credible fighting force and turn its most ardent critics into its strongest supporters. During the decade the Services and the Office of the Secretary of Defense had to learn how to recruit; how to develop, test, analyze and evaluate policy alternatives, and the importance of a proper screening tools. Probably the most important lesson that had to be learned was the elementary insight handed down by the Gates Commission; namely that without a draft the military would have to respond to the demands of the market adjusting compensation accordingly. In this paper we will explore the fits and starts of the AVF; what worked and what did not work, and what had to be learned before the AVF would finally become viable.
Compensating Volunteers: Current Challenges of the AVF
Beth Asch
(RAND Corporation)
James Hosek
(RAND Corporation)
Michael Mattock
(RAND Corporation)
[View Abstract]
Walter Oi's insights on the importance of compensation incentives to sustain military forces remain as relevant today as they were during conception of the AVF. Numerous reviews and studies have raised concerns about the efficiency, flexibility, and fairness of the current compensation system, which is by and large a legacy system from the World War II era.
New methods and models have evolved that build on Walter Oi's fundamental insight to assess how compensation reforms could ameliorate the drawbacks of the current system. This paper will review the objectives of the military compensation system, the areas for improvement identified by the literature, and present estimated models and simulations that evaluate recently proposed policies to improve the efficiency, flexibility, and fairness of the compensation system to sustain current and future military forces.
Walter Oi's Distinctive Perspective on Labor Economics, Price Theory, and Econometrics
Orley Ashenfelter
(Princeton University)
[View Abstract]
This paper explores Oi's broader perspective on, and contributions to, microeconomics, especially his work on labor markets.
Discussants:
David Chu
(Institute for Defense Analyses)
Linda Cavalluzzo
(CNA Corporation)
Chris Jehn
(CNA Corporation and Institute for Defense Analyses)
Finis Welch
(Texas A&M University)
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 209
American Economic Association
Economic Freedom and Minority Groups
(O1)
Presiding:
Janice Shack-Marquez
(Federal Reserve Board)
The Impact of Economic Freedom on the Black/White Income Gap
Gary A. Hoover
(University of Alabama)
Ryan A. Compton
(University of Manitoba)
Daniel C. Giedeman
(Grand Valley State University)
[View Abstract]
Using state-level data from 1980-2010 we examine the ratio of median income for black households to the median income of white households to observe whether economic freedom as measured by the Economic Freedom of North America Index has had any impact in widening or closing the gap. To our knowledge, there has been no research done on racial income disparities and the role that economic freedom might have in alleviating or exacerbating the problem. We find weak evidence that economic freedom has any impact on the racial income gap.
Tolerance in the United States: How Free Markets Transform Racial, Religious, and Sexual Attitudes
Niclas Berggren
(Research Institute of Industrial Economics-Sweden and University of Economics in Prague)
Therese Nilsson
(Research Institute of Industrial Economics-Sweden and Lund University)
[View Abstract]
[Download Preview] Tolerance is a distinguishing feature of Western culture: There is a widespread attitude that people should be allowed to say what they want even if one dislikes the message. Still, the degree of tolerance varies between and within countries, and if one values this kind of attitude, it becomes important to identify its determinants. In this study, we investigate whether the character of economic policy plays a role, by looking at the effect of changes in economic freedom (i.e., lower government expenditures, lower taxes and more modest regulation) on tolerance in one of the most market-oriented countries, the United States. In comparing U.S. states, we find that an increase in the willingness to let atheists and homosexuals speak, keep books in libraries and teach college students is, overall, positively related to preceding increases in economic freedom, especially lower taxes. We suggest, as one explanation, that a greater scope for voluntary transactions and private usage of incomes and wealth creates more meetings that increase understanding for people different than oneself – or at least for the value of letting people different than oneself have their say. In contrast, the positive association for tolerance towards racists only applies to speech and books, not to teaching, which may indicate that when it comes to educating the young, (in)tolerance attitudes towards racists are more fixed.
Fractionalization, Rent Seeking and Economic Freedom
Jac C. Heckelman
(Wake Forest University)
Bonnie Wilson
(St. Louis University)
[View Abstract]
[Download Preview] Diversity is often thought to create conflict and harm economic institutions. We hypothesize, however, that the impact of diversity is conditional on political institutions, and may be negative in some settings but positive in others, due to differences in the nature of rent seeking in different regimes. To test this hypothesis, we estimate the impact of diversity on economic freedom, conditional on the level of political rights. We find that the marginal impact of ethnic, linguistic, and religious diversity on economic freedom is positive in the most democratic nations, and that the marginal impact of ethnic diversity is negative in the most autocratic nations. Our results suggest that the nature of the relation between diversity and economic institutions may be more complicated than prior literature conveys.
Income Inequality, Capitalism and Ethno-Linguistic Fractionalization
Jakob de Haan
(De Nederlandsche Bank and University of Groningen)
Jan-Egbert Sturm
(ETH Zurich)
[View Abstract]
[Download Preview] We examine the relationship between capitalism and income inequality for a large sample of countries using an adjusted economic freedom index as proxy for capitalism and Gini coefficients based on gross-income as proxy for income inequality. Our results suggest that there is no robust relationship between economic freedom and income inequality. In addition, we analyze the relationship between income redistribution (measured by the ratio of the income distribution resulting from market processes and the income distribution after redistribution) and ethno-linguistic fractionalization. We find that the impact of ethno-linguistic fractionalization on income redistribution is conditional on the level of economic freedom: countries that have a high degree of fractionalization have less income redistribution, while capitalist countries that have a low degree of fractionalization have more income distribution.
Jan 03, 2015 2:30 pm, Sheraton Boston, Public Garden
American Economic Association
Explaining the Energy Paradox
(D1, L2)
Presiding:
Robert N. Stavins
(Harvard University)
Deconstructing the Energy Efficiency Gap: Conceptual Frameworks and Evidence
Todd Gerarden
(Harvard University)
Richard Newell
(Duke University)
Robert N. Stavins
(Harvard University)
[View Abstract]
[Download Preview] Energy-efficient technologies offer considerable promise for reducing the financial costs and environmental damages associated with energy use, but these technologies appear not to be adopted by consumers and businesses to the degree that would apparently be justified, even on a purely financial basis. We present two complementary frameworks for understanding this so-called “energy paradox” or “energy efficiency gap.” First, we build upon previous literature by dividing potential explanations for the energy efficiency gap into three categories: market failures, behavioral anomalies, and model and measurement errors. Second, we posit that it is useful to think in terms of the fundamental elements of cost-minimizing energy-efficiency decisions. This provides a decomposition that organizes thinking around four questions. First, are product offerings and pricing economically efficient? Second, are energy operating costs inefficiently priced and/or understood? Third, are product choices cost-minimizing in present value terms? Fourth, do other costs inhibit more energy-efficient decisions? We review empirical evidence on these questions, with an emphasis on recent advances, and conclude with suggestions for future research.
Tagging and Targeting of Energy Efficiency Subsidies (Hunt Allcott, Chris Knittel, and Dmitry Taubinsky)
Hunt Allcott
(New York University)
Christopher Knittel
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] A corrective tax or subsidy is “well-targeted” if it primarily affects choices that are more distorted by market failures. Energy efficiency subsidies are designed to correct multiple distortions: externalities, credit constraints, “landlord-tenant” information asymmetries, imperfect information, and inattention. We show that three important energy efficiency subsidies are primarily taken up by consumers who are wealthier, own their own homes, and are more informed about and attentive to energy costs. This suggests that these subsidies are poorly targeted at the market failures they were designed to address. However, we show that “tagging” can lead to large efficiency gains.
Limited Attention and the Residential Energy Efficiency Gap
Karen Palmer
(Resources for the Future)
Margaret Walls
(Resources for the Future)
[View Abstract]
[Download Preview] Inattention may be an important contributor to the energy efficiency gap and its role has been studied in the context of vehicle and appliance purchase decisions (Sallee forthcoming; Houde 2014; Allcott et al. 2014). The inattention problem may be particularly acute in residential buildings where many different features—the amount and type of insulation, numbers of windows and doors, types of lighting equipment, efficiency of heating and cooling equipment, and more — will determine a home’s energy use. Attentive consumers may seek out information when considering equipment upgrades and building retrofits. One way they can do this is through a home energy audit, but the use of audits is rare. We use data collected from a national survey of 1700 homeowners to study the factors affecting a home owner’s choice to have an audit. Through a series of questions about energy bills, energy using equipment in the home, and the frequency of servicing heating and cooling equipment, we are able to create an index of energy attentiveness for our survey respondents. This index and two additional behavioral factors prove to be important determinants of the decision to have an audit.
Individual Time Preferences and Energy Efficiency
Richard Newell
(Duke University)
Juha Siikamäki
(Resources for the Future)
[View Abstract]
[Download Preview] A large literature examines energy-efficiency investments by consumers and firms to evaluate the extent of and explanations for an “energy efficiency (EE) gap”. However, prior studies have not considered the role of individual discount rates in such decisions. Instead, most assessments assume a certain discount rate against which the rationality of observed choices is gauged, or alternatively, estimate aggregate discount rates that best match observed EE decisions, conditional on an assumed decision model. The absence of evidence on the role of individual discount rates is surprising because the profitability of EE investments depends fundamentally on the rate at which individuals discount future energy savings relative to the required upfront investment. Moreover, experimental studies consistently suggest that time preferences exhibit considerable heterogeneity.
This paper broadly examines the role of individual discount rates in the context of EE decisions. We draw evidence from extensive survey results from 1,217 random single family U.S. home owners. A key part of the survey included choice experiments to estimate willingness to pay for EE. Each study participant faced several decisions involving choosing the preferred product from three different appliance options (a central water heater replacement decision). The survey also elicited data on individual discount rates (mean 19 percent, median 11%) and several measures of preferences for EE.
Our results demonstrate that individual discount rates exhibit considerable heterogeneity and systematically influence household willingness to pay for EE investments, as measured through product choices, required payback periods, and EE tax credit claims. The relationship is statistically significant, empirically robust, and is not confounded by the characteristics of the homeowner, household, and their home. We also examine the determinants of individual discount rates to better understand what drives their substantial heterogeneity: education levels, household size, race, credit scores, and to some extent income, are important factors. Overall, our findings imply that individual discount rates are critical to understanding EE investments, the “EE gap,” and to guiding policy on EE.
Specifically, we find that willingness to pay for annual operating cost savings declines by about 1.6 percent for each percentage point increase in the individual’s discount rate. We also find that the maximum payback time for an energy efficiency investment systematically declines with discount rate. When examining the determinants of individual discount rates, one of the most consistent results is that education matters greatly in the context of individual discount rates. Controlling for other factors, individuals with some college education have discount rates 8-9 percentage points lower, and those with at least a bachelor’s degree 13-14 percentage points lower, than those with no college. Other consistent determinants of discount rates include household size and race. Larger households, those with lower credit scores, and black, non-Hispanic respondents had relatively high discount rates, even after controlling for income, education, and a wide range of other characteristics. Income is not always statistically significantly association with individual discount rates, but we find evidence that higher incomes are associated with lower discount rates.
Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program
Meredith Fowlie
(University of California-Berkeley)
Michael Greenstone
(University of Chicago)
Catherine Wolfram
(University of California-Berkeley)
[View Abstract]
There is a near consensus that energy efficiency investments provide widespread ‘win-win’ opportunities that enable individuals and firms to save money while also reducing externalities associated with energy production. Engineering building simulation models and technology cost estimates provide the foundation for this consensus, but there is very little real world evidence on the performance of energy efficiency investments. We apply experimental and quasi-experimental techniques to detailed data from the nation’s largest residential energy efficiency program, the Federal Weatherization Assistance Program (WAP), and find that energy savings from the program are substantially lower than predicted. Additionally, we collected data on indoor temperatures and find that weatherized homes were almost 1° F warmer, which provides some of the first evidence of a rebound effect in the building sector. Although this rebound effect contributes to the difference between predicted and actual energy savings, most of the difference is due to overly optimistic engineering estimates of returns to the energy efficiency investments.
Discussants:
Kenneth Gillingham
(Yale University)
Erich Muehlegger
(Harvard University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Republic Ballroom Foyer
American Economic Association
Financial Economics
(G1) (Poster Session)
Presiding:
Sean Collins
(Fordham University)
Firms in Corrupt Environments and the Value of Corporate Governance
Nishant Dass
(Georgia Institute of Technology)
Vikram Nanda
(Rutgers University)
Steven Chong Xiao
(Rutgers University)
[Download Preview] Forecasting Volatility with Empirical Similarity and Google Trends
Moritz Daniel Heiden
(University of Augsburg)
Alain Hamid
(University of Augsburg)
[Download Preview] How Important is Economic News for Bond Markets?
Justinas Brazys
(Erasmus University Rotterdam)
Martin Martens
(Erasmus University Rotterdam)
[Download Preview] Cross-Country Evidence on Capital Structure Variability
Balbinder Singh Gill
(Vrije Universiteit Brussel)
[Download Preview] Public Pre-Trade Disclosure of Insider Orders
Luca Gelsomini
(IESEG School of Management)
[Download Preview] A Case-Based Introduction to Bank Accounting for Derivatives
Dov Fischer
(City University of New York-Brooklyn College)
Michael Grayson
(City University of New York-Brooklyn College)
An Examination of the Influence of Household Financial Decision Making on the United States Housing Market Crisis
Purba Mukerji
(Connecticut College)
Khalid Saeed
(Worcester Polytechnic Institute)
The Distribution of Information, the Market for Financial News, and the Cost of Capital
Paul Marmora
(Temple University)
[Download Preview] A Model of Information Diffusion with Asymmetry and Confidence Effects in Financial Markets
Haijun Yang
(Beihang University and University of Delaware)
Shu Qi
(Beihang University)
Zhou Zhang
(University of Regina)
David Koslowsky
(University of British Columbia)
[Download Preview] Informed Trading, Forced Trades and Amplification Mechanisms
Alper Odabasioglu
(Swiss Finance Institute and University of Geneva)
[Download Preview] Margin Constraints and the Security Market Line
Petri Jylha
(Imperial College London)
[Download Preview] Corporate Cash and Inventory Management: Implications for Measuring Market Competition
Xiaodan Gao
(National University of Singapore)
[Download Preview] When Formulas Fail: On the Variability of the Exponential Growth Bias
Bryan Foltice
(University of Muenster)
Thomas Langer
(University of Muenster)
[Download Preview] Bank Regulation under Fire Sale Externalities
Gazi Kara
(Federal Reserve Board)
S. Mehmet Ozsoy
(Ozyegin University)
[Download Preview] Bank Capital Requirements and Loan Pricing: Loan-Level Evidence from a Macro Prudential Within-Sector Policy
Ricardo Schechtman
(Central Bank of Brazil)
Bruno Martins
(Central Bank of Brazil)
Systemic Risk and the Solvency-Liquidity Nexus of Banks
Diane Pierret
(New York University)
[Download Preview] Entrepreneurial Vision, Information, and Cash
Arnoud Boot
(University of Amsterdam)
Vladimir Vladimirov
(University of Amsterdam)
[Download Preview] Jan 03, 2015 2:30 pm, Sheraton Boston, Beacon B
American Economic Association
Household Savings, Debt, and Investment Decisions
(D1)
Presiding:
David Love
(Williams College)
Disentangling Financial Constraints, Precautionary Savings, and Myopia: Household Behavior Surrounding Federal Tax Returns
Brian Baugh
(Ohio State University)
Itzhak Ben-David
(Ohio State University)
Hoonsuk Park
(Ohio State University)
[View Abstract]
[Download Preview] We explore household consumption surrounding federal tax returns filings and refunds receipt to test various theories of consumption. Because uncertainty regarding the refund is resolved at filing, precautionary savings theory predicts an increase in consumption at this date. Contrary to this prediction, we find that households generally do not increase consumption at filing. Following the receipt of the refunds, consumption of both durables and nondurables increases dramatically and then decays quickly. Our results show that households, on average, are financially constrained, exhibit myopic behavior, and do not respond to precautionary savings motives.
Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts
Shawn Cole
(Harvard Business School)
Benjamin Iverson
(Northwestern University)
Peter Tufano
(University of Oxford)
[View Abstract]
[Download Preview] This paper studies the adoption and impact of prize-linked savings (PLS) accounts, which offer random, lottery-like payouts to individual account holders in lieu of interest. Using micro-level data from a bank in South Africa, we show that a PLS product was attractive to a broad group of individuals, across all age, race, and income levels. Financially-constrained individuals and those with no other deposit accounts were particularly likely to open a PLS account. Participants in the PLS program increased their total savings on average by 1% of annual income, a 38% increase from the mean level of savings. Deposits in PLS did not appear to cannibalize same-bank savings in standard savings products. Instead, PLS appears to serve as a substitute for lottery gambling. Exploiting the random assignment of prizes, we also present evidence that prize winners increase their investment in PLS, sometimes by more than the amount of the prize won, and that large prizes generate a local "buzz" which lead to an 11.6% increase in demand for PLS at a winning branch.
Debt and Debt Management among Older Adults
Annamaria Lusardi
(George Washington University)
Olivia Mitchell
(University of Pennsylvania)
[View Abstract]
Of particular interest in the present economic environment is whether access to credit is changing peoples’ indebtedness over time, particularly as they approach retirement. This project analyzes older individuals’ debt, debt management practices, and financial fragility using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS). Specifically, we examine three different cohorts (individuals age 56–61) in different time periods, 1992, 2002 and 2008, in the HRS to evaluate cross-cohort changes in debt over time. We also draw on recent data from the National Financial Capability Study (NFCS) which provides detailed information on how families manage their debt. Our goal is to assess how wealth and debt among older persons has evolved over time, along with the potential consequences for retirement security. We find that more recent cohorts have taken on more debt and face more financial insecurity, mostly due to having purchased more expensive homes with smaller down payments. In addition Boomers are more likely to have engaged in expensive borrowing practices. Factors associated with better debt outcomes include having higher income, more education, and greater financial literacy; those associated with financial fragility include having more children and experiencing unexpected large income declines. Thus shocks do play a role in the accumulation of debt close to retirement, but this is not enough to have resources: people also need the capacity to manage those resources, if they are to stay out of debt as they head into retirement.
WSJ Category Kings - the impact of media attention on consumer and mutual fund investment decisions
Ron Kaniel
(University of Rochester)
Robert Parham
(University of Rochester)
[View Abstract]
[Download Preview] We exploit a novel natural experiment to establish a clear causal relation between media attention and consumer investment behavior. Our findings indicate a 31 percent local average increase in quarterly capital flows into mutual funds mentioned in a prominent Wall Street Journal “Category Kings” ranking list, compared to those funds which just missed making the list. This flow increase is about 7 times larger than extra flows due to the well documented performance-flow relation. Other funds in the same complex receive extra flows as well, especially in smaller fund complexes. We show mutual fund managers react to the incentive created by the media effect in a strategic way predicted by previous theoretical work, and present evidence for the existence of propagation mechanisms including increased advertising by fund complexes and increased efficacy of subsequent fund mentions in articles.
Consumer Perceptions and Saving Behavior
Kehinde Ajayi
(Boston University)
[View Abstract]
This study examines the effect of public perceptions on saving behavior in a low-income setting, by investigating the impact of a widely publicized audit of Nigeria’s banking sector in 2009. The audit revealed that a third of the country’s twenty-four existing commercial banks were critically insolvent. As a result, the Central Bank of Nigeria dismissed the bank CEOs and bailed out the insolvent banks. Up to this point, there was no systematic information available on the financial health of any of the banks in the sector.
I use three waves of data from a nationally representative survey on access to financial services conducted in 2008, 2010 and 2012, along with administrative data on the locations of bank branches during this period to estimate the impact of the banking audit on saving behavior. My difference-in-differences analysis compares changes in consumer perceptions and formal saving in areas with a high initial distrust of financial institutions to changes in areas that initially had more positive perceptions. I also exploit preexisting variation in locations of the insolvent banks.
The main contribution of this paper is to establish the mechanisms through which the stability of financial institutions affect saving behavior in a low-income context. I can directly observe individual beliefs about the stability of the banking sector, in order to establish the causal mechanisms through which exposure to a banking crisis and government bailout affect saving behavior. Furthermore, I am able to examine effects for a representative sample of the population in a setting where where an estimated 70 percent of adults do not have a bank account.
Jan 03, 2015 2:30 pm, Sheraton Boston, Constitution Ballroom B
American Economic Association
In Honor of Gary S. Becker-Model Economist
(B3) (Panel Discussion)
Panel Moderator:
Kevin Murphy
(University of Chicago)
Kevin Murphy
(University of Chicago)
Gary Becker - The Teacher
James Heckman
(University of Chicago)
Gary Becker - Model Economic Scientist
Edward Lazear
(Stanford University)
Gary Becker - The Public Policy Economist
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 203
American Economic Association
Information, Incentives, and Productivity in Health Care
(I1, D2)
Presiding:
Nicholas Bloom
(Stanford University)
The Efficiency of Slacking Off: Evidence from the Emergency Department
David Chan
(Stanford University)
[View Abstract]
[Download Preview] Work schedules play an increasingly important role as production becomes more time-sensitive and utilizes workers more interchangeably. I find two types of strategic physician behavior near end of shift (EOS) in emergency department shift work. First, on an extensive margin, physicians accept fewer patients near EOS (“slacking off”). Second, on an intensive margin, physicians distort patient care, incurring higher costs as they spend less time on patients accepted near EOS. I demonstrate a tradeoff between these two strategic behaviors, by examining how they change with shift overlap. Accounting for both costs of physician time and patient care, I find that physicians slack off at approximately second-best optimal levels.
Physician vs. Patient Incentives in Prescription Drug Choice
Michael Dickstein
(Stanford University)
[View Abstract]
[Download Preview] In response to rising health spending, public and private insurers use two mechanisms to direct spending toward more valuable treatments: “demand-side” incentives, which impose costs on the patient to limit moral hazard, and “supply-side” incentives, which adjust the physician’s compensation to discourage spending. Using variation in patients’ and physicians’ exposure to incentives, I identify important differences in cost
and health outcomes under these two mechanisms. Demand-side cost-sharing discourages both initial treatment and later adherence. Payment reforms drive physicians to substitute drug care and specialist referrals for office visits. I discuss the implications of these outcomes for optimal insurance design
The Value of Information in Hospital-Supplier Bargaining
Ashley Swanson
(University of Pennsylvania)
Matthew Grennan
(University of Pennsylvania)
[View Abstract]
This paper empirically analyzes the effects of increasing access to price information in markets for hospitals supplies. Hospital supplies account for a large percentage of both the level and growth of health expenditures, and prices for the same input can vary dramatically across hospitals. This variation has prompted calls for increased transparency; such calls have encountered strong opposition from supply manufacturers, particularly those selling medical devices. Using a new data set on all purchase orders issued by over 20 percent of US hospitals, we find that exogenous increases in access to price information led to reductions in hospital expenditures of 14 percent. We then use the data to test competing models of how information affects negotiated prices. Combining the data with our preferred model, we estimate the equilibrium effects on prices and expenditures of expanding the type of transparency observed in this setting to the entire US hospital market.
Compensation or Information? Understanding the Role of Information Technology in Physician Response to Pay-for-Performance
Benjamin Handel
(University of California-Berkeley)
Jonathan Kolstad
(University of Pennsylvania)
Michael Whinston
(Massachusetts Institute of Technology)
[View Abstract]
Standard models of piece rate incentives – whether for fruit pickers or physicians – assume that, conditional on the contract, agents optimize their effort. This model underlies the numerous pay-for-performance (P4P) initiatives adopted to address the quality and cost of health care delivered. In this paper, we study the response to piece rate incentives in a setting in which the information and management resources available to physicians are limited. Specifically, we study the interaction of P4P with the availability of Information Technology (IT). In the absence of IT tools physicians may have difficulty responding to even the strongest P4P incentives if they are unaware of the production function for improvement. Our simple model demonstrates the dilutive effect of asymmetric information on response to P4P as well as the potential for IT tools to overcome these constraints. We then estimate our model using unique panel data on a set of long running P4P initiatives for primary care physicians. We combine these data with individually linked “click-stream” data on physician use of IT tools. The granularity of the data as well as the detailed rules and large changes in the P4P program identify our model. We estimate the impact of P4P in a causal framework as well as whether IT is a complement or substitute for P4P incentives.
Discussants:
Jason Abaluck
(Yale University)
Joshua Gottlieb
(University of British Columbia)
Robin S. Lee
(Harvard University)
Neale Mahoney
(University of Chicago)
Jan 03, 2015 2:30 pm, Sheraton Boston, Commonwealth
American Economic Association
International Capital Flows
(F3, F2)
Presiding:
Linda Goldberg
(Federal Reserve Bank of New York)
Are Capital Controls Countercyclical?
Stephanie Schmitt-Grohé
(Columbia University)
Martín Uribe
(Columbia University)
[View Abstract]
[Download Preview] A growing theoretical literature advocates the use of countercyclical capital control policy, that is, the tightening of restrictions on net capital inflows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in a large number of countries over the period 1995-2011. We find that capital controls are remarkably acyclical. Boom-bust episodes in output, the current account, or the real exchange rate are associated with virtually no systematic movements in capital controls. These results are robust to controlling for the level of development, external indebtedness, the exchange-rate regime, or the great contraction of 2007. They also hold across alternative measures of intensity in the use of capital controls.
International Financial Integration and Crisis Contagion
Michael Devereux
(University of British Columbia)
Changhua Yu
(University of International Business and Economics-Beijing)
[View Abstract]
[Download Preview] International financial integration helps to diversify risk but also may increase the transmission of crises across countries. We provide a quantitative analysis of this trade-off in a two-country general equilibrium model with endogenous portfolio choice and collateral constraints. Collateral constraints bind occasionally, depending upon the state of the economy and levels of inherited debt. The analysis allows for different degrees of financial integration, moving from financial autarky to bond market integration and equity market integration. Financial integration leads to a significant increase in global leverage, doubles the probability of balance sheet crises for any one country, and dramatically increases the degree of `contagion' across countries. Outside of crises, the impact of financial integration on macro aggregates is relatively small. But the impact of a crisis with integrated international financial markets is much less severe than that under financial market autarky. Thus, a trade-off emerges between the probability of crises and the severity of crises. Financial integration can raise or lower welfare, depending on the scale of macroeconomic risk. In particular, in a low risk environment, the increased leverage resulting from financial integration can reduce welfare of investors.
Financial Flows and the International Monetary System
Evgenia Passari
(University of Paris-Dauphine)
Helene Rey
(London Business School)
[View Abstract]
[Download Preview] We review the findings of the literature on the benefits of international financial flows and find that they are quantitatively elusive. We then present evidence on the existence of a global cycle in gross cross border flows, asset prices and leverage and discuss its impact on monetary policy autonomy across different exchange rate regimes. We focus in particular on the effect of US monetary policy shocks on the UK's financial conditions.
Uncertainty Betas and International Capital Flows
Francois Gourio
(Federal Reserve Bank of Chicago)
Michael Siemer
(Federal Reserve Board)
Adrien Verdelhan
(Massachusetts Institute of Technology)
[View Abstract]
Motivated by the idea that capital flights are driven by investors' perceptions of a country's riskiness, this paper studies empirically and theoretically the response of capital flows to increases in uncertainty. We propose a novel measure of country riskiness, the uncertainty beta, which is obtained by regressing on a rolling window the realized volatility of a country's stock market return on the world stock market volatility. This measure captures differential exposures to global uncertainty shocks, which is relevant from the point of view of a diversified world investor. We show that shocks to global uncertainty reduce capital inflows in and increase outflows from the countries with the highest uncertainty betas. Moreover, investment, and GDP fall significantly more in these countries. These differences across countries are statistically significant in a large panel of 35 countries over the last 40 years. We illustrate our findings in a tractable macroeconomic model of global capital flows characterized by time-varying uncertainty in investment returns.
Discussants:
Anusha Chari
(University of North Carolina)
Gurnain Pasricha
(Bank of Canada)
Jay Shambaugh
(George Washington University)
Yu-Chin Chen
(University of Washington)
Jan 03, 2015 2:30 pm, Sheraton Boston, Back Bay Ballroom C
American Economic Association
International Trade and Development
(F1, O1)
Presiding:
Nina Pavcnik
(Dartmouth College)
Exporting, Spatial Agglomeration and Labor-Intensive Manufacturing: Soccer Balls in Pakistan
David Atkin
(Yale University)
Amit Khandelwal
(Columbia University)
Eric Verhoogen
(Columbia University)
[View Abstract]
The economic geography literature predicts that the distribution of manufacturing across rich and poor countries can change sharply as international trade costs fall. We explore just such an evolution in one industry: the manufacture of soccer balls. Despite not playing soccer themselves, Pakistani firms developed a competitive soccer ball export sector in the early 20th Century, and this sector came to dominate the world market by the mid 1990s. Since then Pakistan's market shares have fallen substantially with a large rise in the market share of East Asian countries. This paper examines the evolution of the soccer ball industry in relation to the trade and economic geography literatures.
Informal employment in a growing and globalizing low-income country
Brian McCaig
(Wilfrid Laurier University)
Nina Pavcnik
(Dartmouth College)
[View Abstract]
[Download Preview] We document several facts about workforce transitions from the informal to the formal sector in a fast growing, industrializing, and low-income country, Vietnam. First, younger workers, particularly those who have migrated, are more likely to work in the formal sector and stay there permanently. Second, economy-wide, the decline in the aggregate share of informal employment occurs through changes between and within birth cohorts. Third, younger, better educated, male, and urban workers are more likely to switch to the formal sector than other workers initially in the informal sector. A poorly educated, older, female, rural worker faces little prospect of formalization. Fourth, formalization is associated with occupational upgrading.
Trade Liberalization and the Skill Premium: A Local Labor Markets Approach
Rafael Dix Carneiro
(Duke University)
Brian Kovak
(Carnegie Mellon University)
[View Abstract]
[Download Preview] We develop a specific-factors model of regional economies that includes two types of workers, skilled and unskilled. The model delivers a simple equation relating trade-induced local shocks to changes in local skill premia. We apply the methodology to Brazil's early 1990s trade liberalization and find statistically significant but modest effects of liberalization on the evolution of the skill premium between 1991 and 2010. The methodology uses widely available household survey data and can easily be applied to other countries and liberalization episodes.
Discussants:
Treb Allen
(Northwestern University)
Ann Harrison
(University of Pennsylvania)
Samuel Bazzi
(Boston University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Berkeley Room
American Economic Association
Investor Behavior
(G1)
Presiding:
Donald Chambers
(Lafayette College)
Investor PSY-chology Surrounding "Gangnam Style"
Young han Andy Kim
(Nanyang Business School)
Hosung Jung
(Bank of Korea)
[View Abstract]
The global success of "Gangnam Style," the 18th K-pop single by the South Korean rapper PSY in 2012, was an exogenous shock to individual investor enthusiasm about DI Corp., because the company’s chairman and CEO is PSY’s father. The stock price of the semiconductor equipment company jumped by almost 800% in three months without material information. The count of flash mob videos and parody videos uploaded on YouTube from each country and region is our proxy for the enthusiasm of individual investors. Using Korean microstructure data that identifies non-resident foreign individual (NRFInd, hereafter) investors and resident foreign individual (RFInd, hereafter) investors by nationality, we find that NRFInd (RFInd) investors in specific countries become net buyers (sellers) of DI Corp. when a flash mob or parody music video is uploaded in their country. Domestic individual investors were also significantly affected by the foreign flash mobs, which was the driving force of the bubble. One flash mob in a foreign country was associated with 0.83% of abnormal return on the next day. Overall, the case shows that non-informative attention can sometimes drive the price away from fundamentals.
The Neural Behavior of Investors
Rachel A. Pownall
(Maastricht University)
Joao Paulo Vieto
(Polytechnic Institute of Viana do Castelo)
Armando F. Rocha
(Sao Paulo University)
Fabio T. Rocha
(Research on Artificial and Natural Intelligence)
Eduardo Massad
(Sao Paulo University)
[View Abstract]
[Download Preview] Risk preferences are known to be heterogeneous, in particular across genders. In this paper we provide striking evidence that brain activity associated with financial decision making differs between males and females. Using Electroencephalogram technology in an investment trading simulation we capture participants' brain electric activity during the investment process and find that men use different parts of the brain to make the same financial investment decisions than women. Furthermore we separately analyse decisions to buy, sell, and hold stocks, and find that whilst men use the same set of neural circuits to make all three types of investment decisions, women use multiple areas. The results provide evidence of why the decision making process for investment decisions is significantly different between men and women. The findings help towards understanding the heterogeneity of risk preferences when making financial decisions and sheds light on some recent empirical findings in behavioral finance.
Advertising Arbitrage
Sergei Kovbasyuk
(EIEF)
Marco Pagano
(University of Naples Federico II, CSEF and EIEF)
[View Abstract]
[Download Preview] Speculators often advertise arbitrage opportunities in order to persuade other investors and thus accelerate the correction of mispricing. We show that in order to minimize the risk and the cost of arbitrage an investor who identifies several mispriced assets optimally advertises only one of them, and overweights it in his portfolio; a risk-neutral arbitrageur invests only in this asset. The choice of the asset to be advertised depends not only on mispricing but also on its ``advertisability'' and accuracy of future news about it. When several arbitrageurs identify the same arbitrage opportunities, their decisions are strategic complements: they invest in the same asset and advertise it. Then, multiple equilibria may arise, some of which inefficient: arbitrageurs may correct small mispricings while failing to eliminate large ones. Finally, prices react more strongly to the ads of arbitrageurs with a successful track record, and reputation-building induces high-skill arbitrageurs to advertise more than others.
CDS Momentum: Slow Moving Credit Ratings and Cross-Market Spillovers
Jongsub Lee
(University of Florida)
Andy Naranjo
(University of Florida)
Stace Sirmans
(University of Florida)
[View Abstract]
[Download Preview] Using 5-year credit default swap (CDS) contracts on 1,247 U.S. firms from 2003 - 2011, we show a 3-month formation and 1-month holding period CDS momentum strategy yields 52 bps per month. By incorporating past CDS return signals, we further show traditional stock momentum strategies avoid abrupt losses during the crisis period and improve their performance by net 104 bps per month. Both within CDS market and across CDS-to-stock market momentum profits exist because CDS returns correctly anticipate future credit rating changes. Our results highlight the adverse effects of sluggish rating updates in creating information efficiency distortions and investment anomalies.
Managerial Investment in Mutual Funds
Abigail S. Hornstein
(Wesleyan University)
James Hounsell
(Third Avenue Management)
[View Abstract]
[Download Preview] The SEC requires mutual fund managers to disclose annually investments in self-managed funds. We examine whether such investments align managerial and investor interests using a hand-collected panel dataset at nearly 400 no load funds. We believe we are the first to document and examine the time series variation in these investments. Managerial investment fluctuates markedly within funds, contrary to prior researchers' assumptions that the levels would be non-decreasing, and is not systematically related to fund characteristics. Fund returns are higher for solo-managed funds with managerial investment. On the other hand, team-managed funds have lower excess returns and management fees when managers invest more in the fund. These results suggest that managerial investment does not signal interest alignment but is rather an idiosyncratic personal decision.
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 201
American Economic Association
Labor Market Institutions in China
(J5, J4)
Presiding:
Robert Moffitt
(Johns Hopkins University)
What China's Government Agency Unions Do?
Richard B. Freeman
(Harvard University and NBER)
Fan Liang
(Beijing University)
[View Abstract]
Under the threat of worker-initiated labor unrest and government/party directives to play a larger role as representing workers, China's official trade union movement, the All China Federation of Trade unions (ACFTU), has moved from Leninist “transmission belt” toward defending worker interest. The ACTFU has lobbied the government for pro-worker legislation such as the 2007 Labor Contract Law and seeks to represent workers in resolving labor disputes. Studies find that unions are positively associated with greater employer provision of social insurances, greater adherence to the contract labor law, and in some cases with higher wages. At the same time, the government still expects the unions to provide training, improve communications between managers and workers, and help management raise productivity. How effective are ACFTU unions in these different roles?
We analyze the relation between unionism and worker outcomes an establishment productivity and profitability in 2006-2009 using a unique data set of establishments that recognize unions (increasingly the norm in China due to government pressures for unionism) linked to the Industrial Firms Census. Since all of the establishments have unions, we develop measures of union strength based on percentage of workers who join unions, the firms' holding Worker Congresses, and related indicators, and analyze the relation between these indicators of the strength of unions on worker outcomes and productivity and profitability in cross-sections and in longitudinal data. We find that stronger unions are associated with better worker outcomes and higher firm productivity but that those relations balance out to produce no relation between union strength and profits. We consider the pathways by which China's unions have these effects even though most operate without genuine collective bargaining and compare our findings to the patterns found in studies of US and other advanced country unions.
The Cooperative Roles of Chinese Unions in Multinational Corporations
Tony Fang
(Monash University, University of Toronto, and IZA)
Ying Ge
(University of International Business and Economics-Beijing)
Youqing Fan
(University of Nottingham-Ningbo China)
[View Abstract]
[Download Preview] Since China promulgated the new minimum wage regulations in 2004, the frequency and magnitude of changes in the minimum wage have been substantial. This paper uses the county-level minimum wage data combined with a longitudinal household survey data from 16 representative provinces as a merged county-level panel to estimate the employment effects of minimum wage changes in China over the 2002-2009 period. In contrast to the mixed results reported by previous studies using provincial-level data, we have presented evidence that minimum wage changes had led to significant adverse effects on employment in the Eastern and Central regions of China, and had resulted in disemployment for females, young adults, and low-skilled workers.
Keywords: Minimum Wage, China, Employment
Do Chinese Enterprises Comply with Minimum Wage Policy?
Shi Li
(Beijing Normal University)
Liang Xiong
(Chinese Academy of Personnel Sciences)
Linxiang Ye
(Nanjing University)
[View Abstract]
The Minimum Wage Policy has been implemented in China since the mid of 1990s and attracted more attention in recent years, but there are few studies investigating the compliance of enterprises with the policy. The paper attempts to find out why some enterprises do not comply with the policy in China using data from an employer-employee matched survey conducted in 2010. The survey covers around 2000 enterprises and 350,000 employees and collects information on financial conditions of the enterprises and wage and personal characteristics of the employees. The paper will present the empirical results helping to answer the questions such as what type of enterprises is more likely to disobey the policy? Are state-owned enterprises more willing to comply with the policy? Which groups of employees are paid below minimum wages?
Unintended Consequence of China's New Labor Contract Law
Randall Akee
(University of California-Los Angeles)
Liqiu Zhao
(Renmin University of China)
Zhong Zhao
(Renmin University of China)
[View Abstract]
China's New Labor Contract Law, which went into effect on January 1, 2008, stipulated that the maximum cumulative duration of successive fixed-term contracts is ten years. If an employee has been working for the same employer for ten consecutive years, an open-ended labor contract shall be concluded, unless the employee requests the conclusion of a fixed-term labor contract instead. In order to circumvent the new labor contract law, employers may tend to dismiss workers who have already worked in the firms for about ten years before January 1 2008. In this paper, we empirically investigate whether this practice of dismissing long term workers took place as a result of the new contract law. We also investigate which types of workers were most vulnerable to this kind of dismissal and if this kind of dismissal is still prevalent today.
Discussants:
Melanie Khamis
(Wesleyan University)
Hau Chyi
(University of Chicago)
Corrado Giulietti
(IZA)
Junfu Zhang
(Clark University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Riverway
American Economic Association
Macro/International I
(E3, E4)
Presiding:
Serena Ng
(Columbia University)
Aggregate Shocks and the Two Sides of Credit Reallocation
Silvio Contessi
(Federal Reserve Bank of St. Louis)
Riccardo Di Cecio
(Federal Reserve Bank of St. Louis)
Johanna Francis
(Fordham University)
[View Abstract]
[Download Preview] We construct two sides of quarterly gross credit reallocation for the U.S. economy: business borrowing
gross flows of publicly traded companies and bank lending gross flows of commercial banks from the mid-to-late 1970s to 2012. We study the responses of credit creation, destruction, and reallocation for these two sides of credit relationships to a set of macroeconomic shocks--embodied and neutral technological shocks, monetary policy shocks, and excess bond premium shocks--in a structural vector autoregressive framework. Together, these shocks explain at most 20% of credit reallocation. Embodied technology shocks and excess bond premium shocks explain the largest portion of credit reallocation in lending but play a more limited role in explaining borrowing flows. We then study the different roles of allocative and aggregate shocks in driving cyclical movements in credit reallocation and find a sizably larger role for idiosyncratic shocks than for aggregate shocks. These results call for an important role for cross-sectional firm-level and bank-level heterogeneity in theoretical models with credit frictions.
Understanding the Cyclical Nature of Financial Intermediation Costs
Matthew Jaremski
(Colgate University)
Ayse Sapci
(Colgate University)
[View Abstract]
[Download Preview] The Great Recession has caused macroeconomists to reexamine and build on their foundational models. Premier amongst these new approaches is the incorporation of the dynamic interaction between the financial sector and the real economy. Pre-recession models with financial frictions generally contain passive banking institutions that either costlessly pass funds between individuals or do so at a fixed monitoring cost (Townsend 1979 and Bernanke et al. 1999). Sapci (2013), on the other hand, shows that intermediation costs are highly countercyclical and their dynamics matter at the country-level. Because financial intermediation costs (i.e., all non-interest expenses that banks incur, otherwise known as overhead costs) directly affect the abundance of available credit in the market, she further argues that fluctuations in these costs serve as a natural and realistic financial shock with large spillover effects to the real economy. However, despite the large macroeconomic effects of intermediation costs, the literature is silent on what is driving the cyclicality in these costs. Some studies have examined them using cross-sectional and cross-country data but they suffer from omitted variable bias and cannot capture any dynamic macroeconomic effects across time because they lack the necessary high frequency time-series data. We fill this gap by empirically examining overhead costs in the US using a bank level, quarterly dataset from 1998 through 2011. This study not only allows us to understand what makes costs countercyclical but also sheds light on how financial shocks might be better modeled.
Labor Market Heterogeneity over the Business Cycle
Guy Laroque
(University College London and Sciences Po)
Sophie Osotimehin
(University of Virginia)
[View Abstract]
This paper documents the heterogeneity in labor market volatility across age and gender in the United States over 1976-2014. We separate fluctuations in hours worked into fluctuations in the average number of hours per worker (the intensive margin) and fluctuations in the number of workers (the extensive margin) and examine their relative importance for each demographic group, as well as for the aggregate change in hours worked over the business cycle. Those stylized facts are analyzed in the light of labor market fluctuations theories.
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 207
American Economic Association
Measuring the Multinational Economy
(F2)
Presiding:
Kim J. Ruhl
(New York University)
Factoryless Goods Producers in the United States
Andrew B. Bernard
(Dartmouth College)
Teresa Fort
(Dartmouth College)
[View Abstract]
[Download Preview] This paper documents the extent and characteristics of plants and firms in the US that are outside the
manufacturing sector according to official government statistics but nonetheless are heavily involved in
activities related to the production of manufactured goods. Using new data on establishment activities in
the Census of Wholesale Trade conducted by the US Bureau of the Census in 2002 and 2007, this paper
provides evidence on so-called factoryless goods producers (FGPs) in the US economy. FGPs are formally
in the wholesale sector but, unlike traditional wholesale establishments, FGPs design the goods they sell
and coordinate the production activities. This paper documents the extent of FGPs in the wholesale sector
and how they differ from traditional wholesalers in terms of their employment, wages, productivity and
output. Reclassifying FGP establishments to the manufacturing sector using our definition would have
shifted at least 595,000 workers to as many as 1,311,000 workers from wholesale to manufacturing sectors
in 2002 and at least 431,000 workers to as many as 1,934,000 workers in 2007.
How Well is United States Intrafirm Trade Measured?
Kim J. Ruhl
(New York University)
[View Abstract]
Intrafirm trade dominates U.S. exports and imports, and understanding the unique factors that characterize
this trade has become an important research agenda. In the United States, data on imports and exports
of goods between associated parties are collected in two places: The intrafirm trade data collected by the
Bureau of Economic Analysis (BEA) and the related-party trade data collected by the U.S. Census Bureau.
In this paper I take advantage of these two sources of data to determine the extent to which intrafirm trade is being properly measured.
Along some dimensions the two data sources are comparable, although differences in the coverage of import transactions is an important exception. Generally, the Census data provide greater detail about the composition of goods being traded by associated parties, while the BEA data provide greater detail about the entities participating in the transaction. Although the data are derived from different sources and vary in their coverage, the two resulting data sets are largely consistent with each other. The largest discrepancies lie in measuring trade with China and Mexico, particularly in recent data.
Multinational Production: Data and Stylized Facts
Natalia Ramondo
(University of California-San Diego)
Andres Rodriguez-Clare
(University of California-Berkeley)
Felix Tintelnot
(University of Chicago)
[View Abstract]
[Download Preview] We present a comprehensive data set on the bilateral activity of multinational firms, analogous
to the data available for international bilateral trade flows. We focus on two variables: affiliate
revenues and the number of affiliates across country pairs. Each observation is an average over
the period 1996-2001 and an aggregate over all non-financial sectors in the economy. Our basic
data are from UNCTAD and include 59 countries. We implement an extrapolation procedure that
fills in missing values using, alternately, FDI stocks and the bilateral number of M&A transactions.
We reduce the number of missing values by almost 60 percent.
The new data set allows for the analysis of new patterns of multinational production activities
across countries, not only taking into account firm rather than balance of payment variables, but
also taking into account both the intensive and extensive margins of such activities—which have
been extensively documented for cross-country trade flows.
Discussants:
Raymond Mataloni
(U.S. Bureau of Economic Analysis)
Lindsey Oldenski
(Georgetown University)
Vanessa Alviarez
(University of Michigan)
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 204
American Economic Association
New Methods to Analyze Income Distributions in Household Surveys with Measurement Error
(C8, D3)
Presiding:
Bruce D. Meyer
(University of Chicago)
Using Linked Survey and Administrative Data to Better Measure Income: Implications for Poverty, Program Effectiveness and Holes in the Safety Net
Nikolas Mittag
(CERGE-EI)
Bruce D. Meyer
(University of Chicago)
[View Abstract]
[Download Preview] We examine the consequences of underreporting of transfer programs in household survey data for several prototypical analyses of low-income populations. We focus on the Current Population Survey (CPS), the source of official poverty and inequality statistics, but provide evidence that our results are likely to apply to other surveys. We link administrative data for food stamps, TANF, General Assistance, and subsidized housing from New York State to the CPS at the individual level. Program receipt in the CPS is missed for over one-third of housing assistance recipients, 40 percent of food stamp recipients and 60 percent of TANF and General Assistance recipients. Benefits are also undercounted on the intensive margin, particularly for TANF, General Assistance and housing assistance. We find that the survey data sharply understate the income of poor households, as suggested in past work by one of the authors. Underreporting in the survey data also severely understates the effects of anti-poverty programs and changes our understanding of program targeting. Using the administrative data rather than survey data alone, the poverty reducing effect of all programs combined is nearly doubled while the effect of housing assistance is tripled. We also re-examine the coverage of the safety net, specifically the share of people without work or program receipt. Using the administrative measures of program receipt rather than the survey ones often reduces the share of single mothers falling through the safety net by one-half or more.
Trouble in the Tails? Earnings Non-response and Response Bias across the Distribution
Christopher Bollinger
(University of Kentucky)
Barry Hirsch
(Georgia State University)
Charles Hokayem
(U.S. Census Bureau)
James Ziliak
(University of Kentucky)
[View Abstract]
[Download Preview] Earnings non-response in household surveys is widespread, yet there is limited evidence on whether and how non-response bias affects measured earnings. This paper examines the patterns and consequences of non-response using internal Current Population Survey (CPS ASEC) individual records matched to administrative SSA data on earnings for calendar years 2005-2010. Our findings include the following. Non-response across the earnings distribution, conditional on covariates, is U-shaped, with left-tail “strugglers” and right-tail “stars” being least likely to report earnings. Household surveys report too few low earners and too few extremely high earners. Particularly high non-response is seen among women with low earnings and among men with very high earnings. Throughout much of the earnings distribution non-response is ignorable, but there exists trouble in the tails.
Misreporting in the SIPP about Participation in SSA Programs
Graton M. Gathright
(U.S. Census Bureau)
[View Abstract]
I use administrative data from the Social Security Administration (SSA) to evaluate the accuracy of
reported program participation in multiple panels of the Survey of Income and Program Participation
(SIPP). I study rates of under‐ and over‐reporting and errors in reported benefit amounts across SIPP
panels. I also compare misreporting in 2008 SIPP to misreporting in field tests of the 2014 SIPP redesign.
Using the Pareto Distribution to Improve Estimates of Topcoded Earnings
Philip Armour
(Cornell University)
Richard V. Burkhauser
(Cornell University)
Jeff Larrimore
(Federal Reserve Board)
[View Abstract]
Inconsistent censoring of top earnings in the public‐use March Current Population Survey (CPS) is an
important limitation in using it to measure labor earnings trends. Using less‐censored internal CPS
data, combined with Pareto estimates from it for internally censored observations, we create an
enhanced cell‐mean series to capture top earnings in the public‐use CPS. We find previous common
approaches for imputing topcoded earnings systematically understate top earnings. Annual
earnings inequality trends since 1963 using our series closely approximate the substantial increase
in earnings inequality observed in Social Security Administration data for working‐age commerce
and industry workers by Kopczuk, Saez, and Song (2010). However, when considering all workers
the level of earnings inequality is higher but the increase over this time has been more modest.
Discussants:
Dan Black
(University of Chicago)
Charles Brown
(University of Michigan)
Jan 03, 2015 2:30 pm, Sheraton Boston, Constitution Ballroom A
American Economic Association
Pension Inertia: Active Versus Passive Participants
(J3)
Presiding:
Jeffrey R. Brown
(University of Illinois-Urbana-Champaign and NBER)
Voluntary Retirement Contributions: Lifetime Earnings or Inertia?
Teresa Ghilarducci
(New School)
Joelle Saad-Lessler
(New School)
Gayle Reznik
(Social Security Administration)
[View Abstract]
Close examination of a panel data set of workers who either continue with their current employer or who experience a job change or loss reveal that voluntary participation in retirement accounts is sensitive to changes in earnings that affect permanent life time income. The response of participation to earnings changes is asymmetric with responses to losses greater than responses to increases. We are using two SIPP waves in the 2008 panel.
How Automatic Enrollment Affects the Likelihood and Distribution of 401(k) Contributions: Evidence from a National Survey
Barbara A. Butrica
(Urban Institute)
Nadia S. Karamcheva
(Urban Institute)
[View Abstract]
Automatic enrollment has been widely embraced for raising employee participation in 401(k) plans. However, empirical findings so far have been derived from three main sources, each having its disadvantages: 1) individual firm case studies that observe participants' behavior before and after automatic enrollment, but may not generalize to the larger population of workers (e.g. Madrian and Shea 2001; Beshears et al. 2010); 2) proprietary plan-level data from plan sponsors that cover a substantial number of predominantly larger plans but are not necessarily representative of all covered workers (e.g. Nessmith, Utkus and Young, 2007; VanDerhei, 2010; Vanguard, 2012); and 3) firm-level data such as the Form 5500 series or the National Compensation Survey, which are nationally representative but lack important demographic and socioeconomic information necessary to analyze individual participants’ behavior (e.g. Soto and Butrica, 2009; Butrica and Karamcheva, 2012).The Health and Retirement Study (HRS) is the first nationally representative household survey to ask respondents about automatic enrollment, having begun collecting this information (along with other pension plan details) in 2006. These data now allow us to examine the relationship between automatic enrollment, plan participation, and contributions on a nationally representative sample of workers in their fifties and early sixties, controlling for their demographic and economic characteristics, in both a cross-sectional and longitudinal framework. As the HRS enables us also to explore changes in other types of savings, the results of our analysis will allow us to assess how broader adoption of automatic enrollment might affect retirement income security.
The Impact of Employment and Earnings Shocks on Contribution Behavior in Defined Contribution Plans: 2005–2009
Irena Dushi
(Social Security Administration)
Howard M. Iams
(Social Security Administration)
[View Abstract]
This paper investigates the relationship between job and earnings changes and workers’ participation and contributions to defined contribution (DC) plans. We use longitudinal information from Social Security W-2 tax records matched to a nationally representative sample of respondents from the Survey of Income and Program Participation. Our findings reveal that both job changes and earnings losses lead to an increase in the probability of stopping contributions and to a decrease in contribution amounts and contribution rates. This pattern was true not only during the Great Recession of 2007-2009 but also during the non-recessionary period prior to it, suggesting that contributions to DC plans are not necessarily driven by inertia but instead are quite dynamic and vary over time. Our simulations indicate that observed changes in contributions during the Great Recession are likely to have a non-trivial impact on retirement preparedness of future retirees, particularly for those who experienced job changes.
Inertia versus Active Choice among Pension Participants
Leslie A. Muller
(Grand Valley State University)
Leah Hoogstra
(Calvin College)
John A. Turner
(Pension Policy Center)
[View Abstract]
This study uses data from the Panel Study of Income Dynamics for the years 1999, 2001, 2003, 2005, 2007, 2009 and 2011 to study the persistence in pension participation for workers who remain with the same employer. Workers who initially participate in a 401(k) plan and continue to do so while remaining with the same employer, but who are predicted at some point to cease participating, due to changes in variables that predict changes in participation status, are counted as being affected by inertia. By comparing the prevalence of these workers to workers who change participation status while remaining with the same employer, we assess the relative importance among pension participants of inertia versus active choice concerning pension participation.
Discussants:
James Choi
(Yale University and NBER)
James Poterba
(Massachusetts Institute of Technology and NBER)
David Laibson
(Harvard University and NBER)
Brigitte C. Madrian
(Harvard University and NBER)
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 202
American Economic Association
Reference Points and Redistributive Taxation
(H2, D3)
Presiding:
Ilyana Kuziemko
(Princeton University)
Reference Points and Redistributive Preferences
Ilyana Kuziemko
(Princeton University)
[View Abstract]
[Download Preview] If individuals evaluate outcomes relative to the status quo, then a social planner may limit redistribution even if the absence of moral hazard. In our first experiment, we show that subjects put in the position of social planners redistribute exogenous, unequal endowments between two strangers significantly less when the strangers know the initial endowments than when they do not (when in fact we observe near complete redistribution). The treatment effect is driven by subjects with highly convex preferences in the loss-domain, suggesting that loss-aversion may play a role. In a separate experiment, respondents choose a tax rate for someone who (due to luck) became rich five years (one year) ago. Respondents reward the more deeply embedded reference point in the five-year scenario with a lower tax rate. Our results offer a new explanation for why voters prefer lower levels of redistribution than standard models predict.
Loss Aversion Motivates Tax Sheltering: Evidence from United States Tax Returns
Alex Rees-Jones
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper presents evidence that loss aversion affects taxpayers as they file their annual tax returns. I model the decisions of a loss-averse tax filer who may use tax shelters to manipulate the "balance due" exchanged with the IRS. I use this model to derive distinguishing predictions of loss aversion which facilitate its identification and quantification in the field. Under loss framing, the discretely steeper marginal utility of a dollar motivates greater pursuit of shelters. These motives imply that the post-sheltering distribution of balance due will exhibit a structural shift in the loss domain, due to discretely higher sheltering in this region. Furthermore, the discontinuity in marginal incentives generates excess mass, or "bunching," at the gain/loss threshold. Using the 1979-1990 IRS Panel of Individual Returns, I document the predicted bunching and shifting in the distribution of balance due, and examine the causes and correlates of these features. The observed distribution is consistent with the framing of tax payments as losses and tax refunds as gains, and is difficult to rationalize with plausible alternative theories. Using two complementary structural approaches — identified from the bunching and shifting predictions, respectively — I estimate substantial potential policy impact of this psychological bias. These results have direct implications for tax policy and public finance.
Income Inequality Influences Perceptions of Legitimate Income Differences
Kris-Stella Trump
(Harvard University)
[View Abstract]
[Download Preview] This paper argues that public opinion regarding the legitimacy of income differences is influenced by actual income inequality. When income differences are (perceived to be) high, the public thinks of larger income inequality as legitimate. The phenomenon is explained by the system justification motivation and other psychological processes that advantage and legitimate existing social arrangements. This is demonstrated in three experiments, which show that personal experiences of inequality as well as information regarding national-level income inequality can affect which income differences are thought of as legitimate. A fourth experiment shows that the system justification motivation is a cause of this effect. The results can help us explain the empirical puzzle of why higher income inequality across time and space does not systematically result in higher dissatisfaction with inequality.
Revisiting the Classical View of Benefit-Based Taxation
Matthew Weinzierl
(Harvard University)
[View Abstract]
[Download Preview] This paper explores how the persistently popular "classical" logic of benefit-based taxation, in which an individual's benefit from public goods is tied to his or her income-earning ability, can be incorporated into modern optimal tax theory. If Lindahl's methods are applied to that view of benefits, first-best optimal policy can be characterized analytically as depending on a few potentially estimable statistics, in particular the coefficient of complementarity between public goods and innate talent. Constrained optimal policy with a Pareto-efficient objective that strikes a balance--controlled by a single parameter--between this principle and the familiar utilitarian criterion can be simulated using conventional constraints and methods. A wide range of optimal policy outcomes can result, including those that match well several features of existing policies. To the extent that such an objective reflects the mixed normative reasoning behind prevailing policies, this model may o¤er a useful approach to a positive optimal tax theory.
Discussants:
Benjamin B. Lockwood
(Harvard University)
Tatiana Homonoff
(Cornell University)
Stefanie Stantcheva
(Harvard University)
Felix Bierbrauer
(University of Cologne)
Jan 03, 2015 2:30 pm, Sheraton Boston, Gardner Room
American Economic Association
Seasonality in Developing Country Markets: Consumption, Prices and Labor
(O1)
Presiding:
B. Kelsey Jack
(Tufts University)
Labor Rationing in Villages: Experimental Estimates from Aggregate Labor Supply Shifts
Emily Breza
(Columbia University)
Supreet Kaur
(Columbia University)
Yogita Shamdasani
(Columbia University)
[View Abstract]
A large body of qualitative and survey evidence points to potential labor market distortions in poor countries. However, there is a dearth of rigorous empirical evidence that documents such distortions and quantifies their magnitude. One of the oldest and most widely debated distortions is the presence of involuntary unemployment in village labor markets. In this project, we experimentally test for involuntary unemployment in markets for casual daily labor in Indian villages. We exploit a large scale field experiment in which a substantial fraction of workers in a random subset of villages is hired full-time for one month. This generates variation in aggregate labor supply shocks across villages, while leaving local agricultural labor demand unchanged in each village. If labor is severely rationed, then removing a large number of workers from a village will cause: i) no effect on the local agricultural wage; ii) no effect on the level of aggregate agricultural employment in the village; iii) positive employment spillovers on the laborers who remain in the village (i.e. who are not removed), who will report higher individual employment and lower involuntary unemployment. In contrast, if the labor market had cleared before the labor supply shock, then the reduction in workers would produce a different set of effects. We use surveys with agricultural workers and employers to test for these predictions across different periods of the agricultural year. This will provide the first experimental estimates of the degree of involuntary unemployment in rural labor markets.
Selling Low and Buying High: An Arbitrage Puzzle in Kenyan Villages
Marshall Burke
(University of California-Berkeley)
[View Abstract]
[Download Preview] Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial inter-temporal arbitrage opportunities, but these opportunities remain largely unexploited: small-scale farmers are commonly observed to "sell low and buy high" rather than the reverse. In a field experiment in Kenya, we show that credit market imperfections limit farmers' abilities to move grain intertemporally, and that providing timely access to credit allows farmers to purchase at lower prices and sell at higher prices, increasing farm profits. To understand general equilibrium effects of these changes in behavior, we vary the density of loan offers across locations. We document significant effects of the credit intervention on seasonal price dispersion in local grain markets, and show that these GE effects strongly affect our individual level profitability estimates. In contrast to existing experimental work, our results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape estimates of microcredit's effectiveness.
Direct and Indirect Effects of Malawi's Public Works Program on Food Security
Kathleen Beegle
(World Bank)
Emanuela Galasso
(World Bank)
Jessica Goldberg
(University of Maryland)
[View Abstract]
[Download Preview] Labor-intensive public works programs are an important social protection tool in low-income settings, intended to supplement income of poor households and improve public infrastructure. Despite the recent expansion of public works programs in low-income countries, notably the massive program in India, there is a lack of rigorous empirical studies on the impact of such programs. This paper examines the impact of the large-scale public works program in Malawi in which program availability was randomly assigned across communities and to households within communities. Drawing on household panel survey data, the impact of the program is examined across four dimensions: labor allocation, food security, agricultural inputs, and participation in other programs. There is no evidence that public works participation displaces home production, casual wage labor, or participation in other programs in the context of Malawi's labor markets and social protection environment. While the program does not affect use of fertilizer or improve the food security of treated households, it does lead to perplexing reductions in food security for untreated households in villages with PWP activities.
Seasonal Liquidity Constraints and Off-Farm Labor Supply: Evidence from Zambia
Gunther Fink
(Harvard University)
B. Kelsey Jack
(Tufts University)
Felix Masiye
(University of Zambia)
[View Abstract]
Small-scale farming remains the primary source of income for a majority of the population in developing countries. While most farmers primarily work on their own fields during the cropping season, off-farm labor activities are common. A growing literature suggests that these off-farm labor activities are often driven by short-term consumption needs and absent credit markets, rather than being the result of optimal farm labor allocation. We conduct a field experiment in rural Zambia to study the interactions between credit availability and household labor decisions. We find that providing households with access to credit substantially alters the allocation of household labor, with households in villages randomly selected for a seasonal loan program selling 25 percent less labor off-farm, on average. We also find that increased credit availability is associated with local increases in wages. Our results suggest that a substantial fraction of rural labor supply is driven by short-term constraints, and that access to credit markets may improve labor allocation efficiency overall.
Discussants:
Seema Jayachandran
(Northwestern University)
Christopher Barrett
(Cornell University)
Jeremy Magruder
(University of California-Berkeley)
Ahmed Mushfiq Mobarak
(Yale University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Independence Ballroom
American Economic Association
The Economics of Secular Stagnation
(A1)
Presiding:
Robert E. Hall
(Stanford University)
Secular Stagnation: A Supply Side View
Robert Gordon
(Northwestern University)
TBD
Secular Stagnation: A Demand Side View
Lawrence H. Summers
(Harvard University)
TBD
Does History Lend Any Support to the Secular Stagnation Hypothesis?
Barry Eichengreen
(University of California-Berkeley)
[Download Preview] TBD
Discussants:
Robert E. Hall
(Stanford University)
William Nordhaus
(Yale University)
N. Gregory Mankiw
(Harvard University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Back Bay Ballroom B
American Economic Association
The Undergraduate Origins of PhD Economists: Where Do They Come From and Advice to Programs
(A2) (Panel Discussion)
Panel Moderator:
Gail Hoyt
(University of Kentucky)
John Siegfried
(Vanderbilt University)
Wendy Stock
(Montana State University)
Philip N. Jefferson
(Swarthmore College)
Ellen Magenheim
(Swarthmore College)
Jeffrey Miron
(Harvard University)
Jenny Bourne
(Carleton College)
Nathan Grawe
(Carleton College)
Martha L. Olney
(University of California-Berkeley)
Jan 03, 2015 2:30 pm, Sheraton Boston, Boston Common
American Economic Association
Violence-Domestic, Automobile, Drugs and Climate
(I1)
Presiding:
Melissa McInerney
(Tufts University)
Stemming the Prescription Drug Abuse Epidemic: What Works
Dara Lee Luca
(University of Missouri and Harvard University)
[View Abstract]
Deaths from drug overdose have been rising at a meteoric rate in recent years to become the leading cause of injury death in the United States as of 2010. To put this in perspective, drug poisoning caused more deaths than motor vehicle traffic crashes, which has long held the number one spot in causes of injury death. The majority of drug overdose deaths are caused by prescription drug use, and in particular, opioid-based painkillers such as oxycodone and methadone.
In this paper, we analyze the impact of state legislative strategies that have been introduced in recent years in response to the burgeoning epidemic. As of 2010, more than 40 states have enacted some kind of prescription drug control law, but so far there has been scant research on whether these laws are effective in curbing prescription drug abuse and overdose. The eight types of laws we consider are (1) laws requiring a physical examination before prescribing, 2) laws requiring tamper-resistant prescription forms, 3) laws regulating pain clinics, 4) laws setting prescription drug limits, 5) laws prohibiting “doctor shopping”/fraud, 5) laws requiring patient identification before dispensing, 7) immunity laws providing immunity from prosecution for individuals seeking assistance during an overdose, and 8) prescription drug monitoring programs (PDMP), which are statewide electronic databases that keep track of substances dispensed in each state. Preliminary results suggest that stricter regulation of pain clinics and PDMP may be effective in decreasing opioid drug deaths. Interestingly, we find that deaths from illicit drugs (ex., heroin and cocaine) are impacted as well, suggesting there may be substitution effects between prescription and illicit drugs. Further, immunity laws significantly increase and improve survival outcomes of ER visits for both prescription and illicit drug overdose, implying there may be “positive” spillover effects on illicit drug users.
Health, Human Capital and Domestic Violence
Nicholas Papageorge
(Johns Hopkins University)
Gwyn Pauley
(Johns Hopkins University)
Barton Hamilton
(Washington University-St. Louis)
Robert Pollak
(Washington University-St. Louis)
[View Abstract]
We examine the effect of positive health shocks on a woman's likelihood to suffer domestic violence. To identify a causal relationship, we examine a sample of low-income, HIV-positive women and leverage differences in the progression of each woman's illness when an unanticipated HIV treatment advance (HAART) is introduced. Our main result is that positive health shocks induced by a pharmaceutical innovation reduced domestic violence among HIV-positive women. This finding is in line two ideas. First, health is a form of human capital properly viewed as a resource, and second, domestic abuse is causally linked to resource constraints. Next, we show evidence of a particular mechanism behind our main finding. Women who experience a positive health shock - and who therefore expect to live longer - exhibit sharp declines in their use of narcotics and alcohol. Reductions in risky health behaviors like narcotics use reduce violence in two ways. First, they are consistent with investments in human capital, which improve women's bargaining positions. Second, they effectively reduce women's exposure to violence.
Do Vehicle Crash Tests Save Lives? Impacts on Market Decisions and Accident Mortality
Damien Sheehan-Connor
(Wesleyan University)
[View Abstract]
Motor vehicles are tested for crashworthiness and the results made available to consumers by government and private organizations. These programs could be welfare improving if they correct an informational market failure in which consumers would otherwise be unable to obtain adequate information about vehicle safety when choosing a vehicle. In the absence of such a market failure, vehicle safety would be optimally provided even without crash test programs and there should be no response of automakers or consumers to the information provided by these tests. This project investigates the response of automakers and consumers to the implementation of a frontal crash testing program by the Insurance Institute for Highway Safety (IIHS) in 1995 and evaluates the degree to which this program impacted vehicle safety and motor vehicle accident mortality. Manufacturers are found to have built safer cars in response to the testing and consumers to increase purchases of cars scoring well on the tests. The impact on accident safety is evaluated using data from the Fatality Analysis Reporting System. Fatality probability improves with year of vehicle redesign following a similar pattern to the improvement in crash test scores, suggesting a causal relationship. This result in robust to instrumenting for potential endogeneity of redesign year with a “predicted redesign year” based on past patterns. The estimates suggest that the program led to a 10% reduction in driver mortality in head-on collisions from 1991 to 2011, which is 20% of the total reduction actually observed during that time. Using the value of statistical life approach, this improvement is valued at more than $500 per vehicle.
Crime, Civil Unrest, and Climate Change: Evidence from Latin America
Daniel L. Hicks
(University of Oklahoma)
Beatriz Maldonado
(College of Charleston)
[View Abstract]
A growing body of research connects rising individual episodes of above average temperature with violence, both at the micro and the macro scale. Less well explored is the scope for climate change to drive these relationships, despite rising planetary temperatures. We extend the analysis of Hsiang, Meng, and Cane (2011, Science) beyond state conflict to study the role of climate fluctuations, as observed during El Niño and La Niña events in driving violent behavior within societies. Consistent with their findings, we show that climate induced warming is associated with higher homicide rates, with particularly large effects for Latin America.
Civil Conflict, Sex Ratio and Intimate Partner Violence in Rwanda
Giulia La Mattina
(University of South Florida)
[View Abstract]
[Download Preview] This paper examines the long-term impact of civil conflict on intimate partner violence and women’s decision-making power using post-genocide data from Rwanda. Household survey data collected 11 years after the genocide show that women who became married after the genocide experienced significantly increased intimate partner violence and decreased decision-making power relative to women who became married before. The effect was greater for women in localities with high genocide intensity. I find that variation in the marriage market sex ratio across localities and over time explains part of the effect of the genocide on intimate partner violence.
Jan 03, 2015 2:30 pm, Hynes Convention Center, Room 208
American Economic Association
Well-Being: Measurement and Policies
(I3, C8)
Presiding:
Marc Fleurbaey
(Princeton University)
What Do Happiness Data Mean? Evidence from a Survey of the Respondents
Daniel Benjamin
(Cornell University)
Jakina Debnam
(Cornell University)
Marc Fleurbaey
(Princeton University)
Ori Heffetz
(Cornell University)
Miles Kimball
(University of Michigan)
[View Abstract]
With a specially designed survey, this paper examines the way in which respondents understand the meaning of standard life satisfaction and happiness questions, checking in particular how they identify the time frame of the questions and the components of their life that fall in the scope of the questions. It also seeks to determine how they come up with a satisfaction or happiness number on the scale imposed by the question, investigating the reference points and reference distributions to which they compare their own situation. A particular attention is devoted to the heterogeneity of these various aspects among respondents.
Beyond GDP: From Subjective Well-Being to Living Standards Measurement
Romina Boarini
(OECD)
Marc Fleurbaey
(Princeton University)
Fabrice Murtin
(OECD and Sciences Po)
Paul Schreyer
(OECD)
[View Abstract]
The paper calculates long time-series of living standards among OECD and emerging economies over the period 1980-2012. Living standards are measured through the equivalent-income method (Samuelson, 1956, 1961) which aggregates household disposable income, unemployment and life expectancy into a single composite index, where the weights of each variable are derived from life satisfaction regressions and are deemed to reflect people’s preferences. The national distribution of equivalent incomes is then conveyed into a single figure of living standards through the use of a ‘social welfare function’ (Arrow, 1963, Fleurbaey 2009, Fleurbaey and Blanchet, 2013). In practice, we take stock of about 20 life satisfaction databases and run a “meta-data analysis” to purge the shadow prices of unemployment and longevity from different statistical biases. We test for several econometric specifications to allow for non-linear trends of shadow prices along the development process and for potential complementarities across the different dimensions of living standards. We find a strong convergence pattern among the sample. Living standards appear to be more volatile than GDP along the business cycle mostly due to unemployment variations.
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 develops a simple Schumpeterian model of growth and unemployment to make predictions on how job and establishment turnover affect subjective well-being. To test the predictions of the model, we use a US cross-sectional MSA-level analysis. Our empirical findings vindicate the predictions of the theory, namely: (i) the effect of creative destruction on well-being is significantly positive if we control for MSA-level unemployment, less so if we do not; (ii) creative destruction has a more positive effect on anticipated well-being than on current well-being; (iii) creative destruction is positively associated with higher short-run "worry"; (iv) creative destruction has a more positive effect on well-being in MSAs with faster growing industries or with industries that are less prone to outsourcing.
Big Data Measures of Well-Being: Evidence from a Google Stress Index on US States
Yann Algan
(Sciences Po)
Florian Guyot
(Sciences Po)
[View Abstract]
This paper contributes to the growing literature on human well-being by providing new behavioural and high frequency measures of the quality of life across regions and over time. We measure well-being by exploiting search queries from Google, in lines with the revolution of mass anthropology in human sciences that exploits data mining from online big data. We apply this strategy to the measure of well-being across and within US states. Compared to the traditional subjective indicators, this approach provides reliable behavioral measures of well-being in continuous time, at a very local level and on massive populations. We then assess the contribution of these new high frequency indicators by measuring the impact of business cycles on the dynamics of well-being within US states in the context of the financial crisis. By allowing a detailed analysis of the well-being of population at business cycles frequency, this approach sheds new light on public policy. In particular, we find that job reallocation increases substantially the stress level of local populations, calling into question the traditional efficiency analysis of flexible labour markets from the economic perspective.
Discussants:
Fabrice Murtin
(OECD and Sciences PO)
Jakina Debnam
(Cornell University)
Florian Guyot
(Sciences Po)
Alexandra Roulet
(Harvard University)
Jan 03, 2015 2:30 pm, Westin Copley, Essex North
American Finance Association
Corporate Finance, Financial Institutions, and Financial Markets
(G3)
Presiding:
Gustavo Manso
(University of California-Berkeley)
Bank Capital, Liquid Reserves, and Insolvency Risk
Julian Hugonnier
(Ecole Polytechnique Federale de Lausanne)
Erwan Morellec
(Ecole Polytechnique Federale de Lausanne)
[View Abstract]
[Download Preview] We develop a dynamic model to assess the effects of liquidity and leverage requirements on banks' insolvency risk. The model features endogenous capital structure, liquid asset holdings, payout, and default decisions. In the model, banks face taxation, flotation costs of securities, and default costs. They are financed with equity, insured deposits, and risky debt. Using the model, we show that mispriced deposit insurance fuels default risk while depositor preference in default decreases it; liquidity requirements have no long-run effects on default risk but may increase it in the short-run; leverage requirements reduce default risk but may significantly reduce bank value.
Financing as a Supply Chain: The Capital Structure of Banks and Borrowers
William Gornall
(Stanford University)
Ilya Strebulaev
(Stanford University)
[View Abstract]
[Download Preview] We develop a model of the joint capital structure decisions of banks and their borrowers. Our model simultaneously solves the outstanding puzzles of high bank leverage and low firm leverage. Strikingly high bank leverage of 85% or higher emerges naturally from the interplay between two sets of forces. First, seniority and diversification reduce bank asset volatility by an order of magnitude relative to that of their borrowers. Second, previously unstudied supply chain effects mean that highly levered financial intermediaries can offer the lowest interest rates. Low asset volatility enables banks to take on high leverage safely; supply chain effects compel them to do so. Low firm leverage arises because borrowers internalize the systematic risk costs they impose on their lenders. This presents a potential answer to the long-standing theoretical corporate finance puzzle of low firm leverage.
Household Risk Management
Adriano Rampini
(Duke University)
S. "Vish" Viswanathan
(Duke University)
[View Abstract]
[Download Preview] Households’ insurance against adverse shocks to income and the value of assets (that is, household risk management) is limited and at times completely absent, in particular for poor households. We explain this basic pattern in household insurance in an infinite horizon model in which households have access to complete markets subject to collateral constraints resulting in a trade-off between risk management concerns and the financing needs for consumption and durable goods purchases. Household risk management is increasing in household net worth and income, under quite general conditions, in economies with income risk and durable goods price risk. Household risk management is precautionary in the sense that an increase in uncertainty increases risk management; remarkably, risk aversion is sufficient for this result and no assumptions on prudence are required.
Market Efficiency and Real Efficiency: The Connect and Disconnect via Feedback Effects
Itay Goldstein
(University of Pennsylvania)
Liyan Yang
(University of Toronto)
[View Abstract]
[Download Preview] We study a model to explore the (dis)connect between market efficiency and real efficiency when real decision makers learn information from the market to guide their actions. We emphasize two channels that determine whether the two efficiency concepts are aligned. The "externality channel" says that individual learning outcomes may not always map into real efficiency because the presence of externality causes real decision makers to overuse the price information. The "(mis)match channel" emphasizes the fact that market efficiency concerns how much information the market reveals about the overall firm value, while improving real efficiency needs the market to reveal much information that is relevant for real decisions. Our analysis highlights the delicate link between market efficiency and real efficiency.
Discussants:
Dirk Hackbarth
(Boston University)
Zhiguo He
(University of Chicago)
Martin Oehmke
(Columbia University)
Wei Xiong
(Princeton University)
Jan 03, 2015 2:30 pm, Westin Copley, America North
American Finance Association
Ethical Norms in Finance
(G1)
Presiding:
Anjan Thakor
(Washington University-St. Louis)
Do Fraudulent Firms Produce Abnormal Disclosures?
Gerard Hoberg
(University of Southern California)
Craig Lewis
(Vanderbilt University)
[View Abstract]
[Download Preview] We present two new hypotheses regarding the textual disclosures of fraudulent firms. First, these firms discuss performance in a manner that is similar to their industry peers. Second, their qualitative disclosures are distinct from their industry peers but instead are similar to other fraudulent firms. We use text-based analysis of 10-K MD\A disclosures to compare disclosures of firms involved in SEC enforcement actions to various counterfactuals including each firm's own disclosure both before and after the alleged violations. We find evidence that fraudulent firms do not make qualitative disclosures that resemble their industry peers but instead cluster with other fraudulent peer firms. Content analysis reveals that fraudulent firms under-disclose details relating to governance, financial liquidity and explaining revenues.
Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence
Rui Albuquerque
(Boston University)
Art Durnev
(University of Iowa)
Yrjo Koskinen
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper presents an industry equilibrium model where firms can choose to engage in corporate social responsibility (CSR) activities. We model CSR activities as an investment in customer loyalty and show that CSR decreases systematic risk and increases firm value. These effects are stronger for firms producing differentiated goods and when consumers' expenditure share on CSR goods is small. We find supporting evidence for our predictions. In our empirical tests, we address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm's home state, and data on environmental and engineering disasters and product recalls.
Peer Effects and Corporate Corruption
Christopher Parsons
(University of California-San Diego)
Johan Sulaeman
(National University of Singapore)
Sheridan Titman
(University of Texas-Austin)
[View Abstract]
We find evidence that financial misbehavior occurs in regionally concentrated waves: a firm's tendency to engage in misconduct increases with the misconduct rates of neighboring firms. This effect appears to be the result of peer effects, rather than exogenous shocks like regional variation in enforcement. Further, local waves of financial misconduct are correlated with non-financial misconduct, such as political fraud. Both firm and city performance suffer in the wake of local corruption waves.
The Cost of Friendship
Paul Gompers
(Harvard University)
Vladimir Mukharlyamov
(Harvard University)
Yuhai Xuan
(Harvard University)
[View Abstract]
[Download Preview] We investigate how personal characteristics affect people's desire to collaborate and whether this attraction enhances or detracts from performance in venture capital. We find that venture capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments. A variety of tests show that the cost of affinity is most likely attributable to poor decision making by high-affinity syndicates after the investment is made. These results suggest that “birds-of-a-feather-flock-together” effects in collaboration can be costly.
Discussants:
Radhakrishnan Gopalan
(Washington University-St. Louis)
Kelly Shue
(University of Chicago)
Rajkamal Iyer
(Massachusetts Institute of Technology)
Manju Puri
(Duke University)
Jan 03, 2015 2:30 pm, Westin Copley, America Center
American Finance Association
Expectation, Sentiment, and Asset Prices
(G1)
Presiding:
Stefan Nagel
(University of Michigan)
Macroeconomic Uncertainty and Expected Stock Returns
Turan Bali
(Georgetown University)
Stephen Brown
(New York University)
Yi Tang
(Fordham University)
[View Abstract]
[Download Preview] This paper introduces a broad index of macroeconomic uncertainty based on ex-ante measures of cross-sectional dispersion in economic forecasts by the Survey of Professional Forecasters. We estimate individual stock exposure to a newly proposed measure of economic uncertainty index and find that the resulting uncertainty beta predicts a significant proportion of the cross-sectional dispersion in stock returns. After controlling for a large set of stock characteristics and risk factors, we find the predicted negative relation between uncertainty beta and future stock returns remains economically and statistically significant. The significantly negative uncertainty premium is robust to alternative measures of uncertainty index and distinct from the negative market volatility risk premium identified by earlier studies.
Interpreting Factor Models
Serhiy Kozak
(University of Michigan)
Stefan Nagel
(University of Michigan)
Shrihari Santosh
(University of Maryland)
[View Abstract]
[Download Preview] We argue that empirical tests of reduced-form factor models do not shed light on competing theories of investor beliefs. Since asset returns have substantial commonality, absence of near-arbitrage opportunities implies a stochastic discount factor (SDF) that is a function of a few dominant sources of return variation. Consistent with this view, we show: an SDF based on the first few principal components explains many recently studied anomalies; if this was not true, near-arbitrage opportunities with extremely high Sharpe Ratios would exist; in-sample near-arbitrages vanish out-of-sample. However, a reduced-form factor SDF of this kind is perfectly consistent with an economy in which all cross-sectional variation in expected returns is caused by sentiment. Components of sentiment-investor demand that line up with common factor loadings affect asset prices because it is risky for arbitrageurs to take the opposite position, while components orthogonal to these factor loadings are neutralized. If investor sentiment is time-varying, the SDF can take the form of an ICAPM. For these reasons, tests of reduced-form factor models, horse races between "characteristics" and "covariances", and firm investment-based models that take as given an arbitrary or a reduced-form factor SDF cannot discriminate between alternative models of investor beliefs.
Smart Money, Dumb Money, and Equity Return Anomalies
Ferhat Akbas
(University of Kansas)
William Armstrong
(Texas Tech University)
Sorin Sorescu
(Texas A&M University)
Avanidhar Subrahmanyam
(University of California-Los Angeles)
[View Abstract]
[Download Preview] We provide direct evidence for the dual notions that “dumb money” exacerbates well-known stock return anomalies, and “smart money” attenuates these anomalies. We use, as measure of cross-sectional mispricing, the performance of a long-short portfolio constructed with factors that predict stock returns in the cross-section. We find that aggregate flows to mutual funds (“dumb money”) appear to exacerbate cross-sectional mispricing. In contrast, aggregate flows to hedge
funds (“smart money”) appear to attenuate mispricing. Our results suggest that aggregate flows to mutual funds may have real adverse allocation effects in the stock market, while aggregate flows to hedge funds contribute to the correction of cross-sectional mispricing.
Survey Expectations of Returns and Asset Pricing Puzzles
Maik Schmeling
(City University London)
Ralph Koijen
(London Business School)
Evert Vrugt
(Independent)
[View Abstract]
[Download Preview] Survey expectations of returns predict future returns negatively across countries and in three major asset classes: equities, currencies, and fixed income. The large negative returns from a cross-sectional portfolio strategy using survey expectations cannot be explained by standard factors such as carry, momentum, and value. Survey respondents expect negative returns on carry strategies, while they expect positive returns on momentum strategies which is consistent with models of extrapolative expectations. We find that the variation in discount rates related to survey expectations is highly correlated with the amount of excess volatility across equity markets.
Discussants:
Juhani Linnainmaa
(University of Chicago)
Kent Daniel
(Columbia University)
Francesco Franzoni
(University of Lugano)
Anna Cieslak
(Northwestern University)
Jan 03, 2015 2:30 pm, Westin Copley, Essex South
American Finance Association
Hedge Funds
(G2)
Presiding:
Neng Wang
(Columbia University)
Hedge Fund Ownership and Stock Market Efficiency
Charles Cao
(Pennsylvania State University)
Bing Liang
(University of Massachusetts-Amherst)
Andrew Lo
(Massachusetts Institute of Technology)
Lubomir Petrasek
(Federal Reserve Board)
[View Abstract]
[Download Preview] We test two hypotheses regarding the role of hedge funds in securities markets. One hy-pothesis is that hedge funds contribute to market efficiency by taking advantage of ineffi-ciencies in the pricing of securities. Another hypothesis contends that hedge funds destabilize financial markets because their trading strategies rely on quantitative algorithms, leverage, and high turnover. We examine the relation between changes in hedge fund stock holdings and the informational efficiency of equity prices, and find that, on average, increased hedge fund ownership leads to significant improvements in the informational efficiency of equity prices. The contribution of hedge funds to price efficiency is greater than the contributions of other types of institutional investors, such as mutual funds or banks. However, stocks held by hedge funds experienced extreme declines in price efficiency in the last quarter of 2008, and the declines were most severe in stocks held by hedge funds connected to Lehman Brothers.
Noise Trader Risk and Hedge Fund Returns
Yong Chen
(Texas A&M University)
Bing Han
(University of Toronto)
Jing Pan
(University of Utah)
[View Abstract]
[Download Preview] This paper documents a new and important cross-sectional determinant of hedge fund returns, their exposures to sentiment risk, measured as beta of fund returns to fluctuations in sentiment proxies. For a large sample of equity-oriented hedge funds, those whose sentiment beta ranks in the top decile subsequently outperform the bottom decile by 0.67% per month, after controlling for fund’s exposures to existing risk factors. Sentiment risk is also priced in stocks, but it explains only a small friction of the abnormal return spread between high versus low sentiment-beta hedge funds. High sentiment-beta funds tend to increase their exposures to sentiment risk the most when doing so turns out to be profitable. This positive sentiment timing contributes to the abnormal performance of high sentiment-beta hedge funds.
Recovering Managerial Risk Taking from Daily Hedge Fund Returns: Incentives at Work?
Olga Kolokolova
(University of Manchester)
Achim Mattes
(University of Konstanz)
[View Abstract]
[Download Preview] Analyzing a sample of hedge funds that report daily returns to Bloomberg, we document a strong seasonal pattern in managerial risk taking. During earlier months of a year, poorly performing funds reduce their risk. The risk reduction is stronger for funds with higher management fees, shorter notice period prior to redemption, and recently deteriorating performance, which is consistent with a managerial aversion to early fund liquidation and loss of future management fees. Towards the end of a year, poorly performing funds gamble for resurrections by increasing risk. The risk increase is not purely driven by a high-water mark provision, pointing towards existence of other incentives, like reporting good performance at year end.
Do Hedge Funds Exploit Rare Disaster Concerns?
George Gao
(Cornell University)
Pengjie Gao
(University of Notre Dame)
Zhaogang Song
(Federal Reserve Board)
[View Abstract]
We investigate whether hedge fund managers with better skills of exploiting the market's ex ante rare disaster concerns, which may not realize as disaster shocks ex post, deliver superior future fund performance. We measure fund skills in exploiting rare disaster concerns (SED) using the covariation between fund returns and a disaster concern index we develop through out-of-the-money puts on various economic sector indices. Funds earning higher returns when the index is high possess better skills of exploiting disaster concerns. Our main result shows that high-SED funds on average outperform low-SED funds by 0.96% per month and even more during stressful market times, while high-SED funds have less exposure to disaster risk.
Discussants:
Vikas Agarwal
(Georgia State University)
Jianfeng Yu
(University of Minnesota)
Jennifer Carpenter
(New York University)
Itamar Drechsler
(New York University)
Jan 03, 2015 2:30 pm, Westin Copley, Essex Center
American Finance Association
Liquidity Risk
(G1)
Presiding:
Jennifer Huang
(Cheung Kong Graduate School of Business)
Liquidity Risk and the Dynamics of Arbitrage Capital
Peter Kondor
(Central European University)
Dimitri Vayanos
(London School of Economics)
[View Abstract]
[Download Preview] We develop a dynamic model of liquidity provision, in which hedgers can trade multiple risky assets with arbitrageurs. We compute the equilibrium in closed form when arbitrageurs' utility over consumption is logarithmic or risk-neutral with a non-negativity constraint. Liquidity is increasing in arbitrageur wealth, while asset volatilities, correlations, and expected returns are hump-shaped. Liquidity is a priced risk factor: assets that suffer the most when liquidity decreases, e.g., those with volatile cashflows or in high supply by hedgers, offer the highest expected returns. When hedging needs are strong, arbitrageurs can choose to provide less liquidity even though liquidity provision is more profitable.
Flights to Safety
Lieven Baele
(Tilburg University)
Geert Bekaert
(Columbia University)
Koen Inghelbrecht
(Ghent University)
Min Wei
(Federal Reserve Board)
[View Abstract]
[Download Preview] Despite a large and growing theoretical literature on flights to safety, there does not appear to exist an empirical characterization of flight-to-safety (FTS) episodes. We define a flight to safety event as a day where bond returns are positive, equity returns are negative, the stock bond return correlation is negative and there is market stress as reflected in a relatively large equity return volatility. Using only data on bond and stock returns, we identify and characterize flight to safety episodes for 23 countries. On average, FTS days comprise less than 5% of the sample, and bond returns exceed equity returns by 2 to 3%. The majority of FTS events are country-specific not global. Nevertheless, our methodology identifies major market crashes, such as October 1987, the Russia crisis in 1998 and the Lehman bankruptcy as FTS episodes. FTS episodes coincide with increases in the VIX, decreases in consumer sentiment indicators and appreciations of the Yen, Swiss franc, and US dollar. The financial, basic materials and industrial industries under-perform in FTS episodes, but the telecom industry outperforms. Money market instruments, corporate bonds, and commodity prices (with the exception of metals, including gold) face abnormal negative returns in FTS episodes. Liquidity deteriorates on FTS days both in the bond and equity markets. Both economic growth and inflation decline right after and up to a year following a FTS spell.
Price Impact or Trading Volume: Why is the Amihud (2002) Illiquidity Measure Priced?
Xiaoxia Lou
(University of Delaware)
Tao Shu
(University of Georgia)
[View Abstract]
[Download Preview] The return premium associated with the widely used Amihud (2002) illiquidity measure is generally considered liquidity premium that compensates for price impact or transaction cost. We find that the pricing of the Amihud measure is not attributable to the construction of return-to-volume ratio that is intended to capture price impact, but entirely due to the trading volume component, the pricing of which has been explained in various ways unrelated to liquidity. Additionally, using the high-frequency measure of price impact, we find little evidence that stocks with greater price impact earn higher expected return as predicted by conventional theory.
Discussants:
Albert S. Kyle
(University of Maryland)
Mathijs van Dijk
(Erasmus University Rotterdam)
Joel Hasbrouck
(New York University)
Jan 03, 2015 2:30 pm, Westin Copley, America South
American Finance Association
Private Equity
(G2)
Presiding:
Per Strömberg
(Stockholm School of Economics)
What Do Private Equity Firms Do?
Paul Gompers
(Harvard University)
Steven Kaplan
(University of Chicago)
Vladimir Mukharlyamov
(Harvard University)
[View Abstract]
[Download Preview] We survey 79 private equity (buyout) investors with a total of over $750 billion of assets under management about their practices in firm valuation, capital structure, governance and value creation. Few investors use discounted cash flow or present value techniques to evaluate investments. Rather, they rely on internal rates of return and multiples of invested capital. Private equity investors typically target a 22% internal rate of return on their investments on average with most firms clustered tightly between 20% and 25%. They also use comparable company multiples to calculate exit values rather than discounted cash flows. Capital structure choice is based equally on optimal trade-off and market timing considerations. Private equity investors anticipate improving the performance of the companies in which they invest, with a greater focus on increasing growth than on reducing costs. They devote meaningful firm resources to do this. We also explore how the actions that private equity managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.
Placement Agents and Private Equity: Information Production or Influence Peddling?
Matthew Cain
(U.S. Securities and Exchange Commission)
Steven Davidoff
(Ohio State University)
Stephen McKeon
(University of Oregon)
[View Abstract]
[Download Preview] We examine a dataset of 32,526 investments in 4,335 private equity funds and document an increasing trend in the outsourcing of the private equity fundraising process to external placement agents from 1991 to 2011. By 2011, about 75% of value-weighted fundraisings rely on placement agents. Placement agent use is positively correlated with aggregate capital flows to private equity, fund size, and diversity of the fund investor base, and negatively correlated with general partner experience. Funds employing placement agents experience lower net internal rates of return, on average. Returns are higher for funds employing a top-tier placement agent, for first-time funds employing an agent, and for funds employing an agent with a greater number of general partner relationships. However, returns are negatively correlated with the strength of agent-limited partner relationships. The results indicate that certain placement agents provide information-processing and screening benefits for investors and private equity firms, but that a subset of placement agents appears to capitalize on limited partner relationships to the detriment of investors.
Estimating Private Equity Returns from Limited Partner Cash Flows
Andrew Ang
(Columbia University)
Bingxu Chen
(Columbia University)
William Goetzmann
(Yale University)
Ludovic Phalippou
(University of Oxford)
[View Abstract]
[Download Preview] We introduce a methodology to estimate the historical time series of returns to investment in private equity. The approach requires only an unbalanced panel of cash contributions and distributions accruing to limited partners, and is robust to sparse data. We decompose private equity returns into a component due to traded factors and a time-varying private equity premium. We find strong cyclicality in the premium component that differs according to fund type. The time-series estimates allow us to directly test theories about private equity cyclicality, and we find evidence in favor of the Kaplan and Strömberg (2009) hypothesis that capital market segmentation helps to determine the private equity premium.
Skill and Luck in Private Equity Performance
Arthur Korteweg
(University of Southern California)
Morten Sorensen
(Columbia University)
[View Abstract]
[Download Preview] We evaluate the performance of private equity (PE) funds using a variance decomposition model that separates long-term, investable, and spurious persistence. We find a large amount of long-term persistence: the spread in the expected returns of top- and bottom-quartile PE firms is 7 to 8 percentage points annually. Performance is noisy, however, and top-quartile past performance does not imply top-quartile expected future returns, especially for VC firms. Based on past performance alone, an investor needs to observe an excessive number of funds to identify the PE firms with top-quartile expected returns, implying low investable persistence.
Discussants:
David T. Robinson
(Duke University)
Yael Hochberg
(Massachusetts Institute of Technology)
Arthur Korteweg
(University of Southern California)
Andrew Metrick
(Yale University)
Jan 03, 2015 2:30 pm, Westin Copley, Empire
American Real Estate & Urban Economic Association
Firm Location
(R5, R3)
Presiding:
Anthony Pennington-Cross
(Marquette University)
Labor Force Diversity and the Survival and Growth of New Firms
Janet Kohlhase
(University of Houston)
Mikaela Backman
(Jönköping University)
[View Abstract]
[Download Preview] Our paper investigates how diversity of the labor force influences the rate of new firm formation and the performance of new firms in urban areas. A diversified labor force within the firm and in the external environment influences the formation, survival and growth of firms. We explore these issues with both aggregate data at the municipal level and individual data at the firm level for the years 1993-2010. We measure diversity using entropy measures that account for a wider range of differences than is typically used. Our empirical analysis finds a positive influence of diversity of the labor force on the rate of new firm formation at the municipal level. At the level of an individual firm, we find that the diversity of the firm’s own labor force is positively associated with its survival, but not its growth. Our results add to the literature on the workings of agglomeration economies through variations in human capital, information spillovers and innovation.
Spillovers from Universities: Evidence from the Land-Grant Program
Shimeng Liu
(Syracuse University)
[View Abstract]
[Download Preview] This paper estimates the short- and long-run effects of universities on geographic clustering of economic activity, labor market composition and local productivity and presents evidence of local spillovers from universities. I treat the designation of land-grant universities in the 1860s as a natural experiment after controlling for the confounding factors with a combination of synthetic control methods and event-study analyses. Three key results are obtained. First, the designation increased local population density by 6 percent within 10 years and 45 percent in 80 years. Second, the designation did not change the relative size of local manufacturing sector. Third, the designation enhanced local manufacturing output per worker by $2136 (57 percent) in 80 years while the short-run effects were negligible. This positive effect on the productivity in non-education sectors suggests the existence of local spillovers from universities. Over an 80-year horizon, my results indicate that the increase in manufacturing productivity reflects both the impact of direct spillovers from universities and general agglomeration economies that arise from the increase in population.
Do Capital Tax Incentives Attract New Businesses? Evidence across Industries from the New Markets Tax Credit
Amanda Ross
(West Virginia University)
Kaitlyn Harger
(West Virginia University)
[View Abstract]
[Download Preview] All levels of government pursue policies to attract new businesses with the hope that these enterprises will create local economic growth. In this paper, we use the New Markets Tax Credit (NMTC) to determine the effect of a capital tax credit on where firms in different industries locate. When estimating the impact of the tax credit on business location, there are likely to be unobservable local characteristics that are correlated with where businesses choose to open that would cause OLS estimates to be biased. To control for the endogenous selection, we use a plausibly exogenous eligibility cutoff and compare census tracts that are just eligible for the NMTC to those that are just ineligible. Using data from the Dun and Bradstreet MarketPlace Files, we find that in Metropolitan Statistical Areas, the NMTC incentivized new businesses to locate in tracts that were eligible for the tax credit. When we stratify the sample by industry, we find that this tax credit had the strongest positive effect those industries that likely to have more capital intensive demands. This is consistent with our priors, as the NMTC was used primarily for capital investments. Our results are important to policy makers, as we find that the type of tax credit offered heterogeneous effects across industries.
Retail Agglomeration and Competition Externalities: Evidence from United States Multiline Department Stores
John Clapp
(University of Connecticut)
Stephen L. Ross
(University of Connecticut)
Tingyu Zhou
(University of Connecticut)
[View Abstract]
From the perspective of an existing retailer, the optimal size of a cluster of retail activity represents a trade-off between the marginal increase in consumer attraction added by an additional retail enterprise against the depletion of existing stores’ customer base caused by the addition of competing retail activity, and following the logic developed in the literature on optimal city size in equilibrium one might expect retail clusters to be larger than the level that maximizes aggregate rent or profits. We estimate a model designed to capture the effect of one extra existing multiline department store (hereafter, “anchor”) of a given type on the decision to open a new anchor in future years holding all county or shopping center time-invariant characteristics constant. The model is estimated using a sample of all existing multiline department stores (49 chains with 1,515 anchor stores, 545 of which are free standing) in 23 MSAs in the East and Central regions of the US. We have size, type (low, mid and high price), chain affiliation and location for each store. In order to address incidental parameter bias arising from the small number of years in our data, we analyze anchor openings with a bias corrected probit model (BCp) using county fixed effects. We find evidence for strong negative competitive effects. Opening probability for each type of anchor is negatively and significantly influenced by the existing anchors of the same type. In our bias corrected model, the unconditional probability of a low-priced opening is reduced by 35% by the presence of an additional preexisting low-price anchor. The percent change for high-on-high is the highest (-76%), suggesting a larger competitive effect among high-price anchors.
Discussants:
Matthew Freedman
(Drexel University)
Paul Carrillo
(George Washington University)
Jesse Gregory
(University of Wisconsin)
Jenny Schuetz
(University of Southern California)
Jan 03, 2015 2:30 pm, Westin Copley, Great Republic
American Real Estate & Urban Economic Association
The Interaction between Housing and Labor Markets: Structural Approaches
(J6, R2)
Presiding:
Edward Coulson
(University of Nevada-Las Vegas)
Moving to a Job: The Role of Home Equity, Debt, and Access to Credit
Yuliya Demyanyk
(Federal Reserve Bank of Cleveland)
Dmytro Hryshko
(University of Alberta)
Maria Jose Luengo-Prado
(Northeastern University)
Brent Sorensen
(University of Houston and CEPR)
[View Abstract]
[Download Preview] Using individual-level credit reports merged with loan-level data on mortgages, we estimate how mobility relates to home equity and labor market conditions. We control for constant individual-specific traits with fixed effects and find that homeowners with negative home equity move to other metropolitan areas more than other homeowners. We use a dynamic quantitative model of consumption, housing, employment, and mobility to interpret our findings. The utility gain from accepting a higher-paid job in another area is negatively correlated with home equity. The relationship between home equity and mobility in the data is well replicated by the model.
Foreclosure Delay and United States Unemployment
Kyle Herkenhoff
(University of Minnesota)
Lee E. Ohanian
(University of California-Los Angeles)
[View Abstract]
Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of "informal" unemployment insurance during the 2007 recession and the subsequent recovery. In a dynamic model, we capture this behavior by treating both delinquency and foreclosure not as one period events, but rather as protracted and potentially reversible episodes that influence job search behavior and wage acceptance decisions. After calibrating, we find that the observed foreclosure delays increase the unemployment rate by an additional 1/3%-3/4%. Moreover, since more households ultimately default and subject themselves to foreclosure risk, the homeownership rate declines 1.5% with delays. On the positive side, by providing more self-insurance, households enter better employment matches which increases output by 1/10%.
Gross Migration, Housing and Urban Population Dynamics
Morris Davis
(University of Wisconsin)
Jonas D.M. Fisher
(Federal Reserve Bank of Chicago)
Marcelo Veracierto
(Federal Reserve Bank of Chicago)
[View Abstract]
Cities experience significant, near random walk productivity shocks, yet population is slow to adjust. In practice local population changes are dominated by variation in net migration, and we argue that understanding gross migration is essential to quantify how net migration may slow population adjustments.
Housing is also a natural candidate for slowing population adjustments because it is difficult to move,costly to build quickly, and a large durable stock makes a city attractive to potential migrants. We quantify the influence of migration and housing on urban population dynamics using a dynamic general equilibrium model of cities which incorporates a new theory of gross migration motivated by patterns we uncover in a panel of US cities. After assigning values to the model's parameters with an exactly identified procedure, we demonstrate that its implied dynamic responses to productivity shocks of population, gross migration,employment, wages, home construction and house prices strongly resemble those we estimate with our panel data. The empirically validated model implies that costs of attracting workers to cities drive slow population adjustments. Housing plays a very limited role.
Housing and Labor Market Vacancies
Yannis M. Ioannides
(Tufts University)
Jeffrey E. Zabel
(Tufts University)
[View Abstract]
[Download Preview] The housing and business cycles are clearly tied together and this has been documented in the recent literature. Our analysis of the housing and labor markets is based on a DMP model for interdependent housing and labor markets that gives rise naturally to vacancy rates in housing and labor markets. We estimate the model using data at the MSA level on housing vacancies from the US Census Bureau's Housing Vacancy Survey (HVS) starting in 1986 and data on job vacancies from the Help-Wanted Index that starts in 1951 and from the Job Opening and Labor Turnover Survey (JOLTS) since December 2000. We also estimate a Beveridge curve for labor markets, while allowing for spillovers from the housing market, as well as a novel Beveridge curve for the housing market. Our estimates accounts for interdependence between those markets, and so do a number of VAR-type models for housing and job vacancies. The results from the VAR models can be used to study how shocks to either the housing or labor markets will propagate themselves in the other market. This can help explain the strong relationship between the housing and labor markets during the Great Recession of 2007-2009.
Discussants:
Kamila Sommer
(Federal Reserve Board)
Satyajit Chatterjee
(Federal Reserve Bank of Philadelphia)
Christopher Palmer
(University of California-Berkeley)
Serena Rhee
(University of Hawaii)
Jan 03, 2015 2:30 pm, Westin Copley, Defender
American Real Estate & Urban Economic Association
The Rental Market
(R2, G1)
Presiding:
Abdullah Yavas
(University of Wisconsin)
Large-Scale Buy-to-Rent Investor Activity in the United States Single-Family Housing Market
Raven Molloy
(Federal Reserve Board)
James Mills
(Amherst Holdings)
Rebecca Zarutskie
(Federal Reserve Board)
[View Abstract]
We examine the purchase activity of large-scale “buy-to-rent” investors in the single-family housing market with the goal of understanding their role in the housing market and how their business model differs from other investors. Although this activity remains a small share of aggregate single-family home purchases, it has attracted much attention from the media and industry analysts because the creation of large portfolios of single-family rental stock is novel. Moreover, it is a non-negligible share of purchase activity in a small number of geographic areas. Purchases made by large buy-to-rent investors are concentrated in areas with low house prices but high rents, an ample supply of foreclosed property, and neighborhood demographics that are consistent with a stable rental income stream but in which households are less likely to be able to buy their own homes. Buy-to-rent investors are much less likely than other investors to finance their purchases with mortgages on individual properties. The absence of the costs and uncertainty associated with the mortgage approval process likely gives these investors an advantage over other potential buyers.
Housing Demand and Expenditures: How Local Rents Affect Costs-of-Living
Gabriel Ehrlich
(Congressional Budget Office)
David Albouy
(University of Illinois)
Yingyi Liu
(University of Illinois)
[View Abstract]
We examine how housing expenditures vary across U.S. metropolitan areas. For renters, the median and aggregate housing expenditure share averages are 23 and 20 percent, each with standard deviations of 2 percent. Co-variation of this share with housing rents, and non-housing costs, and predicted income are consistent with household mobility and Slutsky symmetry. We estimate a compensated price elasticity near - 1/2 and an income elasticity near 2/3. These imply an uncompensated price elasticity of -2/3, and an elasticity of substitution near 2/3. We provide ideal local cost-of-living measures which accurately reflects substitution possibilities.
Single Family Rentals: Demographic, Structural and Financial Forces Driving the New Business Model
Calvin Schnure
(National Association of Real Estate Investment Trusts)
[View Abstract]
[Download Preview] The transition to a lower rate of home ownership resulted in large flows of households into rental properties. Many of these households chose to rent single family properties, both because of the different characteristics of a single family versus a multifamily property, but also because the vacant stock of multifamily units was not sufficient to accommodate these flows in many metro areas.
The translation of housing stock from ownership to rental is not frictionless, however, and requires both capital to purchase homes for rental, and management expertise to operate the rentals. Institutional investors bought homes for rental in many MSAs where the magnitudes of the household flows were large relative to the local pool of potential individual investors. Indicators of housing stress, including the level of shared households, households with additional adults age 35+, and higher average household size, rose more sharply during the crisis in these MSAs than the country as a whole, suggesting there was a need for even greater amounts of rental and affordable housing in these MSAs. By providing capital and management teams in these markets, these investors may have helped prevent an even greater degree of housing stress in these cities.
Rent-to-Own Housing Contracts under Financial Constraints
Sanjiv Jaggia
(California Polytechnic State University)
Pratish Patel
(California Polytechnic State University)
[View Abstract]
It is well documented that the bank lending standards have tightened after 2008. As a result, rent-to-own
(RTO) housing contracts have gained popularity. In a RTO contract, a prospective home buyer signs a lease with the option to buy the house at a predetermined purchase price. RTO contracts allow potential home buyers, who cannot meet the tougher loan qualification requirements, to lock in a price while they use the time to build up savings and creditworthiness. Despite the recent interest, the economic implications remain murky. For example, figuring out the details of the contract is a matter of pure guesswork for most buyers/sellers. In this paper, we develop a theoretical framework to study the economics of a RTO contract. We perform extensive simulations and analyze the equilibrium purchase price of a hypothetical RTO contract in 20 major U.S. cities. Many interesting interplays arise between contract parameters and the equilibrium purchase price. We show that in addition to the usual parameters, the call option and in turn the equilibrium purchase price of a RTO contract are extremely sensitive to buyer's financial constraints. This information is useful in negotiating contract terms for an interesting new development in the real estate industry.
Discussants:
Lynn Fisher
(University of North Carolina)
Paul Anglin
(University of Guelph)
Jim Clayton
(Cornerstone Real Estate Advisers)
Jiro Yoshida
(Pennsylvania State University)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Tremont
Association for Comparative Economic Studies/American Economic Association
Politics, Ownership, and Economic Outcomes
(O1, P5)
Presiding:
Dennis Tao Yang
(University of Virginia)
Democracy Does Cause Growth
Daron Acemoglu
(Massachusetts Institute of Technology)
Suresh Naidu
(Massachusetts Institute of Technology)
Pascual Restrepo
(Massachusetts Institute of Technology)
James A. Robinson
(Harvard University)
[View Abstract]
[Download Preview] We provide evidence that democracy has a significant and robust positive effect on GDP. Our empirical strategy relies on a dichotomous measure of democracy coded from several sources to reduce measurement error and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semiparametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.
Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam
Jie Bai
(Massachusetts Institute of Technology)
Seema Jayachandran
(Northwestern University)
Edmund Malesky
(Duke University)
Benjamin A. Olken
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper tests whether economic growth leads to lower corruption, using cross-industry variation in growth rates in Vietnam and survey data collected from over 13,000 Vietnamese firms between 2006 and 2010. We employ two instrumental variables strategies, one based on growth in a firm's industry in other provinces within Vietnam and a second based on industry growth in neighboring China. We find that growth
causes a decrease in bribe extraction; the two IV strategies yield very similar estimates. We then model one mechanism that could generate such an effect; in our model, government officials' choice of how much bribe money to extract from firms is modulated by inter-jurisdictional competition. The model predicts that economic growth decreases the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given share of revenue as bribes outweighed by the increased risk that firms
will move elsewhere. A second prediction of the model is that the negative effect of growth on bribery is larger if firms are more mobile. We find empirical support for this prediction: There is a larger effect for firms whose property rights to their land are transferable and those with operations in multiple provinces, two proxies for geographic mobility. Our results suggest that as poor countries grow, corruption could subside ``on its own,'' particularly if firms have credible outside options.
Recasting the Iron Rice Bowl: The Evolution of China’s State Owned Enterprises
Daniel Berkowitz
(University of Pittsburgh)
Hong Ma
(Tsinghua University)
Shuichiro Nishioka
(West Virginia University)
[View Abstract]
[Download Preview] State Owned Enterprises (SOEs) are often recipients of preferential treatment from the state including bailouts in periods of financial stress, access to cheap inputs, etc. These connections between SOEs and the state enable unproductive SOEs to avoid restructuring (Kornai, 1990; 1992, Part III). SOE reforms introduced by the Chinese Communist Party in 1995, however, suggest that SOEs can restructure. While SOEs were unprofitable in the early 1990s, manufacturing SOEs became highly profitable and, by some estimates, productive during 1998-2007. We develop a new method for analyzing firm-level labor share dynamics that enables us to comprehensively evaluate the SOEs performance. We find that the SOEs were under declining political pressure to hire excess labor, and also had increasingly preferential access to cheap capital during 1998-2007. Because the elasticity of substitution between capital and labor is greater than one in Chinese manufacturing sectors, lower political pressure to hire excess labor in combination with subsidies for capital have enabled SOEs to become more profitable by cut- ting labor and drastically decreasing labor capital ratios; these gains in profitability, however, were not accompanied by strong improvements in total factor productivity.
Crony Capitalism with Chinese Characteristics
Chong-En Bai
(Tsinghua University)
Chang-Tai Hsieh
(University of Chicago)
Michael Song
(University of Chicago)
[View Abstract]
We propose three key features of Chinese capitalism over the last two decades. First, power is held by a large number of local governments. Second, local governments have substantial capacity to provide private goods for favored firms. Third, local governments have implicit arrangements with favored private firms that provide private firms with incentives to grow. These characteristics of local governments explain the dominant role of local "crony capitalists" in each locality, the bias in the allocation of public resources towards goods that benefit favored local businesses instead of households, and the bias towards exports.
Discussants:
Werner Troesken
(University of Pittsburgh)
Rebecca Diamond
(Stanford University)
Xiaodong Zhu
(University of Toronto)
Yasheng Huang
(Massachusetts Institute of Technology)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Maine
Association for Economic & Development Studies in Bangladesh
Development Issues on Bangladesh
(O1, D1)
Presiding:
Fahad Khalil
(University of Washington)
Do Parents Selectively Time Birth Relative to Ramadan? Evidence from Matlab, Bangladesh
Md. Nazmul Ahsan
(University of Southern California)
[View Abstract]
[Download Preview] Studies examining in utero health effect of maternal fasting during Ramadan assume that parents do not selectively time birth relative to Ramadan. In Matlab, a region in Bangladesh, family planning program started in 1977 where women in treatment areas received free contraceptives door to door but control areas were not part of the program. Both treatment and control areas were very similar in observable characteristics before the program placement. Using MHSS 1996, we find women living in treatment areas six percentage points less likely to give birth 8 to 9 months after Ramadan after program placement. Moreover, mothers with more education are less likely to overlap pregnancy with Ramadan upon receiving free contraceptives. We examine the height, which reflects both genotype and phenotype influences in utero, of the children to their births relative to Ramadan. We find evidence which suggests presence of selection problem may lead us to wrong conclusion about the effect of maternal fasting on child height.
Evolution of Mehr and Dowry among Muslims in Bangladesh: Natural Shocks as an Explanation
Shyamal Chowdhury
(University of Sydney)
Debdulal Mallick
(Deakin University)
[View Abstract]
[Download Preview] In this paper, we argue that the fluctuations in the value of mehr and dowry observed since 1960s in Muslim marriages in Bangladesh can be explained by the natural economic and political shocks: the Green Revolution (GR) in the 1960s, the Independence War (IW) in 1971 and the famine in 1974. The positive income effect of the GR increased the values of both dowry and mehr. However, rise in agricultural production during the GR also increased the demand for, and consequently the shadow price of, female labor within the household, which exerted downward pressure on the value of dowry. Therefore, the net effect on dowry was ambiguous. In contrast, the negative income effect of the war and famine had decreased the values of both dowry and mehr, and their values remained at lower levels in the absence of further shocks. Using two household survey datasets, we find support for our hypotheses. Our results have important implications that natural shocks influence the evolution of social institutions.
Economic Impact of Political Protests (Strikes) on Firms: Evidence from Bangladesh
Abu Shonchoy
(Institute of Developing Economies-JETRO and University of Tokyo)
Kenmei Tsubota
(Institute of Developing Economies-JETRO)
[View Abstract]
Political protests in the form of strikes are still quite common in the former Indian subcontinent countries, locally known as hartals. Such a form of protest is associated with a mass movement of total shutdown of economic activities and closure of educational institutes, which often results in coercion, violence and damage of public and private properties. Proponents of hartals claim this form of political protest as their rights to “freedom of expression” and “freedom of assembly”; however, exercising such a form of freedom comes at a cost to the nation and to the economy. Utilizing the World Bank enterprise survey data of 2007 and 2013 of Bangladesh, this paper is one of the first attempts to systematically examine the impact of hartal on firms. We find that the factor neutral effect of strikes is strongly positive which significantly increases the cost of production. Moreover, we report strong evidence of substantial productivity loss by firms during the events of multiple hartals in a week. As a coping strategy, we found that firms re-optimize in response to political strikes, by significantly substituting among factors inputs, mostly by reducing expenditure on wages and capital consumptions to offset the effect of higher material costs due to hartals. Among the industries, we found evidence of heterogeneous impacts of hartal, where the effect is much pronounced for garments, leather, machinery and equipment, manufacturing and service industries. Our results show that small firms suffer the most due to hartal as it is difficult for them to re-optimize the factors to reduce the cost in the short-run. On the whole, we show evidence that political strikes lead to a substantial productivity loss which cannot be mitigated by well-known coping strategies employed by the firms in Bangladesh.
Seasonal Migration and Risk Sharing in Bangladesh
Melanie Morten
(Stanford University)
Costas Meghir
(Yale University and Institute for Fiscal Studies)
Ahmed Mushfiq Mobarak
(Yale University)
Corina Mommaerts
(Yale University)
[View Abstract]
[Download Preview] We investigate the relationship between seasonal migration and informal risk sharing in rural Bangladesh. We use data from a randomized controlled trial which provided incentives for households to migrate (Bryan et al., 2014). Using this experimental variation, we first provide evidence of the effect of decreasing migration costs on endogenous risk sharing in the village. We then investigate the mechanisms of this effect. We undertake a semi-parametric analysis of the source of income shocks, source of insurance and measurement error. Next, we characterize a dynamic model of migration and endogenous risk sharing, incorporating investment in learning about migration possibilities. Estimation of the model is in progress; we plan to analyze the welfare effect of alternative policies to encourage migration, such as access to credit and further reductions in the cost of migrating.
Discussants:
Douglas Almond
(Columbia University)
Andrew D. Foster
(Brown University)
Tanjim Hossain
(University of Toronto)
Alessandra Voena
(University of Chicago)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
Theorizing and Modeling in Institutional Economics
(B5)
Presiding:
Lynne Chester
(University of Sydney)
Beyond Foundations: Systemism in Economic Thinking
Jakob Kapeller
(Johannes Kepler University-Linz)
[View Abstract]
[Download Preview] This essay re-considers the age-old dichotomy between individualist and holist approaches to economic research. As a vantage point, I provide a general perspective on the issue of aggregation in economic analysis by identifying several distinct problems associated with the treatment aggregates (i.e. wholes) as well as aggregation (i.e. the process molding individual parts into a whole). In turn I provide a suggestion for constructively addressing aggregation in social research by introducing the concept of systemism, which puts an emphasis on the relations between individual agents or entities constituting an aggregate system. Such a relational perspective implies a mutual interdependence between levels, where individuals are always relationally embedded, allowing for the whole to influence its parts and for the parts to influence the whole. In this essay, I investigate the application of systemism to socio-economic issues in a series of conceptual examples. In closing, I specifically explore the compatibility between systemism as an ontological and methodological concept and heterodox or pluralist approaches to economic research.
Agent-Based Computational Models: A Useful Heuristic for Institutional Pattern Modeling?
Wolfram Elsner
(University of Bremen)
Claudius Grabner
(University of Bremen)
[View Abstract]
[Download Preview] This paper investigates the consistency of agent-based computational models with the institutionalist research program as outlined by Myrdal, Wilber and Harrison, Hodgson and other institutionalists and discusses whether such models can be a useful heuristic for "pattern modelling".
I study the ability of agent-based computational models to provide a holistic, systemic and evolutionary picture of the economy, the conception of agents in ACE models, and discuss potentials and challenges of their application in institutionalist research.
Real Sector and R & D Investment Policy: Basic Institutional Models
Svetlana Kirdina
(Russian Academy of Sciences)
[View Abstract]
[Download Preview] The paper considers institutional models that define the macroeconomic policies for real sector financing as well as the R&D financing serving further as a technological base for real sector development in various nation-states. The hypothesis is tested that two institutional models in these spheres could be singled out, so called “a state as the main investor” and “a state as the regulator”. To check this hypothesis, data about the 20-year dynamics of financing in Russia and in the USA are analyzed. Institutional matrices theory, or X- and Y-theory is used to explain the differences. Comparative statistical data and analytical surveys show that it is possible to distinguish two abovementioned developing evolutionary institutional models. Even though they do not exist separately but rather coexist, one of the models strongly dominates over the other one. The dominating position of any of the models is related to social, economic and political processes and the type of a predominant institutional matrix. It is reasonable to keep in mind the mentioned differences during the institutional overview of economic growth problems and mechanisms. In this regard, a reflection of national investment statistics of the two countries due to institutional differences is also discussed.
Metricsmeta about a Meta Metric: A Critical History of the Price Level
Merijn Knibbe
(Van Hall Larenstein University of Applied Sciences)
[View Abstract]
[Download Preview] Economists use a plethora of concepts of the price level. New Keynesian models contain the price of the ‘single final good’ which is a neat way to circumvent aggregation problems and the influence of changes in relative prices. Empirical investigations of consumer behavior however show the importance of a (change in) the prices of a subset of goods and services, Frequent Out Of Pocket Purchases (FROOP) – prices which often show a quite distinct behavior. The ECB targets HICP inflation which encompasses FROOP but which unlike many national consumer price indexes does not contain ‘imputed rent’ but only consumer prices which are actually paid – while on the other hand ignoring the distinct development of prices paid by the government and prices of investments. Government debts and deficits are expressed (and sometimes bound to) GDP and, therewith, to the GDP-price level which does contain government and investment prices. Why do the concepts used differ so much? Are there sound theoretical or practical reasons? Are some concepts, like the ‘single final good’, politically biased in the sense that they prevent us to ask a whole number of questions about for instance distribution? Is there a relation between the development and use of specific concepts and the historical and cultural environment? Does the backward extrapolation of price levels using modern concepts lead to a different appreciation of the insights of important economists like Mises, Fisher, Keynes or Friedman?
Economic Waste and Social Provisioning: Veblen and Keynes on the Wealth Effect
John P. Watkins
(Westminster College)
[View Abstract]
[Download Preview] Economic waste stems from the abuse of power that interferes with the process of social provisioning. For Veblen, waste stems from individual efforts to show superiority, corporate efforts to increase pecuniary returns without increasing industry, or national efforts to exert military dominance. For Keynes, waste assumes the form of idle factories, unemployed workers, and unsold goods resulting from insufficient demand. From a broader perspective, waste results from the efforts of the rentier to increase their returns. Both dimensions of waste relate to the Fed’s efforts and that of other central banks to address the problem of social provisioning through the wealth effect. The ideas of Veblen and Keynes provide guidance for evaluating policy directed at enhancing the provisioning process. Based on Veblen’s ideas, policies should promote the life process policies and avoid promoting conspicuous consumption. Based on Keynes ideas, policies should stimulate demand, increasing profits that in turn create jobs.
Discussants:
Franziska Bassen
(University of Erfurt)
Mitch Green
(Franklin and Marshall College)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Yarmouth
Association for the Study of Cuban Economy
Puerto Rico and Cuba
(P2, O1)
Presiding:
Carlos Seiglie
(Rutgers University)
What Ever Happened to the Puerto Rican Sugar Manufacturing Industry?
James A. Schmitz
(Federal Reserve Bank of Minneapolis)
[View Abstract]
[Download Preview] Beginning in the early 1900s, Puerto Rican sugar has entered the U.S. mainland tariff free. Given this new
status, the Puerto Rican sugar industry grew dramatically, soon far outstripping Louisiana’s production.
Then, in the middle 1960s, something amazing happened. Production collapsed. Manufacturing sugar in
Puerto Rico was no longer profitable. Louisiana, in contrast, continued to produce and grow sugar. We
argue that local economic policy was responsible for the industry’s demise. In the 1930s and 1940s, the
local Puerto Rican government enacted policies to stifle the growth of large cane-farms. As a result, starting
in the late 1930s, farm size fell, mechanization of farms essentially ceased, and the Puerto Rican sugar
industry’s productivity (relative to Louisiana) rapidly declined until the industry collapsed. The overall
Puerto Rican economy also began to perform poorly in the late 1930s. In particular, Puerto Rico’s per
capita income was converging to that of the poorest U.S. states until the late 1930s, but since then it has
lost ground to these states. One naturally wonders: was the poor overall performance of the Puerto Rican
economy also the result of policy? We show that Puerto Rico embarked on other economic policies in the
early 1940s that proved to be major setbacks to its economic development.
Arrested Development? Puerto Rico in the American Century
John Devereux
(City University of New York-Queens College)
[View Abstract]
[Download Preview] I consider Puerto Rican growth over the course of the twentieth century. Using a new GDP index, I show that modern economic growth for Puerto Rico begins with American rule. From 1900 to 1940, Puerto Rico does well relative to Latin America and Europe. Puerto Rico escaped the worst ravages of the great depression because of its access to the protected US markets for sugar and textiles and because of large federal transfers. The New Deal led to a fundamental divergence between living stands, as measured by consumption, and productivity as measured by Gross National Income (GNI). The literature concentrates on productivity where performance is mediocre. This is misleading as by 1975 Puerto Rico had achieved close to the highest living standard, as measured by consumption, among Spanish speaking societies.
Where Are All the Yankees? Ownership and Entrepreneurship in Cuban Sugar, 1898-1921
Alan Dye
(Barnard College)
TBA
Discussants:
Luis Locay
(University of Miami)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon I
Association for the Study of Generosity in Economics
Fundraising Experiments
(H4, D6)
Presiding:
Jeffrey Carpenter
(Middlebury College)
A Field Experiment on Directed Giving at a Public University
Catherine C. Eckel
(Texas A&M University)
David Herberich
(Sears Holdings Corporation)
Jonathan Meer
(Texas A&M University and NBER)
[View Abstract]
[Download Preview] The use of directed giving - allowing donors to target their gifts to specific
organizations or functions - is pervasive in fundraising, yet little is known
about its effectiveness. We conduct a field experiment at a public university in
which prospective donors are presented with either an opportunity to donate
to the unrestricted Annual Fund, or an opportunity of donating to the Annual
Fund and directing some or all of their donation towards the academic college
from which they graduated. While there is no effect on the probability of
giving, donations are significantly larger when there is the option of directing.
However, the value of the option does not come directly from use, as very few
donors choose to direct their gift.
Charitable Raffle Design: Lessons from a Field Experiment
Jeffrey Carpenter
(Middlebury College)
Peter Hans Matthews
(Middlebury College)
[View Abstract]
[Download Preview] There has been little systematic study of the mechanisms typically used to raise money for charity. One of the most common mechanisms is the simple raffle in which participants purchase as many chances to win a prize as they like at a constant price. We conduct a door-to-door fundraising field experiment in which participants are randomly assigned to one of four raffle treatments to examine the effectiveness of alternative raffle pricing schemes designed to encourage either “volume” or participation. As hypothesized, a quantity discount scheme encourages more tickets to be purchased, conditional on participation. Considering the extensive margin, one quantity penalty treatment, with elements of a “pay what you want” mechanism, stimulates participation. Overall, both nonlinear pricing schemes raise more money than the standard raffle with constant pricing. Our results illustrate the power of field experiments to inform fundraising choices.
The Effect of Effectiveness: Donor Response to Aid Effectiveness in a Direct Mail Fundraising Experiment
Dean Karlan
(Yale University)
Daniel Wood
(Clemson University)
[View Abstract]
[Download Preview] We test how donors respond to new information about a charity’s effectiveness. Freedom from Hunger implemented a test of its direct marketing solicitations, varying letters by whether they include a discussion of their program’s impact as measured by scientific research. The base script, used for both treatment and control, included a standard qualitative story about an individual beneficiary. Adding scientific impact information has no effect on whether someone donates, or how much, in the full sample. However, we find that amongst recent prior donors (those we posit more likely to open the mail and thus notice the treatment), large prior donors increase the likelihood of giving in response to information on aid effectiveness, whereas small prior donors decrease their giving. We motivate the analysis and experiment with a theoretical model that highlights two predictions. First, larger gift amounts, holding education and income constant, is a proxy for altruism giving (as it is associated with giving more to fewer charities) versus warm glow giving (giving less to more charities). Second, those motivated by altruism will respond positively to appeals based on evidence, whereas those motivated by warm glow may respond negatively to appeals based on evidence as it turns off the emotional trigger for giving, or highlights uncertainty in aid effectiveness.
Using Targeted Messages to Get People to Pick, Click, Give: A Natural Field Experiment in the State of Alaska
John List
(University of Chicago)
Michael Price
(Georgia State University)
Anya Savikhin Samek
(University of Wisconsin-Madison)
[View Abstract]
In May 2008, the Alaska Legislature passed House Bill 166, which allows Alaskans filing for their permanent fund dividend online to donate all or part of this refund to eligible non-profit organizations around the state. In 2013, approximately 26,000 Alaskans contributed more than $2.4 million (or approximately 0.25% of the total amount received from the permanent fund). This paper reports findings from a natural field experiment implemented in conjunction with Pick, Click, Give designed to uncover why people donate through Pick, Click, Give and identify ways for the state of Alaska to increase both the number of donors and total dollars raised. More than 250,000 households throughout Alaska were randomized into either a control group or one of two treatment groups that received a personalized post-card highlighting either the personal benefits of giving - "Warm Your Heart: Share Your PFD" or the benefits to others "Make Alaska Better for Everyone: Share Your PFD".
Discussants:
Peter Hans Matthews
(Middlebury College)
Catherine C. Eckel
(Texas A&M University)
Michael Price
(Georgia State University)
Dean Karlan
(Yale University)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Massachusetts
Association of Christian Economists
Economics of the Family: Contemporary Issues and Empirical Challenges
(D1)
Presiding:
Catherine R. Pakaluk
(Ave Maria University)
The Effect of Parental Time Investments: Evidence from Natural Within-Family Variation
Joseph P. Price
(Brigham Young University)
Ariel Kalil
(University of Chicago)
[View Abstract]
Paper examines the effect of parental time investments on various measure of outcomes for children in the household.
Do Migrants Adapt to Fertility Patterns in Destination Countries? Evidence from OECD Countries
Alicia Adsera
(Princeton University)
Ana Ferrer
(University of Waterloo)
[View Abstract]
Paper examines whether the fertility patterns of migrant adapt to patterns in the destination country and remain consistent with patterns in the country of origin.
Fighting AIDS, Changing Teen Pregnancy? The Incidental Fertility Effects of School Condom Distribution Programs
Kasey Buckles
(University of Notre Dame)
Daniel Hungerman
(University of Notre Dame)
[View Abstract]
[Download Preview] Beginning in the early 1990s, hundreds of schools across the United States began to make condoms available on-site to students in an effort to prevent HIV transmission. We examine the fertility effects of these programs. We find that access to condoms in schools leads to an increase in teen fertility; access to condoms increases fertility by about 10 percent, or about 4 extra births per 1,000 teen-age women in a community. These effects are most robust in communities where condoms are provided without mandated counseling.
The Paradox of the Pill
Andrew Wyatt Beauchamp
(Boston College)
Catherine R. Pakaluk
(Ave Maria University and Stein Center for Social Research)
[View Abstract]
[Download Preview] Dramatic improvements in fertility control mark some of the most significant technological changes of the twentieth century, and so it seems paradoxical that the same period saw widespread and large increases in non-marital births. We link these two trends and examine the effect of increased access to the birth control Pill on non-marital childbearing and shot-gun marriage rates, along with other labor, education and fertility outcomes of women. Using multiple data sources and legal reforms which generated plausibly exogenous variation in access to the Pill for both married women and minors, we find that increased marital access on net increased non-marital childbearing rates, primarily through a dramatic decrease in marriage rates following a birth. We also confirm and add to the evidence on the contributions of the Pill to increased female education and birth spacing already found in the literature, but find convincing evidence that the Pill had heterogenous effects for women. Minorities and women from less educated families primarily saw increased non-marital childbearing, while whites and women from more highly educated families saw higher levels education and increased birth spacing. Finally we examine how the Pill altered spousal sorting and show that the introduction of the Pill improved the marital prospects of women from more highly educated households, and hurt them among those from less educated families. The results are consistent with the prior theoretical literature that the Pill created winners and losers both through re-sorting in the marriage market and by eliminating shot-gun marriage as a norm.
Jan 03, 2015 2:30 pm, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Valuation and Amenities
(Q5, H4)
Presiding:
Dan Phaneuf
(University of Wisconsin)
Why Do Discrete Choice Approaches to Valuing Urban Amenities Yield Different Results Than Hedonic Models?
Paramita Sinha
(RTI International)
Martha Caulkins
(University of Maryland)
Maureen Cropper
(University of Maryland)
[View Abstract]
[Download Preview] In this paper we explore various reasons why hedonic and discrete choice models of location specific amenities produce different results. In particular, we examine the implications of differences between the two approaches using the 2000 PUMS to estimate hedonic and discrete choice models to value climate amenities, using the same dataset. When we estimate baseline versions of the two models we find that MWTP for mean winter and summer temperature are 4-5 times higher in absolute value using the discrete choice model than the hedonic model. Moving costs, however, play a big role in this result. When the discrete choice model is estimated dropping moving costs, estimates of MWTP are only twice as high in absolute value as estimates based on the hedonic model. We also note that hedonic estimates of MWTP are extremely sensitive to the weights attached to wage and price indices and to the assumption of national labor and housing markets.
Benefits and Ancillary Costs of Constructed Dunes: Evidence from the New Jersey Coast
Steven Dundas
(North Carolina State University)
[View Abstract]
[Download Preview] In the aftermath of post-tropical cyclone Sandy, the federal government allocated approximately
$4.5 billion to the US Army Corps of Engineers to construct dunes and fortify beaches against
future storm surge and sea level rise. From a policy perspective, an important question is whether the benefits generated by these projects justify their costs. This paper treats the temporal and spatial variation in dune construction along Long Beach Island, NJ in the 12 years prior to Sandy as a quasi-experiment that can be used to estimate the benefits to property owners of these large scale geoengineering projects. Using several identification strategies including a doubly robust Oaxaca-Blinder estimator, my results suggest that housing prices increased by 2.4 to 6.4% as a result of dune construction, with my preferred estimate implying a 3.6% capitalization effect. I then decompose this average effect into three components: 1) storm protection, 2) ocean view effects, and 3) recreational access effects. The latter two components are empirically found to be negative in my study area, implying that the storm protection benefits of constructed dunes are partially offset by ancillary costs associated with lost ocean views and increased visitor access.
An Imperfect Storm: How FEMA, Private Hurricane Insurers, and Climate Change Can Create Inefficient Coastal Housing Markets and Impose a Burden on Inland Taxpayers
Marc Conte
(Fordham University)
David L. Kelly
(University of Miami)
[View Abstract]
Much of the climate change literature shows how adaptations can reduce damages. In contrast, this paper provides theoretical and empirical insight into the process whereby climate change and insurance subsidies interact in a way which increases vulnerability and the ultimate damage from climate change. In our framework, households with property in vulnerable areas purchase insurance from private firms to mitigate this risk. Additionally, a government agency exists that provides partial support to coastal communities affected by a storm. The level of support provided by the government agency impacts the location of residence, the level of insurance chosen by households, and the prices of properties and insurance. The insurance firms price hurricane insurance policies based on their beliefs about the distribution of future hurricane damages. These beliefs are updated through Bayesian learning based on new observations of climate and hurricane damages each year. The model of learning allows for climate change induced changes in the distribution of hurricane damages, including increased likelihood of rare catastrophic storms (e.g. fat-tailed damages). We show theoretically how government support increases coastal development, which when combined with climate change and slow learning, creates a multiplicative effect which "fattens the tail" of the hurricane damage distribution.
The Net Value of Open Space: Regression Discontinuity Evidence from Ballot Initiatives
Corey Lang
(University of Rhode Island)
[View Abstract]
This paper uses a hedonic housing price approach to examine the net benefits of open space spending. In order to overcome endogeneity issues, I focus on spending generated from municipal-level open space referenda and use a regression discontinuity (RD) research design that exploits the voting outcomes. Preliminary results suggest that prices appreciate between 3-5% after a referendum is passed. Estimated appreciation increases for the first six years and then levels off, suggesting dynamics and a long time horizon are important for correct inferences. Using a standard difference-in-differences research design, the estimated appreciation is 2-3%, which suggests that the selection effect for high vote margin areas is actually biasing valuation downwards. This also suggests that the local average treatment effect for areas around the cutoff is larger than for areas well above the cutoff, which may be due to areas well above the cutoff having more land preserved and diminishing marginal returns to preservation.
Discussants:
Dan Phaneuf
(University of Wisconsin)
Eric Edwards
(Utah State University)
Craig Landry
(East Carolina State University)
Nicolai Kuminoff
(Arizona State University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Clarendon Room
Cliometrics Society
Economic History in the Long Run
(N1)
Presiding:
Robert Margo
(Boston University)
The Economic Effects of Long-Term Climate Change: Evidence from the Little Ice Age, 1500-1750
Maria Waldinger
(London School of Economics)
[View Abstract]
[Download Preview] Understanding the economic effects of long-term and gradual climate change, when people have time to adapt, is a central question in the current debate on climate change. Empirical evidence, however, is scarce. I study the economic effects of climate change over a period of 250 years during the Little Ice Age, a historical episode of climate change, between 1500 and 1750. Historians have argued that relatively low temperatures during this period decreased agricultural productivity and economic growth. I test this hypothesis and provide econometric evidence of the economic effects of long-term adverse temperature changes during the Little Ice Age. Results indicate that, during this particularly cold period, further temperature decreases had an overall negative effect on city size in Europe. These results are robust to controlling for an array of geographical control variables and for alternative determinants of economic growth in Early Modern Europe. Further results indicate that cities with good access to trade were substantially less affected by temperature changes and that cities with relatively warm initial climate benefited from temperature decreases while cities in temperate and cold climates were negatively affected. Finally, I use yearly historical wheat prices and historical yield ratios to show that yearly temperature changes affected economic growth though their effect on agricultural productivity.
A VAR Analysis of the Transportation Revolution in Europe
Marta Felis
(Universidad Autonoma de Madrid)
[View Abstract]
[Download Preview] During the second half of the 19th century transportation costs decreased sharply. Among the most notable technological advances that lead to the transportation revolution we find the arrival of the railways. This paper provides a quantitative analysis of the expansion of the railways at the time of the so-called First Globalization in European countries through a vector autoregressive analysis. Total mileage of the railways has been obtained through GIS software for every European country, via a long process of digitalization of historical atlases. Then the vector autoregressive analysis and the impulse-response functions show the interaction between railways and GDP. I find interactions going in both directions of the VAR, and that the persistence of the effects varies from country to country. Thanks to this method, we can compare differentiated patterns of development associated to idiosyncratic transportation revolutions in Europe.
Economic History and Economic Development: New Economic History in Retrospect and Prospect
Peter Temin
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] The New Economic History started in the 1960s as a part of economic history and has grown to become the dominant strain in economic history today. I survey this progress and think about the future of economic history in three stages. The first stage recalls some of the early days of the New Economic History, its origins and early development. The second stage reflects on the achievements of the New Economic History as shown in recent publications by Robert Allen and Joachim Voth. Taken together, these contributions build on a half-century of research and suggest promising areas for the future. The third stage surveys some other contributions to the New Economic history in a partial and idiosyncratic way and distils implications for the future.
Discussants:
Melissa Dell
(Harvard University)
Erik Hornung
(Max Planck Institute)
Robert Margo
(Boston University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Beacon H
Econometric Society
Business Cycles
(E1)
Presiding:
Xavier Gabaix
(New York University)
A Bayesian DSGE Model of Stock Market Bubbles and Business Cycles
Jianjun Miao
(Boston University)
[View Abstract]
[Download Preview] We present an estimated DSGE model of stock market bubbles and business cycles using Bayesian methods. Bubbles emerge through a positive feedback loop mechanism supported by self-fulfilling beliefs. We identify a sentiment shock which drives the movements of bubbles and is transmitted to the real economy through endogenous credit constraints. This shock explains most of the stock market fluctuations and sizable fractions of the variations in real quantities. It generates the comovement between stock prices and the real economy and is the dominant force behind the internet bubbles and the Great Recession.
Investment-Specific Technology Changes: The Source of Anticipated TFP Fluctuations
Kaiji Chen
(Emory University)
Edouard Oumarou Wemy
(Emory University)
[View Abstract]
[Download Preview] News shocks to TFP have been argued to be important drivers of U.S. business cycles. This paper assesses the quantitative importance of news about investment-specific technical changes in anticipated future TFP fluctuations. To this end, we sequentially identify two news shocks with the maximum forecast error variance approach: news shocks to TFP and news shocks to the inverse of the relative price of investment. We show in a model with IST spillover that the correlation of these two empirically identified news shocks is a useful measure of the importance of news about IST improvements in expected future TFP fluctuations. Using post-war U.S. data, we find that these two news shocks are almost perfectly collinear when both are identified to capture the long-run variations in the corresponding variable. Moreover, these two news shocks can explain a significant, and surprisingly similar, fraction of the business-cycle fluctuations in other important macro variables. Our findings suggest that news about embodied technological changes is an important driver of anticipated future TFP fluctuations and U.S. business cycles.
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.
Uncertain Technological Change
Xiaohan Ma
(George Washington University)
Roberto M. Samaniego
(George Washington University)
[View Abstract]
[Download Preview] We develop a general equilibrium dynamic stochastic business cycle model augmented with uncertain total factor productivity shocks and investment specific technology shocks. Agents only observe noisy signals of these shocks, such as realized GDP, and update their beliefs each period about the fundamentals of the economy. We interpret this inability to perfectly observe the fundamentals of the economy as capturing informational frictions, and refer to agents' beliefs about the fundamentals as "sentiment." We estimate the model to match some important moments of the US economy and obtain direct measures of the characteristics of the unobserved technology shocks. We find that the impact of productivity shocks is generally similar to an environment without this form of uncertainty. However, a non-persistent "sentiment shock" (an erroneous signal) regarding the investment specific technology alters agents' behavior persistently, even though the underlying fundamentals governing the economy remain unchanged. This explains to some extent the tech boom and bust cycles.
Jan 03, 2015 2:30 pm, Sheraton Boston, Beacon E
Econometric Society
Empirical Analyses of Selling Mechanisms in Dynamic Environments
(D4)
Presiding:
Glenn Ellison
(Massachusetts Institute of Technology)
An Empirical Analysis of Informationally Restricted Dynamic Auctions of Used Cars
Sungjin Cho
(Seoul National University)
Harry John Paarsch
(Amazon)
John Rust
(Georgetown University)
[View Abstract]
We analyze a dynamic informationally restricted auction mechanism a rental car company created to sell its cars. All bids are submitted via the internet in continuous time in ascending price auctions that last for two minutes. Unlike English or Japanese auctions, bidders do not observe the number of other bidders in the auction or their bids. At any time in the auction each bidder only knows a) the history of their own bids, and b) whether or not their bid is the current high bid. The bidder with the highest bid at the end of the auction is the winner and pays their winning bid. We develop theoretical and empirical models of bidding strategies in this auction and estimate bidders’ beliefs and distributions of valuations for used cars. We show that there is a substantial amount of early bidding in these auctions, even though a game-theoretic analysis suggests that the informational restrictions should create strong incentives for bid sniping — i.e. waiting to submit a bid only in the final second of the auction. If all bidders used non-informative bid sniping strategies the outcome of the auction would be equivalent to that of a static sealed bid auction. Bidders have an incentive to bid early in the auction to learn what the current high bid is (since they learn this only if their bid is the current high bid), but early bidding can operate to their collective disadvantage, leading them to bid more than they would in a static first price sealed bid auction. We use our model and estimated distribution of valuations for cars to compare auction revenues under the dynamic auction with counterfactual revenues from a static sealed bid auction with and without a reservation price under the same informational restrictions.
Invest in Information or Wing It? A Model of Dynamic Pricing with Seller Learning
Guofang Huang
(Carnegie Mellon University)
Hong Luo
(Harvard Business School)
Jing Xia
(Harvard University)
[View Abstract]
This paper studies the managerial problem of dynamic pricing in the secondary durable-goods market, where sellers typically have limited information about item- specific heterogeneity. It develops a structural model of dynamic pricing that features the seller learning about item-specific demand through initial assessment and active learning in the sale process. The model is estimated using novel panel data of a leading used-car dealership. Policy experiments are conducted to quantify the value of the dealer’s initial information about item-specific demand and of lowering the price-adjustment cost. With the dealer’s average net profit per car in the estimation sample being around $740, the initial information about item-specific demand worth roughly $243, and cutting the dealer’s price-adjustment cost by half would increase its profit by about $103.
Primary-Market Auctions for Event Tickets: Eliminating the Rents of "Bob the Broker"
Eric Budish
(University of Chicago)
[View Abstract]
[Download Preview] Economists have long been puzzled by event-ticket underpricing: underpricing reduces revenue for the performer, and encourages socially wasteful rent-seeking by ticket brokers. What about using 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.
Discussants:
Jakub Kastl
(Stanford University)
Bradley Larsen
(Stanford University)
Glenn Ellison
(Massachusetts Institute of Technology)
Jan 03, 2015 2:30 pm, Sheraton Boston, Beacon F
Econometric Society
Schooling Decisions: Intended and Unintended Consequences of Public Policies
(O1)
Presiding:
Nishith Prakash
(University of Connecticut)
Incentivizing Schooling with the College Dream: Evidence from China's College Expansion
Yinghua He
(Toulouse School of Economics)
Yaohui Zhao
(Peking University)
[View Abstract]
[Download Preview] Schooling is a sequential investment such that the option of obtaining higher-level education is crucial. When college is capacity constrained, the prospect of going to college incentivizes students to enroll in secondary school. This paper present evidence from China's college expansion during 1989-2011. Beyond the 9 years of compulsory education, high school (senior secondary) education, grades 10-12, is optional but required for college admission. The system makes each province essentially an independent market where students only compete with within-province peers for admission at all colleges in the country. Exploring provincial variations in college enrollment quota with an IV approach, we find the total enrollment rate in senior secondary education increases when college expands. Based on the estimation results, we discuss counterfactual policies, for example, allocating enrollment quota to each province proportional to population.
Does Who You Know Matter? Unraveling the Influence of Student Networks on Academic Performance
Tarun Jain
(Indian School of Business)
[View Abstract]
This paper examines the impact of students' network size and distance on academic performance. Larger and closer networks facilitate information exchange and knowledge appropriation, but may also reduce match-specific synergies that decrease productivity. Network data from a business school where students are randomly assigned to multiple overlapping sets of peers allows us to calculate centrality measures. Increasing closeness centrality within the network has a negative effect on student performance as measured by grade point average, suggesting that synergy reduction and information processing costs outweigh benefits from greater information access. In contrast, increasing ability among direct connections positively affects academic performance.
How Does a Hard Manual Labor Experience during Youth Affect Education Attainment and Income? The Long-Term Impact of the Send-Down Program during the Chinese Cultural Revolution
Weina Zhou
(Dalhousie University)
[View Abstract]
[Download Preview] Under the send-down policy (1968-1978) during the Chinese Cultural Revolution, more than 16 million youths were forced to move to rural areas and carry out hard manual labor. This study analyzes the long-term impact of such an experience on income when these youths reached 40-55years of age. Sent-down males were significantly more likely to upgrade their education after the Cultural Revolution, which caused education interruption for an entire generation. Conditional on education upgrading, the sent-down males earn a higher income than non-sent-down males. These findings are robust against a variety of family backgrounds.
Cycling to School: Increasing Secondary School Enrollment for Girls in India
Karthik Muralidharan
(University of California-San Diego)
Nishith Prakash
(University of Connecticut)
[View Abstract]
[Download Preview] We study the impact of an innovative program in the Indian state of Bihar that aimed
to reduce the gender gap in secondary school enrollment by providing girls who continued to
secondary school with a bicycle that would improve access to school. Using data from a large
representative household survey, we employ a triple difference approach (using boys and the
neighboring state of Jharkhand as comparison groups) and find that being in a cohort that was
exposed to the Cycle program increased girls' age-appropriate enrollment in secondary school by
32% and reduced the corresponding gender gap by 40%. We decompose this triple-difference as
a function of the distance to the nearest secondary school and find that all the enrollment
increases were in villages that were three or more kilometers away from a secondary school,
suggesting that the bicycle successfully reduced the time and safety cost of school attendance.
We also find that the Cycle program was much more cost effective at increasing girls' secondary
school enrollment than comparable conditional cash transfer programs in South Asia.
Jan 03, 2015 2:30 pm, Sheraton Boston, Beacon D
Econometric Society
Structural Models of Family Interactions
(J1, L1)
Presiding:
Judith Chevalier
(Yale University)
Deadbeat Dads
Meghan Skira
(University of Georgia)
Andrew Wyatt Beauchamp
(Boston College)
Geoffrey Todd Sanzenbacher
(Boston College)
Shannon Seitz
(Boston College)
[View Abstract]
[Download Preview] Why do some men father children outside of marriage but not provide support? Why are single women willing to have children outside of marriage when they receive little or no support from unmarried fathers? To answer these questions, we develop and estimate a dynamic equilibrium model of marriage, employment, fertility, and child support. We consider the extent to which two explanations account for the prevalence of `deadbeat dads' and non-marital childbearing: low wages and a shortage of single men relative to single women. Even if women prefer to have children within marriage, when faced with a shortage of high wage spouses it may be optimal to have children with low wage men outside of marriage. In response, some men have incentives to have children and not support them. The model is estimated by efficient method of moments using data from the National Longitudinal Survey of Youth 1979. We conduct several counterfactual experiments including equating black and white population supplies and eliminating the racial gap in wages to explore the implications of the model. We also analyze a counterfactual policy in which child support enforcement is perfect.
The Value of Remarriage: Welfare Effects of Divorce Legalization
Sekyu Choi
(Universitat Autonoma de Barcelona)
M. Clement Joubert
(University of North Carolina)
[View Abstract]
Until 2004, divorce in Chile was illegal and separated individuals were unable to remarry. This paper examines who benets or looses from the option of exiting a marriage and remarrying. Using longitudinal survey data, we rst document the eects of the reform on couples formation and separation. We then use this variation in the data to structurally estimate and validate a dynamic equilibrium model of marriage and remarriage over the life cycle and estimate the welfare impacts of legal divorce across genders, schooling levels and ages. We then simulate the eects of mutual consent vs. unilateral divorce and of dierent separation time requirements on marital decisions and welfare.
Degrees are Forever: Marriage, Educational Investment, and Lifecycle Labor Decisions of Men and Women
Mary Ann Bronson
(Georgetown University)
n/a
Discussants:
Matthew Wiswall
(Arizona State University)
Meta Brown
(Federal Reserve Bank of New York)
Victoria Liza Prowse
(Cornell University)
Jan 03, 2015 2:30 pm, Sheraton Boston, Beacon A
Econometric Society
Theories of Group Formation
(D8)
Presiding:
Mariagiovanna Baccara
(Washington University-St. Louis)
Targeted versus Collective Information Sharing in Networks
Alexey Kushnir
(University of Zurich)
Alexandru Nichifor
(University of St. Andrews)
[View Abstract]
[Download Preview] We introduce a simple two-stage game of endogenous network formation and information sharing for reasoning about the optimal design of social networks like Facebook or Google+. We distinguish between unilateral and bilateral connections and between targeted and collective information sharing. Agents value being connected to other agents and sharing and receiving information. We consider multiple utility specifications. We show that the game always has an equilibrium in pure strategies and then we study how the network design and the utility specifications affect welfare. Surprisingly, we find that in general, targeted information sharing is not necessarily better than collective information sharing. However, if all agents are either ``babblers'' or ``friends'', irrespective of whether the network is unilateral or bilateral, in equilibrium, targeted information sharing yields higher welfare than collective information sharing.
Choice and Matching
M. Bumin Yenmez
(Carnegie Mellon University)
Christopher Chambers
(University of California-San Diego)
[View Abstract]
[Download Preview] We study path-independent choice functions that guarantee the existence of stable matchings. We use a classic representation of these choice rules to introduce a powerful technique for matching theory. Using this technique, we provide a deferred acceptance algorithm for many-to-many matching markets with contracts and study its properties. Next, we obtain a compelling comparative static result: If one agent's choice expands, the remaining agents on her side of the market are made worse off, while agents on the other side of the market are made better off. We study the impact of firm mergers using this result.
A choice rule with a capacity that always binds whenever possible is deemed acceptant. We provide a constructive proof to show that every path-independent choice rule has an acceptant path-independent expansion with the same maximum cardinality. Finally, we characterize the class of responsive choice rules using acceptance.
Two-Sided Matching with Endogenous Preferences
Yair Antler
(Tel Aviv University)
[View Abstract]
[Download Preview] We modify the stable matching problem by allowing agents' preferences to depend on the endogenous actions of agents on the other side of the market. Specifically, when an agent's action expresses that he wishes to be matched with an agent on the other side of the market, this will affect the latter agent's preferences. Conventional matching theory results break down in the modified setup. In particular, every game that is induced by a stable matching mechanism (e.g. the Gale-Shapley mechanism) may have equilibria that result in matchings which are not stable w.r.t the agents' endogenous preferences. However, when the Gale-Shapley mechanism is modified such that women are only allowed to state their first choice, every equilibrium of its induced game results in a pairwise stable matching w.r.t the endogenous preferences as long as they satisfy a natural reciprocity property. Moreover, in the conventional setup, in which agents' preferences are exogenous, the modified mechanism preserves the classic properties of the Gale-Shapley mechanism.
A Belief-Based Theory of Homophily
Willemien Kets
(Northwestern University)
Alvaro Sandroni
(Northwestern University)
[View Abstract]
[Download Preview] We introduce a model of homophily that does not rely on the assumption of homophilous preferences. Rather, it builds on the dual process account of Theory of Mind in psychology which focuses on the role of introspection in decision making. Homophily emerges because players find it easier to put themselves in each other's shoes when they share a similar background. The model delivers novel comparative statics that emphasize the interplay of cultural and economic factors. We investigate how the socially optimal level of homophily varies with the economic environment.
Jan 03, 2015 2:30 pm, Sheraton Boston, Beacon G
Econometric Society
Topics in Dynamic Contracting
(C1)
Presiding:
Leeat Yariv
(California Institute of Technology)
Efficiency in General Agency Models with Imperfect Public Monitoring
Anqi Li
(Washington University-St. Louis)
[View Abstract]
[Download Preview] In T-period agency relationships between a risk-neutral principal and a risk-averse agent where signals can depend on past actions and exhibit serial correlation, near-efficiency obtains when T is large if the monitoring technology satisfies two basic properties: concentration of measure and informativeness. The tension between these conditions is used to determine the boundary at which asymptotic efficiency does and does not obtain in agency models with frequent actions. Results deepen and extend our understanding of varying efficiency results in the agency literature, quantify the value of knowing details of the monitoring technology and help solve incentive issues when the monitoring technology is highly persistent.
Repeated Bargaining: A Mechanism Design Approach
Rohit Lamba
(Princeton University)
[View Abstract]
Through a model of repeated bargaining between a buyer and a seller, with changing private information on both sides, this paper addresses questions of efficiency and institutional structures in dynamic mechanism design. A new technical device in the form of a history dependent version of payoff equivalence is established. A new notion of interim budget balance is introduced which allows for the role of an intermediary but with bounded credit lines. We then construct a mechanism, which provides a necessary and sufficient condition for efficiency under interim budget balance. The existence of a future surplus can be used as collateral to sustain efficiency, and its size determines the possibility. The mechanism also offers a simple and realistic implementation. A characterization of efficient implementation under ex post budget balance is also provided. Further, a characterization for the second best is presented, and its equivalent Ramsey pricing formulation is established. A suboptimal, but incentive compatible mechanism for the second best with intuitive properties is presented. When property rights are fluid, that is, the good can be shared, a folk theorem with a simple mechanism is constructed.
Taxation under Learning-by-Doing: Incentives for Endogenous Types
Miltiadis Makris
(University of Southampton)
Alessandro Pavan
(Northwestern University)
[View Abstract]
We study the effects of learning-by-doing on the design of dynamic contracts, and in particular its interplay with uncertainty and preferences for consumption smoothing. In passing, we also clarify various results in the dynamic mechanism design and taxation literature and underline the relative importance of various channels in shaping incentives under optimal contracts. We show that learning-by-doing introduces an intertemporal substitutability in marginal distortions, which, when sufficiently strong, may lead to an increase in wedges and to taxes that decrease over time (even in the presence of an insurance motive). Furthermore, learning-by-doing can lead to marginal distortions that are increasing in income, thus contributing to progressivity in the optimal tax code.
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Wellesley
Economic Science Association
Macroeconomic Experiments
(C9, E5)
Presiding:
John Duffy
(University of California-Irvine)
Do Sunspots Matter? Evidence from an Experimental Study of Bank Runs
Janet Hua Jiang
(Bank of Canada)
Jasmina Arifovic
(Simon Fraser University)
[View Abstract]
[Download Preview] We investigate the reaction to sunspots in a bank-run game in a controlled laboratory environment. The sunspot variable is a series of random public announcements predicting withdrawal outcomes. The treatment variable is the coordination parameter, deemed as the minimum fraction of depositors required to wait so that waiting entails a higher payoff than withdrawing. We conduct treatments with a high, low and intermediate value of the coordination parameter, respectively. Although theory predicts sunspot equilibria exist in all treatments, strong responses to sunspots only occur in the treatment featuring the intermediate value of the coordination parameter where strategic uncertainty is high.
Managing Self-Organization of Expectations through Monetary Policy: A Macro Experiment
Tiziana Assenza
(Catholic University Milan)
Peter Heemeijer
(ABN Amro Bank)
Cars H. Hommes
(University of Amsterdam)
Domenico Massaro
(University of Amsterdam)
[View Abstract]
[Download Preview] We use laboratory experiments to study individual expectations and aggregate macro behavior in a New Keynesian framework. Four different aggregate outcomes arise: convergence to equilibrium, explosive behavior along inflationary or deflationary spirals, persistent or dampened oscillations. A heuristics switching model, driven by relative performance, explains these patterns as emerging properties of the path-dependent self-organization process of heterogeneous expectations leading to coordination on an almost self-fulfilling rule. A more aggressive Taylor rule can manage the self-organization process adding negative feedback to the overall positive feedback system, making coordination on destabilizing trend-following expectations less likely and coordination on stabilizing adaptive expectations more likely.
Monetary Policy and Central Bank Communication in Expectations-Driven Liquidity Traps
Luba Petersen
(Simon Fraser University)
Jasmina Arifovic
(Simon Fraser University)
[View Abstract]
[Download Preview] We explore the ability of monetary policy and central bank communication to stabilize expectations and alleviate the duration and severity of liquidity traps in learning-to-forecast macroeconomic laboratory experiments. Economic crises are generated by exogenous aggregate demand shocks that gradually dissipate over time. Monetary policy is set via a Taylor rule that either targets inflation around a constant or state-dependent inflation target. Expectations significantly over-react to the shock leading many economies to experience inescapable deflationary traps. State-dependent inflation targets, expressed either quantitatively or qualitatively, do not reduce the duration or severity of economic crises, and in many cases worsen the crisis. Past realized inflation and output are consistently used across all treatments in forming forecasts. Expectations are significantly more correlated with aggregate shocks when fundamentals improve faster following the crisis, suggesting an important role for fiscal policy to create demand and reverse adaptive deflationary traps. Combining a constant inflation target monetary policy with anticipated expansionary fiscal policy is highly effective at stabilizing economic activity and increasing the speed of recovery.
Central Bank Reputation, Cheap Talk and Transparency as Substitutes for Commitment: Experimental Evidence
John Duffy
(University of California-Irvine)
Frank Heinemann
(Technical University Berlin)
[View Abstract]
We implement a repeated version of the Barro-Gordon monetary policy game in the laboratory. Our first aim is to assess whether reputation can serve as a substitute for commitment when central banks are free to operate in a discretionary manner. Specifically we ask whether in a repeated game setting, reputational considerations enable the central bank to implement the forward-looking, efficient commitment (Ramsey) equilibrium, and avoid the discretionary but time consistent one-shot Nash equilibrium involving higher inflation but no difference in output. We find that reputation is a poor substitute for commitment. We then explore in the repeated discretionary environment whether cheap talk, policy transparency or economic transparency by central bankers can yield improvements in the direction of the Ramsey equilibrium relative to the absence of such mechanisms. Of the three mechanisms we consider, cheap talk fares the best and economic transparency fares the worst in terms of welfare performance relative to the pure discretionary environment. Finally, we also consider a pure commitment regime and find that when central bankers are able to pre-commit to a policy, they have no difficulty implementing the Ramsey commitment equilibrium policy. Our findings suggest that there are real welfare-reducing consequences to discretionary regimes, and that various mechanisms intended to improve welfare in this setting have only small effects. Alternatively put, the equilibrium of the one-shot Barro-Gordon model provides a reasonable characterization of behavior in the repeated game setting.
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom--Salon E
Economists for Peace & Security
Inequality: Challenge of the Century?
(E6) (Panel Discussion)
Panel Moderator:
James Galbraith
(University of Texas-Austin)
Olivier Giovannoni
(Bard College)
Branko Milanovic
(City University of New York)
Stephen Rose
(George Washington Institute of Public Policy)
Joseph E. Stiglitz
(Columbia University)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Provincetown
Health Economics Research Organization
Behavioral Responses to Health Information
(I1, H8)
Presiding:
Michael Grossman
(City University of New York, NBER and IZA)
If My Blood Pressure Is High, Do I Take It to Heart? Behavioral Impacts of Biomarker Collection in the Health and Retirement Study
Ryan Edwards
(Queens College and NBER)
[View Abstract]
Starting in 2006, respondents in the U.S. Health and Retirement Study were asked to submit biomarkers and were notified of certain results. Respondents with very high blood pressure were given a card during the interview; all respondents were notified by mail of their BP, hemoglobin A1c, and total and HDL cholesterol readings alongside recommended thresholds. About 5.8 percent received the high blood pressure card, and 5.4 percent had high A1c levels, an indicator of diabetes. Rates of undiagnosed high BP and diabetes according to these biomarkers were 1.5 and 0.7 percent. Average treatment effects of biomarker collection on the panel overall were effectively zero, but notification of rare and dangerous readings triggered new diagnoses, increased pharmaceutical usage, and altered health behaviors among small subsamples of respondents and their spouses. Very high BP or A1c readings raised new diagnosis and medication usage by 20 to 40 percentage points. Uncontrolled high BP triggered reductions in own smoking and own and spouse’s drinking. High A1c was associated with a 2.2 percent drop in weight and an increase in exercise among respondents without a previous diagnosis of diabetes, but with no changes among those already diagnosed, whose self-reported health and disability worsened.
Publicly-Provided Health Insurance and Ex Ante Moral Hazard: The Case of Medicaid Expansions for Pregnant Women
Robert Kaestner
(University of Illinois-Chicago and NBER)
Dhaval M. Dave
(Bentley University and NBER)
George Wehby
(University of Iowa and NBER)
[View Abstract]
No previous study has evaluated the ex ante moral hazard effects of public insurance among pregnant women. Understanding these effects is important given their implications for affecting maternal and infant health and given the scheduled Medicaid expansions under the Affordable Care Act. We exploit plausibly exogenous variation from the Medicaid income eligibility expansions for pregnant women and for children that occurred during late-1980s through mid-1990s in order to assess whether these expansions were associated with changes in prenatal health behaviors, including smoking, alcohol use, and weight gain during pregnancy, based on data from the U.S. vital statistics birth records. Preliminary findings indicate that increases in Medicaid eligibility were significantly associated with increases in smoking and drinking and decreases in weight gain during pregnancy. Raising Medicaid eligibility by 10 percentage-points (the approximate increase in eligibility that occurred over the expansion period) increased rates of any prenatal smoking and smoking more than five cigarettes daily by about 1 percentage point (4-6% relative to the 1989 mean), and the daily number of cigarettes consumed by 6% among low-educated mothers. The expansion was associated with a reduction in pregnancy weight-gain by about 1.4%. Over the range of the eligibility expansions over the sample period, we also find a small associated increase in prenatal drinking. Estimates suggest significant non-linear effects of Medicaid eligibility, such that the adverse effects on healthy behaviors diminish at higher levels of eligibility, which is consistent with the crowd-out literature showing that greater Medicaid eligibility expansions reflected a shift from private to public insurance.
Moral Hazard and Less Invasive Medical Treatment for Coronary Artery Disease: An Analysis of Smoking in the National Health Interview Survey
Jesse Margolis
(City University of New York)
Jason Hockenberry
(Emory University and NBER)
Michael Grossman
(City University of New York, NBER and IZA)
Shin-Yi Chou
(Lehigh University and NBER)
[View Abstract]
[Download Preview] We use Medicare claims data linked to the National Health Interview Survey (NHIS) to study how changes in patient smoking behavior are related to three common treatments for Coronary Artery Disease (CAD): medical management (MM), Percutaneous Coronary Intervention (PCI), and Coronary Artery Bypass Graft (CABG). We find that the more invasive a patient’s treatment, the more likely he is to quit smoking. Patients undergoing CABG, the most invasive procedure, are 13 and 16 percentage points more likely to quit smoking than patients treated with PCI or medical management, respectively, in the one-year window surrounding their procedure. Our study is motivated by prior economic research on moral hazard, showing that individuals change their behavior when their perceived risks change. The behavioral response that we observe may be accompanied by such similar responses as reductions in excessive alcohol consumption, improvements in diet, increases in exercise. These responses may partially offset the These responses may partially offset the risks inherent to a more invasive procedure and help explain why the longer term outcomes for CABG patients rival or even exceed those of similar patients receiving PCI or medical management.
Diabetes Diagnosis and Subsequent Exercise Participation among Older Americans
Kenneth Chay
(Brown University and NBER)
Leigh Ann Leung
(New York City Department of Finance)
Shailender Swaminathan
(Brown University)
[View Abstract]
[Download Preview] The purpose of this study is to empirically test whether receiving private health information leads to a change in health behavior. Specifically, we examined whether receiving a diabetes diagnosis leads to a change in physical exercise and, if so, whether responses differ by education and income. Using the Health and Retirement Study (HRS), we employed a regression discontinuity approach to estimate a causal effect of a diabetes diagnosis on changes in exercise frequency and intensity. Results show that subsequent to a diagnosis, individuals increased exercise frequency by engaging in physical activities one more time per week and increased intensity by 2 metabolic equivalents. The increase in frequency was greatest for individuals with a college degree and individuals not in the labor force, 2 and 1.6 more times per week, respectively. By contrast, there were no differences in the response to a diagnosis across subgroups on the exercise intensity margin. This shows that education and time costs have a large impact on exercise behavior in the management of chronic disease which in turn leads to disparities in the prevention of complications from type 2 diabetes. Understanding the role of education and how it interacts with private health information can inform policy regarding the allocation of resources in the treatment and management chronic diseases.
Discussants:
Jason Hockenberry
(Emory University and NBER)
Joshua Graff Zivin
(University of California-San Diego and NBER)
Dhaval M. Dave
(Bentley University and NBER)
Paul Glewwe
(University of Minnesota)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon H
Industrial Organization Society
The Industrial Organization of Financial Services
(L1)
Presiding:
Jean-Francois Houde
(University of Pennsylvania)
Advertising, Consumer Awareness and Choice: Evidence from the United States Banking Industry
Elisabeth Honka
(University of Texas)
Ali Hortacsu
(University of Chicago)
Maria Ana Vitorino
(University of Minnesota)
[View Abstract]
[Download Preview] Does advertising serve to (i) increase awareness of a product, (ii) increase the likelihood that the product is considered carefully, or (iii) does it shift consumer utility conditional on having considered it? We utilize a detailed data set on consumers’ shopping behavior and choices over retail bank accounts to investigate advertising’s effect on product awareness, consideration, and choice. Our data set has information regarding the entire purchase funnel, i.e. we observe the set of retail banks that the consumers are aware of, which banks they considered, and which banks they chose to open accounts with. We formulate a structural model that accounts for each of the three stages of the shopping process: awareness, consideration, and choice. Advertising is allowed to affect each of these separate stages of decision-making. Our model also endogenizes the choice of consideration set by positing that consumers undertake costly search. Our results indicate that advertising in this market is primarily a shifter of awareness, as opposed to consideration or choice. Along with advertising, branch density, marital status, race and income are very significant drivers of awareness. We also find that consumers face non- trivial search/consideration costs that lead the average consumer to consider only 2.2 banks out of the 6.7 they are aware of. Conditional on consideration, branch density, the consumer’s current primary bank (i.e. inertia), interest rates and education are the primary drivers of the final choice.
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.
Competition and Customer Acquisition in the United States Credit Card Market
Daniel Grodzicki
(Pennsylvania State University)
[View Abstract]
This paper presents an equilibrium model of credit card issuers’ supply decisions and estimates it using data on direct mail credit card offers. The model accounts for the complexity of card products, for heterogeneity in individuals’ tastes for cards, and for differences in how profitable consumers are to issuers. I find that customer poaching via rewards, introductory rate, and balance transfer schemes are clearly reflected in issuers’ offer decisions. Moreover, I find that demand is largely insensitive to delinquency fees on offered cards. Investigating equilibrium effects of changes in the market environment, I find that an increase in the cost of funds has a greater effect on the quantity of offers sent than on the pricing of those offers to consumers. A reduction in sending costs increases the number of offers individuals receive and overall dispersion in rates relatively more than an additional market participant. This suggests that competitive outcomes are more sensitive to a reduction in the cost of reaching consumers than to a reduction in market concentration and provides evidence for the role of price discrimination as a driver of observed dispersion in rates.
Search Frictions and Market Power in Price Negotiated Markets
Jason Allen
(Bank of Canada)
Robert Clark
(HEC Montreal)
Jean-Francois Houde
(University of Pennsylvania)
[View Abstract]
This paper develops and estimates a search and bargaining model designed to measure the welfare loss associated with frictions in oligopoly markets with negotiated prices. We use the model to quantify the consumer surplus loss induced by the presence of search frictions in the Canadian mortgage market, and evaluate the relative importance of market power, inefficient allocation, and direct search costs. Our results suggest that search frictions reduce consumer surplus by almost $20 per month per consumer, and that 17% of this reduction can be associated with discrimination, 30% with inefficient matching, and the remainder with the search cost.
Discussants:
Marc Rysman
(Boston University)
Michael Grubb
(Boston College)
Victor Stango
(University of California-Davis)
Alessandro Gavazza
(London School of Economics)
Jan 03, 2015 2:30 pm, Sheraton Boston, The Fens
International Health Economics Association/American Economic Association
Recent Trends in National Health Spending - Ripple or Tide?
(I1)
Presiding:
David Cutler
(Harvard University)
Macro Changes in Income and Health Spending
Louise Sheiner
(Brookings Institution)
[View Abstract]
[Download Preview] The evolution of health care spending has important implications for many aspects of our economy, the outlook for federal
and state budgets and for workers’ take-home pay, measured productivity and prices. The fundamental research questions are why
the share of health spending in GDP has been rising for decades, and, when and how this trend will stop. In this paper, I discuss
some of the key determinants of health spending growth and document how they have evolved over time. I then address the
recent slowdown in spending. I provide further evidence that changes in income at a macro level do translate into slowdowns in
health spending, and show that much of the recent slowdown is attributable to macroeconomic conditions. I try to shed some lights
on the channels through which changes in income translate into changes in spending, and discuss how these channels affect the
likely trajectory of spending in the future.
Medicare’s Role in the Recent Health Care Spending Slowdown
Chapin White
(RAND Corporation)
[View Abstract]
[Download Preview] We examine trends in real growth in overall health care spending per capita, and Medicare spending per beneficiary, with a focus on two time periods: 1970-2007 (the historical benchmark), and 2008-2013/4 (the recent period). We find that real Medicare spending per beneficiary has fallen in the recent period (i.e. negative growth), and that the recent Medicare slowdown can be tied directly to recent policy changes. Those policy changes include price cuts and payment reform in the ACA, and the sequester. Much of the slowdown in overall health care spending appears to be attributable to the Great Recession. But, the portion of the overall slowdown that cannot be explained by the Great Recession can be explained by the cost containment provisions affecting the Medicare program. The future sustainability of slow growth in Medicare spending will depend both on whether the structural changes to the program are economically viable—i.e. can providers increase productivity at the required rate—and whether they are politically viable. Evidence on the economic viability of continued Medicare price cuts is mixed, and the rationale for continued price cuts will undoubtedly be challenged by providers.
Why Has Medicare FFS Spending Growth Slowed? A Disease Treatment Perspective
Abe Dunn
(U.S. Bureau of Economic Analysis)
[View Abstract]
Medical care expenditures in the U.S. have increased dramatically over the past several decades, but spending growth has
started to slow in more recent years. This paper investigates the slowdown in expenditure growth from 2005 to 2010 relative to
2000 to 2005 in the Medicare FFS market. The paper differs from prior studies by focusing on expenditure growth patterns at the
disease- level. By focusing on treatment patterns by disease, we are viewing changes in expenditures through the lens of the
physicians and patients, who are ultimately seeking treatment for medical conditions. This framework allows us to ask several
fundamental questions: What diseases are receiving more expenditure per capita? Are the additional expenditures driven by more
patients receiving care? Or does the growth in expenditure per treatment play a more important role? What services, practices or
technologies are driving the treatment expenditures per case? Preliminary results identify a slowdown in many disease categories
where some diseases slowdown more rapidly than others. By decomposing the growth of per capita expenditures into changes in
treated prevalence and cost per case, we find that cost per case accounts for a greater share of the reduction in spending growth.
This suggests that changes in the treatment patterns of providers are likely a key driver of the reduction in growth. As an additional
check on the cause of the slowdown, we investigate whether spending patterns are related to the 2007 recession. Using countylevel
unemployment and expenditure data we find no relationship between the economic downturn and Medicare FFS expenditures.
Long-Run Dynamics of National Medical Expenditures
Thomas E. Getzen
(Temple University)
[View Abstract]
[Download Preview] Medical cost trends are here modeled as having three components and being characterized by inertial, lagged responses
to macroeconomic changes: 1) Secular GDP Growth Trend 2) Business Cycle Response 3) Developmental Surge Although providing
estimates of average costs per person, the model is based on decisions as the primary units, with individual decisions having
relatively minor and short-term role, while the long run dynamics are dominated by collective group and political decisions.
Structural change in health care is seen as slow and inertial since the current organization of medical care is a layered construction
that embeds decisions from previous decades (passage of medical care, career choices, expansion of medical schools, investment
in research). While the delayed macroeconomic response to changes in GDP and the S-shaped logistic growth curve of expenditures
has been previously investigated and reported, this paper documents and (tentatively) parameterizes a developmental surge in
spending that started rather abruptly in the late 1950s and began to moderate by the 1990s –a surge that is conceptually and
empirically similar to what has been labeled by the CBO as “rate of excess growth in health care” and is mostly equivalent to the
increase in health share of GDP. After describing the general model, an application is made to estimate future health benefits costs
for persons age 65+, projecting that spending will exceed 13 trillion dollars by 2055 and account for 50% of personal health
expenditures. Strengths and weakness of macro models relative to microsimiluations are discussed, with particular consideration of
accuracy, ranges of uncertainty, and estimated impact of policy choices relative to demography, morbidity and technological
change.
Discussants:
Stephen K. Heffler
(Office of the Chief Actuary)
David Cutler
(Harvard University)
Charles Roehrig
(Altarum Institute)
Wesley Yin
(University of California-Los Angeles)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Harvard
International Network for Economic Method
Methodological Perspectives on the Study of Inequality
(B2, I3)
Presiding:
Erik Angner
(George Mason University)
Inequality in Well-Being: The Unequal Pursuit of Happiness in the United States and Beyond
Carol Graham
(Brookings Institution)
[View Abstract]
[Download Preview]
There is increasing debate – both academic and political – about the extent to which the American Dream – and the right to the pursuit of happiness - is equally available to all citizens today. U.S. trends in opportunity and in distributional outcomes are becoming more unequal by any number of measures. Is happiness as unequally shared as income in the U.S.? We find stark evidence of major differences in well-being and in attitudes about the future between poor and rich Americans. The wealth have high levels of life satisfaction and corresponding ability to plan for and invest in the future, and the poor have lower life satisfaction, higher levels of stress, and much less optimism about the future. The gaps between the scores of the poor and the rich were the greatest in our variable measuring mobility attitudes – belief that hard work can get people ahead. And the gaps in well-being between poor and rich Americans are, for the most part, much greater than they are between poor and rich Latin Americans, a region long known for its high levels of income inequality.
We also find initial evidence that the stress experienced by the rich and the poor may be quite different, with the stress of the rich more likely to be associated with goal and performance seeking, while the stress experienced by the poor is more likely to be driven by circumstances beyond their control. An increasing body of well-being research is demonstrating the individuals with higher levels of well-being have better future outcomes, in the areas of productivity, health, and social behaviors, either because of intrinsic motivation or because of the capacity to have longer time horizons and preferences. If current patterns in well-being and attitudes about the future translate into behavioral outcomes in the U.S., then it is likely that the gaps between the lives of the rich and poor will only grow larger.
Richer (and Holier) than Thou? The Effect of Relative Income Improvements on Demand for Redistribution
Johanna Mollerstrom
(George Mason University)
[View Abstract]
[Download Preview] We study the extent to which people are misinformed about their relative position in the income distribution and the effects on preferences for redistribution of correcting faulty beliefs. We implement a tailor-made survey in Sweden and document that a vast majority of Swedes believe that they are poorer, relative to others, than they actually are. This is true across groups, but younger, poorer, less cognitively able and less educated individuals have perceptions that are further from reality. Using a second survey, we conduct an experiment by randomly informing a subsample about their true relative income position. Respondents who learn that they are richer than they thought demand less redistribution and increase their support for the Conservative Party. This result is entirely driven by prior right-of-center political preferences and not by altruism or moral values about redistribution. Moreover, the effect can be reconciled by people with political preferences to the right-of-center being more likely to view taxes as distortive and believe that it is personal effort rather than luck that is most influential for individual economic success.
A Modest Philosophical Comment on the Economics of Inequality
Mark D. White
(College of Staten Island)
n/a
The Study of Inequality as a Case Study of Values in Economics
Erik Angner
(George Mason University)
[View Abstract]
One of the questions raised by the publication of Piketty’s Capital in the Twenty-First Century concerns the legitimacy of studying inequality. Some critics have suggested that the study of inequality as such has no place in a scientific economics, and that the economic study of inequality can be justified only to the extent that it has an effect on economic efficiency. In this paper, I argue that it is difficult to deny categorically that the study of inequality as such can be part of a scientific economics. Historically, questions of distribution has been very much part of the economic tradition, as when Ricardo wrote that determining the laws regulating the distribution of resources is “the principal problem in political economy.” Furthermore, over the course of the last 50 years, philosophers of science have argued convincingly that human values play an irreducible role at every level of scientific analysis, and economics is no exception. In light of these conclusions, it is difficult to maintain that a concern with inequality cannot be one of these values. That said, the irreducible role of values in scientific theory and practice does not entail that anything goes: the choice of values for particular purposes must still be defended. Thus practicing economists ought to reconnect with their roots in moral philosophy and become better at articulating and defending the values that inform their work.
Discussants:
Maria Pia Paganelli
(Trinity University)
Lisa Kramer
(University of Toronto)
Jan 03, 2015 2:30 pm, Westin Copley, North Star
Labor & Employment Relations Association
Prospects for Egalitarian Capitalism: European Lessons for American Industrial Relations?
(J5)
Presiding:
Thomas A. Kochan
(Massachusetts Institute of Technology)
Engaging Business in Broader Social Goals
Cathie Jo Martin
(Boston University)
[View Abstract]
[Download Preview] Cathie Jo Martin will discuss mechanisms of engaging businesses in the service of broader social goals, focusing particularly on recent Norwegian social reforms after the financial crisis.
European Social Models during the Great Recession
Andrew Martin
(Harvard University)
[View Abstract]
Andrew Martin will discuss how different European social models have fared during the Great Recession, presenting the main lessons from his forthcoming book.
European Union Strategies toward Labor Market Reforms
Tobias Schulze-Cleven
(Rutgers University)
[View Abstract]
Tobias Schulze-Cleven will analyze recent union strategies toward labor policy reforms in Germany and Denmark, reviewing the choices made on policy content and advocacy efforts, and discussing their respective results.
Discussants:
Adrienne Eaton
(Rutgers University)
Jan 03, 2015 2:30 pm, Westin Copley, Courier
Labor & Employment Relations Association
Unemployment Insurance and Labor Market Outcomes
(J4)
Presiding:
Stephen A. Woodbury
(Michigan State University)
Does Extending Unemployment Benefits Improve Job Quality?
Arash Nekoei
(IIES Stockholm University)
Andrea Weber
(University of Mannheim)
[View Abstract]
Contrary to the predictions of standard reservation-wage search models, empirical studies consistently find that an extension of unemployment insurance (UI) increases unemployment duration without improving subsequent wages. Our paper addresses this puzzle in two steps. First, using administrative data from Austria and an age-based regression discontinuity design, we show that an extension of UI eligibility by nine weeks increases the average reemployment wage by a statistically significant 0.5%. The magnitude of this effect is consistent with the behavior of an optimizing agent since new higher wages tend to persist. We find that the UI effect on both unemployment durations and reemployment wages is larger for individuals with a high ex-ante likelihood of benefit exhaustion and for those laid off during local industry-specific downturns. Second, we show both theoretically and empirically that the UI effect on expected wage is determined by two offsetting forces: (i) agents on UI increase their reservation wages, which raises subsequent wages, but (ii) they also stay unemployed longer and thus experience a greater decrease in job opportunities, which reduces subsequent wages. Together, these results show that UI does have an economically significant impact on job quality consistent with theoretical predictions. Connecting these results to a normative model of UI points to an overlooked welfare benefit: UI increases future tax revenue through higher wages. We show that this positive fiscal externality is of the same order of magnitude as the traditional negative moral-hazard externality emphasized in prior work. These results suggest that taking gains in job quality into account could significantly change the optimal generosity of UI.
The Effects of Eliminating the Work Search Requirement on Match Quality and Other Long-Term Employment Outcomes
Marta Lachowska
(W.E. Upjohn Institute)
Merve Meral
(University of Massachusetts-Dartmouth)
Stephen A. Woodbury
(Michigan State University)
[View Abstract]
We exploit data from the 1986–87 Washington Alternative Work Search experiment, merged with nine years of follow-up administrative wage records, to estimate the causal effects of eliminating the unemployment insurance (UI) work search requirement (WSR) on match quality, measured as tenure with first post-claim employer, and other long-term outcomes, including earnings, employment, and hours worked. For UI claimants as a whole, we find that eliminating the WSR had little influence, either positive or negative, on long-term post-claim outcomes. In contrast, for permanent job losers, we find evidence that eliminating the WSR had a negative effect on employment outcomes, resulting in a longer time to reemployment, lower earnings, and a shorter duration of tenure with first post-claim employer. For claimants who were not permanent job losers, eliminating the WSR resulted in more UI benefit payments and longer unemployment durations, but made little difference for their employment outcomes. We conclude that, in addition to reducing moral hazard associated with UI, the WSR is an important policy for improving the long-term employment outcomes of permanent job losers.
Unemployment Insurance and Disability Insurance in the Great Recession
Andreas Mueller
(Columbia University)
Till von Wachter
(University of California-Los Angeles)
Jesse Rothstein
(University of California-Berkeley)
[View Abstract]
[Download Preview] Social Security Disability Insurance (SSDI) applications rise during recessions, prompting concerns that SSDI attracts marginally disabled individuals who are able to work but cannot find jobs. In that case, countercyclical Unemployment Insurance (UI) benefit extensions may deter potentially expensive SSDI awards at comparatively low cost. We exploit the haphazard pattern of UI extensions in the Great Recession to identify the effect of UI exhaustion on SSDI application, using aggregate data at the state-month and state-week levels. In panel data and event study analyses, we find no indication that expiration of UI benefits causes SSDI applications. Our estimates are sufficiently precise to rule out effects of meaningful magnitude. A supplementary analysis of matched CPS data finds little overlap between the populations served by the two programs: Only 28% of SSDI awardees had any labor force attachment in the prior calendar year, and of those only 4% received UI income.
Work Sharing as an Alternative to Cyclical Layoffs
Susan N. Houseman
(W.E. Upjohn Institute)
[View Abstract]
Recent public debate about long-term unemployment has focused mainly on provision of extended unemployment benefits to support family incomes following a job loss. Strategies for preventing unemployment in the first place have not received comparable attention. In other countries, work-sharing has been used successfully to reduce layoffs during downturns, slowing the flow of people who become unemployed in the first place, but work-sharing has been little used in the United States. This paper describes the design and implementation of a study that is using randomized controlled trials of policies to encourage Oregon employers to use work-sharing. These policies include innovative ways to increase employer awareness of the work-sharing program and its benefits to employers. The purpose of the study is to better understand the reasons for low program take-up and to evaluate the effectiveness of strategies to increase employer use.
Discussants:
Wayne Vroman
(Urban Institute)
Zhuan Pei
(Brandeis University)
Jan 03, 2015 2:30 pm, Westin Copley, Helicon
Labor & Employment Relations Association
Using Meta-Analysis to Understand Labor Market Issues
(J4)
Presiding:
Dale Belman
(Michigan State University)
Meta-Regression Analysis: Seeing through the Biases of Economics
Tom Stanley
(Hendrix College)
[View Abstract]
Meta-analysis is a statistical analysis of an entire empirical literature that has been applied to labor economics for a quarter century (Jarrell and Stanley, 1990). It seeks to summarize and evaluate what we know about a given empirical question, phenomenon, or effect. Meta-regression analysis (MRA) provides a rigorous, objective alternative to conventional narrative reviews (Stanley, 2001). Unlike those labor economists who ignore findings that do not conform to their ideology, meta-analysts are obligated to statistically analyze all relevant research or to give explicit reasons (Stanley et al., 2013). MRA was designed as a statistical method to identify and correct the ubiquitous biases made famous by Leamer s Let's take the con out of econometrics(Stanley and Jarrell, 1989).
We outline meta-regression models of misspecification and publication bias and their validation, illustrating how MRA has proven essential in understanding labor economics: gender wage discrimination, the efficiency-wage hypothesis, and the employment consequences of the minimum wage (Stanley and Jarrell, 1998; Doucouliagos and Stanley, 2009; Krassoi Peach and Stanley, 2009).
What Do Unions Do? A Meta-Analytic Structural Equation Model (MASEM) of the Effects of Unions on Firm Performance
Patrice Laroche
(ESCP Europe Business School)
Chris Doucouliagos
(Deakin University)
[View Abstract]
Economists have spent decades seeking to understand the economic effects of unions. A widely held position is that unions increase wages in many countries (Blanchflower and Bryson, 2003). However, there is still disagreement fueled by contradictory research findings over the question of whether or not the net economic and social effects of unions are positive (Doucouliagos and Laroche, 2009). Specifically, a lack of consensus exists on several key issues regarding the impact of unions on worker s productivity and firm performance. The purpose of this study is to shed new light on the effects of unions on firm performance with the help of several meta-analytic techniques. Meta-analysis is becoming a commonly used technique for summarizing results from empirical studies that investigate relationships between similar variables. Structural equation modeling (SEM) is also a widely used tool in the social sciences. By applying an appropriate transformation on the data, meta-studies can be analyzed as subjects in a structural equation model. Two steps are involved in Meta-Analytic SEM (MASEM). The first requires pooling elements of correlation matrices across meta-studies. The second step involves analyzing the resulting pooled matrix by using SEM techniques. This paper proposes a model to integrate different meta-analyses on the economic effects of unions into the SEM framework (Doucouliagos and Laroche, 2003a, b, c, 2009, 2013; Jarrell and Stanley, 1990; Bamberger et al., 1999; Mathieu and Zajac, 1990; Cotton and Tuttle, 1986; Fuller and Hester, 1998). It also considers some practical benefits of using the SEM approach to conduct a meta-analysis. Specifically, the MASEM can be used to handle missing covariates and to quantify the heterogeneity of effect sizes.
A Meta-Analysis of Recent Active Labor Market Programs
David Card
(University of California-Berkeley)
Jochen Kluve
(Humbolt Universität-Berlin)
Andrea Weber
(University of Mannheim)
[View Abstract]
This paper presents a meta-analysis of recent microeconometric evaluations of active labor market policies. Our sample contains 199 separate program estimates estimates of the impact of a particular program on a specific subgroup of participants drawn from 97 studies conducted between 1995 and 2007. For about one-half of the sample we have both a short-term program estimate (for a one-year post-program horizon) and a medium- or long-term estimate (for 2 or 3 year horizons). We categorize the estimated post-program impacts as significantly positive, insignificant, or significantly negative. By this criterion we find that job search assistance programs are more likely to yield positive impacts, whereas public sector employment programs are less likely. Classroom and on-the-job training programs yield relatively positive impacts in the medium term, although in the short-term these programs often have insignificant or negative impacts. We also find that the outcome variable used to measure program impact matters. In particular, studies based on registered unemployment are more likely to yield positive program impacts than those based on other outcomes (like employment or earnings). On the other hand, neither the publication status of a study nor the use of a randomized design is related to the sign or significance of the corresponding program estimate. Finally, we use a subset of studies that focus on post-program employment to compare meta-analytic models for the effect size of a program estimate with models for the sign and significance of the estimated program effect. We find that the two approaches lead to very similar conclusions about the determinants of program impact.
A Meta-Analysis of the Effect of the Minimum Wage on Employment and Hours
Paul Wolfson
(Dartmouth College)
Dale Belman
(Michigan State University)
[View Abstract]
The first three chapters of our book, What Does the Minimum Wage Do?, surveys the literature on the response of some aspect of employment to the minimum wage. We consider more than 70 articles on employment and find results that range between large, statistically significant negative effects to small, statistically significant positive effects. In some instances, qualitative results vary within an article as researchers apply a variety of methods to different data, time periods, and definitions of the minimum wage. The variety of techniques, data sets and time periods pose challenges in developing a qualitative synthesis of the state of the research.
In this paper we performed a meta-analysis to generate a transparent statistical summary and assessment of the effect of the minimum wage across studies. Drawing on the approach of Stanley and Doucouliagos (2012) to obtain estimates of the average elasticity of employment and hours with respect to the minimum wage, controlling for the effects of techniques, differences between outcomes for employment and hours, the reliability of the standard errors, and dependence between estimates from the same study. In some models we distinguish the effects on young workers and from those at eating and drinking places, and also between studies of the United States and other countries.
We find some evidence that increases in the minimum wage result in small reductions in employment. Considering all meta-estimates, a 10 percent increase in the minimum wage is associated with a reduction in employment of between 0.0 and 2.6 percent. Somewhat less than half of the estimates are statistically significant, and more than half of those find an employment decline near the bottom of a range of "0.1 and "0.03 percent. The United States faces a far more favorable situation. Of the 16 estimates for the U.S.,
Discussants:
Tom Stanley
(Hendrix College)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Tufts
Middle East Economic Association
MENA Countries and Financial Institutions
(G2)
Presiding:
Hassan Y. Aly
(Ohio State University)
Financial Deepening in GCC
Abdullah Al-Hassan
(International Monetary Fund)
Ali Alsadiq
(International Monetary Fund)
[View Abstract]
In this paper, we analyze the financial deepening in the Gulf Cooperation Council (GCC) with particular emphasis on Saudi Arabia. It will provide topography of the financial sector (including ownership, concentration, balance sheet exposures and risks, and financial soundness). We then carry a benchmark exercise of the financial sector performance - in terms of access, depth, efficiency, and stability - over time and relative to other countries. The benchmarking exercise will facilitate work to identify obstacles to further financial development to sustain high and inclusive growth, and increase the effectiveness of macroeconomic policies.
Does Privatization Enhance the Performance of Banks? Evidence from Egypt
Ahmed Kamaly
(American University-Cairo)
Sara Elezaby
(American University-Cairo)
[View Abstract]
[Download Preview] One of the main justifications of privatization is to enhance efficiency. The privatization program in Egypt started in the beginning of the 1990s with most of the highlights taking place in the banking sector. The banking sector in Egypt was a perfect target for privatization given the existence of many joint venture banks. In a few years, all joint venture banks were privatized and more recently one of the four big state-owned banks was also privatized. After more than a decade from the launch of this program, we revisit this program to assess the effect of privatization on banks’ performance. Using panel data on 9 privatized banks including one state-owned bank spanning for 18 years period, this paper measures the effect of privatization on profitability, efficiency, liquidity, capital adequacy, and bank capitalization. Results show that the effect of privatization is positive on profitability, efficiency, banking effectiveness and asset quality while it has almost no effect on capitalization. In addition, results reveal that the only state-owned bank that was privatized is an outlier when it comes to the effect of privatization on performance. Lastly, there is a strong evidence suggests that foreign ownership is key in order to guarantee that privatization would indeed enhance banks’ performance.
On the Impact of Macroprudential Policy in Selected MENA Countries
Noha Emara
(Rutgers University)
Ayah El Said
(City University London)
[View Abstract]
Macroprudential policy re-emerged in a post crisis world as an important policy tool to achieve financial stability, with the potential of reinforcing monetary policy. The combination of monetary and macroprudential policies could boost economic growth if they complement each other, or delay economic recovery if both policies conflict with one another. Using Structural Vector Autoregressions (SVAR), this study assesses the impact of macroprudential policy on overall macroeconomic activity and credit conditions in selected MENA countries, most notably Egypt, Saudi Arabia, and the United Arab Emirates. The study sheds light on the importance of loan to value (LTV) ratios in particular, and required reserves and provisions in general in curbing credit growth and house price appreciation. Monetary policy is no longer seen as a sufficient policy tool to dampen business/financial cycles as well as financial imbalances. For instance, Egypt and Lebanon's macroprudential tools prevented their banking sectors from taking a severe hit during the global financial crisis. This remains an unexplored area of research broadly in emerging markets, and particularly in the MENA region, and is very timely in light of the recent global regulatory reforms.
Choice of Financing in a Borrowing-Constrained Economy and Long-Term Profitability Effects
Seza Danisoglu
(Middle East Technical University)
Nuray Guner
(Middle East Technical University)
Zeynep Onder
(Bilkent University)
[View Abstract]
[Download Preview] This paper examines the long-run stock performance of equity issuers in a borrowing-constrained emerging economy and documents no negative abnormal stock performance when there are severe borrowing constraints. This result is robust to the inclusion of several risk factors and firm characteristics as control variables in the regressions. Findings of this study might have important implications for other emerging markets and international investors taking positions in these markets.
The Economic Impact of Energy Consumption Subsidies in the GCC Countries
Mahmoud Al Iriani
(Dubai Economic Council)
Mohamed Trabelsi
(Dubai Economic Council)
[View Abstract]
The energy markets in the six states of the GCC are characterized by heavy consumption subsidies and low efficiency of energy use. This paper investigates the scope and impact of energy consumption subsidies on the GCC economies. The results of the current research allows us to suggest appropriate energy policies geared at phasing out subsidies and hence inducing a more efficient use of energy in this region.
Discussants:
Wassim Shahin
(Lebanese American University)
Abdelnacer Bouteldja
(University of Tlemcen)
Alpay Filiztekin
(Sabanci University)
Ibrahim Ahmed Elbadawi
(Dubai Economic Council and The Economic Research Forum)
Ahmed Kamaly
(American University in Cairo)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom--Salons J & K
National Association for Business Economics/American Economic Association
Monetary Policy Normalization: Graceful Exit or Bumpy Ride?
(E5, E6) (Panel Discussion)
Panel Moderator:
Kevin Kliesen
(Federal Reserve Bank of St. Louis)
Mark Gertler
(New York University)
Marvin Goodfriend
(Carnegie Mellon University)
Athanasios Orphanides
(Massachusetts Institute of Technology)
Eric S. Rosengren
(Federal Reserve Bank of Boston)
Jeremy Stein
(Harvard University)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Suffolk
National Association of Forensic Economics
Forensic Economics II
(K2, K2)
Presiding:
Ed Foster
(University of Minnesota)
Current-Rate Method of Loss Estimation in Personal Injury Cases
Scott Gilbert
(Southern Illinois University-Carbondale)
[View Abstract]
When estimating the loss of future earnings in personal injury and wrongful death cases, economists often use a “current-rate” method, whereby projected future earnings are brought to present value using current yields on U.S. Treasury bonds or similarly low-risk investments. The present work considers the roles of three factors -- earnings risk, earnings forecasts, and discount rates -- in the current-rate method, and problems that arise from under-developed factor content. I then discuss more fully developed versions of these factors, and more robust implementation of the current-rate method.
Medical Net Discount Rates: Updated and Re-Examined
Robert Baumann
(College of the Holy Cross )
David Schap
(College of the Holy Cross )
[View Abstract]
[Download Preview] Schap, Guest and Kraynak (Journal of Forensic Economics, fall 2013) examined the time series properties of medical net discount rates (MNDRs) for 1981:01 - 2012:06. The present study makes four adjustments to the previous study. First, the data set is updated to 2014:10. Second, the t-test applied in previous study and other studies concerning whether the MNDR is zero fails to account for autocorrelated error terms, so a substitute test is applied and results reported. Third, Phillips-Perron testing is conducted in addition to Augmented Dickey-Fuller and Kwiatkowski-Phillips-Schmidt-Shin testing on stationarity of the various series constructed, with results reported. Finally, the present study proposes the use of Zivot-Andrews testing diagnostically, to identify stationary sub-series of MNDRs having start dates later than 1981:01 but still ending 2014:10. The diagnostic approach has proven useful previously in discovering stationary WAGE net discount rates series.
Pricing Discounts in Forensic Economics
Kurt Krueger
(John Ward Economics)
Gary Albrecht
(Albrecht Economics Inc)
[View Abstract]
[Download Preview] Tort law recognizes that ignoring the time value of money in future damages assessments results in overcompensation. While the forensic economic literature contains many articles about selecting discount rates, there is little literature addressing the pricing of the discounts made in forensic economics. In this paper, we work through the economic theories of the price of future streams of money. We show that, in general, forensic economics mishandles the discounting process and we provide a method of pricing the discounts made in forensic economics.
Discussants:
Charles Baum
(Middle Tennessee State University)
Kevin Cahill
(Sloan Center on Aging and Work)
Larry Spizman
(State University of New York-Oswego)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, New Hampshire
National Economic Association/Union for Radical Political Economics
The Great Recession and Implications for African Americans
(E2)
Presiding:
Fred Moseley
(Mount Holyoke College)
The Impact of the Great Recession and the American Recovery and Reinvestment Act of 2009 (ARRA) on the Occupational Segregation of Black Men
Michelle Holder
(City University of New York-John Jay College)
[View Abstract]
Existing research on occupational segregation measures the degree of under- and overrepresentation of a group in an occupation given that group’s expected level of representation; the occupational crowding hypothesis posits that the expected level of representation is based on the share of the group with the educational attainment level possessed by the majority of the occupation’s workers (Bergmann 1971). Black men are overrepresented in low-wage occupations, and underrepresented in high-wage occupations, even after controlling for education (Bergmann 1971; Gibson, Darity, and Myers 1998; Hamilton, Austin and Darity 2011). The occupational crowding hypothesis indicates that the crowding of black workers into low-wage occupations is due to: (1) employers’ desire not to associate with blacks; (2) employers’ perception that black workers are less productive; (3) employers’ fear of reprisal from white customers or employees. Since occupational crowding research typically ignores the effect of business cycles on occupational sorting, this research examines whether the Great Recession exacerbated the occupational crowding of black men in the U.S. It also analyzes whether the American Recovery and Reinvestment Act of 2009 (ARRA) mitigated any reduction in black male representation in non-construction occupations impacted by ARRA contract funding; the most frequently cited non-construction jobs that were created/retained because of ARRA contract spending were in the engineering and architecture occupations.
Surviving the Storm: Race, Resiliency, Privilege, and Household Wealth, 2007-09
Robert Williams
(Guilford College)
[View Abstract]
In a rare departure, the Federal Reserve authorized a 2009 panel survey to conduct
follow-up interviews with households surveyed in 2007. As the SCF offers the most
comprehensive and detailed examination of U.S. household wealth, this survey offers a
rare glimpse into how the Great Recession affected the distribution of household wealth.
Curiously, while wealthier households lost far greater wealth than did the less affluent,
Black and Latino households suffered much greater relative declines than did White
households, despite holding much lower levels of wealth.
Using extensive evidence including logistic regression analysis, this paper explains the
above paradox and demonstrates another source of wealth privilege, financial resiliency
in the face of economic adversity. White households experience fewer bouts of
unemployment and live in neighborhoods that suffered smaller declines in home values.
As White households earn higher salaries and hold greater net worth, they have greater
protection against adverse circumstances. In addition, they have wealthier family
networks from which to draw help. These advantages and more largely buffered White
households from the worst of the financial storm. In addition, black homeowners and
business owners suffered disproportionate losses, suggesting the persistence of systemic
racism in these two sectors. Lastly, fewer White households suffered structural decline as
they largely retained their homes and business even as each lost value. By retaining their
asset ownership, they are better positioned to benefit as circumstances revert and asset
values begin to appreciate.
The Great Recession and Racial Inequality: Evidence from Measures of Economic Well-Being
Thomas Masterson
(Levy Economics Institute of Bard College)
Ajit Zacharias
(Levy Economics Institute of Bard College)
Edward Nathan Wolff
(New York University)
Fernando Rios-Avila
(Levy Economics Institute of Bard College)
[View Abstract]
[Download Preview] The Great Recession had a tremendous impact on low-income Americans, in particular Black and Latino Americans. The losses in terms of employment and earnings are matched only by the losses in terms of real wealth. In many ways, however, these losses are merely a continuation of trends that have been unfolding for more than two decades. We examine the changes in overall economic wellbeing and inequality, as well as changes in racial economic inequality over the Great Recession, using the period from 1989 to 2007 for historical context. We find that while racial inequality has increased overall, during the Great Recession racial inequality in terms of LIMEW has decreased. We find that changes in base income, taxes and income from non-home wealth during the Great Recession produced declines in overall inequality, while only taxes reduced between-group racial inequality.
Nest Eggs and Today's Breakfast: Financial Burdens of African Americans during the Great Recession and Their Implications for Retirement Saving
Ngina S. Chiteji
(New York University)
[View Abstract]
This paper analyzes the finances of African Americans during the 2007 recession. Specifically, it examines indebtedness among black households and the extent to which they tapped into their retirement accounts to meet current consumption needs. There has been much discussion about the degree to which Americans are adequately prepared for retirement among scholars and policymakers in recent years. This paper contributes to that discussion by highlighting ways that the nation's shift toward defined contribution pensions may have had unexpected consequences for families' ability to be successful accumulating savings for retirement. The project utilizes data from a special panel data set called the Michigan Recession and Recovery Study.
Discussants:
Terry-Ann Craigie
(Connecticut College)
Valerie Wilson
(Economic Policy Institute)
Willene Johnson
(Komaza, Inc.)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon D
Society for Economic Dynamics
Rigidities and Macroeconomic Dynamics
(E3)
Presiding:
Yuriy Gorodnichenko
(University of California-Berkeley)
Informational Rigidities and the Stickiness of Temporary Sales
Eric Anderson
(Northwestern University)
Emi Nakamura
(Columbia University)
Duncan Simester
(Massachusetts Institute of Technology)
Jón Steinsson
(Columbia University)
[View Abstract]
[Download Preview] We use unique price data to study how retailers react to underlying changes in costs. Temporary sales account for 95% of all price changes in our data. Simple models would, therefore, suggest that temporary sales also play a central role in how prices adjust to cost shocks. Yet, we show that, in response to a wholesale cost increase, retailers raise their prices entirely by raising the regular price. Sales actually respond temporarily in the opposite direction from regular prices, as though to conceal the price hike. In addition to our evidence on wholesale cost shocks, we also provide evidence that temporary sales fail to react to commodity cost shocks and changes in unemployment. We show that the institutional features of price-setting are consistent with these empirical findings: sales are “sticky plans,” whose magnitude and timing is determined to a large degree with a long lead time—hence, despite generating a large number of price changes, they contribute little to the responsiveness of prices to cost shocks.
Inflation Dynamics during the Financial Crisis
Simon Gilchrist
(Boston University)
Raphael Schoenle
(Brandeis University)
Jae W. Sim
(Federal Reserve Board)
Egon Zakrajsek
(Federal Reserve Board)
[View Abstract]
Using confidential product-level price data underlying the U.S. Producer Price Index (PPI), this paper analyzes the effect of changes in firms’ financial conditions on their price-setting behavior during the ”Great Recession” that surrounds the financial crisis. The evidence indicates that during the height of the crisis in late 2008, firms with “weak” balance sheets increased prices significantly relative to industry averages, whereas firms with “strong” balance sheets lowered prices, a response consistent with an adverse demand shock. These stark differences in price-setting behavior are consistent with the notion that financial frictions may significantly influence the response of aggregate inflation to macroeconomic shocks. We explore the implications of these empirical findings within a general equilibrium framework that allows for customer markets and departures from the frictionless financial markets. In the model, firms have an incentive to set a low price to invest in market share, though when financial distortions are severe, firms forgo these investment opportunities and maintain high prices in an effort to preserve their balance-sheet capacity. Consistent with our empirical findings, the model with financial distortions—relative to the baseline model without such distortions—implies a substantial attenuation of price dynamics in response to contractionary demand shocks.
How Do Firms Form Their Expectations? New Survey Evidence
Olivier Coibion
(University of Texas-Austin)
Yuriy Gorodnichenko
(University of California-Berkeley)
Saten Kumar
(Auckland University of Technology)
[View Abstract]
We implement a new survey of firms’ macroeconomic beliefs in New Zealand and document a number of novel stylized facts from this survey. Despite nearly twenty five years under an inflation targeting regime, there is widespread dispersion in firms’ beliefs about both past and future macroeconomic conditions, especially inflation, with average beliefs about recent and past inflation being much higher than those of professional forecasters. Much of the dispersion in beliefs can be explained by firms’ incentives to collect and process information, i.e. rational inattention motives. For example, firms which face more competitors or firms which expect to change their prices sooner have systematically better macroeconomic information.
Menu Costs, Uncertainty Cycles, and the Propagation of Nominal Shocks
Isaac Baley
(New York University)
Julio A. Blanco
(New York University)
[View Abstract]
[Download Preview] How do nominal rigidities and information frictions in firms’ pricing decisions influence the propagation of nominal shocks? We develop a price-setting model with menu costs and noisy information to address this question. The interplay between these frictions can simultaneously
explain micro price-settings facts and macro evidence on the sluggish propagation of nominal shocks. The key elements are infrequent large productivity shocks of unknown magnitude. Uncertainty about future productivity spikes upon the arrival of an infrequent shock, and then
slowly fades with learning. These uncertainty cycles, when paired with menu costs, produce heterogeneity in decision rules that increase non-neutrality.
Discussants:
Ben Malin
(Federal Reserve Bank of Minneapolis)
Ruediger Bachmann
(University of Notre Dame)
Justin Wolfers
(University of Michigan)
Ricardo Reis
(Columbia University)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Hyannis
Union for Radical Political Economics
Heterodox Macroeconomics
(E6)
Presiding:
David Kotz
(University of Massachusetts-Amherst)
Capital Flows and Credit Expansion in the Post-2008 Era: A Cross-Country Examination
Özgür Orhangazi
(Kadir Has University Istanbul)
[View Abstract]
Surges in capital inflows potentially create financial fragility and instability by (i) leading to unsustainable current account deficits and overvalued exchange rates; (ii) creating currency maturity mismatches in balance sheets due to dollarization of liabilities; and (iii) producing bubbles in credit and asset markets. A significant channel through which capital inflows may impact domestic economies is through their effect on the expansion of domestic bank credit to the private sector. In this paper, I study the impact of capital inflows on domestic credit markets, with a special focus on the post-2008 era.
Keynes is Dead -- Long Live Marx
Ismael Hossein-zadeh
(Drake University)
[View Abstract]
[Download Preview] Many liberal/progressive economists envisioned a new dawn of Keynesianism in the 2008 financial meltdown. More than five years later, it is clear that the much-hoped-for Keynesian prescriptions are completely ignored. Why? Keynesian economists’ answer: “neoliberal ideology,” which they trace back to President Reagan. Using a Marxian method of inquiry, this study argues, by contrast, that the rise/dominance of neoliberalism has much deeper roots than pure ideology, that the transition from Keynesian to neoliberal economics started long before Reagan was elected President and that the Keynesian reliance on the ability of the government to re-regulate and revive the economy through policies of demand management rests on an optimistic perception that the state can control capitalism. Contrary to such hopeful perceptions, public policies are more than simply administrative or technical matters of choice. More importantly, they are class policies—hence, continuation/escalation of neoliberal policies under the Obama administration, and frustration of Keynesian/liberal economists. The study further argues that the Marxian theory of unemployment, based on his theory of the reserve army of labor, provides a much robust explanation of the protracted high levels of unemployment than the Keynesian view, which attributes the plague of unemployment to the “misguided policies of neoliberalism.” Likewise, the Marxian theory of subsistence or near-poverty wages provides a more cogent account of how or why such poverty levels of wages, as well as a generalized predominance of misery, can go hand-in-hand with high levels of profits and concentrated wealth than the Keynesian perceptions, which view high levels of employment and wages as necessary conditions for an expansionary economic cycle.
Mainstream Growth Theory: Are the Optimistic Pro-Growth Conclusions Driven by Models or Mindset?
Hendrik Van den Berg
(University of Nebraska)
[View Abstract]
[Download Preview] Most mainstream economics textbooks present economic growth in a capitalist market economy as a stable and continuous process. The neoclassical Solow growth model and more recent dynamic mathematical endogenous growth models are used to explain growth and justify the optimistic conclusion about economic growth. Other schools of thought reach different conclusions: Marxist models predict that in a capitalist economy growth will inevitably collapse, American Institutionalists see continuous economic growth as just one of many possible economic outcomes, Post Keynesian models suggest that recessions/depressions occur with great regularity in market economies, and environmental economists present models suggesting that economic growth as we have known it in the past two centuries is not sustainable. The apparent differences in economic outcomes derived from alternative models have led some heterodox economists to attribute mainstream’s optimism about long-run growth to the inherent pro-growth bias in mainstream neoclassical models. However, this paper shows that under many realistic assumptions and conditions, mainstream growth models can used to predict economic collapses as well as persistent growth. For example, when the neoclassical Solow growth model is disaggregated into separate market and natural sectors, the model can predict an economic collapse. Similarly, when Romer’s well-known endogenous growth model, based on Schumpeter’s process of creative destruction, is disaggregated, the model can be used to show that it is very difficult to generate the continuous flow of new technologies necessary to sustain economic growth. The fact that disaggregated models can generate economic collapses but mainstream economists have avoided disaggregating their models suggests that mainstream’s optimistic predictions about capitalist growth is more likely to reflect a particular mindset than a modeling bias.
Neoliberalism, Income Distribution, and Growth
Tanadej Vechsuruck
(University of Utah)
[View Abstract]
Rapid globalization gives rise to the export-led growth strategy as a key strategy for countries to follow, with the US as a main source of world demand. By closely following Sarkar (2009), this article will extend his model to show how a large expansion in exports from the Periphery only causes a collapse in terms of trade for the Periphery when global effective demand is insufficient. This article will revisit arguments from Kaldor (1996) which claims that the ultimate constrain of global economy is effective demand from the advanced countries. Some implications will be discussed.
The Rise and Fall of (Industrial) Capitalism
Stephen Bannister
(University of Utah)
[View Abstract]
I trace the primary contribution of energy revolutions in the rise of industrial capitalism and, given that, speculate about one scenario in which industrial capitalism may wane. I further speculate whether this may be sufficient to deal a damaging blow to capitalism in general.
Discussants:
David Kotz
(University of Massachusetts-Amherst)
Erdogan Bakir
(Bucknell University)
Jan 03, 2015 2:30 pm, Boston Marriott Copley, Orleans
Union for Radical Political Economics/International Association for Feminist Economics
Race and Gender Differences in Wealth
(J1)
Presiding:
Samuel Myers
(University of Minnesota)
Racial Differences in Wealth in Five Cities in the United States
William A. Darity, Jr.
(Duke University)
[View Abstract]
This paper uses a new and unique data set of 5 cities (Boston, LA, Washington DC, Tulsa, and Miami) in the US to examine racial wealth differences by detailed race within Asian Americans, African Americans, and Latinos. It also examines racial wealth differences among Native Americans. Because of data limitations, no one has been able to examine such detailed racial categories previously. It also examines these differences by detailed wealth and asset categories.
Race and Debt in Five Cities in the United States
Darrick Hamilton
(New School)
[View Abstract]
This paper uses a new and unique data set of five cities (Boston, LA, Washington DC, Tulsa, and Miami) in the US to examine debt and race by detailed race within Asian Americans, African Americans, and Latinos. It also examines the debt patterns among Native Americans. Because of data limitations, no one has been able to examine such detailed racial categories previously. It also examines these differences by detailed debt classifications, and the sources of such debts, such as subprime loans.
Are Racial Differences in Wealth Explained by Birth or Worth?
Marlene Kim
(University of Massachusetts-Boston)
[View Abstract]
This paper uses a new and unique data set of 5 cities (Boston, LA, Washington DC, Tulsa, and Miami) in the US to examine the sources of racial wealth differences among African Americans, Asian Americans, and Latinos. Using Blinder-Oaxaca decompositions, it examines the extent to which family background, such as parents’ education and income and one’s neighborhood’s social economic status explains wealth compared to one’s own education level, grade point average (as a measure of ability and/or motivation) explain these. Because of data limitations, no one has been able to examine this previously.
Gender Differences in Wealth
Mariko Chang
(University of Minnesota)
[View Abstract]
This paper uses a new and unique data set of 5 cities (Boston, LA, Washington DC, Tulsa, and Miami) in the US to examine gender differences in wealth and how these differences vary by race, geographic location, age, educational level, marital status, and family background. Because of data limitations, no one has been able to examine this previously.
Wealth accumulation, race, and extended family networks: New findings from the PSID
Johan Uribe
(University of Utah)
[View Abstract]
[Download Preview] The unequal distribution of wealth is the reification of our history of unequal social relationships. Explaining the long term evolution and persistence of racial inequality between blacks and whites presents a unique challenge for the research agenda of social scientist in the United States. This study approaches this issue by providing an empirical foundation of the social dynamics involved in the accumulation of household wealth. Taking advantage of the multi-generational structure of the PSID in conjunction with its rich wealth data, I estimate a fixed-effects panel model that incorporates the contemporaneous effects of total extended family wealth on household wealth accumulation. I find that relative to non-black families, black household a) experience difficulty translating extend family resources into household wealth accumulation, b) accumulate less wealth for a given income and c) experienced a disproportionate loss of wealth during the financial crisis.
Discussants:
Samuel Myers
(University of Minnesota)
Jan 03, 2015 4:45 pm, Sheraton Boston, Grand Ballroom
American Economic Association
Richard T. Ely Lecture
Presiding:
Richard Thaler
(University of Chicago)
Raj Chetty
(Harvard University)
Behavioral Economics and Public Policy
Jan 03, 2015 4:45 pm, Westin Copley, America Center
Labor & Employment Relations Association
LERA Plenary: Rules of Engagement: Promoting Prosperity Through Labor Standards Enforcement
(J8)
Presiding:
William Rodgers III
(Rutgers University)
Contemporary Challenges of Securing Strong Labor Standards
David Weil
(U.S. Department of Labor)
[View Abstract]
Contemporary Challenges of Securing Strong Labor Standards
Strengthening Enforcement through Government and Civil Society Collaborations
Janice Fine
(Rutgers University)
[View Abstract]
Functionality of U.S. Labor Markets
Jan 03, 2015 6:00 pm, Sheraton Boston, Back Bay Ballroom D
African Finance & Economics Association
Presidential Address and Dinner
Jan 03, 2015 6:00 pm, Sheraton Boston, Grand Ballroom
American Economic Association
Business Meeting
Jan 03, 2015 8:00 pm, Sheraton Boston, Republic Ballroom A & B
American Economic Association
5th Annual Music Session
(Y9)
Presiding:
Stephen Wu
(Hamilton College)
Classical Piano
Natalia Bodrug
(Norwegian Business School)
Solo Guitar
Jerry Hionis
(Widener University)
[View Abstract]
Jerry Hionis has been playing guitar for over two decades. While influenced early on by various forms of death metal, Jerry embraced the solo guitar techniques introduced by country blues players such as Charlie Patton, Gary Davis, Robert Johnson, Willie Johnson and Booker White. He later entered into the "American Primitive" guitar community --- pioneered by John Fahey, Robbie Basho and Jack Rose --- where heavier and darker compositions are played using classical blues techniques. Jerry is a professor of economics at Widener University in Chester, PA.
Jazz Combo
Gerald Auten
(Treasury Department: Trumpet)
Daniel Berkowitz
(University of Pittsburgh: Alto Saxophone)
Edward Gamber
(Lafayette College: Guitar)
Donald Hausch
(University of Wisconsin: Trumpet)
William Horrace
(Syracuse University: Bass)
Alan Spearot
(University of California-Santa Cruz: Drums)
Charles Whalen
(Congressional Budget Office: Trumpet)
Stephen Wu
(Hamilton College: Piano)
[View Abstract]
[Download Preview] Jazz Combo Program and Bios
Rhythm and Blues Band, "Soul on the Edge"
Dan Lomba
(Bridgewater State University: Bass)
Kevin Gomes
(Vocals)
Beverly Hilliard
(Vocals)
Zack Rezendes
(Guitar, Vocals)
Charles Viau
(Drums)
n/a
Jan 04, 2015 7:45 am, Boston Marriott Copley, Grand Ballroom--Salon E
Association for Social Economics
ASE Presidential Breakfast -- Fee Event
Presiding:
Ellen Mutari
(Richard Stockton College of New Jersey)
Mark D. White
(College of Staten Island/City University of New York)
Judgement: Balancing Principle and Policy
Jan 04, 2015 8:00 am, Westin Copley, St. George D
Agricultural & Applied Economics Association
The 2014 Farm Bill: An Economic Post Mortem
(Q1)
Presiding:
Brian Wright
(University of California-Berkeley)
The Political Economy of the 2014 Farm Bill
David Orden
(Virginia Tech and IFPRI)
Carl Zulauf
(Ohio State University)
[View Abstract]
[Download Preview] This paper assesses the political economy of the 2014 farm bill, which eliminated annual fixed direct payments but offers enhanced downside risk protection against low prices or declining revenue. The farm bill secured substantial bipartisan majorities in a politically contentious Congress. The countercyclical structure of U.S. support is reaffirmed and crop insurance is enhanced as a safety net pillar. Open policy issues include the distribution of benefits among crops, the design of multiple year support around moving-average revenue benchmarks versus fixed references prices, and questions related to crop insurance, including the overall level of premium subsidies. In an international context, we conclude the 2014 farm safety net likely would not have been enacted had multilateral agreement been reached on the 2008 Doha Round negotiating documents; conversely, the 2014 farm bill makes achieving those limits more difficult.
50 Shades of Amber:The 2014 Farm Bill and the WTO
Joseph W. Glauber
(USDA Office of the Chief Economist)
Patrick Westhoff
(University of Missouri)
[View Abstract]
[Download Preview] This paper will provide stochastic estimates of the budgetary costs of the 2014 farm bill. The authors use those estimates to explore whether or not the new farm bill creates challenges for the United States in meeting its current WTO Aggregate Measure of Support (AMS) and other commitments. In light of these estimates the authors will also assess the potential effects of the 2014 farm bill on the US position in future WT negotiations.
The Economic Welfare Impacts of the New Agricultural Insurance and Shallow Loss Programs
Vincent H. Smith
(Montana State University)
Anton Bekkerman
(Montana State University)
Myles J. Watts
(Montana State University)
[View Abstract]
[Download Preview] The 2014 farm bill continued the expansion of the federally subsidized crop insurance program and introduced a number of new shallow loss programs, maintaining the ongoing shift of federal subsidies to risk management programs. This study describes the shifts over the past fifteen years and discusses the impacts of the newly instituted PLC, ARC, and SCO on taxpayer outlays. A stylized model demonstrates the subtle interactions between the new SCO and crop insurance programs through farmers' decisions to alter their insurance coverage levels. The results suggest increased taxpayer outlays and potentially adverse environmental consequences.
Long-run and Global R&D Funding Trajectories: The U.S. Farm Bill in a Changing Context
Philip G. Pardey
(University of Minnesota)
Jason Beddow
(University of Minnesota)
Connie Chan-Kang
(University of Minnesota)
[View Abstract]
[Download Preview] Domestically funded (and performed) research and development (R&D) has historically been a major source of productivity gains in U.S. agriculture, and a principal source of R&D spillovers to the rest of the world. In the waning decades of the 20th century, U.S. policymakers opted to ratchet down the rate of growth in public support for food and agricultural R&D. As the 21st century unfolds, slowing growth gave way to real cutbacks, reversing the accumulation of U.S.-sourced public R&D capital over most of the previous century and more. The 2014 Farm Bill did little to reverse these long-run research funding trajectories—politicians failed to heed the economic evidence about the still substantial social payoffs to that research and the consequent slowdown in U.S. agricultural productivity growth associated with the spending slowdown. Meanwhile, R&D spending by other countries has been moving in different directions. We present new evidence that today’s middle-income countries—notably China, Brazil and India— are not only growing in relative importance as producers of agricultural innovations through investments in public R&D, they are also gaining considerable ground in terms of their share of privately performed research of relevance for agriculture. The already substantive changes in global public and private R&D investment trajectories are accelerating of late. If history is any guide to the future, these changing R&D trajectories could have profound consequences for the competitiveness of U.S. agriculture in the decades ahead.
Discussants:
Brian Wright
(University of California-Berkeley)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon A
American Committee on Asian Economic Studies/American Economic Association
The Indispensable Relationship: China-United States Economic Interdependence
(F4)
Presiding:
Justin Yifu Lin
(Peking University)
Financial Reform in China and Implications for China-United States Economic Relations
Yiping Huang
(Peking University)
[View Abstract]
While China experienced rapid economic growth during the reform period, its financial system remains heavily distorted, including restrictions on interest rates, the exchange rate, credit allocation and capital movements. The comprehensive reform program adopted by the policymakers in November 2013 covers 11 specific measures in three broad areas – opening to foreign and private institutions, liberalizing the markets and improving financial regulation and infrastructure. Rigorous implementation of this ambitious program could significantly transform China’s financial landscape and change its growth model. These anticipated developments could have important implications for the China-US economic relations, including bilateral trade and investment relations. As a result, the focus of policy dispute could gradually shift from imbalance in goods trade and misalignment of currency value to competition in service industries and protection of foreign investment. These call for new strategies to manage the rapidly changing economic relations between these two countries.
Trade between China and the United States: History and Prospects
Peter A. Petri
(Brandeis University)
Michael G. Plummer
(Johns Hopkins University)
Fan Zhai
(China Investment Corporation)
[View Abstract]
China-US trade has expanded dramatically and will soon be the world’s largest bilateral trade flow. The paper will review an expanding literature on the determinants and effects of China-US trade, and project trends in factor endowments, technological change, policy and other factors that will drive it in the future. The projections will apply an advanced global trade and investment model (developed to study regional trade agreements such as the Trans-Pacific Partnership) to pinpoint the effects of alternative structural and policy assumptions. Using these results, the study will explore the challenges of interdependence, ranging from technological competition to adjustments in the labor markets of both economies. Finally, it will address the political economy of the relationship and examine efforts to strengthen China-US trade through initiatives such as bilateral agreements, the enlargement of the TPP, the proposed Free Trade Area of the Asia-Pacific, and cooperation in the WTO.
United States-China Two-Way Direct Investment: Opportunities and Challenges
David Dollar
(Brookings Institution)
[View Abstract]
[Download Preview] The U.S. and China have been the two largest recipients of foreign direct investment (FDI) in recent decades. At the end of 2011 the total stock of FDI in the world was around $19 trillion. Of this, 19% was in the U.S. and 10% was in China. These two biggest economies in the world are also major providers of direct investment. While the U.S. and China are big players both as providers of direct investment and recipients of direct investment, there is curiously little cross-investment between the two. The U.S. Department of Commerce reports that China accounts for only 1.2% of U.S. outward FDI. China’s Ministry of Commerce reports that China’s direct investments in the U.S. account for only 3.2% of its overseas investments. This paper analyzes the impediments to cross-investment, including restrictions on FDI in particular sectors as well as generic factors such as IPR protection and the U.S.’s national security review process. An understanding of the major impediments provides insight into what would need to be included in the proposed bilateral investment treaty in order for such an agreement to have a large impact on bilateral economic relations.
China’s Strategy toward a Knowledge-Based Economy
Binkai Chen
(Central University of Finance and Economics)
Rudai Yang
(Peking University)
Yang Yao
(Peking University)
[View Abstract]
China is undergoing the typical structural change that has been commonly experienced by advanced economies; the share of manufacturing has reached its peak and the share of services in the national GDP has taken over the share of manufacturing. At this critical juncture, moving toward a knowledge-based economy (KBE) is vital for China to sustain its long-term growth. While the government has rolled out ambitious plans for technological upgrading, there are still many missing pieces that are necessary to form a coherent national strategy. R&D spending is still dominated by the government and the way the government allocates resources is not congruent with active innovation; the legal framework is far from adequate to facilitate the commercialization of scientific research results; higher education needs to be reengineered to teach students more practical skills; the non-farm labor force, more than 40% of which are migrant workers, needs more on-job training to meet the demand of the KBE; and the financial sector has to be thoroughly reformed to provide adequate and timely finance for innovation. There is a long way for China to move toward the KBE.
Discussants:
Wendy Dobson
(University of Toronto)
Gary Jefferson
(Brandeis University)
Steven L. Husted
(University of Pittsburgh)
Richard Pomfret
(University of Adelaide)
Jan 04, 2015 8:00 am, Sheraton Boston, Back Bay Ballroom B
American Economic Association
Assessing the Effectiveness of India's Largest Public Works Program - National Rural Employment Guarantee Scheme
(O1, J1)
Presiding:
Christopher Barrett
(Cornell University)
Why Guarantee Employment? Evidence from a Large Indian Public-Works Program
Laura Zimmermann
(University of Michigan)
[View Abstract]
[Download Preview] Public-works programs in developing countries have recently attracted a lot of renewed attention as anti-poverty government initiatives. In this paper, I analyze the labor-market impacts of the largest public-works program in the world, the Indian National Rural Employment Guarantee Scheme (NREGS). The scheme provides a legal guarantee of 100 days of public-sector employment per year to all rural households, and allows workers to decide if and when to take up the program. In a household time-allocation model, I first show that this flexibility allows households to use the program both as an alternative form of employment and as a safety net after bad economic shocks. Empirically, I reconstruct the algorithm the government used to assign districts to implementation phases and then use a regression-discontinuity design to estimate the program effects. The results suggest that the overall labor-market impacts of NREGS on employment and casual wages are small, but that take-up is higher after bad rainfall shocks. These empirical patterns are consistent with NREGS functioning as a safety net, but not with the program providing a general alternative form of employment. The availability of a safety net affects household time-allocation decisions even in the absence of a shock, however, with men moving out of the private casual sector and into alternative occupations like self-employment. These empirical patterns imply that the overall low take-up of the program does not mean that it is ineffective in altering the situation of the poor.
Short-Term Migration and Rural Workfare Programs: Evidence from India
Clement Imbert
(Paris School of Economics)
John Paap
(Princeton University)
[View Abstract]
We use survey data from a high out-migration area in rural India to document the
effect of a large public works program on short-term migration. Using
cross-state variation in public employment provision for
identification and controlling for the demand for work, we find that
participation to the program significantly reduces short-term
migration.
We also document that workers engaged both in short-term migration
and public employment report wanting more public employment, despite
the fact that
earnings outside of the village are nearly two times higher than
earnings from the pro-
gram. We estimate a structural model of migration decisions which
suggests that the
flow cost of migration may be as high as 59% of daily earnings
outside of the village.
Using nationally representative data, we find evidence that the
program affects migration flows across India, and may have substantial
effect on urban labor markets.
Female Labor Force Participation and Child Education in India: Evidence from the National Rural Employment Guarantee Scheme
Farzana Afridi
(ISI Delhi)
Abhiroop Mukhopadhyay
(ISI Delhi)
Soham Sahoo
(ISI Delhi)
[View Abstract]
We exploit the implementation of India’s National Rural Employment Guarantee Scheme to identify exogenous shifts in mothers’ labor force participation and its impact on their children’s educational outcomes. Using child level panel data, we find that mother’s participation in the labor force results in almost two additional months of attendance in a school year by her children and reduces the gap between a child’s actual and ideal grade by more than a quarter. These effects are robust for less landed households and for girls. We find evidence of greater household decision-making power of working mothers as an explanation of our results.
Impact of the NREGS on Schooling and Intellectual Human Capital
Subha Mani
(Fordham University)
Jere R. Behrman
(University of Pennsylvania)
Shaikh Galab
(Centre for Economic and Social Studies)
Prudhvikar Reddy
(Centre for Economic and Social Studies)
[View Abstract]
This paper uses a quasi-experimental framework to analyze the impact of India’s largest public works program, the National Rural Employment Guarantee Scheme (NREGS), on schooling enrollment, grade progression, reading comprehension test scores, writing test scores, math test scores and Peabody Picture Vocabulary Test (PPVT) scores. The availability of pre and two rounds of post-intervention initiation data from the three rounds of the Young Lives Panel Study allow us to measure both the short- and medium-run intent-to-treat effects of the program. We find that the program has no effect on enrollment but has strong positive effects on grade progression, reading comprehension test scores, math test scores and PPVT scores. The average effect size computed over several outcomes is similar to the effects of conditional cash transfer programs implemented in Latin America. These short-run impact estimates all increased in the medium run, that is, there is no decaying of impact but instead medium-run augmentation of the estimated short-run effects. The findings reported here are robust to attrition bias, endogenous program placement, type I errors and type II errors.
Discussants:
Subha Mani
(Fordham University)
Abhiroop Mukhopadhyay
(ISI Delhi)
Clement Imbert
(Paris School of Economics)
Laura Zimmermann
(University of Michigan)
Jan 04, 2015 8:00 am, Sheraton Boston, Constitution Ballroom A
American Economic Association
Banking, Financial Crises, and Behavioral Finance
(E4, G1)
Presiding:
Ulrike Malmendier
(University of California-Berkeley)
Lending Booms, Smart Bankers and Financial Crises
Anjan Thakor
(Washington University-St. Louis)
[View Abstract]
[Download Preview] This paper develops a theory of financial crises that explains why crises should be expected to follow periods of sustained lending booms and high banking profitability. When the behavior of agents is affected by the availability heuristic and there is a long period of sustained banking profitability, all agents—banks as well as those who fund banks and those who regulate them—end up in an “availability cascade” in which they overestimate the skills of bankers in managing risks and underestimate the probability that the observed good outcomes are simply due to luck. All agents consequently become more tolerant of bank risk-taking, and banks invest in increasingly riskier assets. Further, as the number of banks entering this market grows, the liquidity of highly risky assets improves, making it more attractive for others to enter the market. The economy thus ends up with a large number of financial institutions investing in very risky assets that are traded in highly liquid markets. Subsequently, if some salient public signal reveals in some period that loan repayment probabilities are exogenous rather than skill-dependent, investors rush to withdraw funds, market liquidity dries up, and a crisis ensues. The model also explains why the economy may not recover even after the friction that precipitated the crisis has dissipated. Empirical predictions and policy implications of the analysis are discussed. The analysis suggests that the majority of regulations put in place in response to the crises of the last few decades, including the recent financial crisis, may do little to prevent future crises.
Bank Risk-Taking and Bank History
Christa Bouwman
(Texas A & M University)
Ulrike Malmendier
(University of California-Berkeley)
[View Abstract]
Existing evidence on stock, bond, and inflation expectations suggests that people tend to overweight their personal experiences relative to data derived from the experiences of others and that these experience effects significantly affect their investment decisions. Does such biases aggregate within institutions? In particular, we study financial institutions and ask whether past macro-economic and bank-specific shocks experienced (and survived) by a bank affect its current risk-taking and capitalization. Our sample includes all banks founded between 1800 and 2010. We measure the severity of crisis times each bank has survived from the year in which the bank was founded until now. We find that, controlling for various factors, a bank’s experience shapes its capital structure and risk-taking. Specifically, banks that have been through worse times have capital structures with higher levels of capital. Existing empirical evidence indicates that such banks are more likely to survive financial crises, which suggests that banks that have survived worse times appear to make capital structure decisions that improve their odds of survival.
Do Strict Capital Requirements Raise the Cost of Capital? Bank Regulation, Capital Structure, and the Low Risk Anomaly
Malcolm Baker
(Harvard Business School)
Jeffrey Wurgler
(New York University)
[View Abstract]
[Download Preview] Traditional capital structure theory in frictionless and efficient markets predicts that reducing banks’ leverage reduces the risk and cost of equity but does not change the overall weighted average cost of capital (and thus the rates for borrowers). We test these two predictions. We confirm that the equity of better-capitalized banks has lower beta and idiosyncratic risk. However, over the last 40 years, lower risk banks have higher stock returns on a risk-adjusted or even a raw basis, consistent with a stock market anomaly previously documented in other samples. A calibration suggests that a binding ten percentage-point increase in Tier 1 capital to risk-weighted assets more than doubles banks’ average risk premium over Treasury yields, from 40 to between 100 and 130 basis points per year; in competitive lending markets, borrowing rates would rise in parallel.
Neglected Risk and the Financial Crisis
Nicola Gennaioli
(Università Bocconi and IGIER)
Robert W. Vishny
(University of Chicago)
Andrei Shleifer
(Harvard University)
[View Abstract]
[Download Preview] Much of the work on the recent financial crisis builds, explicitly or implicitly, on either or both of the following two assumptions. First, there is a strong demand for safe assets. Second, market participants neglect, or fail to anticipate, certain downside risks. Despite their crucial role, there is no established foundation for these assumptions to date. We argue that progress can be made by relying on insights from investor psychology. An approach where investors represent individual securities with their “stereotypical” risks can simultaneously account for: i) a “safety crowd-out mechanism”, whereby transforming a traditionally risky asset into a safer asset increases the demand for the transformed asset, ii) a “neglect of risks”, whereby non-stereotypical downside risks of the new safe assets are neglected by investors, and iii) oversupply of new assets because they create their own demand. These markets mechanisms also naturally lead to financial instability when neglected risks materialize.
Discussants:
Zhiguo He
(University of Chicago)
Rüdiger Fahlenbrach
(Ecole Polytechnique Fédérale de Lausanne)
Justin Murfin
(Yale University)
Wei Xiong
(Princeton University)
Jan 04, 2015 8:00 am, Sheraton Boston, Independence Ballroom East
American Economic Association
Consumer Credit Behavior
(G2)
Presiding:
Mark D. Manuszak
(Federal Reserve Board)
Consumer Borrowing after Payday Loan Bans
Tatiana Homonoff
(Cornell University)
Jacob Goldin
(Princeton University)
[View Abstract]
[Download Preview] High-interest payday loans have proliferated in recent years. Using new data from the Current Population Survey, we exploit state-time variation in payday lending laws to study the effect of payday loan restrictions on consumer borrowing. We find that although such policies are effective at reducing payday lending, consumers respond by shifting to other forms of high-interest short-term credit such as pawn shop loans. This result sheds light on the mechanisms by which payday loan access affects borrowers' financial well-being and suggests that legislative efforts to address payday lending in isolation may not reduce the extent to which consumers rely on short-term high-interest credit products. Finally, we present evidence that those who switch to pawn loans after payday loan bans do so because they lack access to small bank loans.
Credit Register's Memory
Sergei Kovbasyuk
(EIEF)
Giancarlo Spagnolo
(Stockholm School of Economics and University of Rome Tor Vergat)
[View Abstract]
Credit registers record the data on borrowers' past performance and make it accessible by interested parties. Typically, part of the information is erased from the public records with time, that is past behavior becomes forgotten. Shall good behavior be forgotten faster than good behavior (as it is in many legal systems), or the other way around? We answer this question in a reputation building model with moral hazard and adverse selection. We show that depending on the parameters one of the two regimes is socially optimal: never forget bad behavior and slowly forget good behavior, or never forget good behavior and slowly forget bad behavior.
The Economics of Debt Collection: Enforcement of Consumer Credit Contracts
Robert M. Hunt
(Federal Reserve Bank of Philadelphia)
Viktar Fedaseyeu
(Bocconi University)
[View Abstract]
[Download Preview] In the U.S., third-party debt collection agencies employ more than 140,000 people and
recover more than $50 billion each year, mostly from consumers. Informational, legal,
and other factors suggest that original creditors should have an advantage in collecting
debts owed to them. Then, why does the debt collection industry exist and why is it so
large? Explanations based on economies of scale or specialization cannot address many
of the observed stylized facts. We develop an application of common agency theory that
better explains those facts. The model explains how reliance on an unconcentrated industry
of third-party debt collection agencies can implement an equilibrium with more intense
collections activity than creditors would implement by themselves. We derive empirical
implications for the nature of the debt collection market and the structure of the debt
collection industry. A welfare analysis shows that, under certain conditions, an equilibrium
in which creditors rely on third-party debt collectors can generate more credit supply and
aggregate borrower surplus than an equilibrium where lenders collect debts owed to them
on their own. There are, however, situations where the opposite is true. The model also
suggests a number of policy instruments that may improve the functioning of the collections
market.
Personal Bankruptcy Protection and Household Debt
Felipe Severino
(Massachusetts Institute of Technology)
Meta Brown
(Federal Reserve Bank of New York)
Brandi Coates
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Personal bankruptcy laws protect a fraction of an individual's assets from seizure by unsecured creditors in case of default. An increase in the level of bankruptcy protection diminishes the collateral value of assets, and can therefore reduce borrowers' access to credit. However, it might also increase the demand for credit especially from risk averse borrowers by improving risk-sharing. Using changes in the level of protection across US states and across time, we show that bankruptcy protection laws increase borrowers' holdings of unsecured credit, but leave secured debt -mortgage and auto loans- unchanged. At the same time we find an increase in the interest rate for unsecured credit, but not for other types of credit. The effect is predominantly driven by lower-income areas and regions with higher home ownership concentration, for which an increase in the level of protection explains between 10% and 30% of the growth in their credit card debt. Using detailed individual data, we find no measurable increase in delinquency rates of households in the subsequent three years. These results suggest that changes in bankruptcy protections did
not reduce the aggregate level of household debt, but they might have aaffected the composition of borrowing.
State Mandated Financial Education and the Credit Behavior of Young Adults
Alexandra Brown
(Federal Reserve Board)
J. Michael Collins
(University of Wisconsin-Madison)
Maximilian D. Schmeiser
(Federal Reserve Board)
Carly Urban
(Montana State University)
[View Abstract]
[Download Preview] In the U.S., a number of states have mandated personal finance classes in public school curricula to address perceived deficiencies in financial decision-making competency. Despite the growth of financial and economic education provided in public schools, little is known about the effect of these programs on the credit behaviors of young adults. Using a panel of credit report data, we examine young adults in three states where personal financial education mandates were implemented in 2007: Georgia, Idaho, and Texas. We compare the credit scores and delinquency rates of young adults in each of these states pre- and post-implementation of the education to those of students in a synthetic control state and then bordering states without financial education. We find that young people who are in school after the implementation of a financial education requirement have higher relative credit scores and lower relative delinquency rates than those in control states.
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 206
American Economic Association
Electronic Commerce and Big Data
(L8, M2)
Presiding:
Justin Rao
(Microsoft Research)
Sales Taxes Shielding on the Amazon.com Platform
Alejandro Molnar
(Vanderbilt University)
Paulo Somaini
(Massachusetts Institute of Technology)
[View Abstract]
Sales taxes are an important source of revenue for states in the US. Until recently, most online sales were de facto exempt from sales taxes. We study the case of Amazon.com, which is both an online seller and an online platform for third-party-sellers. A large number of states started requiring Amazon to collect sales tax on its sales in 2012-2013. Tax collection by third-party-sellers is a legal grey area, and in practice many sellers on the Amazon platform do not collect sales taxes. This creates the scope for substantial leakage from attempts to require sales tax collection on e-commerce. We exploit variation in tax status across products and over time to show that as products sold by Amazon became subject to tax, the prevalence of third-party sellers increased. We also document an increase in the prevalence of third-party-sellers who have their orders fulfilled by Amazon (FBA). From the consumer point of view, a FBA order is almost indistinguishable from an actual order from Amazon. Sales tax leakage arises from the competitive conditions in the online platform. As the products sold by Amazon are taxed and become more expensive, they appear less often as the default seller of a product. Instead, the default seller becomes a third-party seller that offers FBA service and is not required to collect taxes.
Salience and Quality Choice
Bradley Larsen
(Stanford University )
Dominic Coey
(eBay Research Labs)
Kane Sweeney
(eBay Research Labs)
[View Abstract]
We introduce a behavioral model of quality choice, which generalizes the prior work on salience. Introducing quality choice into the model yields testable implications for the relation between prices and observed choices. We then utilize an experiment run by a secondary ticket market platform to estimate the impact of salience on consumer choice. The quality effect is the same order of magnitude as the quantity effect, suggesting that prior work understates the full effect of salience.
Do-Not-Track and the Economics of Third-Party Advertising
Giorgos Zervas
(Boston University)
Justin Rao
(Microsoft Research)
Sharad Goel
(Microsoft Research)
Ceren Budak
(Microsoft Research)
[View Abstract]
[Download Preview] Retailers regularly target users with online ads based on their web browsing activity, benefiting both the retailers, who can better reach potential customers, and content providers, who can increase ad revenue by displaying more effective ads. The effectiveness of such ads relies on third-party brokers that maintain detailed user information, prompting legislation such as "do-not-track" that would limit or ban the practice. We gauge the economic costs of such privacy policies by analyzing the anonymized web browsing histories of 14 million individuals. We find that only 3% of retail sessions are currently initiated by ads capable of incorporating third-party information, a number that holds across market segments, for online-only retailers, and under permissive click-attribution assumptions. Third-party capable advertising is shown by 12% of content providers, accounting for 32% of their page views; this reliance is concentrated in online publishing (e.g., news outlets) where the rate is 91%. We estimate that most of the top 10,000 content providers could generate comparable revenue by switching to a "freemium" model, in which loyal site visitors are charged $2 (or less) per month. We conclude that do-not-track legislation would impact, but not fundamentally fracture, the Internet economy.
Worn-Out or Just Getting Started? The Impact of Frequency in Online Display Advertising
Randall Lewis
(Google, Inc.)
Michael Hankin
(University of Southern California)
[View Abstract]
[Download Preview] (Substitution for "Big Data to the Rescue? Machine Learning and Causal Inference in Online Advertising.")
Does repeated exposure to the same advertisement lead to wear-out, i.e., diminishing returns? This paper
analyzes 2.8 billion impressions in 30 natural experiments on the Yahoo! Front Page to estimate the causal
effects of ad frequency on users’ clicks and conversions. The experiment randomly varies frequency, eliminating
confounding selection bias from correlations between browsing behaviors and the propensity to click
and convert. Failing to account for this selection bias can lead to erroneous estimates of wear-in, for which
no evidence is found, or show excessive wear-out for campaigns with little to no wear-out.
Wear-out is heterogeneous for clicks: four out of 30 campaigns exhibit significant wear-out after one or two
exposures while ten campaigns show little after as many as fifty. Those campaigns that experience the most
wear-out also have the highest click-through rates, suggesting that wear-out may signal fresh creatives and
renewed interest by the exposed audience. A model for new-account sign-ups finds comparably modest wearout
for both clicks and new account sign-ups for one advertiser’s campaigns. Finally, a discussion highlights
that wear-out, whether absent or present, is a crucial part of quantifying an advertiser’s marginal return
from advertising.
Discussants:
David Reiley
(Google, Inc.)
Michael Ostrovsky
(Stanford University)
Steven Tadelis
(University of California-Berkeley and eBay Research Labs)
Denis Nekipelov
(University of California-Berkeley)
Jan 04, 2015 8:00 am, Sheraton Boston, Beacon A
American Economic Association
Experiments
(C9)
Presiding:
Laura Gee
(Tufts University)
From Intentions to Actions: A Model and Experimental Evidence of Inattentive Choice
Dmitry Taubinsky
(Harvard University)
[View Abstract]
A growing body of evidence suggests that people's inattention may be a significant friction in domains of behavior ranging from medical compliance, to financial decisions, to residential energy use. In this paper, I present a psychologically grounded model of inattentive choice and investigate its implications for dynamic decisions. The model explains seemingly puzzling patterns of consumer behavior, makes novel predictions that I confirm in two experiments, and generates a rich set of market implications.
Applied to repeated actions, the model provides an attention-based foundation for the formation of ``good'' habits in domains such as exercise or energy use. The model explains the recent evidence on the intertemporal spillover effects of temporary incentives, and makes testable predictions about when attention-focusing cues, such as reminders, will dampen or amplify the effects of incentives. Consistent with these predictions, the first experiment reported in this paper shows that while temporary interruptions to daily routines decrease subsequent performance of the behavior, reminders have the largest impact after an interruption. Applied to tasks that must be completed by a deadline, the model identifies when longer deadlines will make people less likely to complete a task. But additionally, the model leads to new comparative statics, tested in the second experiment reported in this paper, about how reminders can eliminate the potentially perverse effect of longer deadlines. Finally, I apply the model to study market interactions between sophisticated firms and inattentive consumers: the model predicts how firms will take advantage of consumer's inattention through sales strategies such as rebates, and also leads to a dynamic theory of how firms use reminder advertisements to steer the behavior of inattentive consumers.
Norms, Frames and Prosocial Behavior in Games
Erik O. Kimbrough
(Simon Fraser University)
Joshua Miller
(Bocconi University)
Alexander Vostroknutov
(Maastricht University)
[View Abstract]
[Download Preview] We develop a unifying framework to understand the sensitivity of prosocial behavior to variation in context in games. We argue that individuals are motivated not only by material payoffs but also by how closely their actions correspond to social norms. In extensive form games with observable actions, we derive the implications of norm-dependent utility - which depends on material payoffs, social appropriateness of actions in the game (i.e. norms), and a single parameter measuring sensitivity to norms. We demonstrate how all the ingredients of the utility function can be measured from behavioral data using specifically designed tasks. We argue that norms vary with context and that this can account for observed behavioral heterogeneity across payoff-equivalent frames of a game. We report the results of experiments aimed at manipulating norms and thereby behavior. In three variants of the dictator game we replicate previous findings that heterogeneity in individual norm sensitivity accounts for heterogeneity in dictator giving, though our manipulation does not directly influence norms. In two variants of the Ultimatum game, we demonstrate that our utility specification explains otherwise incomprehensible differences in strategic choices of the Proposers that result from experimentally induced changes in norms of Responder behavior.
The Persistence of Anchoring Effects on Valuations
Sangsuk Yoon
(Temple University)
Nathan Fong
(Temple University)
Angelika Dimoka
(Temple University)
[View Abstract]
The anchoring effect refers to the tendency for people’s numeric judgments to be influenced by an initially considered value. Ariely, Loewenstein, and Prelec (2003) showed that people’s willingness-to-pay (WTP) for common market goods is influenced by numbers that should have no bearing on their valuations. Such instability in valuations arguably contradicts common assumptions in the choice theory underlying standard economic models. If anchoring effects were to persist over time, it would support the view that valuations are arbitrary and preferences are "constructed." However, if revealed preferences converge to a set of "inherent preferences," it could be argued that people’s inherent preferences are only temporarily or outwardly distorted by external anchors. We investigate whether anchoring effects persist over time to further the debate over inherent and constructed preferences.
As in previous studies, participants were anchored by asking them whether they are willing to pay a transparently random dollar amount for a product. Their maximum WTP is then elicited using an incentive-compatible procedure. We interpret correlation between the random anchoring number and WTP as evidence of anchoring. In our study, we additionally manipulate the time between the anchoring procedure and the WTP elicitation, inserting a 1-week gap between the two parts. We find that the effect of the anchoring procedure persists, regardless of whether participants can recall the original anchoring number. The effect also persists in cases where the WTP elicitation was performed in the first week, and repeated a week later. These findings show that the anchoring effects are not temporary, and can have lasting influence on preferences.
Freedom, Power, and Interference
Claudia Neri
(University of St. Gallen)
Hendrik Rommeswinkel
(University of St. Gallen)
[View Abstract]
[Download Preview] We propose a behavioral theory of preference for decision rights, driven by preference for freedom, power, or non-interference, which can lead subjects to value decision rights intrinsically, i.e., beyond the expected utility associated with them. We conduct a novel laboratory experiment in which the effect of each preference is distinguished. We find that the intrinsic value of decision rights is driven more strongly by preference for non-interference than by preference for freedom or power. This result suggests that individuals value decision rights not because of the actual decision-making process but rather because they dislike others interfering in their outcomes.
The Effect of Skilled Labor Market Opportunity on Intra-Household Resource Allocation - Evidence from Gujarat, India
Yvonne Jie Chen
(National University of Singapore)
Namrata Chindarkar
(National University of Singapore)
[View Abstract]
[Download Preview] Using primary survey data collected in two sub-districts of Sabarkantha, Gujarat, on a unique training program for rural women with low human capital and low income, we examine the effect of skilled labor market opportunity on intra-household bargaining. We find that participating in the training program significantly increases women’s expenditure on jewelry and clothing; increases their participation in household spending decisions, but only from the women’s perspective and not husband or adult son’s perspective; and enhances their overall well-being. Consequently, expanding women’s labor market opportunities can have positive effects on their intra-household bargaining ability.
Jan 04, 2015 8:00 am, Sheraton Boston, The Fens
American Economic Association
Female Bargaining Power in Developing Countries
(O1, J1)
Presiding:
Alessandra Voena
(University of Chicago)
Why Do Mothers and Fathers Spend Differently on Children's Human Capital?
Seema Jayachandran
(Northwestern University)
Rebecca Dizon-Ross
(Harvard University and Massachusetts Institute of Technology)
[View Abstract]
The bargaining power of mothers within the family is believed to play an important role in child well-being because mothers are believed to have a higher propensity to spend on children's health and education. Using survey data collected from 1000 households in Uganda, we test this hypothesis using a different approach than the previous literature, namely by eliciting mothers' and fathers' willingness to pay for health and education goods for their children. We then examine why mother-father spending gaps exist. For example, mothers could simply be more altruistic toward their children than fathers are. Alternatively, mothers could believe the return to investing in children's human capital is higher than fathers do, or they could expect to receive more personal benefit from these returns in the form of old age support from their children. It is also possible that parents follow norms about who should cover different types of expenses, and divergent spending patterns do not reflect divergent priorities of mothers and fathers.
Household Response to Income Changes: Evidence from an Unconditional Cash Transfer Program in Kenya
Johannes Haushofe
(Massachusetts Institute of Technology)
Jeremy Shapiro
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper studies the response of poor rural households in rural Kenya to large temporary income changes. Using a randomized controlled trial, households were randomly assigned to receive unconditional cash transfers of at least USD 404 from the NGO GiveDirectly. We designed the experiment to address several long-standing questions in the economics literature: what is the shape of households’ Engel curves? Do household members effectively pool income? Are there constraints to savings? Do transfers generate externalities? In addition, we study in detail the effects of transfers on psychological well-being and levels of the stress hormone cortisol. We randomized at both the village and household levels; further, within the treatment group, we randomized recipient gender (wife vs. husband), transfer timing (lump-sum transfer vs. monthly installments over 9 months), and transfer magnitude (USD 404 vs. USD 1,520). We find a strong consumption response to transfers, with an increase in monthly consumption from USD 157 to USD 194 four months after the transfer ended. Implied expenditure elasticities for food, medical and education expenditures range between 0.84 and 1.47, while the point estimates are negative for alcohol and tobacco. Intriguingly, recipient gender does not affect the household response to the program. Households may face savings constraints: monthly transfers are more likely than lump-sum transfers to improve food security, while lump-sum transfers are more likely to be spent on durables. We find no evidence for externalities on non-recipients except for a significant positive spillover on female empowerment. Transfer recipients experience large increases in psychological well-being, and several types of transfers lead to reductions in levels of the stress hormone cortisol. Together, these results suggest that unconditional cash transfers
have significant impacts on consumption and psychological well-being.
The returns to cash and microenterprise support among the ultra-poor: A field experiment
Christopher Blattman
(Columbia University)
Eric P. Green
(Duke University)
Julian Jamison
(Consumer Financial Protection Bureau)
Jeannie Annan
(International Rescue Committee)
[View Abstract]
[Download Preview] Do the “ultra-poor” have high returns to capital or are they otherwise constrained? Impoverished Ugandans, mostly women, were experimentally offered individual business training, $150, supervision, and business advising. We evaluated the full package plus the marginal effects of components: supervision (pressure to invest); advice; and stronger social networks (via group formation). 16 months later, microenterprise ownership and incomes double. Supervision and advice weakly increase initial investment but have little long-run impact. Group formation raised earnings through cooperative activities, suggesting social capital is an important input. Overall, the economic returns to cash appear high. We see little effect, however, on empowerment.
Discussants:
Christopher Udry
(Yale University)
David McKenzie
(World Bank)
Nava Ashraf
(Harvard Business School)
Jan 04, 2015 8:00 am, Sheraton Boston, Independence Ballroom West
American Economic Association
Housing Price Shocks and Household Behavior
(D1, G1)
Presiding:
Paul Willen
(Federal Reserve Bank of Boston)
The Vulnerability of Minority Homeowners in the Housing Boom and Bust
Patrick John Bayer
(Duke University)
Fernando V. Ferreira
(University of Pennsylvania)
Stephen L. Ross
(University of Connecticut)
[View Abstract]
This paper examines mortgage outcomes for a large, representative sample of individual home purchases and refinances linked to credit scores in seven major US markets in the recent housing boom and bust. Among those with similar credit scores, black and Hispanic homeowners had much higher rates of delinquency and default in the downturn. These differences are not readily explained by the likelihood of receiving a subprime loan or by differential exposure to local shocks in the housing and labor market and are especially pronounced for loans originated near the peak of the boom. Our findings suggest that those black and Hispanic homeowners drawn into the market near the peak were especially vulnerable to adverse economic shocks and raise serious concerns about homeownership as a mechanism for reducing racial disparities in wealth.
The Impact of Parental Wealth on College Enrollment & Degree Attainment: Evidence from the Housing Boom & Bust
Rucker Johnson
(University of California-Berkeley)
[View Abstract]
A long-standing policy goal of aid is to narrow, if not close, the parental income gap in children’s subsequent educational attainment. Recent research indicates that credit constraints have played a larger role in college enrollment and completion rates over the past 15-20 years (Lochner and Monge-Naranjo, 2011; Lovenheim, 2011). Prior evidence found greater credit constraints in the US than Canada (Belley et al., 2009). Housing wealth has become an increasingly important component of the college enrollment decision over the past 15 years (Bound et al., 2010). The parental wealth depletion following the Great Recession and housing market collapse has potentially important implications for college prospects of our youth. A recent survey of young adults found that 20% aged 18-29 have left or delayed college (Greenberg and Keating 2009). A survey conducted in Colorado found that 1/4 of parents with children in 2-year colleges planned on sending their kids to 4-year institutions before the recession (CollegeInvest 2009).
House Price Shocks and Individual Divorce Risk in the United States
Jennifer Milosch
(California State University-Sacramento)
[View Abstract]
Households in the United States hold a significant portion of their total wealth in owner-occupied housing. Thus, changes in housing prices may have an important impact on the marital surplus the household enjoys. What happens to marriages of homeowners when there is a shock to housing prices? This question is addressed using yearly household data from the Panel Study of Income Dynamics and a quarterly MSA level house price index from the Federal Housing Finance Agency, controlling for local labor market conditions. House price shocks are calculated as the cumulative sum of residuals of a second order autoregressive model from the previous four years. Results show that positive house price shocks stabilize marriage for all couples. A one S.D. increase in the house price shock decreases the risk of divorce in the following year by about 13-18 percent. The results are driven by the younger cohort of households in the PSID, those with lower educational attainment, and those with relatively low family income. The findings are discussed in the context of theories on changes in marital surplus, and changes in the transaction costs surrounding divorce.
(Un)expected Housing Price Changes: Identifying the Drivers of Small Business Finance
Tami Gurley-Calvez
(University of Kansas)
Pavel Kapinos
(Federal Deposit Insurance Corporation)
Kandice Kapinos
(RAND Corporation)
[View Abstract]
[Download Preview] Although the most recent housing crisis in the United States triggered the most severe recession since the Great Depression, little is known about the effect of housing prices on small business finance. In this paper, we use the Kauffman Firm Survey to document the significant effect of housing price changes on several measures of borrowing by small business owners. Furthermore, we use macroeconomic forecasting techniques to decompose housing price changes into expected and unexpected components. We find that the largest responses of small business borrowing variables are to the unexpected—surprise—component and occur with a lag of about four years. In contrast, the response to the anticipated changes never significantly exceeds that of observed housing price changes and declines over time.
Discussants:
Elena Loutskina
(University of Virginia)
Celeste Carruthers
(University of Tennessee)
Yan Y. Lee
(Federal Deposit Insurance Corporation)
E.J. Reedy
(Kauffman Foundation)
Jan 04, 2015 8:00 am, Sheraton Boston, Constitution Ballroom B
American Economic Association
Income and Wealth Inequality in the United States
(D3) (Panel Discussion)
Panel Moderator:
Heather Boushey
(Washington Center for Equitable Growth)
Richard V. Burkhauser
(Cornell University)
How Different Data Sources and Definitions Paint Different Pictures of the Evolution of Income and Its Distribution
Amir Sufi
(University of Chicago)
The Dynamics of Household Debt Prior, During, and After the Crisis
Edward Nathan Wolff
(New York University)
The Rising Concentration of United States Personal Wealth: New Evidence
Gabriel Zucman
(London School of Economics)
Is the United States on the Way Back to Patrimonial Capitalism?
David Johnson
(U.S. Bureau of Economic Analysis)
Accounting for the Distribution of Income in the United States National Accounts
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 204
American Economic Association
Injured Workers and Workers' Compensation
(J2, J3)
Presiding:
Leslie Boden
(Boston University)
Benefit Generosity and Injury Duration: Quasi-Experimental Evidence from Regression Kinks
Benjamin Hansen
(University of Oregon)
Tuan Nyugen
(University of Oregon)
Glen Waddell
(University of Oregon)
[View Abstract]
In this paper we investigate the effect of increased benefits on claim duration and claim costs in temporary disability claims of workers' compensation. While previous studies have focused on natural experiments created by one-time large changes in minimum or maximum weekly benefits, we focus on the kink in benefit generosity inherent in all workers' compensation systems in the United States. Utilizing administrative data on the universe of injured workers in Oregon from 1990-2010, we find evidence that more generous benefits leads to longer injuries, but with implied elasticities that are smaller than the average elasticity from previous difference-in-difference studies. Our preferred estimates suggest that increasing benefit generosity by 10 percent leads to 2 to 4 percent increase in injury duration. We also derive similar implied duration-benefit elasticities when studying changes in claim costs at the kink.
Does Increased Access to Health Insurance Impact Claims for Workers' Compensation? Evidence from Massachusetts Health Care Reform
Erin Todd Bronchetti
(Swarthmore College)
Melissa McInerney
(Tufts University)
[View Abstract]
Medical costs comprise an increasing share of the benefits paid out through state Workers’ Compensation (WC) programs, having surpassed cash indemnity benefits in 2008. While this trend is driven largely by rising healthcare costs, a related question is whether WC is covering the costs of medical care for uninsured workers, whose numbers have grown in recent years.
The relationship between health insurance and WC filing is an important and timely question, and can shed light on the expected impacts of the Affordable Care Act (ACA) on state WC programs. However, existing empirical evidence on this topic is mixed, with some studies finding no evidence that WC claiming propensity is related to insurance status (Card and McCall, 1996; Lakdawalla et al., 2007), and others finding a negative relationship between insurance coverage and WC claims (Heaton, 2012)
This study uses three data series on emergency department, inpatient, and outpatient discharges from the Healthcare Cost and Utilization Project (HCUP), to provide direct evidence on the impact of Massachusetts healthcare reform on the share of discharges billed to WC. We estimate the reform’s impacts with a differences-in-differences framework, using Vermont as a comparison state. This approach allows us to separate the impact of increased access to insurance from cyclical trends in WC claiming over the same time period.
References
Card, D. and B. McCall. 1996. “Is Workers’ Compensation Covering Uninsured Medical Costs? Evidence from the ‘Monday Effect’” Industrial and Labor Relations Review, 49(4).
Heaton, Paul. 2012. “The Impact of Health Care Reform on Workers’ Compensation Medical Care.” RAND Technical Report.
Lakdawalla, D., R. Reville, and S. Seabury. 2007. “How Does Health Insurance Workers’ Compensation Filing?” Economic Inquiry, 45.
Medical Care Spending and Labor Market Outcomes: Evidence from Workers' Compensation Reforms
David Powell
(RAND Corporation)
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. This paper contributes 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. The 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 it studies - injured workers. It exploits 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. It links 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, it finds 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 Effect of Health Insurance on Workers' Compensation Filing: Evidence from the Affordable Care Act's Age-Based Threshold for Dependent Coverage
Marcus Dillender
(W.E. Upjohn Institute for Employment Research)
[View Abstract]
This paper identifies the causal effect of health insurance on workers' compensation filing by implementing a regression discontinuity design using Texas administrative claims data. I compare individuals just before and after their twenty-sixth birthdays, which is the age at which young adults lose access to dependent coverage under the Affordable Care Act. The results imply that the largest effect of health insurance is on the intensive margin of claiming, as the overall amount of workers' compensation treatment increases by 8 percent immediately after young adults turn 26. Despite this, overall workers' compensation medical costs do not increase dramatically for 26-year-olds because the majority of this increased care is for less expensive services, while large medical bills drives workers' compensation costs. These results suggest health insurance affects workers' compensation filing, particularly at the intensive margin, but not necessarily for the types of services that drive medical costs.
Discussants:
Henry Hyatt
(U.S. Census Bureau)
Melissa McInerney
(Tufts University)
Olesya Fomenko
(Workers Compensation Research Institute)
David Stapleton
(Mathmatica)
Jan 04, 2015 8:00 am, Sheraton Boston, Back Bay Ballroom C
American Economic Association
Intellectual Property Rights and Innovation
(O3)
Presiding:
William Kerr
(Harvard Business School)
Innovation Networks
Daron Acemoglu
(Massachusetts Institute of Technology)
Ufuk Akcigit
(University of Pennsylvania)
William Kerr
(Harvard Business School)
[View Abstract]
We show that the interaction of past inventor network structures, developed using 1975-85 cross-citation patterns across technology classes, has a strong predictive power on subsequent innovation. In particular, technology classes for which upstream technology classes (meaning those that they were citing in 1975-85) have more innovations in 1985-95 tend to have significantly more innovations post 1995. This pattern is consistent with the idea that when there is more past innovation for a particular technology class to build on, then that technology class innovates more. We then use this network-based source of innovation differences as exogenous variation to trace out the causal impact of own-firm innovation and spillovers across firms within cities and city-industries on employment and productivity growth.
Management, IT and Innovation
Nicholas Bloom
(Stanford University)
Erik Brynjolfsson
(Massachusetts Institute of Technology)
Lucia Foster
(U.S. Census Bureau)
Ron Jarmin
(U.S. Census Bureau)
John Van Reenen
(London School of Economics)
Megha Patnaik
( Stanford University)
Itay Saporta
(Tel Aviv University)
[View Abstract]
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 higher levels of innovation in terms patents and R&D expenditure, and we would argue that management practices per se are a form of process innovation. 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.
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 effect of removing patent protection through court invalidation on the 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. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers entry of small
innovators, suggesting that patents may impede the ‘democratization’ of innovation.
How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome
Bhaven Sampat
(Columbia University)
Heidi Williams
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] In markets where innovation is cumulative, in the sense that discoveries are inputs into follow-on discoveries, optimal patent policy in part depends on how patents on existing technologies affect follow-on innovation. In this paper, we investigate whether patents on one specific technology --- human genes --- have affected follow-on scientific research and product development. Using administrative data on successful and unsuccessful patent applications submitted to the US Patent and Trademark Office, we link the exact gene sequences claimed in each patent application with data measuring gene-related scientific research (publications) and commercial investments (clinical development). We first document evidence of selection into patenting: in the full sample of human genes, patented genes appear more valuable than non-patented genes prior to being patented based on measures of both scientific and commercial value, thus motivating two quasi-experimental approaches. First, we present a simple comparison of follow-on innovation across genes claimed in successful versus unsuccessful patent applications. Second, we use the “leniency” of the assigned patent examiner as an instrumental variable for whether the patent application was granted a patent. Both approaches suggest that on average gene patents have had no effect on follow-on innovation. Our confidence intervals on these estimates are meaningfully precise: we are able to reject the effect sizes estimated in past papers investigating the effect of non-patent forms of intellectual property on follow-on innovation.
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 201
American Economic Association
International Portfolio Composition
(F3)
Presiding:
Emily Blanchard
(Dartmouth College)
The Replacement of Safe Assets: Evidence from the U.S. Bond Portfolio
Alexandra Tabova
(Federal Reserve Board)
Carol Bertaut
(Federal Reserve Board)
[View Abstract]
[Download Preview] The expansion in financial sector "safe" assets, largely in the form of structured products from the U.S. and the Caribbean, in the lead-up to the global financial crisis has by now been fairly well documented. Using a unique dataset derived from security-level data on U.S.
portfolio holdings of foreign securities, we show that since the crisis, it is mostly the foreign financial sector that appears to have met U.S. demand for safe and liquid investment assets by expanding its supply of debt securities. We also find a strong negative correlation between the
foreign share of the U.S. financial bond portfolio and measures of U.S. safe assets availability: providing evidence on the importance of foreign-issued financial sector debt as a substitute when U.S. issued "safe" assets are scarce. Furthermore, although U.S. investors continue to tap foreign financial markets for "safe" assets, we show that the type of foreign financial debt that fills this portfolio niche post-crisis is quite different than pre-crisis. Post-crisis, we find that U.S. investors have replaced offshore-issued structured securities with high-grade U.S. dollar-denominated financial debt issued from a small group of OECD countries (most notably Australia and Canada). Lastly, these developments have led to a decline in home bias in the U.S. financial bond portfolio that we are able to document for the first time.
Why Has the United States Foreign Portfolio Share Increased?
Matthew M. Wynter
(University of Illinois-Chicago)
[View Abstract]
[Download Preview] From 1994 to 2010, the U.S. foreign portfolio share nearly doubled. Using a sample of monthly bilateral equity holdings between investors in the U.S. and 45 countries, I show that over this period much of the increase occurred from U.S. investors 1) passively allowing their foreign holdings to appreciate and 2) selling their domestic equity holdings to foreign investors. Controlling for the passive change in the U.S. foreign portfolio share, I find that changes in foreign wealth, uncertainty, and misvaluation played important roles in U.S. investors going abroad. Though U.S. investors sold substantial portions of domestic equity to foreign investors, I find that foreign investors in markets where misvaluation was more severe increased their share of the U.S. stock market at a relatively lower rate.
How Persistent Are the Benefits of Foreign Ownership?
Steven Poelhekke
(VU University Amsterdam)
Beata Javorcik
(University of Oxford and CEPR)
[View Abstract]
[Download Preview] The literature has documented a positive effect of foreign acquisitions on firm performance. But is this effect due to a one-time knowledge transfer or does it rely on continuous injections of knowledge? To shed light on this question we use plant-level data from the Indonesian Census of Manufacturing covering the period 1991-2009. We focus on 242 cases of foreign affiliates being sold to Indonesian owners which we observe two years before and five years after disinvestment. To establish a causal effect of the ownership change we combine propensity score matching with a difference-in-differences approach. The results indicate that disinvestment is associated with a drop in output driven by a decline in export volume or even exit from export markets. The drop in output lasts about three years and is accompanied by lower reliance on imported inputs. In later years, increased local sales offset lower exports. This pattern is consistent with sold affiliates being cut off from the production and distribution network of their former parent company. Sold affiliates experience a temporary dip in productivity which suggestive of a one-time knowledge transfer being responsible for the superior performance of foreign affiliates. Employment does not appear to be affected by disinvestment.
International Reserves, the Maturity of External Debt, and the Reinforcement Effect for Financial Stability
Andreas Steiner
(University of Osnabrueck)
Xingwang Qian
(State University of New York-Buffalo State)
[View Abstract]
Both international reserves and “cool” long-term external debt (LT) buttress financial stability, whereas “hot” short-term (ST) external debt jeopardizes financial stability in emerging and developing economies. This paper studies how international reserves affect the maturity structure of external debt, and, by implication, how they subsequently contribute to financial stability.
We find that, among other factors, international reserves lengthen external debt maturity, which reinforces their contribution to financial stability in emerging and developing economies. In a theoretical model, we show that reserves lower the cost of LT debt relative to ST one and, by implication, make LT debt more attractive. Using various regression specifications based on a sample of 66 emerging and developing countries from 1984 to 2012, we show that higher levels of reserves are associated with a higher share of LT external debt. Further, we provide empirical evidence that reserves and LT debt reinforce financial stabilization. Concerning the different default motivations of public and private external debtors, we study reserves’ effect on the maturity structure of public and private debt separately. We confirm that reserves lengthen the maturity of both public and private debt. The reinforcement effect of reserves for financial stability works through longer debt maturity, in particular for public debt.
Risk Versus Ambiguity and International Security Design
Brian Hill
(HEC Paris and CNRS)
Tomasz Kamil Michalski
(HEC Paris)
[View Abstract]
[Download Preview] The prevalence of debt in international financial flows, the lack of international risk sharing and a higher consumption volatility of developing countries are stylized facts that the standard models of international investment have difficulties to cope with. We study portfolio allocation in the international financial market when investors exhibit ambiguity aversion towards assets issued in foreign locations. Entrepreneurs located in each country have access to a risky technology and want to attract capital. We characterize equilibrium contracts issued by firms and the portfolio allocation of investors. Increases in the variance of the risky production process causes firms to increase the variable payment (equity) offered to investors. On the other hand, increases in investor ambiguity lead to less risk-sharing. Entrepreneurs located in countries with low levels of domestic wealth issue assets with a higher fixed payment and a lower risky payment. As a result, they are exposed to higher volatility per unit of consumption as they finance themselves relatively more through debt than equity. An increase in ambiguity (how unsure the investors are about the distributions of productivity draws) or ambiguity aversion that characterizes crises may explain flight of capital to capital abundant countries -- dubbed sometimes as ``flight to quality". The solvable model explains well the level of the observed home bias for reasonable parameter values. A portfolio model with ambiguity aversion delivers thus different predictions than the standard workhorse CARA-Normal model with risk. We use the smooth ambiguity model proposed by Klibanoff et al. (2005), in a portfolio choice specification provided by Gollier (2011). The main results are similar when the Gilboa and Schmeidler (1989) maxmin ambiguity model is used.
Jan 04, 2015 8:00 am, Sheraton Boston, Public Garden
American Economic Association
International Trade: Firm-Level Country Studies
(F1)
Presiding:
Joel B. Rodrigue
(Vanderbilt University)
Quality Upgrading and Import Competition from Low-Income Countries: Transaction-Level Evidence from Portuguese Firms
Heiwai Tang
(Johns Hopkins University)
Ana Fernandes
(University of Exeter)
[View Abstract]
This paper studies how firms in developed countries react to huge import competition from low-income countries, by upgrading their products produced and exported. We use detailed transaction-level data (domestic and foreign intermediate inputs, as well as output and export varieties) of textile producers in Portugal for our analysis. To identify import and export competition shocks, we use the expiration of Multifiber Agreement (MFA) quotas on Chinese textile exports in 2005. Despite the sharp increase in the Chinese textile exports to Portugal and its foreign markets after the MFA liberalization, Portuguese textile exports, in absolute terms and as a share in total exports did not drop. We find that for the textile producers that are affected by the export shocks, the average unit values of both intermediate inputs and products increased after 2005, relative to the unaffected producers. Within a firm-product, prices of output, exported products, and imported but not domestic intermediate inputs increased. Collectively, our results show that in response to competition from China, Portuguese firms upgrade product quality by insourcing more input production, purchasing more expensive inputs from domestic and foreign suppliers, expanding product varieties but decreasing export varieties. Quality upgrading and specialization in core products were mostly observed for the upper-middle range of the firm-size distribution, consistent with Bustos (2011) and our model.
Sanctions Backfire: Did Exports Deflection Help Iranian Exporters?
Jamal Ibrahim Haidar
(Paris School of Economics)
[View Abstract]
Using highly dis-aggregated data about Iranian non-oil exports, I uncover the existence, extent, and mechanism of exports deflection following the imposition of exports sanctions. I show how exporter size, past export status, and pricing strategy matter in the process of exports deflection. The main findings are as follows: (i) two thirds of the value of Iranian non-oil exports thought to be destroyed by exports sanctions have actually been deflected to destinations not imposing sanctions; (ii) exporters reduced their product prices as they deflected exports to new destinations; (iii) exporters deflected more of their core and homogeneous products; (iv) larger exporters deflected more of their exports than smaller exporters; (v) the new destinations are more politically-friendly with Iran; and (vi) the probability of an exporter to deflect exports to another destination rised if the exporter already existed in that destination, suggesting that fixed cost of exporting matters too. I conclude that exports sanctions may be less effective in a globalized world as exporters can deflect their exports from one export destination to another.
Protectionism Through Exporting: Subsidies with Export Share Requirements in China
Fabrice Defever
(University of Nottingham and London School of Economics)
Alejandro Riano
(University of Nottingham)
[View Abstract]
Subsidies featuring export share requirements (ESR) have been a cornerstone of China’s trade regime since the beginning of its economic transition. Their consequences, however, remain unexplored. Using matched firm and customs transaction data for 2000-2006 we infer that half of manufacturing exporters in China benefit from this type of subsidy. We study the implications of subsidies with ESR in a two-country model of international trade with heterogeneous firms, which we calibrate to match key features of the data. We show that firms receiving the subsidy increase prices domestically while reducing the price they charge abroad; as a consequence, and unlike export subsidies without export requirements, subsidies with ESR promote aggregate exports while at the same time providing greater protection for domestic firms.
"Trade and Time": Quantifying the Bias in Firm Level Export Growth
Xiaoyu Tian
(Oxford Brookes University)
Robert J. R. Elliott
(University of Birmingham-United Kingdom)
[View Abstract]
In this paper we investigate the potential biases when measuring the export growth of firms. Nearly all studies in the recent heterogeneous firm literature use annual data to estimate firm level export growth over any given time period. However, this approach ignores the important fact that firms may begin to export at any time within a given year. Therefore the first year’s growth rate could be a considerable overestimated of the true value when comparing 12 months of exports with the first partial year’s exports. In this paper we use HS 11-digit trade data at yearly, quarterly, monthly and weekly intervals collected by the Argentinean customs office between 2002 and 2007 to estimate firm level export growth rates. We find evidence that first year firm level growth rates are overestimated by up to 27% whilst yearly data bears up to 186% underestimation of quitter’s final year growth. In order to reduce such backward bias we introduce Quarter-Year, Month-Year and Week-Year estimations. Although data segmented by quarter, month and week can successfully reduce the backward bias the bias is “pushed forward” when estimating a firms’ final year’s growth. Both biases need to be taken into account to provide an accurate measure of export growth.
Bank Credit and Firm Export: Is There Really a Link?
Sara Formai
(Bank of Italy)
Ines Buono
(Bank of Italy)
[View Abstract]
[Download Preview] This paper studies the effects of short run shocks of bank credit supply to the export performance of firms. We use Italian bank-firm matched data and contribute to the literature along several dimensions: we focus on the link between bank-credit and export in "normal times" (1997-2009); we measure access to credit with hard data on the credit actually granted to firms by the banking system; we establish the causal link that goes from bank credit to export, exploiting banks' mergers and acquisition episodes as a source of bank credit supply shocks.
Somehow in contrast with existing literature, our analysis suggests that that exporters are more resilient to short-run drops in the supply of bank credit: once we properly control for firm characteristics and demand factors, export flows are not affected by short-run shocks in the credit supply. Access to bank credit is instead a key determinant of total revenues.
Jan 04, 2015 8:00 am, Sheraton Boston, Berkeley Room
American Economic Association
Occupational Choice and Mobility
(J2)
Presiding:
Jeffrey Groen
(U.S. Bureau of Labor Statistics)
Returns to Education and Occupation Choices
Jinwen Xu
(University of British Columbia)
[View Abstract]
[Download Preview] This paper examines how returns to education are related to occupation choices. Specifically, I investigate the returns to attending a two-year college and a four-year college and how these returns to education differ from a blue-collar occupation to a white-collar occupation. To address the endogenous education and occupation choices, I use a finite mixture model. I show how the finite mixture model can be nonparametrically identified by using test scores and variations in wages across occupations over time. Using data taken from the National Longitudinal Survey of Youth (NLSY) 1979, I estimate a parametrically specified model and find that returns to education are occupation specific. Specifically, a two-year college attendance enhances blue-collar wages by 24% and white-collar wages by 17% while a four-year college attendance increases blue-collar wages by 23% and white-collar wages by 30%.
Occupational Mobility and Its Consequences on Labor Reallocation
Natalia Bodrug
(Norwegian Business School)
[View Abstract]
Suppose we observe data on individuals' income and individuals' occupation for several generations. What can we say about income and occupational distribution through time? How may income distribution in earlier generations affect income distribution in later generations? Motivated by these questions, this paper studies theoretically and empirically the role as well as significance of intergenerational occupational mobility in the labor market. We examine two related issues. First, the role of occupational inheritage. By occupational inheritage I define the situation when children choose their parents' occupation. Secondly, the paper studies how different entrance costs into an occupation, faced by the agents, may affect labor reallocation within an occupation. The entrance costs we assume are dependent on the agent's occuaptional inheritance status. We build a quantitative model in which we incorporate two main things: occupational mobility from old generation to young generation, and inflow/ outflow of labor force within an occupation, conditional on different 'entrance costs'. We manage to solve this model for the steady state distribution of abilities and the size of the labor force within an occupation. We also simulate the model for the steady state distribution of abilities to characterize the equilibrium density function of abilities within an occupation as well as distribution of wages for two types of agents: with inherited occupation and random entrants. The results of that simulation indicate that three kind of steady states are possible: a steady state characterized by upward mobility, by downward mobility or no mobility. In the empirical part of the paper, using intergenerational Norwegian data, which covers three generations for the period 1960-1995, on occupations and income, we estimate the return to occupational inheritage from parents to children. Preliminary results show that the return to occupational mobility is more pronounced for low-skilled occupations than for high-skilled.
Occupational Segregation by Sex: The Role of Intergenerational Transmission
Karin Hederos Eriksson
(Swedish Institute for Social Research (SOFI), Stockholm University)
[View Abstract]
[Download Preview] Occupational segregation by sex is a persistent feature of labor markets all around
the world. I provide one perspective on why men and women continue to enter different
occupations by investigating the intergenerational transmission of the sex composition
of occupations using Swedish register data. I find that the more sex stereotypical the
occupations of parents are, the more sex stereotypical the occupations of their children
will be. The associations are stronger between children and their same-sex parent
than between children and their opposite-sex parent, and stronger for sons than for
daughters. I also find that the associations between children and their same-sex parent
are partly accounted for by children entering the same occupation or occupation group
as their same-sex parent.
Recovering Ex Ante Returns and Preferences for Occupations using Subjective Expectations Data
Peter Arcidiacono
(Duke University and NBER)
V. Joseph Hotz
(Duke University, NBER and IZA)
Arnaud Maurel
(Duke University, NBER and IZA)
Teresa Romano
(Duke University)
[View Abstract]
[Download Preview] We use data on subjective expectations of outcomes from counterfactual choices to recover ex ante treatment effects as well as the non-pecuniary benefits associated with different treatments. The particular treatments we consider are the choice of occupation. By asking individuals about potential earnings associated with counterfactual choices of college majors and occupations, we can recover the
full distribution of the ex ante monetary returns to particular occupations, and how these returns vary across majors. In particular, the elicited choice probabilities allow us to quantify the importance of sorting on ex ante monetary benefits when choosing an occupation. By linking subjective expectations to a model of occupational choice, we can then examine how individuals tradeofftheir preferences for particular occupations with the corresponding monetary rewards. While sorting across occupations is partly driven by the ex ante monetary returns, sizable differences in expected earnings across occupations remain after controlling for selection on monetary returns, which in turn points to the existence of substantial compensating differentials.
Skill Mismatch and the Costs of Job Displacement
Ljubica Nedelkoska
(Harvard University)
Frank Neffke
(Harvard University)
Simon Wiederhold
(IFO Institute-Munich)
[View Abstract]
[Download Preview] Abstract We study whether earning losses after job displacement can be attributed to the skill mismatch that arises when workers' human capital is underutilized at the new job. Using detailed task data, we create asymmetric measures of skill mismatch between occupations. We use these measures to study the effect of worker displacement in plant closures and mass-layoffs in Germany, exploiting these events as exogenous job separations. To control for observed and unobserved worker heterogeneity, we use propensity-score matching and estimate difference-in-differences models. We find that displacement increases occupational switching and skill mismatch, primarily because displaced workers move to less skill-demanding occupations. The negative earning effects associated with displacement are mostly driven by these moves, while workers moving to more skill-demanding occupations have similar earning losses as stayers.
Jan 04, 2015 8:00 am, Sheraton Boston, Boston Common
American Economic Association
Pre-School and Secondary Schooling
(I2)
Presiding:
Angela Dills
(Providence College)
Multiple Tasks and Multiple Rewards: Experimental Evidence on Performance Incentives, Alignment, and Complementarity from Chinese Schools
Sean Sylvia
(Renmin University of China)
[View Abstract]
A common concern about performance incentive schemes is that they may reduce effort devoted to unrewarded outputs. When outputs are measurable, one way to mitigate this concern is to simultaneously reward multiple outputs. How rewarding a single output or multiple outputs affects effort devoted to any one dimension, however, depends on how effort is jointly and independently related to each outcome. In this paper, we report the results of an experiment that exploits the multitasking environment of primary schools in rural China to quantify 1) multitasking effects for well-aligned and misaligned outcomes and 2) how rewards tied to multiple outcomes compare to rewards tied to a single outcome. Specifically, we test the effects of performance incentives in the context of a school-based nutrition program. We use this context to study the effects of rewards for school managers to 1) reduce student anemia, 2) improve student test performance and 3) reduce anemia and improve test performance. We emphasize three main findings. First, incentives to reduce anemia and raise test performance both led to significant reductions in anemia prevalence. Second, anemia-based and test-based incentives serve as substitutes in the reduction of anemia: providing administrators with both types of incentives did not lead to significantly larger reductions in anemia. Third, we find that anemia incentives caused an allocation of resources away from education inputs but this did not lead to significantly lower student performance on standardized exams after one year. These results reflect that test-based incentives are well-aligned with improving nutrition, but anemia-based incentives are not well aligned with effort to improve academic performance.
Top of the Class: The Importance of Ordinal Rank
Richard John Murphy
(University College London and University of Texas-Austin)
Felix Weinhardt
(Humboldt University-Berlin)
[View Abstract]
[Download Preview] This paper examines the long-run impact of ordinal rank during primary school on productivity using comprehensive English administrative data. Identification is obtained from variation in test score distributions across cohorts and subjects, such that the same score relative to the class mean can have different ranks. Conditional on cardinal measures of achievement, being ranked highly during primary school has large effects on secondary school achievement, with the impact of rank being more important for boys than girls. Using additional survey data we find that the development of confidence is the most likely mechanisms for this effect on task-specific productivity.
Intergenerational Mobility and Dynamic Parental and Societal Investments in Children's Human Capital
Julia M. Schwenkenberg
(Rutgers University-Newark)
[View Abstract]
The paper analyzes the contributions of parents and society to children’s human capital formation and intergenerational mobility. The importance of early childhood investments for adult outcomes has been stressed by researchers in economics as well as in other disciplines and it has become an important issue in the current policy debate. Furthermore, intergenerational mobility prospects have been found to differ by race as well as across locations in the United States. Evidence indicates that these disparities arise in childhood. The dynamic life-cycle human capital investment model constructed in this paper provides a framework for public investments to affect mobility through early child outcomes. I build on Heckman and his co-author’s research on life-cycle skill formation by employing a production function for children’s human capital that allows for complementarities between early and late investments. I add to previous work by including both parental and public investments. Complementarities in human capital production imply that a locality that provides a large contribution to children’s human capital, especially at the early stages of childhood, generates efficiency gains for parental investments.
The model is estimated using data from the Panel Study of Income Dynamics and their Child Development Supplement in combination with contextual Census data measuring government public good provision and neighborhood quality. The data contains direct observations on children’s outcomes at different stages of childhood and early adulthood as well as on parental investments in their children. The data also allows me to detect whether parents re-locate to gain access to higher public investments. The estimates of the structural model parameters are used to simulate and quantify the effects of different policies on parental investments, child outcomes and intergenerational social mobility.
Early and Bright? Child Care for Toddlers and Early Cognitive Skills
Nina Drange
(Statistics Norway)
Tarjei Havnes
(University of Oslo)
[View Abstract]
[Download Preview] Young children are thought to be vulnerable to separation from the primary caregiver/s. This raises concern about whether early child care enrollment may harm children’s development. We use child care assignment lotteries to estimate the effect of child care starting age on early cognitive achievement in Oslo, Norway. Getting a lottery offer lowers starting age by about four months, from a mean of about 19 months in the control group. Lottery estimates show substantial and significant score gains for children at age seven. Survey evidence and an increase in labor supply of both mothers and fathers following the offer, suggest that parental care is the most relevant alternative mode of care. We document that the assignment lottery generates strong balance in observable characteristics.
Educational Choice and Information on Labor Market Prospects: A Randomized Field Experiment
Tuomas Pekkarinen
(Aalto University)
Sari Pekkala Kerr
(Wellesley College)
Matti Sarvimäki
(Aalto University)
Roope Uusitalo
(University of Helsinki)
[View Abstract]
[Download Preview] We examine the impact of an information intervention offered to 97 randomly chosen high schools in Finland. Roughly 3,500 graduating students were surveyed and given information on the labour market prospects related to detailed educational degrees. Survey evidence suggests that the intervention led to information updating. However, we find no impact on the actual applications or enrollment patterns on average. Only a small subgroup of students that were most likely to update their beliefs as a result of new information applied to fields associated with higher wages. However, even for this subgroup we fail to find evidence on the effects on enrollment. These results cast doubt on the hypothesis that lack of information on labour market prospects plays an important role in shaping educational choice.
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 207
American Economic Association
Safe Assets
(E2, G1)
Presiding:
Valentin Haddad
(Princeton University)
The Safety Trap
Ricardo Caballero
(Massachusetts Institute of Technology)
Emmanuel Farhi
(Harvard University)
[View Abstract]
[Download Preview] Recently, the global economy has experienced recurrent episodes of safe asset shortages. In this paper we present a model that shows how such shortages can generate macroeconomic phenomena similar to those found in liquidity trap scenarios. Despite the similarities, there are also subtle but important differences which carry significant impacts on the relative effectiveness of economic policy and potential market solutions to the underlying problem. For example, while forward guidance policies are typically more effective than quantitative easing ones in the standard liquidity trap environment, the opposite holds in safety trap contexts. Also, while asset bubbles (market solutions) and public debt are both effective in liquidity traps, only the latter are in safety traps. Essentially, a safe asset shortage is a deficit of a particular form of wealth (safe wealth), which the government has comparative advantage in supplying. Forward guidance and financial bubbles, which increase risky wealth and stimulate the economy in liquidity traps, fail to do so in safety traps as they are dissipated through higher spreads.
The Rise and Fall of Demand for Securitizations
Sergey Chernenko
(Ohio State University)
Adi Sunderam
(Harvard Business School)
Samuel Hanson
(Harvard Business School)
[View Abstract]
[Download Preview] Collateralized debt obligations (CDOs) and private-label mortgage-backed securities (MBS) backed by nonprime loans played a central role in the recent financial crisis. Little is known, however, about the underlying forces that drove investor demand for these securitizations. Using micro-data on insurers’ and mutual funds’ bond holdings, we find considerable heterogeneity in investor demand for securitizations in the pre-crisis period. We argue that both investor beliefs and incentives help to explain this variation in demand. By contrast, our data paints a more uniform picture of investor behavior in the crisis. Consistent with theories of optimal liquidation, investors largely traded in more liquid securities such as government-guaranteed MBS to meet their liquidity needs during the crisis.
Banks as Secret Keepers
Tri Vi Dang
(Columbia University)
Gary Gorton
(Yale University)
Bengt Holmstrom
(Massachusetts Institute of Technology)
Guillermo Ordonez
(University of Pennsylvania)
[View Abstract]
[Download Preview] Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires that information about the backing assets not be revealed, so that bank money does not fluctuate in value, reducing its efficiency in trade. This need for opacity conflicts with the production of information about investment projects, necessary for allocative efficiency. How can information be produced and not revealed? Financial intermediaries exist to hide such information; they are created and structured to keep secrets. For the economy as a whole, this can be accomplished by a separation in how firms finance themselves; they divide into bank finance and capital market/stock market finance based on how well they can be used to maintain information away from liquidity markets. Firms with large projects, risky projects or projects easy to evaluate are less likely to be financed by banks.
Safe Assets
Markus K. Brunnermeier
(Princeton University)
Valentin Haddad
(Princeton University)
[View Abstract]
This paper defines safe assets as opposed to risk-free or liquid assets. The value of safe assets rises in times of crisis due to endogenous buying pressure from other market participants. Which asset emerges as safe asset is part of an endogenous coordination process which can be facilitated by the regulatory and monetary environment. This coordination is not without risks, and safety can disappear suddenly. The erosion of safety status for one asset shifts the demand to the remaining safe assets, solidifying their safety.
Discussants:
Valentin Haddad
(Princeton University)
Gary Gorton
(Yale University)
Adi Sunderam
(Harvard Business School)
Vania Stavrakeva
(London Business School)
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 203
American Economic Association
Social Networks: Methods and Applications
(D8, C1)
Presiding:
Anton Badev
(Federal Reserve Board)
Tractable and Consistent Random Graph Models
Arun Chandrasekhar
(Stanford University)
Matthew Jackson
(Stanford University)
[View Abstract]
[Download Preview] We define a general class of network formation models, Statistical Exponential Random Graph Models (SERGMs), that nest standard exponential random graph models (ERGMs) as a special case. We provide the first general results on when these models' (including ERGMs) parameters estimated from the observation of a single network are consistent (i.e., become accurate as the number of nodes grows). Next, addressing the problem that standard techniques of estimating ERGMs have been shown to have exponentially slow mixing times for many specifications, we show that by reformulating network formation as a distribution over the space of sufficient statistics instead of the space of networks, the size of the space of estimation can be greatly reduced, making estimation practical and easy. We also develop a related, but distinct, class of models that we call subgraph generation models (SUGMs) that are useful for modeling sparse networks and whose parameter estimates are also directly and easily estimable, consistent, and asymptotically normally distributed. Finally, we show how choice-based (strategic) network formation models can be written as SERGMs and SUGMs, and apply our models and techniques to network data from rural Indian villages.
Approximate Variational Inference for a Model of Social Interactions
Angelo Mele
(Johns Hopkins University)
[View Abstract]
This paper proposes approximate variational inference methods for estimation of a strategic model of social interactions. Players interact in an exogenous network and sequentially choose a binary action. The utility of an action is a function of the choices of neighbours in the network. I prove that the interaction process can be represented as a potential game and it converges to a unique stationary equilibrium distribution. However, exact inference for this model is infeasible because of a computationally intractable likelihood, which cannot be evaluated even when there are few players. To overcome this problem, I propose variational approximations for the likelihood that allow approximate inference. This technique can be applied to any discrete exponential family, and therefore it is a general tool for inference in models with a large number of players. The methodology is illustrated with several simulated datasets and compared with MCMC methods.
Gossip and Identifying Central Individuals in a Social Network
Abhijit Banerjee
(Massachusetts Institute of Technology)
Arun Chandrasekhar
(Stanford University)
Esther Duflo
(Massachusetts Institute of Technology)
Matthew Jackson
(Stanford University)
[View Abstract]
[Download Preview] Can we identify the members of a community who are best-placed to diffuse information simply by asking a random sample of individuals? We show that boundedly-rational individuals can, simply by tracking sources of gossip, identify those who are most central in a network according to ``diffusion centrality,'' which nests other standard centrality measures. Testing this prediction with data from 35 Indian villages, we find that respondents accurately nominate those who are diffusion central (not just those with many friends). Moreover, these nominees are more central in the network than traditional village leaders and geographically central individuals.
Discrete Games in Endogenous Networks: Theory and Policy
Anton Badev
(Federal Reserve Board)
[View Abstract]
This paper develops a framework for analysing individuals' choices in the presence of endogenous social networks, and implements it with data on teen smoking decisions and friendship networks. I first analyse a one-shot network formation game, where individuals choose both their friendships and their actions, and then show how the equilibria of the static game are embedded in an evolutionary model of network formation. The latter overcomes the multiplicity present in the static model, and is computationally convenient for estimation and policy simulations. The framework is estimated with friendship network data from U.S. high schools. Counterfactual exercises explore the equilibrium response of promoting racial diversity, grade separation and anti-smoking campaigns. Neglecting the response of the friendship network to the proposed policies leads to underestimation of the predicted effect of these policies on adolescent smoking by 10% to 15%.
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 208
American Economic Association
Sovereign Defaults: Theory and Evidence
(F3, E1)
Presiding:
Carmen Reinhart
(Harvard University)
Maturity and Repayment Structure of Sovereign Debt
Bai Yan
(University of Rochester)
Kim Tae Seon
(ITAM Business School)
Gabriel Mihalache
(University of Rochester)
N/A
Optimal Domestic Default
Enrique Mendoza
(University of Pennsylvania)
Pablo D'Erasmo
(University of Maryland)
[View Abstract]
Infrequent but dramatic episodes in which governments default outright on their domestic creditors are an important and largely unexplained historical fact. This paper proposes an incomplete-markets, heterogeneous-agents model in which a utilitarian government chooses to default when the distributional benefits of default outweigh the costs in terms of hindered access to the vehicle for private self-insurance and government tax smoothing. We solve a Markov equilibrium in which the endogenous distribution of non-state-contingent public debt holdings across private agents interacts with the government’s default choice and the equilibrium risk premium. A quantitative analysis calibrated to data from Spain shows that debt, the concentration of its distribution across agents, and spreads rise sharply before default occurs. The debt ratio reaches 55% of GDP, less than in the data, but the low default frequency (1.13%), the ratio of domestic to total debt (75%) and the dynamics of spreads are in line with the data.
Sovereign Default and Political Turnover
Toan Phan
(University of North Carolina)
Christoph Trebesch
(University of Munich)
Igor Livshits
(University of Western Ontario)
[View Abstract]
[Download Preview] We investigate whether the onset of a sovereign default is associated with an increase in the probability that incumbent politicians lose office. We construct a novel dataset of finance ministers tenure and turnover for 84 countries between 1980 and 2012. We find robust evidence that sovereign default onsets are associated with statistically and economically significant increases in the probability of finance minister turnover. The evidence regarding chief executive turnover is mixed. Our findings suggest that sovereign defaults may have political consequences, which have important implications for the analysis of default, ex-ante borrowing subject to the risk of default, and the design of ex-post interventions.
A Century of Sovereign Haircuts
Carmen Reinhart
(Harvard University)
Christoph Trebesch
(University of Munich)
[View Abstract]
How risky is sovereign debt? And under which circumstances have creditors suffered losses on their sovereign debt holdings? These question have regained crucial relevance for investors and policymakers, in particular in advanced economies. In this paper, we take a long-run perspective and compute creditor losses (haircuts) in sovereign debt crises worldwide and since the late 19th century.
Our default archive covers more than 300 sovereign debt restructuring events in more than 100 countries between 1870 and 2013, including all restructurings of today’s advanced economies such as Germany, Italy or Japan. Haircuts are computed by comparing the present value of bonds and loans before and after each restructuring (building on the contractual terms of more than 1500 debt instruments). We start by presenting the new historical dataset and by categorizing the episodes of external default and restructuring.
We then explore the correlates of low or high haircuts for the first time. Why do some debt crises result in creditor losses of only 10 or 20 percent, while others imply haircuts of up to 90 percent? To address this question, we gather long time series of explanatory variables. In particular, we compile the most comprehensive dataset on historical public debt stocks available in the literature thus far. The analysis on haircut determinants distinguishes between domestic factors, such as wars or banking crises, and external factors, such as commodity prices or global interest rates. We also explore the role of capital flows and spillovers from other crisis countries.
The results will provide unique new insights on the asset class of sovereign debt and put recent crisis experiences in emerging markets and in the Eurozone into historical perspective.
Discussants:
Suman Sambha Basu
(International Monetary Fund)
Alberto Martin
(CREI, Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
Jing Zhang
(Federal Reserve Bank of Chicago)
Laura Alfaro
(Harvard University)
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 202
American Economic Association
The Economics of Organizations
(M5, L2)
Presiding:
Michael Waldman
(Cornell University)
Persistently Inefficient? Organizational Fragmentation, Coordination Failures and Common Agency Problems in the United States Health Care System
Brigham Frandsen
(Brigham Young University)
Michael Powell
(Northwestern University)
James Rebitzer
(Boston University)
[View Abstract]
The health care system in the United States is highly inefficient. A frequently discussed contributor to this inefficiency is the fragmented health care delivery system. Concern about inefficient organizational fragmentation is an old theme in health care policy and has motivated important reform initiatives such as public subsidies for investments in health information technologies and the creation of Accountable Care Organizations. But if fragmented delivery is truly inefficient, why haven’t normal market forces displaced fragmented organizational configurations? Can public policy promote more efficient coordination without permanently dampening competition? We analyze these questions using a “common agency” model. We argue that integrated care requires substantial up-front investments that may not be forthcoming in a health insurance system that coordinates around inefficient fee for service contracts. The coordination failure we describe offers a new framework for analyzing Accountable Care Organizations as well as other dimensions of public policy such as subsides to health information technology, the enforcement of anti-trust laws, and the tax advantaged status of health insurance. Policies that promote coordination needn’t permanently dampen competition in our framework because short-term polices can have long-term effects.
Allocations of Effort and Talent in Professional Labor Markets
Gadi Barlevy
(Federal Reserve Bank of Chicago)
Derek Neal
(University of Chicago)
[View Abstract]
Professional labor markets often require new workers to work long hours during a period of provisional employment that often ends with an up-or-out promotion decision. These work requirements and the up-or-out promotion rules are often modelled as the results of asymmetric information problems. Rat race models deal with hidden types while career concerns models address hidden effort, but both models can generate inefficient equilibria that involve excessive effort. Many models of up-or-out rules address concerns about ex post moral hazard and incentive alignment among senior workers or partners. Here, we develop a symmetric information model that generates both rat races and up-or-out rules as means of implementing first-best effort and talent allocations. The key insight is that the positions occupied by young workers not only create output but also create information about whom the next cohort of partners should be. Because this information has more value when workers have longer work horizons remaining, it is optimal to require young workers to perform numerous assignments and to open their positions when their overall performance indicates that they are not talented enough to be a partner.
The Dual Avenues of Labor Market Signaling
Michael Waldman
(Cornell University)
[View Abstract]
[Download Preview] The theoretical literature on signaling in the labor market has identified two distinct avenues through which a worker’s ability can be signaled to potential employers. Starting with Spence (QJE 1973), one avenue through which ability can be signaled is through a worker’s choice concerning educational attainment. The other avenue, first explored in Waldman (Rand 1984), is that ability can be signaled to other potential employers through the promotion decisions of a worker’s current employer. This paper theoretically investigates how these two ways in which worker ability can be signaled interact. The paper constructs a multi-period model in which workers first choose an education level, then enter the labor force, and then during a multi-stage career earn promotions which are associated with large wage increases due to higher wage offers of other potential employers. The paper derives a number of results including that the return to education signaling is qualitatively different than in standard education signaling models. In the standard approach the return to education signaling is concentrated early in careers because, as workers age, firms observe worker productivity and the role of the education signal dissipates. In contrast, here high education improves promotion probabilities beyond what is caused by any association between high education and productivity, so the signaling role of education can be important even late in careers. In addition to showing this formally, the paper discusses the implications of this result for empirically measuring the return to education signaling.
The Determinants of Managerial Productivity
Matthew Bidwell
(University of Pennsylvania)
Mitchell Hoffman
(University of Toronto)
John McCarthy
(University of Pennsylvania)
N/A
Discussants:
Yanhui Wu
(University of Southern California)
Catherine Barrera
(Cornell University)
Jin Li
(Northwestern University)
Charles Bellemare
(Laval University)
Jan 04, 2015 8:00 am, Hynes Convention Center, Room 209
American Economic Association
The Effects of Attendance, Visualization, Study Time and Tutorials on Learning in Economic Education
(A2)
Presiding:
Georg Schaur
(University of Tennessee)
Effect of Peer Attendance on College Students' Learning Outcomes in a Microeconomics Course
Jennjou Chen
(National Chengchi University)
Tsui-Fang Lin
(National Taipei University)
N/A
Using Interactive Compound Interest Visualizations to Improve Financial Literacy
Edward Hubbard
(University of Wisconsin-Madison)
Percival Matthews
(University of Wisconsin-Madison)
Anya Savikhin Samek
(University of Wisconsin-Madison)
N/A
Is There an Inverse Relationship Between Study Time and Final Exam Scores? Evidence from Principles of Economics
Irene Foster
(George Washington University)
Qian Guo
(George Washington University)
Cheng Xu
(George Washington University)
[View Abstract]
[Download Preview] In this paper, we examine how well the number of hours spent studying per week (exam weeks as well as non-exam weeks), and ability - math ability as measured by scores on an formative Algebra I assessment and students’ SAT Math and Verbal scores, and study skills predict students’ final exam scores in a Principles of Economics class. Other studies have used self-reports to evaluate students’ study time. However, self-reports may be exaggerated as a student may not want to admit that she/he does not study sufficiently. To avoid inflated self-reports of number of hours spent studying, we asked students to report their own study hours as well as their estimate of the number of hours they thought their classmates would spend studying for the course in the coming semester. Since this question was asked at the end of the Fall semester of freshman year, we thought students would base their estimate on their own actual study hours during the semester.
Our initial results for the Fall semester show a strong negative relationship between study time (a proxy for the student’s own study time) and the student’s own final exam score. Math ability and study skills significantly affect a student's scores - more so than study time. One interpretation of the results might be that those who report higher study times for others, themselves actually put in more hours of study or perceive they are in need of studying more. This may be true of learners with lower math ability and weak study skills. Can students compensating with time for lower math ability? Our results show that they may not be able to. Further, we evaluate if high ability and low ability students choose different study methods. Are low ability students spending time studying effectively? The results provide some useful implications on students’ choice of study strategies.
The Effectiveness of Tutorials in Large Classes: Do They Matter? Is There a Difference between Traditional and Collaborative Learning Tutorials?
Karen Menard
(Ontario Health Study)
Bridget O'Shaughnessy
(McMaster University)
Abigail Payne
(McMaster University)
N/A
Discussants:
Victoria Liza Prowse
(Cornell University)
Anne Boring
(Sciences Po)
Anya Savikhin Samek
(University of Wisconsin-Madison)
Andrew Perumal
(University of Massachusetts-Boston)
Jan 04, 2015 8:00 am, Westin Copley, Essex North
American Finance Association
Dynamic Corporate Policies
(G3)
Presiding:
Toni Whited
(University of Rochester)
Do Debt Contract Enforcement Costs Affect Financing and Asset Structure?
Radhakrishnan Gopalan
(Washington University-St. Louis)
Abhiroop Mukherjee
(Hong Kong University of Science and Technology)
Manpreet Singh
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] Using staggered changes to debt contract enforcement costs in India resulting from a new law, we estimate it's causal effect on financing and asset maturity. A reduction in enforcement costs is associated with an increase in long-term debt and a decrease in short-term debt and trade-credit. The increase in debt maturity is confined to firms that borrow from multiple and diverse set of lenders and to smaller firms. Firms reduce the number of banking relationships and increase (decrease) the amount of long-term (short-term) assets on their balance sheet. Our results highlight an important causal effect of debt contract enforcement costs on firm financing and investment.
Asset Tangibility, Aggregate Risks, and the Diversification Discount
Michael Michaux
(University of Southern California)
Myat Mon
(University of Southern California)
[View Abstract]
[Download Preview] This paper develops a structural model of the firm that features endogenous diversification and refocusing in a two sector economy, where each sector is characterized by a different level of asset tangibility. The estimated model is able to generate the average diversification discount as well as its substantial decrease during recessions and credit crunches as observed in the data. This decrease in the discount can be attributed to tighter collateral constraints of single-segment firms with low asset tangibility. The paper highlights the role of organizational flexibility in liquidity management in the presence of aggregate productivity and financial shocks. Counterfactual experiments show that the value of collateral and cash flow pooling adds 5% to Tobin's q of an average conglomerate while the value of organizational flexibility -the ability to diversify and refocus- accounts for 8.5% of firm value.
Corporate Cash and Inventory Management: Implications for Measuring Market Competition
Xiaodan Gao
(National University of Singapore)
[View Abstract]
[Download Preview] In this paper I study the tradeoff between cash and inventory in the presence of productivity uncertainty and costly external financing, and show that the degree of product market competition (captured by the elasticity of substitution between differentiated goods) is a crucial determinant of firms' cash and inventory policies. I develop an industry equilibrium model to understand this tradeoff. In the model, individual firms operate in a monopolistically competitive market with some degree of pricing power and are subject to idiosyncratic productivity shocks. Firms hold inventory to prevent stock-outs and accumulate internal resources (cash and/or inventory) to finance their operation. Cash is liquid but earns a low and constant return. Inventory can be converted into cash whenever necessary, yet is subject to product market conditions. I show that inventory is particularly valuable for firms that have a high degree of control over prices. The presence of inventory however reduces the value of holding cash. As a result, firms with greater pricing power hold more inventory and less cash relative to firms having lower pricing power. Exploiting this model implication, I infer the degree of market competition for manufacturing sector from its cash and inventory behavior. The estimated model behaves consistently with data. Lastly, using the model as a laboratory, I conduct an experiment to evaluate the effect of an intensified market competition. I find that a 5% drop in markup prompts firms to cut inventory holdings by 3.3% and raise cash balance by 1.1%.
Stock Return Volatility and Capital Structure Decisions
Hui Chen
(Massachusetts Institute of Technology)
Hao Wang
(Tsinghua University)
Hao Zhou
(Tsinghua University)
[View Abstract]
[Download Preview] We comprehensively examine the effects of stock return volatility on firms' financial and investment decisions. Consistent with theories of investment with financing frictions, firms with high volatility actively reduce their leverage, cut investment, increase cash holding, cut non-cash current assets such as inventories and account receivables, and cut dividend. The effects of volatility are stronger for firms with higher leverage and for firms with low cash holdings. Further decomposition of the volatility measure reveal that firms respond respond differently to expected volatility and volatility surprises, as well as to systematic and idiosyncratic volatility shocks. Finally, stock return volatility also significantly predicts future leverage adjustment and future investment.
Discussants:
Todd Gormley
(University of Pennsylvania)
Gregor Matvos
(University of Chicago)
Brent Glover
(Carnegie Mellon University)
Michael Faulkender
(University of Maryland)
Jan 04, 2015 8:00 am, Westin Copley, Essex South
American Finance Association
Empirical Corporate Governance
(G3)
Presiding:
Holger Mueller
(New York University)
Does Product Market Competition Discipline Managers? Evidence from Exogenous Trade Shock and Corporate Acquisitions
Azizjon Alimov
(City University of Hong Kong)
[View Abstract]
[Download Preview] This study uses the 1989 Canada-U.S. Free Trade Agreement as a source of exogenous shock to product markets to establish a causal effect of competition on acquisition returns to shareholders. Following the agreement, acquirers exposed to greater increases in competitive pressure experience higher announcement returns. The positive impact of increased competition is stronger in acquirers with relatively higher agency costs. Improvements in merger performance mostly come from choosing targets with higher synergies. Managers of acquirers facing more competition are more likely to be terminated following value-destroying acquisitions. These results suggest that intensifying competition positively influences the efficiency of managerial decisions.
Shareholder Power and Corporate Innovation: Evidence from Hedge Fund Activism
Alon Brav
(Duke University)
Wei Jiang
(Columbia University)
Song Ma
(Duke University)
Xuan Tian
(Indiana University)
[View Abstract]
[Download Preview] This paper studies how hedge fund activism reshapes corporate innovation. We find that firms targeted by hedge fund activists experience an improvement in innovation efficiency after intervention. Despite reduction in R&D expenditures, target firms experience increases in innovation output (measured by both patent counts and citations), with stronger effects seen among firms starting with more diversified innovation portfolios. We further show that the reallocation of innovative resources and the redeployment of human capital contribute to the refocusing of the scope of innovation and lead to gains in efficiency. Finally, we establish that the link between hedge fund interventions and improvements in innovation efficiency is a by-product of asset reallocations triggered by activist interventions at the target firms.
The Product Market Effects of Hedge Fund Activism
Hadiye Aslan
(Georgia State University)
Praveen Kumar
(University of Houston)
[View Abstract]
Employing a unique database on hedge fund activism (during 1996-2008) that identifies the major horizontal and vertical product market relationships of target firms, and addressing the endogeneity problem from latent industry-wide structural changes, we find that activist funds have significant real and stockholder wealth effects on product markets. Following activist investor intervention, target firms on average increase their market shares by 3.7% and improve price-cost markups by 6.2%. By contrast, industry rival firms experience significant and continued reduction in profitability, cash flows, sales growth, R&D investment, and productivity relative to the target firms. Consistent with this, the abnormal returns of rivals' stocks around the announcement of activism are significantly negative, especially when the rivals are financially constrained, or suffer from managerial slack due to location in noncompetitive industries. Results from a quasi-natural experiment indicate that input from activist funds is especially effective when the product market environment becomes more competitive. Moreover, activist fund intervention facilitates greater surplus extraction from upstream and downstream firms that are more economically dependent on the target firms. Our analysis is consistent with the hypothesis that activist hedge funds improve significantly the strategic and financial management practices of target firms, but inconsistent with the hypothesis that they facilitate monopolistic collusion or financially weaken target firms.
Managerial Ownership and Firm Performance: Evidence From the 2003 Tax Cut
Xing Li
(Stanford University)
Stephen Teng Sun
(Stanford University)
[View Abstract]
[Download Preview] We identify the causal effects of managerial ownership on firm performance exploiting the 2003
Tax Cut as a quasi-natural experiment, which increased the net-of-tax effective managerial ownership. Consistent with predictions from agency theory, our difference-in-difference empirical design uncovers a significant and hump-shaped improvement in firm performance measured by Tobin's Q with respect to the level of managerial ownership due to the tax cut. Moreover, the increase in performance is more pronounced for firms where agency problems are relatively more severe as well as firms under weak alternative governance mechanisms, further demonstrating a rise in managerial ownership incentive being the underlying channel for our results. Our results are robust to examination of pre-trend a
Discussants:
Xavier Giroud
(Massachusetts Institute of Technology)
Shai Bernstein
(Stanford University)
Wei Jiang
(Columbia University)
Kelly Shue
(University of Chicago)
Jan 04, 2015 8:00 am, Westin Copley, America North
American Finance Association
Financial Markets and Financial Institutions
(G2)
Presiding:
Denis Gromb
(INSEAD)
Performance Measurement with Uncertain Risk Loadings
Francesco Franzoni
(University of Lugano)
Martin Schmalz
(University of Michigan)
[View Abstract]
[Download Preview] We study the implications of uncertainty about risk loadings for mutual fund investors' capital allocation decisions. We show that the signal-to-noise ratio is higher and rational investors give more weight to performance signals when market returns are moderate, compared to times of very high or low market returns. Consistent with the model predictions, the flow-performance relation is about twice as steep in moderate times, and the difference is larger for types of funds with more uncertainty about risk loadings. The model-implied degree of parameter uncertainty is consistent with direct estimates of parameter uncertainty from fund holdings and daily returns.
Financial Innovation for Rent Extraction
Anton Korinek
(Johns Hopkins University)
[View Abstract]
This paper makes the case that a significant number of recent financial innovations were designed to extract rents from public safety nets or bailouts and resulted in a large redistribution of resources to the financial sector. We develop a model in which bailouts arise endogenously: when financial sector capital is low, it is cheaper for the rest of the economy to provide a bailout than to suffer from a large credit crunch. It is well known that such bailouts distort incentives to invest in risky securities. This paper shows that bailouts also provide incentives to create new securities that crystallize risk-taking on states of nature in which bailouts will be obtained. This allows for more efficient rent extraction on a significantly larger scale. The incentives for rent extraction are mediated through market prices and do not require that the agents who engage in risk-taking are aware that they are extracting rents from public safety nets. In aggregate, the described behavior leads to large financial sector profits during good times, higher consumption volatility, greater economy-wide risk premia and stark misallocations in real investment.
Asset Pricing When 'This Time is Different'
Pierre Collin-Dufresne
(Ecole Polytechnique Federale de Lausanne)
Michael Johannes
(Columbia University)
Lars Lochstoer
(Columbia University)
[View Abstract]
[Download Preview] Recent empirical evidence suggest that the young update beliefs about macro outcomes more in response to aggregate shocks than the old. We embed this form of experiential learning bias in a
general equilibrium macro-finance model where agents have recursive preferences and are unsure about the specification of the exogenous aggregate stochastic process. The departure from Rational Expectations is small in a statistical sense, but the asset pricing implications of the bias can be large. Differences in beliefs and learning about the model specification induce
additional, quantitatively significant priced risks in the economy, as well as significant time-variation in these risks, depending both on agents' relative wealth and beliefs. The small time-varying bias in agents' beliefs leads to substantial and persistent over- and under-valuation, accompanied by over- and under-investment, that tends to be exacerbated in equilibrium
as outcomes of the optimal risk-sharing in the economy.
Discussants:
Pierre-Olivier Weill
(University of California-Los Angeles)
Peter Kondor
(Central European University)
Jaroslav Borovicka
(New York University)
Jan 04, 2015 8:00 am, Westin Copley, Essex Center
American Finance Association
Fixed Income Markets
(G1)
Presiding:
Francis Longstaff
(University of California-Los Angeles)
Order Flow Segmentation and the Role of Dark Pool Trading in the Price Discovery of United States Treasury
Michael Fleming
(Federal Reserve Bank of New York)
Giang Nguyen
(University of North Carolina)
[View Abstract]
[Download Preview] This paper studies the workup protocol, a distinctive trading feature in the U.S. Treasury securities market that resembles a mechanism for discovering dark liquidity. We quantify its role in the price formation process in a model of the dynamics of price and segmented order flow induced by the protocol. We find that the dark liquidity pool generally contains less information than its transparent counterpart, and most of the former's information value is due to workups expanding volume on the aggressive side. Moreover, we show that workups occur more frequently, but contribute less to price discovery relative to pre-workup trades, around volatile times. We also find that higher usage of workups is also associated with higher market depth, lower bid-ask spreads, and higher trading intensity. Collectively, the evidence suggests that workups are used more as a channel to encourage liquidity provision, than as a channel to hide private information.
Why are Municipal Bonds Issued at a Premium?
Mattia Landoni
(Columbia University)
[View Abstract]
[Download Preview] I derive the optimal timing strategy for an investor taking tax gains and losses on tax-exempt bonds
(up to a 7% gain over buy-and-hold). I then derive the issuer’s optimal coupon rate, which maximizes
the tax benefit for a tax-timing investor (up to a 3.5% gain over issuing at par, potentially more than the cost of issuance itself). All these gains are transfers from the U.S. Treasury to local issuers or investors.
The optimal issuance policy is consistent with three unexplained stylized facts: the frequent issuance of premium bonds; “sticky” coupons that don’t fall when yields fall; and higher issue prices for longer-maturity noncallable bonds.
In Search of Habitat
Xuanjuan Chen
(Shanghai University of Finance and Economics)
Zhenzhen Sun
(Siena College)
Tong Yao
(University of Iowa)
Tong Yu
(University of Rhode Island)
[View Abstract]
We perform portfolio level analysis to trace the preferred habitat investment behavior in
the government bond market. With a preferred habitat, investors would have an inelastic demand to bonds at given horizons. This is confirmed by the empirical evidence that the aggregate portfolios of insurance firms exhibit restrained elasticities to interest rate changes. We further investigate two forms of habitat — a liability habitat driven by the need to immunize the interest rate risk of operating liabilities, and a horizon habitat due to the preference for holding securities with riskfree returns for the investment horizon. Consistent with the two effects, we find that insurers' portfolio interest rate risk is strongly related to that of the operating liabilities, and that the size of liability and risk aversion dampen insurers' portfolio response to term structure changes.
Dynamic Dependence and Diversification in Corporate Credit
Peter Christoffersen
(University of Toronto)
Kris Jacobs
(University of Houston)
Xisong Jin
(University of Luxembourg)
Hugues Langlois
(HEC Paris)
[View Abstract]
[Download Preview] We characterize dependence and tail dependence in corporate credit using a new class of dynamic copula models which can capture dynamic dependence and asymmetry in large samples of firms. We also document important differences between the dependence dynamics for credit spreads and equity returns. Modeling a decade of weekly CDS spreads for 215 firms, we find that copula correlations are highly time-varying and persistent, and that they increase significantly in the financial crisis and have remained high since. Perhaps most importantly, tail dependence of CDS spreads increases even more than copula correlations during the crisis and remains high as well. The most important shocks to credit dependence occur in August of 2007 and in August of 2011, but interestingly these dates are not associated with significant changes to median credit spreads. The decrease in diversification potential caused by the increase in dependence and tail dependence is large. Finally, we find that the CDS volatility, correlation and tail dependence measures that we have constructed using the dynamic copula model are important determinants of credit spreads over time.
Discussants:
Ingrid Werner
(Ohio State University)
Yuhang Xing
(Rice University)
Robin Greenwood
(Harvard Business School)
Pierre Collin-Dufresne
(Ecole Polytechnique Federale de Lausanne)
Jan 04, 2015 8:00 am, Westin Copley, America Center
American Finance Association/American Real Estate & Urban Economic Association
Mortgages and Real Estate
(G1)
Presiding:
Walt Torous
(Massachusetts Institute of Technology)
Learning about the Neighborbood: The Role of Supply Elasticity for Housing Cycles
Michael Sockin
(Princeton University)
Wei Xiong
(Princeton University)
Zhenyu Gao
(Chinese University of Hong Kong)
[View Abstract]
[Download Preview] Motivated by an intriguing observation during the recent U.S. housing cycle that counties with housing supply elasticities in an intermediate range experienced the most dramatic price booms and busts, this paper develops a model to analyze information aggregation and learning in housing markets. In the presence of pervasive informational frictions, housing prices serve as important signals in the households' learning of the economic strength of a neighborhood. Supply elasticity affects not only housing supply but also the informational noise in the price signal. Our model predicts that the housing price and the share of investment home purchases exhibit the greatest variability in areas with intermediate supply elasticities, which is supported by our empirical analysis.
Final Demand for Structured Finance Securities
Craig Merrill
(Brigham Young University)
Taylor Nadauld
(Brigham Young University)
Philip Strahan
(Boston College)
[View Abstract]
[Download Preview] Structured finance boomed during the run-up to the Financial Crisis. Existing explanations for this growth emphasize supply-side factors. Demand, however, was also encouraged by efforts to avoid regulatory capital requirements. We show that life insurance companies exposed to unrealized losses from low interest rates in the early 2000s increased their holdings of highly rated securitized assets, assets which offered the highest yield per unit of required capital. The results are only evident in accounts subject to capital requirements and at firms with low levels of ex ante capital, consistent with regulation creating distortionary incentives fueling the demand for securitized assets.
Quantify Animal Spirits: News Media and Sentiment in the Housing Market
Cindy Soo
(University of Michigan)
[View Abstract]
Sentiment or "animal spirits" has long been posited as an important determinant of asset prices, but measures of sentiment are particularly difficult to construct for the housing market. This paper develops the first measures of sentiment across local housing markets by quantifying the positive and negative tone of housing news in local newspaper articles. I use these measures to test the role of sentiment in the run-up and crash of housing prices that instigated the great financial crisis of 2008. Consistent with theories of investor sentiment, I find that my sentiment index not only predicts price variation but also patterns in trading volume. Estimated effects of sentiment are robust to an extensive list of observed controls including lagged fundamentals, lagged price growth, subprime lending patterns, and news content over typically unobserved variables. To address potential bias from latent fundamentals, I develop alternate sentiment measures from a subset of weekend and narrative articles that newspapers use to cater to sentiment but are plausibly exogenous to news on fundamentals. Estimates remain robust, suggesting bias from unobserved fundamentals is minimal.
Mortgage Risk and the Yield Curve
Aytek Malkhozov
(McGill University)
Philippe Mueller
(London School of Economics)
Andrea Vedolin
(London School of Economics)
Gyuri Venter
(Copenhagen Business School)
[View Abstract]
[Download Preview] We find strong empirical evidence that MBS dollar duration predicts bond excess returns with longer-maturity bonds being affected the most. Negative MBS dollar convexity increases bond yield volatility, and its effect is hump shaped, with maturities around two years being affected the most. Moreover, the predictive power is not subsumed by either yield factors or macroeconomic variables. We rationalize these empirical findings within a parsimonious dynamic equilibrium term structure model in which the net supply of long-term bonds is endogenously driven by the interest rate risk of mortgages. A calibration of our model confirms the quantitative relevance of the mechanism.
Discussants:
Albert Saiz
(Massachusetts Institute of Technology)
Andra Ghent
(Arizona State University)
Rossen Valkanov
(University of California-San Diego)
Nancy Wallace
(University of California-Berkeley)
Jan 04, 2015 8:00 am, Westin Copley, America South
American Finance Association
New Approaches to Finance
(G1)
Presiding:
Xavier Gabaix
(New York University)
Count Models of Social Networks in Finance
Harrison Hong
(Princeton University)
[View Abstract]
[Download Preview] Social networks are thought to be important for the investment and performance of mutual fund managers. We propose a measure of whether a manager is part of a network using only data on the distribution of the number of stocks headquartered in a given city that are held by managers. For some cities, the count distribution is roughly Poisson. However, for a significant fraction of cities, the count distribution is highly overdispersed Poisson --- where most managers have a couple of picks but a few managers have many picks. We show that the degree of overdispersion is a theoretically well-motivated measure of network influence and that managers with concentrated stock picks in a city are likely to be part of a network in that city. These managers indeed significantly outperform other managers by around 1.6\% per annum.
Feature-Selection Risk
Alexander Chinco
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] Companies have exposure to many different features that might plausibly affect their stock returns, like whether they're involved in a crowded trade, whether they're mentioned in an M\&A rumor, or whether their supplier missed an earnings forecast. Yet, at any point in time, only a handful of these features actually matter. As a result, real-world traders have to simultaneously infer both the identity and the value of the few relevant features. This paper shows that, because they face this joint inference problem, the risk of selecting the wrong subset of features can spill over and warp traders' perceived asset values. The high-dimensional nature of modern financial markets can act as a limit to arbitrage.
Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks
Jean-Noel Barrot
(Massachusetts Institute of Technology)
Julien Sauvagnat
(Toulouse School of Economics)
[View Abstract]
This paper examines the role of input specificity in the propagation of firm-specific shocks in production networks. We show that suppliers hit by natural disasters impose significant output losses to their customers. The effect is temporary and shows no prior trend. It is magnified when the affected suppliers are hard to substitute with other inputs. The output losses imposed on customers by shocks to their specific suppliers feedback to other (unaffected) suppliers, who also experience a significant drop in output. The results suggest that input specificity plays a crucial role in the aggregation of idiosyncratic shocks.
A News-Utility Theory for Inattention and Delegation in Portfolio Choice
Michaela Pagel
(Columbia University)
[View Abstract]
[Download Preview] Recent evidence suggests that investors are either inattentive to their portfolios or undertake puzzling rebalancing efforts. This paper develops a life-cycle portfolio-choice model in which the investor experiences loss-averse utility over news and can choose whether or not to look up his portfolio. I obtain three main predictions. First, the investor prefers to not look up and not rebalance his portfolio most of the time to avoid fluctuations in news utility. Such fluctuations cause a first-order decrease in expected utility because the investor dislikes bad news more than he likes good news. Consequently, the investor has a first-order willingness to pay a portfolio manager who rebalances actively on his behalf. Second, if the investor looks up his portfolio himself, he rebalances extensively to enjoy or delay the realization of good or bad news, respectively. Third, the investor would like to commit to being inattentive even more often because it reduces overconsumption. Quantitatively, I structurally estimate the preference parameters by matching participation and stock shares over the life cycle. My parameter estimates are in line with the literature, generate reasonable intervals of inattentiveness, and simultaneously explain consumption and wealth accumulation over the life cycle.
Discussants:
Ralph Koijen
(London Business School)
Haoxiang Zhu
(Massachusetts Institute of Technology)
Lauren Cohen
(Harvard Business School)
Marianne Andries
(Toulouse School of Economics)
Jan 04, 2015 8:00 am, Westin Copley, Empire
American Real Estate & Urban Economic Association
Asset Disposition
(R3, G2)
Presiding:
Kelley Pace
(Louisiana State University)
How Bank Liquidity and Capital Affect Asset Sales?
Yongqiang Chu
(University of South Carolina)
[View Abstract]
[Download Preview] I examine how bank liquidity and capital affect banks' behavior in asset sales using data on sales of bank owned real estate. I find that: (1) banks with lower liquidity levels post lower asking prices and receive lower sale prices; (2) banks with lower capital levels post higher asking prices, which then lead to longer time on the market. Further analyses show that the results are unlikely to be driven by omitted variables related to local conditions, property characteristics, or bank characteristics.
Fire Sales and House Prices: Evidence from Estate Sales Due to Sudden Death
Kasper Meisner Nielsen
(Hong Kong University of Science and Technology)
Steffen Andersen
(Copenhagen Business School)
[View Abstract]
This study investigates when forced sales turn into fire sales by using a natural experiment which allows us to separate supply and demand effects: Forced sales result from sudden death of house owners and are thus unrelated to current market conditions. We find that forced sales result in fire sale discounts. Discounts increase when the sale is urgent, market conditions are poor, the seller is financially constrained, or the seller exhibits the disposition effect. Overall, our study identifies when forced sales lead to fire sale discounts, and highlights that fire sales occur even in the absence of temporary demand shocks.
The Impact of Gains and Losses on Homeowner Decisions
Dong Hong
(Singapore Management University)
Roger Loh
(Singapore Management University)
Mitch Warachka
(Claremont McKenna College)
[View Abstract]
[Download Preview] Using unique data on condominium transactions that allow for accurately-measured capital gains and losses, we examine the impact of these gains and losses on homeowner decisions. As predicted by the disposition effect, owners with a gain have higher sell propensities than those with a loss. Since real estate prices result from owner negotiations with buyers and tenants, we also examine whether prices vary across otherwise comparable units depending on the owner's capital gain. We report that owners with a gain accept lower selling prices, list for sale at lower prices, and accept lower rents from tenants. These pricing implications are sensitive to the magnitude of the owner's gain, which is consistent with realization utility, and are economically large. For example, selling prices are 5% lower on average. Overall, our findings indicate that the disposition effect and realization utility, both of which originate from prospect theory, influence homeowner decisions. Alternative explanations such as financing constraints, informed trading, and mean reversion cannot explain our results.
Factors Underlying Short Sale
Shuang Zhu
(Kansas State University)
Kelley Pace
(Louisiana State University)
[View Abstract]
The short sale process has emerged as the most common alternative to the traditional foreclosure process in the recent mortgage crisis. This paper examines the factors that affect the choice between these two ways of disposing of the housing asset. We find that better quality borrowers are relatively likely to prefer short sales, and that state foreclosure laws such as longer foreclosure delay and the statutory right of redemption reduce short sales. The results have implications for ostensibly borrower-friendly measures promoted by governmental entities.
Discussants:
Liang Peng
(University of Colorado-Boulder)
Ken Johnson
(Florida International University)
Milena Petrova
(Syracuse University)
Brent Ambrose
(Pennsylvania State University)
Jan 04, 2015 8:00 am, Westin Copley, Defender
American Real Estate & Urban Economic Association
Maintenance, Modification, and Rehabilitation
(R2, G2)
Presiding:
Henry Munneke
(University of Georgia)
Reverse Mortgage Demographics and Collateral Performance
Thomas Davidoff
(University of British Columbia)
[View Abstract]
Home Equity Conversion Mortgage (HECM) data seem to confirm two concerns about these federally insured loans offered to older US homeowners. First, originations are rare, consistent with a familiar disinterest in extracting home equity through sale among older owners, even those with low wealth. Second, moral hazard and adverse selection appear to operate on HECM's implicit home price insurance. Demographics mitigate both concerns. Consistent with greater demand among those with low wealth, HECM loans are more common, more responsive to price appreciation, and more intensively used in neighborhoods where large fractions of homeowners are black and Hispanic, and where incomes and property values are below metropolitan averages. The correlation between minority share of homeowners and late-2000s home price busts explains most observed selection into HECM on price appreciation within metropolitan areas. Selection on price movements and demographics explains away roughly half of poor collateral performance in HECM loans that has been attributed elsewhere to strategic undermaintenance.
Home Safety, Accessibility, and Elderly Health: Evidence from Falls
Michael Eriksen
(Texas Tech University)
Gary Engelhardt
(Syracuse University)
Nadia Greenhalgh-Stanley
(Kent State University)
[View Abstract]
[Download Preview] We use rich longitudinal data from the Health and Retirement Study to estimate some of the health benefits to the elderly from safer, more accessible homes. We focus on the role of home safety and accessibility features on the prevention of serious, non-fatal falls for widowed individuals. The presence of such features reduces the likelihood of a fall requiring medical treatment by 20 percentage points, a substantial effect. However, we find that falls are not the type of health shock that is a main driver of housing tenure transitions among the elderly.
Surviving a Hurricane: Urban Decline and the Dynamics of Local Supply Shocks
William Larson
(U.S. Bureau of Economic Analysis)
Kyle Hood
(U.S. Bureau of Economic Analysis)
[View Abstract]
[Download Preview] Hurricanes are exogenous events that destroy the stock of housing in a city, allowing direct tests of theories of regional dynamics. Motivated by past research on the relation between urban decline and the elasticity of housing supply, we develop a model of a small region with durable housing, endogenous home maintenance, and disaster expectations. The model implies that declining areas (relative to growing areas) have a less well-maintained housing stock, with associated predictions on the effects of hurricanes. In order to isolate hurricane effects and test this theory, we propose a factor-based method of constructing counterfactual growth scenarios for a small region. This method greatly increases the precision with which moderate-sized hurricane effects can be estimated, increasing the power of statistical tests of the theory. Empirical results from this method support theoretical predictions, and results are notably robust to the exclusion of Hurricane Katrina in 2005.
Multiperiod Home Rehabilitation under Unobserved Heterogeneity
Herman Li
(University of Nevada-Las Vegas)
[View Abstract]
In the evolution of the body of home improvement literature, there have been two basic ways of approaching home improvement behavior. The first method looks at moving behavior in that a homeowner can "change" housing capital simply by moving. The other method, which becomes my focus, is the physical improvement of a homeowner's own unit. Early studies first analyzed improvement behavior using a static framework, and until recently, only very basic dynamic analyses of home improvement behavior. While using data publicly available from the American Housing Survey (AHS), I conduct analyses that examine the home improvement behavior in a dynamic setting. According to the US Census Bureau, $135 billion was spent on home improvement activities in 2007 alone, while Harvard's Joint Center of Housing Studies has estimated the Leading Indicator of Remodeling Activity (LIRA) which puts remodeling activity between $111 billion to $130 billion between 2011 and 2013. Even though remodeling activity has decreased since 2007 the analysis still looks at a vital part of the economy, as well as a vital part of homeownership.
Discussants:
James Conklin
(University of Georgia)
Donald Haurin
(Ohio State University)
Lauren Lambie-Hanson
(Federal Reserve Bank of Philadelphia)
Kip Womack
(University of North Carolina-Charlotte)
Jan 04, 2015 8:00 am, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Economic Anthropology
(D2, P4)
Presiding:
Ariel Ben Yishay
(College of William & Mary)
Ode to the Sea: Workplace Organizations and Norms of Cooperation
Uri Gneezy
(University of California-San Diego)
Andreas Leibbrandt
(Monash University)
John List
(University of Chicago)
[View Abstract]
The functioning and well-being of any society and organization critically hinges on norms of cooperation that regulate social activities. Empirical evidence on how such norms emerge and in which environments they thrive remain a clear void in the literature. To provide an initial set of insights, we overlay a set of field experiments on a natural setting. Our approach is to compare behavior in Brazilian fishermen societies that differ only along one major dimension: the workplace organization. In one society (located by the sea) fishermen are forced to work in groups whereas in the adjacent society (located on a lake) fishing is inherently an individual activity. We report sharp evidence that the sea fishermen trust and cooperate more and have greater ability to coordinate group actions than their lake fishermen counterparts. These findings are consistent with the argument that people internalize social norms that emerge from specific needs and support the idea that socio-ecological factors play a decisive role in the proliferation of pro-social behaviors.
The Fish is the Friend of Matriliny: Reef density predicts matrilineal inheritance across the world and its persistence in Melanesia
Ariel Ben Yishay
(College of William and Mary)
Pauline Grosjean
(University of New South Wales)
Joe Vecci
(Monash University)
[View Abstract]
[Download Preview] Reef density predicts the prevalence of matriliny in a cross-cultural sample of 186 societies and in a sample of 59 small-scale horticultural fishing communities in the Solomon Islands. We show that this result holds even controlling for common descent by relying on variation within ethno-linguistic groups in our Melanesian micro-sample, where matriliny is ancestral. This paper thus establishes reef density and, indirectly, reliance on fishing, as a robust predictor of the persistence of matrilineal inheritance. Explanations based on the sexual division of labor and on inclusive fitness arguments support our results. We also document some of the demographic consequences of matrilineal inheritance, with smaller household and village population size.
Gender Gap in Willingness to Compete Disappears with Child-Benefitting Incentives
Alessandra Cassar
(University of San Francisco)
Feven Wordofa
(University of San Francisco)
Y. Jane Zhang
(Hong Kong University of Science and Technology)
[View Abstract]
Willingness to compete is typically measured in experiments that presume men and women are equally attracted to the prize. The Hrdy hypothesis suggests otherwise. We add a treatment to a standard competition experiment where the prize is a child-benefitting voucher with the same face value as that in the cash treatment, in a counter-balanced design using parents as subjects. Whereas a significant gender gap in the willingness to compete exists under the cash treatment, the gap disappears under the voucher treatment. Mothers are significantly more likely to compete when the prize is a voucher for her child compared to fathers, relative to the cash treatment. This result is driven by high ability women and is not explained by selection into the experiment, gender differences in the willingness to pay for the voucher, or unintended priming effects.
Social Norm Formation: The Role of Esteem
Robert Akerlof
(University of Warwick)
[View Abstract]
[Download Preview] Norms play an important role in shaping behavior, but our understanding of norm formation is incomplete. This paper views norms as shared values. In the model, players choose values, motivated by economic considerations and, crucially, also by the desire for esteem. The comparative statics are driven by the following tension: players obtain more esteem from peers if they conform; but they may obtain more self-esteem if they differentiate. This tension explains why, for instance, peer effects are sometimes positive and sometimes negative. We discuss three illustrations, related to: schools, inner cities, and organizational “resistance.”
Discussants:
Andreas Leibbrandt
(Monash University)
Ariel Ben Yishay
(College of William & Mary)
Y. Jane Zhang
(Hong Kong University of Science and Technology)
Robert Akerlof
(University of Warwick)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
Heterodox Theory and Social Provisioning
(B5)
Presiding:
Zdravka Todorova
(Wright State University)
Can Insights from Regulationist and SSA Theory Inform Institutional Analysis of the Social Provisioning Process?
Lynne Chester
(University of Sydney)
[View Abstract]
The term ‘Social Provisioning Process’ emanates from Gruchy’s definition of economics as the science of social provisioning and continues to be commonly found in the lexicon of North American institutional economics. It is not a term inherent to the wider heterodox economics community. Social provisioning is taken to mean the organisation of capitalist economic activities within a social context (i.e. laws, ideologies, cultural values, norms, class relations, the environment etc) and thus much more than the narrow confines of capitalism’s market activities. In other words, embedded institutions ensure the functioning of the market economy.
The analytical focus of the French Régulation and Social Structure of Accumulation (SSA) schools is capitalist institutions - and their conjunction - to elucidate the operation, evolutionary nature and distinctive features of different periods of capitalism, trajectories of growth and the causes of economic crises. These schools have demonstrated how the historical form and precise articulation of institutions continually alters while certain core invariant aspects are sustained and their inherent contradictions contained for a time to secure ongoing accumulation. Institutional transformations following periods of crisis have also been shown to ensure renewed accumulation. Can Régulationist and SSA theorising about the capitalist economy inform Institutional analyses of the social provisioning process? This is the motivation for this paper which explores the core concepts, levels of inquiry, and similarities and differences of these three Schools to determine if closer engagement of the three could advance a better understanding of the organisation and outcomes of the social provisioning process.
The Process of Provisioning: The Halter for the Workhorse
Ann Davis
(Marist College)
[View Abstract]
[Download Preview] An overview of the process of provisioning can be developed by drawing upon institutional economists such as Veblen and Marx. In general, the provision of material needs for sustaining human life in advanced capitalist countries takes place by contingent rewards by means of abstract and symbolic intermediaries. First, provisioning is accomplished by the separation of production from consumption, and a change in property rules. The successive removal of production from the home established “consumer” units which were dependent on wage labor to provide for subsistence of the household members. Access to subsistence was then mediated by money wage payments, which were in turn utilized to purchase consumer products. Participation in the labor force was motivated by this requirement of cash for the purchase of necessities. Second, the adequacy of provisioning was then determined by competition in the labor market. The overall process of provisioning is thus organized and guided by access to abstract means of payment, money, and symbolic luxury goods, which help to assure the ongoing reproduction of differential access to provisioning. Alternatives include government redistribution efforts, such as universal minimum standards of provisioning. Another approach is the reorganization of work, so that contingent access to the means of subsistence and social position is no longer directly tied to the performance of labor. A third alternative is to protect the right to organize labor as a civil right, to differentiate the human aspect of labor, compared with other “factors of production.”
The Emergence of Qualitative Change in the Social Provisioning Process
Mitch Green
(Franklin and Marshall College)
[View Abstract]
The paper develops a surplus approach model of the economy as a whole centered upon the business enterprise. It is argued that while variations of the surplus approach have furthered our understanding of capitalism as a process of circular production and reproduction, most analyses focus on the macro implications of insights into value and distribution. It is shown that by taking the social relationship as the unit of analysis, one may construct a model that illustrates the extent to which the business enterprise, or social actor, affects the emergence of a qualitatively distinct social provisioning process, as it seeks to reproduce the conditions for its own existence. The paper employs social network analysis and qualitative input-output economics to apply theoretical approaches in institutional, Marxian and Sraffian traditions, in an effort to move beyond the multi-sector, comparative static models of the surplus approach, to a more contingent and nuanced understanding of social reproduction embedded in the social fabric. To this end, the paper makes a contribution toward one of the many intellectual projects to which Fred Lee has contributed to the discipline: developing a coherent alternative to neoclassical microeconomics.
Development Effects and the Social Provisioning Process
Henning Schwardt
(University of Bremen)
[View Abstract]
Modern economies change continuously. They are in a perpetual state of development. This paper introduces a categorization of the different influence factors that shape the development processes of economies. The resulting general groups of development effects, placed in the technological-institutional-space, can serve to stress the necessary interplay of factors from different categories and at different levels of the socio-economic environment for a continued process of change to emerge. Economic activity can generally not be properly understood as isolated and in isolation from general social environments.
Commons, Coase, and the Unchanging Nature of the Social Provisioning Process
Eric Scorsone
(Michigan State University)
David Schweikhardt
(Michigan State University)
[View Abstract]
John R. Commons is credited as being one of the founders of the original institutional economics and Ronald Coase as a founder of the new institutional economics. Many would see these two as presenting very different approaches to institutional economics. This paper examines John R. Common’s and Ronald Coase’s approaches to institutional analysis and social provisioning. In particular, it examines similarities in (a) the definition and role of institutions in the economy, (b) the allocative (social provisioning) role of institutions in the economy, and (c) the inescapable and unchanging role for institutions in shaping the social provisioning process. We contend that Commons and Coase had more in common than did Coase and many of his followers in the “new institutional economics.” In particular, the two had strong similarities in (a) their insights into the nature of institutions in the legal-economic nexus that is the foundation of the economy and (b) their research methods for conducting economics. Moreover, each man understood that the evolution of market institutions provided the foundation of the social provisioning process. Because this role of institutional evolution in determining social provision is, as Warren Samuels has noted, an inescapable and unchanging part of the social provisioning process, it will remain an integral part of any such work in the future regardless of the “school of analysis” or methodological approach. The integration of this these two founders can inform the realities and policy questions that leaders struggle with in the face of the growing economic and social inequality observed today.
Discussants:
Helge Peukert
(University of Erfurt)
Frederic S. Lee
(University of Missouri-Kansas City)
Jan 04, 2015 8:00 am, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Natural Resources: Economic Impacts and Valuation
(Q5, Q2)
Presiding:
Michael Hanemann
(Arizona State University)
A Delphi Exercise as a Tool in Amazon Rainforest Valuation
Jon Strand
(World Bank)
Richard Carson
(University of California-San Diego)
Stale Navrud
(Norwegian University of Life Sciences)
Ariel Ortiz-Bobea
(Cornell University)
Jeffrey Vincent
(Duke University)
[View Abstract]
[Download Preview] This paper reports results from a set of “Delphi exercises” involving 217 (mostly PhD) economists specializing in environmental valuation, including many of the most respected environmental economists in our profession. Experts came from the U.S. Canada, Australia, New Zealand, 21 countries in Europe, and 12 countries in Asia. All were asked to predict the outcome (household annual mean and median willingness to pay, WTP, for two separate rainforest protection plans), in the event that a contingent valuation (CV) survey on Amazon forest protection were carried out in the expert’s home country. The exercises were administered via email in 2012 (in Europe) and 2013 (in the other regions).
Resource Curses: Evidence from the United States 1880-2012
Karen Clay
(Carnegie Mellon University)
Alex Weckenman
(Harvard University)
[View Abstract]
[Download Preview] The resource curse literature offers conflicting evidence on the existence of a resource curse and the mechanisms through which it might act on growth. The debate is further muddied by historical evidence that some countries seem to have experienced resource blessings. This paper uses new state-level panel datasets spanning 1880-2012 to investigate the existence of a resource curse in the context of the American states. The paper finds that different commonly studied resources (oil and gas, other minerals, and agriculture) had different effects in different time periods. For the period 1980-2000, a period that is widely studied, we find evidence of a resource curse in the United States in time series and cross section. The broader analysis shows that this period, although widely studied, is atypical. The magnitude of the effect is larger than for any other period. Analysis using detailed state data on GDP by sector indicates that over 1980-2000, the negative effect of resources on growth was much smaller in magnitude than the negative effects of agriculture on growth. Two interrelated mechanisms through which resources may affect growth are political institutions and labor markets. The results suggest that institutions and labor market channels including volatility, economic conditions, and asymmetric effects of increases and decreases in resources are relevant for understanding the relationship between resources and growth.
What Drives Forest Leakage?
Kathy Baylis
(University of Illinois)
Don Fullerton
(University of Illinois-Urbana‑Champaign)
Payal Shah
(Okinawa Institute of Science and Technology)
[View Abstract]
Setting aside land for conservation often leads to an increase in deforestation activities outside the protected area, defined as “leakage”. Since the existence of leakage can severely bias the estimates of the impact of protected areas on extractive activities, any estimate of avoided extraction from protection must assess the policy’s impacts on areas outside protected areas. In this paper, we first develop a general equilibrium model to address what economic factors affect the direction and magnitude of leakage. We then test the hypotheses derived from this model and estimate the effect of these factors on forest leakage in Indonesia. To take the spatial nature of deforestation into account, we compare deforestation in nearby areas against spatially weighted counterfactuals that account for spatial characteristics. Conservation agents and social planners can use these economic indicators to identify areas that are more susceptible to leakage, and they can use this information to increase conservation benefits by placing new protected areas in regions with lower potential for leakage.
Climate Change Impacts on United States Agriculture: Accounting for the Option Value of Farmland in the Hedonic Approach
Ariel Ortiz-Bobea
(Cornell University)
[View Abstract]
In this paper I develop a hedonic model for assessing potential climate change impacts on U.S. agriculture that reduces vulnerability to omitted variables that are pervasive in the literature. The approach estimates the effect of climate on farmland rental price rather than on its reported value to avoid the influence of the option value of farmland conversion to more valuable nonfarm use. New results suggest no damages – and possibly benefits- of climate change on the sector, which is in contrast to large damages found in other studies.
Discussants:
Michael Hanemann
(Arizona State University)
Paul Rhode
(University of Michigan)
Katharine Sims
(Amherst College)
Marshall Burke
(University of California-Berkeley)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Wellesley
Chinese Economists Society
Effects of the Minimum Wage Policy in China
(J1)
Presiding:
Tony Fang
(Monash University and University of Toronto)
The Impact of Minimum Wages on Migrant Workers' Wages, Employment and Hours
Juan Yang
(Beijing Normal University)
Morley Gunderson
(University of Toronto)
[View Abstract]
Minimum wages in China have received increased attention because of growing income inequality as well as the vulnerable position of low-wage migrant workers flooding into the cities. Legislated minimum wages in China have more than doubled over the brief recent period, from 474 yuan in 2004 to 1072 yuan in 2011. In OECD countries most low-wage workers are paid by the hour, and regulations prevail on legal working hours. In contrast, most low-wage migrant workers in China are paid by the month and minimum wage legislation does not specify the legal working hours. As such, employers may extend the workers’ working hours to compensate for the increased costs. This unintended consequence of minimum wage legislation is of particular importance for migrant workers who may get less legal protection and may be more affected by minimum wages, compared to urban workers. This potential offsetting adjustment process has not been explored in the existing literature on minimum wages in China, and is an important component of our analysis. This paper employs a large migrant household survey data and some municipal data to investigate the increases of minimum wage on migrant workers’ wages, employment and working hours. The results indicate that minimum wages have only small negative impacts on migrants’ employment with the largest negative effects occurring for rural female workers and for workers in the east and middle areas. Our results, however, indicate that employers increase the hours worked by migrant workers in each month to offset some of the cost increase of increases in the monthly minimum wage. As such, their implied hourly wages do not actually increase in response to monthly minimum wage increases. This subtle adjustment process may explain some of the lack of adverse employment effects that is commonly found in the minimum wage literature on China.
Compliance with Legal Minimum Wages in China
T.H. Gindling
(University of Maryland Baltimore County)
Shi Li
(Beijing Normal University)
Linxiang Ye
(Nanjing University)
[View Abstract]
In this paper we use matched firm-employee data on over 500,000 workers to examine whether firms comply with legal minimum wages and other pay regulations in China. We find evidence that there is broad compliance with minimum wages in China in that very few full-time workers earn less than the monthly minimum wage. Specifically, we estimate that fewer than 3.5% of full-time workers in China earn less than the monthly minimum wage, compared to 20-45 percent of workers that published studies report earn less than the legal minimum wage in many other developing economies. Despite widespread compliance with monthly legal minimum wages, we present evidence that few workers are likely to see their wages or employment change when minimum wages increase. This is because the minimum wage is below the market wage for almost all of the workers in our sample. While most full-time workers are paid more than the legal monthly minimum wage, many workers are not paid the legally-mandated minimum for overtime hours. Specifically, we find that over 29% of the workers in our sample who work more than 40 hours per week are paid nothing for the additional hours of work. Of those who are paid, most are not paid the legal minimum; over 40% of the employees in our sample who work overtime are paid less than 1.5 times the legal minimum wage for these hours of overtime work. Since 41% of workers in our sample work more than 40 hours per week, this implies that firms do not pay the legally-mandated minimum wage for overtime to 17% of all workers. Firms likely to violate overtime pay laws are disproportionately export-oriented, domestically-owned private sector firms, firms with owners from Hong Kong, Taiwan and Macao, and firms located in
Minimum Wages and Employment in China
Tony Fang
(Monash University, University of Toronto, and IZA)
Carl Lin
(Beijing Normal University and IZA)
[View Abstract]
[Download Preview] Since China promulgated the new minimum wage regulations in 2004, the frequency and magnitude of changes in the minimum wage have been substantial. This paper uses the county-level minimum wage data combined with a longitudinal household survey data from 16 representative provinces as a merged county-level panel to estimate the employment effects of minimum wage changes in China over the 2002-2009 period. In contrast to the mixed results reported by previous studies using provincial-level data, we have presented evidence that minimum wage changes had led to significant adverse effects on employment in the Eastern and Central regions of China, and had resulted in disemployment for females, young adults, and low-skilled workers.
Keywords: Minimum Wage, China, Employment
JEL Classifications: J38
Impact of Minimum Wage on Gender Wage Differentials in Urban China
Xinxin Ma
(Kyoto University)
Shi Li
(Beijing Normal University)
[View Abstract]
The minimum wage (MW) system has been in effect in China since 1993. Using Chinese Household Income Project (CHIP) 1995, 2002, and 2007, we provide evidence on whether MW has had an impact on the gender wage differentials in urban China. Several major conclusions emerge. First, the spike phenomenon pointed out in previous researches was not found in either the male or female group. Second, from 1995 to 2007, the proportion of workers whose wages were below the regional MW level was higher for female than male workers. Third, a regional disparity exists in terms of MW level, and the gender wage differentials differ by regional groups. The gender wage differential was found to be highest in the regions having the highest MW level and lowest in middle-level MW regions. Therefore, variations are demonstrated in the limited narrowing of the overall gender wage differentials across regions. Fourth, factors influencing the gender wage differentials were examined. The estimation results obtained using the Oaxaca-Blinder decomposition method reveal that the effects of appraising the MW level and Kaitz Index are higher than the effect of gender distribution differentials across regions with different MW levels and Kaitz Index values. Fifth, regional differentials of the MW levels and gender wage variations provide a quasi-natural experiment with which to measure the effect of MW on gender wage differentials. The estimation results obtained using the difference-in-differences estimation method show that from a long-term perspective, the MW will help to reduce gender wage differentials and the effect is more obvious for the low-wage group. However, in the short-term, the amelioration effect is not obvious.
Discussants:
Richard B. Freeman
(Harvard University and NBER)
William Wascher
(Federal Reserve Board)
Joseph J. Sabia
(San Diego State University)
Zhong Zhao
(Renmin University of China)
Jan 04, 2015 8:00 am, Sheraton Boston, Beacon H
Econometric Society
Econometric Theory
(C2)
Presiding:
Victor Chernozhukov
(Massachusetts Institute of Technology)
Wald Tests When Restrictions are Locally Singular
Eric Renault
(Brown University)
[View Abstract]
This paper provides an exhaustive characterization of the asymptotic properties of the standard Wald test statistic for testing restrictions given by polynomial functions (or restrictions asymptotically equivalent to polynomial) when the vector of parameter estimators converges at some rate in law to a nondegenerate distribution and the variance matrix estimator converges to a limit matrix. With possible singularity, in addition to the well-known finite sample non-invariance there is also asymptotic non-invariance (non-pivotalness), the test may either under-reject or over-reject for the standard critical values and may even diverge under the null (not for a single restriction, but for two or more). All these situations are possible in testing restrictions proposed in the literature for examining specification of ARMA models, for causality at different horizons, for determinants arising e.g. in models of covolatility and many other situations when singularity in the restrictions cannot be excluded. We demonstrate that the limit distribution (and its very existence) can be characterized via evaluating various determinants defined by the restrictions. This characterization provides the possibility to adaptively identify the limit distribution from the estimators; we describe the algorithm that accomplishes this identification and permits to consistently estimate the correct asymptotic critical value. We also characterize and adaptively identify bounds on the distribution and on the asymptotic critical values.
Inference for Projections of Identified Sets
Hiroaki Kaido
(Boston University)
Francesca Molinari
(Cornell University)
Joerg Stoye
(Cornell University)
[View Abstract]
We provide confidence regions for projections of identified sets that are not projections of confidence regions. The motivation for considering projections is that one is frequently interested in (i) constructing separate confidence regions for components of a partially identified vector, akin to the confidence regions standardly reported win multiple linear regression, or (ii) in testing simple linear hypotheses with regard to components of a partially identified vector. The motivation for not projecting confidence regions for the identified set – of which there are many that work under rather general conditions) – is that such projection is conservative. The conservatism will be severe in high-dimensional problems.
In a framework of extremum estimation with set-valued argmin, our proposal is to report the projection of a k-level set of the sample criterion function, where k is chosen to achieve the desired coverage. In the salient special case of moment inequalities, this boils down to relaxing all moment inequalities by some amount c and reporting the projection of the set defined by the relaxed inequalities. The correct choice of k or c depends on the local geometry of the identified set around its support sets in the relevant directions, i.e. around the (not necessarily unique) elements of the set that correspond to extrema of the projection. Thus, the value will be different for one and the same d.g.p but different directions of projection. A difficulty is that certain aspects of this local geometry cannot be pre-estimated with sufficient accuracy for the pre-estimation step to be ignorable. To achieve coverage that is uniform over certain interesting classes of d.g.p.’s, as well as directions of projection, we therefore resort to locally conservative distortion of this geometry.
ASYMPTOTICS FOR MAXIMUM SCORE METHOD UNDER GENERAL CONDITIONS
Taisuke Otsu
(London School of Economics)
Myung Hwan Seo
(London School of Economics)
[View Abstract]
[Download Preview] Since Manski’s (1975) seminal work, the maximum score method for discrete choice models has been applied to various econometric problems. Kim and Pollard (1990) established the cube root asymptotics for the maximum score estimator. Since then, however, econometricians posed several open questions and conjectures in the course of generalizing the maximum score approach, such as (a) asymptotic distribution of the conditional maximum score estimator for a panel data dynamic discrete choice model (Honor ́e and Kyriazidou, 2000), (b) convergence rate of the modified maximum score estimator for an identified set of parameters of a binary choice model with an interval regressor (Manski and Tamer, 2002), and (c) asymptotic distribution of the conventional maximum score estimator under dependent observations. To address these questions, this article extends the cube root asymptotics into four directions to allow (i) criterions drifting with the sample size typically due to a bandwidth sequence, (ii) partially identified parameters of interest, (iii) weakly dependent observations, and/or (iv) nuisance parameters with possibly increasing dimension. For dependent empirical processes that characterize criterions inducing cube root phenomena, maximal inequalities are established to derive the convergence rates and limit laws of the M-estimators. This limit theory is applied not only to address the open questions listed above but also to develop a new econometric method, the random coecient maximum score. Furthermore, our limit theory is applied to address other open questions in econometrics and statistics, such as (d) convergence rate of the minimum volume predictive region (Polonik and Yao, 2000), (e) asymptotic distribution of the least median of squares estimator under dependent observations, (f) asymptotic distribution of the nonparametric monotone density estimator under dependent observations, and (g) asymptotic distribution of the mode regression and related estimators containing bandwidths.
Minimum Integrated Distance Estimation in Simultaneous Equation Models
Zhengyuan Gao
(Université Catholique de Louvain)
Antonio Galvao
(University of Iowa)
[View Abstract]
[Download Preview] This paper considers estimation and inference in semiparametric econometric models. Standard procedures estimate the model based on an independence restriction that induces a minimum distance between a joint cumulative distribution function and the product of the marginal cumulative distribution functions. This paper develops a new estimator which generalizes estimation by allowing endogeneity of the weighting measure and estimating the optimal measure nonparametrically. The optimality corresponds to the minimum of the integrated distance. To accomplish this aim we use Kantorovich's formulation of the optimal transportation problem. The minimizing distance is equivalent to the total variation distance and thus characterizes finer topological structures of the distributions. The estimation also provides greater generality by dealing with probability measures on compact metric spaces without assuming existence of densities. Asymptotic statistics of the empirical estimates have standard convergent results and are available for different statistical analyses. In addition, we provide a tractable implementation for computing the estimator in practice.
Jan 04, 2015 8:00 am, Sheraton Boston, Beacon G
Econometric Society
Instrumental Variables and Control Function Methods
(C1)
Presiding:
Alberto Abadie
(Harvard University)
Conditional Linear Combination Tests for Weakly Identified Models
Isaiah Andrews
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We introduce the class of conditional linear combination tests, which reject null hypotheses concerning model parameters when a data-dependent convex combination of two identification-robust statistics is large. These tests control size under weak identification and have a number of optimality properties in a conditional testing problem. We show that the conditional likelihood ratio test of Moreira (2003) is a conditional linear combination test, and that the class of conditional linear combination tests is equivalent to a class of quasi-conditional likelihood ratio tests. We suggest using minimax regret conditional linear combination tests and propose a computationally tractable class of tests that plug in an estimator for a nuisance parameter. These plug-in tests perform well in simulation and have optimal power in many strongly identified models, thus allowing powerful identification-robust inference in a wide range of linear and non-linear models without sacrificing efficiency if identification is strong.
Integrated Likelihood Approach to Inference with Many Instruments
Michal Kolesár
(Princeton University)
[View Abstract]
I analyze a Gaussian linear instrumental variables model with a single endogenous regressor in which the number of instruments is large. I use an invariance property of the model and a Bernstein-von Mises type argument to construct an integrated likelihood which by design yields inference procedures that are valid under many instrument asymptotics and are asymptotically optimal under rotation invariance. I establish that this integrated likelihood coincides with the random-effects likelihood of Chamberlain and Imbens (2004), and that the maximum likelihood estimator of the parameter of interest coincides with the limited information maximum likelihood (liml) estimator. Building on these results, I then relax the basic setup along two dimensions. First, I drop the assumption of Gaussianity. In this case, liml is no longer optimal, and I derive a new, more efficient estimator based on a minimum distance objective function that imposes a rank restriction on the matrix of second moments of the reduced-form coefficients. Second, I consider minimum distance estimation without imposing the rank restriction and I show that the resulting estimator corresponds to a version of the bias-corrected two-stage least squares estimator.
Individual Heterogeneity, Nonlinear Budget Sets, and Taxable Income
Whitney Newey
(Massachusetts Institute of Technology)
[View Abstract]
Given the key role of the taxable income elasticity in designing an optimal tax system there are many studies attempting to estimate this elasticity. To account for nonlinear taxes these studies either use instrumental variables approaches that are not fully correct, or impose strong functional form assumptions. None allow for general heterogeneity in preferences. In this paper we derive the mean and distribution of taxable income, conditional on a nonlinear budget set, allowing general heterogeneity and optimization errors for the mean. We find an important dimension reduction and use that to develop nonparametric estimation methods. We show how to nonparametrically estimate the conditional mean of taxable income imposing all the restrictions of utility maximization and allowing for measurement errors. We apply this method to Swedish data and estimate for prime age males a significant net of tax elasticity of 0.6 and a significant income elasticity of -0.08.
Included Instruments
Xavier D'Haultfoeuille
(CREST)
Stefan Hoderlein
(Boston College)
Yuya Sasaki
(Johns Hopkins University)
[View Abstract]
This paper studies the identification and estimation of nonseparable models with endogenous regressors but no standard instrument are available. Instead, exogenous regressors that affect both the endogenous regressors and the outcome are available. We show that identification of marginal effects can still be achieved under three condition. The first is a standard control function condition. The second is that the exogenous regressors have an heterogenous effect on the endogenous regressor. The third is a weak separability condition on the effect of the endogenous and exogenous regressors on the outcome. Importantly, this latter condition still allows for nonseparable models, so that our framework can be applied both to continuous and limited dependent outcomes. We develop a semiparametric estimator and study its asymptotic properties. Finally, we apply our framework to gasoline demand. We show that tax rate, a commonly used instrument for gasoline price, has a direct effect on demand.
Jan 04, 2015 8:00 am, Sheraton Boston, Beacon E
Econometric Society
Mechanism Design and Dynamic Contracting
(D8)
Presiding:
Philipp Strack
(University of California at Berkeley)
Impatience versus Incentives
Marcus M. Opp
(University of California-Berkeley)
John Yiran Zhu
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper studies the long-run dynamics of contracts in repeated principal-agent relationships with an impatient agent. Despite the absence of exogenous uncertainty, Pareto-optimal dynamic contracts generically oscillate between favoring the principal and favoring the agent.
Transparency of Outside Options in Bargaining
Ilwoo Hwang
(University of Miami)
Fei Li
(University of North Carolina)
[View Abstract]
[Download Preview] This paper studies the effects of the transparency of an outside option in bilateral bargaining. A seller posts prices to screen a buyer over time, and the buyer may receive an outside option at a random time. We consider two information regimes, one in which the arrival of the outside option is public and one in which the arrival is private. The public arrival of the outside option works as a commitment device that forces the buyer to opt out immediately. The Coase conjecture holds in the unique equilibrium. In contrast, private information about the outside option leads to additional delay and multiplicity. The Coase conjecture fails in some equilibria. The buyer’s preference about transparency is time-inconsistent: Ex ante, she prefers public arrivals, but ex post she prefers not to disclose her outside option if it is private.
Dynamic Noisy Signaling in Discrete Time
Francesc Dilme
(University of Bonn)
[View Abstract]
[Download Preview] We analyze a dynamic noisy-signaling model in discrete time. We fully characterize it by constructing the equilibrium (sender's) payoffs' set for each prior about her type. It exhibits a self-replicating step structure that resembles a devil's staircase. As a consequence, the equilibrium posterior about the type of the sender is highly discontinuous (discontinuous on a dense set) in the initial continuation value of the sender, and the effort put on signaling is highly non-monotone (with infinite peaks and valleys) in such posterior. We argue that similar undesirable properties are likely to be present in other dynamic models, which hints some limitations of the otherwise desirable discrete-time modeling choice. By mapping our model into a reputations model, we show that reputation may be a permanent phenomenon even under imperfect monitoring, and it can be sustained without building-milking reputation phases.
Transparency and Opaqueness: The Optimal Design of Signals
Tymofiy Mylovanov
(University of Pittsburgh)
[View Abstract]
We propose a unified framework that connects signaling theory to the mechanism design approach with informed principal and provide various applications. Earlier approaches by Maskin-Tirole (1990, 1992) and Myerson (1983) have assumed that arbitrary mechanisms can be used as signals, with no design restriction at all. On the other hand, classical signaling games (like Spence’s) take a (typically low-dimensional) set of signals as exogenously given while the possible design of signals is ignored. As a unifying property that bridges the gap between these two extremes, we propose that any finite collection of signals may be composed into a new signal. Our approach yields existence and characterization results that open the door to a broad range of applications.
Jan 04, 2015 8:00 am, Sheraton Boston, Beacon D
Econometric Society
Panel Data
(C1)
Presiding:
Jeffrey Wooldridge
(Michigan State University)
Event Counts and Heterogeneity in Big Data: Sparsity-Based Quantile Estimation for Panel Count Data
Matthew Harding
(Duke University)
Carlos Lamarche
(University of Kentucky)
[View Abstract]
The increased availability of Big Data allows us to track event counts at the individual level for a large number of activities from webclicks and retweets to store visits and purchases. At the same time, the presence of many different subpopulations in a large dataset requires us to pay close attention to individual heterogeneity. In this paper we introduce a new conditional panel quantile model for count data with individual heterogeneity, by constructing continuous variables whose conditional quantiles have a one-to-one relationship with the conditional count response variable. We propose a new $\ell_1$-penalized quantile regression estimator and investigate the conditions under which the slope parameter estimator is asymptotically Gaussian. We investigate the computational challenges in a Big Data setting using a series of Monte Carlo simulations. We present empirical applications to search and choice behavior using detailed individual transaction data.
Instrumental Variable Quantile Regressions in Large Panels with Fixed Effects
Manuel Arellano
(CEMFI)
Martin Weidner
(University College London)
[View Abstract]
This paper studies panel quantile regression models with endogeneity and additive fixed effects. We focus on static panel model where regressors and instruments are not pre-determined. The fixed effect approach causes an incidental parameter bias in the estimates of the parameters of interest, and we characterize this bias under an asymptotic where both panel dimensions become large. We encounter a bias-variance tradeoff when attempting to correct this bias, and we provide bias corrected estimators that balance this tradeoff. The methods used to derive those results are novel, since the existing techniques in the large T panel literature are not applicable here due to the non-smoothness of the sample moment conditions of the quantile model. Once the panel incidental parameter problem is controlled for, then inference on the quantile model with endogeneity is analogous to the cross-sectional case, discussed e.g.~in Chernozhukov and Hansen (2008). As an empirical application we study the effect of age on the test scores of school children, where the outcomes of multiple students in each school are observed, and we control for school specific fixed effects. When controlling for school fixed effects and correcting for the resulting incidental parameter bias one finds that the age effect is decreasing in the quantiles of the test score.
Estimation of Dynamic Panel Data Models with Cross-Sectional Dependence
Valentin Verdier
(Michigan State University)
[View Abstract]
[Download Preview] This paper considers the estimation of dynamic panel data models when data are suspected to exhibit cross-sectional dependence. A new estimator is defined that uses cross-sectional dependence for efficiency while being robust to the misspecification of the form of the cross-sectional dependence. We show that using cross-sectional dependence for estimation is important to obtain an estimator that is more accurate than existing estimators. This new estimator also uses nuisance parameters parsimoniously so that it exhibits good small sample properties even when the number of available moment conditions is large. As an empirical application, we estimate the effect of attending private school on student achievement using a value added model.
Nonparametric Identification in Panels Using Quantiles
Ivan Fernandez-Val
(Boston University)
[View Abstract]
[Download Preview] This paper considers identification and estimation of ceteris paribus effects of continuous regressors in nonseparable panel models with time homogeneity. The effects of interest are derivatives of the average and quantile structural functions of the model. We find that these derivatives are identified with two time periods for ``stayers", i.e. for individuals with the same regressor values in two time periods. We show that the identification results carry over to models that allow location and scale time effects. We propose nonparametric series methods and a weighted bootstrap scheme to estimate and make inference on the identified effects. The bootstrap proposed allows uniform inference for function-valued parameters such as quantile effects over a region of quantiles or regressor values. An empirical application to Engel curve estimation with panel data illustrates the results.
Jan 04, 2015 8:00 am, Sheraton Boston, Beacon F
Econometric Society
Political Constraints and Voter Persuasion
(P1)
Presiding:
Emir Kamenica
(University of Chicago)
Single-Issue Campaigns and Multidimensional Politics
Georgy Egorov
(Northwestern University)
[View Abstract]
In most elections, voters care about several issues, but candidates may have to choose only a few to build their campaign on. The information that voters will get about the politician depends on this choice, and it is therefore a strategic one. In this paper, I study a model of elections where voters care about the candidates' competences (or positions) over two issues, e.g., economy and foreign policy, but each candidate may only credibly signal his competence or announce his position over at most one issue. Voters are assumed to get (weakly) better information if the candidates campaign on the same issue rather than on different ones. I show that the first mover will in equilibrium set the agenda for both himself and the opponent if campaigning on a different issue is uninformative, but otherwise the other candidate may actually be more likely to choose the other issue. The social (voters') welfare is a non-monotone function of the informativeness of different-issue campaigns, but in any case the voters are better off if candidates are free to pick an issue rather than if an issue is set by exogenous events or by voters. If the first mover is able to reconsider his choice if the follower picked a different issue, then politicians who are very competent on both issues will do so. If the decision to move first or second is endogenized, choosing to move first signals incompetence in one of the issues and thus politicians may wait until one has to make a move; however, the one moving first is more likely to be overall more competent and more likely to be elected. The model and these results may help understand endogenous selection of issues in political campaigns and the dynamics of these decisions.
Capital Taxation under Political Constraints
Alexander Wolitzky
(Massachusetts Institute of Technology)
Florian Scheuer
(Stanford University)
[View Abstract]
[Download Preview] This paper studies optimal dynamic tax policy under the threat of political
reform. A policy will be reformed ex post if a large enough political
coalition supports reform; thus, sustainable policies are those that will
continue to attract enough political support in the future. We find that optimal marginal capital taxes are either progressive or U-shaped, so that savings are subsidized for the poor and/or the middle class but are taxed for the rich. U-shaped capital taxes always emerge when the salient reform threat consists of radically redistributing capital and individuals' political behavior is purely determined by economic motives.
Manipulated Electorates and Information Aggregation
Mehmet Ekmekci
(University of Pittsburgh)
Stephan Lauermann
(University of Michigan)
[View Abstract]
We study information aggregation with a biased election organizer who elicits voters at some costs. Voters are symmetric ex-ante and prefer policy "left" in state L and policy "right" in state R, but the organizer prefers policy "right" regardless of the state. Each elicited voter observes a private signal that is imperfectly informative about the unknown state, but does not learn the size of the electorate. In contrast to existing results for large elections, there are equilibria in which information aggregation fails: As the voter elicitation cost disappears, a perfectly informed organizer can ensure that policy "right" is implemented independent of the state by appropriately choosing the number of elicited voters in each state.
Jan 04, 2015 8:00 am, Boston Marriott Copley, Provincetown
Health Economics Research Organization
Contributed Papers in the Economics of Hospitals, Public Insurance, and Medical Expenditures
(I1, I1)
Presiding:
J. Michael Fitzmaurice
(JMF Associates)
Measuring the Hospital Length of Stay/Readmission Cost Trade-off under a Bundled Payment Mechanism
Kathleen Carey
(Boston University)
[View Abstract]
Measuring the Hospital Length of Stay/Readmission Cost Trade-off under a Bundled Payment Mechanism
Heterogeneity in Take-Up of Public Insurance Benefits: The Case of Mental Health
Ezra Golberstein
(University of Minnesota)
Gilbert Gonzales
(University of Minnesota)
Steven C. Hill
(AHRQ)
Samuel H. Zuvekas
(AHRQ)
[View Abstract]
Heterogeneity in Take-up of Public Insurance Benefits: The Case of Mental Health
Estimating the Medical Care Costs of Youth Obesity in the Presence of Proxy Reporting Error
Adam Biener
(Lehigh University)
Chad D. Meyerhoefer
(Lehigh University)
John Cawley
(Cornell University)
[View Abstract]
[Download Preview] This paper is the first to use instrumental variables to estimate the causal impact
of youth obesity on medical care costs in order to address the endogeneity of
weight. It is also the first to correct for bias due to correlation between reporting
error in the endogenous regressor and the instrument. Models are estimated using
restricted-use data on 11-17 year old children from the 2000-2010 Medical Expenditure
Panel Survey, allowing us to instrument for child BMI using the BMI of the
child’s biological mother. To correct for bias due to parental proxy-reporting error
in child BMI, we impute measured BMI from the National Health and Nutrition
Examination Survey. we find that, on average, medical expenditures on overweight
children are $478.21 more relative to healthy weight children and that medical expenditures
on obese children are $1098.23 more relative to healthy weight children.
Girls who are overweight cost $628.39 more per year relative to healthy weight girls
and and girls who are obese cost $1448.94 more relative to healthy weight girls.
These results imply that previous research has underestimated the cost of youth
obesity.
Discussants:
Vivian Ho
(Rice University)
Dhaval M. Dave
(Bentley University)
Nathan Tefft
(Bates College)
Jan 04, 2015 8:00 am, Sheraton Boston, Beacon B
History of Economics Society
Shakespeare and Economics
(B1, A1) (Panel Discussion)
Panel Moderator:
Edd Noell
(Westmont College)
Sarah Skwire
(Liberty Fund)
Shakespeare's Economic Seductions
Frederick Turner
(University of Texas-Dallas)
Use and Time in Shakespeare's Sonnets
Marc Shell
(Harvard University)
Language, Money, Shakespeare
Deirdre N. McCloskey
(University of Illinois-Chicago)
Shakespeare v. the Bourgeoisie
Jan 04, 2015 8:00 am, Boston Marriott Copley, Tremont
International Association for Energy Economists/American Economic Association
North America’s Dynamic and Emerging Economic and Geopolitical Role in Global Energy Markets
(Q4, F6) (Panel Discussion)
Panel Moderator:
Kenneth Medlock III
(Rice University)
Jeffrey Currie
(Goldman Sachs)
Meghan O'Sullivan
(Harvard University)
Duncan Wood
(Woodrow Wilson International Center)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon H
International Banking Economics & Finance Association
Banks, Government Intervention and Deregulation
(G2, E5)
Presiding:
Leonard Nakamura
(Federal Reserve Bank of Philadelphia)
Did Saving Wall Street Really Save Main Street? The Real Effects of TARP on Local Economic Conditions
Allen N. Berger
(University of South Carolina)
Raluca A. Roman
(University of South Carolina)
[View Abstract]
[Download Preview] We investigate whether saving Wall Street through the Troubled Assets Relief Program (TARP) really saved Main Street during the recent financial crisis. Our difference-in-difference analysis suggests that banks’ TARP bailouts were followed by improvements in economic conditions in the local markets in which they operate. TARP statistically and economically significantly increased net job creation and net hiring establishments, and statistically and economically significantly decreased business and personal bankruptcies. The results hold up to a variety of robustness tests, including accounting for endogeneity. These results suggest that giving a lifeline to Wall Street via TARP may have helped save Main Street.
Between Capture and Discretion - The Determinants of Distressed Bank Treatment and Expected Government Support
Magdalena Ignatowski
(Goethe University Frankfurt)
Josef Korte
(Goethe University Frankfurt)
Charlotte Werger
(European University Institute)
[View Abstract]
[Download Preview] In this paper we analyze how sources of political influence relate to the actual regulatory treatment of distressed banks and to the expectation of bank support provided by the government. We assemble a unique dataset connecting U.S. banks' sources of influence (e.g., lobbying expenditures, proximity to legislative committee, prior affiliation with regulatory or government institutions) to bank financial data, actual bank supervisory actions and market-inferred expected government support. Employing this novel data, we cast some light on how regulatory decision making is affected by these sources of influence. Our findings suggest that banks' influence exertion matters for the regulatory treatment of distressed banks as well as for the expectation of support regardless of bank distress. Several conditions increase the effectiveness of sources of influence in actual regulatory treatment: Lobbying activities are more effective with deteriorating capital ratios and with the aid of former politicians; effectiveness of proximity to representatives of legislative committee increases with the amount of campaign contributions from the financial industry. However, there seems to be a limit to the impact of influence when it comes to closure decisions of the most severely distressed banks. Our findings are instructive for understanding the political influence banks can leverage on shaping regulatory decisions, and propose increased attention to the relations between legislators, regulators, and banks.
Banks’ Internal Capital Markets and Deposit Rates
Itzhak Ben-David
(Ohio State University)
Ajay Palvia
(Office of the Comptroller of the Currency)
Chester Spatt
(Carnegie Mellon University)
[View Abstract]
[Download Preview] A common belief is that deposit rates are determined primarily by supply: depositors require higher
deposit rates from risky banks and hence create market discipline. An alternative mechanism is that
market discipline is weak (potentially due to deposit insurance) and that internal demand for funding by
banks determines rates. Using branch-level deposit rate data, we find no evidence for market discipline:
rates are similar across bank capitalization levels. In contrast, banks’ internal capital demand appears to
be a dominant factor in determining deposit rates. We show that banks’ loan growth has a causal effect on
deposit rates: e.g., branches’ rates are correlated with their state-level loan growth in states in which their bank has presence. Our results imply that market discipline is not in effect since deposit rates are
determined by demand, rather than by supply-side forces.
Credit Scoring and Loan Default
Rajdeep Sengupta
(Federal Reserve Bank of Kansas City)
Geetesh Bhardwaj
(SummerHaven Investment Management)
[View Abstract]
This paper introduces a measure of credit score performance that abstracts from the influence of “situational factors.” Using this measure, we study the role and effectiveness of credit scoring that underlied subprime securities during the mortgage boom of 2000-2006. Parametric and nonparametric measures of credit score performance reveal different trends, especially on originations with low credit scores. The paper demonstrates an increasing trend of reliance on credit scoring not only as a measure of credit risk but also as a means to offset other riskier attributes of the origination. This reliance led to deterioration in loan performance even though average credit quality—as measured in terms of credit scores—actually improved over the years.
Discussants:
Stephane Verani
(Federal Reserve Board)
Johan Almenberg
(Swedish Ministry of Finance)
Dmytro Holod
(State University of New York-Stony Brook)
Kasper Roszbach
(Sveriges Riksbank)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Harvard
International Economic & Finance Society
Four Perspectives on International Trade Costs and Their Implications
(F1)
Presiding:
Mario J. Crucini
(Vanderbilt University)
Globalization Boom and Bust: A Study of US Automobile Exports from 1913 to 1940
Mario J. Crucini
(Vanderbilt University)
Hakan Yilmazkuday
(Florida International University)
[View Abstract]
We study the variation in U.S. automobile export quantities and prices from 1913 to 1940 using a newly constructed panel spanning approximately 100 destination markets. Exports rose by a factor of almost 10 during the roaring 1920's only to collapse by a similar factor only between 1928 and 1932. We estimate a model with trade costs, non-homothetic preferences and markups to decompose the variation in this key emerging industry and assess its macroeconomic significance in the boom and bust of the interwar period.
Reassessing Railroads and Growth: Accounting for Transport Network Endogeneity
Scott N. Swisher
(University of Wisconsin)
[View Abstract]
[Download Preview] Motivated by the seminal work of Robert Fogel on U.S. railroads, I reformulate Fogel’s original counterfactual history question on 19th century U.S. economic growth without railroads by treating the transport network as an endogenous equilibrium object. I quantify the effect of the railroad on U.S. growth from its introduction in 1830 to 1861. Specifically, I estimate the output loss in a counterfactual world without the technology to build railroads, but retaining the ability to construct the next-best alternative of canals. My main contribution is to endogenize the counterfactual canal network through a decentralized network formation game played by profit-maximizing transport firms. I perform a similar exercise in a world without canals. My counterfactual differs from Fogel’s in three main ways: I develop a structural model of transport link costs that takes heterogeneity in geography into account to determine the cost of unobserved links, the output distribution is determined in the model as a function of transport costs, and the transport network is endogenized as a stable result of a particular network formation game. I find that railroads and canals are strategic complements, not strategic substitutes. Therefore, the output loss can be quite acute when one or the other is missing from the economy. In the set of Nash stable networks, relative to the factual world, the median value of output is 45 % lower in the canals only counterfactual.
A Transportation Infrastructure Approach to Economic Distance
Christian Hung
(Vanderbilt University)
[View Abstract]
Distance between economic agents enjoys widespread use in several fields of economics. By custom, when more detailed data is lacking, straight-line (or geodesic) distance is often used to approximate the effect of spatial proximity between economic agents. Limited evidence exists, however, to corroborate the validity of this approximation or the conditions under which it ought to be used. Preliminary findings from the United States in the late Antebellum Period (1840-1861) indicate that geodesic distances and transportation costs over probable freight routes correlate positively, but the evidence is mixed, with a large degree of spatial heterogeneity.
Speaking of Trade: Quantifying the Contribution of Multilingualism to Overcome the Language Barriers to Trade
Enrique Martínez-García
(Federal Reserve Bank of Dallas)
María Teresa Martínez-García
(University of Kansas)
Adrienne Mack
(Federal Reserve Bank of Dallas)
[View Abstract]
[Download Preview] There is growing recognition that language affects bilateral trade through multiple channels, as most gravity trade models include a language variable. Previously, the focus has been on common (official or spoken) native language or more gradient measures of linguistic proximity across native languages, all of them showing statistically positive effects on bilateral trade. This paper explores the impact of nonnative languages on trade. We find that the effect of indirect communication through a nonnative language is larger than that of a shared native spoken language. These results suggest evidence of the emergence of regional/global trading languages (lingua franca), which may help reduce the language barriers to trade.
Jan 04, 2015 8:00 am, Sheraton Boston, Riverway
Korea-America Economic Association
Economic Growth and Integration
(O1, O3)
Presiding:
Yongsung Chang
(University of Rochester and Yonsei University)
The Global Diffusion of Ideas
Francisco J. Buera
(Federal Reserve Bank of Chicago)
Ezra Oberfield
(Princeton University)
[View Abstract]
We provide a tractable theory of innovation and diffusion of technologies to explore the role of international trade and foreign direct investment (FDI). We model innovation and diffusion as a process involving the combination of new ideas with insights from other industries or countries. We provide conditions for the equilibrium distribution of productivity in each country to be Frechet, and derive a system of differential equations describing the evolution of the scale parameters of these distributions, i.e., the stock of ideas. In particular, the growth of the stock of ideas in a countries is a weighted sum of the stock of ideas in all countries, where the weights are given by trade and FDI shares. We use this framework to quantify the dynamics gains from trade and FDI.
The Growth Dynamics of Innovation, Diffusion, and the Technology Frontier
Jess Benhabib
(New York University)
Jesse Perla
(University of British Columbia)
Christopher Tonetti
(Stanford University)
[View Abstract]
[Download Preview] The recent literature on idea flows studies technology diffusion in
isolation, in environments without the generation of new ideas. Without new
ideas, growth cannot continue forever if there is a finite technology
frontier. In an economy in which firms choose to innovate, adopt technology,
or keep producing with their existing technology, we study how innovation
and diffusion interact to endogenously determine the productivity
distribution with a finite but expanding frontier. There is a tension in the
determination of the productivity distribution - innovation tends to stretch
the distribution, while diffusion compresses it. Finally, we analyze the
degree to which innovation and technology diffusion at the firm level
contribute to aggregate economic growth and can lead to hysteresis.
Optimal Development Policies with Financial Frictions
Oleg Itskhoki
(Princeton University)
Benjamin Moll
(Princeton University)
[View Abstract]
[Download Preview] We study optimal dynamic Ramsey policies in a standard growth model with financial frictions. For developing countries with low financial wealth, the optimal policy intervention increases labor supply and lowers wages, resulting in higher entrepreneurial profits and faster wealth accumulation. This in turn relaxes borrowing constraints in the future, leading to higher labor productivity and wages. The use of additional policy instruments, such as subsidized credit, may be optimal as well. In the long run, the optimal policy reverses sign. Taking advantage of the tractability of our framework, we extend the model to study its implications for optimal exchange rate and sectoral industrial policies.
Binding Up the Nation's Wounds: An Economic Analysis of the Korean Reunification
Sang Yoon (Tim) Lee
(University of Mannheim)
Yongseok Shin
(Washington University-St. Louis and Federal Reserve Bank of St. Louis)
[View Abstract]
We develop a multi-sector occupational choice model with two-dimensional individual skill heterogeneity. Sectors are different in terms of minimum skill requirements. Individuals are heterogeneous in terms of managerial skill and efficiency units of labor, and decide whether to become a manager or a worker and in which sector. Individual skills are accumulated over the lifecycle according to a stochastic learning-by-doing technology. This lifecycle effect generates non-trivial transition dynamics such as lagged responses of both TFP and labor productivity that were important characteristics of the growth miracles of East Asia and the post-communist transitions of Eastern Europe. We characterize the theoretical model and apply it to the economic integration process that results from a hypothetical reunification of North and South Korea. The model is used to project the transitional dynamics of a unified Korea under various integration scenarios and policy regimes.
Jan 04, 2015 8:00 am, Westin Copley, Great Republic
Labor & Employment Relations Association
Dissecting Job Search: Economic Approaches to Employers Screening Workers and Workers Screening Jobs
(J2)
Presiding:
Paul Osterman
(Massachusetts Institute of Technology)
The Value of Employer Reputation in the Absence of Contract Enforcement: A Randomized Experiment
Alan Benson
(University of Minnesota)
Aaron Sojourner
(University of Minnesota)
Akhmed Umyarov
(University of Minnesota)
[View Abstract]
[Download Preview] In two experiments, we examine the effects of employer reputation in Amazon Mechanical Turk, an online labor market in which employers may decline to pay workers while keeping the work product. In the first experiment, a research assistant who is blinded to reputation performs tasks posted by employers with good, bad, or no online reputations. Results confirm the value of reputation; due to shorter tasks and rarer nonpayment, effective wages among good reputation employers are about 40 percent greater than those for neutral- or bad-reputation employers. In the second experiment, we create multiple employer identities endowed with different exogenously introduced reputations. We find that employers with good reputations attract workers at nearly twice the rate as those with bad reputations with no discernible difference in quality. We interpret these results through the lens of an equilibrium search model in which the threat of a bad reputation deters employers from the abuse of authority even in the absence of contractual protections of workers. The results demonstrate the value of employer reputation systems for workers and employers, and thus for labor market efficiency.
Screening, Monitoring, and Sorting across Occupations
Eliza Forsythe
(W.E. Upjohn Institute for Employment Research)
[View Abstract]
[Download Preview] Why are some occupations subject to wage competition for talent, while others are not? In this paper I explore the relationship between the tasks performed in an occupation and how much the employer values ex ante signals of talent. For occupations in which employers can easily observe a worker's talent on the job, the employer is less willing to pay a premium for high-expected-ability workers, regardless of the productivity of the occupation. I develop a frictionless matching equilibrium in which firms hire from a common pool of workers, and I show that matching is negative assortative between worker expected ability and the observability of talent on the job. In the second part of the paper, I develop an efficiency wage model, and show that occupations that are able to provide better information on worker effort optimally match with higher ability workers and pay higher wages. This mechanism indicates that in a unified labor market, the workers with high expected ability will match with jobs that have high productivity, poor on-the-job learning about worker ability, and strong information about worker effort. Workers with poor ex ante signals about ability become stuck in low-wage occupations, regardless of these workers' actual productivity.
Noncompetes in the US Labor Force
Evan Starr
(University of Illinois-Urbana-Champaign)
Norman Bishara
(University of Michigan)
James J. Prescott
(University of Michigan)
[View Abstract]
As a result of limited empirical evidence and controversial anecdotes, speculation over the ubiquity and importance of covenants not to compete in the U.S. labor market is rampant. Using data from a new survey, we present the first estimates of the overall incidence of noncompetes in the U.S. labor force, and characterize the incidence by worker, firm, and regional characteristics. The data show that noncompetes are a perhaps surprisingly common feature of the labor market. As a lower bound, we estimate that one in four workers have ever signed a noncompete, and 12.3% are currently working under one. Of those with college education or above, one in five are currently subject to a noncompete agreement. The occupations in which noncompetes appear most frequently are engineering (30%) and computer and mathematical occupations (28%), though they are prevalent in typically lower-skilled occupations as well: office support (9%), installation and repair (11\%), production occupations (11%), and personal services (12%). We also find that noncompetes are more likely to be signed in states with higher noncompete enforcement policies. We conclude that while noncompetes are found in the places one would expect, they are nevertheless still prevalent in the low-wage, low-skill occupations. We discuss why firms might choose to use noncompetes, including an analysis of wage-tenure profiles and firm-sponsored training. We relate our findings to our understanding of the labor market and the debate over noncompete enforcement.
Is Credit Status a Good Signal of Productivity?
Andrew Weaver
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Many employers screen new hires by examining the credit reports of job applicants. The practice has sparked debate, with opponents asserting that it amounts to discrimination and proponents maintaining that it is an important tool for employers to assure the quality of new employees. To date, little evidence exists on the validity of credit status as a screening device. The issue is complicated both by the Lack of available data and the difficulty in establishing causality. This paper Uses a unique identification strategy along with credit proxy variables in a national dataset to test whether credit status reveals information about an employee¹s character that is predictive of employee productivity. The paper finds that the character-related portion of credit status is not a significant predictor of worker productivity.
Discussants:
Chris Stanton
(University of Utah)
Colleen Manchester
(University of Minnesota)
Conrad Miller
(Princeton University)
Hye Jin Rho
(Massachusetts Institute of Technology)
Jan 04, 2015 8:00 am, Westin Copley, Courier
Labor & Employment Relations Association
Worker Ownership Policies: Models for Technology, Retirement Security, and the Broader Economy
(J3)
Presiding:
Douglas L. Kruse
(Rutgers University)
Does Cooperation Require Co-Laboring? How Organizational Authority Moderates the Efficient Structure of Project Teams
Trevor Young-Hyman
(University of Wisconsin-Madison)
[View Abstract]
This paper examines how the distribution of authority within organizations impacts the structure and effectiveness of team-based work. In a wide range of contexts, teams are organized to solve complex and uncertain problems, yet we have little understanding of the way that their structure and performance is informed by their organizational context. The distribution of authority has been examined as a determinant of innovative capacity, yet we know little about its influence on teams. I argue that different types of teams function more effectively in the context of different distributions of organizational authority. In particular, teams can be structured to achieve two types of benefits: (a) workers from different occupational groups can work collaboratively to align goals and incentives or (b) different occupational groups can work separately to deepen their task-specific knowledge. I hypothesize that teams in a firm with broadly distributed authority are more likely to yield successful outcomes when occupational groups within the team work separately. I analyze a dataset of projects from two competitors in the custom automated manufacturing equipment industry. While similar in a range of dimensions, one firm is a worker cooperative with broadly distributed authority and the other is a traditional small business with concentrated authority. Results support the hypothesis that task-oriented teams generate more profitable projects in the worker cooperative, while teamwork-oriented teams yield higher profits in the narrowly-held firm. To illuminate the processes behind the relationship between authority and teams, I provide qualitative evidence from fieldwork conducted in the two firms.
ESOPs and Retirement Security
Loren Rodgers
(National Center for Employee Ownership)
[View Abstract]
The debate about the effectiveness of employee ownership as a retirement plan often revolves around portfolio theory. The application of diversification changes dramatically given data showing that ESOP participants have on average, more than twice as much value in their company-sponsored retirement plans than non-ESOP participants. This session examines the actual patterns of income and assets among participants in employee stock ownership plans versus non-ESOP workers using a unique national dataset from the US Department of Labor s Form 5500 administrative. The implications for retirement security are discussed.
Defining Employee Ownership: Four Meanings and Two Models
Christopher Mackin
(Rutgers University)
[View Abstract]
[Download Preview] The field of broad based employee ownership within corporations is situated at the intersection of a broad range of scholarly disciplines. The disciplines of history, economics, law, corporate finance, sociology, political science and management each contribute vocabulary and distinctions that describe the field. This spectrum of inquiry lends a certain ‘ships passing in the night’ quality to discussions of the topic. Rather than attempt to resolve this vocabulary in favor of one discipline, this paper attempts to map the diversity of approaches. Two abstract models are proposed to group specific approaches that are found in the literature. Model 1, Corporation as Property, describes the prevailing conception embraced by scholars across the ideological spectrum. Model 2, Corporation as Social Institution, describes an alternative approach consistent with private property.
Wages vs. Ownership: Which Is More Efficient for the Firm?
Dan Weltmann
(Rutgers University)
[View Abstract]
[Download Preview] Firms may pay higher wages than they need to; as a result, they hire fewer workers than they could, which results in unemployment. And yet, research shows that firms do so because higher wages encourage higher productivity as well as other positive worker behaviors. The increased productivity pays for the higher wages, thus making those higher wages more efficient for the firm. One important aspect of efficiency wages is the type of compensation involved: wages versus ownership. Wages and ownership may motivate workers in different ways, thus leading to different outcomes in employee behaviors and consequently firm performance. Employee ownership as efficiency wages has not been looked at before, and given its potential to affect employee behavior, firm performance, and unemployment it is worth investigating. I use a unique dataset from the National Bureau of Economic Research Shared Capitalism Research project to analyze these issues.
Discussants:
Daphne Berry
(University of Hartford)
Sanjay Pinto
(Columbia University)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Tufts
Middle East Economic Association
Economic Development in MENA Region
(O1)
Presiding:
Mine Cinar
(Loyola University)
Entrepreneurship and Political Stability in the Middle East and North Africa
Frank R. Gunter
(Lehigh University)
[View Abstract]
[Download Preview] Over the last half century, almost a third of all countries have undergone conflicts that involve more than a 1,000 violent deaths in a single year. Among the countries currently experiencing conflict in the Middle East and North Africa (MENA) region are Egypt,
Iraq, Israel, Sudan, Syria, West Bank and Gaza, and Yemen. What are the salient characteristics of the demand and supply for entrepreneurship in these countries? What is the impact of increased entrepreneurship on political instability? And what can be done to encourage entrepreneurship in politically unstable states? Despite the social, political, and economic diversity of this set of nations; it is found that their political instability/conflict has produced similar barriers to entrepreneurship. And these barriers - political instability/conflict, poor governance, regulatory hostility to private business, and widespread corruption - are tightly interwoven and therefore tend to resist a piecemeal approach.
Resource Wealth as an Obstacle to Entrepreneurship? Evidence for the GCC
Nils Otter
(Carinthia University of Applied Sciences)
Andreas Knorr
(German University of Administrative Sciences Speyer)
[View Abstract]
Although the GCC countries have benefited vastly from oil (and gas) reserves, leading to a huge amount of real and financial assets, all of these countries face the challenge that their natural resource wealth will not last forever. Besides that, the endowment of natural resources does not seem to be a reliable and sustainable source of wealth. Already in 2010, a working group of the World Economic Forum raised the following important question: “How can this wealth be put to use to ensure that they overcome the internal and external pressures that could shift them from the path of sustainable prosperity?” And indeed, as shown by the “army of literature” on the so-called resource curse, the windfalls of resource export revenues might lead to severe problems for economic development (see van der Ploeg 2011, JEL, for a recent survey on the topic). Just to name a few, there are studies on the relationship between resource wealth and international competitiveness, slow economic growth, corruption, democracy, public finance etc. (see Corden/Neary 1982; Corden 1984; Gelb, 1988; Auty 1993; Sachs/Warner, 1995; Karl 1997; Torvik, 2002; Sala-i-Martin/Subramanian, 2003; Mehlum/Moene/Torvik, 2006; van der Ploeg/Venables 2010). However, the majority of these papers focus on either the macroeconomic impact of resource richness or the (wrong) institutional settings, which of course play a major role in explaining the “paradox of plenty”. According to our understanding, entrepreneurship and innovative behavior are key determinants of the success in transforming wealth of resources into sustainable prosperity. In accordance with the cited literature above, the proposed paper puts forward the hypothesis that there is a considerable negative effect of primary commodities on the entrepreneurial activity of the economy.
Turning Resource Curse into Resource Blessings: An Institutional Approach in MENA
Shereef Ellaboudy
(Zayed University)
Mahmoud Abdel Baky
(University of Dubai)
[View Abstract]
The natural resource abundance represented a great impediment to economic diversification for some developing countries, including Middle East and North Africa Countries (MENA) for the past 4 decades. This phenomenon known to economist as a “Resource Curse” might happen for many different reasons including resource mismanagement by governments, inefficient institutions or global fluctuations in resource prices, which can greatly affect countries economic growth. Many previous research studies have attempted to empirically prove the presence of resource curse, but have often confused resource abundance with resource dependence which are two different concepts, and that could lead to model misspecification and the wrong conclusion for the economic impact of the resource curse. An example of model misspecification could be attempting to only use panel data analysis or period averages in cross sectional analysis in modelling resource curse. One of the problems with some of the research using single period average or mean growth rate as a dependent variable in cross sectional analysis could be the loss of information as there could only be one observation for each country. On the other hand, panel data analysis can overcome the advantages of country specific analysis.
In this paper, to overcome the shortcoming of the above methodologies, we will attempt to use structural autoregressive (SVAR) model as an advanced time series technique and focus our examination on following three main variables: oil abundance, oil revenues dependency, institutions and per capita growth of MENA countries. The utilization of variance decomposition and impulse-response functions would be very important in understanding the short and long terms institutional implications of natural resources curse phenomenon.
Analyzing the Key Indicators of the National Innovation System of Algeria
Mohammed El Amin Metaiche
(University of Tlemcen)
Abderrezak Benhabib
(University of Tlemcen)
Mohammed Benbouziane
(University of Tlemcen)
Ahmed Smahi
(University of Tlemcen)
[View Abstract]
Innovation is often associated with competitiveness, economic performance and economic growth; it is accepted that Innovation is one of the efficient means to obtain a superior and a stable position in the marketplace. In the last few decades; the literature has shown that the growth in the stock of knowledge has been the most important factor behind the dramatic rise in living standards in countries that show a broad convergence in macroeconomic performance. Countries, also, all around the globe are paying a great attention to Innovation as well as to the whole national innovation system (NIS); While some other countries are still in need to gather their efforts in ways that drive the innovation activities development. Besides; In order to obtain a superior and a stable position in the marketplace; nowadays, firms aim to obtain a competitive advantage through focusing on research and development as well as on innovation which has been theoretically and empirically proved to be one of the best ways to achieve a competitive advantage. Meanwhile; the literature has shown also that both Innovation and research policy have to be linked in order to achieve the planned objectives of any enterprise or industry. Nevertheless, this relationship has been well studied but not well understood. Thereby; it needs more explanation mainly in the Algerian context; which is still in an infant but complex stage, from this viewpoint, This work aims at clarifying the links found between research and Innovation and at highlighting the main characteristics of innovative firms within the Algerian market as well as those of the National Innovation System through emphasizing on the relationship found between the different actors of the National innovation system of Algeria.
Do Product Standards Matter for Margins of Trade? Evidence from Egyptian Firm-Level Data
Hoda El-Enbaby
(Economic Research Forum)
Rana Hendy
(Economic Research Forum)
Chahir Zaki
(Cairo University)
[View Abstract]
[Download Preview] According to World Trade Organization (WTO) standards, countries are allowed to adapt regulations under the Sanitary and Phyto-Sanitary (SPS) and Technical Barriers to Trade (TBT) agreements in order to protect human, animal and plant health as well as environment and human safety. Therefore, using an Egyptian firm-level dataset, we analyze the effects of product standards on two related aspects: first, the probability to export (firm-product extensive margin) and second, the value exported (firm-product intensive margin). We merge this dataset with a new database on specific trade concerns raised in the TBT and SPS committees at the WTO. Our main findings show that SPS measures imposed on Egyptian exporters have a negative impact on the probability of exporting a new product to a new destination. By contrast, the intensive margin of exports is not significantly affected by such measures.
Discussants:
Erhan Aslanoglu
(Piri Reis University)
A. Suut Dogruel
(Marmara University)
Mahdi Majbouri
(Babson College)
Bulent Anil
(Bahcesehir University)
Nathalie Hilmi
(Centre Scientifique de Monaco)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Suffolk
National Association of Forensic Economics
Forensic Economics III
(K2, K2)
Presiding:
Lane Hudgins
(Lane Hudgins Analysis)
History of NAFE
Marc Weinstein
(Team Economics, LLC)
James Rodgers
(Pennsylvania State University)
[View Abstract]
[Download Preview] The National Association of Forensic Economics (“NAFE”) has approximately 650 members across the United States and in other countries. While the association has been an active group at the annual meetings of the Allied Social Science Association and at other regional meetings of economists, the growth of NAFE in terms of longevity and finances has allowed the organization to develop a more professional presence for its academic and practitioner members. This paper will update the original History of NAFE authored by Michael L. Brookshire in the Litigation Economics Review in 2003 which covered the period from NAFE’s inception in 1986 through 2001.
Calculating Lost Earnings: Algebraic vs Spreadsheet Methods
Frank Tinari
(Sobel-Tinari Economics Group, LLC)
[View Abstract]
[Download Preview] Since the early 1980s, economic experts have been using computerized spreadsheets to make their calculations of lost earnings in civil tort cases. The power of computerized data, readily amenable for making calculation changes, has dominated the mode of delivering expert opinions. In this paper, an alternative to the spreadsheet method is presented, based on simple algebraic calculations. The paper explores the strengths and weaknesses of both approaches, and argues for the superiority of the algebraic method, especially in its ability to present clear and simple analysis to plaintiffs, their attorneys and, especially, to the trier of fact.
The Rule of 70 at Trial as a Reference Point
Larry Spizman
(State University of New York-Oswego)
[View Abstract]
[Download Preview] When testifying before a jury economic experts can become bogged down in a quagmire of detail that while accurate does nothing to help the jury understand their results. One such quagmire are different growth rates between experts. It is possible that the only difference between the two experts are the growth rates. The purpose of this note is to provide a device whereby an economic expert can provide insight for the jury to understand the magnitude of the differences between the experts when the only main difference is the growth rates used by the experts.
Discussants:
Steve Shapiro
(New York Institute of Technology)
Rick Gaskins
(Rick Gaskins)
Christopher Young
(Sobel-Tinari Economics Group, LLC)
Jan 04, 2015 8:00 am, Boston Marriott Copley, New Hampshire
National Economic Association
Policy Interventions and Educational Outcomes
(I2)
Presiding:
Marie Mora
(University of Texas-Pan American)
An “A” for Effort: Student Retention and Graduation
Omari Swinton
(Howard University)
[View Abstract]
This paper uses a unique and rich administrative data set to analyze the impact of the introduction of a new grading policy on performance, retention, and graduations rates at Benedict College, a Historically Black College in Columbia, South Carolina. According to the new grading policy, grades for freshman and sophomore courses are determined in part by performance on tests and in part by measures of “effort” such as attendance and class participation. The policy was intended to inspire a sense of discipline in students’ attitudes towards academic work, in the hope of improving learning and graduation rates. This paper will determine the success of the policy change by examining gradation rates, retention rates, and academic performance for cohorts from the Fall 1993 to the Fall of 2008.
Tests, Courses, and High School Quality: Using College Readiness Indicators to Predict College Success
Kalena Cortes
(Texas A&M University)
Sandra Black
(University of Texas-Austin)
Jane Arnold Lincove
(University of Texas-Austin)
[View Abstract]
A vital policy question that higher education policymakers and university admissions officers face is what specific student attributes such as “college-readiness” can explain the variation in college performance and completion. Our study investigates the efficacy and equity of college admissions criteria by estimating the effect of multiple measures of college readiness on freshman college grade point average and four-year graduation with efforts to control for selection into admissions and enrollment. Allowing effects to vary by student and high school characteristics, we find that test-based measures are more predictive of college performance for minorities, low-incomes students, students from low SES high schools, and students from high schools with low college enrollment rates. We simulate changes in college enrollment and outcomes with additional admissions criteria and find that adding SAT/ACT or exit exam criteria to a rank-based admissions policy significantly decreases enrollment among minorities and other groups, while inducing only minimal gains in college GPA and four-year graduation rates.
Household Asset Allocation, Offspring Education, and the Sandwich Generation
Vicki Bogan
(Cornell University)
[View Abstract]
[Download Preview] This paper finds households with children and elderly dependents, the "Sandwich Generation," significantly reduce both college savings and stockholding. Having any elderly dependents decreases the probability of both stockholding and college savings by twice as much as poor personal health. Hence, these results have critical implications as they demonstrate the importance and magnitude of links between the pension system, college financial aid, and wealth accumulation. Elderly dependents limiting parental funds for offspring education can decrease offspring long-term earnings potential via decreased human capital accumulation. Furthermore, decreased stock holdings can decrease long-term wealth accumulation and thus intergenerational wealth transfers.
Walking Hand-in-Hand: Early Life Traumatic Victimization, Race, and Dropping Out
Darrick Hamilton
(New School)
Timothy M. Diette
(Washington and Lee University)
Art Goldsmith
(Washington and Lee University)
William A. Darity, Jr.
(Duke University)
[View Abstract]
This paper advances the literature on schooling and childhood maltreatment in two ways. First, we offer separate estimates of sexual trauma and non-sexual violence trauma, experienced in the home and in the community, as a youth on high school completion for females and for males in the U.S. Second, we examine if the prevalence and the impact of early life trauma on high school graduate is mediated by mothers education, family structure, and racial back ground – factors that may influence resources that can help children better recover from such forms of victimization. Our analysis is conducted using data drawn from two large nationally representative data sets: the National Comorbidity Survey Replication (NCS-R), and the National Survey of American Life (NSAL).
Discussants:
Rodney J. Andrews
(University of Texas-Dallas)
Darrick Hamilton
(New School)
Monica Deza
(University of Texas-Dallas)
Trevon D. Logan
(Ohio State University)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Hyannis
Union for Radical Political Economics/International Association for Feminist Economics
Explorations in Gender and Economic Wellbeing
(I1)
Presiding:
Alicia Girón
(National Autonomous University-Mexico)
Promoting Evidence-Based Policy Making for Gender Equality in Papua New Guinea
Yana Rodgers
(Rutgers University)
Alice Kassens
(Roanoke College)
[View Abstract]
This paper uses the 2009-2010 Household Income and Expenditure Survey (HIES) in Papua New Guinea (PNG) to provide a detailed assessment of gender differences in living standards, human development indicators, and welfare needs across the country. In particular, the study evaluates various demographic, social, economic, and security-related indicators by gender and other sub-groups of the population including those in different income quintiles. The primary objective of this study is to conduct a gender analysis of the HIES on key social, economic, and security-related information, in order to better understand the nature and scope of gender differences across various spheres of society in Papua New Guinea. Key policy-relevant challenges addressed in the study include poverty, export diversification, land tenure, violence against women, and infrastructure access and connectivity across the country. The results will help policy makers, development partners, and civil society groups better understand women's relative and absolute status in Papua New Guinea, and the results will assist in developing targeted programs to promote gender equity.
Females’ Labor Force Participation and Job Opportunities in the Middle East
Ida A. Mirzaie
(Ohio State University)
[View Abstract]
[Download Preview] The Middle Eastern economy suffers from high unemployment, especially among youth. Despite the fact that women comprise over 50 percent of college students in some countries, the unemployment rate among females has been much higher than their male counterparts. Using the available data, this study will compare the socio-economic factors underlying female unemployment in Iran, Egypt and Turkey. The result shows that growth rate per capita income reduces labor force participation (LFP) of women in Iran and Turkey while it has an opposite effect in Egypt. An increase in age dependency ratio decreases LFP of Iranian women but inversely affects LFP of women in Turkey. In Iran’s case, the increase in government spending on development projects has led to an increase in the unemployment rate for women.
Child Underweight and Agricultural Productivity in India – Implications for Public Provisioning and Women’s Agency
Swarna Sadasivam Vepa
(M.S. Swaminathan Research Foundation)
Brinda Viswanath
(Madras School of Economics)
Rohit Parasar
(Leveraging Agriculture for Nutrition in South Asia Project and M. S. Swaminathan Research Foundation)
R.V. Bhavani
(Leveraging Agriculture for Nutrition in South Asia Project and M. S. Swaminathan Research Foundation)
[View Abstract]
[Download Preview] India could achieve a reduction in child mortality rates but failed to achieve a reduction in child underweight and stunting. This study attempts an empirical explanation of the welfare outcome such as fewer underweight children with capitalistic aim of achieving higher land productivity in agriculture and social provisioning aim of better public health across 500 districts in India in 2004. The challenges revolve around understanding the role of agricultural productivity in reducing child under-nutrition in the rural and semi urban areas in which the agricultural production, trade and processing exist. The study excludes 100% urban and metropolitan districts. Public water supply, sanitation and public health influence child health. Women’s agency aspects of literacy, labour force participation and pregnant women’s health status also influence child-underweight. Separate equations estimate Agricultural productivity (worker productivity and land productivity) and Diarrhea in children. The predicted values of the two equations along with women’s agency aspects in the final equation, explain child underweight. A quantile regression analysis helps further understanding. Results highlight a significant association of Agricultural productivity, women’s agency aspects and Diarrhea in children with child underweight at the district level. The conclusions highlight how inequity can hinder larger welfare gains in agricultural worker productivity and how lacunae in social provisioning of public health and pollution of piped water supply in semi urban areas causing Diarrhea hinder child welfare outcomes.
Taming the Corporate Beast
Marianne Hill
(Independent Researcher)
[View Abstract]
[Download Preview] More corporate accountability is a first step towards creating a new kind of corporation that would prioritize the protection of human rights and the environment. We review a broad range of current initiatives, both in the U.S. and elsewhere, some aimed at taming the corporate beast and others aimed at transforming corporates into socially responsible beings, with a new set of values. Only some of these reforms would empower employees, communities and other stakeholders affected by corporate behavior. Those that do are of especial importance – whether they involve structural changes that bring new standpoints to corporate decision-making bodies or new legal requirements, embodied in federal charters or the license to operate.
Given the groundswell of support for radical reforms of corporations (including from professors at leading business schools), there is an opening for changing currently pervasive understandings of the social obligations of business enterprises – to new thinking that can underpin efforts to transform those enterprises. With a deeper understanding of what is possible and how to proceed, progress can be made in democratizing the corporation and creating a socially sustainable economy. We consider the spread of alternative enterprises that is changing thinking about the nature of incentives that motivate entrepreneurs. We look at specific proposals for restructuring large firms, including options for instituting democratic control.
Discussants:
Stephanie Seguino
(University of Vermont)
Ulla Grapard
(Colgate University)
Jan 04, 2015 8:00 am, Boston Marriott Copley, Orleans
Union for Radical Political Economics
Heterodox Perspectives on Piketty
(E1)
Presiding:
Gary Mongiovi
(St. Johns University)
Thomas Piketty and the Search for r
Robert McKee
(Independent Scholar)
[View Abstract]
[Download Preview] Piketty’s book has taken the economics world by storm. Piketty shows compellingly that inequality of wealth and income is inherent in capitalism. And the reason for the rise in the inequality of wealth is a rise in the share of national income going to capital in the form of profits, rent and interest, not from more skilled labour getting higher income than the lower skilled. Moreover, this rising capital share in income is driven mainly by inherited wealth, as it was in the “belle époque” at the turn of the19th century.
However, the unanswered question for Piketty’s thesis is this. Is rising inequality the central contradiction of capitalism and thus its grave digger? Or is it the recurrent periodic crises in production? Is it a tendency for a rising net return on capital (Piketty) or is it the tendency for a falling rate of profit (Marx) that is the key contradiction of capitalism in the 21st century? If it is the former, then all we need to do is to introduce a progressive tax system; we don’t need to bury capitalism, as we can save it. The review considers these questions through an analysis of neoclassical marginalism adopted and yet criticised by Piketty and a comparison of Piketty’s and Marx’s laws of capital using Piketty's own data.
On Piketty’s Capitalism in the Twenty-First Century: Developing the Theory
Frank Thompson
(University of Michigan)
[View Abstract]
[Download Preview] The theoretical arguments in Thomas Piketty’s Capitalism in the Twentifirst Century are barely developed. This paper makes more precise and develops rhe main theoretical argument. I.e., the sense in which Piketty’s so-called Second Fundamental Law of Capitalism, B = s/g , is an equilibrium condition is shown and it is formally proved that it is in fact a condition for a stable equilibrium. Then the different consequences of the rate of profit being smaller than, equal to, and larger than the rate of growth for the distribution of income and wealth are theoretically explored.
A Critical Analysis of the Economics and Politics of Thomas Piketty
Gerard Dumenil
(University of Paris-10)
[View Abstract]
Piketty’s analysis is based on three basic observations: 1) the historical profile β, ratio of assets to national incomes; 2) wealth inequalities; and 3) income inequalities. The historical profile of β is a large U (less pronounced in the US). Piketty explains its historical profile by a “law” linking β to the ratio of the rate of savings to the growth rate: s/g. The rising course of β, was shaken by the triple shock of the two world wars and the Great Depression, but resumed after 1970s. Piketty explains the tendency to the concentration of wealth by the ratio of r, the rate of return on capital to g. No model is presented for the growth of income inequalities (in the UK and the US since 1980), a “political” phenomenon.
The paper imputes most of the break around WWI to an error in the data. Then, the consistency of the two mechanisms above is questioned. A model of accumulation of classical-Marxian inspiration, in which the equality between savings and investments is acknowledged, is substituted. The profile of the most questionable component of wealth in Piketty analysis, namely Other assets – another name for the fixed capital of enterprises—is reproduced and interpreted consistently with our earlier work.
Piketty’s set of observations was very helpful in the conduct of our previous research, in relation to our analyses of “managerial capitalism” – in which three classes are distinguished. For Piketty’s “shocks” affecting basic tendencies of capitalism, we substitute the gradual transformation of relations of production and the succession of social orders (such as the postwar compromise or neoliberalism). This alternative framework is illuminating concerning income inequalities in neoliberalism, emphasizing a strong managerial hierarchy, in sharp contrast with the much more egalitarian pattern observed during the first postwar decades.
Piketty and Marginal Productivity Theory: A Superficial Application of a Very Bad Theory
Fred Moseley
(Mount Holyoke College)
[View Abstract]
[Download Preview] Piketty uses the marginal productivity theory of distribution to explain the increase in the profit share in the US economy in recent decades. It is argued in this paper that applied marginal productivity theory is based on very unrealistic assumptions (perfect competition, infinitely variable proportions of capital and labor, no intermediate inputs, constant returns to scale, constant elasticity of substitution, neutral technological change) and as a result cannot be used to explain the trend of income shares in the real capitalist economy. Furthermore, there are additional problems with Piketty’s particular application of marginal productivity theory. Piketty’s definitions and estimates of capital (includes housing) and the rental rate of capital (net rather than gross) are not the same as in marginal productivity. And Piketty misrepresents the conclusion of the empirical literature on the elasticity of substitution, which is a key variable in his explanation of the increase of the profit share. Thus Piketty’s use of marginal productivity theory is a flawed application of a very unrealistic theory. A much stronger alternative theory of the increasing profit share is presented – that this increase is due primarily to the fact that since the 1970s the average real wage of non-supervisory workers has not increased at all, while the productivity of these workers has almost doubled
Discussants:
Gary Mongiovi
(St. Johns University)
Mehrene Larudee
(Al Quds Bard College-Palestine)
Jan 04, 2015 10:15 am, Westin Copley, St. George D
Agricultural & Applied Economics Association
Heterogeneity and Trade: Applications to the Food and Agricultural Sector
(Q1)
Presiding:
Terry Roe
(University of Minnesota)
Asia-Pacific Integration with China versus the United States: Examining Trade Patterns under Heterogeneous Agricultural Sectors
Kari Heerman
(USDA Economic Research Service)
Shawn Arita
(USDA Economic Research Service)
Gopinath Munisamy
(USDA Economic Research Service)
[View Abstract]
[Download Preview] This article compares the effects on global agricultural trade patterns of Asia-Pacific regional economic integration led by the United States versus that by China. Our analysis
employs a Eaton-Kortum type model in which agricultural producers have access to technology with heterogeneous productivity. Unlike the standard Eaton-Kortum model, product specific-productivity is linked to a country’s land and climate characteristics and trade costs are product-specific. We derive a structural relationship between the probability a country has comparative advantage in a given export market for an individual agricultural product and the bilateral costs of trading that product controlling for the product-specific unit costs of production from a general equilibrium framework. We specify the relationship as a random coefficients logit model to estimate a country-specific distribution of trade costs and productivity across agricultural products. We use these estimated distributions to explore the set of bilateral relationships from which Asia-Pacific integration is likely to generate the largest shifts in agricultural trade patterns.
Import Penetration, Intermediate Inputs and Firms’ Productivity in the EU Food Industry
Alessandro Olper
(University of Milano)
Danielle Curzi
(University of Milano)
Valentina Raimondi
(University of Milano)
[View Abstract]
[Download Preview] The aim of this contribution is to study empirically the effect of trade liberalization on productivity growth exploiting a large micro-dataset of more than 20,000 French and Italian food firms, over the 2004-2012 period. This relationship has been studied focusing on import penetration at both industry and upstream sectors level, to investigate the role played by imports in intermediate inputs. Main findings show that import penetration in both final products and intermediate inputs systematically contributed to firm-level productivity growth. Yet, the productivity growth effect induced by import penetration in upstream sectors is 10 times higher than the one at the industry level. Horizontal import competition coming from the EU15 and OECD countries exerts the strongest effect on productivity growth. By contrast, when vertical import penetration is considered, also sourcing intermediate inputs from emerging markets appears important for firms’ productivity growth. Finally, we also find a strong confirmation that the effects of import penetration are increasing with the initial level of firms’ productivity. All these stylized facts may have interesting policy implications.
Food Processing Firms, Input Quality Upgrading and Trade
Eric Tseng
(Ohio State University)
Ian Sheldon
(Ohio State University)
[View Abstract]
[Download Preview] This paper extends the heterogeneous firms and trade literature by integrating quality of inputs and outputs in a food and agricultural setting. Recently, Sexton (2013) has suggested that intermediate input quality is important in food processing firms’ output quality and pricing decisions. The results in this paper indicate that labor quality cannot be ignored in analyzing the production decision-making of firms. Labor quality is integrated into the model in two ways: first, it affects the production of the final good, in that higher quality labor lowers the marginal cost of producing the final good. Additionally, labor quality is endogenously chosen in the quality choice of the final good, alongside intermediate input quality. By choosing these elements, firms become differentiated on a vertical (quality) level not only because of their productivity draw and input quality choice, but also because of their labor quality choice. Understanding the mechanics behind firms’ quality choices sheds light on how food processing firms make their production choices and how increased international economic integration affects those choices.
Discussants:
Ivan Kandilov
(North Carolina State University)
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 208
American Economic Association
Behavioral Economics in the Classroom
(A2)
Presiding:
Brigitte C. Madrian
(Harvard University)
Principles of (Behavioral) Economics
David Laibson
(Harvard University)
John List
(University of Chicago)
N/A
Teaching a Behavioral Economics Elective: Highlighting the Evolution of Research in Economics
Ted O'Donoghue
(Cornell University)
N/A
Behavioral Economics and Policy 102: Beyond the Nudge
Saurabh Bhargava
(Carnegie Mellon University)
George Loewenstein
(Carnegie Mellon University)
[Download Preview] N/A
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 209
American Economic Association
Credit Cards
(G2, D1)
Presiding:
Victor Stango
(University of California-Davis)
Are Young Borrowers Bad Borrowers? Evidence from the Credit Card Act of 2009
Peter Debbaut
(Federal Reserve Bank of Richmond)
Andra Ghent
(Arizona State University)
Marianna Kudlyak
(Federal Reserve Bank of Richmond)
[View Abstract]
[Download Preview] Young borrowers are the least experienced financially and, conventionally, thought to be most prone to financial problems. Our results challenge the notion that young borrowers are bad credit card users. We first show that the CARD Act of 2009 succeeded in its aim of reducing young borrowers' access to credit. We then exploit the Act to identify what types of individuals get a credit card before age 21. Early entrants default less and are more likely to get a mortgage early. Early entrants also have more affluent parents and parents that default less.
Sticking to Your Plan: Hyperbolic Discounting and Credit Card Debt Paydown
Theresa Kuchler
(New York University)
[View Abstract]
Using detailed data from an online service, I analyze the influence of present bias on debt paydown behavior. Each user's sensitivity of consumption spending to paycheck receipt proxies for his short-run impatience. To distinguish between consumers who are aware (sophisticated) and unaware (naive) of their future impatience, I exploit that this sensitivity varies with available resources for sophisticated agents only. Consistent with present bias, planned paydown is significantly more predictive of actual paydown for sophisticated agents than naive agents and higher measured impatience reduces paydown for sophisticated agents only. The findings are inconsistent with several alternative explanations, including credit constraints.
Dynamic Pricing of Credit Cards and the Effect of Regulation
Robert M. Hunt
(Federal Reserve Bank of Philadelphia)
Konstantinos Serfes
(Drexel University)
Suting Hong
(Wabash College)
[View Abstract]
[Download Preview] We construct a parsimonious two period model of revolving credit with asymmetric information and adverse selection. Lenders are able to exploit an informational advantage with respect to their own customers and these prospective rents induce lenders to compete to attract customers in the first period. Accounts are repriced in the second period, depending on shocks to credit supply and changes in the apparent credit quality of the consumer. We derive a variety of comparative static exercises to illustrate the informational advantage the current lender enjoys relative to its competitors and the (nearly) general equilibrium effect of limiting repricing options via regulations similar to the ones imposed under the CARD Act. The model can be used to generate welfare results for such regulatory changes as well as to derive a set of identification restrictions that can be used in empirical research on the effects of the CARD Act.
Regulating Consumer Financial Products: Evidence from Credit Cards
Sumit Agarwal
(National University of Singapore)
Souphala Chomsisengphet
(Office of the Comptroller of the Currency)
Neale Mahoney
(University of Chicago)
Johannes Stroebel
(New York University)
[View Abstract]
[Download Preview] We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act. We use a panel data set covering 160 million credit card accounts and a difference-in-differences research design that compares changes in outcomes over time for consumer credit cards, which were subject to the regulations, to changes for small business credit cards, which the law did not cover. We estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1.6% of average daily balances, with a decline of more than 5.3% for consumers with FICO scores below 660. We find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit. Taken together, we estimate that the CARD Act saved consumers $11.9 billion per year. We also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments. We detect a small increase in the share of accounts making the 36-month payment value but no evidence of a change in overall payments.
Discussants:
Brian Bucks
(Consumer Financial Protection Bureau)
Jeremy Tobacman
(University of Pennsylvania)
Daniel Grodzicki
(Pennsylvania State University)
Ricardo Serrano-Padial
(University of Wisconsin-Madison)
Jan 04, 2015 10:15 am, Sheraton Boston, Boston Common
American Economic Association
Credit Constraints and Educational Choices
(I2, O1)
Presiding:
Susan Dynarski
(University of Michigan)
Credit Access and College Enrollment
Alex Solis
(Uppsala University)
[View Abstract]
[Download Preview] Does limited access to credit explain some of the gap in schooling attainment between children from richer and poorer families? I present new evidence on this important question using data from two loan programs for college students in Chile. Both programs offer loans to students who score above a threshold on the national college admission test, providing the basis for a regression discontinuity evaluation design. I find that students who score just above the cutoff have nearly 20 percentage points higher enrollment than students who score just below the cutoff, which represent a 100% increase in the enrollment rate. More importantly, access to the loan program effectively eliminates the family income gradient in enrollment among students with similar test scores. Moreover, access to loans also leads to 20 percentage points higher enrollment rates in the second and third years of college around the cutoff score, representing relative increases of 213% and 446% respectively, and also eliminating the enrollment gap between the richest and poorest income quintiles. These findings suggest that differential access to credit is an important factor behind the intergenerational transmission of education and income.
University Choice: The Role of Expected Earnings, Non-Pecuniary Outcomes and Financial Constraints
Adeline Delavande
(University of Essex)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Higher education in developing countries is supplied by institutions that differ substantially in terms of quality, costs, and religious affiliations. This paper analyses students’ university choice, with a focus on the role of expected monetary returns, non-pecuniary factors enjoyed at school, and financial constraints, in the context of urban Pakistan. We combine rich individual-specific data on (i) subjective expectations about labor market outcomes, (ii) subjective expectations about non-pecuniary outcomes, (iii) choice set respecting each student's budget constraint, and (iii) stated school choice both with and without financial constraints. Estimates from a life-cycle model show that future earnings are significant determinants of university choice, but their effect is rather small. However, non-pecuniary school-specific factors -- such as parents' approval and school's ideology -- are major determinants of the choice. Data on students' choices without financial constraints allows for the out-of-sample validation of the model, which shows strikingly good fit. We use the estimated preference parameters to simulate the effects of several policies, including providing access to student loans. We find that functioning credit markets would increase students' average lifetime utility by 21% and cause 37% of the students to switch their institution, indicative of financial constraints playing a major role in university choice in this setting.
Using Observed Choices to Infer Agent's Information: Reconsidering the Importance of Borrowing Constraints, Uncertainty and Preferences in College Attendance
Salvador Navarro
(University of Western Ontario)
[View Abstract]
[Download Preview] I use economic theory and estimates of a semiparametrically identified structural model to analyze the role played by credit constraints, uncertainty and preferences in explaining college attendance. A methodology for inferring information available to the agent from individual choices is proposed and implemented. The test distinguishes which of the unobserved (to the analyst) components of future outcomes are known to the agent and which are unknown to both at a given stage of the life cycle. I use micro data on earnings, schooling and consumption to infer the agent's information set and estimate a model of college choice and consumption under uncertainty with equilibrium borrowing constraints. I estimate that 80% and 44% of the variances of college and high school earnings respectively are predictable by the agent. Moving to a no tuition economy increases college attendance from 48% to 50%. When people are allowed to smooth consumption, college increases to nearly 58%. General equilibrium effects not withstanding, credit constraints have a larger effect than previously suggested.
Credit and Insurance for Human Capital Investment
Alexander Monge-Naranjo
(Federal Reserve Bank of St. Louis)
Lance J. Lochner
(University of Western Ontario)
[View Abstract]
[Download Preview] Recent work by Lochner and Monge-Naranjo (AER, 2011) shows that models with endogenous borrowing constraints can be empirically useful for understanding the observed behavior of human capital, both in the cross-section and over time. Their work, however, abstracts from risk and default, an important limitation, since insurance and incentive problems related may have a dominant role in the behavior of investment given the nature of human capital.
In this paper we explore alternative models for insurance and incentives problems and assess them in terms of the implied behavior for human capital investment, consumption and default. We consider models with exogenously specified market incompleteness as well as models in which imperfect insurance arises endogenously from incentive problems. We derived sharp predictions from stylized versions of standard models in the literature. However, we go also beyond existing literature by considering hybrid models, in which combinations of two or three incentives problems are present. We find that all standard models (with only one incentive problem) produce counterfactual implications for either investment and/or for the behavior of default and consumption. Our preferred models because of their implied credit terms (interest rates), investments and default are (1) limited commitment with exogenously non-contingent repayments and (2) moral hazard combined with costly state verification.
Discussants:
Judith Scott-Clayton
(Columbia University)
Matthew Wiswall
(Arizona State University)
Katja Kaufmann
(University of Bocconi)
Meta Brown
(Federal Reserve Bank of New York)
Jan 04, 2015 10:15 am, Sheraton Boston, Beacon B
American Economic Association
CSMGEP Dissertation Session
(J1, R1)
Presiding:
Mark Hugo Lopez
(Pew Research Center)
The Size of the Central Bank's Balance Sheet: Implications for Capital Formation and the Yield Curve
Juan Medina
(University of Alabama)
Robert Reed
(University of Alabama)
[View Abstract]
The tools used by central banks have evolved considerably in recent years. One important aspect of unconventional policy has been the move of central banks to aggressively purchase longer-term government securities along with expanding the size of its balance sheet. In this paper, we construct a rigorous modeling framework to investigate the impact of such policies. The inclusion of long-term assets and an independent central bank allows us to focus on a Treasury bond purchase program as a monetary policy tool. Outright open market operations through purchases of short-term government securities unambiguously lower yields and promote economic activity. By comparison, long-term asset purchases are only effective if short-term yields are sufficiently low. Should central bankers in countries with high debt loads and high short-term interest rates implement a long-term asset purchase program, it will be ineffective as it would only encourage fiscal authorities to issue more debt. Moreover, we also explain how the transmission channels of monetary policy between unconventional and conventional policies have important consequences for risk-sharing in the economy.
Transportation Networks and the Geographic Concentration of Industry
Dustin Frye
(University of Colorado-Boulder)
[View Abstract]
[Download Preview] This paper examines the effect of expanding transportation networks on changes in industry location. It uses the construction of the interstate highway system to measure how improvements in market access alter industry agglomeration patterns. The paper measures agglomeration in two ways, first by examining the concentration of employment across different industries and looking for evidence of shifts toward fewer industries in a region. The second measure of agglomeration looks for evidence of concentration or the growth of fewer large firms within an industry for several major SIC industry codes. To address the endogenous placement of highways, the paper instruments for eventual highway location using a military map of high priority routes designed after the First World War. State governments managed the spending of federal highway funds. To address the endogeneity surrounding the timing of highway construction, the paper uses an algorithm from network theory to predict the timing of highway construction. The algorithm ranks predicted highway segments based on their importance for network connectivity and uses a simple social planner’s problem to determine the order of predicted segment construction. Results indicate that counties with improved market access, due to the expansion of the interstate highway system, experience a larger fraction of employment working in fewer sectors. Similar specifications examining changes in the concentration of firms within an industry find evidence that for several industries, including manufacturing and agriculture, improved market access disproportionately increases the size of a few firms.
Productivity Gains from Geographic Concentration of Human Capital: Is Specialization or Diversity More Important?
Michaela Patton
(University of Alabama)
Robert Reed
(University of Alabama)
Christopher Cunningham
(Federal Reserve Bank of Atlanta)
[View Abstract]
This paper studies the role of specialization of human capital types for individual productivity. Inspired by Glaeser et al. (Journal of Political Economy, 1992), we aggregate data on formal education from the American Community Survey into “city-human capital type” observations to study the impact of specialization of the local human capital stock. The results indicate that specialization of knowledge can play an important role in promoting productivity. In particular, fields which rely more on creativity and interpersonal exchange such as the liberal arts and languages experience the highest productivity gains from local specialization of knowledge.
The Quality of Time Spent with Children among Mexican Immigrants
Daniel Kidane
(Texas Tech University)
Andres Vargas
(Purdue University)
[View Abstract]
[Download Preview] We examine, from a gender and marital status perspective, the effect of duration of residence in the US on the quality and amount of time Mexican immigrant parents spend with their children. For our estimation, we use the American Time Use Survey from 2003 to 2010 and compare the child care behaviors of Mexican-born parents to those of three separate groups of US natives. We measure the quality of care by the time spent on primary and secondary childcare activities that differ by the degree of involvement of the parent while the activity is undertaken. We further divide primary care into developmental and non-developmental activities according to their influence on the child’s intellectual, physical, and social development. Our estimates indicate that, at the time of arrival married immigrant mothers and non-married fathers spend less time on developmental childcare and more time on secondary care than comparable US natives. We also find that married immigrant fathers spend less time on developmental care than non-Hispanic (NH) whites but the same time as comparable NH blacks and Mexican-Americans. Finally, we find overall evidence that duration of residence improves the childcare behaviors of Mexican immigrants.
Discussants:
Ngina S. Chiteji
(New York University)
Nathaniel Baum-Snow
(Brown University)
James H. Peoples
(University of Wisconsin-Milwaukee)
Joseph P. Price
(Brigham Young University)
Jan 04, 2015 10:15 am, Sheraton Boston, Independence Ballroom East
American Economic Association
Currency Risks: Empirical Facts and Theory Frontiers
(F4, G1)
Presiding:
Riccardo Colacito
(University of North Carolina)
World Asset Markets and the Global Financial Cycle
Silvia Miranda Agrippino
(London Business School)
Helene Rey
(London Business School)
[View Abstract]
[Download Preview] We find that one global factor explains an important part of the variance of a large cross section of returns of risky assets around the world. This global factor can be interpreted as reflecting the time-varying degree of market wide risk aversion and aggregate volatility. Importantly, we show, using a large Bayesian VAR, that US monetary policy is a driver of this global factor in risky asset prices, the term spread and measures of the risk premium. US monetary policy is also a driver of US and European banks leverage, credit growth in the US and abroad and cross-border credit flows. Our large Bayesian VAR allows us to avoid the problem of omitted variables bias and, for the first time, to study in detail the workings of the "global financial cycle", i.e. the interactions between US monetary policy, global financial variables and real activity.
Currency Premia and Global Imbalances
Pasquale Della Corte
(Imperial College London)
Steven Riddiough
(University of Warwick)
Lucio Sarno
(Cass Business School)
[View Abstract]
[Download Preview] We show that a global imbalance risk factor that captures the spread in countries' external
imbalances and their propensity to issue external liabilities in foreign currency explains the
cross-sectional variation in currency excess returns. The economic intuition is simple: net
debtor countries offer a currency risk premium to compensate investors willing to finance
negative external imbalances because their currencies depreciate in bad times. This mechanism
is consistent with recent exchange rate theory based on capital flows in imperfect financial
markets. We also find that the global imbalance factor is priced in the cross sections of other
major asset markets.
Forward and Spot Exchange Rates in a Multi-Country World
Tarek Hassan
(University of Chicago)
Rui Mano
(International Monetary Fund)
[View Abstract]
[Download Preview] We decompose violations of uncovered interest parity into a cross-currency, a between-time-and-currency,
and a cross-time component. We show that most of the systematic violations are in the cross-currency
dimension. By contrast, we find no statistically reliable evidence that currency risk premia respond
to deviations of forward premia from their time- and currency-specific mean. These results imply that
the forward premium puzzle (FPP) and the carry-trade anomaly are separate phenomena that may
require separate explanations. The carry trade is driven by static differences in interest rates across
currencies, whereas the FPP appears to be driven primarily by cross-time variation in all currency
risk premia against the US dollar. Models that feature two symmetric countries thus cannot explain
either of the two phenomena. Once we make the appropriate econometric adjustments we also cannot
reject the hypothesis that the elasticity of risk premia with respect to forward premia in all three dimensions
is smaller than one. As a result, currency risk premia need not be correlated with expected changes
in exchange rates.
Currency Risk Factors in a Recursive Multi-Country Economy
Riccardo Colacito
(University of North Carolina)
Mariano Massimiliano Croce
(University of North Carolina)
Federico Gavazzoni
(INSEAD)
Robert Ready
(Rochester University)
[View Abstract]
[Download Preview] We study a risk-sharing model featuring multiple countries with recursive preferences defined over bundles of consumption goods whose supply is subject to both global and local short- and long-run shocks. First, we quantify the extent of contagion and insurance possibilities as we vary the number of countries in the economy.
Second, we introduce persistent heterogeneous exposure to global long-run news shocks and analyze the properties of several carry trade strategies in the context of our model (Lustig et al. 2011 HML-FX, and Della Corte et al. (2013) HML-NA). The average excess returns of these strategies can be rationalized in a recursive risk-sharing scheme with long-run global shocks to output growth.
Discussants:
Refet Gurkaynak
(Bilkent University)
Matteo Maggiori
(Harvard University)
Karen Lewis
(University of Pennsylvania)
Pierre-Olivier Gourinchas
(University of California-Berkeley)
Jan 04, 2015 10:15 am, Sheraton Boston, Constitution Ballroom A
American Economic Association
Experiments with Firms in Developing Countries
(L1, M1)
Presiding:
Dean Karlan
(Yale University)
Saving Constraints, Reputation, and Market Interlinkages: Evidence from the Kenya Dairy Industry
Lorenzo Casaburi
(Stanford University)
Rocco Macchiavello
(University of Warwick)
TBD
Ex Post (In) Efficient Negotiation and Breakdown of Trade
Rajkamal Iyer
(Massachusetts Institute of Technology)
Antoinette Schoar
(Massachusetts Institute of Technology)
TBD
Constraints to Growth for Small and Medium Enterprise in the Philippines: Qualitative Evidence from a Business School Student Engagement Class
Dean Karlan
(Yale University)
Greg Fischer
(London School of Economics)
TBD
Trust and Productivity: Evidence from Line-Level Production Data
Robert Akerlof
(University of Warwick)
Rocco Macchiavello
(University of Warwick)
Andreas Menzel
(University of Warwick)
Christopher Woodruff
(University of Warwick)
TBD
Jan 04, 2015 10:15 am, Sheraton Boston, Constitution Ballroom B
American Economic Association
Fifty Years of Optimal Growth
(O1, N1) (Panel Discussion)
Panel Moderator:
Warren Young
(Bar Ilan University)
Steven Durlauf
(University of Wisconsin)
Growth and Development
Oded Galor
(Brown University)
Growth and Development
M. Ali Khan
(Johns Hopkins University)
Growth and Development
Leonard Mirman
(University of Virginia)
Growth and Development
Paul Romer
(New York University)
Growth and Development
Karl Shell
(Cornell University)
Growth and Development
Stephen Spear
(Carnegie Mellon University)
Growth and Development
Jan 04, 2015 10:15 am, Sheraton Boston, Republic Ballroom Foyer
American Economic Association
Health and Family Economics
(I1) (Poster Session)
Presiding:
Ashley Hodgson
(St Olaf University)
Transfers within the Extended Family: Theory and Evidence from South Africa
Eliane El Badaoui
(Université Paris Ouest Nanterre La Défense)
Olivier Donni
(Université de Cergy-Pontoise)
Financial Protection of a Rural Health Insurance Program in China
Julie Shi
(Harvard University)
[Download Preview] Is Marital Contract Really Just Risk Masquerading as a Promise?
Tarja Viitanen
(University of Otago)
[Download Preview] The Effect of Insurance Enrollment on Maternal and Child Health Care Utilization in Ghana
Gissele Gajate Garrido
(IFPRI)
Clement Ahiadeke
(University of Ghana)
[Download Preview] Clarifying the Correlation of Income, Inequality, and Mortality: A Bayesian Model Averaging Approach
Markus P. A. Schneider
(University of Denver)
Yavuz Yasar
(University of Denver)
[Download Preview] Premarital Investments and Multidimensional Matching
Hanzhe Zhang
(University of Chicago)
[Download Preview] Estimating Returns to Birthweight by Placenta Previa
Shiko Maruyama
(University of Technology-Sydney)
Eskil Heinesen
(Rockwool Foundation Research Unit)
[Download Preview] Work and well-being of informal caregivers in Europe
Doerte Heger
(Rheinisch-Westfalisches Institut fur Wirtschaftsforschung)
[Download Preview] Incentives and Agency Behavior Concerning Economic Benefit and Health Benefit
Yidian Liu
(Central University of Finance and Economics)
Shuainan Du
(Central University of Finance and Economics)
Chen Ding
(Central University of Finance and Economics)
Yali Tang
(Central University of Finance and Economics)
Guanzhi Zhao
(Central University of Finance and Economics)
Decline in Federal Disability Insurance Screening Stringency and Health Insurance Demand
Yue Li
(University of Pittsburgh)
Siying Liu
(University of Pittsburgh)
[Download Preview] Persistence of Dowry in Modern India
Abhilasha Srivastava
(American University)
The Impact of the COBRA Premium Subsidy on the Duration of Unemployment: Evidence from the 2009 American Recovery and Reinvestment Act (ARRA)
Chun-Chieh Hu
(Syracuse University)
Health Care, Productivity Growth, and Convergence in Vietnamese Agriculture
Wendi Sun
(Suffolk University)
Alison Kelly
(Suffolk University)
Distributional Change, Pro-Poor Growth and Convergence: An Application to Non-Income Dimensions
Shatakshee Dhongde
(Georgia Institute of Technology)
Jacques Silber
(Bar-Ilan University)
[Download Preview] Admission and Hospital Choice: Unintended Consequences of a Cost Reduction Policy
Diane Alexander
(Princeton University)
Living Arrangements and Family Formation in Japan
Naoki Takayama
(University of Minnesota)
Why Do Americans Work So Much More than Europeans? The Role of Employer-Sponsored Health Insurance and Uncertain Health Expenses
Kai Zhao
(University of Connecticut)
Zhigang Feng
(University of Illinois-Urbana-Champaign)
[Download Preview] The Effects of Medically Underserved Area Designations on Access to Care
Joseph Benitez
(University of Illinois-Chicago)
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 203
American Economic Association
Industrial Transformation: Policy and Effects
(O1)
Presiding:
Ann Harrison
(University of Pennsylvania)
Industrial Policy and Competition
Philippe Aghion
(Harvard University)
Mathias Dewatripont
(Universite Libre de Bruxelles)
Luosha Du
(University of California-Berkeley)
Ann Harrison
(University of Pennsylvania)
Patrick Legros
(Université Libre de Bruxelles and CEPR)
[View Abstract]
[Download Preview] This paper argues that sectoral policy aimed at targeting production activities to one particular sector, can enhance growth and efficiency if it made competition-friendly. First, we develop a model in which two firms can operate either in the same (higher growth) sector or in different sectors. To escape competition, firms can either innovate vertically or differentiate by choosing a different sector from its competitor. By forcing firms to operate in the same sector, sectoral policy induces them to innovate "vertically" rather than differentiate in order to escape competition with the other firm. The model predicts that sectoral targeting enhances average growth and productivity more when competition is more intense within a sector and when competition is preserved by the policy. In the second part of the paper, we test these predictions using a panel of medium and large Chinese enterprises for the period 1998 through 2007. Our empirical results suggest that if subsidies are allocated to competitive sectors (as measured by the Lerner index) and allocated in such a way as to preserve or increase competition, then the net impacts of subsidies, tax holidays, and tariffs on total factor productivity levels or growth become positive and significant. We address the potential endogeneity of targeting and competition by using variations in targeting across Chinese cities that are exogenous to the individual firm.
Agricultural Productivity and Industrial Transformation: Evidence from Brazil
Paula Bustos
(CREI, Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
Bruno Caprettini
(Universitat Pompeu Fabra)
Jacopo Ponticelli
(University of Chicago)
[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.
Reallocation Effects of Real Exchange Rate Undervaluations
Laura Alfaro
(Harvard Business School)
Alejandro Cunat
(University of Vienna)
Harald Fadinger
(University of Vienna)
[View Abstract]
Recently, there has been renewed interest in the effects of industrial policy on industry performance. In this paper, we provide industry and firm level evidence that undervaluation of the real exchange rate has significantly increased labor productivity in skill intensive manufacturing sectors, while reducing it in labor intensive sectors in a large sample of developing countries in the period 1980-2004; the effect of the same policy on this outcome is instead insignificant in industrialized countries. Simultaneously, undervaluation has increased employment and value added growth disproportionately more in labor-intensive sectors than in skill-intensive ones in all countries. We rationalize this finding in a multi-sector model, where sectors differ in their skill-intensity and tradability and show that undervaluation can reproduce the empirical facts purely through re- allocation of resources between and within sectors, without requiring any learning-by-exporting or other externalities that might justify such a policy intervention.
Africa at a Crossroads
Margaret McMillian
(Tufts University)
Xinshen Diao
(IPRI)
[View Abstract]
The start of the 21st century saw the dawn of a new era in which the economies of Sub-Saharan Africa (SSA) grew as fast or faster than the rest of the world. The first half of this paper describes the structural changes that have accompanied this growth. Using micro data from a variety of sources, we show that this recent growth has been accompanied by a decline in the share of the labor force engaged in agriculture, an increase in the share of labor force employed in services and only a modest increase in the share of the labor force engaged in manufacturing. We conclude this section by showing that these structural changes have been an important source of growth in African economies. The second half of this paper is devoted to explaining the observed structural changes with an emphasis on the types of industrial policies that will be required to stimulate further expansion of the manufacturing sector in African economies. We show that declines in the labor share in agriculture have been more rapid in countries that have experienced more rapid changes in schooling and where commodity price increases have been accompanied by improvements in the quality of governance. Increases in the labor share in manufacturing have been more rapid in countries that have been able to attract foreign direct investment in labor intensive manufacturing. We conclude with a discussion of the role of industrial policy in facilitating additional investment in labor intensive manufacturing.
Discussants:
Fabrice Defever
(University of Nottingham)
Katheryn Russ
(University of California-Davis)
Eric Werker
(Harvard Business School)
Paola Conconi
(Université Libre de Bruxelles)
Jan 04, 2015 10:15 am, Sheraton Boston, Berkeley Room
American Economic Association
Lying, Beliefs and Psychological Games
(C9, D8)
Presiding:
Gary Charness
(University of California-Santa Barbara)
You've Got Mail: A Randomized Field Experiment on Tax Evasion
Kristina Bott
(Norwegian School of Economics)
Bertil Tungodden
(Norwegian School of Economics)
Alexander Cappelen
(Norwegian School of Economics)
Erik Sørensen
(Norwegian School of Economics)
[View Abstract]
[Download Preview] The present paper reports from a field experiment conducted on a unique pool of tax evaders. When filing their tax returns for a fiscal year, tax residents in Norway are legally required to state all their income and wealth. However, based on reports from tax authorities in other countries, the Norwegian Tax Authorities (NTA) established that at least 51% of income earned outside of Norway in 2011 never reappeared on Norwegian tax returns, and around 20 000 tax residents were classified as tax evaders in this fiscal year. In collaboration with NTA, we conducted a nationwide randomized field experiment to study why these people evade taxes, in particular the relative importance of the probability of detection and moral motivation. Shortly after sending the pre-populated tax returns for 2012, the NTA mailed eight different treatment letters randomly to this pool of tax evaders. We find that the sending of a letter significantly increases self-declared income for 2012, in particular if the letter contains a moral argument for paying taxes or a reference to the fact that the tax authorities know that this person has previously misreported. We interpret these findings as showing that both moral motivation and the probability of detection are important motivating factors for tax compliance. We further show that moral motivation mainly works on the intensive margin (increasing the amounts of self-reported income), whereas the probability of detection works also on the extensive margin, increasing the share of individuals self-reporting a positive amount.
Lying, Guilt, and Shame
Paul Smeets
(Maastricht University)
Adam Greenberg
(University of California-San Diego)
Lilia Zhurakhovska
(University of Erlangen-Nurenberg)
[View Abstract]
[Download Preview] An aversion to lying appears to be present in a number of economic contexts, both in the field and the laboratory. This paper tests a model in which preferences for truth-telling arise as a result of shame aversion and guilt aversion. Individuals experience shame if they are perceived by others as dishonest, even when they have only one anonymous interaction. Guilt is based on the desire to avoid taking actions that let down another person's expectations about payoffs. Our experimental test of the model shows that while guilt is a modest motivator for truth-telling, avoiding shame is important. The results generally show that preferences for truth-telling cannot be fully explained by models focused on outcomes or by models using fixed lying costs. Rather, psychological game theory provides fruitful avenues for modeling the decision to lie.
Demanding or Deferring? The Economic Value of Communication with Attitude
Dan Houser
(George Mason University)
Siyu Wang
(George Mason University)
[View Abstract]
[Download Preview] We present and test a formal framework for expressing the idea that taking account of the multiple meanings conveyed by natural language may help economists to better understand the impact of pre-play free-form communication. We model coordination games where each player simultaneously requests others to take a particular action. We assume requests include two independent features: the desired action as well as the request’s “attitude”. We show that, in relation to one-dimensional signals, communication with attitude increases the rate of coordination on actions. We test our model both in Shanghai and Washington D.C. using laboratory implementations of complete information coordination games with pre-play communication. Consistent with our model, we find (i) natural language action requests are made with attitude; (ii) people consider both the requested action and attitude when making action decisions; and (iii) the use of attitude improves coordination. We also find evidence of gender differences. Although males and females recognize and respond to attitude equally well, females are more likely to send more demanding action recommendations than males, while males generally focus more on which action request to send rather than which attitude to use. Our results imply that, when requesting actions of another, it is important to be clear not only about the action but also the attitude with which the request is made. Knowing that transparent attitude can improve economic outcomes can benefit conversational and social media strategies in any social, economic or political environment.
Self-Confidence and Strategic Behavior
Gary Charness
(University of California-Santa Barbara)
Aldo Rustichini
(University of Minnesota)
Jeroen van de Ven
(University of Amsterdam)
[View Abstract]
[Download Preview] We test experimentally an explanation of over and under confidence as motivated by (perhaps unconscious) strategic concerns, and find compelling evidence supporting this hypothesis in the behavior of participants who send and respond to others’ statements of confidence about how well they have scored on an IQ test. In two-player tournaments where the highest score wins, one is likely to enter at equilibrium when he knows that his stated confidence is higher than the other player’s, but very unlikely when the reverse is true. Consistent with this behavior, stated confidence by males is inflated when deterrence is strategically optimal and is instead deflated by males and females when hustling (encouraging entry) is strategically optimal. This behavior is consistent with the equilibrium of the corresponding signaling game. Based on the theory of salient perturbations, we propose a strategic foundation of overconfidence. Since overconfident statements are used in familiar situations in which it is strategically effective, it may also occur in the absence of strategic benefits, provided the environment is similar.
Discussants:
Ragan Petrie
(George Mason University)
Ernesto Reuben
(Columbia University)
Jordi Brandts
(Autonomous University of Barcelona)
Markus Mobius
(Microsoft Research)
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 201
American Economic Association
Machine Learning Methods in Economics and Econometrics
(C1, C8)
Presiding:
Guido W. Imbens
(Stanford University)
Machine Learning and Causality
Susan Athey
(Stanford University)
Guido W. Imbens
(Stanford University)
[View Abstract]
[Download Preview] Machine learning methods have greatly improved the ability to make predictions in settings with large amounts of data, including both large numbers of units as well as large numbers of predictors. However, in many cases researchers are not only interested in predictions, but also in estimating and doing inference for, causal effects. Here we explore the use of machine learning methods for causal effects. Among other things we look at estimating heterogeneous causal effects in randomized experiments with many covariates.
Demand Analysis and Promotional Lift with High Dimensional Data
Patrick Bajari
(Amazon)
Denis Nekipelov
(University of California-Berkeley)
Stephen Ryan
(University of Texas)
[View Abstract]
Traditionally, applied econometricians and marketers have used discrete choice models to estimate demand in differentiated product markets. In this paper, we discuss how recently proposed methods from Machine Learning can be applied to the problem of demand estimation and measuring the returns from promotional lift. We show how to construct an asymptotically normal estimator for a model that pools several common models from the Machine Learning literature. Therefore, we can construct correct confidence intervals for prediction errors. A possible advantage of these alternative methods are first, they can simultaneously estimate demand for a large numbers of products, e.g. many hundreds or thousands. Second, these methods can predict demand using very large number of predicting variables and large data sets. Third, we show that our pool of Machine Learning models displays significantly greater accuracy in out of sample prediction than some commonly used alternative from econometrics. Fourth, given that we can control for a high dimensional vector of independent variables, we can better control for biases in estimating promotional lift.
Instrumental Variables Estimation with Very Many Instruments and Controls
Victor Chernozhukov
(Massachusetts Institute of Technology)
Christian Hansen
(University of Chicago)
[View Abstract]
[Download Preview] We consider estimation of and inference about coefficients on endogenous variables in a linear instrumental variables model where the number of potential instruments and exogenous control variables are both allowed to be much larger than the sample size. To make informative inference possible, we work within an approximately sparse framework that maintains that the signal available in the instruments and control variables may be captured by a relatively small number of the available instruments and controls up to an error that is small relative to the sample size. We show how LASSO-based variable selection methods may be used in this setting to select instruments and controls for use in instrumental variables estimation in a way that allows uniformly valid inference about the coefficients on endogenous variables to be performed following model selection. We illustrate the method through an application to demand estimation.
Policy-Making: Causality and Prediction
Sendhil Mullainathan
(Harvard University)
Jon Kleinberg
(Cornell University)
[View Abstract]
In this paper we illustrate how machine learning techniques can be used in policy. On the surface there appears to be a challenge to doing this. Good policy requires causal inference: knowing whether a policy works requires crisp counterfactuals. In contrast, machine learning techniques emphasize prediction: using large data sets to predict some outcome variable. These predictions, while powerful, suffer from standard causal inference problems--knowing x predicts y often does not tell us that changing x will change y—and so its benefits to policy work may seem limited. We present a simple framework for policy-making that highlights the role of both causal inference and prediction. We show how policy problems combine these two modes, highlighted by two stylized problems: (i) the “rain dance” problem—should you engage in a costly rain dance to produce rain and (ii) the “umbrella” problem—should you pay the cost of taking an umbrella to work. Though both are policy problems—meaning a decision is required—the rain dance problem requires causal inference while the umbrella problem requires prediction. We then enumerate several important policy problems that are umbrella problems and provide some empirical evidence on how machine learning can improve prediction and thereby policy making in these areas.
Discussants:
Matt Taddy
(University of Chicago)
Jan 04, 2015 10:15 am, Sheraton Boston, The Fens
American Economic Association
Macro/International II
(E3, F3)
Presiding:
Anna Mikusheva
(Massachusetts Institute of Technology)
Macroeconomic Uncertainty Indices Based on Nowcast and Forecast Error Distributions
Barbara Rossi
(Universitat Pompeu Fabra)
Tatevik Sekhposyan
(Texas A&M University)
[View Abstract]
We propose new indices to measure macroeconomic uncertainty. The indices measure how unexpected a realization of a representative macroeconomic variable is relative to the unconditional forecast error distribution. We use forecast error distributions based on the nowcasts and forecasts of the Survey of Professional Forecasters. We further compare the new indices with those proposed in the literature and assess their macroeconomic impact.
FOMC Forward Guidance and Investor Beliefs
Arunima Sinha
(Fordham University)
[View Abstract]
Does FOMC forward guidance have an effect on the beliefs of financial market participants? This paper first derives the expectations of investors about changes in the future prices of U.S. Treasuries using option-implied state-price density (SPD) functions for two- and ten-year U.S. Treasury Futures. Changes in the implied conditional moments of the SPD, in response to the issuance of FOMC forward-guidance, as well as changes in its content, are then considered. Several new patterns emerge: (a) only the conditional means of the ten-year yields fall on FOMC statement days; (b) the statements induce a small increase in the implied conditional volatility of the two-year yield and a decrease in the ten-year volatility; (c) the SPDs become more positively-skewed when new information (about the longer accommodative stance of monetary policy) is included in the statements; (d) for 2012, the release of the Survey of Economic Projections does not have an effect of the conditional moments. The empirical analysis concludes that the effects of the FOMC’s forward guidance depend on the yield maturity, and changes in information content are important as they affect the skewness of investor probability distributions. The paper then proposes the extracted conditional volatility series as a measure of the market’s uncertainty about monetary policy at the two- and ten-year horizons: these volatilities are time-varying, and their response to FOMC communications depend on the maturity of Treasury yields. These observations are used to examine the impact of time-varying uncertainty about monetary policy on the economy by constructing a DSGE model with Epstein-Zin preferences. The empirical analysis is used to calibrate the size of the monetary policy uncertainty shock. An increase in uncertainty about monetary policy following a "forward guidance shock" depresses output, inflation and the short- and long-term asset yields. Effects on the nominal term premium are also examined.
A Tale of Two Countries: Sovereign Default, Exchange Rates, and Trade
Grace Gu
(University of California-Santa Cruz)
[View Abstract]
This paper explores the trade and income impacts of sovereign defaults through the real exchange rate channel in a DSGE model of two risk-averse open economies. In the model, as the borrowing country accumulates debt, its default probability mounts, and its real exchange rate deteriorates, which, in turn, worsens the country's balance sheet and increases its default risks. Once the country does default, foreign firms reduce their use of intermediate goods from the default country whose real exchange rate collapses at the same time. This causes the default country's national income to plummet endogenously, rather than through an exogenous output loss. It also predicts that sovereign default triggers trade balance reversal, import to decline, and export to increase (or to decline less than imports does), which is consistent with data. Last, this paper studies the welfare of both defaulter and creditor countries.
Spatial Concentration of Buyer-Seller Matches in International Trade: The Role of Institutions and Infrastructure
Fariha Kamal
(U.S. Census Bureau)
Asha Sundaram
(University of Cape Town)
[View Abstract]
This paper explores the role of institutions and infrastructure in partner countries in shaping the patterns of spatial concentration of foreign suppliers that transact with U.S. importers. We find that the spatial concentration of suppliers within a country for an importer, as measured by a Herfindahl index, is decreasing in the quality of the origin country’s contracting institutions and transport infrastructure. Additionally, we find that spatial concentration of suppliers is smaller for larger U.S. importers. Our findings are consistent with the idea that there might be a greater role for networks among trading firms, that operate within defined geographic boundaries, in surmounting higher costs of matching imposed by weak institutions and infrastructure.
Jan 04, 2015 10:15 am, Sheraton Boston, Commonwealth
American Economic Association
Moral Values and Economic Behavior
(A1, Z1)
Presiding:
Alvin E. Roth
(Stanford University)
Forbidden Fruits: The Political Economy of Science, Religion, and Growth
Roland Benabou
(Princeton University)
Davide Ticchi
(Institute for Advanced Studies-Lucca)
Andrea Vindigni
(Institute for Advanced Studies-Lucca)
[View Abstract]
[Download Preview] To shed light on the workings of the science-religion-politics nexus and its growth and distributional implications, the paper develops a model with three key features: (i) the recurrent arrival of scientific discoveries which, if widely diffused and implemented, generate productivity gains but sometimes also erode existing religious beliefs (a source of utility for some agents) by contradicting important aspects of the doctrine; (ii) a government that can allow such ideas and innovations to spread, or spend resources to censor them and impede their diffusion; (iii) a religious organization or sector (Church or churches) that can, at a cost, undertake an adaptation of the doctrine that renders it more compatible with the new knowledge. The model leads to the emergence of three types of long-term outcomes. The first is a “Secularization” or “Western-European” regime, with declining religiosity, unimpeded scientific progress, a passive Church and high levels of taxes and secular public spending. The second is a “Theocratic” regime with knowledge stagnation, extreme religiosity, a Church that makes no effort to adapt since its beliefs are protected by the state, and also high taxes but now used to subsidize the religious sector. In-between these two is a third, “American” regime, which generally (not always) succeeds in combining unimpeded scientific progress and stable religiosity within a range where the state does not block new discoveries and the religious sector finds it worthwhile to invest in doctrinal repair and adaptation. This regime features lower taxes than the other two, but with positive revenue or tax exemptions allocated to religious activities. We also show that, in this “American” regime, a rise in income inequality can lead the religious rich to form a “religious-right” alliance with the religious poor and start blocking belief-eroding discoveries and ideas.
Combating Vote-Selling: A Field Experiment in the Philippines
Allen Hicken
(University of Michigan)
Stephen Leider
(University of Michigan)
Nico Ravanilla
(University of Michigan)
Dean Yang
(University of Michigan)
[View Abstract]
[Download Preview] We report the results of a field experiment on the effects of two common anti-vote-selling strategies—having voters promise not to take money for their vote, and having them promise to take money, but vote their conscience. The invitation to promise not to vote-sell is taken up by a majority of respondents, reduces vote-selling, and has a larger effect in electoral races with smaller vote-buying payments. This treatment reduces vote-selling in the smallest-stakes election by 10.9 percentage points. Inviting voters to accept votebuying payments, but to nonetheless “vote your conscience”, is significantly less effective. The results are consistent with voters being partially (but not fully) sophisticated about their vote-selling temptation. We demonstrate this with a behavioral model of transactional electoral politics. We model selling one’s vote as a temptation good: it creates positive utility for the future self at the moment of voting, but not for past selves who anticipate the vote-sale. We also allow keeping or breaking promises regarding vote-selling to affect utility. Voters who are at least partially sophisticated about their vote-selling temptation can thus use promises not to vote-sell as a commitment device.
More Money, More Problems? Can High Pay Be Coercive And Repugnant?
Sandro Ambuehl
(Stanford University)
Muriel Niederle
(Stanford University)
Alvin E. Roth
(Stanford University)
[View Abstract]
[Download Preview] Ethical arguments on incentivizing transactions such as living kidney donation and participation in medical trials are often based on the idea that high payments may somehow be coercive. We report the results of a vignette study concerning paid participation in a medical trial. While the majority of respondents do not consider higher incentives less ethical than intermediate ones, a substantial minority of respondents consistently does so. These respondents worry that with high rather than intermediate incentives the participation decision is more likely to cause regret, is less voluntary, and that more prospective participants would be better off if they had never been offered the opportunity to participate. Survey respondent's income, education, and age are predictive of their attitudes. We sketch a model of how observers judge the ethicality of incentivizing such transactions. The model predicts that high payments are judged as unethical only to the extent that they affect the participation decision, and particularly so, the more the prospective participant is asked to give up in exchange for the payment. It also predicts that incentivizing poorer prospective participants is more likely judged as repugnant, and that richer observers are more likely to judge a given transaction as repugnant. Finally, the model predicts that in-kind incentives are judged as less repugnant than monetary incentives, and that paying subjects their opportunity cost from participation is judged as more repugnant than paying the same amount to all prospective participants.
Sacred Values? The Effect of Information on Attitudes toward Payments for Human Organs
Julio J. Elias
(Universidad del CEMA)
Nicola Lacetera
(University of Toronto)
Mario Macis
(Johns Hopkins University)
[View Abstract]
[Download Preview] Many economic transactions are prohibited—even in the absence of health or safety concerns—because of ethical concerns that make these exchanges perceived as repugnant if conducted through a market. Establishing a system of payments for human organs is a particularly relevant example given its implications for public health; in almost all countries, these payments are prohibited because they are considered morally unacceptable—a prohibition that societies seem to accept despite the long waitlists and high death rates for people needing a transplant. We investigate how deeply rooted these attitudes are and, in particular, whether providing information on how a price mechanisms can help alleviate the organ shortage would change people’s opinions about the legalization of these transactions. We conducted a survey experiment with 3,417 subjects in the US and found that providing information did significantly increase support for payments for organs from a baseline of 52% to 72%, and this increase applied to most of the relevant subgroups of the analyzed sample. Additional analyses on the support for other morally controversial activities show that attitude changes in response to information depend on the type of activity under consideration and interactions with other beliefs.
Discussants:
Andrei Shleifer
(Harvard University)
Judd Kessler
(University of Pennsylvania)
Theodore Bergstrom
(University of California-Santa Barbara)
Rodney Garratt
(Federal Reserve Bank of New York)
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 206
American Economic Association
Optimal Persuasion
(D8)
Presiding:
Tymofiy Mylovanov
(University of Pittsburgh)
Stress Tests and Information Disclosure
Itay Goldstein
(University of Pennsylvania)
Yaron Leitner
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] We study an optimal disclosure policy of a regulator who has information about banks' ability to overcome future liquidity shocks. We focus on the following tradeoff: Disclosing some information might be necessary to prevent a market breakdown, but disclosing too much information destroys risk-sharing opportunities (Hirschleifer effect). We find that during normal times no disclosure is optimal, but during bad times partial disclosure is optimal. We characterize the optimal form of this partial disclosure. We also relate our results to the debate on the disclosure of stress test results.
Disclosure of Endogenous Information
Emir Kamenica
(University of Chicago)
Matthew Gentzkow
(University of Chicago)
[View Abstract]
[Download Preview] We study the effect of disclosure requirements in environments where experts publicly acquire private information before engaging in a persuasion game with a decision-maker. In contrast to settings where private information is exogenous, we show that disclosure requirements do not change the set of pure-strategy equilibrium outcomes regardless of the players' preferences.
Persuading Voters
Ricardo Alonso
(University of Southern California)
Odilon Camara
(University of Southern California)
[View Abstract]
[Download Preview] In a symmetric information voting model, an individual (information controller) can influence voters' choices by designing the information content of a public signal. We characterize the controller's optimal signal. With a non-unanimous voting rule, she exploits voters' heterogeneity by designing a signal with realizations targeting different winning-coalitions. Consequently, under simple-majority voting rule, a majority of voters might be strictly worse off due to the controller's influence. We characterize voters' preferences over electoral rules, and provide conditions for a majority of voters to prefer a supermajority (or unanimity) voting rule, in order to induce the controller to supply a more informative signal.
Bayesian Persuasion with Heterogeneous Audience
Andriy Zapechelnyuk
(University of Glasgow)
Tymofiy Mylovanov
(University of Pittsburgh)
Ming Li
(Concordia University)
[View Abstract]
We study Bayesian persuasion by an information monopolist (government); the novelty of the model is heterogeneity of the audience. We establish equivalence of persuasion by targeted (private) and public communication. We also provide conditions under which heterogeneity of the audience forces the monopolist to fully disclose information. Our results underscore the importance of audience diversity and privacy of individual position as safeguards against censorship. From the methodological perspective, the paper solves a novel mechanism design problem without transfers in which information serves as a screening tool, shows that the problem is isomorphic to that of Holmstrom's optimal delegation, and draws a technical analogy with the classic monopoly problem.
Discussants:
Anton Kolotilin
(University of New South Wales)
Tymofiy Mylovanov
(University of Pittsburgh)
Emir Kamenica
(University of Chicago)
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 207
American Economic Association
Shocks and Disasters
(E2, G1)
Presiding:
Steven J. Davis
(University of Chicago)
Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence
Emi Nakamura
(Columbia University)
Dmitriy Sergeyev
(Bocconi University)
Jon Steinsson
(Columbia University)
[View Abstract]
[Download Preview] 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 world 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.
Rare Disasters and Exchange Rates
Emmanuel Farhi
(Harvard University)
Xavier Gabaix
(New York University)
[View Abstract]
[Download Preview] We propose a new model of exchange rates, based on the hypothesis that the possibility of rare but extreme disasters is an important determinant of risk premia in asset markets. The probability of world disasters as well as each country's exposure to these events is time-varying. This creates joint fluctuations in exchange rates, interest rates, options, and stock markets. The model accounts for a series of major puzzles in exchange rates: excess volatility and exchange rate disconnect, forward premium puzzle and large excess returns of the carry trade, and comovements between stocks and exchange rates. It also makes empirically successful signature predictions regarding the link between exchange rates and telltale signs of disaster risk in currency options.
What Triggers Stock Market Jumps?
Scott Ross Baker
(Stanford University)
Nicholas Bloom
(Stanford University)
Steven J. Davis
(University of Chicago)
[View Abstract]
[Download Preview] Drawing on next-day newspaper accounts, we develop new evidence about the forces that trigger large daily jumps in national stock and bond markets. We read and code next-day interpretations of 200 or more daily jumps per country in recent decades, yielding five main results. First, the Global Financial Crisis (GFC) of 2008-09 exhibits very high counts of daily equity market jumps around the world. Looking back to 1885 for the U.S., the Great Depression is the only period with equal or greater jump frequency. Second, U.S. developments trigger equity market jumps across the globe, especially during the GFC. Jumps sourced to the U.S. are hugely more important than jumps sourced to Europe except for European countries, where the counts are similar. Third, policy news triggers about 20-25% of equity market jumps in most advanced economies and a larger share in other countries (e.g., China=33%, and India=46%). Fourth, news about the macroeconomic performance and outlook accounts for 23-38% of equity market jumps in advanced economies, and less in other countries. Fifth, for U.S. government bond yields, news about the macroeconomy triggers 65% of the jumps; adding news about monetary policy as well accounts for 93% of the jumps. We also find sharply different jump patterns for bonds versus equities in 1980-82 as compared to 2008-12. These differences suggest that shocks to risk premia and expected returns predominated in 2008-12, whereas shocks to nominal risk-free rates predominated in the 1980-82 period.
The Great Influenza Pandemic as a Macroeconomic Shock
Robert Barro
(Harvard University)
Jose Ursua
(Goldman Sachs)
[View Abstract]
We focus on the epidemic of 1918-20, one of the deadliest events of the twentieth century, when fifty to seventy million people died over the course of three years. The mortality was higher in people between 15 and 45 years old, because the virus was more likely to lead to a cytokine storm in young adults. Our identification strategy exploits variation across countries and U.S. states of the pre-existing percentage of young adults in the population.
Jan 04, 2015 10:15 am, Sheraton Boston, Independence Ballroom West
American Economic Association
Social Behavior in the Field
(D7, C9)
Presiding:
Martijn van den Assem
(Erasmus University Rotterdam)
Standing United or Falling Divided? High Stakes Bargaining in a TV Game Show
Dennie van Dolder
(University of Nottingham)
Martijn van den Assem
(Erasmus University Rotterdam)
Colin Camerer
(California Institute of Technology)
Richard Thaler
(University of Chicago)
[View Abstract]
[Download Preview] We examine high stakes three-person bargaining in a game show where contestants bargain over a large money amount that is split into three unequal shares. We find that individual behavior and outcomes are strongly influenced by equity concerns: those who contributed more to the jackpot claim larger shares, are less likely to make concessions, and take home larger amounts. Although contestants who announce that they will not back down do well relative to others, they do not secure larger absolute amounts and they harm others. There is no evidence of a first-mover advantage and little evidence that demographic characteristics matter.
Cooperation in a Dynamic Fishing Game: A Framed Field Experiment
Charles Noussair
(Tilburg University)
Daan van Soest
(Tilburg University)
Jan Stoop
(Erasmus University Rotterdam)
[View Abstract]
[Download Preview] We derive a dynamic theoretical model that tests the social optimum and selfish Nash equilibrium of a renewable resource, a stock of fish. In the social optimum, maximum fishing effort is observed in the last period only. The predictions are tested at a recreational fishing pond. The subjects, experienced recreational fishermen, are placed in groups of four and face a dynamic social dilemma. The results show strong support for the selfish Nash equilibrium. Fishermen exert as much effort in the last period as in the preceding periods, and effort is independent of the stock of fish.
"I Take Care of My Own": A Field Study on How Leadership Handles Conflict Between Individual and Collective Incentives
Romain Gauriot
(Queensland University of Technology)
Lionel Page
(Queensland University of Technology)
[View Abstract]
[Download Preview] In most collective actions, individuals' incentives are not perfectly aligned with the goals of the group/team they are part of. We investigate how individual specific incentives affect both individuals' and team leaders' strategies in a natural setting. We use a discontinuity in individual rewards in batsmen scoring in cricket to identify the causal effect of such incentives on behaviour. We find that batsmen react to the presence of individual-specific incentives by adopting strategies that may be suboptimal at the team level. More surprisingly, we also find that team captains react to these individual incentives by adopting suboptimal strategies at the team level, which may bring large benefits to the individual players. These results suggest a complex interplay of individual and team incentives which we conjecture may arise in repeated team interactions.
Discussants:
Jan Stoop
(Erasmus University Rotterdam)
Lionel Page
(Queensland University of Technology)
Martijn van den Assem
(Erasmus University Rotterdam)
Jan 04, 2015 10:15 am, Sheraton Boston, Back Bay Ballroom C
American Economic Association
Social Insurance Programs and the Labor Market
(H5, J1)
Presiding:
Mark Duggan
(Stanford University)
The Effect of Unemployment Benefits on the Duration of Unemployment: New Evidence from a Regression Kink Design in Missouri, 2003-2013
David Card
(University of California-Berkeley)
Andrew Johnston
(University of Pennsylvania)
Pauline Leung
(Princeton University)
Alexandre Mas
(Princeton University)
Zhuan Pei
(Brandeis University)
[View Abstract]
[Download Preview] We provide new evidence on the elasticity of the unemployment insurance (UI) weekly benefit amount on unemployment insurance spells based on administrative data from the state of Missouri covering the period 2003-2013. Identification comes from a regression kink design that exploits the quasi-experimental variation around the kink in the UI benefit schedule. We find that unemployment durations are more responsive to benefit levels during the recession and its aftermath, with an elasticity of about 0.9 as compared to 0.35 pre-recession.
Veterans' Labor Force Participation: What Role does the VA's Disability Compensation Program Play?
Courtney Coile
(Wellesley College)
Mark Duggan
(Stanford University)
Audrey Guo
(Stanford University)
[View Abstract]
[Download Preview] We explore trends over time in the labor force participation of veterans and non-veterans and investigate whether these patterns are consistent with a rising role for the Veterans’ Affairs Disability Compensation (DC) program, which pays benefits to veterans with service-connected disabilities and has grown rapidly since 2000. Using 35 years of March CPS data, we find that veterans’ labor force participation declined over time in a way that coincides closely with DC growth and that veterans have become more sensitive to economic shocks. Our findings suggest that DC program growth has contributed to recent declines in veterans’ labor force participation.
Earnings, Disposable Income, and Consumption of Allowed and Rejected Disability Insurance Applicants
Magne Mogstad
(University of Chicago)
Andreas Kostol
(University of Bergen)
TBD
Recall Expectations and Unemployment Outcomes
Arash Nekoei
(IIES Stockholm University)
Andrea Weber
(University of Mannheim)
TBD
Discussants:
Matthew Notowidigdo
(University of Chicago)
Erzo Luttmer
(Dartmouth College)
Petra Persson
(Stanford University)
Camille Landais
(London School of Economics)
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 202
American Economic Association
Spatial Misallocation
(H7, R1)
Presiding:
Chang-Tai Hsieh
(University of Chicago)
City Growth and Aggregate Growth
Chang-Tai Hsieh
(University of Chicago)
Enrico Moretti
(University of California-Berkeley)
[View Abstract]
A large micro literature has documented the local forces leading to growth and decline of cities. This paper measures the consequences of these local forces on aggregate output and welfare. We use a Rosen-Roback model of urban growth to show that a summary statistic for the aggregate effect of local growth (decline) is whether it shows up as an increase (decrease) in local employment or as an increase (decrease) in the nominal wage relative to other cities. Differences in the nominal wage across cities reflect differences in the marginal product of labor across cities which, ceteris paribus, lower aggregate output and welfare. We show that the dispersion of the average nominal wage across US cities increased from 1964 to 2009 and may be responsible for a 15% decline in aggregate output.
Trade, Migration and Regional Income Differences: Evidence from China
Trevor Tombe
(University of Calgary)
Xiaodong Zhu
(University of Toronto)
[View Abstract]
[Download Preview] International trade is closely related to within-country trade and migration. To study these interrelationships, we develop a novel general equilibrium model of internal and external trade with migration, featuring both trade and migration frictions. We estimate these frictions using unique data on China's trade and migration; the costs are high, but declined after 2000. We quantify the consequences of lower trade costs (international and internal) and migration costs on welfare, internal migration, and regional income differences. External trade liberalization increases China's trade, but only modestly increases welfare while increasing regional income differences. Internal trade liberalization has large welfare gains and reduces regional income differences. Migration costs reductions dramatically increase migration and lower regional income differences but -- surprisingly -- only modestly increase trade and aggregate welfare, mainly because the migration costs remain very high. In a counterfactual exercise in which we lower the migration costs in China to the levels similar to those in the US, we find very large increases in both trade and aggregate welfare. Our results suggest internal reforms dominate external trade liberalization as a source of aggregate welfare gains and improvements in regional income inequality.
Firm Sorting and Agglomeration
Cecile Gaubert
(University of California-Berkeley)
[View Abstract]
[Download Preview] The distribution of firms in space is far from uniform. Some locations host the most productive large firms, while others barely attract any. In this paper, I study the sorting of heterogeneous firms across locations and analyze policies designed to attract firms to particular regions (place-based policies). I first propose a theory of the distribution of heterogeneous firms in a variety of sectors across cities. Aggregate TFP and welfare depend on the extent of agglomeration externalities produced in cities and on how heterogeneous firms sort across them. The distribution of city sizes and the sorting patterns of firms are uniquely determined in equilibrium. This allows me to structurally estimate the model, using French firm-level data. I find that nearly two thirds of the observed productivity advantage of large cities is due to firm sorting. I use the estimated model to quantify the general equilibrium effects of place-based policies. I find that policies that decrease local congestion lead to a new spatial equilibrium with higher aggregate TFP and welfare. In contrast, policies that subsidize under-developed areas have negative aggregate effects
State Taxes, Internal Trade and Spatial Misallocation in the United States Economy
Pablo Fajgelbaum
(University of California-Los Angeles)
Eduardo Morales
(Princeton University)
Juan Carlos Suárez-Serrato
(Duke University)
Owen Zidar
(University of Chicago)
[View Abstract]
We measure income losses caused by misallocation across U.S. states in a framework that combines spatial economic forces, such as internal trade and labor mobility, with sources of spatial misallocation, such as state corporate and consumption taxes and factor-market distortions. Misallocation is summarized by a distribution of labor-share wedges and trade-cost wedges across states. Because of spatial interactions, these wedges are endogenous and map in a complex way to the distributions of productivities, trade costs, distortions and taxes. However, their equilibrium values can be backed out from parameters and data on factor payments, internal trade, and state taxes. We estimate the parameters of the model using data on changes in tax policy and in the distribution of labor and firms across U.S. states since 1980. Then, we identify the contributions of state taxes and factor-market distortions to misallocation across U.S. states, accounting for the role of spatial forces in shaping the effects.
Discussants:
Klaus Desmet
(Universidad Carlos III Madrid)
Jonathan I. Dingel
(University of Chicago)
Gilles Duranton
(University of Pennsylvania)
Lorenzo Caliendo
(Yale University)
Jan 04, 2015 10:15 am, Sheraton Boston, Back Bay Ballroom B
American Economic Association
The Use of Administrative Data in Economic Research: Rewards, Risk, and Demand
(H4, I3) (Panel Discussion)
Panel Moderator:
John Haltiwanger
(University of Maryland)
John N. Friedman
(Harvard University)
The Value of Public Administrative Data in Policy-Relevant Economic Research
Amy Finkelstein
(Massachusetts Institute of Technology)
The Value of Administrative Data for Randomized Evaluations
Ron Jarmin
(U.S. Census Bureau)
Confidentiality, Privacy Protection and Other Constraints on Stewards of Public Administrative Records
Katherine R. Smith
(Council of Professional Associations on Federal Statistics)
Demand and Preferences for Access to Federal Administrative Data: Results of a Survey
Jan 04, 2015 10:15 am, Hynes Convention Center, Room 204
American Economic Association
Understanding China's Environmental and Energy Challenges and Policy Options
(Q5, Q4)
Presiding:
Matthew Kahn
(University of California-Los Angeles)
Self-Protection Investment Exacerbates Air Pollution Exposure Inequality in China
Siqi Zheng
(Tsinghua University)
Matthew Kahn
(University of California-Los Angeles and NBER)
Cong Sun
(Tsinghua University)
[View Abstract]
[Download Preview] Income inequality is rising in China at the same time that urban air pollution remains high. Households can purchase market products such as masks and air filters to protect themselves from pollution. Using a unique data set of Internet purchases, we document that households invest more in such products when ambient pollution levels exceed key alert thresholds. Richer people are more likely to invest in these products. By combining several existing pieces of research, we provide an estimate of the differential exposure to pollution between rich and poor people in urban China. This differential has implications for life expectancy across groups and suggests that quality of life inequality exceeds cross-sectional measures of income inequality.
Environmental Regulation and SO2 Emission: Evidence from the SO2 Scrubber Subsidy in China
Guang Shi
(Development Research Center of the State Council of China)
Li-an Zhou
(Peking University)
Shilin Zheng
(China Academy of Social Sciences)
Yougou Zhang
(China Academy of Social Sciences)
[View Abstract]
[Download Preview] China is by far the world’s largest coal consumer, accounting for over half of the coal consumption in the world. Coal burning is the dominant source of SO2 emission and coal-fired power plants account for nearly half of SO2 emissions in China. The Chinese government has started to combat SO2 emission since early 1990s, but it mainly relied on the command-and-control approach. In 2004, the Chinese government introduced a subsidy for coal-fired power plants to install SO2 scrubbers that can dramatically reduce SO2 emissions. Newly established plants that install the SO2 scrubber are eligible for a subsidy of 1.5 cents per kilowatt-hour. The subsidy plan was later extended to cover all power plants in 2007.
What are the impacts of this subsidy policy? Although the subsidy creates incentives for power plants to install the scrubber, the policy subsidizes production rather than emissions reduction. To what extent this subsidy policy will lead to emission reductions is an important empirical question. Using a panel-level data of coal-fired power plants and city-level pollution data from 2001 to 2010, we find that the scrubber subsidy stimulates the installation and operation of sulfur dioxide scrubbers in power plants and significantly reduces SO2 emissions. This finding is robust to a set of alternative specifications, and we rule out several alternative interpretations. We also show that the effect of the policy is particularly pronounced for cities with a higher geographical concentration of power plants and a higher share of state ownership in power plants. Our empirical results highlight the importance of incentive compatibility in designing environmental regulation.
Will Shale Gas Reduce Carbon Emissions from China?
Ujjayant Chakravorty
(Tufts University)
Carolyn Fischer
(Resources for the Future)
Marie-Helene Hubert
(University of Rennes-France)
[View Abstract]
China has the world’s largest shale gas reserves. Its estimated reserves are about 1155 trillion cubic feet compared to 665 cubic feet for the US. While the US has begun an aggressive extraction of its shale gas using new fracking techniques, China has just started. Only 3% of electricity is currently generated by all types of natural gas and 66% from coal. In this paper we develop a partial equilibrium dynamic model of world coal and gas markets to examine how ambitious shale gas extraction in China can affect Chinese and world emissions and the related prices of natural gas and coal.
The model uses a generalized Cobb-Douglas demand specification for the electricity and transport sectors. Several resources may supply energy including coal, which accounts for the major share of the power sector, oil in the transport sector and natural and shale gas. Each of these supply functions is characterized by an increasing, convex cost curve. The model is dynamic with an infinite horizon.
We impose plausible scenarios for the future of shale gas extraction in China. These include aggressive extraction of shale, which is already occurring. However, extraction costs in China are likely to be higher than in the US due to constraints of geology and terrain. Infrastructure bottlenecks and lack of technology may impede the speed of extraction. The model has been calibrated to replicate prices in the year 2012. We will model possible US gas exports to China because of price differentials in the two countries, the potential displacement of coal and fall in its price, as well as higher use of coal in other countries due to leakage. Finally, we estimate the consequent impacts on the time path of Chinese and global carbon emissions both in the short and long run.
Welfare Impacts of Fuel Economy Regulation in China
Shanjun Li
(Cornell University)
Junji Xiao
(Fudan University)
[View Abstract]
China is by far the largest new vehicle market in the world, with new vehicle sales reached 22 million in 2013 compared to 16 million in the US. China is the largest oil importer and plays an increasingly important role in the world oil market. Meanwhile, major urban areas in China are experiencing the world’s worst traffic congestion and air pollution. In order to push automakers to improve fuel economy technology and reduce fuel consumption and associated externalities, China adopted the Corporate Average Fuel Consumption (CAFC) standards in 2012, requiring the sales weighted average corporate fuel consumption (liters/100km) to be below a firm-specific target. The fuel consumption target varies across vehicle models based on their weight and vehicle type, similar to the footprint-based fuel economy standards in the US. This study offers the first welfare analysis on China’s fuel economy regulation and conducts welfare comparison among several policy alternatives. We develop and estimate an equilibrium model of automobile market consisting of demand and supply sides. The demand side features consumers with heterogeneous preferences that lead to a random coefficients discrete choice model. The supply side consists of multi-product firms that make pricing decisions and vehicle attribute decisions along the technological frontier to comply with CAFC standards. We estimate the model parameters first and then conduct policy simulations. Several results emerge. First, significant consumer heterogeneity exist and a model ignoring it would underestimate the welfare impacts of the regulation. Second, automakers will have to reduce vehicle weight and horsepower to meet the overall target of 6.9 liters/100 km in 2015. Third, this policy goal leads to a welfare loss because reductions in externalities and fuel consumption do not justify consumer surplus loss and cost of compliance. Finally, a gasoline tax would be more cost-effective.
Discussants:
Erich Muehlegger
(Harvard University and NBER)
Erin Mansur
(Dartmouth College and NBER)
Lucija Muehlenbachs
(University of Calgary)
Kenneth Gillingham
(Yale University)
Jan 04, 2015 10:15 am, Westin Copley, Essex Center
American Finance Association
Cross-Sectional Asset Pricing
(G1)
Presiding:
Lu Zhang
(Ohio State University)
Investment and the Cross-Section of Equity Returns
Gian Luca Clementi
(New York University)
Berardino Palazzo
(Boston University)
[View Abstract]
[Download Preview] In the neoclassical model of investment -- with decreasing returns to scale and mean--reverting idiosyncratic productivity -- small firms earn a higher expected return than large firms as long as the term structure of equity is increasing. This is the case, since low--productivity firms owe a larger fraction of their valuation to future cash flows. With large enough operating leverage, the model also delivers a value premium, as firms with high book-to-market ratios (value) are riskier than their counterparts with low book-to-market (growth). Consistent with the evidence, growth firms have seen their idiosyncratic productivity grow in recent times and invest to take full advantage of their enhanced efficiency. On the other hand, value firms divest in order to catch up with declining idiosyncratic productivity. When calibrated to match key moments of the cross--sectional distribution of investment and the average book-to-market ratio, however, the model delivers a value premium that is much smaller than found in the data. This result holds true for different specifications of the stochastic discount factors and does not depend upon the magnitude of capital adjustment costs.
Predicting Time-Varying Value Premium Using the Implied Cost of Capital
Yan Li
(Temple University)
David Ng
(Cornell University)
Bhaskaran Swaminathan
(LSV Asset Management)
[View Abstract]
[Download Preview] We estimate an implied value premium (IVP) using the implied cost of capital methodology. The implied value premium is the difference between the implied costs of capital of value stocks and growth stocks and is a direct estimate of the difference in expected returns between value stocks and growth stocks. We
find that IVP is the best predictor of ex-post value premium during the 1977-2012 time period at horizons ranging from one month to 36 months in univariate and multivariate forecasting regression tests. At the 12-month horizon, IVP is able to explain 18% to 29% of the variation in the ex-post value premium. Other forecasting variables such as value spread, default spread, term spread, and consumption-to-wealth ratio do not fare as well. IVP strongly predicts the difference in cumulative abnormal returns around future quarterly earnings announcements of value and growth stocks, and its predictive power is stronger during periods of extreme mispricing. IVP is unable to predict future macroeconomic activity. Overall our results are supportive of mispricing as at least a partial explanation for the predictable time variation in value premium.
Can Investment Shocks Explain Value Premium and Momentum Profits?
Lorenzo Garlappi
(University of British Columbia)
Zhongzhi Song
(Cheung Kong Graduate School of Business)
[View Abstract]
[Download Preview] In this paper we assess whether investment-specific technology (IST) shocks can explain the value premium and momentum profits. Using proxies of IST shocks based on both macroeconomic and financial market data from 1930 to 2012, we find that: (i) IST risk premium estimates are positive; (ii) the evidence that exposures to IST shocks can explain the value premium is weak; and (iii) exposures to IST shocks cannot explain the large magnitude of momentum profits. We further show that the IST risk premium estimates are sensitive to the sample period, the test assets representing the cross-section, and the data frequency. We find that the sensitivity of IST risk premium estimates also affects the ability of IST shocks to explain the value and momentum effects.
Revealing Downturns
Martin Schmalz
(University of Michigan)
Sergey Zhuk
(University of Vienna)
[View Abstract]
[Download Preview] When a Bayesian risk-averse investor is uncertain both about individual assets' expected cash flows and about their exposure to systematic risk, then stock prices react more to news in downturns than in upturns, implying negatively skewed returns. The reason is that, in good times, less desirable assets with low average cash flows and high loading on market risk perform similar to more desirable assets with high average cash flows and low market risk, but their relative performance diverges in downturns. Consistent with these predictions, stocks' reaction to earnings news is up to 80% stronger in downturns than in upturns.
Discussants:
Xiaoji Lin
(Ohio State University)
Chen Xue
(University of Cincinnati)
Leonid Kogan
(Massachusetts Institute of Technology)
Tobias Adrian
(Federal Reserve Bank of New York)
Jan 04, 2015 10:15 am, Westin Copley, Essex North
American Finance Association
Finance and Politics
(G3)
Presiding:
Francesco Trebbi
(University of British Columbia)
Mini West Virginias: Corporations as Government Dependents
Lauren Cohen
(Harvard Business School)
Joshua Coval
(Harvard Business School)
Christopher Malloy
(Harvard Business School)
[View Abstract]
Much like states that rely on government spending, certain firms rely on the government for a substantial share of their revenues. Exploiting the statutory requirement that forces firms to list the identities of their major customers, we identify and examine the set of firms whose major customers are listed as government entities. We employ an identification strategy that exploits government contract bid protests in order to identify the causal impact of government sales on future firm outcomes, and find that government-linked firms invest less in physical and intellectual capital, and have lower future sales growth.
The Price of Political Uncertainty: Theory and Evidence from the Option Market
Bryan Kelly
(University of Chicago)
Lubos Pastor
(University of Chicago)
Pietro Veronesi
(University of Chicago)
[View Abstract]
[Download Preview] We empirically analyze the pricing of political uncertainty, guided by a theoretical model of government policy choice. To isolate political uncertainty, we exploit its variation around major political events, namely, national elections and global summits. We find that political uncertainty is priced in the equity option market in ways predicted by the theory. Options whose lives span political events tend to be more expensive. Such options provide valuable protection against the risk associated with political events, including not only price risk but also variance and tail risks. This protection is more valuable in a weaker economy as well as amid higher political uncertainty.
The Political Economy of Bank Bailouts
Markus Behn
(University of Bonn)
Rainer Haselmann
(University of Bonn)
Thomas Kick
(Deutsche Bundesbank)
Vikrant Vig
(London Business School)
[View Abstract]
[Download Preview] In this paper, we examine how the institutional design affects the outcome of bank bailout decisions. In the German savings bank sector, distress events can be resolved by local politicians or a state-level association. We show that decisions by local politicians with close links to the bank are distorted by personal considerations: While distress events per se are not related to the electoral cycle, the probability of local politicians injecting taxpayers’ money into a bank in distress is 30 percent lower in the year directly preceding an election. Using the electoral cycle as an instrument, we show that banks that are bailed out by local politicians experience less restructuring and perform considerably worse than banks that are supported by the savings bank association. Our findings illustrate that larger distance between banks and decision makers reduces distortions in the decision making process, which has implications for the design of bank regulation and supervision.
Discussants:
Motohiro Yogo
(Federal Reserve Bank of Minneapolis)
Jeffry Frieden
(Harvard University)
Thomas Fujiwara
(Princeton University)
Jan 04, 2015 10:15 am, Westin Copley, Essex South
American Finance Association
Market Microstructure and Informed Trading
(G1)
Presiding:
Albert S. Kyle
(University of Maryland)
Moral Hazard, Informed Trading, and Stock Prices
Pierre Collin-Dufresne
(Ecole Polytechnique Federale de Lausanne)
Vyacheslav Fos
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] We analyze a dynamic model of informed trading where an activist shareholder accumulates shares in an anonymous market and then expends costly effort to increase the firm value. We find that equilibrium prices are affected by the position accumulated by the activist, because the level of effort undertaken is increasing in the size of his acquired position. In equilibrium, price impact has two components: one due to asymmetric information (as in Kyle (1985)) and one due to moral hazard (a new source of adverse selection). Price impact is higher when the activist is more productive and when uncertainty about activist's position is large. We thus obtain a trade-off: with more noise trading (less `price efficiency') the activist can build up a larger stake, which leads to more effort expenditure and higher firm value (more `economic efficiency'). The model implies that ownership disclosure rules tend to improve market liquidity and economic efficiency and help differentiate productive activists from stock pickers. Shortening the period during which activists can trade, however, hurts economic efficiency.
Trading Aggressiveness and Its Implications for Market Efficiency
Olga Lebedeva
(University of Warwick)
[View Abstract]
[Download Preview] This paper investigates the empirical relation between an increase in trading aggressiveness after earnings announcements and speed of price adjustment. Trading aggressiveness allows for quicker price changes within a given time interval. They are beneficial for the initial adjustment stage when aggressive traders agree on the news direction and push price more quickly to its new equilibrium level. However, as traders start to disagree about the precise level of equilibrium price, quick price changes in different directions increase intraday volatility and might slow down adjustment process. This paper shows that the latter effect dominates, and it is especially harmful for illiquid stocks.
Insider Trading Patterns
David Cicero
(University of Alabama)
Modupe Wintoki
(University of Kansas)
[View Abstract]
[Download Preview] We analyze the information content of corporate insiders’ trades after accounting for certain
trading patterns. We find that insiders trades over longer periods of time when they may have a
longer-lived informational advantage and when outside investors are less attentive. We also find
evidence that insiders are more likely to trade in extended sequences when they disclose their
trades after market hours, which is when investors may be less attentive. Both isolated trades and trade sequences (those spread over multiple consecutive months) predict sizable abnormal returns; although for sequences, these abnormal returns are manifest only following the completion of the sequence. The return patterns we identify continue to hold for a large group of insiders that would have been classified as “routine” traders by prior research, suggesting that informed insider trading may be more widespread than previously identified.
Institutional Presence
Johan Sulaeman
(National University of Singapore)
Chishen Wei
(Nanyang Technological University)
[View Abstract]
[Download Preview] Does being located near institutional investors benefit corporations? We examine whether the ‘presence’ of local institutional investors, as measured by the equity assets under management of local institutions, reduces information asymmetry in the stock market. Firms in high institutional presence areas experience higher liquidity, faster information incorporation, lower costs of equity capital, and less financing frictions relative to firms in low institutional presence areas. Being located near institutional investors does not increase exposure to price or liquidity shocks. These patterns remain after controlling for firm characteristics (e.g., institutional ownership, firm fixed effects) and geographical features (e.g., urban locality, area fixed effects).
Discussants:
Kerry Back
(Rice University)
Joel Hasbrouck
(New York University)
John Griffin
(University of Texas)
Paul Schultz
(University of Notre Dame)
Jan 04, 2015 10:15 am, Westin Copley, America North
American Finance Association
Media and Disclosure
(G1)
Presiding:
Paul Tetlock
(Columbia University)
Rumor Has It: Sensationalism in Financial Media
Kenneth Ahern
(University of Southern California)
Denis Sosyura
(University of Michigan)
[View Abstract]
[Download Preview] The media has an incentive to publish sensational news. We study how this incentive affects the accuracy
of media coverage in the context of merger rumors. Using a novel dataset, we find that accuracy is predicted by a journalist’s experience, specialized education, and industry expertise. Conversely, less accurate stories use ambiguous language and feature well-known firms with broad readership appeal. Investors do not fully account for the predictive power of these characteristics, leading to an initial target price overreaction and a subsequent reversal, consistent with limited attention. Overall, we provide novel evidence on the determinants of media accuracy and its effect on asset prices.
Announcing the Announcement
Oliver Dessaint
(University of Toronto)
Romain Boulland
(ESSEC Business School)
[View Abstract]
[Download Preview] This paper studies how long in advance the date and time of earnings announcements are made public (the "Advance Notice Period"). We find that such Advance Notice Period varies within firm and that its variation affects how much investors pay attention to earnings news. This variation in investors' attention affects short-run and long-run stock prices, thereby creating incentives for firms to strategically reduce the Advance Notice Period when they plan to disclose bad news. Consistent with this idea, we find that within-firm variations in the Advance Notice Period predict the earnings surprise.
The Blame Game
Dexin Zhou
(Emory University)
[View Abstract]
[Download Preview] I propose a textual analysis-based measure to detect when corporate executives blame bad performance on external factors such as industry or the economy (BLAME measure). Using this methodology to analyze quarterly earnings announcement conference call transcripts, I find that: (1) executives are more likely to blame these external factors when their companies experience bad performance, but are unwilling to credit the external factors when they perform well; (2) a high BLAME measure predicts low returns subsequent to the conference call date after controlling for the tone of the transcripts and other known predictive variables. The hedged portfolio that takes long positions in companies with low BLAME measure and short positions in companies with high BLAME measure generates abnormal returns up to 6.8% per year; (3) the BLAME measure negatively predicts earnings surprises and analyst recommendation revisions in the subsequent quarter, indicating underreaction to firm-specific negative information; (4) a high BLAME measure reduces executive turnover-performance, implying that blaming external factors reduces the punishment on executives who underperformed. Overall, the evidence suggests that investors underreact to negative information when managers attribute negative performance to external factors.
Discussants:
Christopher Parsons
(University of California-San Diego)
Marina Niessner
(Yale University)
David Solomon
(University of Southern California)
Jan 04, 2015 10:15 am, Westin Copley, America South
American Finance Association
Sovereign Debt and the Euro Crisis
(G1)
Presiding:
Annette Vissing-Jorgensen
(University of California-Berkeley)
Financial Repression in the European Sovereign Debt Crisis
Bo Becker
(Stockholm School of Economics)
Victoria Ivashina
(Harvard Business School)
[View Abstract]
[Download Preview] By the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice its 2007 level. We show that this increasing reliance on the domestic banking sector for placing government bonds generates crowding out of corporate lending. For a given firm, new debt is less likely to be a loan—i.e., the loan supply contracts—when local banks have absorbed more domestic sovereign debt and when that debt is risky (as measured by CDS spreads). These effects are most pronounced in the period following the second Greek bailout in early 2010.
Bank Ratings and Lending Supply: Evidence from Sovereign Downgrades
Manuel Adelino
(Duke University)
Miguel Ferreira
(Nova School of Business and Economics)
[View Abstract]
[Download Preview] We study the causal effect of bank rating downgrades on the supply of bank lending to the private sector. We exploit the asymmetric impact of sovereign downgrades on the ratings of banks at the sovereign bound versus banks below the bound as a result of credit rating agencies’ sovereign ceiling policies. We find that banks at the sovereign bound reduce loan amounts and increase loan spreads more than otherwise similar banks below the bound following sovereign downgrades. Lending to foreign borrowers is also significantly affected, confirming a causal interpretation of the results.
The "Greatest" Carry Trade Ever? Understanding Eurozone Bank Risks
Viral Acharya
(New York University)
Sascha Steffen
(European School of Management and Technology)
[View Abstract]
We show that eurozone bank risks during 2007-2013 can be understood as a form of "carry trade" behavior. Bank equity returns load positively on peripheral (Greece, Ireland, Portugal, Spain, and Italy, or GIPSI) bond returns and negatively on German government bond returns, a position that generated "carry" until the deteriorating GIPSI bond returns impacted bank balance sheets. The positive GIPSI loadings correlate with banks' holdings of GIPSI bonds, as well as the negative German loading with banks' short-term debt exposures. We find support for risk-shifting moral hazard and regulatory arbitrage motives at banks in that carry trade behavior is stronger for large banks and banks with low capital ratios and high risk-weighted assets. We also evaluate alternative hypotheses such as the home bias of peripheral banks and suasion by domestic governments.
Evaluating the impact of unconventional monetary policy measures: Empirical evidence from the ECB's Securities Markets Programme
Fabian Eser
(European Central Bank)
Bernd Schwaab
(European Central Bank)
[View Abstract]
[Download Preview] We assess the yield impact of asset purchases within the ECB’s Securities Markets Programme in
five euro area sovereign bond markets from 2010-11. In addition to large announcement effects,
we find an impact of approximately -3 basis points at the five-year maturity for purchases of
1/1000 of the outstanding debt. Bond yield volatility and tail risk are lower on intervention days for most SMP countries. A dynamic specification points to both transitory and long run effects. Purchases improved liquidity conditions and reduced default-risk premia, while the signaling of future low interest rates did not play a role.
Discussants:
Luc Laeven
(International Monetary Fund)
Paola Sapienza
(Northwestern University)
Andrew Metrick
(Yale University)
Michael Bauer
(Federal Reserve Bank of San Francisco)
Jan 04, 2015 10:15 am, Westin Copley, America Center
American Finance Association
Structural Estimation in Finance
(G3)
Presiding:
Erwan Morellec
(Ecole Polytechnique Federale de Lausanne)
Measuring Marginal Q
Vito Gala
(London Business School)
[View Abstract]
[Download Preview] Using asset prices I estimate the marginal value of capital in a dynamic stochastic economy under general assumptions about technology and preferences. The state-space measure of marginal q relies on the joint measurability of the value function, i.e. fi
rm market value, and its underlying
firm state variables. Unlike existing methodologies, the state-space marginal q requires only general restrictions on the stochastic discount factor and the fi
rm investment technology, and it uses simple linear estimation methods. Consistently with a large class of neoclassical investment models, I construct the state-space marginal q using the fi
rm capital stock and pro
fitability shocks. I show that this new measure of real investment opportunities is substantially different from the conventional Tobin's Q, it yields more plausible and robust estimates of capital adjustment costs, it increases the correlation with investment and the sensitivity of investment to fundamentals.
Stochastic Idiosynchratic Operating Risk and Real Options: Implications for Stock Returns
Harjoat Bhamra
(University of British Columbia)
Kyung Shim
(University of New South Wales)
[View Abstract]
[Download Preview] We show that introducing stochastic idiosyncratic operating risk into an equity valuation model of firms with growth options explains two empirical anomalies related to idiosyncratic volatility: the positive contemporaneous relation between stock returns and changes in idiosyncratic return volatility, and the poor performance of stocks with high idiosyncratic volatility. The model further predicts that (i) returns correlate positively with idiosyncratic volatility during intervals between large changes in idiosyncratic volatility (the switch effect), (ii) and that the anomalies and the switch effect are stronger for firms with more real options and which undergo larger changes in idiosyncratic volatility. Empirical results support these predictions.
Agency Conflicts Around the World
Erwan Morellec
(Ecole Polytechnique Federale de Lausanne)
Boris Nikolov
(University of Rochester)
Norman Schuerhoff
(University of Lausanne)
[View Abstract]
[Download Preview] We incorporate conflicts of interest between controlling shareholders, minority shareholders and creditors in a dynamic capital structure model and use observed capital structure decisions to infer the magnitude of agency conflicts in a cross section of 14 countries. Our structural estimates show that agency costs are large and vary widely across and within countries. Legal origin, bankruptcy proceedings, and provisions for investor protection affect agency costs, but their impact is small compared to variation within country. Consistent with costly limited enforcement, investor protection provisions are more relevant for curtailing
governance excesses than guarding the typical firm. Incentive misalignment explains 60% of cross-country variation in corporate leverage.
Discussants:
Lukas Schmid
(Duke University and University of California-Los Angeles)
Janice Eberly
(Northwestern University)
Andrey Malenko
(Massachusetts Institute of Technology)
Arthur Korteweg
(University of Southern California)
Jan 04, 2015 10:15 am, Westin Copley, Defender
American Real Estate & Urban Economic Association
Mortgage Originations
(G2, D1)
Presiding:
Albert Saiz
(Massachusetts Institute of Technology)
Reputation and Exaggeration: Adverse Selection and Moral Hazard in the Mortgage Market
James Conklin
(Pennsylvania State University)
Jiro Yoshida
(Pennsylvania State University)
[View Abstract]
[Download Preview] Using a national dataset of subprime mortgages originated by a major financial institution during the house price boom period, we document the role of borrower reputation in the run-up to the mortgage foreclosure crisis of 2007 to 2010. Our empirical analysis is consistent with the hypothesis that borrowers who are unable to originate full documentation loans place greater value on reputation acquisition than borrowers who have lower cost access to the full information documentation credit market. We show that the majority of additional risk associated with low-doc, or stated income mortgages is due to adverse selection on the part of borrowers with verifiable income. We also provide evidence that these borrowers are more likely to engage in a form of moral hazard by inflating or exaggerating their income on the mortgage application.
A Systemic Approach to Home Loans: Continuous Workouts versus Fixed Rate Contracts
Robert Shiller
(Yale University)
Rafal M. Wojakowski
(University of Surrey)
M. Shahid Ebrahim
(Durham University)
Mark Shackleton
(Lancaster University)
[View Abstract]
[Download Preview] We take a systemic, market based approach, stipulating that mortgage values and payments should be linked to housing prices and adjusted downward to prevent negative equity. We advocate using Continuous Workout Mortgage (CWM), which is a two in one product: a fixed rate home loan coupled with negative equity insurance. We show that Continuous Workout Mortgages could be the optimal home financing instrument for many households.
Measuring Mortgage Credit Accessibility
Wei Li
(Urban Institute)
Bing Bai
(Urban Institute)
Laurie Goodman
(Urban Institute)
Ellen Seidman
(Urban Institute)
Jun Zhu
(Urban Institute)
[View Abstract]
[Download Preview] Access to mortgage credit is most commonly determined by calculating the denial rate for all mortgage applicants using Home Mortgage Disclosure Act (HMDA) data. Calculating a denial rate based solely on this data, however, has two limitations:
1. HMDA data do not include applicants’ credit profiles, so the denial rate calculated from these data merges applicants with strong and weak credit profiles. Because applicants with strong credit essentially have a denial rate of zero, this merger significantly dilutes and masks the only relevant denial rate: that of the weaker-credit-profile applicants.
2. HMDA data fail to properly account for those who want to apply for a loan but do not because they believe their application will be turned down.
We address these limitations by offering a better measure of mortgage credit accessibility: the demand-to-origination progression rate for low-credit-profile consumers. Using this improved measure, we explore several issues critical to credit accessibility including differences among demographic groups, changes over time and credit cycles, and the impact of government support for the single-family owner-occupied mortgage market.
Our analysis results in four findings:
1. government-guaranteed (FHA/VA/RD) lending has reduced racial gaps in loan approvals for low-credit-profile individuals seeking credit, particularly in the years following the collapse of the housing market;
2. up until the collapse, the private market proved particularly accessible for racial minorities with low credit profiles, although this does not take into account the terms or pricing of the loans;
3. contrary to popular opinion, the GSEs extended relatively little credit to weaker credit profile consumers in the lead-up to the crisis; and
4. mortgage credit has been extraordinarily tight since 2009.
Information Losses in Home Purchase Appraisals
Paul Calem
(Federal Reserve Bank of Philadelphia)
Lauren Lambie-Hanson
(Federal Reserve Bank of Philadelphia)
Leonard Nakamura
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] Home appraisals are a standard feature of the mortgage underwriting process, yet since the 1990s it has been well-known that the vast majority of appraisals—typically about nine out of ten—are at or above the transaction price. It thus appears that appraisals are either biased or provide little informational value.
We construct a stylized model and exploit a unique data source to argue that the standard mortgage application review process–under which the loan-to-value ratio is calculated with a home value that is the minimum of the appraised value and the transaction price–creates an incentive for the appraiser to substitute the transaction price for the actual appraised value when the latter is below the transaction price. We demonstrate that the distribution of the ratio of appraised value to transaction price observed in the data can be simulated using our model.
Additional support for the model is obtained from an empirical analysis relating the frequency of reported negative appraisals to market conditions, policy changes, and transaction-specific characteristics that plausibly influence the tradeoff between reporting an inflated value that makes a transaction more likely to occur and increasing expected default costs. Greater information loss in appraisals appears, on balance, to increase the procyclicality of housing booms and busts.
Discussants:
Itzhak Ben-David
(Ohio State University)
Maisy Wong
(University of Pennsylvania)
David Geltner
(Massachusetts Institute of Technology)
Albert Saiz
(Massachusetts Institute of Technology)
Jan 04, 2015 10:15 am, Westin Copley, Empire
American Real Estate & Urban Economic Association
Traffic
(R1, R4)
Presiding:
Leah Brooks
(Federal Reserve Board)
Cordon Tolling in a City with Congested Bridges
Jan Brueckner
(University of California-Irvine)
[View Abstract]
[Download Preview] This paper analyzes cordon tolling using a simple model where space is discrete rather than continuous, with commuting costs incurred only on two congested bridges. The first-best regime requires tolls on both bridges, whereas only the inner bridge is tolled under the cordon-toll regime. While less realistic than the continuous-space frameworks used in previous work, this simple setup allows the derivation of a number of analytical results, which were not available to authors relying on more-complex models. The paper derives the rule for the optimal cordon toll, showing that it points to a toll level higher than first-best toll on the same bridge. In addition, the analysis shows that cordon tolling leads to a redistribution of population away from the zone immediately outside the cordon, with residents moving to the central zone or to the suburbs. The analysis also shows that the cordon toll raises more revenue than is necessary to pay for the bridge where it is levied, while also tending to increase the capacity of the un-tolled suburban bridge.
Pollution or Crime? The Effect of Driving Restrictions on Criminal Activity
Paul Carrillo
(George Washington University)
Andrea Lopez
(Harvard University)
Arun Malik
(George Washington University)
[View Abstract]
Driving restriction programs have been implemented in many cities around the world to alleviate pollution and congestion problems. Enforcement of such programs is costly, however, and can potentially displace policing resources used for crime prevention and crime detection. Hence, driving restrictions may increase crime. To test this hypothesis, we exploit both temporal and spatial variation in the implementation of Quito, Ecuador’s Pico y Placa program, and evaluate its effect on both pollution and crime. Findings provide strong evidence that driving restrictions can reduce pollution but also increase crime rates by as much as 10 percent.
Commute Costs and Labor Supply: Evidence from a Satellite Campus
Shihe Fu
(Southwestern University of Finance and Economics)
V. Brian Viard
(Cheung Kong Graduate School of Business)
[View Abstract]
Using the transition of undergraduate teaching from a Chinese university’s urban to suburban campus and ten years course schedule data, we test the causal effect of commute costs on teachers’ labor supply. Exogeneity is ensured because few faculty change residences and nearly all faculty ride shuttle buses. Regression discontinuity design and difference-in-difference estimates show that the 1.0 to 1.5-hour increase in round-trip commute time reduces annual teaching hours by 56 and teaching days by 27 while increases daily teaching hours by 0.49. Faculty substitute toward graduate teaching but decrease research output. The university accommodated this primarily by increasing class sizes.
Traffic Congestion and Gentrification
Richard Martin
(University of Georgia)
Joseph Nicholson
(Montclair State University)
[View Abstract]
This paper tests the extent to which the retention of high-income households in central cities with higher levels of traffic congestion leads to gentrification pressure. Data collected on traffic congestion levels from the 91 largest U.S. metropolitan statistical areas (MSAs) is used to test the extent to which this happened between 1980 and 2000. This paper uses independent, MSA level measures which isolate the congestion portion of commute speeds and times, finding that it is significant with respect to income gains in both central cities overall and the gentrifiable neighborhoods within central cities. Lastly, the gentrifiable neighborhoods of these central cities experience 25% greater income gains with respect to all central city neighborhoods given the same levels of traffic congestion demonstrating a connection between gentrification pressure and increased traffic congestion levels within MSAs.
Discussants:
Jeffrey Brinkman
(Federal Reserve Bank of Philadelphia)
Antonio Bento
(Cornell University)
Yong Suk Lee
(Stanford University)
Victor Couture
(University of California-Berkeley)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Tremont
Association for Comparative Economic Studies
Decentralization Theory and Its Implications for the Ukraine
(P5, D7) (Panel Discussion)
Panel Moderator:
Daniel Berkowitz
(University of Pittsburgh)
Andrew Konitzer
(University of Pittsburgh)
Decentralization Theory and Its Implications for the Ukraine
Roger Myerson
(University of Chicago)
An Application of Political-Economic Analysis to Urgent Questions of Constitutional Reform in the Ukraine
Tymofiy Mylovanov
(University of Pittsburgh)
Decentralization Theory and Its Implications for the Ukraine
Gerard Roland
(University of California-Berkeley)
Decentralization Theory and Its Implications for the Ukraine
Daniel Treisman
(University of California-Los Angeles)
Decentralization Theory and Its Implications for the Ukraine
Jan 04, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
Themes in the History of Economics for Heterodox Economists
(B2)
Presiding:
Sherry Davis Kasper
(Maryville College)
History of Economics and Heterodox Economics
Carlo D'Ippoliti
(Sapienza University of Rome)
Alessandro Roncaglia
(Sapienza University of Rome)
[View Abstract]
[Download Preview] With one of his most famous books, Fred Lee identified the history of economic thought—in the Schumpeterian sense of “history of communities of scholars”—as a building bloc to foster the development of a community of heterodox economists. However, strictly theoretical reasons too imply that the history of economic analysis—i.e. of the analytical developments of certain economic concepts or theories—should be recognised and practiced as a constituent part of heterodox economics. Indeed, it is necessary to distinguish between two conceptions of the scientific development of economics: the “cumulative view” asserts that scientific progress in economics consists of the substitution of wrong or unsatisfactory theories with truer and more refined ones; the “competitive view” recognises instead the existence of alternative scientific paradigms within economics. In the latter case, progress can be identified within each paradigm as the attainment of greater analytical rigour and/or realism, but different paradigms are usually not directly commensurable. As a consequence, adopting this perspective economic theory itself must be studied and practiced with a historical method. We argue here that mainstream economists usually—knowingly or not—embrace the cumulative view, while heterodox economists must necessarily adhere to the competitive view.
Classical Political Economy, the Subsistence Wage, and Job Guarantee Concerns
John F. Henry
(University of Missouri-Kansas City)
[View Abstract]
[Download Preview] In the theoretical framework of classical political economy, including the revisions of Marx and the more recent work of Piero Sraffa and others, the concept of the subsistence wage figures prominently. Such an approach was shared by, among others, Thorstein Veblen and John Maynard Keynes. Here, following a recounting of this concept and demonstrating its significance for not only classical theory but for larger social concerns, I argue that the “base wage” (as it sometimes termed) as articulated within the “Employer of Last Resort” program, is comparable to the subsistence wage but requires modification to make it (roughly) equivalent. It will be demonstrated that adherents of the classical approach did not rest their wage theory on a quasi-neoclassical supply-demand approach (with some primitive marginal productivity notion lying behind a supposed demand for labor schedule), but understood wages as socially determined where institutional and historic forces established a normative standard around which market wages gravitated. Essentially, socially determined wages speak to the social provisioning process and the reproduction of the economic system. Given recent changes within capitalist society, it will be argued that thought should be given to separating incomes from types of employment, and further consideration should address the abolition of the wage system.
Was Veblen a Revisionist Marxist?
Steven Sawyer
(Fashion Institute of Technology)
[View Abstract]
The purpose of this paper is to assess Thorstein Veblen’s relationship with Marxian economics and in particular whether or not his economic theories are similar or in some cases identical to the “revisionist” Marxist authors of his day. Veblen was certainly critical of Marx - but so were the revisionists. The question then becomes, did Veblen disagree with Marx more than the revisionists did? In the course of the treatment of the main question, Veblen’s criticism of Marx will be reviewed and Veblen will be compared with prominent revisionists, most notably Eduard Bernstein. In addition, Veblen’s ideas will also be compared with orthodox Marxists, such as Rosa Luxemburg. Although many of Veblen’s conclusions are similar to Marx’s, it will be shown that in many cases the underlying theories differ, in particular Veblen’s criticism of certain philosophical underpinnings of Marxian economics and his desire to replace them with Darwin’s Theory of Evolution. The final issue that will be considered will be motivation - both Veblen’s support of the IWW and Bernstein’s support of union involvement in the SPD indicate a much different approach to economic transformation than proletarian revolution. This common political agenda reflects both a more pragmatic approach and skepticism regarding the human costs involved in rapid changes in the economic system.
Early Institutionalists on 1920s Rising Inequality and the Great Depression
Bruce E. Kaufman
(Georgia State University)
[View Abstract]
This paper examines the link between rising income inequality, wage-productivity imbalance, propensity to economic crisis, and the role of the state as both cause of and solution to these problems. An institutional economics-industrial relations political economy model is developed; the events of the 1920s boom and 1930s depression are used an empirical case study of the model in action; and insights are then developed for the Great Recession of 2008-2010. The paper argues: (1) growing income inequality and propensity to crisis are inherent to capitalism, (2) a statism policy of laissez-faire/neo-liberalism is a key indirect contributor to growing inequality, (3) the purpose of early 20th century industrial relations was to offset this inequality-crisis propensity by balancing the income distribution and stabilizing the labor market, and (4) a key to capitalism’s prosperity is a stakeholder model of political and industrial government.
Institutionalists as Dissenters: Why Were Institutionalists Strongly Dissatisfied with Economics during the Postwar Period?
Marco Cavalieri
(Federal University of Parana)
Felipe Almeida
(Federal University of Parana)
[View Abstract]
[Download Preview] There were two features distinguishing postwar economics from the point of view of institutionalists. First, institutionalist economists lost their influence over American economics during the 1940s and 1950s. They ceased to dominate major research institutes and important departments of economics. Second, after the war, a new mainstream had arisen, and the institutionalists were very dissatisfied with the path taken by the economics that would became the new mainstream. Paul Samuelson’s extremely influential book, Foundations of Economic
Analysis (1947), could be seen as the epithet of this new mainstream. Given this context, this paper analyzes the opinions and the feelings of institutionalists about this scenario in order to address their understanding of the new mainstream. We gathered archival material from the Allan Gruchy’s, John Gambs’, and Clarence Ayres’ papers to construct a historical account of the dissatisfaction that institutionalists showed regarding postwar economics. Ayres was the leader of a movement that expressed severe dissent towards the new mainstream. Consequently, his archives contain many letters from many dissenting economists expressing a greatly diversified dissatisfaction with postwar economics. We analyzed letters from members of the Wardman Group, the “Cactus Branch,” and some scattered dissenting economists from the U.S. What became clear from our analysis were the plurality and the eclecticism that marked the dissenting economists. This rather important aspect would influence the plurality and the eclecticism of AFEE.
Discussants:
Reynold F. Nesiba
(Augustana College)
Mary V. Wrenn
(University of Cambridge)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Social Economics
Polanyi Revisited
(Z1, G1)
Presiding:
Zohreh Emami
(Alverno College)
Decommodification of Financial Regulation: Some Unpleasant Lessons from the 2007 Crisis
Faruk Ulgen
(University of Grenoble)
[View Abstract]
[Download Preview] To date capitalist evolution seems to have reached its culminating point through continual cycles of commodification since most of social rules and aims are shaped and evaluated according to free markets efficiency criteria. More specifically, The Great Transformation of modern capitalism from the 1980s is the commodification of monetary/financial rules and related regulation. Assuming that market mechanisms (economic efficiency) could allow society to reach social optimum (social efficiency), financial liberalization has transformed public regulatory mechanisms into private self-regulation systems that rely on market price-directed contractual schemas. However, in light of the 2007-08 crisis and its catastrophic consequences, this article seeks to question the neo-liberal blind faith in market’s self-adjusting mechanisms that let regulatory rules –societal references of private units- be commodificated through the privatization of supervision mechanisms. To deal with this issue, this article will liberally draw upon the seminal work of Karl Polanyi, The Great Transformation (1944).In this aim, the second section assesses the relevance of the major statements in favor of financial liberalization and of commodification of financial regulation in the working of a market economy. The third section shows that contrary to liberal axioms of market efficiency, there is no bridge between the so-called rational individual behavior efficiency and social efficiency. Free markets and individual rationality-based economic efficiency cannot result in social harmony. Furthermore, it is argued that micro-relevant decisions often result in macro-catastrophic outcomes. The fourth section then advocates that in order to stabilize financial folly and put capitalist economies on a socially consistent evolution path one must stop the process of whole commodification of financial relations and then decommodify financial control and supervision mechanisms. An expected alternative direction is toward public regulatory mechanisms that could be related to collective development objectives and then seek “social-stability and economic viability” in the aim of attaining a socially satisfactory level of economic activity. The last section concludes that the lessons which could be drawn from this analysis can also hold for every area of human life, like the environment, health, education, etc. which should not be left to the vicissitudes of market-prices commodification mechanisms.
Financialization and Society’s Protective Response: Reconsidering Polanyi’s Thesis
John P. Watkins
(Westminster College)
[View Abstract]
[Download Preview] Financialization challenges Polanyi’s thesis that efforts to extend the market evoke efforts to protect humans and nature from market forces. The financialization represents efforts to channel household income and assets into corporate profits. Financialization rests on the transition from corporeal property that underlies Polanyi’s thesis, to intangible property. The social legislation of the late nineteenth and early twentieth centuries largely protects human beings from starvation, and corporeal property generally; it does little to protect household assets. Fed intervention to protect financial institutions suggests a bifurcation in Polanyi’s thesis: the government protects financial institutions, while doing little to protect households. Market capitalism represented the attempt to organize commodities on the basis of economic rationality. Similarly, the twentieth and twenty-first century capitalism represents the effort to organize society according to the value of intangible assets on the basis of economic rationality. Both efforts failed, indicating the continued relevance of Polanyi’s thesis.
Theorizing “Double Movement” in the Age of Global Industrial Complex and Transnational Capital
Sudeep Regmi
(University of Missouri-Kansas City)
[View Abstract]
Capitalism in the twenty-first century has evolved since the days of Marx or Lenin or Hilferding or Polanyi. With global integration of production and financial circuits since the 1970s, there have been fundamental modifications in the institutional structure of capital accumulation. The evolution of a global industrial complex has led to commodification of everything. The rise of a transnational capitalist class has introduced novel relations of power and inequality. And the emergence of a transnational state has rendered the nation-centric concept of an inter-state system of capitalist competition severely outdated and inadequate. While a system of domination such as this still has “making the world safer for capital” as its end goal, it has sought to maintain its long-term viability not (only) by suppressing rebellion but (also) by creating conditions that ensure that there is no plausible alternative. Faced with this developmen t in the history of capitalism, Polanyi’s concept of “double movement” becomes more significant than ever. At the same time, it also represents both a hope and a challenge: hope in the sense that this renewed economic rationality of total commodification and control of social life can be averted through direct action of the global working class aimed ultimately against value production itself, and challenge in the sense that strategies for such transformative actions are becoming increasingly elusive, given that it is inherent in the nature of capitalism to disorganize the laboring class by victimizing it in multiple ways and different degrees.
A Sociology of Profit. Economic Sociology and the Profit Puzzle in Economics
Sascha Muennich
(University of Göttingen)
[View Abstract]
[Download Preview] In this paper I explore the different theoretical perspectives on the origins and distribution of profits in the history of economic thought and show that all of them have encountered theoretical limits in solving the puzzle of permanent, systematic, stable normal profits that exceed interest and differ bewteen firms and/or sectors. It is shown that the reason for this explanatory gap lies in the unwillingness of all important strands of profit theory (surplus theory, capital theory, distorted competition, entrepreneurial wage and risk premium) to open the perspective towards the social, structural aspects of markets that allow for the organization of payment streams (as it is pointed to by transaction cost economics). It is necessary to widen the insights provided by looking into the social organization of firms as a source of their profitability towards the processes of social organization of markets that economic sociology has exami ned in order to take the necessary next step in profit theory that has not been discussed too much in economic theory since Bronfenbrenner and Sraffa. By looking into the classical positions of Smith, Ricardo, Say, Boehm-Bawerk, Schumpeter and recent institutionalist approaches some hints for a renewed engagement with the characteristics that renders our market economy a capitalist one are given and it is shown how economics could thereby gain from some insights of market sociology.
Jan 04, 2015 10:15 am, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Markets for Pollution
(Q5, G1)
Presiding:
Erica Myers
(University of Illinois)
Rent-Seeking over Tradable Emission Permits: Theory and Evidence
Ashwin Rode
(University of California-Santa Barbara)
[View Abstract]
[Download Preview] Allocation of costless emission permits during the establishment of a cap-and-trade program creates opportunities for rent-seeking. I examine the consequences of such rent-seeking by exploiting an unusual feature of the U.K.’s allocation procedure in the EU’s CO2 Emissions Trading Scheme. I find that a firm’s financial connections to members of the House of Commons positively predict its permit allocation, even after controlling for a technocratically-based provisional allocation. Using results from a contest-theoretic framework, I estimate the welfare loss from rent-seeking to be at least €137 million- a significant amount relative to the abatement costs firms incurred to reduce emissions.
Pollution Permit Consignment Auctions: Theory and Experiments
Noah Dormady
(Ohio State University)
Paul Healy
(Ohio State University)
[View Abstract]
[Download Preview] Unlike extant auction-based climate change markets, California’s AB32 market utilizes a consignment auction design in which utilities are allocated a share of emissions permits that they must sell into the uniform-price auction. Auction revenue is returned to the consignee, which creates an incentive to increase the auction clearing price through strategic bidding. In a simple theoretical model, we show that consignees will accomplish this by overstating their quantity demanded in the auction, since this increases the probability that demand exceeds supply and the auction clears at a positive price. This results in inefficient allocations and inflated auction prices. We test this consignment mechanism through a series of lab experiments and confirm these predictions. We also find that overall firm profits are lower in a consignment auction, and that firms are more likely to incur penalties from program non-compliance due to allocative inefficiencies.
The Co-Benefits of Climate Policy: An Empirical Analysis of the EU Emissions Trading Scheme
Ulrich Wagner
(University of Madrid)
[View Abstract]
Previous research has concluded that the ancillary benefits of greenhouse gas mitigation policies offset a substantial fraction of the economic costs (IPCC, 2007). This paper conducts the first empirical test of this hypothesis based on ex-post data from the world’s largest cap-and-trade system for CO2 emissions, the EU Emissions Trading Scheme (EU ETS). Quasi-experimental techniques are employed to test whether the EU ETS decreased emissions of pollutants other than CO2. The econometric analysis draws upon comprehensive micro-data on discharges of more than 90 different pollutants into air, water and soil, at more than 30,000 commercial facilities in 31 European countries.
Applying Asset Pricing Theory to Calibrate the Price of Climate Risk
Gernot Wagner
(Environmental Defense Fund and Columbia University)
Kent Daniel
(Columbia University)
Robert Litterman
(Kepos Capital)
[View Abstract]
[Download Preview] Pricing greenhouse gas emissions is a risk management problem. It involves making trade-offs between consumption today and unknown and potentially catastrophic damages in the (distant) future. The optimal price is necessarily based on society’s willingness to substitute consumption across time and across uncertain states of nature. A large body of work in macroeconomics and finance has attempted to infer societal preferences using the observed behavior of asset prices, and has concluded that the standard preference specifications are inconsistent with observed asset valuations. This literature has developed a richer set of preferences that are more consistent with asset price behavior. The climate-economy literature by and large has not adopted this richer set of preferences.
In this paper, we explore the implications of these richer preference specifications for the optimal pricing of carbon emissions. We develop a simple discrete-time model with Epstein-Zin utility in which uncertainty about the effect of carbon emissions on global temperature and on eventual damages is gradually resolved over time. We embed a number of features including tail risk, the potential for technological change and backstop technologies. When coupled with the potential for low-probability, high-impact outcomes, our calibration to historical real interest rates and the equity risk premium suggests a high price for carbon emissions today which is then expected to decline over time. This is in contrast to most modeled carbon price paths, which tend to start low and rise steadily over time.
Discussants:
Erica Myers
(University of Illinois)
Sanjay Patnaik
(George Washington University)
Stephen Holland
(University of North Carolina-Greensboro)
Christian Traeger
(University of California-Berkeley)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Boylston
Association of Financial Economists
Family Firms, Internal Capital Markets and Entrepreneurship
(G3, F3)
Presiding:
Daniel Wolfenzon
(Columbia University)
Internal Information Asymmetry, Internal Capital Markets, and Firm Value
Matthew Billett
(Indiana University)
Chen Chen
(University of Auckland)
Xiumin Martin
(Washington University-St. Louis)
Xin Wang
(University of Hong Kong)
[View Abstract]
[Download Preview] We examine the effects of internal information asymmetry between corporate headquarters and division managers on internal capital market efficiency and firm value. Using a novel measure of internal information asymmetry − the differential insider trading profit between division managers and top executives, we find a negative relation between internal information asymmetry and both internal capital market efficiency and firm value. These relations are more pronounced for firms with complex information environments and with weaker corporate governance. Higher internal information asymmetry also associates with a greater probability of divesting and with more positive shareholder wealth effects from refocusing events.
Blood and Money: Kin Altruism, Governance, and Inheritance in the Family Firm
Thomas Noe
(University of Oxford)
[View Abstract]
[Download Preview] This paper develops a theory of governance and inheritance within family-owned/family-managed
firms based on kin altruism (Hamilton, 1964). Family members weigh the payoffs to relatives in pro-
portion to relatedness. The theory shows that family ownership and management entails both costs
and benefits. Kin altruism makes relatives soft monitors. This leads to a “policing problem” within
family firms. This policing problem results in both increased managerial diversion and increased
monitoring costs at fixed compensation levels. Relatedness has conflicting effects on managerial
compensation, efficiency, and firm value. On the one hand, owners are more willing to concede
rents to family managers to increase collective family payoffs. On the other hand, because family
managers internalize the costs to the family from their rejection of owner demands, relatedness also
lowers managers’ reservation compensation demands. When incentive constraints bind, increasing
kinship always increases the efficiency of the family firm under family management but, in some
cases, does not increase firm value and may also promote nepotistic hiring. When the participation
constraint binds, kinship lowers efficiency but may raise firm value and does not induce nepotism.
Regardless of which constraint binds, introducing passive external capital into the family firm low-
ers the payoff and utility of owners and raises the payoff and utility of managers. When the family
firm is created by the bequest of a founder, under very weak restrictions, the calculus of relatedness
implies that the founder is more altruistic toward descendant managers than the descendant owner.
This higher degree of altruism may create incentives for founders to design complex bequests.
Household Inequality, Corporate Capital Structure and Entrepreneurial Dynamism
Fabio Braggion
(Tilburg University)
Mintra Dwarkasing
(Tilburg University)
Steven Ongena
(Tilburg University and University of Zurich)
[View Abstract]
[Download Preview] We empirically test hypotheses emanating from recent theory predicting that household wealth inequality may determine corporate financing and entrepreneurial dynamism. We construct two measures of wealth inequality at the US county level: one based on the distribution of financial rents in 2004 and another related to the distribution of land holdings in the late Nineteenth century. Our results suggests that entrepreneurs located in more unequal counties are more likely to finance their venture with their own resources or via bank and family financing. At the same time, they are less likely to use equity from angels and venture capital and to work in high-tech sectors. In financial markets, wealth inequality may affect capital structure/entrepreneurial choices both via demand and supply: we find evidence in favor of both channels.
Discussants:
Simi Kedia
(Rutgers University)
Vikram Nanda
(Rutgers University)
William Kerr
(Harvard Business School)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Tufts
Association of Indian Economics & Financial Studies
Gender, Socioeconomics and Development
(O2, O1)
Presiding:
Amitrajeet A. Batabyal
(Rochester Institute of Technology)
Women and Corruption: What Positions Must They Hold to Make a Difference?
Chandan K. Jha
(Louisiana State University)
Sudipta Sarangi
(Louisiana State University)
[View Abstract]
This paper explores whether it is the bribe-taking role, decision-making role or
policy making role in which women's presence can have an impact on corruption. The
paper uses instruments for the share of women in the labor force and in parliament
to address endogeneity concerns. Our findings from the cross-country analysis of more
than 100 countries indicate that only women's presence in parliament has a causal
and negative impact on corruption. Contrary to the hypothesis, other measures of
female participation in economic activities are shown to have no effect on corruption.
Using the panel analysis of more than 150 countries over the period 1997-2012, we
provide evidence that women policymakers tend to enact policies that are different from
those enacted by men which could be the potential channels through which women as
parliamentarians are able to reduce corruption. This paper is also the first to formally
investigate the notion of "corruption convergence in gender".
Corruption and Human Capital: A Cross-National Analysis
Shrabani Saha
(Lincoln Business School-United Kingdom)
Arusha Cooray
(University of Nottingham-Malasia)
[View Abstract]
Since the work of Mankiw, Romer and Weil (1992) and Barro (1991), there has developed a large literature on the importance of human capital for economic growth. A number of factors however, could constrain the accumulation of a nation’s human capital stock slowing down its growth trajectory. The present study focuses on corruption as one such factor which could adversely affect a country’s level of human development. Our contribution to the literature is threefold: (1) we hypothesise that corruption adversely affects the stock of human capital. The stock of human capital is measured by enrolment ratios (as in Mankiw, Romer and Weil 1992, Barro 1991, Levine and Renelt 1992). We use primary, secondary and tertiary enrolment ratios; (2) we examine if corruption reduces economic growth by lowering the stock of human capital. To examine the impact of corruption on growth, we employ the interaction effect between corruption and human capital on growth; (3) we also investigate, potential non-linearities in the relationship between corruption and the stock of human capital.
Stagnation or Transition? Poverty Traps and the Dynamics of Household Income
Raj Arunachalam
(University of Michigan)
Ajay Shenoy
(University of California-Santa Cruz)
[View Abstract]
[Download Preview] We find no evidence of poverty traps in a thirty year panel of rural Indian households. We instead find strong evidence of income convergence, but also rising inequality. Simulating a model of Solow households, we reconcile convergence and inequality with a rise in the variance of household productivity shocks. The results suggest that rural Indian households faced an economic environment in rapid transition.
Can improving women's inheritance rights improve the welfare of women?
Nayana Bose
(Vanderbilt University)
Shreyasee Das
(University of Wisconsin-Whitewater)
[View Abstract]
[Download Preview] This paper examines the effects of improving women's right to property on their education and intra-household allocation towards daughters. The Hindu Succession (Amendment) Act of 2005 extended ancestral property rights to unmarried daughters, however, five southern states in India had already passed the same amendment by 1994. Using this variation in policy implementation, we employ a difference-in-differences strategy using two rounds of the NSSO. We find that women who were of ages 11-15 during the time of the reform experienced an increase in the probability of educational attainment. Further, we find mothers who were exposed to the reform had a positive impact on the probability of their children increasing their level of educational attainment. Examining various consumption categories, we find that households with mothers exposed to the reform have decreased spending on education, whereas spending on jewelry has increased.
Will India’s Human Capital Deliver Its Demographic Dividend?
Emerald Anderson
(University of California-Santa Barbara)
Rajeev Sooreea
(Dominican University of California)
Gigi Gokcek
(Dominican University of California)
Daniel Tapia-Jimenez
(University of California-Davis)
[View Abstract]
India is projected to reach its demographic dividend in 2030, with about 68 percent of its population expected to be in the working age group (Meredith 2008). However, in light of this potential demographic dividend - rapid and sustained economic development achieved through a high working age to dependency ratio - India's development prospect is less clear cut. Although the demographic transition is under way, scholars have not reached consensus on whether India’s policy environment is conducive to realizing the full potential of this large labor force (Rodrik and Subramanian 2004, Kelkar 2004, Acharya 2004). To what extent might education policy, in particular, play a role in India’s preparedness for maximizing the benefits of its impending demographic dividend? This study aims at addressing this question using an empirical framework that combines not only growth accounting but also the political economy of human capital formation and education policy using newly developed datasets and borrowing methodological concepts from the trade policy literature.
Divergence of Fortune: The Unequal Effects of Economic Liberalization in India
Raja Kali
(University of Arkansas)
Jayati Sarkar
(Indira Gandhi Institute for Development Research)
[View Abstract]
In 1991 India adopted free-market principles and opened up its economy, eliminating what was referred to as the Permit Raj, a pre- and post-British era mechanism of strict government controls on industry. While the Indian economy has grown at an average rate of between 7-10% since then, the benefits of economic growth have been unevenly distributed, with growth rates of individual states diverging dramatically. What accounts for the large differences in economic outcomes across different regions of India? Our goal is to provide an answer to this puzzle. Our hypothesis is that a root cause of the divergence in economic fortunes post-liberalization is the differential impact of state planning, as manifested by the influence of the public sector in different regions of the country. Post-independence, the Government of India embarked on a series of ambitious infrastructure and development initiatives under the aegis of what were called “Five Year Plans.” The belief was that these initiatives would create backward and forward linkages in a host of associated sectors and create a “Big Push” toward rapid industrialization and economic development.
This development strategy relied on location of key basic and heavy industries in states that had easy access to key natural resources. Our conjecture is that the over-bearing role of state owned enterprises (SOEs) in these states distorted incentives and stifled entrepreneurship. On the other hand, states that were relatively lacking in natural resources were comparatively unscathed by planned economic development. Entrepreneurship had the opportunity to develop and even flourish in these states as a result of neglect on the part of the government. An unexpected consequence of this was that when the Indian economy was liberalized, these provinces were primed to take advantage of the opportunities and market forces that were unleashed. The provinces with a concentration of SOEs were on the other hand burdened by red-tape, bureaucracy and unionization – and fell behind. As a result, over the last twenty years there has been a “divergence of fortune” among the Indian states, with some states growing quite prosperous and others lagging behind. A key objective of this research is to examine the long-lasting and persistent effects of state intervention in the economy and its implications for the development of entrepreneurship.
Discussants:
Nayana Bose
(Vanderbilt University)
Subarna Samanta
(College of New Jersey)
Raj Arunachalam
(University of Michigan)
Nandita Dasgupta
(University of Maryland Baltimore County)
Shailendra Gajanan
(University of Pittsburgh-Bradford)
Anusua Dutta
(Philadelphia University)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Maine
Chinese Economic Association in North America
Firms, Insurance, and Market Frictions
(E2, G3)
Presiding:
Yi Wen
(Federal Reserve Bank of St. Louis)
Investment Shocks, Durable Goods and the Comovement
Been-Lon Chen
(Academia Sinica)
Shian-Yu Liao
(National Taiwan University)
[View Abstract]
Recent research based on sticky-price models suggests that capital investment shocks are the most important driver of business cycle fluctuations. Yet, investment shocks do not yield the comovement between investment and consumption because they generate an intertemporal substitution effect away from consumption toward investment that dominates the income effect. This paper resolves the comovement problem by extending the standard neoclassical sticky-price model to a two-sector model with consumer durable services. When durable goods are used as investment in capital and consumer durable services, positive capital investment shocks also generate an intratemporal substitution effect away from consumer durable services toward consumption that dominates the intertemporal effect. As a result, consumption increases, and the comovement problem is resolved.
Uterus at a Price: Disability Insurance and Hysterectomy
Elliott Fan
(National Taiwan University)
Hsien-Ming Lien
(National Chengchi University)
Ching-to Albert Ma
(Boston University)
[View Abstract]
Government Employee Insurance (GEI), Labor Insurance (LI), and Farmers’ Insurance (FI) are three mandatory and comprehensive Taiwanese disability programs. For a premium, an enrollee receives compensation under adverse events. We study reproduction impairment coverage. A woman under 45 years old qualifies for cash benefits if she becomes sterile due to i) hysterectomy (removal of the uterus), ii) oophorectomy (removal of both ovaries), or iii) radiation therapy. These programs are based on “insured salaries,” which are about 60-70% of salary in GEI but capped at NTD52,000, 100% of salary in LI and capped at NTD42,000, and NTD10,200 in FI. Premiums are about 8-9% of insured salaries for GEI and LI, and split between enrollees and employers, and 30% for FI. Benefit is 6 months of insured salary for GEI, and 5.5 months for LI and FI. Our sample consists of women born between 1947 and 1970 and their National Health Insurance medical records from 1997 to 2011. Information about enrollee identities and disability program enrollments is obtained from the beneficiary registry. A subsample consists of those who did not change disability coverage. We aim to follow women between ages 40 and 50. Our sample is both left and right censored.
The statistical analysis is a difference-in-difference model for cohorts of three treatment groups and the control, the set of women without coverage. Each woman has a clock zeroed at her 45th birthday. Time goes backward for 19 quarters and forward for 20. We estimate a woman’s hazard of hysterectomy as a function of how soon it is when she reaches her 45th birthday. Hysterectomy hazards rise sharply a few quarters before age 45, and drop sharply a few quarters after. This pattern does not happen with full oophorectomy (which qualifies for benefit), or partial oophorectomy and myomectomy (which do not qualify).
Do Treasure Islands Create Firm Value?
Siu-Kai Choy
(Shanghai University of Finance and Economics)
Tat-kei Lai
(Copenhagen Business School)
Travis Ng
(Chinese University of Hong Kong)
[View Abstract]
[Download Preview] They do! Otherwise, their use would not have been so prevalent among firms. How
much firm value they create, however, is still an open question. Exploiting a political
event in the U.K. that suddenly raised the cost of using tax havens, we find that
there was a 0.87% reduction in cumulative abnormal return (CAR) among the sampled
firms, corresponding to about £532 million in market capitalization. The firms
of stronger corporate governance registered a stronger reduction in CAR. A simple
linear extrapolation suggests that the firm value contributed by tax havens can be as
much as £31 billion.
Credit Search and the Credit Cycle
Feng Dong
(Shanghai Jiao Tong University)
Pengfei Wang
(Hong Kong University of Science and Technology)
Yi Wen
(Federal Reserve Bank of St. Louis)
[View Abstract]
The supply and demand of credit are not always aligned and well matched, as is reflected in the procyclical fluctuations in involuntary bank reserves and the interbank lending rate. We develop a search-based model of credit allocation to explain the fluctuations in bank’s' credit reserves and the spread between deposit and lending rates. We show that search frictions in the credit market can lead to self-fulfilling business cycles in aggregate consumption and investment, driven primarily by optimism/pessimism in the credit market. Our model also provides a micro-foundation for the class of indeterminacy models based on variable capital utilization rate. We show that with search frictions, the externality required in this class of models for indeterminacy can be reduced to zero in the limit.
Discussants:
Feng Dong
(Shanghai Jiao Tong University)
Min-Chung Hsu
(National Graduate Institute for Policy Studies)
Silvio Contessi
(Federal Reserve Bank of St. Louis)
Yi-Chan Tsai
(National Taiwan University)
Jan 04, 2015 10:15 am, Sheraton Boston, Beacon G
Econometric Society
Contracts, Incentives and Firms
(G3)
Presiding:
Efraim Benmelech
(Northwestern University)
Efficient Contracting in Network Markets
Darrell Duffie
(Stanford University)
Chaojun Wang
(Stanford University)
[View Abstract]
We model bargaining in over-the-counter network markets over the terms and prices of contracts. Of concern is whether bilateral non-cooperative bargaining is sufficient to achieve efficiency in this multilateral setting. For example, will market participants assign insolvency-based seniority in a socially efficient manner, or should bankruptcy laws override contractual terms with an automatic stay? We provide conditions under which bilateral bargaining over contingent contracts is efficient for a network of market participants. Examples include seniority assignment, close-out netting and collateral rights, secured debt liens, and leverage-based covenants. Given the ability to use covenants and other contingent contract terms, central market participants efficiently internalize the costs and benefits of their counterparties through the pricing of contracts. We provide counterexamples to efficiency for less contingent forms of bargaining coordination.
Ambiguity Aversion, Disagreement, and the Theory of the Firm
David L. Dicks
(University of North Carolina)
Paulo Fulghieri
(University of North Carolina)
[View Abstract]
[Download Preview] We present a novel source of disagreement within firms grounded in decision theory: ambiguity aversion. Specifically, we show that ambiguity aversion generates endogenous disagreement between a firm's insider and outside shareholders, creating a new rationale for corporate governance systems. Outsiders are well-diversified, but the insider holds only equity of the firm, a feature that we show leads to endogenous difference of opinion. We show that the strength of the corporate governance system depends on both firm characteristics and the composition of the outsiders' overall portfolio. A strong governance system is optimal when the value of the firm's assets in place, relative to the growth opportunity, is sufficiently small or is sufficiently large, suggesting a corporate governance life cycle. In addition, more diversified outsiders (such as generalist mutual funds) prefer stronger governance, while outsiders with a portfolio heavily invested in the same asset class as the firm (such as venture capitalists or private equity investors) are more willing to tolerate a weak governance system, where the portfolio companies' insiders have more leeway in determining corporate policies. Finally, we find that ambiguity aversion introduces a direct link between the strength of the corporate governance system and firm transparency, whereby firms with weaker governance should also optimally be more opaque.
Lawyers in the Executive Suite: Gatekeepers as Internal Governance
Adair Morse
(University of California-Berkeley)
Wei Wang
(Queen's University)
Serena Wu
(Queen's University)
[View Abstract]
Lawyers are increasingly part of executive decision-making reflecting the growing role of internal gatekeeping. We document that governance failures (frauds) occur less frequently after hiring general counsels into the executive suite. Perceived and caught frauds are 10% and 2.7% less likely to occur. We then hand-collect the career paths of executive general counsels to test how equity incentives given to gatekeepers causally impact governance and investment. Our identification comes from differences in reputational capital comparing lawyers hired from law firms and lawyers hired from positions in other corporations. In a matched difference-in-differences, we find that a one standard deviation increase in pay-for-performance sensitivity increases investment and acquisition intensity by 2.4% and 9.1% respectively. However, the same increase in equity incentives increases the likelihood of class action frauds by 13%, unwinding 66% of the gatekeeper role of improving governance. The evidence is consistent with the story that, when gatekeepers become executives, governance improvements may come at a shareholder cost in terms of risk appetite. Thus, boards use equity incentives to unwind the conservatism, but in the process, these equity incentives unwind the governance improvements of executive gatekeepers.
Discussants:
Konstantin Milbradt
(Northwestern University)
Simon Gervais
(Duke University)
Carola Frydman
(Northwestern University)
Jan 04, 2015 10:15 am, Sheraton Boston, Beacon E
Econometric Society
Eliciting Information for a Stopping Time Decision
(C1)
Presiding:
Sidartha Gordon
(Sciences Po)
Optimal Stopping with Private Information
Thomas Kruse
(Université d'Evry Paris)
Philipp Strack
(Microsoft Research New England)
[View Abstract]
Many economic situations are modeled as stopping problems. Examples include job search, timing of market entry decisions, irreversible investment or the pricing of American options. This paper analyzes optimal stopping as a mechanism design problem with transfers. We show that a under a dynamic single crossing condition a stopping rule can be implemented by a transfer that only depends on the realized stopping decision if and only if it is a cut-off rule. We characterize the transfer implementing a given stopping rule using a novel technique based on constrained stochastic processes. As an application we prove that in any Markovian optimal stopping problem there exists a welfare maximizing mechanism that does not require any communication.
Over-Cautious or Trigger-Happy Advisors---When Best to Stop
Sidartha Gordon
(Sciences Po)
Nicolas Alexandre Klein
(University of Montreal)
[View Abstract]
We study a dynamic cheap talk sender receiver game where the sender observes a stochastic process and sends messages to a receiver who takes a stopping time decision. We derive conditions under which an equilibrium exists under which the sender obtains his first best outcome.
The Importance of Being Honest
Nicolas Alexandre Klein
(University of Montreal)
[View Abstract]
This paper analyzes the case of a principal who wants to give an agent proper incentives to explore a hypothesis which can be either true or false. The agent can shirk, thus never proving the hypothesis, or he can avail himself of a known technology to produce fake successes. This latter option either makes the provision of incentives for honesty impossible, or does not distort its costs at all. In the latter case, the principal will optimally commit to rewarding later successes even though he only cares about the first one. Indeed, after an honest success, the agent is more optimistic about his ability to generate further successes. This in turn provides incentives for the agent to be honest before a first success.
Dynamic Delegation of Experimentation
Yingni Guo
(Northwestern University)
[View Abstract]
[Download Preview] I study a dynamic relationship in which a principal delegates experimentation to an agent. Experimentation is modeled as a one-armed bandit that yields successes following a Poisson process. Its unknown intensity is high or low. The agent has private information, his type being his prior belief that the intensity is high. The agent values successes more than the principal, so prefers more experimentation. I reduce the analysis to a finite-dimensional problem. The optimal mechanism is a cutoff rule in the belief space. The cutoff gives pessimistic types total freedom but curtails optimistic types' behavior. Surprisingly, this delegation rule is time-consistent.
Jan 04, 2015 10:15 am, Sheraton Boston, Beacon D
Econometric Society
Global Lessons from the Eurozone Crisis
(E3)
Presiding:
Thomas Philippon
(New York University)
Inspecting the Mechanism: Leverage and the Great Recession in the Eurozone
Thomas Philippon
(New York University)
Philippe Martin
(Sciences Po)
[View Abstract]
[Download Preview] Abstract We provide a first comprehensive account of the dynamics of Eurozone countries from the creation of the Euro to the Great recession. We model each country as an open economy within a monetary union and analyze the dynamics of private leverage, fiscal policy and spreads. Our parsimonious model can replicate the time-series for nominal GDP, employment, and net exports of Eurozone countries between 2000 and 2012. We then ask how periphery countries would have fared with: (i) more conservative fiscal policies; (ii) macro-prudential tools to control private leverage; (iii) a central bank acting earlier to limit sovereign spreads; and (iv) the possibility to recoup the competitiveness they lost in the boom. To perform these counterfactual experiments, we use U.S. states as a control group that did not suffer from a sudden stop. We find that periphery countries could have stabilized their employment if they had followed more conservative fiscal policies during the boom. This is especially true in Greece. For Ireland, however, given the size of the private leverage boom, such a policy would have required buying back almost all of the public debt. Macro-prudential policy would have been helpful, especially in Ireland and Spain. However, in presence of a spending bias in fiscal rules, macro-prudential policies would have led to less prudent fiscal policies in the boom. If spreads had not spiked, employment would have been stabilized in all countries because they would not have been constrained into fiscal austerity. Finally, if the more open countries - especially Ireland - had been able to regain in the bust the competitiveness they lost in the boom, they would have experienced a shorter and milder recession.
Who Owns Europe's Firms? Globalization and Foreign Investment in Europe
Sebnem Kalemli-Ozcan
(University of Maryland)
Volodymyr Korsun
(University of Houston)
Bent Sorenson
(University of Houston)
Carolina Villegas-Sanchez
(ESADE)
[View Abstract]
We investigate foreign ownership in 32 European countries using a harmonized firm level dataset for the years 1996{2008. Our dataset is unique, being bilateral and dynamic: we observe the amount of investment into each rm over time together with the identity of the investors, both direct and ultimate owners. First, we aggregate the firm level data according to destination country and origin country and provide a panorama of European equity investment patterns. Most of the foreign investment in European countries is from other European countries while direct investment from North America and Asia is low. However, a much larger share of the ultimate foreign owners in Europe are from North America or Asia, reflecting that such investors own European firms indirectly, typically through financial centers. Second, we evaluate firm and country-level determinants of foreign investment using our data. We examine whether foreigners invest in more or less productive firms or large firms, whether regulatory policies deter foreign investment, and whether such country-level policies affect foreigners' choices to invest in certain firms. We study regulatory policies for product markets and financial markets: we find that more stringent product market policies and policies on foreign direct investment (FDI) in the destination country deter foreign investment in any sector. Further, in the manufacturing sector, stringent FDI regulations cause foreign investors to select firms with above average labor productivity, although this pattern is not found for total factor productivity.
What Drives the German Current Account? And How Does it Affect Other EU Member States?
Robert Kollmann
(Université Libre de Bruxelles and CEPR)
Marco Ratto
(European Commission)
Werner Roeger
(European Commission)
Jan in't Veld
(European Commission)
Lukas Vogel
(European Commission)
[View Abstract]
[Download Preview] We estimate a three-country model using 1995-2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyze the determinants of Germany’s current account surplus after the launch of the Euro. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labor market reforms and other positive German aggregate supply shocks. The convergence of REA interest rates to German rates due to the creation of the Euro only had a modest effect on the German current account and on German real activity. The key shocks that drove the rise in the German current account tended to worsen the REA trade balance, but had a weak effect on REA real activity. Our analysis suggests these driving factors are likely to be slowly eroded, leading to a very gradual reduction of the German current account surplus. An expansion in German government consumption and investment would raise German GDP and reduce the current account surplus, but the effects on the surplus are likely to be weak.
Heterogeneous Countries in a Financial Union
Filippo Balestrieri
(Hewlett-Packard Laboratories)
Suman Sambha Basu
(International Monetary Fund)
[View Abstract]
[Download Preview] A financial union is a group of countries, each with its own nontradable goods sector, which can freely exchange tradable goods and debt contracts. In this paper, we establish the effects of shocks in a stylized financial union with heterogeneous regions - a lender North and a borrower South - and constraints on borrowing. We derive positive and normative results. First, when the degree of heterogeneity is high before the shock, the South is disproportionately hurt by the shock, no matter whether the shock strikes in the North or the South. Second, for a given value of the shock, when borrowing constraints bind in the South, the welfare of the North decreases while the welfare of the South may increase. Third, we characterize which policy interventions are able to generate Pareto improvements. Unconditional debt relief for the South fails to do so. Subsidized governmental loans succeed when Southern governments can commit to repay additional debt. Finally, whether or not Southern governments can commit to repay anything, a Pareto improvement is possible using a combination of conditional debt relief and a tax/subsidy package in the South.
Discussants:
Ivan Werning
(Massachusetts Institute of Technology)
Vania Stavrakeva
(London Business School)
Patricia Gomez-Gonzalez
(Bank of Spain)
Jan 04, 2015 10:15 am, Sheraton Boston, Beacon H
Econometric Society
Labor Market Search and Career Dynamics
(J2, J3)
Presiding:
George-Levi Gayle
(Washington University-St. Louis)
Job Search and Migration in a System of Cities
Modibo Sidibe
(Duke University)
Benoit Schmutz
(Howard University)
[View Abstract]
[Download Preview] We build an equilibrium job search model, where workers engage in both off- and on-the-job search over a set of cities, to quantify the impact of spatial matching frictions and mobility costs on the job search process. Migration decisions, based on a dynamic utility trade-off between locations, can rationalize diverse wage dynamics as part of forward-looking spatial strategies. Our estimation results allow us to characterize each of the largest 200 French cities by a set of city-specific matching and amenity parameters and to measure the impact of distance on spatial constraints. We find that after controlling for frictions, mobility cost parameters are significantly lower than previously reported in the literature. Additional results include a robust positive correlation between on-the-job arrival rates and local wage dispersion, which provides new empirical support to the wage-posting framework and suggests an alternative explanation for the city size wage gap.
Post Schooling Human Capital Investments and the Life Cycle Variance of Earnings
Thierry Magnac
(Toulouse School of Economics)
Nicolas Pistolesi
(Toulouse School of Economics)
Sebastien Roux
(Banque de France)
[View Abstract]
[Download Preview] We propose an original model of human capital investments after leaving school in which individuals differ in their initial human capital obtained at school, their rates of return and costs of human capital investments and their terminal values of human capital at an arbitrary date in the future. We derive a tractable reduced form Mincerian model of log earnings profiles along the life cycle which is written as a linear factor model in which levels, growth and curvature of earnings profiles are individual-specific. Using panel data from a single cohort of French male wage earners observed over a long span of 30 years starting at their entry in the labor market, we estimate this model by random and fixed effect methods, test restrictions, decompose variance of earnings into permanent and transitory components and evaluate how earnings inequality over the life-cycle is affected by changes in structural parameters. In particular, increases in life expectancy bring about sizeable increases in earnings inequality.
Promotion, Turnover and Compensation in the Executive Labor Market
George-Levi Gayle
(Washington University-St. Louis)
Limor Golan
(Washington University-St. Louis)
Robert Allen Miller
(Carnegie Mellon University)
[View Abstract]
[Download Preview] This paper documents that total compensation and incentive pay increase with firm size in the executive labor market. It constructs and estimates an equilibrium dynamic generalized Roy model with human-capital accumulation and moral hazard to control for nonrandom assignment of executives across firms and jobs. The estimated model is used to decompose the firm-size pay gap into five sources: Larger firms (1) hire higher quality executives, (2) offer worse working environments, (3) have higher demand for executives relative to the pool of executives, (4) are less able to monitor executives, and (5) have more severe agency problems. To control for nonrandom sorting and risk aversion, the paper calculates the certainty-equivalent wage by firm size. It finds that, unlike the raw data, the certainty-equivalent wage is decreasing in firm size. The main reason for this reversal is that the nonpecuniary costs of working are larger in smaller firms. Therefore, the paper finds no support for source (2) and that the remaining sources can completely account for the firm-size pay gap in the executive labor market. Of all the remaining sources of the firm-size pay gap, the risk premium paid to correct the inefficiencies caused by sources (4) and (5) accounts for more than 80% of firm-size total-compensation gap. A further decomposition of the firm-size monitoring and agency gaps shows that the discrepancy between shareholders' and executives' interest, as well as, the percentage of the equity value lost if executives act in their own interests (shirking) instead of maximizing the value of equity are decreasing in firm size. Therefore the risk premium, and hence compensation, is increasing in firm size because the effect of shirking is amplified by the greater value of resources managed by larger firms.
Jan 04, 2015 10:15 am, Sheraton Boston, Public Garden
Econometric Society
Personnel and Human Resources
(M5) (Panel Discussion)
Panel Moderator:
Nicola Persico
(Northwestern University)
Edward Lazear
(Stanford University)
Personnel Economics: Using Economics to Understand People Issues
John Van Reenen
(London School of Economics)
Personnel and Human Resources
Oriana Bandiera
(London School of Economics)
Personnel and Human Resources Discussion
Jan 04, 2015 10:15 am, Sheraton Boston, Beacon F
Econometric Society
Time Series Methods
(C5)
Presiding:
Dacheng Xiu
(University of Chicago)
Fitting Vast Dimensional Time-Varying Covariance Models
Robert F. Engle
(New York University)
Cavit Pakel
(Bilkent University)
Neil Shephard
(Harvard University)
Kevin Keith Sheppard
(University of Oxford)
[View Abstract]
[Download Preview] Building models for high dimensional portfolios is important in risk management and asset allocation. Here we propose a novel and fast way of estimating existing models of time-varying covariances that overcome an undiagnosed incidental parameter problem which has troubled existing methods when applied to hundreds or even thousands of assets. Indeed we can handle the case where the cross-sectional dimension is larger than the time series one. The theory of this new strategy is developed in some detail, allowing formal hypothesis testing to be carried out on these models. Simulations are used to explore the performance of this inference strategy while empirical examples are reported which show the strength of this method. The out of sample hedging performance of various models estimated using this method are compared.
Sign Restrictions, Structural Vector Autoregressions, and Useful Prior Information
Christiane Baumeister
(Bank of Canada)
James D. Hamilton
(University of California-San Diego)
[View Abstract]
[Download Preview] This paper makes the following original contributions to the literature. (1) We develop a simpler analytical characterization and numerical algorithm for Bayesian inference in structural vector autoregressions that can be used for models that are overidentified, just-identified, or underidentified. (2) We analyze the asymptotic properties of Bayesian inference and show that in the underidentified case, the asymptotic posterior distribution of contemporaneous coefficients in an n-variable VAR is confined to the set of values that orthogonalize the population variance-covariance matrix of OLS residuals, with the height of the posterior proportional to the height of the prior at any point within that set. For example, in a bivariate VAR for supply and demand identified solely by sign restrictions, if the population correlation between the VAR residuals is positive, then even if one has available an infinite sample of data, any inference about the demand elasticity is coming exclusively from the prior distribution. (3) We provide analytical characterizations of the informative prior distributions for impulse-response functions that are implicit in the traditional sign-restriction approach to VARs, and note, as a special case of result (2), that the influence of these priors does not vanish asymptotically. (4) We illustrate how Bayesian inference with informative priors can be both a strict generalization and an unambiguous improvement over frequentist inference in just-identified models. (5) We propose that researchers need to explicitly acknowledge and defend the role of prior beliefs in influencing structural conclusions and illustrate how this could be done using a simple model of the U.S. labor market.
Measuring Uncertainty about Long-Run Predictions
Ulrich K. Müller
(Princeton University)
Mark W. Watson
(Princeton University)
[View Abstract]
[Download Preview] Long-run forecasts of economic variables play an important role in policy, planning, and portfolio decisions. We consider forecasts of the long-horizon average of a scalar variable, typically the growth rate of an economic variable. The main contribution is the construction of predictive sets with asymptotic coverage over a wide range of data generating processes, allowing for stochastically trending mean growth, slow mean reversion and other types of long-run dependencies. We illustrate the method by computing predictive sets for 10 to 75 year average growth rates of U.S. real per-capita GDP, consumption, productivity, price level, stock prices and population.
Jan 04, 2015 10:15 am, Sheraton Boston, Beacon A
Economic History Association
Politics and Institutions
(N2)
Presiding:
Paul Rhode
(University of Michigan)
The Financial Power of the Powerless: Socio-Economic Status and Interest Rates under Weak Rule of Law
Jared Rubin
(Chapman University)
Timur Kuran
(Duke University)
[View Abstract]
[Download Preview] In advanced economies interest rates generally vary inversely with the borrower’s socio-economic status, because status tends to depend inversely on default risk. Both of these relationships depend critically on the impartiality of the law. Specifically, they require a lender to be able to sue a recalcitrant borrower in a sufficiently impartial court. Where the law is markedly biased in favor of elites, privileged socio-economic classes will pay a premium for capital. This is because they pose a greater risk to lenders who have limited means of punishing them. Developing the underlying theory, this paper also tests it through a data set consisting of judicial records from Ottoman Istanbul, 1602-1799. Pre-modern Istanbul offers an ideal testing ground, because rule of law existed but was highly partial. Court data show that titled elites, men, and Muslims all paid higher interest rates conditional on various loan characteristics. A general implication is that elites have much to gain from instituting impartially enforced rules in financial markets even as they strive to maintain privileges in other domains. It is no coincidence that in the Ottoman Empire the beginnings of legal modernization included the establishment of relatively impartial commercial courts.
Unified China and Divided Europe
Tuan-Hwee Sng
(National University of Singapore)
Mark Koyama
(George Mason University)
Chiu Yu Ko
(National University of Singapore)
[View Abstract]
[Download Preview] This paper studies the causes and consequences of political centralization and fragmentation in China and Europe. We argue that the severe and unidirectional threat of external invasion fostered political centralization in China while Europe faced a wider variety of smaller external threats and remained politically fragmented. We test our hypothesis using data on the frequency of nomadic attacks and the number of regimes in China. Our model allows us to explore the economic consequences of political centralization and fragmentation. Political centralization in China led to lower taxation and hence faster population growth during peacetime than in Europe. But it also meant that China was relatively fragile in the event of an external invasion. Our results are consistent with historical evidence of warfare, capital city location, tax levels, and population growth in both China and Europe.
Finding the Fat: The Relative Impact of Budget Fluctuations on African-American Schools
Richard Baker
(Vanderbilt University)
[View Abstract]
[Download Preview] On average, per pupil expenditures were much lower in schools attended by African-American children than in schools attended by whites during the period of de jure segregation. Little is known, however, about what motivated school boards to maintain this inequality or why they funded African-American schools at all. Using newly collected data on schools in early twentieth-century Georgia and exploiting a funding discontinuity resulting from the rules regarding appropriations from the State School Fund, this paper examines how school boards divvied up the proceeds of exogenous shifts in school budgets by race. In response to a one dollar per pupil budget cut, instructional expenditures in white schools fell by $1.43 per pupil, while they remained unchanged in African-American schools. Thus, whites, rather than African Americans, bore the brunt of budget cuts, indicating that there was little fat to trim from the budgets of African-American schools. This suggests that school boards were motivated to finance African-American schools by a need to maintain token compliance with "separate but equal."
Extractive Institutions and Gains from Trade: Evidence from Colonial Africa
Federico Tadei
(California Institute of Technology)
[View Abstract]
[Download Preview] A common explanation for African current underdevelopment is the extractive character of institutions established during the colonial period. Yet, since colonial extraction is hard to quantify, its precise mechanisms and magnitude are still unclear. In this paper, I tackle these issues by focusing on colonial trade in French Africa. By using new data on export prices, I show that the colonizers used trade monopsonies and coercive labor institutions to reduce prices to African agricultural producers way below world market prices. As a consequence, during the colonial period, extractive institutions cut African gains from trade by at least one-half.
Discussants:
Eric Chaney
(Harvard University)
Se Yan
(Peking University)
Paul Rhode
(University of Michigan)
Nathan Nunn
(Harvard University)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Vermont
Economic Science Association
Political Engineering
(D7, D6)
Presiding:
T. Nicolaus Tideman
(Virginia Tech)
Quadratic Voting
Steven P. Lalley
(University of Chicago)
E. Glen Weyl
(Microsoft Research New England)
[View Abstract]
[Download Preview] While the one-person-one-vote rule often leads to the tyranny of the majority, alternatives proposed by economists have been complex and fragile. By contrast, we argue that a simple mechanism, Quadratic Voting (QV), is robustly very efficient. Voters making a binary decision purchase votes from a clearinghouse paying the square of the number of votes purchased. If individuals take the chance of a marginal vote being pivotal as given, like a market price, QV is the unique pricing rule that is always efficient. In an independent private values environment, any type-symmetric Bayes-Nash equilibrium converges towards this efficient
limiting outcome as the population grows large, with inefficiency decaying as 1/N. We use approximate calculations, which match our theorems in this case, to illustrate the robustness of QV, in contrast to existing mechanisms. We discuss applications in both (near-term) commercial and (long-term) social contexts.
Aggregating Local Preferences To Guide Policy
Daniel Benjamin
(Cornell University)
Gabriel Carroll
(Stanford University)
Ori Heffetz
(Cornell University)
Miles Kimball
(University of Michigan)
[View Abstract]
[Download Preview] How could well-being data, for example those based on survey measures, be used for guiding policy? Exploring one direction, we analyze a mechanism that takes as inputs estimates of policy effects on different groups’ utility proxies (constructed from the well-being data), and aggregates them into policy-change recommendations. We develop three justifications for the mechanism based on: an analogy with social welfare maximization, a formal equivalence to a voting procedure, and an axiomatic characterization. We show that iterated application of the mechanism has a stationary point that is Pareto efficient. Through analytic results and simulations, we assess potential limitations of the mechanism, such as its sensitivity to the units in which policies are measured.
Storable Votes and Judicial Nominations in the United States Senate.
Alessandra Casella
(Columbia University)
Sebastien Turban
(California Institute of Tecnology)
Gregory Wawro
(Columbia University)
[View Abstract]
[Download Preview] We model a procedural reform aimed at restoring a proper role for the minority in the confirmation process of judicial nominations in the U.S. Senate. We analyze a proposal that would call for nominations to the same level court to be collected in periodic lists and voted upon individually with Storable Votes, allowing each senator to allocate freely a fixed number of total votes. Although each nomination is decided by simple majority, storable votes make it possible for the minority to win occasionally, but only when the relative importance its members assign to a nomination is higher than the relative importance assigned by the majority. Numerical simulations, motivated by a game theoretic model, show that under plausible assumptions a minority of 45 senators would be able to block between 20 and 35 percent of nominees. For most parameter values, the possibility of minority victories increases aggregate welfare.
Purchasing Votes without Cash: Implementing Quadratic Voting Outside the Lab
Roman David Zarate
(University of California-Berkeley)
Cesar Mantilla
(Toulouse School of Economics)
Juan Camilo Cárdenas
(Universidad de los Andes)
[View Abstract]
[Download Preview] We compare behavior under Quadratic Voting with respect to the conventional One Man One Vote system in a context of a discrete valuation distribution with non zero mean for a binary collective decision. Unlike, the One Man One Vote system, in which a majority rule of 50+1 could yield socially inefficient outcomes if the intensity of the preferences in the minority is larger than in the majority, Quadratic Voting allows subjects to express the intensity of their preferences by purchasing votes at a quadratic cost and overcome the inefficient outcome. Once the votes are counted and a particular outcome or public good is provided, the proceeds from the allocation of voters to votes gets redistributed back to the subjects inversely proportional to their allocation of endowments to votes. We conduct an experiment with university students in which we analyze their understanding of the mechanism and their voting behavior. We use tickets for a raffle of a valuable prize instead of cash as the currency in the experiment, compelling us to round the rebate unlike the original model of Quadratic Voting (Weyl, 2013). As a consequence, the equilibria under Quadratic Voting in our setting is a subset of the equilibria under the One Man One Vote system. We find that the overspending of voters under Quadratic Voting is proportional to their exogenous valuation of the policies voted to be implemented.
Discussants:
Eric S. Maskin
(Harvard University)
Richard J. Zeckhauser
(Harvard University)
John Morgan
(University of California-Berkeley)
Erik Snowberg
(California Institute of Technology)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom--Salons J & K
Economists for Peace & Security
United States-Russia: Avoiding a New Cold War
(F5) (Panel Discussion)
Panel Moderator:
Richard Kaufman
(Bethesda Research Institute)
Robert Skidelsky
(Warwick University)
Allen Sinai
(Decision Economics)
Stephen Walt
(Harvard University)
Charles Knight
(Project on Defense Alternatives)
James Carroll
(Boston Globe)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Provincetown
Health Economics Research Organization
New Evidence on Geographic Variations in Health Care
(I1)
Presiding:
Joseph Newhouse
(Harvard University)
Do Commercial Health Care Prices Influence Medicare Spending?
John A. Romley
(University of Southern California)
Erin Trish
(University of Southern California)
Dana P. Goldman
(University of Southern California)
[View Abstract]
Extensive geographic variation has been documented among both per capita Medicare spending and prices negotiated between insurers and providers for treating the commercially insured. However, limited research has evaluated the relationship between the two. We analyze the potential spillover effect of commercial prices and resultant price-cost margins as a potential determinant of provider-based incentives and, ultimately, the level of Medicare utilization and spending, focusing specifically on hospital care throughout the U.S. in 2008. We instrument for commercial prices and hospital concentration using population-based instruments and find that a market-level commercial price index that is 10% below its average is associated with Medicare spending that is 3.7% above its average (p < 0.01). These results suggest that providers may respond to low commercial prices by shifting service volume out of the commercial sector into Medicare. As a consequence, changes in insurer and provider market structure that affect negotiated commercial payment rates may have important spillover effects on Medicare spending.
Geographic Variation in Medical Spending
Joseph Newhouse
(Harvard University)
[View Abstract]
[Download Preview] The Institute of Medicine, acting on a request by the Congress, recently released two reports on geographic variation. One report covered variation in the Medicare program, including Parts C and D, and also took up the question of whether Medicare should reimburse areas with a high “value index” more, where the value index was an undefined function of the quality of care delivered and the cost to the Medicare program. The second report estimated the amount of variation in spending if all payers, not just Medicare, were included. Both reports also examined the association between measures of medical care quality and spending.
Geographic Variation in Quality of Care for Commercially Insured Patients
Michael Richard McKellar
(Harvard University)
Mary Beth Landrum
(Harvard University)
Teresa Gibson
(Harvard University)
Bruce Landon
(Harvard University)
A. Mark Fendrick
(University of Michigan)
Michael Chernew
(Harvard University)
[View Abstract]
Background: Although there is extensive evidence on geographic variation in spending, there is limited research assessing geographic variation in quality, particularly among commercially insured enrollees.
Objective: To evaluate the geographic variation in quality measures among the commercially insured and their correlations to each other.
Data Source: Administrative medical and drug claims for over 41 million commercially insured individuals from 2007 to 2009 from the Truven MarketScan database were analyzed.
Methods: We calculated the variations and correlations in 10 quality measures across 306 Hospital Referral Regions (HRRs), adjusting for demographic and health-related characteristics and sample size differences.
Results: The quality of care provided to the commercially insured population varied across regions. The ratio of performance of the HRR at the 90th percentile to the HRR at the 10th percentile of performance varied by measure but ranged between 1.1 and 2.1. Moreover, the measures examined were only modestly correlated with one another (correlations generally between 0.2 and 0.5).
Conclusion: Performance on quality measures varies widely across geographic areas and quality measures are not well correlated with each other.
Key Words: Geographic variation, quality, spending, markets
Discussants:
Joshua Graff Zivin
(University of California-San Diego)
Carrie Colla
(Dartmouth University)
Austin Frakt
(Boston University)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Simmons
Industrial Organization Society
Frontiers of Empirical Industrial Organization
(L1)
Presiding:
Marc Rysman
(Boston University)
Drip Pricing When Consumers Have Limited Foresight: Evidence from Driving School Fees
David Muir
(University of Pennsylvania)
Katja Seim
(University of Pennsylvania)
Maria Ana Vitorino
(University of Minnesota)
[View Abstract]
[Download Preview] This paper empirically investigates the add-on or “drip” pricing behavior of firms in the Portuguese market for driving instruction. We present a model along the lines of Gabaix and Laibson (2006) in which consumers purchase a base and, with some probability, an add-on product from the same firm, but are not always aware of the possible need for the add-on product. We show that a typical loss leader pricing strategy emerges whereby markups on the upfront product are artificially lowered, while firms price the add-on at monopoly levels. We then test the implications of the model using a detailed snapshot of industry data on student characteristics and preferences, school attributes including prices and costs, and market demographics for a cross-section of local markets with differing numbers of school competitors. We find significant evidence in support of the model predictions, including that firms face a substantial profit motive in the add-on market. Most notably, markups for the base product, but not the add-on products, decline in the number of competitors a firm faces, a prediction that has not been established in the empirical literature to date. Finally, we estimate an empirical version of the model to show that approximately one-quarter of students are not aware of the add-on when making their school choice. This result has important policy implications about the cross-subsidization from those students who are unaware of the add-on to those who are.
The Welfare Effects of Congestion in Uncoordinated Assignment: Evidence from the NYC HS Match
Atila Abdulkadiroglu
(Duke University)
Nikhil Agarwal
(Massachusetts Institute of Technology)
Parag A. Pathak
(Massachusetts Institute of Technology)
[View Abstract]
Centralized and coordinated school assignment systems are a growing part of recent education reforms. This paper estimates school demand using student rank order lists submitted in New York City’s high school assignment system launched in Fall 2003 to study the effects of coordinating admissions in a single-offer mechanism based on the deferred acceptance algorithm. In the previous mechanism, students were allowed to rank five choices and admissions offers were not coordinated across schools. While 18% of students obtain multiple first round offers, the uncoordinated mechanism’s congestion led more than a third of students to be unassigned after the main round and ultimately administratively placed in the over-the-counter round. Under the new mechanism, there is a 7.2 percentage point increase in matriculation at assigned school and students are assigned to schools that are on average 0.69 miles further away from home. Even though students prefer nearby schools, our preference estimates suggest substantial heterogeneity in willingness to travel for better schools. We estimate that the average student’s welfare gain from the improved school match is equal to eight times the disutility from increased travel, implying that allocative changes are not zero-sum. Students from across all demographic groups, boroughs, and baseline achievement categories obtain a more preferred assignment on average, though the benefit is larger for student groups more likely to be unassigned after the old mechanism’s main round. The gains from coordinating assignment are larger than those from relaxing design constraints in the new mechanism.
Deposit Competition and Financial Fragility: Evidence from the United States Banking Sector
Mark Egan
(University of Chicago)
Ali Hortacsu
(University of Chicago)
Gregor Matvos
(University of Chicago)
[View Abstract]
We develop and estimate an empirical model of the U.S. banking sector using a new data set covering the largest U.S. banks over the period 2002-2013. We find empirical and theoretical evidence suggesting that deposit competition and the interdependence between demand for deposits and bank solvency inherently create financial fragility. Our demand estimation results suggest that a bank's ability to attract uninsured rather than insured deposits depends critically on its financial solvency. We use estimated demand elasticities for interest rates and CDS spreads to calibrate a model of bank competition in the spirit of Matutes and Vives (1996) that incorporates imperfect competition and endogenous bankruptcy decisions on the supply-side, and rational expectations on the demand-side. At the estimated parameter values, our model has multiple equilibria across which equilibrium survival probabilities and interest rates differ significantly. We use our model to assess recent and proposed bank regulatory changes. In particular, we find that increasing FDIC insurance could improve the equilibrium survival probabilities across the banking system, and could actually lower the cost of providing FDIC insurance. Conversely, we find that certain interventions to bank risk limits may actually lower banks' equilibrium survival probabilities.
Information Frictions and the Welfare Consequences of Adverse Selection
Benjamin Handel
(University of California-Berkeley)
Jonathan Kolstad
(University of Pennsylvania)
Johannes Spinnewijn
(London School of Economics)
n/a
Discussants:
Chris Conlon
(Columbia University)
Francesco Decarolis
(Boston University)
Ginger Zhe Jin
(University of Maryland)
Dan Ackerberg
(University of Michigan)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Yarmouth
International Association for Feminist Economics
(Feminist) Economic Decision Making: Marriage, Mobility, and Fertility
(J6)
Presiding:
Julie Nelson
(University of Massachusetts-Boston)
Common Law Marriage, Couple Formation, and Marriage
Shoshana Grossbard
(San Diego State University)
Victoria Vernon
(Empire State College)
[View Abstract]
[Download Preview] A major reason why couples are formed is to provide a protective environment for children. Children born to single mothers typically grow up with less of a father's presence in their lives than children born to an unwed couple (see Mincy and Oliver, 2003). Relative to children raised by a couple, child ren raised by a single parent often achieve less in terms of school performance (McLanahan and Gary Sandefur, 1994; McLanahan and Sigle-Rushton, 2004) and have higher rates of depression and crime participation (Hobcraft, 1998; Sigle-Rushton et al., 2005). Whether couples are married or cohabit may also have implications for children. From the standpoint of child advocacy, couple formation and marriage rates are therefore policy-relevant topics for research. In this paper we examine whether couple formation, marriage, and cohabitation rates can be associated with variation in the state-level availability of Common Law Marriage (CLM) and sex ratio defined as the ratio of men to women in marriage markets.
Women in the Economy in India: Insights from the NSS Data on Migration
Smriti Rao
(Assumption College)
[View Abstract]
[Download Preview] Rates of permanent economic migration by women in India have been low and falling, in contrast to other parts of the world where capitalists have drawn upon young, single women as a reserve army of labor. In this paper I use NSS surveys from 1983 to 2007/08 to investigate the socio-economic correlates of economic migration by women in India. I decompose migration streams by distance as well as sectoral composition and link these results to the wider debate on the low workforce participation rates of Indian women. The results indicate that low female economic migration rates are not a statistical aberration due to incorrectly designed survey methodology and that a lack of supply of “good” jobs reinforces demand-side barriers to female workforce participation. This data suggests yet again that it is not the state-market tussle (that economists tend to be preoccupied with) but rather the struggle between family and market, and the continuing resilience of the patriarchal family in that tussle, that is the most remarkable feature of the Indian social and economic landscape.
Pension and the Family
Mizuki Komura
(Nagoya University)
[View Abstract]
[Download Preview] The effects of pension policies on fertility have been examined in the overlapping generations (OLG) model of unitary household in which no heterogeneity exists between the wife and the husband. This paper departs from the OLG model and focuses on the marital bargaining arising from the heterogeneity in a couple in a non-unitary model. Specifically, this paper examines how the pension policy affects the endogenous fertility of a bargaining couple who have different lifespans. The analysis finds out a new channel of pension policy on fertility decisions: an increase in pension size affects fertility not only via the changes in current and future income, but through a change in marital bargaining power. This channel leads a plausible argument that an increase in a pay-as-you-go (PAYG) pension further accelerates a decline in fertility through the empowerment of women.
Assets and Shocks: A Gendered Analysis of Ecuador, Ghana, and Karnataka, India
Cheryl Doss
(Yale University)
Abena D. Oduro
(University of Ghana)
Carmen Diana Deere
(University of Florida)
Hema Swaminathan
(Centre for Public Policy-Indian Institute of Management Bangalore)
William Baah-Boateng
(University of Ghana-Legon)
J. Y. Suchitra
(Indian Institute of Management Bangalore)
[View Abstract]
[Download Preview] Drawing upon representative household surveys in Ecuador, Ghana and Karnataka, India, we analyze the relationship between assets and shocks. In this paper we analyze two dimensions of the relationship between assets and shocks, i.e. asset loss as part of the shock and the loss of assets that occurs when assets are pawned or sold as part of the coping strategy. This analysis is important because of the role assets can play in helping households and individuals cope with vulnerability and avoid impoverishment. However, there may be limits to using assets as a coping strategy if the shock itself involves the loss of assets, such as through a fire or livestock loss due to theft or disease. Asset shocks deplete asset wealth and reduce the capacity to protect consumption and income using asset-based strategies when shocks occur. A gendered analysis of assets and shocks is important because women and men in the same household may not always experience the same shocks or be impacted by them in the same way. Women and men do not always have access to the same pool of resources and may therefore employ different coping strategies even when experiencing the same shock. This paper provides some insights into which assets are lost as a direct result of the shock, whose assets are lost, which assets are sold or pawned, to whom they belong, who is involved in the decision to sell or pawn the asset and whether the asset has been replaced.
Jan 04, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon H
International Banking Economics & Finance Association
Stress Tests and Systemic Risk
(G1, G2)
Presiding:
Kasper Roszbach
(Sveriges Riksbank)
Did the EBA Capital Exercise Cause a Credit Crunch in the Euro Area?
Jean-Stéphane Mésonnier
(Banque de France)
Allen Monks
(Banque de France)
[View Abstract]
[Download Preview] We exploit a unique monthly dataset of euro area bank balance sheets to document the impact of the EBA's 2011/12 Capital Exercise on bank lending. We find that banks in a banking group forced to increase its CT1 capital ratio by 1 percent have had an annualized loan growth (over nine months) that was 1.2% lower than for banks in unconstrained groups. We also find at the country level that banks that did not have to recapitalize did not substitute for more constrained lenders. Our results are of particular relevance for the decisions facing the new European Single Supervisory Mechanism.
A Probability-Based Stress Test of Federal Reserve Assets and Income
Jens Christensen
(Federal Reserve Bank of San Francisco)
José Lopez
(Federal Reserve Bank of San Francisco)
Glenn Rudebusch
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] To support the economy, the Federal Reserve amassed a large portfolio of long-term bonds. We
assess the Fed’s associated interest rate risk—including potential losses to its Treasury securities holdings and declines in remittances to the Treasury. Unlike past examinations of this interest rate risk, we attach probabilities to alternative interest rate scenarios. These probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields. The resulting probability-based stress test finds that the Fed’s losses are unlikely to be large and remittances are unlikely to exhibit more than a brief cessation.
Systemic Risk and Market Liquidity
Kebin Ma
(Warwick University)
[View Abstract]
[Download Preview] This paper studies a model where investors' systemic risk-taking is driven by their need for market liquidity. By investing in the same asset of systemic risk, investors can expect homogeneous returns and thereby limit their private information on asset qualities. This mitigates adverse selection and fosters asset liquidity. Such liquidity creation, however, results in systemic risk: When the asset experiences a loss, all investors become stressed at the same time. Herding therefore presents a trade-off between systemic risk and liquidity creation. The model also suggests that systemic risk and leverage are mutually reinforcing: Investing in a systemic-but-liquid asset increases collateral value and debt capacity. Moreover, investors leveraged with short-term debt will find the systemic-but-liquid asset attractive for reducing the risk of runs. The paper offers an explanation of why banks collectively exposed themselves to mortgage-backed securities prior to the crisis, and why the exposure grew when banks were increasingly leveraged using wholesale short-term funding.
When Are Fire Sales Inefficient?
Anton Korinek
(Johns Hopkins University)
[View Abstract]
Fire-sales have been viewed as an essential ingredient of the amplification mechanisms that generated the Financial Crisis and Great Recession of 2008/09. Frequently, it has been suggested that the externalities associated with Fire-sales should be addressed using a new framework of macroprudential financial regula-
tion. However, the precise circumstances under which fire sales lead to inecieny have not been well understood. This paper shows that fire sales by financially constrained agents that had the ability to insure themselves in a complete risk market actually lead to constrained efficient outcomes. However, there are two circumstances under which fire sales by constrained agents lead to inefficient outcomes: (i) if agents are unable to insure against re-sales because of incomplete ex-ante risk markets or (ii) if the nancial constraint of agents is itself a function of aggregate variables such as market prices, for example because collateral is priced by market forces. We distinguish these two types of ineciencies into
fire-sale externalities and collateral externalities. We characterize an externality pricing kernel that captures the state-contingent magnitude of such externalities and provides.
Discussants:
Jakob de Haan
(De Nederlandsche Bank)
Scott Frame
(Federal Reserve Bank of Atlanta)
Anton Korinek
(Johns Hopkins University)
Toni Ahnert
(Bank of Canada)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Harvard
International Economic & Finance Society
Firms, Productivity and Exporting
(F1)
Presiding:
Benjamin C. Zissimos
(University of Exeter)
Global Engagement and the Occupational Structure of Firms
Carl Davidson
(Michigan State University)
Fredrik Heyman
(Research Institute of Industrial Economics-Sweden)
Steven Matusz
(Michigan State University)
Susan Chun Zhu
(Michigan State University)
[View Abstract]
[Download Preview] Engagement in foreign markets can have an impact on firm organization and on the type of occupations that a firm needs. We examine the effect of globalization on the occupational mix using detailed Swedish data that cover all firms and a representative sample of the labor force for 1997-2005. We find a robust relationship between a firm’s degree of international integration and its occupational mix. Multinationals, which are the most globally engaged firms, have a distribution of occupations skewed toward the more skilled. Non-multinational exporters have a distribution of occupations less skewed toward skilled compared to multinationals, but more skewed toward skilled occupations compared to Swedish non-exporters (which are the least globally engaged). Moreover, firms tend to have an even more skill intensive distribution of occupations when they mainly export to far away markets, or when they export differentiated goods. Our results are little changed (1) when we control for firm size, productivity, capital intensity, and firm age, (2) when we control for offshoring and R&D expenditures; (3) when we use alternative methods to rank occupations, or (4) when we conduct alternative robustness tests. In addition, the results are very similar for manufacturing and non-manufacturing, and for foreign and Swedish multinationals. We interpret our results using a decomposition motivated by recent theoretical models of selection into exporting and FDI.
Preparing to Export
Claudio Labanca
(University of California-San Diego)
Danielken Molina
(Inter-American Development Bank)
Marc-Andreas Muendler
(University of California-San Diego)
[View Abstract]
[Download Preview] Exporters differ from each other in size and export-market participation over time. This diversity, however, is not strongly reflected in their observed workforce composition regarding skills and occupations. Using Brazilian linked em\-plo\-yer-em\-ployee data, we turn to a typically unknown worker characteristic: a worker's prior experience at other exporters. We show that expected export status, predicted with current destination-country trade instruments, leads firms to prepare their workforce by hiring workers from other exporters. Hiring away exporter workers is associated with both a wider subsequent reach of destinations and a deeper market penetration at the poaching firm, but only with reduced market penetration at the firm losing the worker. This evidence is consistent with the hypothesis that expected export-market access exerts a labor demand shock, for which exporters actively prepare with selective hiring, and with the idea that a few key workers affect a firm's competitive advantage.
Not So Demanding: Preference Structure, Firm Behavior, and Welfare
Monika Mrázová
(University of Geneva)
Peter Neary
(University of Oxford)
[View Abstract]
[Download Preview] We introduce a new perspective on how assumptions about preferences and demand affect firm behavior and economic performance. Our key innovation is the “Demand Manifold,” which links the elasticity and convexity of an arbitrary demand function. We show that it is a sufficient statistic for many comparative statics questions, leads naturally to some new families of demand functions, and relates demand structure to the behavior of monopoly firms and monopolistically competitive industries. Finally, we show how our approach can be extended to understand variable pass-through and to develop a quantitative framework for measuring the welfare effects of globalization.
Price and Quality Dynamics in Export Markets
Joel B. Rodrigue
(Vanderbilt University)
Yong Tan
(Nanjing University)
[View Abstract]
[Download Preview] This paper investigates the evolution of firm-level price and quality choices in export markets. We develop a model of heterogeneous firms who make endogenous entry decisions across distinct international markets. In each year, firms endogenously choose its optimal price and product quality to build a customer base in each market. Consistent with existing research, more productive firms in our model produce higher quality products, charge higher prices, sell more units and achieve higher profits. However, in our model firm-level quality, price and revenues endogenously evolve over time. New exporters optimally charge relatively low prices and produce low quality goods upon initial entry into export markets. As sales grow exporters upgrade product quality and prices to exploit their brand reputation and charge higher prices. We structurally estimate the model using detailed Chinese customs data. Our preliminary results indicate that dynamic considerations reduce predicted export prices upon initial entry into new markets by as much as 2 percent. However, product quality and prices are also predicted to be 7 and 9 percent higher than that predicted by the static model five years after initial entry into export markets. The estimated model indicates that while new exporters often produce relatively low quality and inexpensive goods, product quality and prices rise among surviving exporters in subsequent years.
Jan 04, 2015 10:15 am, Sheraton Boston, Riverway
Korea-America Economic Association
Dynamic Cooperation: Theory and Evidence
(C7, D8)
Presiding:
Taeyoon Sung
(Yonsei University)
Sands in the Wheels: Cooperation with Imperfect Monitoring in Continuous Time
Maria Bigoni
(University of Bologna)
Marco Casari
(University of Bologna)
Andrzej Skrzypacz
(Stanford University)
Giancarlo Spagnolo
(Stockholm School of Economics and University of Rome Tor Vergat)
[View Abstract]
Experiments in continuous time have revealed qualitative differences with respect to discrete-time interactions. Here we study cooperative behavior under different levels of monitoring. Theory predicts that a noisy observation of others' actions causes a break-down in the ability to cooperate, which is observed. We also report full cooperation with perfect monitoring but low cooperation in conditions where it could also be full. Grim trigger strategies cannot explain such results. These outcomes critically depend on how those subjects who mutually cooperate do resist the temptation to defect and how they do recoordinate after observing a defection.
Asynchronicity of Moves and Coordination
Attila Ambrus
(Duke University)
Yuhta Ishii
(Harvard University)
To be added.
Stable Observable Behavior
Yuval Heller
(University of Oxford)
Erik Mohlin
(University of Oxford)
[View Abstract]
[Download Preview] We study stable behavior in environments in which players are randomly matched to play a game, and before the game begins each player may observe how his partner behaved in the past. We show that strict Nash equilibria are always stable in such environments. We apply the model to study stable behavior in the Prisoner's Dilemma. We show that if players only observe past actions, then defection is the unique stable outcome. However, if players are able to observe past action profiles, then cooperation is also stable. Finally, we present an extension that studies the evolution of preferences.
Cooperation in Continuous Dilemma and Uncertain Reaction Lag
In-Uck Park
(University of Bristol)
[View Abstract]
[Download Preview] This paper shows that cooperation can be sustained until close to the end of a finite-horizon, continuous-time prisoners' dilemma when there is informational asymmetry in how quickly players can respond. The simulated equilibrium closely replicates recent experimental results. The core argument is extended to a class of canonical preemption games with private information on the player's payoff margin of preempting relative to being preempted, that can be applied to other well-known examples of conflict such as the centipede game.
Discussants:
Keiichi Kawai
(University of New South Wales)
Suehyun Kwon
(University College London)
Jihong Lee
(Seoul National University)
Tadashi Sekiguchi
(Kyoto University)
Jan 04, 2015 10:15 am, Westin Copley, North Star
Labor & Employment Relations Association
Employment Relations in the Healthcare Setting
(J4)
Presiding:
Jason Hockenberry
(Emory University)
Nurse Unions and Patient Outcomes
Arindrajit Dube
(University of Massachusetts-Amherst)
Ethan Kaplan
(University of Maryland)
Owen Thompson
(University of Wisconsin-Milwaukee)
[View Abstract]
We estimate the impact of nurse unions on health care quality using patient discharge data
and the universe of hospital unionizations in California between 1996 and 2005. We find that
hospitals with a successful unionization effort outperform hospitals where such an effort fails in 12of 13 nurse sensitive patient outcomes measures. We also find that hospitals with a unionization drive are establishments with a declining quality. When such declines are accounted for using hospital-specific trends, we find unionized hospitals also outperform hospitals without any union election in 12 of 13 outcome measures. The timing of the quality improvement is consistent with a causal impact: the largest changes occur precisely in the year of unionization. The biggest improvements are found in the incidence of metabolic derangement, pulmonary failure, andcentral nervous system disorders such as depression and delusion, where the estimated changes are roughly between 15% and 60% of the mean incidence for those measures. Dynamic estimates confirm that the improvements in health care outcomes occur within the first two years following nurse unionization.
Wage Dispersion and Firm Financial Performance: Evidence from Non-Profit Hospitals
Nathan Dong
(Columbia University)
[View Abstract]
Does wage dispersion provide incentives for competition or perceptions of unfairness among workers? Prior literature suggests that pay distribution and pay equity are important factors incentivizing employees as in the models of tournament and cohesive cooperation. If non-profit organizations rely more on intrinsically motivated employees because they can not afford paying higher salary than their for-profit counterparts, they will be more likely to exhibit wage dispersion as part of their organizational strategies. The employee wage dispersion data from 48 non-profit hospitals in Maryland provides an ideal test bed to examine the relation between worker wage dispersion and firm financial performance. Using this data set, along with hospital financial statements, this paper finds a positive effect of wage dispersion among low-skill workers on profitability and a negative effect of wage dispersion among high-skill workers on profitability. Interestingly, the staff size in each skill category tends to offset the aforementioned effects.
More Battles among Licensed Occupations: Estimating The Effects of Scope of Practice and Direct Access on the Chiropractic, Physical Therapist, and Physician Labor Market
Edward Timmons
(Saint Francis University)
Jason Hockenberry
(Emory University)
Christine Piette Durrance
(University of North Carolina)
[View Abstract]
Primary care physicians, chiropractors, and physical therapists (PTs) all may potentially treat patients experiencing back and neck pain. In this paper, we examine how changes in chiropractic scope of practice and PT direct access to patients influence the wages, hours worked, and employment of each practitioner. Our results suggest that expansions in chiropractic scope of practice increase average chiropractor wages, slightly reduces the average hours chiropractors work per week, and slightly reduced the wages of physicians at the top of the wage distribution. Our results also suggest that PT direct access laws increase physician wages at the bottom of the wage distribution.
Who Cares About the Health of Health Care Professionals? An 18-Years Longitudinal Study of Work Demands, Health, Job Satisfaction
Amit Kramer
(University of Illinois-Urbana-Champaign)
Jooyeon Son
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] Healthcare professionals are employed in a complex, stressful, and sometimes hazardous work environment. Studies on the health of healthcare professionals tend to focus on estimating the effects of short-term health outcomes on employee attitudes and performance which are easier to observe than long-term health outcomes. Only scant attention has been given to work characteristics that are controlled by the employer and its employees and their relationship to long-term employees’ physical health and organizational outcomes. To address this gap we use data from the National Longitudinal Survey of Youth (NLSY) to estimate the relationship between work characteristics, long-term physical health, job satisfaction and turnover of 245 registered nurses (RNs) from 1992 to 2010. Using a between- and within-person design we estimate how within-person change in work characteristics affects the within-person growth trajectory of Body Mass Index (BMI) over time. We then study the relationship between RNs’ work characteristics, job satisfaction, changes in physical health, and job turnover. We find that RNs who work day shifts suffer from a steeper increase in their BMI trajectory over time. In addition, RNs with higher BMI are more likely to leave the nursing occupation. The importance of managing the long-term health of healthcare employees is discussed.
Discussants:
Christine DePasquale
(Emory University)
Seth Richards-Shubik
(Carnegie Mellon University)
Morris Kleiner
(University Of Minnesota)
James Burgess
(Boston University)
Jan 04, 2015 10:15 am, Westin Copley, Courier
Labor & Employment Relations Association
Inequality and Its Effect on Economic Growth
(J1)
Presiding:
Heather Boushey
(Center for American Progress)
The Implications of Growing Wealth Inequality for Entrepreneurship among Older Households
Christian E. Weller
(University of Massachusetts-Boston)
[View Abstract]
[Download Preview] Many older workers consider striking out on their own to address persistent economic pressures and inadequate retirement savings. And, start-ups and growing small businesses often have to rely on their owners' assets for initial and ongoing financial support, either as collateral or to generate capital income that can serve as a buffer against entrepreneurial risk for older households. Our research finds that the ability to diversify household income is especially relevant to entrepreneurs. But, growing wealth inequality impedes older entrepreneurship. Policymakers interested in creating more entrepreneurial opportunities for older households will actively have to pursue policies to help households diversify their incomes.
Debt and Inequality: Is Growing Indebtedness Laying the Foundation for Future Instability?
Jeffrey Thompson
(Federal Reserve Board)
[View Abstract]
Households of all ages have experienced an increase in their debt levels over the past three decades. People may have used debt to build wealth, e.g. by buying a house or starting a business, during their working careers, thus contributing to faster economic growth and more long-term economic stability. Alternatively, large amounts of debt could have detrimental effects on the economy, particularly if it is concentrated among economically vulnerable populations. The chance of loan default rates would consequently increase, possibly reverberating through the economy and the labor market as bankruptcies and bank failures eventually proliferate. This paper considers the rise of debt in connection to income trends and households' economic vulnerabilities.
Job-to-Job Mobility: Implications for Growth
Marshall Steinbaum
(University of Chicago)
[View Abstract]
Long-run data on labor market dynamics covering multiple business cycles is now available, and it shows a distinct trend of declining job-to-job mobility for the employed and a decrease in the job finding rate for the unemployed. That points to a structural slackening of the labor market and a polarization that forces some people to cling to the jobs they have and others to exit the labor force entirely, or to delay entering it. Widely documented wage stagnation and polarization in human capital acquisition are consistent with that slackening. Since the labor market is the primary historical means of social mobility, that trend implies long-run stagnation and further increases in inequality. Furthermore, there is some evidence that causation may run from labor market health to long-run growth.
Discussants:
Georgianna Melendez
(University of Massachusetts-Boston)
Damon Silvers
(AFL-CIO)
Jan 04, 2015 10:15 am, Westin Copley, Great Republic
Labor & Employment Relations Association
Labor Economist at Work: Honoring the Life and Work of Casey Ichniowski
(J8)
Presiding:
Thomas A. Kochan
(Massachusetts Institute of Technology)
Public Sector Unionization
Richard B. Freeman
(Harvard University)
[View Abstract]
Public Sector Unionization
Insider Economics
Kathryn L. Shaw
(Stanford University)
Insider Economics
Sports Analytics
Ann Bartel
(Columbia University)
Sports Analytics
Discussants:
Harry Holzer
(Georgetown University)
Joel Cutcher-Gershenfeld
(University of Illinois-Urbana-Champaign)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Suffolk
National Association of Forensic Economics
Forensic Economics IV
(K2, K2)
Presiding:
Larry Spizman
(State University of New York-Oswego)
The Impact of a Randomly-Assigned TPM Initiative on Retirement Decisions
Kevin Cahill
(Boston College)
[View Abstract]
[Download Preview] To what extent do workplace flexibility arrangements impact the length of career employment or the retirement decisions of employees? This paper presents findings from a study designed to address the causal relationship between workplace flexibility and, among other outcomes, the work decisions and retirement expectations of an organization’s employees. The data for this study come from a unique large-scale randomly-assigned Time and Place Management (TPM) initiative that recently took place at a regional healthcare provider in the United States with more than 9,000 employees in approximately 600 work units. Employees and managers within work units assigned to the treatment group were invited to participate in an on-line training module and were provided with an on-line toolkit. Upon completion, members of the treatment group were invited to participate in productive conversations about work schedule options and, if mutually agreeable, made changes to their schedules. Employees from all work units were invited to participate in a total of four online surveys from September 2012 through January 2014. A difference-in-differences approach as well as multivariate techniques were used to assess treatment impacts. We found that workplace flexibility arrangements appear to impact retirement expectations, as employees and managers in the treatment group were more likely than those in the control group to expect to remain with the organization until retirement. The results from this study indicate that workplace flexibility could be one solution to promote continued work later in life, as flexible work arrangements have the potential to impact both the timing of retirement and patterns of labor force withdrawal.
Using Recursive Methods for Estimating Commercial Damages: Three Case Studies
Patrick Anderson
(Anderson Economic Group)
Jeff Johnson
(Supported Intelligence)
Walter McManus
(McManus Analytics)
[View Abstract]
[Download Preview] A practical method of employing the "recursive" or "value functional" approach to estimating the value of investment opportunities and business ventures has recently become available to economists skilled in computational methods. The kernel of the method is modeling the management decisions of a business owner seeking to maximize the value of the business. This optimization decision is qualitatively and mathematically different from the simple estimation of future expected profits, which is the kernel of the long-established income method. This approach, which only recently has become practical, has now been used to value start-up businesses, estimate the value of stock in energy companies with substantial real options, and to evaluate investments subject to "black swan" risks, as well as to estimate commercial damages.
We demonstrate the power of this method to estimate commercial damages caused by breach of contract and other similar causes. We show how it can natively incorporate such concepts as mitigation, asymmetrical risks, and real options, all of which can be problematic with traditional methods. We present case studies representing early applications of this method in forensic economics settings, including breach of contract, theft of intellectual property, and trademark infringement cases. Theoretical references and a small number of published works using the method are also summarized in the presentation, as well as cautions, software requirements, and other observations regarding its use.
Adjusting Damages in Employment Cases for Federal and State Income Taxes and Social Security and Medicare Taxes
Thomas Roney
(Thomas Roney LLC)
Nora Ostrofe
(HSNO)
[View Abstract]
In Federal and State Courts, taxes on income are to be considered and the after-tax earnings losses are discounted when calculating damages in employment matters, such as wrongful termination cases. Since taxes must be paid on the taxable portion of a lump-sum award, and earnings losses and offsets should be calculated on an after-tax basis, the damages amount for lost earnings should be adjusted to reflect the taxes that will be owed on the award. This sum represents the present value of an award to fund the economic damages and pay the estimated marginal tax rate on the award. Additional Social Security taxes and Medicare taxes will also be incurred during the year of the award if the award is calculated on an after-tax basis including Social Security and Medicare Taxes. The proper damages amount is determined by adjusting for Federal, State, Social Security, and Medicare taxes and taxes due on the projected interest received on the award (the discount rate). This paper addresses the
relevant law and IRS statutes affecting damages awards in employment matters and offers a clear methodology to consider the appropriate adjustments necessary to “make the plaintiff whole” with an award to compensate for lost compensation.
Discussants:
Victor Matheson
(College of the Holy Cross )
Michael Nieswiadomy
(University of North Texas)
Craig Allen
(Commonwealth Research Group)
Jan 04, 2015 10:15 am, Boston Marriott Copley, New Hampshire
National Economic Association
Migration and Urbanization in Africa
(O1)
Presiding:
Isabel Ruiz
(University of Oxford)
The Labour Market Impacts of Forced Migration
Isabel Ruiz
(University of Oxford)
Carlos Vargas-Silva
(University of Oxford)
[View Abstract]
[Download Preview] This article takes advantage of a natural experiment in Tanzania to explore the consequences of
hosting refugees for host country labour markets. During the early 1990s the Kagera region of
Tanzania experienced a major forced migration shock as hundreds of thousands of refugees
arrived from Burundi and Rwanda. A series of natural topographic barriers, logistical decisions
and simple factors such as distance from the conflict resulted in a much higher concentration of
forced migrants in some parts of Kagera relative to others. Using panel data from Kagera with
observations before and after the forced migration shock (i.e. 1991 and 2010), we find that those
Tanzanians who were more affected by the shock were significantly less likely to work for
someone outside the household as employees. However, those employees who were more
affected by the forced migration shock had somewhat better jobs, including a higher probability
of working as professionals and having a job that will result in a pension upon retirement. These
results are consistent with existing evidence from the “voluntary” migration literature which
suggests that immigration affects the allocation of natives across occupations. Looking at the
post forced migration shock labour market outcomes of those Tanzanians who were less than
seven years of age during the pre-shock period we find that in addition to being more likely to be
employees, they are less likely to be in non-farm self-employment.
Immigration and Labour Market Outcomes of Natives in Developing Countries: A Case Study of South Africa
Nzinga Broussard
(IMPAQ International, LLC)
[View Abstract]
This research is interested in the effects that immigration has on the labour markets in
developing countries. Using the 2001 census and the 2007 community survey from South Africa
this paper examines the effect that immigration has on labour market outcomes of native-born
South Africans. The effect of immigrant inflows on the labour market outcomes of native-born
Coloured South Africans. Using instrumental variables to control for the potential endogenous
location choices of immigrants to South Africa, the results show that immigrant inflows have a
negative effect on annual earnings. However, for White South Africans, immigrant inflows
increase their labour force participation rates and employment to population ratios. For Black
South Africans, immigrant inflows decrease their labour force participation but increase their
employment rates. Coloured South Africans are negatively impacted by immigrant inflows.
Results suggests that, in labour markets with binding minimum wage laws and strong unions, the
negative effect of immigration, due to an increase in the supply of labour, can be mitigated by
increases in labour demand such that it leads to increases in participation and employment rates
even as average wages fall.
Inter-Generational Study of Educational Achievement in the Poor Urban Areas in Sub-Saharan Africa: Evidence from the Nairobi Informal Settlements
Maharouf Oyolola
(African Population & Health Research Center)
[View Abstract]
Though Africa remains the least urbanized continent, it currently has the highest rate of
urbanization and projected to grow at the rate of 3.5% until 2050. One of the major consequences
of this rapid and uncontrolled urbanization is the proliferation of informal settlements in major
cities, commonly known as slums; thus, widening the existing urban income inequalities and
rising urban poverty. Nairobi, the Kenyan capital, typifies the rapid urbanization and population
explosion in sub-Saharan Africa (SSA). As the capital and largest city of Kenya, Nairobi has
always been a major attraction for various segments of the Kenyan population in search of better
opportunities. Today, between 60 to 70% of the Nairobi residents lives in slums, in spite of the
precarious living conditions and health risk exposure. Alarmingly, different generations have
lived in slums or slum-like conditions for years. If education is considered a means out of
poverty, the next generation is expected to do better than the preceding generation. Using data
from the Nairobi Urban Health and Demographic Surveillance System (NUHDSS), this paper
compares the educational achievement of children of slum residents to that of their parents. To
tackle the issue at hand, Ordered Probit and Logit models are used.
Migration and Educational Outcomes in Burundi: The Role of Refugee and IDP Experiences and Gender
Carlos Vargas-Silva
(University of Oxford)
Sonja Fransen
(Maastricht University)
Melissa Siegel
(Maastricht University)
[View Abstract]
This paper explores the long-term impacts of forced migration experiences on educational
outcomes among males and females in urban Burundi. The analyses rely on household and
community data that were collected in 2011, around five years after the end of conflict in the
country. A distinction is made between international and internal displacement to explore how
different displacement experiences have affected educational outcomes in the long run. The
results reveal that individuals living in households with IDP camp experiences have lower
educational outcomes than individuals living in former refugee households. This finding is most
likely due to bad living conditions and lack of support in IDP camps in Burundi. The negative
effect of IDP camp experiences on educational outcomes is stronger for women, which suggests
that the negative effects of forced migration on education are stronger for women. The potential
reasons for this and directions for future research are discussed.
Discussants:
William A. Darity, Jr.
(Duke University)
Rhonda Sharpe
(Morehouse College)
Charles Becker
(Duke University)
Patrick Mason
(Florida State University)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Wellesley
Society of Government Economists
Exploring the Potential for Improvements in Economics Education
(A2)
Presiding:
Deirdre N. McCloskey
(University of Illinois-Chicago and AIRLEAP)
Training the Ethical Economist
George DeMartino
(University of Denver)
[View Abstract]
How would economic pedagogy change were the economics profession to embrace the idea of ethical training for both undergraduate economic majors and especially for MA and PhD economic students? What kinds of pedagogical reforms would best serve the purpose of enhancing economists' ethical awareness and sensibilities so that they do not cause needless harm as they try to do good? This paper explores this question in part by drawing on themes that appear in the papers of the forthcoming Oxford University Press Handbook on Professional Economic Ethics, and on DeMartino's work on economic pedagogy. The paper argues inter alia that new ethics-based curriculum would not suffice to achieve the goal; and explores instead projects such as the "exposure and dialogue programs" (EDPs).
EDPs place applied economists in the communities they serve to promote two-way learning and a deeper understanding of the actual constraints, challenges and opportunities facing those economists who purport to help. As Ravi Kanbur (2012) noted with regard to development economics, “it is inherent in the nature of the beast that there will be a progressive disconnect between the working lives of development professionals and the lives of those their work is meant to help. … it is a gross moral disconnect, too, where development professionals make a good living in the name of a phenomenon they have no ongoing experience of.” Along these lines, the paper emphasizes the importance of having economists, especially those in development studies, or in public policy areas involving social assistance programs, be immersed in actual communities doing hands-on work as part of their PhD training.
When Is Flipping Effective in Teaching Economics? Two Experiments in 'Active' Learning
Richard Anderson
(Lindenwood University)
Areerat Kichkha
(Lindenwood University)
[View Abstract]
A major theme in economic education is “active learning,” typically defined as reducing passive time that students listen to lectures and increasing active time for questioning, discussion and presentation. When students well-prepare outside the classroom prior to class sessions, class sessions can be used to integrate analysis and clarify concepts, objectives and goals. Flipping also allows flexible use of course materials, including materials that are topical, comprehensive, and less costly, and that perhaps better motivate students, satisfying (and stimulating) curiosity. This study describes two experiments at Lindenwood University to increase active learning. The first experiment, in the university’s accelerated (time-compressed) program, asked students in the macroeconomics segment of an MBA-level economics survey course to well-prepare themselves prior to class sessions; class contained little or no lecture. As incentive, 20 percent of the term grade was based on weekly assignments completed before each class session. The second experiment, in the university’s traditional “day” program, maintained traditional lectures for all but four weeks of a 15-week term in a principles of macroeconomics class and a managerial economics class. Students in the former were approximately evenly divided among freshman, sophomore, junior and senior; students in the latter were all seniors. In each course, roughly the third, sixth, ninth, and twelfth weeks were devoted to presentations, a significant portion of available instructional time. During the four weeks, students were asked to “lecture” in the form of presenting solutions to selected text homework problems. All students were asked to self-select into teams of two; in a small number of cases, students could not affiliate with another and the instructor made arbitrary pairings. In the principles course, pairings often were across class levels, with many freshman pairing with upper classman.
The Economic Arguments for Government-Sponsored, Massive Open Online Courses (MOOCs) in Economics
Steven Payson
(AIRLEAP)
Kenneth Payson
(AIRLEAP)
[View Abstract]
The potential for Massive Open Online Courses (MOOCs) to revolutionize higher education in the United States, and in the world, has received a great deal of attention in recent years, primarily within the fields of information technology, education, and economics. The topic is inherently within the purview of economic thought, especially given the enormous economies of scale that MOOCs offer in educational services and their resultant incredible reductions in the costs of those services per pupil-class.
Although, the findings of new research is mixed, many of the findings indicate that universities have disincentives for offering MOOCs in economics, because the lower (or near-zero) marginal costs of pupil-classes will (through competition among universities) undersell their brick-and-mortar classes, and reduce their revenues and their need for classroom infrastructure and faculty.
Unlike the research papers that have been written thus far on the topic, this paper will go the extra mile by exploring the natural monopoly and public good aspects of MOOCs, and whether there may be a useful role for government in regulation or subsidization, as there so often is for comparable natural monopolies (such as utilities and defense). Although the paper will focus on economics classes, its implications will certainly extend to other academic subjects. Given the magnitude of higher educational services as a share of household incomes, employment, and GDP, and the potential for MOOCs to drastically reduce the costs of higher education while still retaining the quality of higher education, this topic is incredibly important. Moreover, MOOCs offer the possibility of higher education to those who have the cognitive ability to acquire it, but who cannot afford it, not only in the United States, but all over the world.
The Case for Including Economic Thought in the Education of Business Students
Brian W. Sloboda
(University of Phoenix)
Anita Cassard
(University of Phoenix)
[View Abstract]
The financial crisis in 2008 raised concerns about economic thought and how it influences managerial decision-making. Many business students do not have a clear understanding of economic thought and its relevance to business decision-making and contemporary policy debates. This paper will, therefore, provide the rationale for the inclusion of economic thought in the education of business students. It will explain why the foundation of economic thought will help managerial decision-makers understand how their decisions can have an impact on not only their businesses but how the culmination of decisions may impact the broader economy. With regard to the 2008 financial crisis, there were some general anomalies in practice that exacerbated the crisis such as the common themes of subprime mortgages, a period of expansive monetary policy, and lax regulatory framework for financial institutions. However, deeper policies that caused the financial crisis are presented such as credit-default swaps, the Basel Accords, and the roles of the ratings agencies.
After the financial crisis occurred, business people and economists were dumbfounded because their use of economic models did not anticipate the highly volatile interactions among the various elements of the economy. Economists did not anticipate that such problems would have such cascading effects and only saw exogenous shocks as the source of the problems in the financial system. The financial crisis presents an ethical and intellectual challenge in business and provides an opportunity for reform by developing economic models that more closely mirror reality. The use of these models in business applications must be carefully understood and how decision-making will impact the broader economy.
By having a better understanding of economic thought, we can improve our correlation of economic applications to decision-making and the potential implications it could have on the broader economy.
Valuing ‘Free’ Entertainment in GDP
Rachel Soloveichik
(U.S. Bureau of Economic Analysis)
[View Abstract]
[Download Preview] Some economists believe that measured GDP growth since 2000 is too low because it excludes online entertainment (Brynjolfsson and Oh 2012) (Ito 2013). Although consumers do not pay anything out of pocket, online entertainment is not actually free but rather supported by advertisers. This paper shows that the current methodology of measuring GDP in the System of National Accounts 2008 (SNA) does include the value added of producing advertising supported media in GDP, but it is treated as an intermediate input to other industries rather than as household final consumption and is thus excluded from final expenditures. The paper then introduces an experimental methodology that includes advertising supported media in final expenditures.
Under the experimental methodology, recent GDP growth in the United States changes very little. It is true that advertising-supported online entertainment has grown dramatically since 2000. Concurrently, advertising-supported print entertainment has shrunk dramatically. The net impact is a tiny reduction in annual real GDP growth in the United States, from 2.485% to 2.484%. The experimental method also increases the level of GDP in the United States by 0.193% more than it does GDP in the rest of the OECD. Economists comparing GDP across countries may find that including advertising supported entertainment would change their comparisons.
Discussants:
Seth Giertz
(University of Nebraska-Lincoln)
Reza Kheirandish
(Clayton State University)
Mark Costa
(Sustain Software)
Shabnam Mousavi
(Johns Hopkins University)
Amelie F. Constant
(Institute for the Study of Labor and George Washington University)
Jan 04, 2015 10:15 am, Sheraton Boston, Clarendon Room
Transportation & Public Utilities Group
Emerging Issues in Telecommunications
(L9, L5)
Presiding:
Nathan Miller
(Georgetown University)
Usage-Based Pricing and Demand for Residential Broadband
Aviv Nevo
(Northwestern University)
John L. Turner
(University of Georgia)
Jonathan W. Williams
(University of Georgia)
[View Abstract]
The increasing use of the Internet creates a need to manage traffic while preserving equal treatment of content. We estimate demand for residential broadband, using high-frequency data from subscribers facing a three-part tariff, and use the estimates to study the welfare implications of usage-based pricing, a commonly offered solution to network congestion. The three-part tariff makes data usage during the billing cycle a dynamic problem; thus, generating variation in the (shadow) price of usage during the month. We provide evidence that subscribers respond to this variation, and use their dynamic decisions to estimate a flexible distribution of willingness to pay for different plan characteristics. Using these estimates, we show that usage-based pricing eliminates low-value traffic and improves overall welfare. Usage-based pricing might decrease consumer surplus, depending on what alternative is considered. Furthermore, we show that the costs associated with investment in fiber-optic networks (an alternative proposed to deal with congestion) are likely recoverable in some markets.
An Evaluation of Funding Decisions and Outcomes from BTOP-Funded Programs
Janice A. Hauge
(University of North Texas)
[View Abstract]
This research uses a dataset of funded and non-funded programs that were proposed under the Broadband Technology Opportunities Program (BTOP) to gain understanding of objectives of various types of applicants and the applicants’ ability to meet their objectives; to analyze the degree to which the larger policy goals were emphasized among applicants and funders; to clarify the similarities in funding across the four specified funding areas (infrastructure, public computer centers, sustainable adoption, and state data and development); and to ascertain whether political bias occurred in funding decisions. The data include all applicants classified by type of project and type of applicant (for example public or governmental applicants versus private companies or universities). We also include location of the applicant, the project’s target group, the stated goals of the project, the associated socio-demographic data (population, per capita income, education level, employment level, and ethnicity, among other descriptive statistics) and political data (for example the governor’s political party, congressmen on key funding committees, and registered voting population). In total, we have approximately 1,700 projects with 72 descriptive variables for each.
To date, our statistical analysis (using STATA) has focused on analyzing the degree to which the stated goals of the project as written in the proposals is correlated firstly with positive funding (rather than the proposal not being funded) and secondly with the amount of funding that is awarded for those projects that were funded. Along with this question we address the degree to which there may have been bias either in funding, or in the amount awarded. For this secondary question we use the political data associated with each project’s applicant. We then designed models to attempt to determine whether projects’ goals are appropriately specified. For example, a public computer center project in a low-income, minority community is in agreement with federal policy goals for the BTOP; however, if the public computer center is proposed to be located in a high-income rural area, it is possible another factor played a significant role in the project’s funding. Other analyses consider whether certain groups are more adept at applying for funds, for example by determining whether cities or counties are funded more frequently or in larger amount than private applicants, all else equal. Finally, some research has suggested that local programs may be more effective than national programs in meeting adoption goals, while the converse might be true for infrastructure projects. Our data allows us to address this question as well.
Models considering the stated purpose of each applicant’s project and the extent to which those goals are compatible with the needs of the recipient area have yielded interesting results to date, but our analyses are preliminary. We anticipate that our ongoing statistical analyses will produce additional useful results. Our preliminary paper is available now upon request if it would prove useful to assess the scope of the paper and its completeness.
Universal Service: Now It’s Getting Personal
Jeffrey T. Macher
(Georgetown University)
John W. Mayo
(Georgetown University)
Olga Ukhaneva
(Georgetown University)
Glenn Woroch
(University of California-Berkeley)
[View Abstract]
The emergence of wireless telephony has drastically altered the traditional household choice set for satisfying its communications needs. In this paper, we explore the adoption of wireless telephony inside the household (i.e., intra-household penetration). We develop a unique database provided of approximately 190,000 household-level observations drawn over 2003-2012. Using count model and OLS estimation, the results indicate that intra-household wireless telephone penetration is determined by several factors, including wireless and wireline prices; telecommunications service quality; individual household members’ “nodal” versus “mobile” requirements; mobile subscription network externalities and particular household demographics.
Trust in Regulatory Regimes
Douglas N. Jones
(Ohio State University)
[View Abstract]
This narrative on trust takes the individual state public utility commissioner in the USA as the center of analysis and considers five crucial relationships she/he has with other important players in this 125-year old institution for regulating public utilities. The U.S. has 51 state public utility commissions (PUC’s), including the District of Columbia, with 197 sitting commissioners with regulatory authority (typically) over the electric, natural gas, telecommunications, and water sectors. All commissions have multiple members –generally three commissioners, but some with five or seven—who in most cases are appointed by the state’s governor. Commission structure follows the technocratic model whereby expert staffs (skilled in the fields of finance, economics accounting, law, and engineering) provide objective analyses and advice to the commissioners for policy and case resolution. The fundamental concept is that these PUC’s are independent, administrative, quasi-judicial entities responsible for social oversight of the utility companies jurisdictional to them. In this setting matters of trust and non-trust abound, and the occasion and extent for each plays a notable role in the smooth or ill-functioning of the regime.
The trust/non-trust relationships treated here are the relationships that the individual commissioner has (1) with fellow commissioners on the same PUC; (2) with professional staff of the PUC; (3) with other state commissions and the counterpart national ones; (4) with the regulated companies; and (5) with organized advocacy groups.
In dealing with each other a touchstone for trust is the shared belief in the pursuit of the public interest in all commission actions. Since individual commissioners derive their legitimacy from either the appointing authority or the electorate, their power is not primarily horizontal, but vertical. Still, efficiency is enhanced if trust is developed among commissioners such that some take a “lead role” in, say, telecommunication matters, while another does the same for electric issues -- a kind of division of labor without foregoing sovereignty in the final voting.
In dealing with commission staff a commissioner may extend trust when she believes that the agency’s experts cast up advice and analyses that are consistently offered devoid of any hidden agenda or prejudgment. ( Such trust must be set aside, of course, where staff members become actual parties to the case being heard by the commission, as is allowed in about half the states.) In the several states where Administrative Law Judges are entrusted with pre-trying a case and recommending a particular outcome to the panel of commissioners a very high degree of trust is obviously involved, though commissioners do not, of course have to accept the recommendations.
In dealing with ”sister” PUC’s around the country trust relationships can develop when a few commissions become known as lead PUC’s generally (California, New York, Wisconsin are often cited), or when a commission is renowned for innovation in a particular regulatory topic, e.g., pricing methodology, capacity planning. At work here are the phenomena of policy emulation and band waggoning as forces for knowledge transfer. The special case of federal-state relations involving the counterpart national bodies (FCC and FERC) in the U.S. dual system of regulation is considered in this context.
In dealing with the regulated utilities it is contended here that active non-trust is the appropriate and general stance of a commissioner. Despite occasional paradigm changes over time, like selective reliance on market competition to mitigate some potential abuses, the conscientious sitting regulator cannot trust a utility to behave in the public interest, nor is it a legal requirement for companies to do so. (It is noted that the U.S. experience differs from the European case which is characterized more by a culture of industry-government partnering, cooperation, and closeness than by an adversarial one.) The temptation for exercise of undue economic power, the trading off of standards of service for extra profitability, and the fact of asymmetric information availability are inherent in the relationship and cannot be left to trust and self-discipline. Certain aspects of the relationship, however, do require considerable good faith reliance on the utilities, e.g., accurate reporting of consumer complaints, notice of plant failures, and capacity planning.
In dealing with advocacy groups a prudent commissioner is wary of broad trust relationships. Special interests, while legitimate to be heard and sometimes even helpful in making the case record more complete by the provision of technical information, are usually narrow in focus and not to be equated with the broad public interest. Still, some advocacy organizations have earned “better” reputations than others and therefore may enjoy a degree of trust from a commissioner, e.g., certain environmental groups, social welfare organizations, privacy and national security advocates.
While the five relationships identified here are cast initially as a static presumption of trust and non-trust, the analysis considers as well changes in trust levels occasioned by learning over time. This last is described by a movement of an imaginary needle along a continuum of degrees of trust in each of the five instances.
Discussants:
Nathan Miller
(Georgetown University)
Scott Wallsten
(Technology Policy Institute)
Carolyn Gideon
(Tufts University)
Scott Savage
(University of Colorado)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Orleans
Union for Radical Political Economics
Marx’s Theory of Money and the MELT
(B5)
Presiding:
Fred Moseley
(Mount Holyoke College)
Interlocking Turnover Continua and the Structure of Capital: Part 2
Daniel Saros
(Valparaiso University)
[View Abstract]
This paper presents the second part of an article, the first part of which was presented at the 2013 ASSA. The article further develops the notion of a turnover continuum so as to better comprehend the logical structure of Capital. The concept is modified to include surplus value and the interconnectedness of multiple industries. By bringing together the value of labor-power, the monetary expression of labor time, and socially necessary abstract labor time within a single analytical framework, the approach sheds light on the logic of Marx’s theoretical structure.
The Determination of the Monetary Expression of Labor Time Under the Inconvertible Credit Money System
Dong-Min Rieu
(Chungnam National University)
[View Abstract]
[Download Preview] This paper tries to answer the important question: how is the “monetary expression of labor time” (MELT) determined under the inconvertible credit money system? First, it will be argued that the dynamic between changes in the quantity of money and prices should be explained on a sectoral level. A key element in explaining this dynamic is found in the decomposition of the MELT into the “monetary expression of value” (MEV) and the “value expression of labor time” (VELT). Second, the calculation of the MELT will be explained in the light of recent studies considering the turnover of capital.
An Alternative Approach to the Monetary Expression of Labor Time
Hyun Woong Park
(University of Massachusetts-Amherst)
[View Abstract]
Two approaches to monetary expression of labor time (MELT) are identified in the literature; ex ante MELT and ex post MELT represented by Moseley (2008) and Foley (2005), respectively. In both, the concept of MELT is discussed in a static setting and hence, despite a wide theoretical gap lying between the two, they are commonly subject to some type of circular reasoning. In this paper, an alternative approach to MELT is suggested in a way that maintains some crucial insights of the existing approaches and that, at the same time, is not subject to a circular reasoning. Two aspects are crucial. First, it is framed in a dynamic setting. Second, whereas the MELT is basically a macro concept in both Moseley and Foley, we distinguish between different types of money and consequently consider its micro aspect as well.
Marx’s Theory of Money and 21st Century Macrodynamics
Tai Young-Taft
(Simon's Rock College)
[View Abstract]
[Download Preview] We critique Marx’s theory of money relative to the advent of fiat and electronic currencies and the development of financial markets. Specifically, we cast these problematics in the context of 21st century macrodynamics, characterized by always open electronic markets trading large values of derivative securities, currencies, and commodities, in addition to stocks and bonds, and their relationship to the real economy. Specific topics of concern include (1) the categories of land and rent as they pertain to the financial economy, (2) today’s identity of the money commodity, (3) the production of money and its relation to inputs to its productive process/costs associated with its production and what it is traded for/its valuation in the contemporary capitalist system, (4) possible heterogeneity/price differentials/monetary dynamics across time, geography, and market of the money commodity and what this may imply for macrodynamics, (5) valuation of derivative securities, (6) strategies for modeling and estimating such effects, and (7) import of widespread automated trading in financial markets. In doing so we hope to gain useful strategies for theorizing production of the current money commodity, consider how we might orient ourselves towards macrodynamic prediction and control using such theories, and consider the epistemological status current theoretical claims about money have in economic science.
Discussants:
Fred Moseley
(Mount Holyoke College)
John Weeks
(University of London)
Jan 04, 2015 10:15 am, Boston Marriott Copley, Hyannis
Union for Radical Political Economics
Thinking about the History of Radical Economics: Working People and the Organization of Production
(B2)
Presiding:
Lane Vanderslice
(World Hunger Education Service)
The Political Economy of Poverty and Inequality: A Retrospective
Howard Wachtel
(American University)
[View Abstract]
Nearly 50 years ago, the Union for Radical Political Economics (URPE) challenged the economics profession in its neglect of critical economic and social issues, among them poverty and inequality, as well as the theoretical foundations with which traditional economics approached economic problems. URPE’s particular insight was to locate both poverty and inequality within the functioning of labor markets in a market-capitalist economy. It challenged the argument that poverty and inequality were either an aberration or were social and economic outcomes that lie outside the frame of economic theory and analysis.
The Revolution in Women's Work Lives in Capitalism and Patriarchy--What Did Socialist-Feminist Scholarship Contribute
Heidi Hartmann
(Institute for Women's Policy Research)
[View Abstract]
Women were at the heart of the Marxist analysis of capitalism, at least after some early female pioneers on the left put them on the map in the 1960s and 1970s by challenging theorists who were not addressing the topic at all. From Wages for Housework to women as serfs/peasants in a feudal mode of production to women as the reserve army of the unemployed, theorists had a lot to say about women’s economic roles in a capitalist society. At the same time, neoclassical economics was developing a new economics of the household, which was also being challenged by feminist critics.
URPE, including the contingent at Harvard teaching on capitalism and power and the group at Yale, through its participation in New Haven Women’s Liberation, a decidedly socialist-feminist group, as well as chapters elsewhere, played a central role in the development of a socialist feminist understanding of male power and capitalism, often referred to as patriarchy and capitalism. The feminist contribution was to explicate both the household and labor market components of women’s work in an advanced capitalist society that is also patriarchal, and to also explore the role of the state in regulating women’s labor power, as well as ameliorating some of the worst abuses of women.
This paper will review the past work of URPE and URPE members on these topics, using the Review of Radical Political Economy as one source, and seek to assess the impact of that work on contemporary scholarship and public policy today.
Complicating the Labor Market as a Social Institution
Michael Zweig
(State University of New York-Stony Brook)
[View Abstract]
For URPE members, markets function in social contexts that required deeper levels of analysis than standard economics provides. This paper will explore aspects of this deepening as they have operated in the study of labor markets: the segmentation of labor markets by race and gender; the operation of class dynamics; the location of the U.S. labor market in a global context. The paper will explore contested understandings of Marx, the labor theory of value, and the role of the working class as a social agent in the history of radical economics as it has developed since URPE's founding in 1968.
Workers, Women, and Revolution: A Marxist-Feminist Perspective on URPE
Julie Matthaei
(Wellesley College)
[View Abstract]
[Download Preview] Soon after URPE’s emergence, second wave feminism burst onto the scene, initiating a productive conflict between Marxists/socialists and Marxist/socialist-feminists, about both theory and political strategy. The presentation will discuss three main contributions that Marxist-feminists have made to labor economics: 1) insights into the key role of women’s unpaid reproductive work or “caring labor” in reproducing both capitalism and patriarchy, 2) insights about labor markets and class struggle, based on an understanding of the intersection of gender, race and class, 3) new visions of alternative, liberating ways to organize the labor process.
Discussants:
Marlene Kim
(University of Massachusetts-Boston)
Christopher Gunn
(Hobart and William Smith Colleges)
Jan 04, 2015 12:30 pm, Sheraton Boston, Grand Ballroom
American Economic Association
Nobel Laureate Luncheon - Fee Event
Presiding:
Richard Thaler
(University of Chicago)
Per Stromberg
(Stockholm School of Economics)
Per Stomberg is a Member of the Economic Sciences Prize Committee, He will be Speaking on the Topic for which the Prize was Awarded: "Empirical Analysis of Asset Prices"
Tobias Moskowitz
(University of Chicago)
Monika Piazzesi
(Stanford University)
Nicholas Barberis
(Yale University)
Jan 04, 2015 12:30 pm, Westin Copley, Staffordshire
American Real Estate & Urban Economic Association
Presidential Luncheon -- Fee Event
Presiding:
Stuart Rosenthal
(Syracuse University)
Yongheng Deng
(National University of Singapore)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, New Hampshire
American Society of Hispanic Economists/American Economic Association
Programs and Policies Affecting Education and Health Outcomes
(I1, I2)
Presiding:
Marie Mora
(University of Texas-Pan American)
Assessing the Effects of New Mexico’s K-3 Plus Summer Learning Initiative on the Achievement of Bilingual Students
Damon Cann
(Utah State University)
Mustafa Karakaplan
(Utah State University)
Margaret Lubke
(Utah State University)
Cyndi Rowland
(Utah State University)
[View Abstract]
In this paper, we evaluate the effectiveness of a novel summer program run by the State of New Mexico known as K-3 Plus. New Mexico is a minority-majority state that the Non-Hispanic White population in New Mexico is around 40% of the state and the Hispanic or Latino American population is more than 45%. This provides us a unique setting to analyze the comparative effects of such a summer program on the achievement of bilingual students. We seek to evaluate the extent to which participation in the K-3 Plus summer session reduces or even reverses the trend of summer learning loss. Using funding from a 2010 Investing in Innovation validation grant, we established the StartSmart K-3 Plus program, a program designed to mimic the standard state-funded K-3 Plus program except it is funded by our grant and requires randomization into intervention and control groups. The multi-site randomized controlled trial design allows us to rigorously evaluate the question of whether program participation improves academic achievement.
Falling through the Cracks? Grade Retention among Children of Unauthorized Immigrants
Catalina Amuedo-Dorantes
(San Diego State University)
Mary Lopez
(Occidental College)
[View Abstract]
In this paper, we examine the effects of parental legal status and intensified immigration enforcement on grade retention among the children of likely unauthorized immigrants using data on 364,000 children from the October Supplement of the Current Population Survey for the 1995-2010 period. We focus on grade retention as a strong and early predictor of other educational outcomes. As a result of its impact on the progression of schooling, grade retention has been identified as a risk factor associated with poor academic outcomes and limited economic mobility that can portend greater social and economic inequality (Heckman 2006). Because migrants’ legal status is not available in most representative surveys, we use information on parental ethnicity (Hispanic/Mexican) and their lack of citizenship as traits predictive of their undocumented status (Passel and Cohn 2009a, 2009b).
In conclusion, children of immigrants represent approximately 25 percent of all American children (Tienda and Haskins 2011) and account for almost the entire growth in the child population in the last two decades (Cervantes and Hernandez 2011, Fortuny et al. 2010). Consequently, understanding the impact of parental immigration status and increased immigration enforcement on the educational attainment of children is crucial to understanding the future of education in the United States. This study will take us a step further in this direction.
Effect of School Breakfast Programs on the Prevalence of Breakfast Skipping, Double-Dipping, and Obesity among Adolescents: A Time Use Perspective.
Andres Vargas
(Purdue University)
[View Abstract]
[Download Preview] This paper evaluates, from a gender perspective, the relationship between participation in school breakfast programs (SBP), the breakfast eating habits of adolescents, their overall eating and physical activity behaviors, and their associated weight outcomes. Using a sample of 902 adolescents enrolled in school from the American Time Use Survey for the years 2006 to 2008, I compare the eating behaviors and weight outcomes of students participating in the SBP to those of adolescents not involved in the program, while accounting for participation in other federal nutrition assistance programs. Results indicate that SBP participation is associated with an increase in the overall amount of time male adolescents spent eating breakfast, and the odds of engaging in this activity. In addition, male adolescents taking part in SBP are three times more likely to engage in double-dipping. This relationship, however, is not significant among teenage girls. Estimates also indicate that teenage boys and girls involvement in SBP is not associated with any significant changes in the total amount of time devoted to primary eating and drinking, the amount of time spent on secondary eating and drinking, or the probability of engaging in these activities throughout the day. For teenage boys, there is no significant relationship between SBP participation and the allocation of time to passive leisure activities. For this group, however, there is a positive association between involvement in SBP and the allocation of time and probability of engaging in active leisure activities. On the other hand, teenage girls involved in SBP spend less time in passive and active leisure, but have the same odds of engaging in these activities, relative to students not involved in the program. Finally, I find a positive relationship between SBP involvement and BMI among adolescent females, but not among males.
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 in terms of wet/moist/dry county status on the number of methamphetamine lab seizures in Kentucky. We apply five different estimation methods to three different data sources of meth manufacturing while controlling for county status using religious affiliation at time of vote as an instrumental variable. 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.
Discussants:
Madeline Zavodny
(Agnes Scott College)
Myriam Quispe-Agnoli
(University of Georgia)
Maria Enchautegui
(Urban Institute)
Carlos Vargas-Silva
(University of Oxford)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
Consumers, Debt, and Social Provisioning
(D1)
Presiding:
Mario Seccareccia
(University of Ottawa)
Inadequate Household Deleveraging: Income, Debt and Social Provisioning
Steven Pressman
(Monmouth University)
Robert H. Scott III
(Monmouth University)
[View Abstract]
[Download Preview] This paper uses the Survey of Consumer Finances to analyze changes in US household debt between 1989 and 2013. It focuses on how income levels and debt levels have changed, and what this means for future economic growth and living standards. Prior to the Great Recession, US households had record high debt levels and record low savings rates. Highly leveraged consumption boosted economic growth. However, large debt burdens have led many families to deleverage. Our study finds that deleveraging has been insufficient. Although debt payments have fallen relative to household income, this is mainly due to low interest rates. Debt levels, especially for home mortgages, remain high by historical standards and portend continued stagnation due to lower consumer spending.
Theorizing Household Savings Behaviors within the Social Provisioning Process
John R. Moreau
(University of Missouri-Kansas City)
[View Abstract]
People exist within a social system of material provisioning. That system specifies how we provide for our needs and we define those needs. We are not born knowing our preferences. There is nothing natural about certain financial behaviors. We learn these ideas from our social environment. Our psychological make-up and our personal choices both contribute to how we respond to new ideas but are in turn shaped by the signs and meanings of our position within society. Every person must balance between structure and agency with their choices, large and small. At first glance, individual financial behaviors appear to be highly idiosyncratic. There exist as many different money management methods as there are money users. A different story emerges when we re-examine financial decision-making in the context of social provisioning. Financial decision-making represents both knowledge of the system as well as our learned behaviors and habits. That bundle of activities and attitudes incorporate both structure and agency. The actions of an individual can be interpreted as either revealed preferences or a reflection of constructed preferences. When compared across individuals, financial behavior reveals common patterns of decision-making processes. When compared across households within the same social provisioning process, those patterns reflect the larger provisioning process. Behavioral economics has explored the psychological processes, such as mental accounting and the use of heuristics. This proposal outlines how my dissertation makes an original contribution to the literature by showing how social position and culturally specific learned behaviors intersect with those cognitive processes.
Paying for Debt: The Labor Market Implications of Growing Household Debt
Bert Azizoglu
(New School)
[View Abstract]
In recent decades US households have increasingly complemented their labor income with credit to sustain their consumption, housing and education expenses. This paper investigates whether and how growing household debt levels shape individuals' labor market engagement. On a macro level, Campbell and Hercowitz find that household debt drives up total hours worked. Since unemployment remains high and labor market participation has been falling, focusing on total hours might be covering up asymmetric and potentially dramatic effects on certain households. I therefore investigate how household debt translates into changes in the labor market status using micro-level data in order to get a more accurate picture of the stated labor supply effect. In a second step, I shift the attention to the debt and labor income relationship among households with employed members and analyze whether individuals with higher household debt also face a more disadvantageous wage bargaining position vis-à-vis their employers which manifests itself in lower wages relative to comparable employees without debt. The ultimate goal of this paper is to sketch out the function of debt as a factor further commodifying the labor effort in recent decades.
Social Provisioning for Financial Inclusion: Extending an Institutional Approach
Sherry Davis Kasper
(Maryville College)
[View Abstract]
Since the mid-1990s the number of Alternative Financial Services Providers (AFSPs), or fringe banks, grew 10% annually to a $100+ billion business, serving the financial needs of approximately 25% of the US population that is unbanked or underbanked. Currently the Consumer Financial Protection Bureau is investigating the best way to oversee this industry. This paper will explore how institutional economics could aid in developing these policies, updating John Commons’ concept of working rules, Allan Schmid’s “situation, structure, performance paradigm,” and an institutionalist reading the Capabilities Approach to financial inclusion.
Social Provisioning and Financial Regulation: An Institutionalist-Minskyian Agenda for Reform
Faruk Ulgen
(University of Grenoble)
[View Abstract]
[Download Preview] This article seeks to put the social provisioning process into perspective with regard to financial regulation and financial instability issues of modern capitalism. Contrary to neoclassical equilibrium and neoliberal efficient market models, it aims at developing an alternative institutionalist analysis in the line of Hyman Minsky’s endogenous financial instability assumption. Two arguments are then brought to the fore. First, the monetary/financial stability has a peculiar nature as a kind of specific/crucial public good, or in quite confused terms, as “the commons” as it concerns the whole society and its viability conditions; every member of a given economic society is a commoner even though she/he is not plainly involved in related economic relations. Directly or indirectly everyone uses it and is subjected to its systemic consequences. And second, the provision of “monetary/financial commons” is essentially a matter of public policy. It requires the intervention of public power that must play the role of referee and stand outside of the private and decentralized market relations in order to organize, supervise and regulate the production, the use and the evolution of the system of monetary/financial commons. Garrett Hardin's social dilemma of the “Tragedy of the Commons” - where common goods availability plummets mainly because of the public management of such goods - finds here an opposite interpretation since the increasing financial instability comes from the lack of publicly organized and supervised regulation in a financialized economy of which the continuity is assumed to be guaranteed by private self-adjustment mechanisms.
Discussants:
Arif Ruzgar
(University of Erfurt)
Eugenia Correa
(National Autonomous University-Mexico)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Social Economics
Policy Priorities in Response to Labor Flexibilization
(J8, J3) (Panel Discussion)
Panel Moderator:
Deborah Figart
(Richard Stockton College of New Jersey)
Teresa Ghilarducci
(New School)
Eileen Appelbaum
(Center for Economic and Policy Research)
Heather Boushey
(Washington Center for Equitable Growth)
Barbara Wiens-Tuers
(Pennsylvania State University-Altoona)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, Maine
Association for the Study of Generosity in Economics/International Association for Feminist Economics
Informal Caregiving and Women
(I1, D1)
Presiding:
Barbara Schone
(Agency for Healthcare Research and Quality and Georgetown University)
Formal Home Health Care: Is It Worth It?
Norma B. Coe
(University of Washington)
Jing Guo
(American Institutes for Research)
K. Tamara Konetzka
(University of Chicago)
Courtney H. Van Houtven
(Duke University)
[View Abstract]
The current debate about how best to meet the growing demand for person-centered, high-quality long-term care in the least restrictive setting possible has centered almost solely on the direct and indirect costs of each type of care. However, to date, there has been very little, if any, attention paid to the relative benefits of different types of care. Our study measures the causal impact of using only Medicaid-financed home health care provided by agencies, compared to other home care arrangements including services provided by family members, on health care utilization outcomes for the care recipient.
We use longitudinal individual-level Medicaid claims data from Arkansas, New Jersey, and Florida. Adults in these states were eligible for the Cash and Counselling demonstration project, which randomly assigned individuals to treatment that unintentionally encouraged receipt of Medicaid-financed home care provided by home health care agencies. Random assignment to the treatment provides a unique instrumental variable for our study. We control for baseline disease history and health status to further reduce omitted-variables bias and to enhance the overall precision of the results. Because treatment is a binary variable, we use two-stage residual inclusion methods to estimate the causal impact.
We find that being eligible for the Cash and Counselling program is a significant predictor of relying solely on Medicaid-funded home health care provided by agencies, compared to other home care arrangements. Further, we find that addressing the endogeneity is important; individuals relying only on formal home health care have significantly higher inpatient costs and inpatient days. However, once the endogeneity is addressed, we find that relying on formal home health care significantly decreases Medicaid inpatient costs.
Our findings suggest that further examination of the benefits of care is warranted before further policy pushes towards informal care are made.
The Impact of Informal Care Intensity on Women’s Retirement in the United States
Josephine C. Jacobs
(University of Toronto)
Courtney H. Van Houtven
(Duke University)
Audrey Laporte
(University of Toronto)
Peter Coyte
(University of Toronto)
[View Abstract]
[Download Preview] Since the 1980s, there has been a shift in the delivery of health care into community settings in the United States. Informal caregivers have played a central role in the delivery of this care. In tandem with the growing demands on caregivers, the United States has implemented policies encouraging later retirement. With increasing pressure on retirement-aged individuals to provide informal care while remaining in the work-force, it is important to understand the impact of informal care demands on individuals’ retirement decisions. This paper explores whether different intensities of informal caregiving can lead to retirement for women in the United States. Using the National Longitudinal Survey of Mature Women, we control for time-invariant heterogeneity and for time-varying sources of bias with a two-stage least squares model with fixed effects. We find that there is no significant effect on retirement for all informal caregivers, but there are important incremental effects of caregiving intensity. Women who provide at least 20 hours of informal care per week are 3 percentage points more likely to retire relative to other women. Our analyses rule out the likelihood that this retirement effect is due to individuals already out of the labor force (i.e. unemployed and disabled individuals) self-identifying as retired or that the effect was driven by partial retirement. We also find that when unobserved heterogeneity is controlled for with fixed effects, we cannot reject exogeneity. Currently, support for working caregivers is limited at the federal level to the unpaid leave guaranteed by the 1993 Family and Medical Leave Act. Our findings suggest that for a sub-set of high intensity caregivers who comprise approximately 17 million American caregivers, policies encouraging both informal care and later retirement may not be feasible without further supports for working caregivers.
Informal and Formal Care: Conflicts, Complementarities, and Interactions
Lisa Dodson
(Brandeis University)
Nancy Folbre
(University of Massachusetts - Amherst)
[View Abstract]
Most studies of care work focus either on informal (and generally unpaid) work or on formal work in paid care occupations. But effective care, whether for children or for adults in need of assistance, typically requires collaboration between informal and formal caregivers. The institutional support for such collaboration remains weak. Differences in informal care resources (i.e. family members willing and available to provide care) represent a significant unmeasured aspect of inequality in living standards, and pressure to minimize both private and public spending on care often puts pressure on women to conform to traditional gender roles, assuming a disproportionate share of informal care responsibilities. Fear of “crowding out” informal care often inhibits increased public investment in public care. Our discussion of these issues includes comparisons of federal and state policies toward child care and home and community-based adult care (and paid care workers) in the U.S.
Discussants:
Barbara Schone
(Agency for Healthcare Research and Quality and Georgetown University)
Meghan Skira
(University of Georgia)
Robert Pollak
(Washington University-St. Louis)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, Tremont
International Association for Energy Economists
Economics of The Global Energy Transition
(Q4)
Presiding:
Anastasia V. Shcherbakova
(University of Texas-Dallas)
Employment Impacts of Upstream Oil and Gas Investment in the United States
Mark Agerton
(Rice University)
Peter Hartley
(Rice University)
Kenneth B. Medlock III
(Rice University)
Ted Temzelides
(Rice University)
[View Abstract]
[Download Preview] The number of jobs created by the recent United States oil and gas boom is a key question for policy makers as they weigh costs and benefits of regulation in the energy sector. Anecdotes abound, with mass media stories of boom-towns, labor shortages and large population increases in North Dakota, south Texas and elsewhere. However, there has been little empirical work on the economic impacts of the boom. To date, most estimates of job-creation come from industry-funded reports that use ex-ante input-output models, which tend to overstate impact multipliers. We take an ex-post empirical approach to estimate the employment impacts of upstream oil and gas investment. We use panel time-series methods with monthly data on state-level employment and drilling activity, plus national macroeconomic controls.
We find robust statistical support for the hypothesis that changes in drilling for oil and gas have an economically and statistically meaningful impact on employment. The strongest impact is felt in months t and t+1, though there are also employment increases later in the year. Once dynamic effects are accounted for, we estimate that an additional rig-count results in the creation of 382 jobs. This is consistent with Hartley et al. (2013), which examined county level data from Texas. While appreciable, these multipliers are not nearly as large as those predicted by previous industry-commissioned studies. We also find evidence that job-multipliers are larger for traditional oil and gas producing states than for North Dakota, which would be consistent both with a disequilibrium situation and with Blanchard and Katz (1992), who find that adjustments to labor demand shocks occur primarily through migration, not wages. Finally, our results suggest that the job impacts of unconventional drilling have been larger than for conventional drilling, which would be consistent with the high-costs and high initial production rates in unconventional wells.
Census from Heaven: An Estimate of Global Electricity Demand "if Everyone Lived Like in OECD".
Nadejda Victor
(National Energy Technology Laboratory)
Christopher Nichols
(National Energy Technology Laboratory)
[View Abstract]
[Download Preview] How much electricity does the world really need? Economic theory suggests that electricity demand depends on a number of factors such as per capita income, economic output, supply and cost of electricity. However, formal electricity demand models based on GDP, population growth and efficiency improvement assumptions may not capture the appropriate variables for responses at high geographical resolution level and, as a result, may be quite wrong about the prospective electricity demand.
This study proposed and implemented a method to examine whether nighttime luminosity measures could be used to improve estimates of electricity prospective demand at high geographical resolution level. Further, we investigated whether luminosity may serve as a proxy for electricity consumption. Luminosity data has an advantage over other proxies as night lights data are available over time and all space, but data on electricity consumption is unavailable for many lower income countries and is generally unavailable at sub-national level. To the extent that luminosity is a good proxy for electricity consumption, we evaluated how much electricity the world would likely demand “if everyone lived like in OECD countries”.
The International Energy Agency's World Energy Outlook estimated the global electrification rate at 80.5%, with 1.32 billion people living without electricity. For developing countries to catch up economically, they will have to increase electricity use to levels approaching developed countries’ average. Results show that prospective global electricity consumption is 2.4 times higher than observation in 2010. At per-capita level, the average prospective global electricity consumption is 7,224 kWh/cap or about the same as in Germany today; a significant increase from the current level of about 2,500 kWh/cap. Our regional and country-level results are close to IEA’s 2035 energy demand projections for China, Japan, Europe, Russia and Middle East, but significantly higher for India and Africa.
Sun and Lemons: Getting over Information Asymmetries in the California Solar Market
Johannes Mauritzen
(NHH Norwegian School of Economics)
[View Abstract]
[Download Preview] Solar panel systems are significant investments for households and businesses that need to last at least a decade in order to be financially profitable even with significant subsidies. However, individual homeowners or small contractors would incur great costs in verifying the quality of the main component of a solar system: the solar panels. In this way the market for Chinese solar panels resembles the market for "lemons" (Akerlof, 1970). Without information on quality of Chinese manufacturers, households can be expected to prefer established manufacturers of solar panels where quality can more easily be verified. This provides a barrier to entry to new manufacturers and some pricing power to established manufacturers. This information asymmetry could potentially block a switch to cheaper Chinese panels even if the quality of Chinese panels are the same as of established manufacturers.
Using a large sample of data from installations of solar panels in California between 2007 and 2014 and a multilevel regression model, I provide evidence that contractors were able to gain market share and significantly bring down total system costs by switching to cheaper Chinese panels. I argue that these companies were successful in overcoming the information asymmetries by switching to a business model of leasing solar panels rather than selling them outright. By owning the panels themselves, they are able to absorb the information asymmetry and associated risk, verifying the quality of the panels as a wholesaler.
While the leasing business model appears to have been instrumental in allowing for high market penetration of Chinese panels, the results also show that controlling for time and use of Chinese panels, contractors using a leasing model were able to charge a higher price than those that sold the system outright. This can potentially be interpreted as an information rent for contractors.
Pre-Paid Electricity Plan and Electricity Consumption Behavior
Yueming Qiu
(Arizona State University)
Bo Xing
(Salt River Project)
[View Abstract]
With the recent development of smart grid technology, prepaid electricity plans recently began to gain more popularity among utilities. In a prepaid electricity plan, customers pay in advance for the amount of electricity they consume. When the prepaid amount is close to being used up, customers add money to their accounts in order to continue using electricity. A prepaid plan can help energy conservation.
In this paper, we build a theoretical model to demonstrate that there are two possible channels for reducing electricity consumption after a customer switches from the standard electricity rate to a prepaid plan. The first channel is increased awareness of one’s own consumption behavior. In a prepaid system, customers are forced to pay more attention to their energy consumption and energy expenditure at the risk of being disconnected from electricity. This increased attention could help customers better manage their energy consumption behavior. The second channel is a rational consumer utility maximization process, namely the hidden cost of time and transportation to go to a Kiosk to charge a prepaid account.
We then use customer-level residential billing data from 2008-2010 of a major utility company in the Phoenix metropolitan area, a matching approach and a difference-in-difference method to empirically estimate the impact of a prepaid electricity plan on residential electricity consumption, after correcting for selection bias. For every prepaid customer, we find on average three control customers that are in the same neighborhood, have similar electricity usage before the prepaid customer switches to a prepaid plan and are always on the standard pricing plan (non-prepaid plan). We find that the prepaid program is associated with 12% reduction in electricity consumption. We also find that customers that had higher amount of arrears prior to switching to a prepaid program tend to save more electricity after the switch.
Discussants:
Timothy Fitzgerald
(Montana State University)
Alberto J. Lamadrid
(Lehigh University)
Carlo Andrea Bollino
(University of Perugia)
Mike Goldman
(Northeast Utilities)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, Grand Ballroom—Salon H
International Banking Economics & Finance Association
Macrofinance
(E4, G1)
Presiding:
Ata Can Bertay
(Ozyegin University)
Creditor Rights and Aggregate Factors in Loan Terms
Diana Knyazeva
(U.S. Securities and Exchange Commission)
Anzhela Knyazeva
(U.S. Securities and Exchange Commission)
Joseph E. Stiglitz
(Columbia University)
[View Abstract]
[Download Preview] It is well known that conflicts of interests between borrowers and creditors can raise the cost of external financing. In this paper we provide new evidence that borrower-creditor conflicts of interests also affect the sensitivity of debt financing to aggregate business conditions. In the presence of incomplete contracts, creditors cannot fully observe or verify diversion of free cash flow by borrowers. Whereas strong creditor rights impose a high cost on defaulting borrowers, weak creditor rights enable borrowers to divert cash flows and avoid repayment more easily. When creditors cannot enforce their rights and assure repayment regardless of the individual borrower’s underlying financial condition, creditors may choose to rely more on verifiable, aggregate information in their lending decisions, resulting in less discriminate loan pricing. Alternatively, creditors with few protections may resort to more borrower-specific information gathering in an effort to select the best borrowers and mitigate conflicts of interest. We test these contrasting predictions in a sample of international and domestic syndicated bank loans. Based on our analysis of international and domestic syndicated bank loans and country- and state-level variation in creditor rights, we find that industry factors have a larger impact on loan spreads and other terms when creditor protections are weak. The findings demonstrate a new channel for the effect of conflicts of interest on bank lending and yield important implications for lenders, borrowers, efficiency of capital allocation, and systemic risk.
Capital Regulation and Macroeconomic Activity: Implications for Macroprudential Policy
Roland Meeks
(University of Essex)
[View Abstract]
[Download Preview] This paper studies the macroeconomic effect of changes in the capital requirements set by microprudential bank regulators. The central result is that unanticipated increases in capital requirements lower lending to firms and households, reduce aggregate expenditure and raise credit spreads. A financial accelerator effect in the housing market is found to amplify the macroeconomic effects of shifts in bank credit supply. Results from a counterfactual experiment that links capital requirements to house prices and mortgage spreads indicate that a countercyclical capital buffer could be an effective macroprudential tool. The reported simulations indicate that tighter macroprudential policy would have lowered house prices and mortgage lending in the early 2000s, with easier monetary policy acting to offset the contractionary effects on output.
Shadow Banking and Regulation: A Quantitative Assessment
Kevin Moran
(Laval University)
Cesaire Meh
(Bank of Canada)
[View Abstract]
In the years prior to the financial crisis of 2007-2008, a lightly regulated “shadow” banking system played an expanding role in the provision of household and corporate credit. Shadow banks helped provide credit by purchasing securitized assets from the originating banks and financing these purchases using repos, short-term debt collateralized by the value of the original assets.
Mortgage Amortization and Welfare
Luisa Lambertini
(Ecole Polytechnique Federale de Lausanne)
Chiara Forlati
(Ecole Polytechnique Federale de Lausanne)
[View Abstract]
[Download Preview] In the pre-crisis period the U.S. housing market experienced a large increase in mortgage lending in part fueled by government housing policies aimed at expanding credit to low-income households. Such credit expansion was made possible by the introduction of non-standard mortgage products characterized by low down payments and reduced (initial) repayments.
This paper builds a dynamic stochastic general equilibrium model with housing and endogenous default on mortgages to study the welfare effects of alternative mortgage contracts. We find that non-standard mortgage contracts with low down payments and reduced amortization make credit-constrained borrowers \textit{worse off} and unconstrained households (savers) \textit{better off} at least in the long run. Our results can be explained \textit{only} in the light of general equilibrium effects. When offered mortgages with low amortization rates, credit-constrained agents rationally choose to take advantage of them and borrow more because they take prices as given. But higher housing demand raises housing prices. To afford housing at the higher prices, borrowers cut non-durable consumption and work more, thereby reducing their welfare. Our results contribute to the recent policy debate on the reform of the mortgage market.
Discussants:
Borghan Narajabad
(Federal Reserve Board)
Michal Kowalik
(Federal Reserve Bank of Kansas City)
Luisa Lambertini
(BIS)
Isaiah Hull
(Sveriges Riksbank)
Jan 04, 2015 12:30 pm, Sheraton Boston, Riverway
Korea-America Economic Association/American Economic Association
The Economics of the Internet
(L8, D8)
Presiding:
Jay Pil Choi
(University New South Wales and Michigan State University)
Social Media and News Consumption
Susan Athey
(Stanford University)
Markus Mobius
(Microsoft Research)
Jeno Pal
(Central European University)
[View Abstract]
This paper analyzes how the audience for internet news varies with the source
of the referral, comparing the audience when users navigate directly to news out-
lets to that when users are referred by social media. On average, the audience
referred by social media reads different types of articles, for example, articles with
more emotional content and articles that show an individuals perspective. We find
that much of the difference in audience can be explained by the fact that different
types of users use social media as a news source with different propensities, and
further different topics are consumed on social media. We also study the problem from the user perspective showing that a given user is more likely to consume news that aligns with their political preferences (as revealed through their past browsing) through social media. That is, social media seems to exacerbate polarization in information consumption. The paper develops a novel methodology for categorizing news at a large scale, combining text mining and crowd sourcing techniques. With these methods we are able to provide evidence about a variety of qualitative features of news consumption at a large scale, including subtle factors such as whether an article is of a type would typically be shared to impress one’s social media friends.
Net Neutrality, Business Models, and Internet Interconnection
Jay Pil Choi
(University New South Wales and Michigan State University)
Doh-Shin Jeon
(Toulouse School of Economics)
Byung-Cheol Kim
(Georgia Institute of Technology)
[View Abstract]
[Download Preview] We analyze the effect of net neutrality regulation in a two-sided market framework when content is heterogeneous in its sensitivity to delivery quality. We characterize the equilibrium in a neutral network constrained to offer the same quality vis-à-vis a non-neutral network where Internet service providers are allowed to engage in second degree price discrimination with a menu of quality-price pairs. We find that the merit of net neutrality regulation depends crucially on content providers' business models. More generally, our analysis can be considered a contribution to the literature on second-degree price discrimination in two-sided platform markets.
Match Quality, Search, and the Internet Market for Used Books
Glenn Ellison
(Massachusetts Institute of Technology)
Sara Ellison
(Massachusetts Institute of Technology)
[View Abstract]
The paper examines Internet-related changes in the used book market. A model in which sellers wait for high-value consumers brings out two expected effects: improvements in the match-quality between buyers and sellers raise welfare (and may lead to higher raise prices); meanwhile increased competition brings down prices especially at the lower end of the distribution. The paper examines differences between offline and online prices in 2009 and between online prices in 2009 and 2013 and finds several features consistent with the model predictions. Most notably, online prices are higher than offline prices, suggesting a substantial match-quality effect. The paper develops a framework for structural estimation using the available price and quantity data. Structural estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus.
An Empirical Analysis of Consumer Online Search
Thomas Blake
(eBay Research Labs)
Chris Nosko
(University of Chicago)
Steven Tadelis
(University of California-Berkeley)
[View Abstract]
A growing body of empirical literature finds that consumers are relatively limited in how much they search over products online. These findings suggest that search frictions can lead to, among other things, price dispersion in markets with homogeneous goods, incorrect estimates of demand elasticities, and that firms might have an incentive to distort search results from the societal optimum. Using search and purchase behavior data from ebay allows us to examine a wide set of consumer behaviors, which show that search behavior is rich. By linking individual user behavior across sessions we observe consumer search behavior in sessions in which the consumer both purchased and did not purchase. In contrast to the existing literature, we find that consumers search a lot: on average 85 times per purchase, with most sessions ending in no purchase. We are able to identify search patterns by examining the search query entered by the user and how closely related the items they view are to each other. The data suggests that consumers appear to search in phases, narrowing down their focus as they get closer to purchase. Consequently, the standard approach of examining users at the end of this "purchase funnel" misses a large part of how search drives purchase behavior. These findings challenge the validity of models that focus on price as the principle component of uncertainty and instead points to the need for richer models of search behavior.
Discussants:
Kyoo il Kim
(Michigan State University)
Joshua Gans
(University of Toronto)
Minjae Song
(Bates White)
Yun Jeong Choi
(Yonsei University)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, Tufts
Middle East Economic Association
Labor Market, Unemployment, and Migration
(J6)
Presiding:
Edward Sayre
(University of Southern Mississippi)
The Impact of Arab Spring on Hiring and Separation Rates in the Tunisian Labor Market
Ilham Haouas
(Abu Dhabi University)
Almas Heshmati
(Sogang University)
[View Abstract]
[Download Preview] This paper analyses the hiring and separation rates in Tunisia before and after the Arab Spring of 2011. Several models are specified to study employment decisions based on quarterly administrative firm level data over the period of 2007 to 2012. The data provides information about important firm characteristics such as industry sector, number of hiring and separation, total employment effects, composition of labour force by gender, managerial and age cohorts. Six models are estimated to investigate hiring, separation, hiring rate, separation rate, mobility, and net-employment. The results indicate presence of continued risk factors in Tunisia’s labour market resulting from the global financial crisis in 2008 and the Arab Spring in 2011. Hiring was little changed during this time period, and the results suggest that factors that impact separation decisions remained present in Tunisia’s labour market. In addition, the paper looks at various social issues such as youth unemployment and infer on how more efficient policy actions that will further engage the private sector could result in more sustainable positive net employment and increased mobility.
Labor Markets Efficiency and FDI in Middle Income and GCC Countries
Wasseem Mina
(United Arab Emirates University)
Louis Jaeck
(United Arab Emirates University)
[View Abstract]
This paper examines the impact of labor market efficiency on FDI flows using panel data on middle income and GCC countries for the period 2006-2012 and fixed/random effects estimation methodology. Labor market efficiency data are obtained from the Global Competitiveness Index‘s labor market efficiency indicators. These indicators include labor market flexibility indicators - a) cooperation in labor-employer relations, b) flexibility of wage determination, c) hiring and firing practices, d) redundancy costs, e) effect of taxation on incentives to work – and efficient use of talented labor resources indicators - f) pay and productivity, g) reliance on professional management, h) country capacity to retain talent, i) country capacity to attract talent, and j) female participation in labor force. The paper finds that pay and productivity, and reliance on professional management positively influence FDI flows in middle income countries, while only the latter positively matters in GCC countries. In addition, the paper finds that inflexibility of wage determination encourages FDI flows to GCC countries, a result which seems to be related to the segmented nature of GCC labor markets. This result requires further investigations.
Self-Employment and Unemployment in Turkey
Yasemin Ozerkek
(Marmara University)
Fatma Dogruel
(Marmara University)
[View Abstract]
[Download Preview] The relationship between the rates of self-employment and unemployment has been extensively studied in the literature. The results of the existing studies are varied. The aim of this paper is to investigate the dynamic relationship between these variables in Turkey. The results indicate that there is a long-run relationship between the rates of self-employment and unemployment. Changes in self-employment rates have a negative effect on subsequent unemployment rates. There is evidence for the existence of causality running from self-employment rate to unemployment rate. The results reveal the existence of an entrepreneurial effect. However, it is not possible to assess the exact entrepreneurial effect due to the restraint in the coverage of self-employment data. Involvement of unpaid workers in self-employment rate probably disguises the exact entrepreneurial effect.
Changes in Employment Status and Migration in Turkey: A Hazard Function Analysis Using Retrospective Data
Zeynep Basak
(Bulent Ecevit University)
Erol Taymaz
(Middle East Technical University)
[View Abstract]
In this study, we aim to investigate the interrelationship between migration and employment status in the case of Turkey. We estimate the determinants of spells for residence using a discrete-time model of residence durations where movement is taken as terminating an observed residence spell. In modelling durations, we distinguish between spells that end in short- versus long-distance moves where the former is said to be housing-related and the latter to be job-related. Due to the lack of adequate data to explore labor market transitions and geographic mobility in Turkey, we have conducted our own field survey which can be labelled as a retrospective labor market and migration history survey. The survey took place between January 2011 and April 2011, and carried on by the research firm, called Ipsos KMG. It was funded by TUBITAK (Turkish Institute of Scientific and Technological Research) and OYP (a government program oriented towards select graduate students with a view to promote new scholars as well as new state universities). The questionnaire has been applied to 4881 individuals –residing in urban areas - who are aged between 15 and 65 in 1703 householdsii in 34 provinces in Turkey. Of 4881 people, 3171 (1284 female, 1887 male) have ever worked and provided their working life histories while the number of people who have moved from one place to another at least for six month amounts to 1239 (of that 802 are women and 437 are men). While utilizing this dataset, we shed some light on the dependencies among the migration and labor market behavior of individuals since we are able to detect the location history and labor market experiences of people, with reasons for terminating a spell as well.
The Determinants and Effects of Immigrant Endogamy in the United States
Hisham Foad
(San Diego State University)
[View Abstract]
What factors influence the decision by immigrants to marry within or outside of their ethnic group? Following the work of Becker (1973) and Lam (1988), the gains from marriage are increasing with complementarities in the production and consumption of household goods. Thus, marriage market matching could be based on ethnic background given such shared interests as vacations to a couple's shared homeland or the consumption of ethnic meals. Further, immigrants living within ethnic enclaves are more likely to be endogamous as they are more likely to interact with people who share their ethnic background. How can we then reconcile these theories with the empirical observation that over the past 50 years, immigrant endogamy in the United States has been steadily rising. About 20% of immigrants who arrived before 1945 married within their own ethnic group. For immigrants who arrived since 1990, this number has climbed to nearly 80%. Why has the intermarriage of immigrants become so less common?
I attempt to answer this question by examining the determinants of immigrant endogamy using US Census and ACS data covering first and second generation immigrants to the United States. I evaluate differences in endogamy rates across ethnicities, residence in an ethnic enclave, and education levels of migrants and their spouses. I find that there are key differences among ethnicities, with “cultural distance” from American society increasing the likelihood of a particular ethnicity's endogamy.
Discussants:
Rahel Schomaker
(Cologne Business School)
Burcu Duzgun Oncel
(Marmara University)
Ozan Bakis
(Sabanci University)
Firat Bilgel
(Okan University)
Mahmut Tekce
(Marmara University)
Jan 04, 2015 12:30 pm, Sheraton Boston, Hampton Room
National Association of Economic Educators
Interventions, Innovations, and Insights in Economic and Personal Financial Education
(A2)
Presiding:
Helen Roberts
(University of Illinois-Chicago)
Financial Literacy in the Community College Classroom: A Curriculum Intervention Study
Erin A. Yetter
(Federal Reserve Bank of St. Louis-Louisville Branch)
Mary Suiter
(Federal Reserve Bank of St. Louis)
[View Abstract]
In the fall of 2013, ninety-three sections of Urban Community College's New Student Course (a 3-credit hour, letter graded course that is required for all new students) were included in this randomly assigned curriculum intervention study. Sixty-one treatment sections received a financial literacy curriculum unit designed by the Federal Reserve Bank of St. Louis, while control sections conducted business as usual. Students were pre- and post-tested using a nationally normed testing instrument on their knowledge of four dimensions of financial literacy: income, saving, credit and budgeting. Treatment sections realized an average gain of 11 percentage points from the pre- to post-test. We find that student pre-test scores, receiving the treatment, and the academic ability of the sections to be statistically significant predictors of student post-test scores using ordinary least squares and hierarchical linear modeling. We conclude that our financial literacy curriculum unit has a positive impact on student financial literacy in the community college examined.
In the fall of 2014, we will repeat this study with the inclusion of a new condition: treatment with experience. Teachers in the treatment condition of the fall 2013 version of the study, or those with experience, will make up this new condition. This will allow us to examine the importance of teaching experience with respect to the financial literacy curriculum.
The Effects of Financial Education on Short-term and Long-term Financial Behaviors
Jamie Wagner
(University of Nebraska-Lincoln)
[View Abstract]
[Download Preview] Widespread financial problems have motivated financial education as on possible remedy which has spurred researchers to estimate the effectiveness of such programs. This paper will estimate how different financial education courses affect both short-term and long-term financial behaviors. Using two types of behaviors allows me to see if financial education is more effective for behaviors that are more likely to be learned by doing (short-term behaviors) or behaviors that are harder to learn by doing (long-term behaviors). I use the 2012 NFCS data set which is a large (n=25,509), nationally representative data set to estimate the effects of financial education. My results show that financial education has small effects on short-term behaviors but has much larger effects on long-term behaviors. Short-term behaviors may be learned through experience rather than a personal finance course while long-term behaviors are harder to learn by doing and may need to be formally taught.
Podcasts in the Economics Curriculum: A Study in Implementation and Effectiveness
Chelsea T. Dowell
(University of Kentucky)
Sun Ki Choi
(University of Kentucky)
Gail Hoyt
(University of Kentucky)
Daniel Duncan
(University of Kentucky)
[View Abstract]
[Download Preview] Many people have studied and suggested ways of utilizing various media in the classroom setting, but discussion of the use of the podcast to enhance economic education has been more limited. Podcasts are portable, current, and digestible audio clips that can be used to present and reinforce economic concepts. The goal of this paper is to measure the actual, not perceived, effectiveness of podcast use on learning outcomes in the economics curriculum. The measurement of effectiveness on learning outcomes is multi-faceted. Podcasts are a new learning tool in economics that have yet to be tested with regards to actual learning outcomes. This study meticulously controls for demographic characteristics, detailed educational history, learning styles, instructor fixed effects, and class fixed effects while measuring the effectiveness on learning outcomes through podcasts.
Using Concept Maps for Teaching and Learning in Principles of Microeconomics: An Experimental Approach
Connor Delaney
(George Washington University)
Irene Foster
(George Washington University)
[View Abstract]
In STEM fields, it is not uncommon for key concepts to be so complex that it is a
challenge to convey those concepts to introductory students. For students to learn the
concept fully may require some prior knowledge or ability on the part of the student (that
faculty may simply assume the student has if they are registered for the course), and a
step-by-step approach to taking the student from rudimentary understanding to more
complex analytical thinking. Concept maps have been used for many years in STEM
fields to organize related information in order to improve analytical thinking. A concept
map is a visual representation of the full set of foundational ideas and sub-concepts that
revolve around the central concept.
Previous studies in statistics, mathematics and the sciences have found that concept
maps are successful in increasing comprehension and critical thinking. The studies
show that concept maps can differentiate well among fairly disparate levels of
understanding among students and that concept mapping groups received significantly
higher examination scores than traditional textbook exercises groups. Concept maps
have had limited use in the field of economics mostly as study aids with some minor
success.
In this paper, we analyze the effectiveness of using a concept map (as both a teaching
and learning tool) to help students learn the concept of opportunity cost in economics. In
2005, the designers of a survey on opportunity cost administered to economics faculty
concluded that there persists an incomplete knowledge of opportunity cost, even among
those who teach. This presents opportunity cost as a concept ripe for the type of multifaceted
and holistic approach that a concept map can bring. A draft version of a
concept map on opportunity cost is attached.
We will run an experiment on three sections of a Principles of Microeconomics class
taught by the same instructor in Fall 2014. In one section, the concept map will be used
as a teaching tool to structure and prioritize the
Discussants:
Irene Foster
(George Washington University)
Shelby Frost
(Georgia State University)
Jamie Wagner
(University of Nebraska-Lincoln)
Martha L. Olney
(University of California-Berkeley)
Jan 04, 2015 12:30 pm, Sheraton Boston, Beacon B
Omicron Delta Epsilon
Omicron Delta Epsilon Graduate Student Session
(A1)
Presiding:
Alan Grant
(Baker University)
Searching for Goldilocks: Non-Linear Capitalization of Emergency Service Provision
Trey Trosper
(University of Oklahoma)
[View Abstract]
[Download Preview] The capitalization of public services into residential property values has been a subject of extensive study. Much of the current literature evaluates the capitalization effects of transportation and education access. However, there has been relatively little research on the effects of emergency service provision. This paper empirically investigates the non-linear effects on property values of three different types of services; fire, police, and emergency medical services. While each service type provides some positive benefit from being located near the service station, there are also disamenity effects of being located too close to a station. Using an extensive database with 1,308,373 home sales at the parcel level, and location information from the state of Florida, a hedonic regression analysis is performed to uncover how capitalization effects of service access may vary across spatial distances. An additional component will be a more nuanced view of how the literature has calculated distances between parcels and service provision locations. Traditionally this has been performed using straight-line [Euclidean] distances. This work will include a network analysis component that will be identifying distances using road-based measures of distance.
Smoking and Morbidity
Lyudmyla Kompaniyets
(Washington State University)
[View Abstract]
Smoking is a direct cause of many diseases. As a result, many public policy initiatives, including cessation programs, excise taxes, and informational campaigns, often target smoking. While there is extensive literature relating these initiatives to smoking-related mortality, evidence on whether smoking-related morbidity responds similarly is lacking.
In this paper, we use data on the number of smokers and nine smoking-related diseases in each of the U.S. states in 2009. The paper uses beta maximum likelihood estimation approach to measure the elasticity of these diseases to the number of smokers. Our results show that magnitude of elasticities varies by disease type. In all cases, we find that the elasticity is positive but less than one. Elasticities of different cancer types are very close to zero, so reducing the percentage of smokers has little effect on the cancer rates. In the case of heart attack, stroke, coronary disease and diabetes, the elasticity with respect to smoking is greater in magnitude, but still smaller than one. These results have important implications for the effectiveness of smoking cessation programs and laws in reducing specific smoking-related diseases. The implications are that smoking cessation programs and policies may be more effective in preventing heart attack, diabetes, stroke and coronary disease, rather than cancer. The elasticities obtained in this paper can be used to compare the costs of smoking cessation programs to the cost of curative care of smoking-related diseases, which would allow us to estimate the cost-effectiveness of smoking cessation programs.
Housing Wealth, Property Taxes, and Labor Supply among the Elderly
Lingxiao Zhao
(University of Oklahoma)
[View Abstract]
[Download Preview] The U.S. experienced a significant boom/bust cycle in the housing market over the last fifteen years. Housing equity is the largest component of retirement portfolios for most low and middle income elderly American households, meaning volatility in the housing sector makes older households particularly exposed to unexpected wealth shocks. Gains/losses in housing wealth may influence labor supply, particularly for near-retirement age workers. Additionally, property tax liabilities are directly linked to home values, and may further affect elderly labor supply by tightening or loosening households’ current liquidity constraints.
This paper investigates the relationship between housing wealth shocks, property tax liabilities, and the labor supply of elderly households. We use data spanning 1991 through 2010 from the Health and Retirement Study (HRS), which contains comprehensive information from elderly households. This allows us to take advantage of plausibly exogenous variation in housing wealth during the recent boom/bust cycle of the housing market, while still controlling for other key socioeconomic determinants. Preliminary findings suggest elderly labor supply responds to variation in housing wealth and property tax liabilities in the predicted opposing directions, that elderly labor supply is more sensitive to unexpected changes in housing wealth than to similarly sized changes in financial wealth, and that workers in their late 50s and late 60s are affected by changes in housing wealth whereas labor supply of those still in their early 50s, early 60s and late post-retirement are not. Gender related differences in these effects surface across a number of specifications. While the self-reported housing values available in the HRS data carry several advantages, planned extensions involve merging MSA-specific house price indexes and local unemployment rates with restricted access HRS data carrying geographic identifiers, to see if these findings are retained when variation in housing wealth is measured at the regional level.
Do Economic Development Incentives Crowd Out Public Expenditures in U.S. States?
Jia Wang
(University of Oklahoma)
[View Abstract]
[Download Preview] This paper sets out to investigate whether incentives spending crowds out public spending in U.S. states. Using data from an evolving national database, this paper employs a two-way fixed effect panel framework and GMM approach to account for the dynamic features associated with public expenditures. Potential endogeneity of policy variables and problems with unbalanced panels are also considered. Estimation results indicate that incentives expenditures are significantly and negatively associated with public expenditures, particularly for some productive public goods. Findings of this paper carry practical importance for policymakers concerning the efficacy of incentives.
Discussants:
Jia Wang
(University of Oklahoma)
Lingxiao Zhao
(University of Oklahoma)
Lyudmyla Kompaniyets
(Washington State University)
Trey Trosper
(University of Oklahoma)
Jan 04, 2015 12:30 pm, Boston Marriott Copley, Wellesley
Society of Government Economists
Taxes and Transfers
(H2, H3)
Presiding:
Robert Lerman
(Urban Institute and American University)
Consumption Taxes, Income Taxes, and Revenue Stability: States and the Great Recession
Howard Chernick
(City University of New York-Hunter College)
Cordelia Reimers
(City University of New York-Hunter College)
[View Abstract]
[Download Preview] This paper challenges the conventional wisdom that taxes on consumption are more stable through the business cycle than taxes on personal income, using the Great Recession as a test case. We first estimate the effect of tax shares from the personal income tax and taxes on consumption on the level and distribution of tax burdens across states, using Citizens for Tax Justice microsimulation estimates for all states. We find that while both higher income tax shares and higher consumption tax shares are associated with higher average tax burdens, a higher income tax share increases state progressivity, while a higher consumption tax share makes the tax burden more regressive. We then estimate a regression of tax change on tax burdens and AGI changes by income slice. We find that states with highly unequal income distributions and concentrations of capital gains had more volatile tax bases, but that this volatility did not systematically translate into more volatile tax revenues. We then use predicted tax burdens from the first stage to simulate the change in state taxes during the Great Recession. Finally, we simulate the effect of bringing a state’s tax structure to national average income and consumption tax shares. Contrary to expectation, we find that states with the greatest reliance on the income tax would have experienced more volatility with a more balanced tax structure, while states with the least reliance would have experienced less volatility. Though there were a few states with higher income tax shares and greater volatility – e.g., California and New Jersey – some states with no income tax – e.g., Florida and Nevada – suffered the greatest hits from the recession. The conclusion is striking, and important for tax design.
Decomposing Income Mobility Using Tax Data
Jeff Larrimore
(Federal Reserve Board)
Jacob Mortenson
(Georgetown University and Joint Committee on Taxation)
David Splinter
(Joint Committee on Taxation)
[View Abstract]
[Download Preview] In addition to addressing distributional concerns, progressive income tax schedules mitigate the effect of income mobility. That is, income taxes provide income stabilization by dampening downward and upward income changes. This paper estimates how various “income stabilizer” features of the tax code – including progressive tax rates, the earned income tax credit (EITC), and child credits – explain the difference between before and after-tax income mobility. It also contributes to income mobility research by investigating the causes of income mobility and whether the mechanisms through which mobility is achieved differs based on industry, income, or demographic characteristics.
Preliminary results from tax filers in 2001 and 2011 suggest that the refundable portions of the EITC and child credit are important “income stabilizers” and identify a number of factors associated with large income increases. Among those experiencing downward income mobility and claiming the respective refundable portion of each credit, the EITC and child credit each offset approximately a third of income losses. Among those who experience substantial upward mobility, increasing their income by at least 50 percent, the most important factors are marriage or remarriage or a second worker starting employment in the family. Additionally, while some individuals achieve upward mobility through job changes, individuals were more likely to achieve this substantial upward mobility through income growth while working for the same employer than from switching jobs.
Does Social Security Continue to Favor Couples?
Nadia S. Karamcheva
(Urban Institute)
April Yanyuan Wu
(Boston College)
Alicia Munnell
(Boston College)
[View Abstract]
Introduced into the Social Security program in 1939, spouse and survivor benefits have important implications for the retirement security of women. At the same time, the extent to which these family benefits impact “horizontal equity” of the Social Security program has been a consistent interest in academic circles and the broader policy community. Using the HRS data linked with Social Security earnings records and the MINT microsimulation model, this paper examines to what extent Social Security continues to favor couples and will do so in the future.
This paper examines changes in the ratio of the expected present value of Social Security benefits to the expected present value of contributions by marital status across a broad range of cohorts, from Depression Era to Generation X. Further, using a Blinder-Oaxaca methodology, the paper decomposes the reasons behind the changes in the ratio of benefits to contributions into its contributing factors, including women’s labor supply, the increased Full Retirement Age and changing claiming behaviors, disparity in life expectancy, age difference between couples, and educational assortative mating. This exercise quantifies how each of these changes has contributed to the change in benefits per dollar of contribution over time. As Congress seeks ways to reform Social Security to address insolvency, changes to family benefit provisions should be considered. The findings will clarify the extent to which family benefits violate the principle of horizontal equity in today’s Social Security program and help in evaluating various reform proposals to change the benefits structure.
Intergenerational Transfers under an Uncertain Estate Tax
David Joulfaian
(U.S. Department of the Treasury)
[View Abstract]
[Download Preview] The paper examines the pattern of lifetime transfers during a period of uncertainty in estate taxation where the tax was set to expire, reintroduced, and its reach curtailed. More specifically, it examines lifetime gifts made during the past decade, with a focus on the size and frequency of transfers over the period 2002-2012. Using data from gift tax returns, reported lifetime taxable gifts over the years 2002-2009 were in the range of $20 to $30 billion per year. But, by 2012, these taxable gifts (which are in excess of the annual exclusion) increased to an unprecedented annual level of $440 billion. There is strong evidence of bunching at the exemption levels; at $1 million for the years 2002-2010 and $5 million for the years 2011 and 2012, respectively. These transfers represent significant acceleration in bequests, and may very well have serious implications for future tax revenues, as well as the observed distribution of income and wealth. Equally important, the findings also provide further support for the bequest motive as these lifetime transfers cannot be accidental in nature.
Discussants:
Takashi Yamashita
(U.S. Bureau of Economic Analysis)
Rajashri Chakrabarti
(Federal Reserve Bank of New York)
Kamila Sommer
(Federal Reserve Board)
Daniel Barczyk
(McGill University)
Jan 04, 2015 12:30 pm, Sheraton Boston, Clarendon Room
Transportation & Public Utilities Group
Pricing and Resource Allocation in Telecommunications
(L5, L9)
Presiding:
John W. Mayo
(Georgetown University)
Safety in Numbers? The Effect of Network Competition on Cybersecurity
Carolyn Gideon
(Tufts University)
Christiaan Hogendorn
(Wesleyan University)
[View Abstract]
[Download Preview] Every user of the Internet confronts significant threats from cybercrime, including phishing, hacking, identity theft, and spam. Some users must also confront targeted attacks and espionage. A recent RAND Corporation report describes how cybercrime has become a profitable industry with supporting services and software tools sold in a large black market (Ablon et al. 2014). Cybercrime flourishes because of underinvestment problems: digital information systems contain vulnerabilities including zero-day security flaws and out-of-date code. Internet Service Providers (ISPs), including those that provide enterprise service as well as residential, are in a special position to help their customers defend against cybercrime and mitigate the underinvestment problems. ISPs are the gateway between end users and the Internet at large, giving them technological advantages in enabling cybersecurity and also controversial power over privacy and network neutrality.
In this paper we study the effect of ISP market structure on cybersecurity. ISP competition is a prominent policy issue, but it has not been related to cybersecurity. We review the technical details of why ISPs have more capabilities than other Internet players with regard to the cybersecurity of their end users. Using a game-theoretic economic model, we explore ISP incentives to invest in security and how ISP competition affects them.
Previous economic research on cybersecurity has found that incentives cause security vulnerabilities as much as technology. Misdirected incentives are based on externalities and incomplete information. We begin with just the externalities, where one provider benefits from another provider's security efforts as in Kunreuther and Heal (2003). ISPs choose prices and security investments, and successful attacks are a probabilistic function of security levels of all ISPs. Monopoly reduces some externality problems because security externalities are more easily internalized and appropriated, although the interconnected nature of the Internet limits this benefit. There is also the well-established disincentive for a monopolist to invest in quality. Duopoly heightens externality problems and creates incentives to compete through better security offerings. Which regime produces higher security levels depends on customer price elasticity, network switching costs, and heterogeneity between ISPs.
The situation becomes more complicated when we add incomplete information about security levels. If end users cannot directly observe security levels, competition is distorted. Customers reallocate between ISPs based on negative incidents rather than actual security levels. This creates a lemons problem that reduces the benefits of competition.
This analysis enables us to better understand the implications of ISP industry structure on cybersecurity. The results are important for network neutrality policy, and policies to promote investment in unbundled or facilities-based competition. The effect of competition on cybersecurity is also likely to be an important consideration in the evaluation of merger cases, and it may arise in the currently pending Comcast – Time Warner Cable merger. We consider potential implications of our findings for vertical mergers as well.
Employing Auctions to Allocate Scarce Resources
John W. Mayo
(Georgetown University)
David E. M. Sappington
(University of Florida)
[View Abstract]
We examine when an unfettered auction will ensure the welfare-maximizing allocation of a scarce input in a setting where suppliers of differentiated products engage in price competition after acquiring the input at auction. A supplier values the input both because it enables the supplier to enhance the quality of its products and reduce its production cost and because, once acquired, the input is unavailable to rivals. We find that an unfettered auction often ensures the welfare-maximizing allocation of an input increment, and is particularly likely to do so when, for instance, retail customers become more concerned with vertical dimensions of product quality and less concerned with horizontal dimensions of product quality.
Regulation and Regulating: Multiple Issues, Bargaining, and the Will of Congress.
T. Randolph Beard
(Auburn University)
George Ford
(Phoenix Center)
Michael L. Stern
(Auburn University)
n/a
Collaborate or Consolidate: Assessing the Competitive Effects of Production Joint Ventures
Nicolas Aguelakakis
(Washington University)
Aleksandr Yankelevich
(Federal Communications Commission)
[View Abstract]
[Download Preview] We analyze a symmetric joint venture in which two firms facing external competition collaborate in input production. Under certain regularity conditions, such a collaboration leads to higher profits than a horizontal merger between these two firms, whereas the effect on prices and quantities depends on the form of downstream competition. When firms compete in prices, downstream prices for all firms are higher following a joint venture than those following a horizontal merger. The reverse result may obtain when firms compete in quantities. Nevertheless, prices and profits remain higher in a Cournot equilibrium than in a Bertrand equilibrium. We use our methodology to compare counterfactual joint ventures and horizontal mergers in the U.S. mobile wireless industry.
Discussants:
Jeffrey Prince
(Indiana University)
Olga Ukhaneva
(Georgetown University)
Mark Burton
(University of Tennessee)
Timothy Tardiff
(Advanced Analytics)
Jan 04, 2015 2:30 pm, Sheraton Boston, Gardner Room
African Finance & Economics Association
Economic, Social and Political Development in Africa
(O1, O1)
Presiding:
Juliet Elu
(Morehouse College)
Information technology and fiscal capacity in a developing country: evidence from Ethiopia
Shimeles Abebe
(African Development Bank)
Daniel Zerfu Gurara
(African Development Bank)
Mthuli Ncube
(African Development Bank)
[View Abstract]
[Download Preview] Limited fiscal capacity poses a significant challenge in developing countries. Recently, many developing countries have implemented electronic tax systems to improve compliance. However, there is little systematic evidence on the impact. We present evidences using a quasi-experimental evidence from Ethiopia where there has been a recent surge in the use of electronic sales registry machines (ESRM). We use administrative data covering all business taxpayers. We find that the ESRM resulted in a large and significant increase in tax payments (about 20 log points). This effect is driven by firms that are more likely to evade prior to the ESRM use.
The Incidence of Health Shocks, Formal Health Insurance, and Informal Coping Mechanism
Samuel Amponsah
(Tokyo International University)
[View Abstract]
[Download Preview] In recent years, both theoretical and empirical research has been accumulated in development economics regarding the household behavior in response to shocks in developing countries. Especially the impact of weather-related shocks such as droughts/floods and the efficiency of informal mechanisms to cope with these shocks are explored in depth in the literature. In sharp contrast, our knowledge on the economics of health shocks in low-income developing countries is rather limited. Few studies have documented that low incomes and poor health insurance coverage account for catastrophic medical expenditures in the event of a health shock. The current study uses different Ghanaian household survey data to examine the different coping mechanisms employed by uninsured household to protect themselves from incidence of health shocks. It explores the impact of formal health insurance (the National Health Insurance Scheme) on households’ out-of-pocket spending and catastrophic health expenditure.
Sustainable Investing in Capital Markets: A Strategic Approach
Johnson Kakeu
(Morehouse College)
[View Abstract]
This paper develops an economic framework that analyzes the effects of integrating environmental sustainability issues into investment decisions in capital markets. Sustainable investors are assumed to act so as to maximize the well-being which depends not only on the consumption but also on an inclusive wealth index that accounts for changes in the environmental degradation. The sustainable asset pricing equation is shown to include an environmental risk premium that prices the negative externality related to the degradation of the environmental quality. Investors' environmental awareness affects wealth accumulation through the joint working of three forces: the portfolio effect, the saving effect and the environmental-hedging effect. The propensity to consume decreases as the expected growth rate of the environmental degradation increases. Higher rate of saving can result from both a greater investors' environmental awareness and an increased environmental degradation. The propensity to consume has mixed response to investor's environmental awareness. Policy recommendations are analyzed.
To Redistribute or Not: Land Reform and Economic Well-Being in SADC Countries
Inoussa Boubacar
(Clarion University)
Gibson Nene
(University of Minnesota)
[View Abstract]
[Download Preview] Landlessness and disparity in the size of land holdings among current land owners plays a central role in determining the upward economic mobility of many households in all nations, especially in developing countries. Several reasons abound: First, disparity in the distribution of land holdings may pose significant effect on the overall economic growth and development of a country. Second, for many agricultural households, land is the single most important asset: it maintains its capital value over a long period of time; thus provides security to its current and potential owners. Without doubt, landlessness and disparity in the size of land holding distribution, where ownership exists can create and/or sustain inequality in income levels among current as well as future generations. Landlessness can also constrain individual’s access to credit markets that permits the purchase of modern farming and productivity enhancing inputs such as farm machineries, fertilizers and pesticides, and access to the often freely available government services such as agricultural extension; hence lifetime career choices of the agricultural community. Finally, the fact that the majority of population in developing countries depends on agriculture as their major source of income and employment, the lack of ownership of land and inequality in the distribution of land holdings are a critical factor in the fight against poverty and unemployment. While the strategies employed in the implementation of the land reform programs that were intended to address the problem may vary, the two most commonly used paths to land reform are expropriation and the market based approaches. In this study, we focus on the experience of fourteen countries in the Southern African Development Community (SADC), where inequality in the landholding distribution that existed during the colonial era continued into the post-independence periods, to empirically investigate the effect land reform approaches on the standard of living of the population in the countries considered. To address the wealth (land) redistribution question, we use two empirical frameworks, one incorporating land reform in the Barro and Sala-I-Martin (1995) type model to capture the net effect of land reform on economic growth of SADC countries after controlling for the factors that have been found to affect economic growth, where economic growth is measured by the average growth rate of per capita gross domestic product. The second determines the effect of the two main land reform approaches on agricultural performance. Agricultural performance is measured by the change in the agricultural production index. In both models we separate the effects of willing seller willing buyer (WSWB) and expropriation. The central findings of this study, based on Arellano-Bond dynamic panel GMM estimations, are the positive statistically significant coefficients on the variables WSWB and expropriation. Although both wealth redistribution options appear to have a positive impact on the economy, WSWB approach seems to be the most efficient way to redistribute land for agricultural production. Our future work is to investigate the effectiveness of land reform policy as an inequality reducing tool in Sub-Saharan African countries.
Elasticities of Demand for Food in Nigeria
Kwabena Gyimah-Brempong
(University of South Florida)
Oluyemisi Kuku-Shittu
(NSSP-IFPRI)
[View Abstract]
Elasticities of Demand for Food in Nigeria Abstract by Kwabena Gyimah-Brempong, USF, Tampa and Oluyemisi Kuku-Shittu, IFPRI, Abuja Agriculture forms the back-bone of most African economies; Nigeria is not an exception. Agriculture accounts for 22% of the rebased GDP and about 68% of employment. Nigeria embarked on an ambitious program to transform is agricultural sector from a traditional subsistence agricultural system to modern scientific based commercial farming when it introduced the Agricultural Transformation Agenda (ATA) in 2011. Among other polices to achieve this transformation are trade restrictions to protect domestic farmers. These trade policies have welfare implications (especially on the poor) which partly depends on the elasticities of demand for imported food in Nigeria. Yet very little is known about the elasticities of demand for food in Nigeria, especially the degree to which imported food and domestically produced food items are substitutable in consumption. In this paper, we use two waves of Nigeria’s Living Standards Measurement Survey-Integrated Survey on Agriculture (LSMS-ISA) data to investigate the elasticities of demand for food among Nigerian households. Specifically, we use we use a linear expenditure system to estimate the elasticities of demand for imported and domestic staple foods, including rice, cassava, yams, bread, and meat both at the national and regional levels. We also estimate demand elasticities among the households in income quintiles. We find that a large portion of expenditures on food items in Nigeria can be characterized by subsistence consumption, that both income and price elasticities of demand of both imported and domestically produced food items are very low. The calculated elasticities of substitution among food items, especially between imported rice and domestically produced food items, is very low. Finally, we find that demand elasticities of all food items is lower in households in lower income quintiles. Our results have important welfare policy implications.
Health Care Expenditures in African Nations: A Panel Unit Root and Cointegration Analysis
Mekongcho T. Metuge
(Hunan University)
Aboubacar Badamassi
(School of Economics and Management, China University of Geosciences,Wuhan)
[View Abstract]
This paper identifies, analyzes and ultimately investigates the long-run economic relationship between the determinants of healthcare expenditures (HEXP) in African countries as well as the extent of the underlying link and implications existing between them. We use a longitudinal dataset of 45 African countries over a period of 17 years from 1995-2011. Employing panel data unit roots and co-integration techniques there is evidence of a long-run relationship between HEXP and real per capita GDP. We include government expenditures, to the best of our knowledge, a never previously tested variable in the African health economics literature, foreign aid fungibility and population dependence are equally controlled for. Furthermore we investigate co-integration properties of the variables and conclude mixed results ranging from bidirectional and unidirectional Granger causalities. We also generate country-specific HEXP as well as income-group variations to investigate the HEXP growth path/evolution. As a result, we observe that real per capita income government expenditure and foreign aid schemes estimates are all statistically significant and have a positive link to real per capita healthcare expenditures. On average, health care spending grows slightly faster than income hence its income elasticity is considered a luxury good. Population dependency showed mixed results.
Solomon Aboagye
(University of Ghana)
Paul Adjei Kwakwa
(Presbyterian University College Ghana)
Discussants:
Steve Onyeiwu
(Allegheny College)
Darline Augustine
(Rochester Institute of Technology)
Malokele Nanivazo
(UN-WIDER)
Ousman Gajigo
(African Development Bank)
Thouraya Triki
(African Development Bank)
John C. Anyanwu
(African Development Bank)
Jan 04, 2015 2:30 pm, Westin Copley, St. George D
Agricultural & Applied Economics Association
Food Environment, Food Choices and Nutrition Outcomes – An International Perspective
(Q1)
Presiding:
Parke Wilde
(Tufts University)
Neighborhood Convenience Stores and Childhood Obesity: A Panel Data Instrumental Variable Approach
Di Zeng
(University of Arkansas)
Michael Thomsen
(University of Arkansas)
Rodolfo Nayga
(University of Arkansas)
Heather Rouse
(University of Arkansas for Medical Sciences)
[View Abstract]
[Download Preview] While the impacts of the commercial food environment on childhood obesity are receiving increasing attention, little is known about the possible impacts of neighborhood convenience stores, an important food retail format throughout the United States. This study helps bridge this gap using a panel data set of measured BMI screenings for Arkansas public schoolchildren and geo-referenced locations of children’s residences and convenience stores. We consider the choice nature of store location decisions and account for possible endogeneity using an instrumental variable approach, with proximity to the nearest US highway as the instrument. We find that access to convenience stores slightly increases BMI of schoolchildren. This finding is consistent across alternative measures of convenience store access after controlling for potential confounders such as access to fast food restaurants. Moreover, it is robust to alternative radii that define convenience store access. We find no evidence for disproportionately larger impacts among children from low-income families or children residing in areas with limited access to healthy foods.
Diet Deterioration and Food Retail Structure: Why Are Italians Eating Less Fruits and Vegetables?
Alessandro Bonanno
(Wageningen University and Pennsylvania State University)
Elena Castellari
(University of Connecticut and Università Cattolica del Sacro Cuore-Piacenza)
Paolo Sckokai
(Universita Cattolica del Sacro Cuore-Piacenza)
Francesco Bimbo
(Wageningen University and Università degli Studi di Foggia)
[View Abstract]
Fruits and vegetables (FV) consumption in Italy is declining dramatically. This decrease is particularly marked in southern regions, where the share of consumers declaring to consume five portions of FVs daily in the period 2005-2012 has declined by amounts as high as – 46.9%. As in Italy consumption of FV is more marked in the North than in the South, and food retailers’ presence shows a dichotomy where northern areas have larger and more numerous stores than southern ones, a relationship between food retail structure disparities and FVs consumption in Italy may exist. Our goal is to assess whether ease of access and increased service creates a conducive environment for the consumption of FV among Italians. We use a 7-year database of food stores’ location and characteristics in Italian regions from Nielsen, matched with individual-level number of daily portions of FV consumed from the Multipurpose Household Survey by the Italian Institute of Statistics. Differently than other studies using number of stores to capture access, we use more refined measures of food retail structure such as selling area, the number of in-store scales, and the length of refrigerated aisles. The model is estimated via a Two-Stage Residual Inclusion ordered probit estimator to correct for the endogeneity of food retail structure, and an identification strategy based on variation in pro-business climate across regions captured by voting results in regional election.
Does Healthy Food Access Matter in a French Urban Setting? – The Role of Food Retail Structure
France Caillavet
(INRA-ALISS)
Gayaneh Kyureghian
(Korea University)
Rodolfo Nayga
(University of Arkansas)
[View Abstract]
[Download Preview] Limited access to healthy food is commonly considered a contributing factor for poor dietary choices. The objective of this article is to test this hypothesis in a French context given France’s increasing obesity rates and incidence of poor dietary habits. We use data on fruit and vegetable consumption and different food retail availability measures – the number of food stores, food surface area and a dispersion measure based on store numbers, store types, and food area surface, from several data sources in France. We also employ different types of geographic units in measuring the food retail environment and instrumental variable model specifications to test the robustness of results. Our results indicate that fewer but larger retail outlets increase the odds of consuming the recommended level of fruit and vegetables. We also find that an increase in food supply dispersion will improve the fruit and vegetable consumption in Paris, but not in its suburbs.
Retailers’ Promotions: What Role Do They Play In Household Food Purchases In Scotland?
Cesar Revoredo-Giha
(Scotland’s Rural College)
Faical Akaichi
(Scotland’s Rural College)
Philip Leat
(Scotland’s Rural College)
[View Abstract]
[Download Preview] Scotland has one of the worst overweight and obesity records within the OECD countries, with 68% of males and 62% of females being overweight or obese. These conditions are also prevalent in children where over 15% of boys and almost 13% of girls under the age of 16 are obese and 30% of children are overweight. A poor diet fostered by a rapid increase in the supply of affordable, processed food has been mentioned as one of the major contributors to obesity. Associated to increases in affordability are the promotions used by retailers with such foods. Their impact is controversial because, on the one hand, retail promotions (e.g., price promotions, vouchers, in-store product placement, direct mail marketing and multiple-buy offers) have been pointed to as a key factor in expanding the expenditure on caloric rich processed foods; and on the other hand, promotions are also used by retailers for selling fruit and vegetables. Most of the studies on the effects of promotions have been based on a single or reduced number of products. Thus, the purpose of this paper is to analyse the overall effect of promotions on the Scottish diet, i.e., considering all food categories. This is achieved by analysing a representative scanner panel dataset for Scotland, which contains information at the household level about prices paid, type of promotion, the quantities purchased, as well as socioeconomic and demographic characteristics of the households including level of deprivation of the area where they live. In addition, as the dataset covers the period 2006-12, i.e., it includes a recessionary period during which retailers were trying all types of promotions to maintain sales and households were becoming more price-conscious as they endeavoured to cope with difficult budgetary decisions when shopping. The methodology consisted of estimating an augmented with promotions AIDS model, which
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 207
American Economic Association
Advances in Open Macroeconomics
(F3, E4)
Presiding:
Gita Gopinath
(Harvard University)
Dynamics of Exchange Rates and Capital Flows
Xavier Gabaix
(New York University)
Matteo Maggiori
(Harvard University)
[View Abstract]
We explore the quantitative implications of a framework where exchange rates are directly affected by financiers’ risk bearing capacity and capital flows. 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. We calibrate the model show that it can account for the variability and correlation not only of financial variables, such as the exchange rate and capital flows, but also real variables, such as exports imports and consumption. The model can account for the "excess volatility" of the exchange rate, Backus and Smith puzzle, the failure of UIP, and the exchange rate disconnect. We also consider how policy interventions (especially interventions in the FX market) can mitigate the excess volatility and increase welfare.
Dilemma not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows
Emmanuel Farhi
(Harvard University)
Ivan Werning
(Massachusetts Institute of Technology)
[View Abstract]
We consider a standard New Keynesian model of a small open economy with nominal rigidities and study optimal capital controls. Consistent with the Mundellian view, we find that the exchange rate regime is key. However, in contrast with the Mundellian view, we find that capital controls are desirable even when the exchange rate is flexible. Optimal capital controls lean against the wind and help smooth out capital flows.
Productivity and Capital Allocation in Europe
Gita Gopinath
(Harvard University)
Sebnem Kalemli-Ozcan
(University of Maryland)
Loukas Karabarbounis
(University of Chicago)
Carolina Villegas-Sanchez
(ESADE)
[View Abstract]
We use firm level data to measure the allocation of capital and labor in Spain, Italy, Portugal, Norway and Germany over the period 1999-2012. We interpret the evidence through the lens of a model with financial frictions and interest rate shocks.
Adjusting to a Capital Flight: The Role of Asset Prices
Guido Lorenzoni
(Northwestern University)
[View Abstract]
In the Mundell-Fleming framework, in response to a capital flight the balance of payment can adjust through three channels: a change in the interest rate differential, a real exchange rate depreciation, official flows offseting private flows. In this paper, I build a simple dynamic model with gross positions in risky assets and study the role of a fourth channel: a reduction in domestic asset prices and an increase in foreign asset prices that induce investors to readjust their portfolios towards domestic assets. I argue that this is the dominant adjustment mechanism inside a currency union. If financial markets are sufficiently integrated and there is little home bias in asset holdings, this mechanism of adjustment has small real effects. However, in presence of substantial home bias in asset holdings the mechanism also works through wealth effects on aggregate demand, leading to an amplified reduction in domestic output. I use the model to address recent controversies on the nature of current account imbalances within the Euro area.
Discussants:
Adrien Verdelhan
(Massachusetts Institute of Technology)
Martin Schneider
(Stanford University)
Brent Neiman
(University of Chicago)
Helene Rey
(London Business School)
Jan 04, 2015 2:30 pm, Sheraton Boston, Republic Ballroom Foyer
American Economic Association
AEA Committee on Economic Education Poster Session
(A2) (Poster Session)
Presiding:
Steve Cobb
(Pennsylvania State University)
Active Application of the Game Theory into a Classroom Game with Ethical Concerns and Understanding of Versatile Business Implications
Sylwia E. Starnawska
(State University New York-Empire State College)
[Download Preview] Poster Projects in Economics Classroom: Stimulating Active Learning and Creativity
Inessa Love
(University of Hawaii-Manoa)
Incorporating Sustainability into Principles of Macroeconomics: A Case Study
Madhavi Venkatesan
(Bridgewater State University)
[Download Preview] The Use of a Collective Bargaining Simulation and Its Impact on Student Perceptions and Critical Thinking Skills
Rod D. Raehsler
(Clarion University)
Flipped & Open
Richard Anderson
(Lindenwood University)
Areerat Kichkha
(Lindenwood University)
Using Surveys to Advance Economics Students Learning through Undergraduate Research
Zamira S. Simkins
(University of Wisconsin-Superior)
Tools for the Trade: Helping Business Majors See Value in Economics
Mandie Weinandt
(University of South Dakota)
Making Economics Interactive: A Holistic Approach to Teaching
Natalia V. Smirnova
(American Institute for Economic Research)
Michelle Ryan
(American Institute for Economic Research)
[Download Preview] Analyze This!
Jill Beccaris-Pescatore
(Montgomery County Community College)
Inspiring Creativity through Intercollegiate Competitions
James E. Tierney
(Pennsylvania State University)
Ryan L. Baranowski
(Coe College)
Kalina Staub
(University of Toronto-Mississauga)
Kim Holder
(University of West Georgia)
Wayne Geerling
(Pennsylvania State University)
TERM IT! : A Term-Based Method that Quickly Transforms Students into Thinking and Writing "Macro-Economically" or "Micro-Economically"
Caroline Kaba
(Glendale Community College)
[Download Preview] Crowdsourcing Test-Aids in Economics Courses
Leila Farivar
(Ohio State University)
50 Movies for 50 Years: A Look at the Most Influential Films Related to Economics from 1965 to 2014
G. Dirk Mateer
(University of Arizona)
Kim Holder
(University of West Georgia)
J. Brian O’Roark
(Robert Morris University)
Capitalism, Communism, and the Mixed Economy: A Classroom Simulation
James Bruehler
(Eastern Illinois University)
Alan Grant
(Baker University)
Linda S. Ghent
(Eastern Illinois University)
Dive In! Tips for Teaching Economics Through "Shark Tank"
Charity-Joy Acchiardo
(University of Arizona)
Abdullah Al-Bahrani
(Northern Kentucky University)
Darshak Patel
(University of Tennessee-Martin)
Brandon J. Sheridan
(North Central College)
[Download Preview] Teaching Pluralist Introductory Economics - No, It's Not Too Early
Irene van Staveren
(Erasmus University Rotterdam)
[Download Preview] A Connection System in Economics Education
Gbetonmasse B. Somasse
(Clark University)
[Download Preview] Research Oriented Learning and Teaching in Economics
Jan H. Hoffler
(University of Gottingen)
Susanne Wimmelmann
(University of Gottingen)
[Download Preview] Economics: The (not so) Dismal Science
Simon Medcalfe
(Georgia Regents University)
[Download Preview] Connecting Supply and Demand - An Interactive Visualization
Adalbert Mayer
(Washington College)
[Download Preview] The One Minute Paper and a New Use for the Airplane Production Exercise
Amy Henderson
(St Mary's College of Maryland)
Teaching "The Theory of Second Best"
Ranganath Murthy
(Western New England University)
The Undergraduate Economics Capstone Course: Bringing it All Together through Service-Learning
William Alan Bartley
(Transylvania University)
An Application of Benefit-Cost Analysis to Assess Career Changes
Brian W. Sloboda
(University of Phoenix and U.S. Department of Labor)
Student Social Media Preferences for Learning Economics
Howard H. Cochran, Jr.
(Belmont University)
Marieta V. Velikova
(Belmont University)
Bradley D. Childs
(Belmont University)
[Download Preview] Pay for Play? Engaging Students through a Graded Multiplayer Prisoner's Dilemma
Alan Green
(Stetson University)
Jan 04, 2015 2:30 pm, Sheraton Boston, Commonwealth
American Economic Association
Culture, Trust, and Productivity
(D2, L2)
Presiding:
Robert Gibbons
(Massachusetts Institute of Technology)
Firm Purpose and Performance
Rebecca Henderson
(Harvard Business School)
Eric Van den Steen
(Harvard Business School)
[View Abstract]
Some recent evidence seems to suggest that purpose-driven firms perform better than their competitors. One possible explanation is that a shared purpose drives the adoption of common beliefs or of a shared “vision,” and that this in turn improves both motivation and strategic alignment. While this explanation seems plausible in some cases, in others avowed purpose seems only loosely related to a plausible set of shared beliefs. This suggests that there are other important forces at work. This paper draws on a range of examples to speculate about alternative mechanisms.
Culture in Organizations
Elizabeth Martinez
(Massachusetts General Hospital)
Nancy Beaulieu
(Harvard University)
Robert Gibbons
(Massachusetts Institute of Technology)
Peter Pronovost
(Johns Hopkins University)
Thomas Wang
(Massachusetts Institute of Tecnology)
[View Abstract]
Bloodstream infections (BSIs) cost millions of dollars and thousands of lives in the United States every year. In 2004, an intervention developed by Peter Pronovost at Johns Hopkins involving (a) a supply cart, (b) a checklist, and (c) a culture-change program was implemented in 108 ICUs in Michigan (representing 85% of all ICU beds in the state). Celebrated publications document that BSI rates fell dramatically and were sustained 36 months after the intervention. Complementary analysis found that a measure of teamwork culture improved following the intervention, again for the sample as a whole. We study whether there is an association between reductions in BSIs and improvements in culture within ICUs. We propose a new measure of culture, based on theories of relational contracting, and find that this measure is indeed associated with BSIs.
Corporate Culture, Societal Culture, and Institutions
Luigi Guiso
(Einaudi Institute for Economics and Finance)
Paola Sapienza
(Northwestern University)
Luigi Zingales
(University of Chicago)
TBD - too long
The Evolution of Culture and Institutions: Evidence from the Kuba Kingdom
Nathan Nunn
(Harvard University)
[View Abstract]
We examine the impact that state development has on internal norms. Our analysis studies variation caused by the creation of the Kuba Kingdom in the early 17th century by King Shyaam. The Kingdom was much more developed than the independent villages and chieftaincies that surrounded it. It featured a judicial system with courts and juries, a police force, a military, separation of political powers, taxation, and public goods provision. Comparing descendants of the Kuba Kingdom with descendants of groups living outside of the Kuba Kingdom, most notably the Lele, we find evidence of formal institutions crowding out internal norms. Using a variety of behavioral experiments, we show that Kuba descendants are less likely to follow rules and more likely to cheat. We show that this difference is not due to differences in income, altruism, risk aversion, time preference, or religiosity.
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 206
American Economic Association
Documenting the Costs of Climate Change
(Q5, E3)
Presiding:
Benjamin Jones
(Northwestern University)
Climate Change and Growth Risk
Ravi Bansal
(Duke University)
Marcelo Ochoa
(Federal Reserve Board)
Dana Kiku
(University of Pennsylvania)
[View Abstract]
We use the forward looking information from global equity markets to estimate the elasticity of equity prices to temperature movements and find that climate change has significant effect on asset valuations. We also find that this elasticity is increasing with time/sample size, suggesting that climate effects are increasing over time. We use our empirical work to calibrate a long-run risks model with temperature-induced natural disasters which affects output in the economy. The model simultaneously matches observed temperature and consumption growth dynamics, discount rates provided by risk-free and equity market returns, and our estimated temperature elasticity of asset prices. We use this calibrated model to compute utility-based welfare costs of insuring against distant temperature induced disasters. We find that a concerns for the long run (preference for early resolution), and near permanent temperature-induced growth effects yield significant utility losses.
Temperatures and Growth: a Panel Analysis of the U.S.
Riccardo Colacito
(University of North Carolina)
Bridget Hoffman
(Northwestern University)
Toan Phan
(University of North Carolina)
[View Abstract]
[Download Preview] We provide empirical evidence that temperature affects economic growth in the United States. Our analysis documents the importance of focusing on the role of seasonal temperatures. While the link between average annual temperatures and economic growth is typically hard to establish, our results show that i) rising Summer temperatures depress growth, and ii) rising Fall temperatures increase economic growth. However, Summer temperatures are expected to increase at a faster pace relative to that of Fall temperatures. Thus, in a "horse race," the Summer effect dominates. Our estimation implies that, in net, rising temperatures can decrease the growth rate of US GDP by as much as one third, thus resulting in large welfare losses.
Adaptation to Climate Change: Evidence from United States Agriculture
Marshall Burke
(Stanford University)
Kyle Emerick
(University of California-Berkeley)
[View Abstract]
[Download Preview] Understanding the potential impacts of climate change on economic outcomes requires knowing how agents might adapt to a changing climate. We exploit large variation in recent temperature and precipitation trends to identify adaptation to climate change in US agriculture, and use this information to generate new estimates of the potential impact of future climate change on agricultural outcomes. Longer-run adaptations appear to have mitigated less than half -- and more likely none -- of the large negative short-run impacts of extreme heat on productivity. Limited recent adaptation implies substantial losses under future climate change in the absence of countervailing investments.
Time-Varying Weather and Yield Fluctuations: Implications for Storage and Food Prices
Mehdi Benatiya Andaloussi
(Columbia University)
Michael Roberts
(University of Hawaii)
Wolfram Schlenker
(Columbia University)
[View Abstract]
Extreme heat as measured by the cumulative sum of how much and for how long temperatures exceed 84 Fahrenheit has been shown to be a strong predictor of corn and soybean yields. We show that over the last 60 years the aggregate variance of extreme heat has gone through distinct phases with low and high variability, as have corn and soybean yields. Time-vayring covariances of weather shocks indicate that in the low-variability phase idiosyncratic shocks tend to average out, while in the high variability phase weather shocks are more systemic. Phases of systemic extreme heat and crop yield variability are associated with decadal climatological phenomena. We discuss the implications of time-varying weather variance for optimal storage behavior and food prices, as the standard model assumes homoscedastic shocks.
Discussants:
Tony Smith
(Yale University)
Benjamin Jones
(Northwestern University)
Melissa Dell
(Harvard University)
Aaron Smith
(University of California-Davis)
Jan 04, 2015 2:30 pm, Sheraton Boston, Independence Ballroom East
American Economic Association
Does Economics Need a New Household Panel?
(C8)
Presiding:
Robert Moffitt
(Johns Hopkins University)
Human Capital, Education, Achievement, and Learning
Chris Robinson
(University of Western Ontario)
[View Abstract]
[Download Preview] The major household panels internationally all have large sections devoted to human
capital, education achievement and learning. There is overwhelming evidence of the importance
of skills or abilities to lifetime success, most obviously in earnings, but human capital is also
linked to areas such as health outcomes, marriage, fertility, social cohesion and frontier research
studies these topics in a comprehensive, interconnected life-course framework. This requires
excellent panel data incorporating recent advances in panel design and innovative measures
required for addressing the most important scientific and policy issues. This paper reviews the
most important scientific and policy research in the area of human capital, education achievement
and learning and discusses the need for a new nationally representative household panel for the
United States to provide the research resources necessary to keep the United States at the forefront of scientific and policy research in this area.
Labor Markets
Dan Black
(University of Chicago)
Lowell Taylor
(Carnegie Mellon University)
[View Abstract]
[Download Preview] Many of the key issues confronting modern societies are closely tied to labor market
outcomes: What factors contribute to the persistence of poverty and deprivation? Why does long-term unemployment damage re-entry prospects into labor markets? Along which dimensions is economic inequality increasing, and to what extent should we be concerned about these trends? To what degree is inequality transmitted within families across generations? Why does race play such an important role in economic success in the U.S.? How are male-female differences in economic outcomes shifting over time? In this essay we suggest that a well- designed survey that follows individuals within households over a long horizon is crucial for sorting some facets of these questions. We provide some thoughts about how a future household survey should be designed for the purpose facilitating high-value research in empirical labor economics.
Neighborhoods and Housing
Lincoln Quillian
(Northwestern University)
Jens Ludwig
(University of Chicago)
[View Abstract]
Panel data are a critical resource for addressing many important social science and policy
questions in the area of housing and neighborhoods. Among these questions are those regarding
longitudinal exposures to neighborhood conditions, effects of residential mobility, neighborhood
formation and change, effects of neighborhood social capital, effects of housing policies on these
outcomes, and effects of neighborhood environments on individuals. Moreover, we conclude that
the major existing panel data studies, perhaps most notably the Panel Study of Income Dynamics
(PSID), lack certain questions or have some deficits that make it limited in its ability to address
several of the questions we identify in its current form.To better address these questions, we conclude that there would be great value from either a new household panel study or a significant supplement to the Panel Study of Income Dynamics.
Health Insurance and Health Care
Helen Levy
(University of Michigan)
[View Abstract]
[Download Preview] This paper considers the availability of data for addressing questions related to health insurance and health care and the potential contribution of a new household panel study. The paper begins by outlining some of the major questions related to policy and concludes that survey data on health insurance, access to care, health spending, and overall economic well-being will likely be needed to answer them. The paper considers the strengths and weaknesses of existing sources of survey data for answering these questions. The paper concludes that either a new national panel study, an expansion in the age range of subjects in existing panel studies, or a set of smaller changes to existing panel and cross-sectional surveys, would significantly enhance our understanding of the dynamics of health insurance, access to health care, and economic well-being.
Discussants:
V. Joseph Hotz
(Duke University)
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 209
American Economic Association
Domestic Trade Costs
(F1, F6)
Presiding:
Dennis Novy
(University of Warwick)
Trade, Domestic Frictions, and Scale Effects
Natalia Ramondo
(University of California-San Diego)
Andres Rodriguez-Clare
(University of California-Berkeley)
Milagro Saborio-Rodriguez
(Universidad de Costa Rica)
[View Abstract]
[Download Preview] Idea-based growth models imply that larger countries are richer than smaller ones. New trade models share the same counterfactual feature: although small countries gain more from trade than large ones, this is not enough to offset scale effects. New trade models exhibit other counterfactual implications associated with scale effects: domestic trade shares and relative income increase too steeply with country size. We argue that these implications are largely a result of treating countries as fully integrated domestically. Instead, we treat countries as collections of regions with positive trade costs amongst themselves. The resulting model is largely consistent with the data.
What's Inside Counts: Migration, Taxes, and the Internal Gains from Trade
Trevor Tombe
(University of Calgary)
Jennifer Winter
(University of Calgary)
[View Abstract]
[Download Preview] Like trade between countries, trade within countries is costly; unlike between countries, gains from trade within countries depend on migration and taxes, as gains through higher wages have tax consequences that gains through lower prices do not. We confirm the first point in a novel way and flexibly measure large trade costs within Canada, China, and the United States — especially for poor regions. We further measure trade cost asymmetries to gauge the importance of non-geographic components of trade costs (such as distance) and find they are also large. To quantify the second point, we develop a model of trade featuring within-country factor mobility and, new to the literature, central government taxes and transfers. Taxes endogenously generate unbalanced internal trade and allow the model to match trade and income data well. We find (1) substantial gains from lowering internal trade costs and (2) gains to poor regions are particularly large, amplified by internal taxes and transfers.
Who's Getting Globalized? The Size and Implications of Intranational Trade Cost
David Atkin
(Yale University)
Dave Donaldson
(Stanford University)
[View Abstract]
[Download Preview] How large are the barriers that separate consumers in remote locations of developing countries from global markets and what do those barriers imply for the incidence of globalization (i.e. reductions in international barriers)? We develop a new methodology for answering these questions and apply it to newly collected CPI micro-data from Ethiopia and Nigeria (as well as to the USA as a benchmark). In order to overcome three well-known but unresolved challenges that arise when using price gaps to estimate trade costs, we: (i) work exclusively with a sample of goods that are identified at the barcode-level (so as to mitigate concerns about unobserved quality differences over space); (ii) collect novel data on the origin location of each product in our sample (so as to focus only on the pairs of locations that actually identify trade costs); and (iii) demonstrate how estimates of cost pass-through can be used to correct for potentially varying mark-ups over space. Failure to apply these corrections would result (in our data) in estimates of the cost of distance that are too low by a factor of approximately four. Our preferred estimates imply that the cost of trading over unit distance within Ethiopia or Nigeria is four to five times larger than within the US. In a final exercise we use our pass-through estimates to calculate 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.
Internal Trade Costs
James E. Anderson
(Boston College)
Mario Larch
(University of Bayreuth)
Dennis Novy
(University of Warwick)
Yoto Yotov
(Drexel University)
[View Abstract]
Trade costs within national economies are typically assumed to be common across countries. We argue that treating internal trade costs as common is neither realistic nor simply an innocuous normalization. In a model of international trade, we allow internal trade costs to differ across countries. Our theory shows that this simple generalization leads to novel insights on the behavior of trade flows in general equilibrium. In particular, changes in internal trade costs have large effects on international trade flows if they are initiated by large countries and by countries with low internal trade costs. We then estimate internal trade costs on a large data set of manufacturing trade across 76 countries. We find large within-country heterogeneity of trade costs and thus large deviations from the widespread 'one-size-fits-all' assumption. We also provide counterfactual simulations that demonstrate large quantitative effects of introducing heterogeneous internal trade costs.
Discussants:
Yoto Yotov
(Drexel University)
Mario Larch
(University of Bayreuth)
Trevor Tombe
(University of Calgary)
Natalia Ramondo
(University of California-San Diego)
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 201
American Economic Association
Field Experiments in Charitable Giving
(D6, H4)
Presiding:
Catherine C. Eckel
(Texas A&M University)
Identity and Charitable Giving
Judd Kessler
(University of Pennsylvania and NBER)
Katherine L. Milkman
(University of Pennsylvania)
[View Abstract]
[Download Preview] How does priming identity affect charitable giving? We show that individuals are more likely to donate when a facet of their identity associated with a norm of generosity is primed in an appeal. In large charitable giving field experiments run by a large national charity, appeals that prime an individual’s identity as a previous donor to the charity or as a member of a local community generate more donations. The primes are more effective when they highlight a facet of the potential donor’s identity that we hypothesize to be more relevant to his sense of self: Priming identity as a previous donor is more effective for more regular donors and priming identity as a local community member is more effective for people in smaller communities. Together, these results elucidate the impact of identity on behavior and demonstrate how identity primes can be implemented in practice to encourage public good provision.
How Do Suggested Donations Affect Charitable Gifts? Evidence from a Field Experiment in Public Broadcasting
David Reiley
(Google, Inc.)
Anya Savikhin Samek
(University of Wisconsin-Madison)
[View Abstract]
A very common practice in direct-mail fundraising is to provide a set of suggested donation amounts to potential donors, in addition to the option of writing in an amount. Yet little is known about if and how the set of suggested amounts affect giving behavior. Our contribution is a field experiment involving a direct-mail solicitation for three public broadcasting stations in which we varied (1) whether the suggested amounts were fixed, or linked to the individual’s previous donation and (2) the size of each suggested amount. We find that higher suggested amounts have a significant effect on the extensive margin (higher amounts affect the probability of giving), but not on the intensive margin (no effect on gift amount). In particular, higher suggested amounts lead to lower likelihood of giving for current members but no significant effect on lapsed members. Moreover, among those who give, higher suggested amounts lead to more write-in donations.
What Makes People Pick, Click, Give: Evidence from a State-Wide Natural Field Experiment in Alaska
John List
(University of Chicago and NBER)
Michael Price
(Georgia State University and NBER)
[View Abstract]
In May 2008, the Alaska Legislature passed House Bill 166 which allows Alaskans filing for their permanent fund dividend online to donate all or part of this refund to eligible non-profit organizations around the state. In 2013, approximately 26,000 Alaskans contributed more than $2.4 million (or approximately 0.25% of the total amount received from the permanent fund). This paper reports findings from a natural field experiment implemented in conjunction with Pick,Click,Give designed to uncover why people donate through Pick,Click,Give and identify ways for the state of Alaska to increase both the number of donors and total dollars raised. More than 250,000 households throughout Alaska were randomized into either a control group or one of two treatment groups that received a personalized post-card. Our first treatment message highlights the personal benefits of giving and encourages individuals to “Warm Your Heart: Share Your PFD” Our second message highlights the benefits to other of giving and encourages individuals to “Make Alaska Better for Everyone: Share Your PFD”. Preliminary data suggest that our messages had a positive impact on giving; relative to 2013 we observe significant increases in the number of donors, average donations per donor, and total contributions.
It's the Thought That Counts: A Field Experiment on Gift Exchange and Giving at a Public University
Catherine C. Eckel
(Texas A&M University)
David Herberich
(Sears Holdings Corporation)
Jonathan Meer
(Texas A&M University and NBER)
[View Abstract]
We conduct a field experiment with the Association of Former Students at Texas A&M University. Over 140,000 former students are solicited with one of several appeals. Some are sent a gift irrespective of whether they make a donation (either a plastic or leather A&M-branded luggage tag), while others are only sent a gift in after making a donation. Several treatments within the "conditional gift" approach examine the nature of gift exchange; in particular, we examine whether donors opt-in to the gift. A control group provides the baseline level of giving. Preliminary results indicate that gift exchange in charitable giving operates through the signaling value of offering the gift rather than delivery of the gift itself.
Discussants:
Mario Macis
(Johns Hopkins University)
Jacob Forrest Williams
(Portland State University)
James Andreoni
(University of California-San Diego and NBER)
Ragan Petrie
(George Mason University)
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 203
American Economic Association
Financial Crises and Beliefs
(G1, G2)
Presiding:
Arvind Krishnamurthy
(Stanford University)
Credit Expansion and Neglected Crash Risk
Wei Xiong
(Princeton University)
Matthew Baron
(Princeton University)
[View Abstract]
[Download Preview] In a set of 20 developed countries over the years 1920-2012, bank credit expansion predicts increased crash risk in the bank equity index and equity market index. However, despite the elevated crash risk, bank credit expansion predicts lower rather than higher mean returns of these indices in the subsequent one to eight quarters. Conditional on bank credit expansion of a country exceeding a 95th percentile threshold, the predicted excess return for the bank equity index in the subsequent eight quarters is -25.8%. This joint presence of increased crash risk and negative mean returns presents a challenge to the views that financial instability associated with credit expansions are simply caused by either banks acting against the will of shareholders or by elevated risk appetite of shareholders, and instead suggests a need to account for the role of over-optimism and neglect of crash risk by shareholders.
Credit Spreads and the Severity of Financial Crises
Tyler Muir
(Yale University)
Arvind Krishnamurthy
(Stanford University)
[View Abstract]
[Download Preview] We study the behavior of credit spreads and their link to economic growth during financial crises. We have three main findings. First, credit spreads accurately forecast the depth of the financial crisis in terms of GDP losses and thus the aftermath of a financial crisis is predictable based on the initial increase in spreads. Moreover much of this forecasting power comes from forecasting the worst quartile of GDP outcomes. That is, high spreads indicate a much higher probability of a bad tail event. Second, credit spreads the year before a crisis are largely uninformative about future GDP, suggesting that crises are largely a surprise. Third, while financial crises feature ``slow recoveries'' in terms of GDP and economic growth, credit spreads revert to pre-crisis levels more quickly, suggesting a separate role for financial and real factors in explaining the evolution of the macroeconomy in the aftermath of a financial crisis.
Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending
Peter Koudijs
(Stanford University)
Hans-Joachim Voth
(University of Zurich)
[View Abstract]
[Download Preview] What determines risk-bearing capacity and the amount of leverage in financial markets? Using unique archival data on collateralized lending, we show that personal experience can affect individual risk-taking and aggregate leverage. When an investor syndicate speculating in Amsterdam in 1772 went bankrupt, many lenders were exposed. In the end, none of them actually lost money. Nonetheless, only those at risk of losing money changed their behavior markedly – they lent with much higher haircuts. The rest continued as before. The differential change is remarkable since the distress was public knowledge. Overall leverage in the Amsterdam stock market declined as a result.
Discussants:
Gary Gorton
(Yale University)
Francis Longstaff
(University of California-Los Angeles)
Sebastian Di Tella
(Stanford University)
Jan 04, 2015 2:30 pm, Sheraton Boston, Boston Common
American Economic Association
Group-Based Savings in Developing Countries
(O1)
Presiding:
Alfredo Burlando
(University of Oregon)
Can Self-Help Groups Really Be "Self-Help"?
Joseph P. Kaboski
(University of Notre Dame)
Brian Greaney
(Federal Reserve Bank of St. Louis)
Eva Van Leemput
(University of Notre Dame)
[View Abstract]
We provide a theoretical and experimental evaluation of a cost-reducing innovation in the delivery of "Self-Help Group" micro-finance services, in which privatized agents providing services earn payment through membership fees. Under the status quo, agents are paid by an outside donor and offer members free services. Theoretically, we show that membership fees can improve performance without sacrificing membership by mitigating adverse selection. In our randomized control, the innovation provides similar levels of services over time, but cost the donor less. Moreover the innovation provides greater benefits (borrowing, saving, and investing in business) by catering to more business-oriented households.
Financial inclusion of vulnerable households through Savings and Borrowing Groups: Theory and experimental evidence from Uganda
Alfredo Burlando
(University of Oregon)
Andrea Canidio
(Central European University)
[View Abstract]
[Download Preview] Savings and borrowing groups (SBGs) are allowing millions of unbanked people in developing countries to save and borrow without resorting to formal banking systems. However, it is still unclear whether SBGs are also useful in fostering the financial inclusion of the poorest members of local communities. In this paper, we develop a model of SBG. We show that the supply of savings does not necessarily match the demand for loans, and we describe the determinants of saving and borrowing behavior as a function of the ability to save and borrow of other groups' members. We argue that including a person with a low ability to save imposes a negative externality on the group when the funds available to the group are scarce, and a positive externality when funds are in excess of the demand for loans. We test the model using data from an evaluation of a financial inclusion program in rural Uganda, where we exogenously changed the proportion of vulnerable participants with low ability to save in some newly created groups. We show that having members with a greater propensity to save increases borrowing from other members of the group. This is consistent with the prediction that groups are resource constrained, and suggest that including vulnerable members generates negative externalities. We then discuss the policy implications.
Public vs. Private Mental Accounts: Experimental Evidence from Savings Groups in Colombia
Luz M. Salas
(Universidad Javeriana)
[View Abstract]
[Download Preview] I study whether modifications to the framing of a commitment savings product affects savings accumulations and other poverty-linked outcomes for low-income individuals in newly-formed Village Savings and Loan Associations (VSLAs) in Colombia. The experiment tests whether behavioral responses vary depending on whether subjects are led to label and create ‘mental savings accounts’ in private versus public ways. Individuals in the private labeling treatment stated accumulation targets and earmarked savings for a particular purpose, but this was shared only privately with a member of the research team. Individuals in the public labeling treatment received the same intervention but publicly revealed and announced their goals to other members of their savings group. The average treatment effect of the public-labeling intervention are very strong and significant. Savings accumulations increased by an average of 35% and savings goals were 8.5% more likely to be reached in comparison to those untreated. Further explorations strongly suggest evidence of differentiated behavioral responses of individuals in the private-labeling treatment group: private commitment to a savings goal is more effective for individuals who, after random assignment but prior to the intervention, were less constrained by extant economic circumstances and institutional barriers. The analysis and interpretation of results was enriched by mixed methods for data collection: households’ survey data, administrative records and qualitative data from focus groups discussions.
Saving For Agricultural Inputs: Evidence from a Randomized Evaluation in Kenya
Shilpa Aggarwal
(University of California-Santa Cruz)
Pascaline Dupas
(Stanford University)
Jonathan Robinson
(University of California-Santa Cruz)
[View Abstract]
In rural Kenya, the return to agricultural inputs such as fertilizer appears to be very high but investment levels remain low. One reason for such underinvestment is that households may lack a secure place to save up money for inputs. In a pilot experiment with 77 Rotating Savings and Credit Associations (ROSCAs) in rural Kenya, we introduced an individual savings account labeled specifically for agricultural inputs. To measure impacts, all treatment and control ROSCAs were provided coupons for small discounts on the cost of inputs. Preliminary results suggest substantial demand and impact of the product: take-up was 57%, and coupon redemption increased by 10 percentage points (on a base of 26%). Our results suggest that introducing new savings products through informal savings clubs may be an effective way of increasing agricultural investment, particularly in an environment in which formal bank account usage is low due to high transaction costs and fees.
Discussants:
Jessica Goldberg
(University of Maryland)
Christian Ahlin
(Michigan State University)
Emily Breza
(Columbia University)
Simone Schaner
(Dartmouth College)
Jan 04, 2015 2:30 pm, Sheraton Boston, Back Bay Ballroom C
American Economic Association
Health Insurance Marketplaces: New Developments and Their Inplications
(I1, L1)
Presiding:
Leemore Dafny
(Northwestern University)
Messaging and the Mandate: The Impact of Advertising on Health Insurance Enrollment Through Exchanges
Natalie Cox
(University of California-Berkeley)
Benjamin Handel
(University of California-Berkeley)
Jonathan Kolstad
(University of Pennsylvania and NBER)
Neale Mahoney
(University of Chicago and NBER)
TBD
Narrow Networks and Marketplace Premiums: How Low Can You Go?
Leemore Dafny
(Northwestern University)
Igal Hendel
(Northwestern University)
Nathan Wilson
(Federal Trade Commission)
TBD
Limited Network Insurance Plans in Massachusetts
Amanda Starc
(University of Pennsylvania)
Keith Marzilli Ericson
(Boston University)
TBD
The Impact of Market Size and Composition on Health Insurance Premiums: Evidence from The First Year of The ACA
Michael Dickstein
(Stanford University)
Mark Duggan
(Stanford University)
Joe Orsini
(Stanford University)
Pietro Tebaldi
(Stanford University)
[View Abstract]
Under the Affordable Care Act, individual states have discretion in how they define coverage regions, within which insurers must charge the same premium to buyers of the same age, family structure, and smoking status. We exploit variation in these definitions to investigate whether the size of the coverage region affects market outcomes in the ACA marketplaces. We observe a tradeoff: regions with larger population attract greater numbers of insurers and have lower benchmark premiums, all else equal. However, as regions become more heterogeneous in terms of urbanity or land area, competition declines and prices rise. The consequences for small, rural markets are particularly large. When states combine small counties with neighboring urban areas in a coverage region, rural residents have access to plans from .6 to .8 more insurers, on average, and save between $200 and $300 in annual premiums for the benchmark plan.
Discussants:
Joshua Schwartzstein
(Dartmouth College)
Katherine E. Ho
(Columbia University)
Cory Capps
(Bates White)
Robin S. Lee
(Harvard University)
Jan 04, 2015 2:30 pm, Sheraton Boston, Independence Ballroom West
American Economic Association
Immigration Policy and Crime
(H8)
Presiding:
Paolo Pinotti
(Bocconi University)
Clicking on Heaven's Door: The Effect of Immigrant Legalization on Crime
Paolo Pinotti
(Bocconi University)
[View Abstract]
[Download Preview] We estimate the effect of legalization on the crime rate of immigrants by exploiting the Italian policy framework as an ideal regression discontinuity design: fixed quotas of residence permits are available each year, applications must be submitted electronically on specific ``Click Days'', and they are processed on a first-come, first-served basis until the available quotas are exhausted. By matching data on applicants -- including the timing of applications in milliseconds -- with restricted-use criminal records for the year before and after Click Days, we show that obtaining legal status reduces the probability of being reported for having committed a serious crime by 0.6 percentage points on average, on a baseline crime rate of 1 percent. This effect is driven by applicants that are allegedly employed by other immigrants as domestic workers (but are most likely unemployed) who exhibit the highest crime rate in the year before Click Days as well as the greatest reduction in crime after obtaining legal status. By contrast, applicants sponsored by firms exhibit a very low crime rate both before and after Click Days. We conclude that undocumented immigrants confronting worse labor market opportunities are at a higher risk of committing crimes, while they are also more responsive to legalization.
Effects of Immigrant Legalization on Crime: The 1986 Immigration Reform and Control Act
Scott Ross Baker
(Stanford University)
[View Abstract]
[Download Preview] In the late 1970's, rates of undocumented immigration into the United States increased dramatically. This led to pressure on the federal government to find some way of dealing with the surge in undocumented immigrants, culminating in the 1986 Immigration Reform and Control Act (IRCA). This paper examines the effects that the 1986 IRCA, which legalized over 2.5 million undocumented immigrants, had on crime in the United States. I exploit the quasi- random timing of legalization as well as cross-county variation in the intensity of treatment to isolate the causal effects of legalization on crime. Following legalization, I find national decreases in crime of approximately 2%-6% associated with one percent of the population being legalized, primarily due to a drop in property crimes. This fall in crime is equivalent to 160,000-480,000 fewer crimes committed each year due to legalization. Finally, I calibrate a labor market model of crime using empirical wage and employment data and find that much of the drop in crime could be explained by greater job market opportunities among those legalized by the IRCA.
The Criminal Justice Response to Policy Interventions: Evidence from Immigration Reform
Matthew Freedman
(Cornell University)
Emily Owens
(University of Pennsylvania)
Sarah Bohn
(Public Policy Institute of California)
[View Abstract]
[Download Preview] Changes in the treatment of individuals by the criminal justice system following a policy intervention may bias estimates of the effects of the intervention on underlying criminal activity. We explore the importance of such changes in the context of the Immigration Reform and Control Act of 1986 (IRCA). Using administrative data from San Antonio, Texas, we examine variation across neighborhoods and ethnicities in police arrests and in the rate at which those arrests are prosecuted. We find that changes in police behavior around IRCA confound estimates of the effects of the policy and its restrictions on employment on criminal activity.
The Long-Run Effect of Mexican Immigration on Crime in United States Cities: Evidence from Variation in Mexican Fertility Rates
Aaron Chalfin
(University of Cincinnati)
[View Abstract]
Recent literature has utilized instrumental variables in order to estimate a causal effect of immigration on crime in U.S. cities. The majority of this literature relies on the seminal “network” instrument, which leverages the idea of immigrant enclaves to isolate quasi-random variation in migration flows. To the extent that variation in crime markets in U.S. cities are serially correlated and the nature of these conditions attracts or repels migrants, the network instrument may lead to a biased estimate of the true effect of immigration on crime.
In this paper, I propose a novel instrument to predict the timing and destinations of U.S.-bound Mexican migrants. My identification strategy relies on the observation that higher numbers of Mexican births predict a larger cohort of migrants when members of each birth cohort reach the age at which migrants have typically sojourned to the United States. Likewise, migrants tend to settle in U.S. destinations that are historically linked to their source region. As such, regional variation in the timing of Mexico’s demographic transition has broad implications for the timing of migration to U.S. cities. Leveraging historical data on the size of lagged state-specific Mexican birth cohorts and a time-invariant measure of the persistence of Mexican state-U.S. destination migration relations, I decompose the seminal "network" instrument into a portion that is explained by lagged birth rates and a portion that is not.
By isolating variation in migration that is due to fertility shocks, identification is derived exclusively from factors that push migrants out of Mexico and is not based on factors that pull immigrants towards specific U.S. destinations. These “pull” factors are more likely to be correlated with unobserved heterogeneity. The instrument explains approximately one third of the variation in immigrant flows to U.S. cities.
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 208
American Economic Association
Integration and Management: Theory and Evidence from Around the World
(D2, L2)
Presiding:
John Van Reenen
(London School of Economics, Centre for Economic Performance, NBER and CEPR)
Acquisitions, Productivity, and Profitability: Evidence from the Japanese Cotton Spinning Industry
Serguey Braguinsky
(Carnegie Mellon University)
Atsushi Ohyama
(Hokkaido University)
Tetsuji Okazaki
(University of Tokyo)
Chad Syverson
(University of Chicago and NBER)
[View Abstract]
[Download Preview] We explore how changes in ownership and managerial control affect the productivity and profitability of producers. Using detailed operational, financial, and ownership data from the Japanese cotton spinning industry at the turn of the last century, we find a more nuanced picture than the straightforward “higher productivity buys lower productivity” story commonly appealed to in the literature. Acquired firms’ production facilities were not on average less physically productive than the plants of the acquiring firms before acquisition, conditional on operating. They were much less profitable, however, due to consistently higher inventory levels and lower capacity utilization—differences that reflected problems in managing the uncertainties of demand. When purchased by more profitable firms, these less profitable acquired plants saw drops in inventories and gains in capacity utilization that raised both their productivity and profitability levels, consistent with acquiring owner/managers spreading their better demand management abilities across the acquired capital.
Integration and Management in Industry Equilibrium
Laura Alfaro
(Harvard Business School and NBER)
Harald Fadinger
(University of Vienna)
Patrick Legros
(Université Libre de Bruxelles and CEPR)
Andrew F. Newman
(Boston University and CEPR)
[View Abstract]
by Patrick Legros and Andrew Newman
Management is many things, among them resource allocation by authority, as Coase pointed out long ago. In a private ownership economy, the source of managerial authority is property rights, its purview confined by the boundaries of the firm. At the same time, managers who are competent to wield authority – or to grant it through delegation – are a scarce resource; thus, conditions in the managerial market influence the effects and determination of firm boundaries.
This paper presents a model of how firm boundaries (modeled as vertical integration) and management by delegation are jointly determined in a competitive industry. Integration through asset sale grants authority to a top manager, who may choose to delegate decision back to his subordinates, or to retain control for himself, depending on the realization of a managerial comparative advantage parameter representing specialized knowledge or information. Productivity or industry price are key determinants of both the level of integration and the level delegation: in a heterogeneous population of firms, delegation and integration may co-vary.
When top managers are scarce, there is little integration and consequently lower aggregate productivity. Heterogeneity of integration structures is generic, even among ex-ante identical firms, and the degree of heterogeneity is non-monotonically dependent on managerial scarcity. With free entry into management, there is a possibility of too little integration and management at low levels of average productivity or demand, as in developing countries; at higher levels, there may be too many mangers and too much integration.
Business Practices and Organization in Small Firms in Developing Countries
David McKenzie
(World Bank)
Christopher Woodruff
(University of Warwick, NEBR and CEPR)
[View Abstract]
Management practices which enable the same inputs to be used more efficiently to produce more outputs are central to the Lucas (1978) model of firm size, and have been found in medium and large firms to correlate strongly with firm sales growth, and be affected by the level of competition firms face (Bloom and Van Reenan, 2007, 2010). To date there is much less evidence on the measurement and correlates of business practices in micro and small firms in developing countries. We have developed a set of 30 questions that measure business practices in marketing, stock-keeping, record-keeping, and financial planning. These questions have been administered in cross-sectional surveys in Brazil, Bangladesh, Egypt, Ghana, and Kenya, and in panel surveys in Nigeria and Sri Lanka. Using these surveys we examine whether the correlates of business practices in the cross-section are similar to those found for management practices with larger firms (e.g. do firms facing more competition have better business practices? do firms with better educated owners use better business practices? are better business practices correlated with higher profitability and productivity conditional on other input choices?). We use a validation exercise using business practice auditors to examine the reliability of self-reports on business practices in surveys. Then using the panel surveys we examine the extent to which these practices are stable over time, and whether firms with better initial business practices grow faster over time and are more likely to survive. We also examine whether firms adopt better practices over time when industry-level sales are rising, or when sales fall (giving them incentives to try to cost-cut).
Integration and Delegation: Theory and Evidence
Laura Alfaro
(Harvard Business School and NBER)
Nicholas Bloom
(Stanford University and NBER)
Paola Conconi
(Université Libre de Bruxelles and CEPR)
Patrick Legros
(Université Libre de Bruxelles and CEPR)
Raffaella Sadun
(Harvard Business School and NBER)
Harald Fadinger
(University of Vienna)
Andrew F. Newman
(Boston University and CEPR)
John Van Reenen
(London School of Economics, Centre for Economic Performance, NBER and CEPR)
[View Abstract]
Little is known theoretically, and even less empirically, about the relationship between vertical integration of entities along a supply chain and delegation of decision making within firms. We develop a model in which firms choose both how integrated to be and how many decisions to delegate to low-level managers. We test the predictions of this model using a dataset that combines measures of vertical integration and decentralization for a set of firms in several different countries and industries.
NOTE: THERE ARE 8 AUTHORS ON THIS PAPER--SEE COMMENT
Jan 04, 2015 2:30 pm, Sheraton Boston, Constitution Ballroom A
American Economic Association
Issues in Higher Education
(I2)
Presiding:
Amanda Pallais
(Harvard University)
An Experimental Study of the Value of Postsecondary Credentials in the Labor Market
David Deming
(Harvard University)
Claudia Goldin
(Harvard University)
Lawrence Katz
(Harvard University)
Noam Yuchtman
(University of California-Berkeley)
[View Abstract]
Despite growing demand, the supply of highly skilled college graduates in the U.S. has not kept pace. In contrast to sluggish growth in the public sector, enrollment in for-profit institutions has grown rapidly over the last fifteen years. Yet little is known about the labor market return to a for-profit education. Do employers value for-profit credentials, and do they value credentials from some institutions more than others? We address these questions using a large-scale resume audit field experiment. We construct fictitious resumes, randomly vary the institution from which the job applicant received a degree or certificate, and apply to job vacancies that are posted on a large, national job search website. While our primary research question concerns employers’ valuations of a for-profit versus public credential, we also test the impact of having any credential for job vacancies that do not require it. Additionally, our planned sample size allows us to examine heterogeneity by occupation, degree, and labor market. The study went into the field on Monday, March 31st and will conclude by the end of June 2014.
Leveling Up: Early Results from a Randomized Evaluation of Post-Secondary Aid
Joshua Angrist
(Massachusetts Institute of Technology)
David Autor
(Massachusetts Institute of Technology)
Sally Hudson
(Massachusetts Institute of Technology)
Amanda Pallais
(Harvard University)
[View Abstract]
[Download Preview] Does financial aid increase college attendance and completion? Selection bias and the high implicit tax rates imposed by overlapping aid programs make this question difficult to answer. This paper reports initial findings from a randomized evaluation of a large privately-funded scholarship program for applicants to Nebraska's public colleges and universities. Our research design answers the challenges of aid evaluation with random assignment of aid offers and a strong first stage for aid received: randomly assigned aid offers increased aid received markedly. This in turn appears to have boosted enrollment and persistence, while also shifting many applicants from two- to four-year schools. Awards offered to nonwhite applicants, to those with relatively low academic achievement, and to applicants who targeted less-selective four-year programs (as measured by admissions rates) generated the largest gains in enrollment and persistence, while effects were much smaller for applicants predicted to have stronger post-secondary outcomes in the absence of treatment. Thus, awards enabled groups with historically-low college attendance to ‘level up,’ largely equalizing enrollment and persistence rates with traditionally college-bound peers, particularly at four-year programs. Awards offered to prospective community college students had little effect on college enrollment or the type of college attended.
Earnings, Incentives and Student Loan Design: The Case of Chile
Harald Beyer
(CEP)
Justine Hastings
(Brown University)
Christopher Neilson
(Princeton University)
Seth Zimmerman
(University of Chicago)
[View Abstract]
Are all postsecondary degrees a financially sound investment decision, and what role has student loan policy played in changes in postsecondary markets? We examine changes in the postsecondary education market in Chile using a unique panel of student level high school, college matriculation, student loan and tax return data for cohorts of Chilean students from 2000 through 2013. We analyze how a large student loan expansion in 2006 impacted the higher-education market, from shifts in demand to changes in tuition, degree offerings and selectivity. We use a model of prestige goods where demand is sensitive to out-of-pocket costs to explain observed market changes and an alternative loan policy where loan amounts are tied to expected earnings gains. We measure differences in labor market returns by institution and propose a way to incorporate expected earnings gains into student loans. The measure was adopted as policy in Chile for the 2014 school year.
What High-Achieving Low-Income Students Know About College
Caroline Hoxby
(Stanford University)
Sarah Turner
(University of Virginia)
[View Abstract]
[Download Preview] Previous work (Hoxby and Avery 2013) shows that low-income higher achievers tend not to apply to selective colleges despite being extremely likely to be admitted with financial aid so generous that they would pay less than they do to attend the non-selective schools they usually attend. The Expanding College Opportunities project is a randomized controlled trial that provides such students with individualized information about the college application process and colleges' net prices. In other work (Hoxby and Turner 2013), we show that the informational intervention substantially raises students' probability of applying to, being admitted at, enrolling at, and progressing at selective colleges. In this study, we show that the intervention actually changes students' informedness on key topics such as the cost of college, the availability of the curricula and peers they seek, and the different types of colleges available to them. We highlight topics on which the control students, who experienced no intervention, are seriously misinformed.
Discussants:
David Autor
(Massachusetts Institute of Technology)
Susan Dynarski
(University of Michigan)
Judith Scott-Clayton
(Columbia University)
Bridget Terry Long
(Harvard University)
Jan 04, 2015 2:30 pm, Sheraton Boston, Republic Ballroom A & B
American Economic Association
Measuring and Changing Cognitive and Neural Processes in Economic Choice: Why and How (Tutorial Lecture)
Presiding:
Richard Thaler
(University of Chicago)
Colin Camerer
(California Institute of Technology)
Measuring and Changing Cognitive and Neural Processes in Economic Choice: Why and How (Tutorial Lecture)
Jan 04, 2015 2:30 pm, Sheraton Boston, Riverway
American Economic Association
Monetary Policy
(E5)
Presiding:
Douglas Pearce
(North Carolina State University)
A Wedge in the Dual Mandate: Monetary Policy and Long-Term Unemployment
John C. Williams
(Federal Reserve Bank of San Francisco)
Glenn Rudebusch
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] In standard macroeconomic models, the two objectives in the Federal Reserve's dual mandate---full employment and price stability---are closely intertwined. We motivate and estimate an alternative model in which long-term unemployment varies endogenously over the business cycle but does not affect price inflation. In this new model, an increase in long-term unemployment as a share of total unemployment creates short-term tradeoffs for optimal monetary policy and a wedge in the dual mandate. In particular, faced with high long-term unemployment following the Great Recession, optimal monetary policy would allow inflation to overshoot its target more than in standard models.
Market Set-Up in Advance of Federal Reserve Policy Rate Decisions
Robin L. Lumsdaine
(American University)
Dick van Dijk
(Erasmus University Rotterdam)
Michel van der Wel
(Erasmus University Rotterdam)
[View Abstract]
[Download Preview] This paper considers the uncertainty associated with upcoming Federal Open Market
Committee (FOMC) announcements and the extent to which the market begins to
set up for such announcements well before they actually occur. We demonstrate that
markets set up well in advance of known announcement days; as a result, there is often
less uncertainty in the period immediately preceding an FOMC announcement, despite
greater volume of activity, as the market has already incorporated anticipated signals.
We consider the relative importance of both macro announcements and central bank
officials' speeches and congressional testimony in shaping market expectations. We
find substantial evidence of anticipatory effects; these results are particularly relevant
as the Fed develops its communication strategy to achieve an orderly exit from its
program of quantitative easing.
The Effect of the Federal Reserve's Tapering Announcements on Emerging Markets
Lena Suchanek
(Bank of Canada)
Vikram Rai
(Bank of Canada)
[View Abstract]
[Download Preview] The Federal Reserve’s quantitative easing (QE) program has been accompanied by a flow of funds into emerging market economies (EME) in search of higher returns. When Federal Reserve officials first mentioned an eventual slowdown and end of asset purchases under its QE program in May and June 2013, foreign investors started to withdraw these funds, triggering a sharp negative reaction of EME assets. Using event study regressions, this paper first estimates the impact of “Fed tapering” on EME financial markets and capital flows for 19 EMEs. It finds that EME currencies depreciated and stock markets fell upon the mention of tapering, while bond yields increased. The reaction to the actual announcement of tapering in December 2013 was more muted.
Second, panel regression analysis as well as cross-section regressions including macroeconomic indicators suggest that countries with weaker fundamentals (i.e. weaker growth and current account position, higher debt, and lower reserves) experienced sharper exchange rate depreciation and fall in stock markets, and a more pronounced reaction in capital flows in response to tapering announcements. Results are symmetrical: the same EMEs which saw a larger negative response to a surprise tightening of monetary policy in June 2013 also saw a larger positive reaction in response to the Fed’s unexpected decision to delay tapering in September. Capital account openness also played a role in earlier tapering announcements, but diminished in importance in subsequent announcements. This suggests that investors, being surprised by the Fed’s first mention of an eventual tapering, initially withdrew capital in liquid markets, but later differentiated between country fundamentals. We conclude that countries with sound fundamentals are likely to better withstand a further reduction in the pace of asset purchases and the eventual sale of assets.
The Transmission of Federal Reserve Tapering News to Emerging Financial Markets
Joshua Aizenman
(University of Southern California and NBER)
Mahir Binici
(Central Bank of Turkey)
Michael M. Hutchison
(University of California-Santa Cruz)
[View Abstract]
[Download Preview] This paper evaluates the impact of tapering “news” announcements by Fed senior policy makers on financial markets in emerging economies. We apply a panel framework using daily data, and find that emerging market asset prices respond most to statements by Fed Chairman Bernanke, and much less to other Fed officials. We group emerging markets into those with “robust” fundamentals (current account surpluses, high international reserves and low external debt) and those with “fragile” fundamentals and, intriguingly, find that the stronger group was more adversely exposed to tapering news than the weaker group. News of tapering coming from Chairman Bernanke is associated with much larger exchange rate depreciation, drops in the stock market, and increases in sovereign CDS spreads of the robust group compared with the fragile group. A possible interpretation is that tapering news had less impact on countries that received fewer inflows of funds in the first instance during the quantitative years and had less to lose in terms of repatriation of capital and reversal of carry-trade activities.
The Impact of Unconventional Monetary Policy on Firm Financing Constraints: Evidence from the Maturity Extension Program
Edison Guozhu Yu
(Federal Reserve Bank of Philadelphia)
Rodney Ramcharan
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper investigates the impact of unconventional monetary policy on firm financing constraints. It focuses on the Federal Reserve’s Maturity Extension Program (MEP) which was intended to lower longer term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and firms’ sticky borrowing preferences, we find evidence that around the MEP’s announcement, stock prices rose most sharply for those firms that traditionally relied on longer term debt. We also find that these firms issued more long-term debt during the MEP, “filling the gap” created by the Fed’s asset purchases. There is also evidence of “reach for yield” behavior among some institutional investors, as the demand for longer duration riskier debt also rose during the MEP, reducing the cost of external finance for some non-financial firms. We also find that non-financial firms more dependent on longer term debt increased investment during the MEP. Unconventional monetary policy may thus have helped to relax financing constraints for some firms after the financial crisis.
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 202
American Economic Association
New Developments in the Estimation of Classical Consumer Demand
(C5, D1)
Presiding:
Richard Blundell
(University College London)
Prices versus Preferences: Taste Change and Revealed Preference
Richard Blundell
(University College London)
Abigail Adams
(Oxford University and IFS)
Martin Browning
(Oxford University and IFS)
Ian Crawford
(Oxford University)
[View Abstract]
[Download Preview] A systematic method for incorporating taste variation into a revealed preference framework for heterogeneous consumers is developed. We create a methodology that enables the recovery of the minimal variation in tastes that are required to rationalise the observed choice patterns. This approach is used to examine the extent to which changes in tobacco consumption have been driven by price changes or by taste changes, and whether the signi
ficance of these two channels varies across socioeconomic groups. A censored quantile approach is developed to allow for unobserved heterogeneity and censoring of consumption. Statistically signifi
cant educational differences in the marginal willingness to pay for tobacco are recovered. More highly educated cohorts are found to have experienced a greater shift in their effective tastes away from tobacco.
Necessary Luxuries
Arthur Lewbel
(Boston College)
Krishna Pendakur
(Simon Fraser University)
[View Abstract]
Fixed quantities are minimum consumption levels which must be exceeded
to get any utility at all. Analyses and descriptions of peer effects
in consumption choices (e.g., ’keeping up with the Jones’) often envision
the average consumption of one’s peers as driving variation in fixed costs.
In this paper, we show that in such a model, peer effects in consumption
may transform luxuries—goods with high income elasticities—into
necessities—goods with low income elasticities. Further, we show that
these peer effects on fixed costs are semi-parametrically identified in
typically
available consumer demand data. We implement the model with
Indian household-level consumption microdata in 1993 and 2010. During
this period, real per-capita income quadrupled, so peer effects had a large
effect on consumption decisions and, under the model, on welfare.
Individual Heterogeneity and Demand Analysis
Jerry Hausman
(Massachusetts Institute of Technology)
Whitney Newey
(Massachusetts Institute of Technology)
[View Abstract]
Individual heterogeneity is an important source of variation in demand.
R-squareds are often estimated to be quite low, so that accounting
correctly for unobserved variation is potentially important. We consider
general heterogenous demand with smooth preferences, where budget sets
are statistically independent of preferences. This environment is a
smooth version of the revealed stochastic preference setting of McFadden
(2005). We find that the dimension of heterogeneity and the individual
demand functions are not identified. We also find that the exact
consumer surplus of a price change, averaged across individuals, is not
identified, motivating bounds analysis of consumer surplus. We show how
such bounds can be computed by expanding around a conditional quantile
estimate that is a demand function. We apply the results to gasoline
demand and find tights bounds in this application.
Nonlinear Panel Data Random Coefficient Models with an Application to Consumer Demand
Stefan Hoderlein
(Boston College)
[View Abstract]
This paper proposes a new approach to estimating the distribution of marginal effects, using a panel. We allow for a large number of unobservables that enter in a nonlinear, non-monotonic fashion, and which may be arbitrarily correlated with observable covariates, as well as transitory shocks. In this setup, we show how to identify the distribution of marginal effects, and propose a sample counterparts estimator. We provide large sample theory, and analyze its performance in a small sample study. An important part of this paper is the application to consumer demand using the PSID. We show how shape constraints coming from the theory of rational consumers can be tested and imposed in this setup, and analyze these issues empirically.
Discussants:
Jerry Hausman
(Massachusetts Institute of Technology)
Frederic Vermeulen
(KU Leuven)
Krishna Pendakur
(Simon Fraser University)
Dennis Kristensen
(University College London)
Jan 04, 2015 2:30 pm, Hynes Convention Center, Room 204
American Economic Association
Recent Advances in the Analysis of Auction Data
(L1, D4)
Presiding:
Ken Hendricks
(University of Wisconsin-Madison)
The Bidder Exclusion Effect
Dominic Coey
(eBay Research Labs)
Bradley Larsen
(Stanford University)
Kane Sweeney
(eBay Research Labs)
[View Abstract]
[Download Preview] We introduce a simple and robust approach to address two key questions in empirical auction analysis: discriminating between models of entry and quantifying the revenue gains from improving auction design. The approach builds on Bulow and Klemperer (1996), connecting their theoretical results to empirical analysis. It applies in a broad range of information settings and auction formats without requiring instruments or estimation of a complex structural model. We demonstrate the approach using US timber and used-car auction data.
Collusion and Reciprocity in First-Price Procurements
Paulo Somaini
(Massachusetts Institute of Technology)
[View Abstract]
This paper proposes an empirical strategy to detect bidding
practices that are consistent with collusive behavior. One bidder is said to
be favorable to a competitor if it submits a less competitive bid in
auctions when the competitor is known to be more efficient (or value the
object more). The empirical strategy consists in finding reciprocity
patterns among bidders, i.e., firms 1 and 2 reciprocate if 1 is favorable to
2 and 2 is favorable to 1.
I show that in sealed-bid first-price auctions with independent private
values, an incomplete cartel can attain its first-best collusive outcome
without communication before the auction. The cartel does not need to run a
prior knockout auction (McAfee and McMillan, 1992); instead, it taxes
members' bids and distributes the proceeds among them. Under this scheme,
each bidder equilibrium strategy is monotone in its value, every bid is
serious (has some positive probability of winning) and the cartel members'
bidding behavior exhibits reciprocity. Reciprocity patterns also emerge in
other tacit collusive arrangements.
I employ this empirical strategy to highway procurement in Michigan. I find
that while many bidders are systematically favorable to other bidders, there
is reciprocity between only one pair of firms.
Simultaneous First-Price Auctions with Preferences over Combinations
Matthew Gentry
(London School of Economics)
Tatiana Komarova
(London School of Economics)
Pasquale Schiraldi
(London School of Economics)
[View Abstract]
Motivated by the empirical prevalence of simultaneous bidding across a
wide range of auction markets, we develop and estimate a structural model
of strategic interaction in simultaneous first-price auctions when objects are
heterogeneous and bidders have preferences over combinations. We begin by
proposing a general theoretical model of bidding in simultaneous first price
auctions, exploring properties of best responses and existence of equilibrium
within this environment. We then specialize this model to an empirical framework
in which bidders have stochastic private valuations for each object and stable
incremental preferences over combinations; this immediately reduces to the standard
separable model when incremental preferences over combinations are zero. We
establish nonparametric identification of the resulting model under standard
exclusion restrictions, thereby providing a basis for both testing on and estimation
of preferences over combinations. We then apply our model to data on Michigan
Department of Transportation highway procurement auctions, with structural estimates
suggesting that winning multiple projects substantially increases bidder costs.
A Simple Test for Moment Inequality Models with an Application to English Auctions
Andres Aradillas-Lopez
(Pennsylvania State University)
Amit Gandhi
(University of Wisconsin-Madison)
Daniel Quint
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] Testable predictions of many standard economic models take the form of inequality
comparisons between transformations of nonparametric conditional moments. In this
paper, we propose a novel econometric test of this type of restriction, and establish
its asymptotic properties. A key advantage of our approach is that it is computationally
straightforward to implement, even in the presence of a rich set of continuous
conditioning covariates. To illustrate the empirical usefulness of our methodology, we
introduce a new specification test for standard models of ascending auctions. We apply
our test to data from much-studied United States Forest Service timber auctions, and
find clear evidence to reject the Independent Private Values model in favor of a model
of correlated private values.
Discussants:
Tatiana Komarova
(London School of Economics)
Serafin Grundl
(Federal Reserve Board)
Paulo Somaini
(Massachusetts Institute of Technology)
Alejandro Molnar
(Vanderbilt University)
Jan 04, 2015 2:30 pm, Sheraton Boston, Back Bay Ballroom B
American Economic Association
The Economics of the EPA's Proposed Regulation of CO2 Emissions from Power Plants
(Q5) (Panel Discussion)
Panel Moderator:
Paul Joskow
(Alfred P. Sloan Foundation and Massachusetts Institute of Technology)
Meredith Fowlie
(University of California-Berkeley)
Lawrence Goulder
(Stanford University)
Kevin Hassett
(American Enterprise Institute)
Robert N. Stavins
(Harvard University)
James Stock
(Harvard University and Member of Council of Economic Advisors, 2013-2014)
Jan 04, 2015 2:30 pm, Sheraton Boston, Constitution Ballroom B
American Economic Association
The Federal Trade Commission at 100: Past Accomplishments, Future Issues
(L4, L5) (Panel Discussion)
Panel Moderator:
Frederic Scherer
(Harvard University)
Joseph Farrell
(University of California-Berkeley)
Merger Policy
Michael Whinston
(Massachusetts Institute of Technology)
Anticompetitive Conduct
David Laibson
(Harvard University)
Consumer Protection
Martin Gaynor
(Federal Trade Commission)
Health Care
Jan 04, 2015 2:30 pm, Sheraton Boston, The Fens
American Economic Association
Women, Wages, and the Workplace
(J1, J2)
Presiding:
Anne Winkler
(University of Missouri-St. Louis)
The Gendered Nature of Disability Discrimination
Jennifer Bennett Shinall
(Vanderbilt University)
[View Abstract]
Several previous papers have concluded that disability laws are more effective for men than for women. At least one paper has hypothesized that the smaller effects for women are due to the fact that they are already protected against sex discrimination by Title VII, lessening the marginal benefit of additional discrimination protections. This paper offers an alternative theory as to why disability laws have been more effective for men. Differences in complaint rates and in the types of complaints filed by women may be driving the differential effects of disability laws on men’s and women’s employment outcomes. Using Equal Employment Opportunity Commission (EEOC) data obtained through a Freedom of Information Act request, I examine whether disabled women are more likely to file disability discrimination complaints, and whether employers may be taking these higher expected costs into account when making hiring decisions regarding disabled female applicants. I further investigate whether disabled women are more likely to base their charges on multiple grounds, rather than just the single ground of disability. The results have broader implications beyond the disabled; gender differences in charge filing may also be responsible for differential effects of age-, race-, religion-based discrimination laws.
Collaboration and Gender in Science: Evidence from STAR METRICS Data
Julia Lane
(American Institute for Research)
Jacques Mairesse
(CREST and GENES)
Michele Pezzoni
(Ecole Polytechnique Fédérale de Lausanne)
Paula Stephan
(Georgia State University)
[View Abstract]
[Download Preview] Collaboration matters in science. Yet, while there is intriguing evidence that the organization of scientific collaboration is changing, and that teams are becoming more important, the analysis has been mostly based on studying the results of collaborations as evidenced by co-authorship of publications or patents at the scientist level. There are a number of unanswered questions about the structure of the fundamental unit of scientific production: the project team. Who works on scientific teams? What is the role of postdoctoral fellows and graduate and undergraduate students? How do scientific networks of collaboration evolve in response to federal funding decisions? And how do different network structures affect scientific productivity? And what is the interplay of gender in the complex mix of team dynamics? We contribute to the literature by using new longitudinal data derived from the STAR METRICS program – which has universe data on all federally funded researchers on all projects for participating universities - to examine a new level of analysis in depth: the structure and evolution of scientific collaborations. These new data have several attractive features. They can be used to examine the network structure of project teams over time, since there is longitudinal information on all participants (and their occupations) in project teams as well as information on other inputs; such as the expenditures necessary to support their activities on their projects. They can be used to compare collaborations within and across scientific areas. We link information about team members, including their gender, with existing data on patents and publications we describe and possibly assess the results of collaborations on the knowledge production and transmission process. Finally, we make use of both quantitative and qualitative methods to better understand the knowledge process by using both information on scientists and their views on their collaborations.
Changes in Family Welfare from 1994 to 2012: A Tale of Two Decades
Julie L. Hotchkiss
(Federal Reserve Bank of Atlanta and Georgia State University)
Robert E. Moore
(Georgia State University)
Fernando Rios-Avila
(Levy Economics Institute of Bard College)
Melissa R. Trussell
(Georgia State University)
[View Abstract]
[Download Preview] The female/male average wage ratio has steadily risen from 1983 to 2012. In earlier work we found that the falling wage gap from 1983 to 1993 was materially detrimental to the average dual earner family. The female/male wage ratio continued to rise over the following two decades, accompanied by a growing share of households in which the wife is the principal household income generator. This paper investigates how these two developments impacted family welfare. While family welfare rose during the 1990s, the story of the 2000s is quite different.
Ph.D. Students’ Career Outcomes in the Short and in the Long-Run, by Gender
Annamaria Conti
(Georgia Institute of Technology)
Fabiana Visentin
(Ecole Polytechnique Fédérale de Lausanne)
[View Abstract]
[Download Preview] We examine differences in the employment careers of men and women Ph.D.s from two major European universities. We find that women are more likely than men to be employed in public administration. They are also more likely to remain in academia than work in industry. These differences persist after accounting for Ph.D. curricula characteristics. Gender gaps are reduced for women with large research outputs and for those who conducted applied research. Women are less likely than men to pursue postdoc training in highly ranked universities and publish fewer articles. These differences largely explain the gender gap in promotion to professorship.
Discussants:
Laura Giuliano
(University of Miami)
Megan MacGarvie
(Boston University)
Anne Winkler
(University of Missouri-St. Louis)
Shulamit Kahn
(Boston University)
Jan 04, 2015 2:30 pm, Westin Copley, America South
American Finance Association
AFA Lecture
(G1) (Panel Discussion)
Panel Moderator:
Patrick Bolton
(Columbia University)
Michael Woodford
(Columbia University)
Jan 04, 2015 2:30 pm, Westin Copley, Essex South
American Finance Association
Entrepreneurial Finance
(G1)
Presiding:
Antoinette Schoar
(Massachusetts Institute of Technology)
Patent Trolls
Lauren Cohen
(Harvard Business School)
Umit Gurun
(University of Texas-Dallas)
Scott Kominers
(Harvard University)
[View Abstract]
We provide both theoretical and empirical evidence on the evolution of Non-Practicing Entities (NPEs) in the intellectual property space. Heterogeneity in innovative ability, given a cost of commercialization, results in NPEs that choose to act as "patent trolls," chasing operating firms' innovations even if those innovations are not clearly infringing on the NPEs' patents. We support these predictions using a novel, large dataset of patents targeted by NPEs. We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks). Furthermore, NPEs target firm profits arising from exogenous cash shocks unrelated to the allegedly infringing patents. We next show that NPEs target firms irrespective of the closeness of those firms' patents to the NPEs' – NPEs typically target firms that are busy with other (non-IP related) lawsuits or that have high probability of settlement. Lastly, we show that NPE litigation behavior has a negative real impact on the future innovation of targeted firms.
Learning from Customers: Corporate Innovation along the Supply Chain
Yongqiang Chu
(University of South Carolina)
Xuan Tian
(Indiana University)
Wenyu Wang
(Indiana University-Bloomington)
[View Abstract]
[Download Preview] This paper studies the effect of supplier-customer relationship on supplier innovation through a knowledge spillover channel. We use the geographical distance between a supplier and its major customers to capture knowledge spillovers along the supply chain. To establish causality, we explore plausibly exogenous variation in distance caused by customer headquarters relocations. In a difference-in-differences framework, we show that knowledge spillovers from customers appear to have a positive, causal effect on supplier innovation. The effect is stronger when the customers are more innovative themselves and are within closer technology proximity with the suppliers. Finally, we show that innovation attributable to knowledge spillovers from customers positively contributes to a firm's product market performance. Our paper sheds new light on the real effect of knowledge spillovers along the supply chain - its enhancement on firm innovation.
Posturing in Venture Capital
Naveen Khanna
(Michigan State University)
Richmond Matthews
(University of Maryland)
[View Abstract]
[Download Preview] We show how a VC's need to "posture" in later financing rounds solves the commitment problem inherent in stage financing. Posturing arises when a VC needs to send a strong signal to induce skeptical third parties to take actions that increase firm value. This is accomplished by investing at high prices in later rounds, which credibly conveys the VC's confidence in the firm's prospects. The need to posture effectively shifts bargaining power toward the entrepreneur and commits the VC to less ex post opportunism, inducing greater entrepreneurial effort ex ante. We show that posturing often causes overpricing relative to fundamentals, and provide novel predictions for pricing across financing stages.
Discussants:
Petra Moser
(Stanford University)
Francisco Perez-Gonzalez
(Stanford University and Instituto Tecnologico Autonomo de Mexico)
Per Stromberg
(Stockholm School of Economics)
Jan 04, 2015 2:30 pm, Westin Copley, Essex North
American Finance Association
Financial Literacy and Consumer Finance
(G1)
Presiding:
Annamaria Lusardi
(George Washington University)
How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios
Andreas Hubener
(Goethe University Frankfurt)
Raimond Maurer
(Goethe University Frankfurt)
Olivia Mitchell
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper investigates how demographic shocks – marriage, divorce, widowhood, and children – along with complex financial options arising from Social Security benefit claiming rules affect optimal household decisions about saving, asset allocation, insurance, and work patterns. In line with empirical evidence, the model predicts stable equity fractions and earlier claiming by wives versus husbands and single women; life insurance is mainly purchased by men. Policy simulations show that Social Security benefit changes will alter work more than financial outcomes.
Precommitments for Financial Self-Control: Evidence from Credit Card Borrowing
Sungjin Cho
(Seoul National University)
John Rust
(Georgetown University)
[View Abstract]
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% – 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.
Think Twice or Be Wise in Consumer Credit Choices
Christian Dick
(ZEW Mannheim)
Lena Jaroszek
(ZEW Mannheim and University of Mannheim)
[View Abstract]
[Download Preview] We analyze whether the frequent use of credit lines is influenced by households' thinking dispositions, i.e. their tendency to reflect upon decisions or to opt for intuitive and impulsive solutions. We consider the special case of Germany where credit lines on current accounts are available to 80% of the population. We document that the frequent usage of costly credit lines is more likely for people who give intuitive but incorrect answers in the Cognitive Reflection Test. Our analysis of a rich sample of household data also adds to the discussion on the role of financial literacy in credit decisions. Our results provide evidence that consumers with higher levels of financial literacy buy less on credit lines independently from their tendency to reflect.
Out of Sight, Out of Mind: Financial Illiteracy and Sluggish Mortgage Refinancing
Emanuele Bajo
(University of Bologna)
Massimiliano Barbi
(University of Bologna)
[View Abstract]
[Download Preview] We analyze the effect of an exogenous shock to the Italian mortgage market and we show that most households do not act rationally when it comes to take mortgage-refinancing decisions. Thanks to a new legislation passed in 2007, borrowers have been allowed to refinance their loans at no cost. This reform— along with the drop of interest rates occurred between 2008 and 2009—has produced a unique opportunity to refinance fixed rate mortgages with substantial gains. However, only a minority of borrowers has shown this rational behavior. This sub-optimal choice is strongly associated with socio- demographic characteristics and with the level of financial illiteracy.
Discussants:
Andrew Samwick
(Dartmouth College)
Sumit Agarwal
(National University of Singapore)
Joanne Hsu
(Federal Reserve Board)
Eric Belsky
(Harvard University)
Jan 04, 2015 2:30 pm, Westin Copley, America North
American Finance Association
High Frequency Trading
(G1)
Presiding:
Yacine Ait-Sahalia
(Princeton University)
Early Peek Advantage?
Grace Xing Hu
(University of Hong Kong)
Jun Pan
(Massachusetts Institute of Technology)
Jiang Wang
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] From 2007 to June 2013, a small group of fee-paying, high-speed traders received the results of the Michigan Index of Consumer Sentiment (ICS) from Thomson Reuters at 9:54:58, two seconds before the broader release. Focusing on the trading and price behavior in E-mini S&P 500 futures, we find that this tiered information release results in highly concentrated and coordinated trading by high-speed traders during the first second of the early peek window at 9:54:58. It also leads to super-fast price discovery. Most of the price adjustment in reaction to the ICS news is accomplished during the first 10% of the trades, which lasts about 15 milliseconds. More importantly, we find no evidence of further price drift after the initial price discovery period. The scope of the early peek advantage is therefore contained within a narrow time window. Outside of this narrow window, general investors trade at fully adjusted prices and are not disadvantaged by the early peek of a few. Furthermore, after the suspension of early peek after July 2013, we find that the price discovery process became slower, extending beyond two full seconds after the public release. These results suggest that concentrated trading among high-speed traders with pre-arranged early peek may actually be beneficial in the sense that they help improve the efficiency of price discovery.
Optimal Strategies of High Frequency Traders
Jiangmin Xu
(Princeton University)
[View Abstract]
[Download Preview] This paper develops a continuous-time model of the optimal strategies of high-frequency traders (HFTs) to rationalize their pinging activities. Pinging, or the most aggressive fleeting orders, is defined as limit orders submitted inside the bid-ask spread that are cancelled shortly thereafter. The current worry is that HFTs utilize their speed advantage to ping inside the spread to manipulate the market. In contrast, the HFT in my model uses pinging to control inventory or to chase short-term price momentum without any learning or manipulative motives. I use historical message data to reconstruct limit order books, and characterize the HFT's optimal strategies under the viscosity solution to my model. Implications on pinging activities from the model are then gauged against data. The result confirms that pinging is not necessarily manipulative and is rationalizable as part of the dynamic trading strategies of HFTs.
Toxic Arbitrage
Thierry Foucault
(HEC Paris)
Roman Kozhan
(University of Warwick)
Wing Wah Tham
(Erasmus University Rotterdam)
[View Abstract]
[Download Preview] Short lived arbitrage opportunities can arise when the prices of asset pairs do not adjust to information at the same speed. These opportunities are toxic because they expose investors to the risk of trading with arbitrageurs at stale quotes. Hence, more frequent toxic arbitrage opportunities and a faster arbitrageurs' response to these opportunities can impair liquidity. We provide supporting evidence using data on triangular arbitrage in currency markets. In our sample, a 1% increase in the likelihood that a toxic arbitrage terminates with an arbitrageur's trade (rather than a quote update) is associated with a 4% increase in bid-ask spreads. Our findings suggest that fast arbitrageurs' response to toxic arbitrage opportunities enhances pricing efficiency while raising trading costs for other market participants.
Exploratory Trading
Adam Clark-Joseph
(University of Illinois)
[View Abstract]
[Download Preview] To investigate how high-frequency traders (HFTs) can predict price-changes, I analyze novel, comprehensive, account-labeled message records from the E-mini S&P 500 futures market that allow me to identify and study HFTs' individual behaviors. I model how an HFT could actively learn about market conditions, by initiating small “exploratory” trades and observing other traders' responses. Empirical tests of the model's predictions provide evidence that HFTs in the E-mini use this technique to identify periods when prices are likely to change. These findings indicate that the HFTs' superior capacity to predict price-changes involves more than merely reacting to news faster than other traders. The empirical results also elucidate other connections between high-frequency trading and speed.
Discussants:
Jonathan Brogaard
(University of Washington)
Mehmet Saglam
(University of Cincinnati)
Albert Menkveld
(VU University Amsterdam)
Ioanid Rosu
(HEC Paris)
Jan 04, 2015 2:30 pm, Westin Copley, America Center
American Finance Association
Topics in Behavioral Finance
(G1)
Presiding:
Simon Gervais
(Duke University)
Restraining Overconfident CEOs through Improved Governance: Evidence from the Sarbanes-Oxley Act
Suman Banerjee
(University of Wyoming)
Mark Humphery-Jenner
(UNSW Australia)
Vikram Nanda
(Rutgers University)
[View Abstract]
[Download Preview] The literature posits that some CEO overconfidence benefits shareholders, though high levels may not. In principle, adequate controls and oversight should mitigate the costs of CEO overconfidence. We use the concurrent passage of the Sarbanes-Oxley Act and changes to the NYSE and NASDAQ listing rules (collectively, SOX) as natural experiments to examine whether increased oversight improves decision-making by overconfident-CEOs. The results are strongly supportive: Post-SOX, overconfident CEOs reduce investment and risk exposure, increase dividends, improve post-acquisition performance, and have better operating performance and market value. Importantly, these changes are absent for overconfident-CEO firms that were compliant prior to passage.
Under-Reaction to Political Information and Price Momentum
Jawad Addoum
(University of Miami)
Stefanos Delikouras
(University of Miami)
Da Ke
(University of Miami)
Alok Kumar
(University of Miami)
[View Abstract]
[Download Preview] This study examines whether momentum in stock prices is induced by changes in the political environment. We find that momentum profits are concentrated among politically sensitive firms and industries. During the 1939 to 2011 period, a trading strategy with a long position in winner portfolios (industries or firms) that are politically unfavored and a short position in losers that are politically favored eliminates all momentum profits. Further, our political sensitivity based factor (POL) explains 23-25% (38-40%) of monthly stock (industry) momentum alphas, and generates large increases in time-series R-squared for the momentum factor. This incremental explanatory power is especially strong around Presidential elections when the level of political activity is high. Collectively, our results suggest that investor underreaction to political information generates momentum in stock and industry returns.
Peer Pressure: Does Social Interaction Explain the Disposition Effect?
Rawley Heimer
(Federal Reserve Bank of Cleveland)
[View Abstract]
[Download Preview] This paper presents a novel connection between heightened exposure to information via social networks and large increases in the disposition effect. I establish this result using a proprietary database drawn from an investment-specific social network linked to individual-level trading records. To credibly estimate causal peer-effects, I utilize the staggered entry of retail brokerages into partnerships with the social trading platform and compare trader activity before and after exposure to new social conditions. Comparisons to network simulations reveal that there is substantial correlation in the disposition effect across social cohorts. The results appear contrary to the economic concept that more information enables better decisions. However, a framework in which traders strategically bargain and compete to acquire information through mutually-beneficial peer-connections can explain these findings, even when traders are risk-neutral and have well-formed beliefs. More broadly, this paper illustrates that socially-motivated incentives can enhance our understanding of investment puzzles.
Discussants:
Geoffrey Tate
(University of North Carolina)
Alexei Ovtchinnikov
(HEC Paris)
Markku Kaustia
(Aalto University)
Jan 04, 2015 2:30 pm, Westin Copley, Essex Center
American Finance Association
Topics in Credit Risk Analysis
(G1)
Presiding:
Robert McDonald
(Northwestern University)
Ripple Effects from Industry Defaults
Dennis Bams
(Maastricht University)
Magdalena Pisa
(University of Luxembourg)
Christian Wolff
(University of Luxembourg)
[View Abstract]
[Download Preview] This paper studies early default risk spillovers to small businesses. In this paper we show that default rates among small businesses are significantly higher in the presence of a default on S&P rated debt in an industry which buys their products or in the same industry. Using a new data set on S&P rated debt defaults, small businesses defaults, production process linkages and industry characteristics, we find evidence of negative wealth effects transmitted to small businesses along the production process.
Also, such a ripple effect is mitigated in loan portfolios concentrated into large and highly interconnected industries. We observe that a large number of firms in an industry serves a cushion to default risk transmission just like the wide economic ties offer some benefits of diversification.
Exploring the Sources of Default Clustering
Shahriar Azizpour
(Apollo Global Management)
Kay Giesecke
(Stanford University)
Gustavo Schwenkler
(Boston University)
[View Abstract]
We study the sources of corporate default clustering using data on industrial and financial default timing in the U.S. between 1970 and 2012. The analysis is based on a new reduced-form model of correlated default timing, in which the event arrival rate is allowed to depend on past defaults and time-varying risk factors, some of which cannot be measured. The likelihood estimates provide strong evidence of the presence of several distinct sources of default clustering. One source is firms' joint exposure to a common macro-economic factor represented by the U.S. GDP growth rate. Another is the influence on firms of a common latent factor with strong mean-reverting behavior. A third is a contagion mechanism through which the default by one firm has a direct impact on the health of other firms. We find that the impact is governed by the debt outstanding at default and decays with time.
The Transaction Costs of Trading Corporate Credit
Gopa Biswas
(U.S. Department of the Treasury)
Stanislava Nikolova
(University of Nebraska-Lincoln)
Christof W. Stahel
(U.S. Securities and Exchange Commission)
[View Abstract]
[Download Preview] We estimate individual roundtrip transaction costs for 851 single-name CDS contracts traded between August 2009 and May 2014. Effective half-spreads are 14 bps of the notional amount for dealer-to-enduser trades and 12 bps for dealer-to-dealer trades for the most common notional amount traded, $2.5-7.5M. In the cross-section, effective spreads are smaller than and only weakly correlated with indicative quoted spreads. Effective spreads tend to increase with market activity consistent with the notion that the CDS market attracts informed trading. When we compare CDS transaction costs to those of the underlying bonds over a range of trade sizes where trading in the two markets overlaps, we find that CDSs are typically cheaper. At smaller trade sizes bonds are more than three times more expensive to trade than the CDS contracts written on them, but at larger trade sizes this pattern reverses.
Discussants:
Efraim Benmelech
(Northwestern University)
Antje Berndt
(North Carolina State University)
Edie Hotchkiss
(Boston College)
Jan 04, 2015 2:30 pm, Westin Copley, Empire
American Real Estate & Urban Economic Association
Commercial Real Estate Performance
(G1, R3)
Presiding:
Jay Hartzell
(University of Texas-Austin)
Firm-Specific Investments, Product Market Competition, and Firm Risk
Jiro Yoshida
(Pennsylvania State University)
Brent Ambrose
(Pennsylvania State University)
Moussa Diop
(University of Wisconsin)
[View Abstract]
[Download Preview] This paper theoretically and empirically analyzes the interactions among capacity investments under demand uncertainty, product market competition, and firm risk. In our model, the incumbent firm can invest in inflexible or flexible capital. Our model predicts that firm risk is higher for more capital-intensive firms operating in a more concentrated market. This prediction arises because smaller investments would induce greater market competition, which effectively eliminates the right tail of the incumbent firm's profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.
From Origination to Renegotiation: A Comparison of Portfolio and Securitized CRE Loans
Joseph Nichols
(Federal Reserve Board)
Lamont Black
(DePaul University)
John Krainer
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] This paper provides a comparison of portfolio and securitized commercial real estate loans with a focus on differences in the ability to renegotiate distressed loans. We test the hypothesis that borrowers with riskier collateral will prefer portfolio lenders who have greater flexibility in renegotiating loan terms in distressed conditions. This would result, after controlling for other risk characteristics, in higher default rates for portfolio loans but also higher extension rates. We combine unique loan level supervisory data on banks’ CRE loans held on balance sheet with loan level data from the same banks’ CMBS deals. The results suggest that the differences in loan performance may be due to market segmentation rather than adverse selection. We utilize propensity score matching among individual loans to control for observable heterogeneity and test the robustness of our results.
Capital-Market Competitiveness and Managerial Investment Decisions: Evidence from Commercial Real Estate
Tobias Muhlhofer
(University of Texas-Austin)
Yael Hochberg
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We investigate the association between capital-market competitiveness and the
quality of investment decisions that delegated money managers make. We use com-
mercial property as a natural laboratory, in that this industry contains funds that are
traded in segmented capital markets of different competitiveness, but whose managers
all choose from the same investment opportunity set. We find that the submarkets
most bought by REIT managers outperform the least-bought (or most sold) submar-
kets, while for our groups of private managers this effect decreases in line with the
competitiveness of their capital markets. We also distinguish between movement into
submarkets in genuine anticipation of high returns, versus stock chasing, or movement
into submarkets that offer availability and therefore easy entry. We find that REITs
tend to move into submarkets in anticipation of high returns, while private institutions
have more tendency to stock-chase, with such behavior again becoming more prevalent
the less competitive the capital market.
The Impact of Tenant Diversification on Commercial Mortgage Spreads and Default Rates
Michael Shafer
(Providence College)
Brent Ambrose
(Pennsylvania State University)
Yildiray Yildirim
(Syracuse University)
[View Abstract]
We estimate an empirical model for commercial mortgage credit spreads that incorporates tenant characteristics. We use the percent of square footage occupied by a property’s largest tenant as a proxy for the degree of tenant diversification. We find that mortgages on properties with moderate levels of tenant diversification have spreads that are close to 3 basis points lower than single-tenant properties. The interest rate discount on mortgages of some moderately diversified properties disappears when the largest tenant’s lease ends before the loan matures. We also find that there is no credit spread discount on mortgages for highly diversified properties. Finally, we find that the likelihood with which a mortgage enters a period of 90 day delinquency increases as the degree of tenant diversification increases.
Discussants:
Paul Povel
(University of Houston)
Jung-Eun Kim
(University of Georgia)
Jarl Kallberg
(Washington State University)
Sergey Tsyplakov
(University of South Carolina)
Jan 04, 2015 2:30 pm, Westin Copley, Defender
American Real Estate & Urban Economic Association
Default and Foreclosure
(G2, R2)
Presiding:
Andra Ghent
(Arizona State University)
Specialty Servicers and Mortgage Terminations
Chao Yue Tian
(University of North Carolina)
Janneke Ratcliffe
(University of North Carolina)
Sarah Riley
(University of North Carolina)
Roberto Querica
(University of North Carolina)
[View Abstract]
Combining the premises of the option-based and the triggering events views of default, we know empirically about the importance on mortgage performance of characteristics such as LTV and the occurrence of crisis events such as a job loss. However, unrelated to either view of default, several studies have suggested that the quality of loan servicing has a significant impact on what happens to a delinquent loan (Stegman et al. 2007; Agarwal et al 2011). Building on these and other prior work, we examine the still unexamined questions with regard to the role of servicing, including specialty servicing, in mediating lending risks. Using longitudinal data from a panel of community reinvestment loans, we find that after controlling for revealed risk characteristics or loan delinquency, loans assigned to specialty servicers have significantly lower foreclosure and prepayment propensities than similar loans that remained with standard servicers. We estimate that the lower risks associated with specialty servicers translate into a 0.6-1.5 percent annual saving of the initial house value to investors.
An Analysis of Default Risk in the Home Equity Conversion Mortgage (HECM) Program
Donald Haurin
(Ohio State University)
Stephanie Moulton
(Ohio State University)
Wei Shi
(Ohio State University)
[View Abstract]
[Download Preview] While reverse mortgages are intended as a tool to enable financial security for older homeowners, the nearly 10 percent default rate on property taxes and homeowners insurance among borrowers in the Federally insured Home Equity Conversion Mortgage (HECM) program raises significant concerns. A variety of policy responses have been put into effect, including establishing financial assessment criteria (underwriting guidelines) for the first time in the program’s history. However, there is a lack of data and analysis to inform these criteria. Our analysis directly informs this policy need, with a unique dataset of more than 30,000 seniors counseled for reverse mortgages between 2006 and 2011, 58 percent of whom took out HECM loans. Our data includes comprehensive financial and credit report attributes, not typically available in analyses of reverse mortgage borrowers, in addition to loan data on originations, withdraws and termination outcomes. Using a truncated bivariate probit model, we estimate the likelihood of tax and insurance default, conditioned on selection of a HECM loan. We identify the factors that contribute to default risk and then conduct a series of simulations to evaluate the recently enacted HECM program changes.
Social Dimensions of Subprime Mortgage Default
Lynn Fisher
(University of North Carolina)
Robert Connolly
(University of North Carolina)
Gary Painter
(University of Southern California)
[View Abstract]
We study the relationship between the social composition of a local area and subprime mortgage defaults and prepayments for loans originated between 2004 and 2006 in six of the principal “gateway” cities in the U.S. Social factors considered include Census tract level measures of the concentration of households by race, ethnicity and immigration status. We focus on gateway cities due to their size, density and social heterogeneity, and because these locations will allow us to study economic versus social factors that explain systematic variation in default behavior among communities. We find that high loan-to-value subprime mortgages in Census tracts comprised of at least one-third Blacks or Hispanics are less likely to default, and are more likely to prepay, as compared to loans in tracts that are less racially concentrated. This stands in contrast to recent papers that highlight the higher propensity of Black or Hispanic borrowers to default. Interestingly, low loan-to-value subprime mortgages in Black tracts are more likely to enter default, a result that is perhaps indicative of greater liquidity issues. We also find that loans in Census tracts with at least ten percent recent immigrants are much more likely to default at higher loan-to-value levels.
Financial Literacy, Homebuying and Foreclosures
Geoffrey Turnbull
(University of Central Florida)
Arno Van der Vlist
(University of Groningen)
[View Abstract]
[Download Preview] This paper measures the financial consequence of recent foreclosed home owners. Motivated by recent mortgage defaults and foreclosure contagion house price effects, we measure whether recent foreclosed home owners overpaid for their pre-crisis homes. Our approach builds on recent contributions in the financial literacy literature and offers an empirical framework for decomposing pre-crises open market sales into a fair market value and a financial illiteracy penalty effect. Data from Orange County, Florida, over 2000 2012, reveal that home owners that end up foreclosed overpaid by approximately 2.4 to 5.8 percent. This literacy effect is stronger the closer to the financial meltdown in 2007. The effect is strongest in low value market segments. Further, we find that homebuyers with consumption motives outbid investors. Finally, the results reflect home bias in the financial illiteracy with out-of-state investors outbidding local investors with about 8.7 percent.
Discussants:
Eugene Amromin
(Federal Reserve Bank of Chicago)
Thomas Davidoff
(University of British Columbia)
Alvin Murphy
(Arizona State University)
Elliot Anenberg
(Federal Reserve Board)
Jan 04, 2015 2:30 pm, Westin Copley, St. George A & B
American Real Estate & Urban Economic Association/American Economic Association
Urbanization in Developing Countries
(R1, O1)
Presiding:
Stuart Rosenthal
(Syracuse University)
Rural Push, Urban Pull and... Urban Push? New Historical Evidence from Developing Countries
Remi Jedwab
(George Washington University)
Luc Christiaensen
(World Bank)
Marina Gindelsky
(George Washington University)
[View Abstract]
[Download Preview] Standard models explain urbanization by rural-urban migration in response to an urban-rural wage gap. Agricultural modernization and rural poverty constitute rural push factors of migration. Industrialization and urban biased policies are urban pull factors. We offer an additional mechanism, based on internal urban population growth, i.e. an urban push. Using newly compiled historical data on urban birth and death rates for 7 countries from Industrial Europe (1800-1910) and 33 developing countries (1960-2010), we show that many cities of today’s developing world are “mushroom cities” vs. the “killer cities” of Industrial Europe; fertility is high, while mortality is low. The high rates of urban natural increase have accelerated urbanization, with urban populations now doubling every 18 years, compared to every 35 years
in Industrial Europe. This is further found to be associated with higher urban congestion, possibly mitigating the benefits from agglomeration and providing insights into the phenomenon of urbanization without growth.
Transport Infrastructure, Urban Growth and Market Access in China
Nathaniel Baum-Snow
(Brown University)
Loren Brandt
(University of Toronto)
Vernon Henderson
(London School of Economics)
Matthew Turner
(University of Toronto)
Qinghua Zhang
(Peking University)
[View Abstract]
[Download Preview] In this paper, we quantify the causal effects of investments in various elements of road and railroad networks on economic growth in Chinese cities since 1990. We separately estimate the impacts on urban growth of transport links to nearby markets through market potential from the more direct effects of transport infrastructure on city level productivity. Direct effects may operate through various mechanisms including labor and capital flows, industrial specialization and more efficient urban form. Critical to our proposed evaluation is the use of pseudo-random variation in the allocation of transport networks to cities and their surrounding regions.
Agglomeration Effects in Colombia
Gilles Duranton
(University of Pennsylvania)
[View Abstract]
[Download Preview] I estimate an elasticity of wages with respect to city population of about 5% for Colombian cities. This finding is robust to a number of econometric concerns. The second main finding is a negative effect of market access on wages. I find only mild evidence in favor of human capital externalities and no evidence of a complementarity between cities and skills. Despite precise estimates, I do not find stronger agglomeration effects for older workers as would be predicted by the existence of learning effects nor do find I sizeable effects of roads or amenities on wages.
Is climate change driving urbanization in Africa?
Adam Storeygard
(Tufts University)
Uwe Deichmann
(World Bank)
Vernon Henderson
(London School of Economics)
[View Abstract]
[Download Preview] This paper documents a significant impact of climate variation on urbanization in sub-Saharan Africa, primarily in more arid countries. By lowering farm incomes, reduced moisture availability encourages migration to nearby cities, while wetter conditions slow it. The paper also provides evidence for rural-urban income linkages. In countries with a larger industrial base, reduced moisture shrinks the agricultural sector and raises total incomes in nearby cities. However, if local cities are entirely dependent on servicing agriculture so their fortunes move with those of agriculture, reduced moisture tends to reduce local urban incomes. Finally, the paper shows that climate also induces employment changes within the rural sector itself. Drier conditions induce a shift out of farm activities, especially for women, into non-farm activities, and especially out of the work force. Overall, these findings imply a strong link between climate and urbanization in Africa.
Discussants:
Jan Brueckner
(University of California-Irvine)
Edward Glaeser
(Harvard University)
Matthew Kahn
(University of California-Los Angeles)
Douglas Gollin
(University of Oxford)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Gender Issues in Russia: Past and Present
(J1, P3)
Presiding:
John S. Earle
(George Mason University)
Missing Women in the Former Soviet Union? Son Preference and Children’s Health in the Transition from Communism
Elizabeth Brainerd
(Brandeis University)
[View Abstract]
Sex ratios at birth in the Soviet Union revealed little evidence of son preference, fluctuating around the biological norm of 1.05 males to females in all of the USSR republics. Since the mid- 1990s, however, sex ratios in several former Soviet republics have increased drastically and are now comparable to those of China and India. Is this increase in sex ratios due to a change in parental preferences for sons, or does it reflect the re-emergence of pre-existing son preference in the region? Micro data from the 2001 Census of Armenia, the 1999 and 2009 Censuses of the Kyrgyz Republic, and the Demographic and Health Surveys for Armenia (2000, 2005, 2010), Azerbaijan (2005), and Kazakhstan (1995, 1999) are used to investigate this question. The results indicate that son-biased fertility stopping behavior characterized all of these countries during the Soviet era. With the increased availability of sex-revealing technology in the 1990s, this behavior shifted towards behavior consistent with sex-selective abortion in Armenia and Azerbaijan. The practice is most prevalent among women who are more highly educated and wealthier.
The Evolution of the Gender Wage Gap over the Entire Transition Period: Evidence from Russian Personnel Data
Thomas Dohmen
(University of Bonn)
Hartmut Lehmann
(University of Bologna)
Anzelika Zaiceva
(University of Modena and Reggio Emilia)
[View Abstract]
The aim of this paper is to analyze the evolution and manifestation of the gender wage gap (GWG) within a Russian firm using quantile decomposition techniques, having data for the entire transition period (1990 - 2010). Our personnel data is of a high quality and is ideally suited to study the GWG, since measurement error can be assumed to be minimal: we have information on hours worked, overtime, night shifts, wages and premia that allows us to construct hourly wages with great precision. Dohmen, Lehmann and Zaiceva (2008) in a preliminary study using personnel data for 1997-2002 find a decline in the GWG and find that the gender earnings differentials for production workers largely stem from job assignment, as women are predominately assigned to lower-paid jobs. Having more and richer data at our disposal we will analyze the gap over the entire transition period and will examine whether the segregation of women into lower levels is a result of different promotion paths between genders or whether women are assigned to lower entry-level jobs than men.
Did the Soviets Solve the “Productivity Puzzle”? Gender Differences in Science in the Soviet Union
Ina Ganguli
(Stockholm School of Economics)
[View Abstract]
It is well documented that women have been underrepresented in science and that they have tended to publish fewer scientific articles than men, commonly known as the “productivity puzzle”. We might expect these gaps to have been smaller in the Soviet Union, which had a large scientific labor force and ideology stressing gender equality in the labor market. Using a large unique dataset of over 15,000 Soviet scientists and their publications, I estimate a gender gap in publications of 24% in Russia during Soviet times, with a small deterioration to 27% after the Soviet collapse. Both estimates are larger than published estimates of the gap during these periods in the US. The gender gap in citations was even larger than the publication gap, at close to 50% in both periods. Analysis of panel data for Soviet scientists shows that the productivity gap increased in part because women experienced a greater fall in publications after the end of the USSR compared to men. I show that an important factor in the size and dynamics of the gender gap was likely gender segregation by scientific field; women were much more likely to be in the Life Sciences and Chemistry than in Physics and Mathematics, and these were the fields that had the greatest declines in productivity and from which individuals were the most likely to exit science.
An Economic Interpretation of Prostitution in Tsarist Russia
Steven Nafziger
(Williams College)
Jessica Bean
(Denison University)
[View Abstract]
Very little is known about the extent of prostitution in past economies. Due to this occupation's quasi-legal status and public health implications, Tsarist Russia produced a unique range of empirical materials describing the institution. These sources - including the 1897 Imperial Census that records prostitution as an occupation - allow us to quantify the extent and determinants of this form of employment across districts and municipalities. Among several other empirical exercises that occupy us in this paper, we explore the underlying incentives for women to engage in street walking relative to brothel employment, and we investigate the interaction between prostitution, gender ratios, and the distribution of other female occupations. Our research contributes towards a better understanding of formal and informal labor market opportunities for women in the early stages of industrialization.
Discussants:
Richard Pomfret
(University of Adelaide)
Klara Sabirianova Peter
(University of North Carolina)
Donna Ginther
(University of Kansas)
Melanie Khamis
(Wesleyan University)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
Corruption of Social Provisioning under Capitalism
(B5)
Presiding:
Paula M. Cole
(University of Denver)
Economic Surplus and Social Provisioning in the United States and Mexico
Kellin Chandler Stanfield
(DePauw University)
[View Abstract]
The US and Mexican economies have been following a development and integration model that has limited restrictions on trade and capital flows, liberalized domestic financial sectors, and increased the vulnerability of substantial segments of the populations to anomic market forces. Intra-national inequality and uneven development between Mexico and its NAFTA partners have increased as the economic surplus of the region is being transferred to the national elites and centre of the regional bloc. Moreover, Mexico has settled into a growth strategy based on the export of cheap labor with substantial dependency on the US consumer market and enclave economies. After exploring how the economic surplus of the US and Mexican economies has been distributed in recent decades in relation to social provisioning and socioeconomic restructuring, this paper considers policy reforms that would re-orient surplus production to productivity and sustainability enhancing investments in physical and human infrastructure along with promoting shared gains from economic integration.
Envy in Neoliberalism: Revisiting Veblen's Invidious Distinction
Mary V. Wrenn
(University of Cambridge)
[View Abstract]
Cautionary tales admonishing against the evils of envy crowd religion and folklore across cultures. Pre-capitalist societies attempted to suppress envy; familial and community relations held the emotion of envy in check through social sanctions. Capitalism, however, encourages envy. The connection between capitalism and envy is not new. Marx explored ideas of envy in his theory of commodity fetishism, while Veblen methodically addressed it in his explanation of invidious distinction. As capitalism has evolved into its present incarnation of neoliberalism, however, envy has also evolved. The evolution, nature, and role of envy within neoliberalism must be studied in order to understand more fully its consequences. This research seeks to examine the social ontology of envy. According to advocates of neoliberalism, inequality serves an important social function – it is the great motivator, without which, individuals would not have incentive to improve. Inequality and by extension envy, are thus heralded as the prime catalysts of economic activity. As well, this research examines the role of schdenfreude and the shaming of the poor.
Evangelii Gaudium, Capitalism, and Social Provisioning
Valerie K. Kepner
(King's College)
[View Abstract]
[Download Preview] Pope Francis’ recent release of the Apostolic Exhortation Evangelii Gaudium has generated much needed reflection on the role of an economic system in the meeting of humanity’s wants and needs. Too, Evangelii Gaudium highlights the difference between wants and needs and the negative consequences of the now entrenched “need” to consume “wanted” goods and services. Pope Francis points to the individualism that is central to the currently revered economic system, i.e., capitalism. However, this need not be the case, and if one were to truly examine the functioning economic system in the U.S., its resemblance to capitalism begins and ends with a partial reliance on markets and prices and a focus on the individual. Beginning with the widely-accepted definition of economics, a discussion of the often-overlooked value judgments in the mainstream definition will follow and then lead to a discussion of alternative definitions proposed by various heterodox economists. Following will be a discussion of the natural tendency for a capitalist economic system to (at the very least monetarily) reward those who subscribe to the primacy of the individual with the system further encouraging (even requiring) ever-increasing consumption. This is not inevitable, however. The paper will conclude with a discussion of the real possibility of utilizing a capitalist economic system to meet both the needs of the individual as well as society.
The Commodification of Society
Timothy A. Wunder
(University of Texas-Arlington)
[View Abstract]
Mainstream economics has come to fetishize finance and, by doing so, has blinded its theoreticians with respect to understanding the substantive economy. Institutional economic theory teaches us not to conflate finance with material provisioning. The historical tradition that upholds this lesson has roots inside and outside Institutionalism. This tradition can be seen in Marx’s discussion on private property as well as in Veblen’s discussion on intangible assets. The evolution of this discussion can be followed in Minsky’s writings on types of finance and is unavoidable in the current pages of the JEI. This paper will explore how the institution of private property evolved into intangible assets, then into finance capital, and is currently being altered through securitization. By concentrating on this evolution it will become evident that that securitization is a financial tool used to lock in a power relationship. Through securitization a block of student loans can become valued as a security and the value of that security is determined by the future stream of payments of the borrowers. This paper will explore how a system of student loan assets valued as equities (S.L.A.V.E.) is representative of the general characteristic of securitization. Under securitization the capital owner no longer owns anything tangible, instead he owns the right to call upon government force to divert income from the debtor into his own pocket. This is a new incarnation of power relations and Institutional theory is well suited to explore and explain how it works.
The Provision of Social Costs When There is No Society: The Nihilism of Financialization
Wesley C. Marshall
(Universidad Autonoma Metropolitana)
Gregorio Bonifaz Vidal
(Universidad Autonoma Metropolitana)
Eugenia Correa
(National Autonomous University-Mexico)
[View Abstract]
[Download Preview] In his 1980 television series Free to Choose, Milton Friedman sets out his vision for why collectivized social provisioning organized and carried out by governments should be eliminated. Around the same time, Margaret Thatcher could be heard saying 'there is no society'. A quarter of a century later, as financialization has firmly taken hold in advanced North Atlantic economies, such aspirations have increasingly become reality. As we argue in this paper, the hegemonic project of groups in constant competitions to capture society's surplus typically involve an ideology that justifies the project's regime of accumulation. In the case of financialization, the actions and words of financial plutocrats demonstrate their conviction that the project's profitability does not depend on an expansion of productive capacity and the sustainability of the labor force. In other words, workers are not invited to participate in financialization. This is not to say that workers have no place in financialization. Rather, they are simply seen to have more value as debt serfs than as workers or consumers.
The replacement of all moral codes in favor of the pursuit of money, of planning at a macro and global level in favor of the spontaneity of a not so free market, and of social provisioning for social parasitism, all point to nihilism as the underlying ideology of financialization, and dire consequences for humanity.
Discussants:
Jonathan Wight
(University of Richmond)
Alla Semenova
(State University of New York-Potsdam)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Social Economics
Commodity Creation as a Historical Process
(P1, N8)
Presiding:
Wayne Edwards
(University of Nebraska-Kearney)
Pricing the Eyes of Passersby: The Commodification of Audience Attention in United States Public Spaces, 1890-1920
Zoe Sherman
(Merrimack College)
[View Abstract]
[Download Preview] This paper explains the growth of the U.S. advertising industry around 1900 by showing how advertisers constructed institutions and used government to convert audience attention into a form of tradable property. They transformed the haphazard business of getting advertisements before the eyes of the public into a matter of commodity exchange by standardizing access to audience attention and controlling competition. Audience attention is not produced for the purpose of market exchange –it is inherent in the existence of a human population. However, as sellers of consumer goods shifted toward competitive strategies that leaned more and more heavily on access to audience attention, they created a demand for audience attention in commodity form. The advertising industry was born to profit from supplying the desired access to eyes. Advertisers and advertising agents created a new market in audience attention, interconnected with all other markets in the larger market economy. In short, audience attention became a fictitious commodity. My empirical work on billposting illuminates the central role that the pursuit of monopoly played in constructing a commodity form of access to pedestrians’ gazes. Monopolist billposters set prices in proportion to the population of likely viewers rather than in proportion to their costs and justified the higher rates by improving the reliability of the service they offered. Even when other forms of media advertising limited the monopoly power of outdoor advertisers, their success in establishing regularized routines and a legal regimen enabled billboard, and other, advertisers to buy the eyes of passersby.
Indian Agricultural Policy, Commodification, and Provisioning
Tara Natarajan
(Saint Michael's College)
Wayne Edwards
(University of Nebraska-Kearney)
[View Abstract]
Commodification in agrarian India takes different forms depending on agrarian policy. For example the Green Revolution in the 1960s transformed staple food crops such as rice and wheat that previously had been produced exclusively for domestic consumption into exportable commodities. Another example is the Blue Revolution that sought to expand agricultural production by creating new products, leading to land being employed for prawn farming. These reforms in the nineteen sixties, seventies, and eighties relied heavily on bringing technological changes to agriculture. Successive waves of reform identified different objects of agriculture as candidates for both domestic and export markets. Industrialization has been the engine of economic growth and development for all sectors of the economy, including agriculture. Post liberalization agriculture in the 1990s has intersected with globalization to alter the export commodity mix. Dietary p references in the United States have made a significant shifts toward healthy alternatives, certain types of whole grains, and new products such as packaged coconut water and oil. Using a comprehensive database of production, this paper identifies crops that are at the top of the commodification list in post liberalized India. The authors undertake a comparative regional analysis of production patterns to uncover changes in land use patterns and provisioning that are related to the evolving Indian agricultural policy and external demand innovations. The paper aims to develop an understanding of commodification in agriculture in India and identify trends and causes of commodification with a focus on how commodification has affected extant provisioning processes.
Commodification, Gender Norms, and the Indian Marriage Market
Abhilasha Srivastava
(American University)
[View Abstract]
Are all aspects of human life commodifiable? If so, what are the consequences? Which objects or relationships are subject to exchange? Is exchange behavior limited to the economic realm? This paper explores these questions by analyzing behavior around marriage market transactions in India. I use qualitative data from survey and open-ended interviews of 405 respondents from three urban and rural sites, in north and south India. Using grounded theory, I show that multiple actors, with heterogeneous motives, are involved in the decision-making around arranged marriages in India. Further, gender norms, which are ‘social constructs’ based on differential valuation of roles, abilities and choices, shape individual preferences in the marriage market. These gender norms are themselves constituted and reconstituted within the overall market ‘economy,’ which determines what is valued, and what is not. Thus, within the marriage market in India, the ‘groom-side’ emerges as a party with asymmetric power over the ‘bride-side’ in the marriage transaction, and dowry emerges as the exchange price to be demanded and negotiated for the ‘groom.’ This makes the groom a commodity in the marriage market while pushing the bride to the private sphere, which is essentially non-commodifiable. Once dowry emerges as the exchange price of the groom, it feeds back into gender norms that favor one sex over the other, and reinforce the commodification of the groom in the Indian marriage market.
Commodification of Higher Education in Developing Countries: Evidence from the Egyptian Economy
Eman Selim
(Tanta University)
[View Abstract]
The purpose of the paper is to investigate the impact of Structural and Adjustment Programs implemented in developing countries as prerequisite to be eligible for IMF and World Bank loans and membership to the General Agreement on Trade and Services on the commodification of Higher Education. Liberalization of economic sectors in developing countries includes the liberalization of higher education from government finance and subsidies. Under the commodification of Higher Education, students are considered as consumers, education as a commodity and higher education institutions as education commodity producers and providers. The paper studies the experience of the commodification of higher education in Egypt from 1991 to 2011.The paper shows that commodification of Higher Education in Egypt has various consequences including: the increase in the number of private Higher Education institutions, the introduction special programs with tuition in public higher education institutio ns, the increase in the number of branches of foreign higher education institutions and the deterioration of the quality of Higher education. Keywords: Commodification, Higher Education, Structural and Adjustment Programs, General Agreement of Trade and Services
Delineating the Process of Fictive Commodification in Advanced Capitalism
Anthony Bonen
(New School)
[View Abstract]
[Download Preview] Intangible commodities are, in general, non-rivalrous and therefore require the ascription of some property rights to induce the claim to ownership. New Institutional Economics (NIE) attempts to account for this commodification process through a framework in which agents solve externality problems by establishing property rights through bargaining. We argue that this is wholly unconvincing theoretically and empirically. A more complete and accurate account of the commodification of intangibles is found in Karl Polanyi's (2001[1944]) concept of the fictitious, or fictive, commodity. By extending the fictive/real dichotomy into a continuum, intangible commodities can be located in accordance with their degree of for-market intentionality in production. This approach -- in contrast to Marxian and neoclassical theory -- presupposes a legal structure through which conscious legal actions create the economic value of intangible property. The framework is applied to the historical emergence of two groups of intangible commodities: financial derivatives and intellectual property (IP). We find that the ascription of property claims to these intangible commodities is initiated by non-efficiency motives. Therefore, the emergence of commodified uncertainty and knowledge (respectively, derivatives and IP) is best described as a Polanyi-esque process of fictive commodification.
Jan 04, 2015 2:30 pm, Sheraton Boston, Public Garden
Association of Environmental & Resource Economists/American Economic Association
China and the Future of Climate Policy
(Q5, O5)
Presiding:
Maximillian Auffhammer
(University of California-Berkeley)
Is China on Track to Comply with Its 2020 Copenhagen Carbon Intensity Commitment?
Junjie Zhang
(University of California-San Diego)
Yuan Yang
(Tsinghua University)
Can Wang
(Tsinghua University)
[View Abstract]
[Download Preview] To address the challenge of climate change, China has pledged to reduce its carbon intensity by 40-45% below the 2005 level by 2020 in the Copenhagen Accord. This paper assesses China’s probability of compliance by forecasting China’s CO2 emissions up to 2020 under the business-as- usual scenario. We forecast provincial emissions by exploiting a large set of spatial econometric models to explicitly account for spatial-temporal dynamics of CO2 emissions. Including spatial spillover effects significantly improves forecasting performance especially for a long horizon. Due to the lack of official CO2 emissions data at the provincial level, we calculate the emissions from the detailed energy consumption data that include 17 types of fossil fuels following the IPCC guidelines. We have constructed a balanced panel data set of provincial CO2 emissions from 1985 to 2011. In addition, we utilize a rich set of policy information in the national and provincial 12th Five-Year Plans (FYPs) for emission forecasting. Understanding the governmental development plans enables us to construct realistic BAU scenarios instead of using arbitrary assumptions. Our preferred model shows that China’s carbon intensity is projected to decline by only 33%. The results imply that China needs additional mitigation effort to comply with the Copenhagen commitment. In addition, China’s baseline emissions are projected to increase by 56% in the next decade (2011-2020). The emission growth is more than triple the emission reductions that the European Union and the United States have committed to in the same period. Although China has started to transition towards less energy and carbon intensive growth and its GDP growth is slowing down, our best forecasting model suggests that there is still no reason to be optimistic that China’s future CO2 emissions will meet its Copenhagen commitment.
The Evolving Geography of Industrial Parks in China: Implications for Energy Consumption and National GHG Emissions
Matthew Kahn
(University of California-Los Angeles)
Siqi Zheng
(Tsinghua University)
Weizeng Sun
(Tsinghua University)
Jianfeng Wu
(Fudan University)
[View Abstract]
This paper looks at the growth of industrial parks in China. We geocode all 1,500+ national-level and provincial-level industrial parks in the GIS map and access the micro firm level data from the dataset of the Annual Survey of Industrial Firms (ASIF) produced by China’s National Bureau of Statistics for the period 1998–2009. This dataset provides detailed information on firms' identification, industry code (3-digit), FDI measures, location, employment and output. We calculate the TFP for each firm, and also geocode all the firms in the GIS map. We do not have a specific firm’s electricity consumption information. To overcome this, we merge the firm database with an electricity consumption intensity database using detailed industry codes, and assume that the firms in one industry have the same electricity consumption intensity. We have the electric utility CO2 emissions factors by region by year. If electricity intensive industrial activity moves to a region with a high power plant emissions factor (i.e., heavy coal reliance) then emissions soar. Combining all these databases together we estimate how the evolving geography of industrial parks and the firms therein affect energy consumption and CO2 emissions. CO2 emissions dynamics are decomposed into composition, scale and technique effects. If the coastal large cities impose stringent environmental regulation and raise utility prices to drive out brown industries, this will certainly improve local environmental quality. But, an unintended consequence of this push by rich coastal cities to be green that we examine is the possibility of an increase in China’s GHG emissions if industry moves to regions with higher electric utility CO2 emission factors.
Environmental Regulation in a Mixed Economy
Jinhua Zhao
(Michigan State University)
Guangliang Le
(Renmin University of China)
[View Abstract]
[Download Preview] China and India, as well as other major developing countries that are important from the perspective of energy use and climate policy, are mixed economies in which public and private firms engage in Cournot competition. We show that some fundamental results in environmental economics fail to hold in these economies: more stringent environmental regulation does not necessarily reduce pollution levels, and the equivalence between environmental taxes and standards breaks down. The driving force lies in the endogenous objective functions of public firms manifested through the career choices of the public firm’s CEO. Instruments that can induce the CEO to choose a public career tend to be welfare dominant.
Comparing the Cost of a Carbon Tax in China and the United States
Antung A. Liu
(Cheung Kong Graduate School of Business and Resources for the Future)
Richard Carson
(University of California-San Diego)
Mark Jacobsen
(University of California-San Diego)
[View Abstract]
[Download Preview] Conventional wisdom holds that, without considering environmental benefits, a carbon tax would reduce welfare and that these costs will be higher in developing countries. We find strong evidence for the opposite conclusions. We show how three factors explored in the prior literature can combine to reduce the welfare cost of a carbon tax, and that these effects are particularly strong in developing economies. Incorporating informal production, untaxed Ricardian rents, and tax evasion, we conduct a series of numerical simulations for China and the U.S. We find that the costs of carbon tax policy in China are lower than those in the U.S. for emissions reductions up to 12%. Further, we see that overall efficiency costs are negative in both countries for a significant range of abatement targets: raising government revenue using a carbon tax is in fact cheaper than existing tax policy. We believe our results extend to the tax systems in many developing economies.
Discussants:
Maximillian Auffhammer
(University of California-Berkeley)
Nicholas Z. Muller
(Middlebury College)
Shanjun Li
(Cornell University)
Joseph Aldy
(Harvard University)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Boylston
Association of Financial Economists/American Finance Association
Taxes and Capital Structure
(G3, H2)
Presiding:
Kose John
(New York University)
Outsourcing Purchase Contracts, Human Capital and Firm Capital Structure
S. Katie Moon
(Securities and Exchange Commission)
Gordon Phillips
(University of Southern California)
[View Abstract]
[Download Preview] We examine the impact of outside purchase contracts on firm risk and firm capital structure. We find that firms with more outside purchase contracts have less risky cash flows. Despite these less risky cash flows, firms with these contracts also have less financial leverage especially when they operate in high value-added industries. Examining firm financing decisions, we document that firms with more outside contracts are more likely to issue private securities. Our results are consistent with firms with more outside purchase contracts using less leverage to decrease the expected costs of financial distress on their explicit and implicit contracting parties.
Taxes and Bank Capital Structure
Glenn Schepens
(Ghent University)
[View Abstract]
[Download Preview] This paper shows that a reduction in tax discrimination between debt and equity funding leads to better capitalized financial institutions. In many countries, the cost of debt is tax-deductible while the remuneration for equity (dividends) is not deductible. Theoretically, this unequal treatment gives a bank - as any other firm - an incentive to take on more debt. This paper exploits exogenous variation in the tax treatment of debt and equity created by the introduction of a tax shield for equity in Belgium. This quasi-natural experiment demonstrates that a more equal treatment of debt and equity significantly increases bank capital ratios, driven by an increase in common equity. Additionally, the results illustrate that both high and low capitalized banks react to the change in tax legislation, but that the latter profit more in terms of overall risk reduction. Overall, the findings confirm that reducing the tax discrimination between debt and equity could be an innovative policy tool for bank regulators.
Large Dividend Increases and Leverage
Ian A. Cooper
(London Business School)
Neophytos Lambertides
(Cypress University of Technology)
[View Abstract]
[Download Preview] We study the leverage of firms making large dividend increases. Over the five years following the dividend increase these firms raise leverage enough to finance the entire dividend increase with debt for that period. This behavior is not explained by trade-off variables or a standard interpretation of the pecking order. It is explained by the fact that these firms raise leverage in response to financing deficits much more than other firms. The effect is greatest for big firms with low-powered incentives, suggesting an agency effect whereby they make large dividend increases with the intention of paying for them with debt.
Taxes, Capital Structure Choices, and Firm Value
Mara Faccio
(Purdue University)
Jin Xu
(Virgina Tech)
[View Abstract]
[Download Preview] We use a multitude of reforms across 29 OECD countries from 1981 through 2009 that affected statutory corporate or personal tax rates as natural experiments to estimate the market value of the tax benefits of debt financing. We report time-series evidence that tax reforms are followed by large changes in firm value. However, the impact of tax reforms on value is greatly mitigated by the presence of leverage. Consistent with a tax story, the value of debt tax savings is greater among top tax payers, highly profitable firms, and in countries where tax laws are more strongly enforced. The results are robust to a battery of endogeneity tests.
Discussants:
Yiming Qian
(University of Iowa)
Juliane Bergeneau
(Harvard University)
Anzhela Knyazeva
(U.S. Securities and Exchange Commission)
S. Abraham Ravid
(Yeshiva University)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Wellesley
Chinese Economists Society
Institutional Conditions for Sustainable GDP Growth
(O1)
Presiding:
Christian Dreger
(DIW Berlin)
A Decomposition of China's Productivity Growth and Its Reform Implications
Jack W. Hou
(California State University-Long Beach and Henan University)
Qun Zhang
(Jilin University)
[View Abstract]
As for the economy as a whole, China’s firms have exhibited high rates of productivity growth, regardless of the ownership type (state, collective, or privately owned). How-ever, private firms have exhibited the highest productivity growth. Using the China In-dustrial Survey data (2000-2007), we implement a dynamic Olley-Pakes productivity decomposition approach to separate the type of productivity growth to the innova-tiveness of surviving firms, exit and entry of firms, and market share reallocations. Unlike the prevailing literature where the more important source of productivity growth came from the exit/entry of firms (market selection) and resource reallocation in terms of market shares of surviving firms, the dominant source of growth is the productivity of the firms themselves, with the market selection playing only a relatively minor role. What is interesting is the resource reallocation in terms of market shares changes had a negative effect on productivity. This is in sharp contradiction to the literature. This result was robust whether the decomposition was at the aggregate level, by industry, or by region.
China is still in the midst of transition where the state and government officials still control many resource allocations and the authority to grant “permission to enter.” This led to an all-around rent-seeking activity that permeates throughout the economy. As a result, the market selection and resource reallocation, which are traditionally major sources of productivity growth, is either weak or even play an inhibitive role in China. The analysis provides sound empirical evidence to the need for deeper market reform grounded in efficient market selection, the withdrawal of political influence from both market operation and resource allocation, and the relegation of rent-seeking to the fringes of economic activities.
Does Mr. Okun Go to Emerging Countries?
Vikkas Kakkar
(City University of Hong Kong)
Iikka Korhonen
(Bank of Finland and BOFIT)
[View Abstract]
We estimate whether Okun's law holds for a large sample of emerging market and high-income countries. Our aim is to research whether similar relationship holds be-tween GDP growth and unemployment in countries with different income levels and/or institutional quality. To ensure the robustness of the results, institutional quality is measured by a variety of indicators, such as the World Bank Doing Business indicators and the Transparency International’s corruption perception index. The special focus of the analysis is on the largest emerging market countries, including China, as their im-portance for the global economy is the greatest. We find that there is relationship be-tween GDP growth and unemployment also in the emerging market countries, but the evidence is less clear than in the case of high-income countries. Furthermore, in China it is difficult to ascertain the existence of Okun’s law, and reasons for this finding are discussed. Last, the relationship between GDP growth and unemployment seems to change as countries' income levels grow.
Removing Selective Mobility Restrictions: Evidence from China
Yao Pan
(Aalto University)
[View Abstract]
An open question is how the removal of selective mobility restrictions affects migrants’ well-being and the overall income distribution. In China, the household registration system imposes selective rural-urban mobility restrictions. Identification can be derived from a policy change that removes such migration restrictions in one third of the provinces in China, one at a time. Using a Difference in Difference approach, the removal of mobility restrictions increases the employment rate of less educated adults by 8.1 percentage points and their wages by 31 percent. The effect is trivial for those with secondary education. On the other hand, the removal of migration restrictions decreases the high school enrollment rate for children by 11 percentage points. For the lower educated a 23 percentage points drop in the employment rate and a 37 percent wage drop for those employed can be detected. Further analysis reveals that the within-province inequality decreases right after removing selective migration restrictions. However, the increase in inequality accelerates after the reform and outweighs the initial impact in the long run.
Understanding Chinese Consumption: The Impact of Hukou
Christian Dreger
(DIW Berlin)
Yanqun Zhang
(Chinese Academy of Social Sciences-Beijing)
[View Abstract]
[Download Preview] The Chinese growth miracle was based on exports and investment in recent years. While strong output growth has been maintained even during the financial crisis, the imbalances within the country increased. To return to a more sustainable path of de-velopment, policies are directed to improve the role of private consumption. However, the institutional framework is an impediment to the transformation, as it weakens the incentives of households to consume. Besides a low degree of social security and highly regulated financial markets, we stress the relevance of the hukou system as the main driver for modest consumption, especially in recent years. Evidence is based on a huge microeconomic dataset gathered by the Chinese Household Income Project (CHIP). The CHIP is designed and implemented to measure the distribution of income and related economic factors in urban and rural areas. Evidence is based upon the last to waves of the CHIP. After controlling for different income levels, the average propensity to con-sume is significantly lower for migrants, as their access to public services is limited. The downward pressure on private consumption will increase in the future. The urban-ization strategy of the government will likely raise the number of migrants with limited hukou rights, if urbanization is not accompanied by respective reforms. Therefore, the transformation towards consumption driven growth is endangered without further re-forms.
Discussants:
Belton M. Fleisher
(Ohio State University)
Yong Wang
(City University of Hong Kong)
Kai Yan
(International Monetary Fund)
Jan 04, 2015 2:30 pm, Sheraton Boston, Beacon F
Econometric Society
Advances in Collusion and Antitrust Policy
(K2, L4)
Presiding:
Judith Chevalier
(Yale University)
Co-Opetition: Some Antitrust of Arrangements Between Competitors
Jean Tirole
(Toulouse School of Economics)
[View Abstract]
[Download Preview] Competitors cooperate both through joint marketing alliances and through the sharing of inputs; if allowed, they may alternatively merge. Regulatory guidelines must be designed, that do not make use of fine information not held by antitrust authorities and yet discourage detrimental alliances or mergers while allowing desirable ones. This research shows how theory can inform on possible such guidelines.
Effects of Antitrust Leniency on Concealment Effort by Colluding Firms
Leslie Marx
(Duke University)
Claudio Mezzetti
(University of Melbourne)
[View Abstract]
[Download Preview] We provide an economic analysis of the incentives created by an antitrust leniency program, with particular attention to incentives created for effort directed at the concealment of collusion. The results point to a need for competition authorities to consider the effects of concealment when evaluating economic evidence of collusion. The results also suggest possible benefits from increasing penalties for cartels that use third-party facilitators.
Cooperation, R&D Spillovers and Antitrust Policy
Angel Lopez
(Universitat Autònoma de Barcelona)
Xavier Vives
(IESE Business School)
[View Abstract]
[Download Preview] We consider a model of process (cost-reducing) R&D investments with spillovers in Cournot oligopoly, and in which R&D cooperation cannot be disentangled from cooperation in the product market because of cross-shareholdings or because cooperation in R&D extends to cooperation in the product market. We characterize how R&D and output behave in response to a change in the degree of cooperation. We derive the threshold values of spillover above which some cooperation in both dimensions is optimal for welfare and consumers, and examine the optimal degree of toughness of the antitrust policy. If the objective is to maximize total surplus then there is scope for cooperation in both dimensions when spillovers are sufficiently large (and the scope is larger the more
firms there are in the market), but if the objective is to maximize consumer surplus, then the scope for cooperation is greatly reduced. Furthermore, entry need not optimally induce more cooperation under the consumer surplus standard. Finally, our results show that the socially optimal degree of cooperation increases with the number of fi
rms, the elasticity of demand and innovation function, and the intensity of spillover effects.
Discussants:
Barry Nalebuff
(Yale University)
Joseph E. Harrington
(University of Pennsylvania)
Luis Cabral
(New York University)
Jan 04, 2015 2:30 pm, Sheraton Boston, Beacon E
Econometric Society
Econometrics of Randomized Experiments
(C9)
Presiding:
Guido W. Imbens
(Stanford University)
Tolerating Defiance? Local Average Treatment Effects without Monotonicity.
Clément de Chaisemartin
(University of Warwick)
[View Abstract]
[Download Preview] Instrumental variable (IV) estimates a causal effect if the instrument satisfies a monotonicity condition. When this condition is not satisfied, we only know that IV estimates the difference between the effect of the treatment in two groups. This difference could be a very misleading measure of the treatment effect: it could be negative, even when the effect is positive in both groups. There are a large number of studies in which monotonicity is implausible. One might then question whether we should trust their estimates. I show that IV estimates a causal effect under a much weaker condition than monotonicity. I outline three criteria applied researchers can use to assess whether this condition is applicable in their studies. When this weaker condition is applicable, they can credibly interpret their estimates as causal effects. When it is not, they should interpret their results with caution.
Endogenous Stratification in Randomized Experiments
Alberto Abadie
(Harvard University)
[View Abstract]
[Download Preview] Researchers and policy makers are often interested in estimating how treatments or policy interventions affect the outcomes of those most in need of help. This concern has motivated the increasingly common practice of disaggregating experimental data by groups constructed on the basis of an index of baseline characteristics that predicts the values that individual outcomes would take on in the absence of the treatment. This article shows that substantial biases may arise in practice if the index is estimated, as is often the case, by regressing the outcome variable on baseline characteristics for the full sample of experimental controls. We analyze the behavior of leave-one-out and repeated split sample estimators and show they behave well in realistic scenarios, correcting the large bias problem of the full sample estimator. We use data from the National JTPA Study and the Tennessee STAR experiment to demonstrate the performance of alternative estimators and the magnitude of their biases.
Why Experimenters Should Not Randomize, and What They Should Do Instead
Maximilian Kasy
(Harvard University)
[View Abstract]
[Download Preview] This paper discusses experimental design for the case that (i) we are given a distribution of covariates from a pre-selected random sample, and (ii) we are interested in the average treatment effect (ATE) of some binary treatment. We show that in general there is a unique optimal non-random treatment assignment if there are continuous covariates. We argue that experimenters should choose this assignment. The optimal assignment minimizes the risk (e.g., expected squared error) of treatment effects estimators. We provide explicit expressions for the risk, and discuss algorithms which minimize it.
The objective of controlled trials is to have treatment groups which are similar a priori (balanced), so we can ``compare apples with apples.'' The expressions for risk derived in this paper provide an operationalization of the notion of balance. The intuition for our non-randomization result is similar to the reasons for not using randomized estimators - adding noise can never decrease risk. The formal setup we consider is decision-theoretic and nonparametric. In simulations and an application to project STAR we find that optimal designs have mean squared errors of up to 20% less than randomized designs and up to 14% less than stratified designs.
Optimal A Priori Balance in the Design of Controlled Experiments
Nathan Kallus
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We develop a unified theory of experimental designs that balance baseline covariates (pre-treatment measurements) a priori (before treatment and before randomization). The framework we propose is that of minimax risk with respect to the unknown conditional expectation functions of potential outcomes. We establish a "no free lunch" theorem that indicates that, without structural information, complete randomization is always the optimal design. We then show how restricting the structure of conditional dependence, either parametrically or non-parametrically, leads to imbalance metrics and optimal designs that recover known designs previously developed ad hoc, including randomized block designs, pairwise-matched designs, and re-randomization, as well as complete randomization. We develop a new range of optimal designs based on reproducing kernel Hilbert spaces, which encompasses both parametric and non-parametric methods. We intimately connect a priori balance to estimation variance -- a novel result for some existing designs like pairwise matching and a useful one for the new designs. We generally characterize the unbiasedness, variance, and consistency of any estimator arising from our framework; solve the design problem using mixed integer optimization (MIO); and develop appropriate hypothesis tests for inference on the difference of treatments. Whenever a parametric model of conditional dependence is known to hold, we show that for the optimal design the reduction in variance relative to complete randomization converges linearly (1/2^O(-n) for n subjects) to the fraction of outcome variance that is explained by baseline covariates, which is the best possible reduction factor. We make connections to Bayesian experimental design and extensions to dealing with non-compliance.
Jan 04, 2015 2:30 pm, Sheraton Boston, Beacon D
Econometric Society
Financial Econometrics
(C5)
Presiding:
Eric Renault
(Brown University)
Staying at Zero with Affine Processes: A New Dynamic Term Structure Model
Alain Monfort
(CREST)
Fulvio Pegoraro
(Banque de France)
Jean-Paul Renne
(Banque de France)
Guillaume Roussellet
(Banque de France, CREST and CEREMADE)
[View Abstract]
[Download Preview] We build an Affine Term Structure Model that provides non-negative yields at any maturity and that is able to accommodate a short-term rate that stays at the zero lower bound (ZLB) for extended periods of time. These features are allowed for by the introduction of a new univariate non-negative affine process called ARG-Zero, and its multivariate affine counterpart (VARG), entailing conditional distributions with zero-point masses. The affine property of this new class of processes implies both explicit bond pricing and quasi-explicit lift-off probability formulas. We provide an empirical application to Japanese Government Bond (JGB) yields, observed weekly from January 1995 to March 2008 with maturities from six months to ten years. Our multivariate (four-dimensional) specification is able to closely match yield levels and to capture conditional yield volatilities at any maturity.
Estimating Global Bank Network Connectedness
Mert Demirer
(Koc University)
Francis X. Diebold
(University of Pennsylvania)
Kamil Yilmaz
(Koc University)
[View Abstract]
We use lasso methods to shrink and select the network linking the world's top 96 publicly-traded banks, 2003-2014. We focus on network connectedness, both static (via full-sample estimation) and dynamic (via rolling-window estimation). Connectedness is clearly linked to bank location, not bank asset size. Furthermore, drastic changes in the network formation take place before and after the major crisis events. Finally, we show that volatility connectedness between global banks stocks and sovereign bonds increased during the European banking and sovereign debt crisis.
Information Theory for Maximum Likelihood Estimation of Diffusion Models
Hwan-sik Choi
(Binghamton University)
[View Abstract]
We develop an information theoretic framework for maximum likelihood estimation of diffusion models. Two information criteria that measure the divergence of a diffusion process from the true diffusion are defined. The maximum likelihood estimator (MLE) converges asymptotically to the limit that minimizes the criteria when sampling interval decreases as sampling span increases. When both drift and diffusion specifications are correct, the criteria become zero and the inverse curvatures of the criteria equal the asymptotic variance of the MLE. For misspecified models, the minimizer of the criteria defines pseudo-true parameters. Pseudo-true drift parameters depend on approximate transitions if used.
How Fama-MacBeth Can Go Wrong -- and an Informative Solution
Lynda Khalaf
(Carleton University)
Huntley Schaller
(Carleton University)
[View Abstract]
We show that weak identification causes problems with Fama-MacBeth, including serious size distortions and biased point estimates, even with very long samples. Monte Carlo simulations capture realistic situations and point to a key source of weak identification – small (or overly similar) betas. We introduce a technique (RTP) for estimation and inference and compare the new technique with Fama-MacBeth and other alternatives. RTP has correct size (even when a model is weakly identified), better power than Fama-MacBeth for important parameters, and very good power to reject misspecified models. RTP also provides: 1) a warning of weak identification; 2) informative model rejections.
Jan 04, 2015 2:30 pm, Sheraton Boston, Beacon B
Econometric Society
Labor Market Policies: Design and Evaluation
(J3, J4)
Presiding:
Noah Williams
(University of Wisconsin)
Optimal Unemployment Insurance and Cyclical Fluctuations
Rui Li
(University of Massachusetts-Boston)
Noah Williams
(University of Wisconsin)
[View Abstract]
[Download Preview] In this paper, we investigate the design of optimal unemployment insurance in an environment with moral hazard and cyclical fluctuations. The optimal unemployment insurance contract balances the insurance motive to provide consumption for the unemployed with the provision of incentives to search for a job. This balance is affected by aggregate conditions, as recessions are characterized by reductions in job finding rates. We show how benefits should vary with aggregate conditions in an optimal contract. In a special case of the model, the optimal contract can be solved in closed form. We show how this contract can be implemented in a rather simple way: by allowing unemployed workers to borrow and save in a bond (whose return depends on the state of the economy), providing flow payments which are constant over an unemployment spell but vary with the aggregate state, and giving additional lump sum payments (or charges) upon finding a job or when the aggregate state switches. We then consider a calibrated version of the model and study the quantitative impact of changing from the current unemployment system to the optimal one. In a recession, the optimal system reduces unemployment rates by roughly 2.5 percentage points and shortens the duration of unemployment by roughly 50%.
Labor Market Policies in a Dual Economy
Sagiri Kitao
(Hunter College)
[View Abstract]
[Download Preview] A structural model of unemployment is built to account for labor mobility between informal and formal sectors and to quantify the effects of labor market policies on employment, precautionary and life-cycle savings and welfare in an economy with a sizeable informal sector. The model is calibrated to labor market dynamics in Mexico, where almost half of the workforce is in the informal sector. An introduction of unemployment insurance has only a small impact on unemployment but induces a sectoral reallocation of formal labor into informality. Generous severance payments from employers lower the wage of formal jobs and reduce flows from unemployment to formality. Shifting the tax burden from labor income onto consumption significantly raises the share of formal workers of the economy, enhancing productivity
and welfare.
Labor Market Reform and the Cost of Business Cycles
Tom Krebs
(University of Mannheim)
[View Abstract]
This paper studies the effect of labor market reform on the welfare cost of business cycles and hence the gains from macroeconomic stabilization policy. Motivated by the German labor market reforms of 2003-2005, the so-called Hartz reforms, the paper focuses on two labor market institutions: the unemployment insurance system determining search incentives and the system of job placement services affecting matching efficiency. The paper develops a tractable search model with idiosyncratic labor market risk and risk-averse workers, and derives a convenient formula for the welfare cost of business cycles. The paper shows theoretically
that an improvement in job placement services leads to a reduction in the welfare cost of business cycles and that a decrease in unemployment benefit generosity reduces the welfare cost of business cycles if pre-reform unemployment benefits are higher than the efficient benefit level. A quantitative analysis based on a calibrated version of the model suggests that the German labor market reforms of 2003-2005 reduced the non-cyclical unemployment rate by almost 3 percentage points and reduced the welfare cost of business cycles by 20 − 45 percent depending on the social welfare weights used to evaluate changes in labor market conditions. If the social planner only cares about unemployed workers the effect of labor market reform on the welfare cost of business cycles is maximal – a 45 percent reduction in the case of the German labor market reforms of 2003-2005.
Who Cares about Unemployment Insurance?
Avihai Lifschitz
(Tel Aviv University)
Ofer Setty
(Tel Aviv University)
Yaniv Yedid-Levi
(University of British Columbia)
[View Abstract]
[Download Preview] Labor market outcomes demonstrate considerable variation by skill. We construct a general equi- librium model with incomplete markets and ex-ante skill-differences that matches these facts. We study the role of skill-differences in choosing the generosity of Unemployment Insurance (UI) in the model. The optimal replacement rate is 33%, compared to 15% in a model with ex-ante ho- mogeneous workers. This is because of differences in both labor income and unemployment risk: the former creates and incentive to redistribute, while the latter makes redistribution possible. The higher replacement rate is due to the role of UI as a mean of redistribution across types.
Jan 04, 2015 2:30 pm, Sheraton Boston, Beacon G
Econometric Society
Labor Markets in the Great Recession
(E3, J2)
Presiding:
Patrick Kehoe
(University of Minnesota)
Debt Constraints and Employment
Patrick Kehoe
(University of Minnesota)
Virgiliu Midrigan
(New York University)
Elena Pastorino
(University of Minnesota)
[View Abstract]
[Download Preview] In the Great Contraction, regions of the United States that experienced the largest declines in household debt to income also experienced the largest drops in consumption and employment. We develop a search and matching model that reproduces such patterns. Tighter debt constraints raise workers' and firms' discount rates, thus reducing match surplus, vacancy creation, and employment. Two ingredients of our model, on-the-job human capital accumulation and worker debt constraints, greatly amplify the drop in employment. On-the-job human capital accumulation implies that the returns to posting a vacancy are backloaded so the surplus from a match is more sensitive to changes in firm discount rates. Worker debt constraints amplify these effects further by preventing wages from falling too much. We show that the model reproduces salient cross-sectional features of the U.S. data, including the comovement between consumption, house prices, debt-to-income as well as tradable and non-tradable employment.
Firm Entry and Employment Dynamics in the Great Recession
Michael Siemer
(Federal Reserve Board)
[View Abstract]
[Download Preview] The 2007-2009 recession is characterized by: (1) a large drop in employment concentrated in small young firms, (2) an unprecedented decline in firm entry, and (3) a slow recovery. Using confidential firm-level employment data, this paper shows that financial constraints reduced employment growth in small firms relative to large firms by between 4.8 and 12.8 percentage points. The effect of financial constraints is particularly strong in small young firms, for which entry and exit are the driving forces. These findings are robust to controlling for changes in aggregate demand. I then develop a heterogeneous firm model with endogenous firm entry and financial constraints. The model predicts that a large financial shock results in a long-lasting recession caused by a “missing generation” of entrants.
Entry, Exit and the Shape of Aggregate Fluctuations in a General Equilibrium Model with Capital Heterogeneity
Gian Luca Clementi
(New York University)
Aubhik Khan
(Ohio State University)
Berardino Palazzo
(Boston University)
Julia Thomas
(Ohio State University)
[View Abstract]
We study the cyclical implications of endogenous
rm-level entry and exit decisions in a dynamic, stochastic general equilibrium model wherein fi
rms face persistent shocks to both aggregate and individual productivity. The model we explore is in the spirit of Hopenhayn (1992). Firms decisions regarding entry into production and their subsequent continuation are affected not only by their expected productivities, but also by the presence of convex and nonconvex capital adjustment costs, and thus their existing stocks. Thus, we can explore how age, size and selection reshape macroeconomic fluctuations in an equilibrium environment with realistic
firm life-cycle dynamics and investment patterns.
Examining standard business cycle moments and impulse responses, we
find that changes in entry and exit rates and the age-size composition of fi
rms amplify responses over a typical business cycle driven by a disturbance to aggregate productivity and, to a lesser extent, protract them. Both results stem from an endogenous drag on TFP induced by a missing generation effect, whereby an usually small number of entrants fails to replace an increased number of exitors; this effect is most injurious several years out as the reduced cohorts of young
firms approach maturity. Declines in the number of fi
rms, and most notably in the numbers of young
firms, were dramatic over the U.S. 2007-9 recession. In an exercise designed to emulate that unusual episode, we consider a second shock that more directly affects entry and the exit decisions of younger
firms. We
find that it sharpens the missing generation effect, delivering far more anemic recovery.
Born Under a Bad Sign: The Cost of Entering the Job Market During a Recession
Shu Wee
(Carnegie Mellon University)
[View Abstract]
[Download Preview] Existing literature has highlighted how economic shocks in the early years of an individual's working life can give rise to persistent wage scars. Using data from the National Longitudinal Survey of Youth 1979, I document new facts on how entering the job market during a recession not only affects wage outcomes but also severely impinges on between-career changes that are largely concentrated in the early years of an individual's working life. I then build a dynamic stochastic general equilibrium model with search and matching frictions to decompose how the effects on early career mobility can impact future wage growth. In particular, I show that entering the job market during a recession hampers early career mobility which is critical towards facilitating learning about one's comparative advantage and accumulating human capital specific to one's ideal career. The combined effect of these two forces implies that individuals who choose to switch careers post-recession are forced to restart at lower wages as they lack `relevant' career-specific human capital and certainty over their aptitude in their new careers. In addition, poor initial conditions can depress future wage growth by cementing permanent misallocation as marginal workers who have accumulated sufficient specific human capital in their current careers find it too costly to switch careers in the recovery. In the model, a wage gap of 5% continues to persist post-recession and only fades completely 40 quarters after entry into the labor market.
Jan 04, 2015 2:30 pm, Sheraton Boston, Beacon H
Econometric Society
Monetary Policy and the Great Recession
(E5)
Presiding:
Taisuke Nakata
(Federal Reserve Board)
Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound
Jing Cynthia Wu
(University of Chicago)
Fan Dora Xia
(University of California-San Diego)
[View Abstract]
[Download Preview] This paper employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model offers an excellent description of the data and can be used to summarize the macroeconomic effects of unconventional monetary policy at the zero lower bound. Our estimates imply that the efforts by the Federal Reserve to stimulate the economy since 2009 succeeded in making the unemployment rate in December 2013 0.13% lower than it otherwise would have been.
Reputation and Liquidity Traps
Taisuke Nakata
(Federal Reserve Board)
[View Abstract]
[Download Preview] Can the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy sufficiently frequently, the incentive to maintain reputation outweighs the short-run incentive to close consumption and inflation gaps, keeping the central bank on the originally announced path of low nominal interest rates.
Regime Switching in Monetary Policy or Volatilities: An Assessment of United States Fluctuations
Andrew Foerster
(Federal Reserve Bank of Kansas City)
[View Abstract]
This paper addresses the importance of switches in monetary policy and the volatility of external shocks for the US economy. It uses a standard DSGE model with Markov-switching in the parameters governing the inflation target, the monetary policy reaction function, and the variances of external shocks. It uses a second-degree approximation and shows how to adapt the particle filter to a Markov-switching environment. All three sources of switching are important for understanding fluctuations in the US economy. Counterfactuals show that not accounting for all the switching behavior leads to improper conclusions about the effects of monetary policy.
Escaping the Great Recession
Francesco Bianchi
(Duke University)
Leonardo Melosi
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] While high uncertainty is an inherent implication of entering the zero lower bound, deflation is not, because agents are likely to be uncertain about the way policy makers will deal with the large stock of debt arising from a severe recession. We draw this conclusion based on a standard new-Keynesian model in which policy makers' behavior can move between a Monetary and a Fiscally led regime and zero lower bound episodes are recurrent. Given that policy makers' behavior is constrained at the zero lower bound, beliefs about the exit strategy play a key role. Announcing a period of austerity is detrimental in the short run, but it preserves macroeconomic stability in the long run. A large recession can be avoided by abandoning fiscal discipline, but this results into a sharp increase in macroeconomic instability once out of the recession. Contradictory announcements by the fiscal and monetary authorities can lead to high inflation and large output losses. However, the policy makers' dilemma can be resolved by committing to inflate away only the portion of debt resulting from an unusually large recession.
Jan 04, 2015 2:30 pm, Sheraton Boston, Clarendon Room
History of Economics Society
History of Discrimination in Economics
(J1, J7)
Presiding:
Annie L. Cot
(University of Paris 1 Panthéon-Sorbonne)
A History of the Measurement of Discrimination in Economics
William A. Darity, Jr.
(Duke University)
[View Abstract]
This paper examines the history of measurement of the presence (or absence) of labor market discrimination in the economics profession. Specific attention will be given to the emergence of experimental methods for detection of discrimination in employment as both a complement and a substitute for the use of regression techniques for detection. The relationship with economists’ framing of the categories of discrimination as either a “taste model” or a “statistical model” will be discussed also. To the extent that either experimental or regression methods identify the presence of discrimination, an additional issue to be examined is whether they can, in fact, establish the motives for and sources of discriminatory activity. What can the economists’ modes of measurement of discrimination tell us beyond whether or discrimination is occurring?
From National Characters to Statistical Discrimination
Sandra J. Peart
(University of Richmond)
David M. Levy
(George Mason University)
[View Abstract]
We propose to put work begun by K. J. Arrow and E. Phelps on statistical discrimination into a long historical context by connecting it to the old doctrine of national characters. The Arrow-Phelps statistical discrimination model takes a stereotype of a group as an estimate of the group’s characteristic. The use of stereotypes is explained as a non-prejudiced information economizing device. This approach largely replaced Gary Becker’s taste-based account of discrimination in which the “taste” was expressed by knowingly hiring a less capable person for the wage that would have hired a more capable person. 19th century attempts to describe national (or racial) character statistically were plagued by the problem that advocates “knew” what the results ought to be before they began. At one edge of integrity James Hunt defined an inferior race (“Negro”) as one that had zero variance but when an obviously competent person of color was produced as counter- example, the person “evidently” had a white father. On the other edge, when Francis Galton’s composite photography did not produce the results he expected, he told the reader this. We ask how the modern work avoids the problem of the user of statistics methods who is willing to employ biased estimation procedures to obtain results consistent with presupposition. If it doesn’t, doesn’t this collapse to Becker?
The Role of British Economists in the Equal Pay for Equal Work Controversy: Theory, Measurement, and Expertise: 1918-1946
Cléo Chassonnery-Zaigouche
(University Paris 1 Panthéon-Sorbonne)
Annie L. Cot
(University of Paris 1 Panthéon-Sorbonne)
[View Abstract]
The “equal pay for equal work” controversy on women’s wages was a central political issue and a subject of theoretical discussions in economics since the late 19th century (Garrett-Fawcett, 1892; Potter-Webb, 1896; Smart, 1892; Webb, 1891). The enfranchisement of women in 1918 together with the role they played during the War gave rise to further debates in the 1920s (Garrett-Fawcett, 1916, 1918; Rathbone, 1917; Potter-Webb, 1914, 1919), including Edgeworth’s presidential address to Section F of the British Society for the Advancement of Science (Edgeworth, 1922, 1923). Before WWII, four Government committees and a vote at the House of Commons in favour of the principle of equal pay in the civil service and local government could not lead either to a consensus or to clear measures of economic policy. In 1944, a Royal Commission on Equal Pay was settled “[t]o examine the existing relationship between the remuneration of men and women in the public services, in industry and in other fields of employment: to consider the social, economic and financial implications of the claim of equal pay for equal work: and to report”. Dennis Robertson was a member of this commission and nine other recognized economists were asked to write memoranda – among them Roy F. Harrod, John R. Hicks, Arthur C. Pigou, Joan Robinson, Hamilton Whyte and Barbara Wootton. The present paper focuses on the evolution of the theoretical discussions between economists on women’s wages from the 1920s to the end of WWII, analyzing both their academic papers from the pages of The Economic Journal and the policy papers they wrote as experts for Government commissions.
Family Responsibility Discrimination: An Intellectual History
Nancy Folbre
(University of Massachusetts-Amherst)
[View Abstract]
“Family Responsibility Discrimination” is a relatively new legal term in the United States, used to describe employer reluctance to hire or to accommodate workers (whether female or male) with family responsibilities because they consider such responsibilities a) normatively problematic b) a signal of lower job commitment or c) potentially disruptive of work scheduling requirements. While the term is modern, the concept is not. Family responsibility discrimination has a history dating at least as far back as the early nineteenth century and became particularly salient in early twentieth century “marriage bars” in public employment in the U.S. This paper will trace the evolution of debates regarding family/employment conflict and their implications for gender inequality.
Discussants:
Michael J. Piore
(Massachusetts Institute of Technology)
Shoshana Grossbard
(San Diego State University)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Tremont
International Association for Energy Economists/National Association for Business Economics
The Shale Boom and the Economy
(Q4, F1) (Panel Discussion)
Panel Moderator:
Mine Yucel
(Federal Reserve Bank of Dallas)
Michael Levi
(Council on Foreign Relations)
International Consequences of the Shale Boom
Marianne Kah
(ConocoPhillips)
The Case for Crude Oil Exports
Robert Lawrence
(Harvard University)
Reduced Oil Imports and the Trade Deficit
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon H
International Banking Economics & Finance Association
Networks, Integration and Contagion
(G1, G2)
Presiding:
Diana Hancock
(Federal Reserve Board)
A Wake-Up Call Theory of Contagion
Toni Ahnert
(Bank of Canada)
Christoph Bertsch
(Sveriges Riksbank)
[View Abstract]
[Download Preview] We propose a novel theory of financial contagion. We study global coordination games of regime change with an initially uncertain correlation of regional fundamentals. A crisis in one region is a wake-up call to investors in another region that induces a re-assessment of local fundamentals. Contagion after a wake-up call can occur even if investors learn that fundamentals are uncorrelated and common lender effects or balance sheet linkages are absent. Applicable to currency attacks, bank runs, and debt crises, our theory of contagion is supported by existing evidence and generates new testable implications for empirical and experimental work. (JEL D82, F3, G01)
International Banking and Liquidity Risk Transmission: Lessons from across Countries
Claudia Buch
(Deutsche Bundesbank)
Linda Goldberg
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network, established in 2012, brings together researchers from around the world with access to micro-level data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and results of empirical studies conducted in eleven countries to explore liquidity risk transmission. Among the main results is, first, that explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on whether the banks are drawing on official-sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks’ responses to liquidity risk. Overall, balance sheet characteristics of banks matter for differentiating their lending responses, mainly in the realm of cross-border lending.
Crisis Transmission in the Global Banking Network
Galina Hale
(Federal Reserve Bank of San Francisco)
Tumer Kapan
(Fannie Mae)
Camelia Minoiu
(International Monetary Fund)
[View Abstract]
[Download Preview] To shed light on the role of international bank connections in the transmission of financial sector shocks, we construct a global network of interbank exposures. We then study the impact of direct and indirect exposures to banks in crisis countries on bank profitability. We perform the analysis in a panel of 1,875 banks from 110 countries spanning the 1997-2012 period. We find that direct (first degree) and indirect (second degree) exposures to crises reduce bank profitability. Furthermore, banks with higher betweenness centrality, which tend to borrow from and lend to large numbers of banks, have lower profitability than other banks, especially when they have many crisis exposures. These results support the notion that interconnected systems are prone to shock transmission and that network position matters for bank performance.
Volatile Lending and Bank Wholesale Funding
Ben Craig
(Federal Reserve Bank of Cleveland)
Valeriya Dinger
(University of Osnabrück)
[View Abstract]
[Download Preview] The paper presents the first empirical study of the relation between bank loan volume volatility and bank retail and wholesale liabilities. We argue that since the volume of retail deposits is inflexible, banks facing volatile loan demand tend to fund loans with larger shares of wholesale rather than retail liabilities. We empirically confirm this argument using a dataset constructed from the weekly financial reports of 104 large U.S. commercial banks. Our results imply that the introduction of regulatory limits on wholesale liabilities could increase the exposure of banks to loan demand shocks.
Discussants:
Sergio Vicente
(Universidad Carlos III Madrid)
Lena Tonzer
(EUI and Halle Institute for Economic Research)
Marianna Caccavaio
(Bank of Italy)
Martin Strieborny
(Lund University)
Jan 04, 2015 2:30 pm, Sheraton Boston, Berkeley Room
International Health Economics Association
Competition and Regulation in Pharmaceutical Markets
(I1)
Presiding:
Ernst R. Berndt
(Massachusetts Institute of Technology)
U.S. Drug Shortages in Retail and Hospital Channels
Eli Liebman
(Duke University)
David B. Ridley
(Duke University)
[View Abstract]
The number of drug shortages in the United States increased from 58 in 2004 to 268 in 2011. We hypothesize that shortages could be due to changes in pricing policies that lead to lower, less flexible prices. Furthermore, we hypothesize that regulatory factors could impact the ability of firms to increase capacity to fill a shortage. We use data on reimbursement changes in the Medicare Modernization Act (MMA) and 340B pricing, as well as FDA regulatory actions. We find that shortages are disproportionately for hospitals in years since the MMA. We then compare prices and shortages in the U.S. to prices and shortages in France and Spain, finding additional evidence of the role of policies impacting hospital prices on drug shortages.
Pharmaceutical Patent Challenges and Their Implications for Innovation and Generic Competition
Henry Grabowski
(Duke University)
Carlos Brain
(Cornerstone Research)
Anna Taub
(Cornerstone Research)
Rahul Guha
(Cornerstone Research)
[View Abstract]
[Download Preview] The 1984 Hatch-Waxman Act was designed to encourage intensive generic drug price competition while at the same time preserving sufficient patent exclusivity to create incentives for R&D. Hatch-Waxman lengthened the effective patent life of innovative pharmaceuticals but also made generic entry easier and incentivized generic companies to challenge the patents covering approved drugs (so-called “Paragraph IV” challenges) by awarding a potentially lucrative 180-day period of generic exclusivity to the generic firm who successfully challenges the patent. Some have suggested the balance sought by Hatch-Waxman is threatened by a wave of Paragraph IV patent challenges to branded drugs. Even when the odds of winning are low, the expected payoff of a challenge to a leading pharmaceutical product can be substantial, inducing excess challenges to patents. Others contend that the increase in Paragraph IV challenges is a response to an “evergreening” strategy by branded pharmaceutical companies and these challenges merely act to weed out weak patents. We have assembled a unique data set that includes detailed information on all new molecular entities approved from 1994 to 2006, with information on: the strength of the patents, whether the patents have been subject to a Paragraph IV challenges, the outcomes of any challenges, sales of each drug, and a variety of other measures of importance and innovativeness. We test whether patent challenges are driven by prospecting behavior on the part of generic firms or a response by generics to an evergreening strategy on the part of innovator firms. Our data set will allow us to examine settlement rates, document generic success rates broken down by patent type, and determine the average length of patent exclusivity lost due to Paragraph IV challenges. Preliminary results suggest that the expected patent life has been significantly impacted by Paragraph IV challenges.
Modeling and Evaluating Consumers' Prescription Drug Plans Choices in Medicare Part D
Jonathan Ketcham
(Arizona State University)
Nicolai Kuminoff
(Arizona State University)
Christopher Powers
(Centers for Medicare and Medicaid Services)
[View Abstract]
We investigate the costs and benefits of the proposed reforms to Medicare Part D by developing a new analytical model of prescription drug plan (PDP) choice that recognizes some consumers’ choices reflect confusion while others are making careful, informed decisions. Our project has three specific objectives: (i) to develop methods to identify low and high quality PDP choices; (ii) to develop and validate an analytical model of individuals’ PDP choices; and (iii) to determine the distributional welfare consequences of various reforms. We accomplish these objectives by analyzing two data sets: administrative data from CMS on individuals drug purchases, health conditions, and PDP choices as well as calculations of what each person would have spent under each available plan; and the Medicare Current Beneficiary Survey that measures enrollees’ knowledge of how Part D works along with their wealth, education and other demographics. Our analysis provides a rich set of information about the costs and benefits of several proposed reforms to Part D—how prevalent is confusion, who is confused, who would benefit and who would lose under such reforms, and by how much? Given the parallels between the Part D market and the health insurance exchanges developed under the Affordable Care Act, our research is also likely to offer insights about the design and potential reforms of those insurance markets as well.
Off-Label Use of Pharmaceuticals: Trends and Drivers
W. David Bradford
(University of Georgia)
John L. Turner
(University of Georgia)
Jonathan W. Williams
(University of Georgia)
[View Abstract]
[Download Preview] Since 1962, the US Food and Drug Administration (FDA) has restricted the marketing of a drug to just the set of 'on label' indications for which the drug is approved. However, physicians may prescribe any approved drug for any indication. In the market for pharmaceuticals off label use is common and potentially desirable. On one hand, the best treatment for a patient's particular indication may require using a drug off-label. In addition, applying FDA-approved drugs to new uses may be a particularly cost-effective type of innovation because these drugs have already passed safety benchmarks in clinical trials. On the other hand, ineffective off-label use is socially wasteful. In a few cases, off-label use has also led to patients being physically harmed. Not surprisingly, off-label use is enormously controversial in the clinical and policy communities and among federal regulators. And yet, no prior research supports broad, systematic, and trend-based analysis of off-label use. Indeed, few economics papers analyze it empirically, and virtually nothing is known about its welfare consequences. In this paper, we begin filling these gaps. We apply Detection Controlled Estimation (Feinstein 1990) to a comprehensive data set of patient prescriptions from the National Ambulatory Medical Care Survey (NAMCS) during 1993-2008 to identify the incidence of off-label use and to test for what drives it. We find that in the most recent years, more than one in three prescriptions are written for off-label uses. This rate is lowest in the earliest years, and rises from 30.2% in 1993 to 39.1% in 2008, a 29.6% increase. The three years with the highest frequency are 2006, 2007, and 2008. Additionally, physicians are more likely to prescribe off-label when there are fewer FDA-approved alternatives.These substitution patterns suggest that off-label prescribing by physicians may enhance patient welfare patients.
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Yarmouth
International Society for Inventory Research
Inventories and Business Cycles
(E2, E3)
Presiding:
Thomas A. Lubik
(Federal Reserve Bank of Richmond)
The Nature of Capital Expenditures and the Business Cycle
Ruediger Bachmann
(University of Notre Dame)
Peter Zorn
(University of Frankfurt)
[View Abstract]
Using confidential micro data from the IFO investment survey in the German manufacturing industry, we document the cross-sectional and business cycle properties of various types of investment. National accounting data and balance sheet-based micro data typically only document overall investment at the firm- or plant-level. The IFO investment survey is unique in that it asks decision makers at firms also about the nature of investment that they undertook: capacity-enhancing, restructuring, rationalization, and maintenance. Our preliminary results are as follows: In the cross-section, we find that capacity-enhancing and restructuring investments display much lumpier patterns (as measured by the canonical statistics in Doms and Donne, 1998) than the other investment types. In terms of cyclicality, we find that all investment types are procyclical, including restructuring and rationalization investments, but to a different degree. Taken together, this means that the degree of lumpiness in total investment may itself be time-varying. Our stylized facts will inform disaggregate dynamic and quantitative models of investment behavior.
Investment and Inventories: Evidence on Interactions
Christoph Gortz
(University of Birmingham)
Afrasiab Mirzayand
(University of Birmingham)
John Tsoukalas
(University of Glasgow)
[View Abstract]
The relative volatility of production and sales has been one of the most important stylized inventory facts. We show that adding lumpy capital in a model of production-to-inventory with both a stock-out avoidance and production smoothing motives, replicates this important stylized fact without compromising the model's performance in other dimensions. We present evidence from firm level COMPUSTAT data supporting an interaction between fixed and inventory investment: inventories move in a lumpy fashion around the time when firms invest heavily in capital, resulting in production bunching.
What Inventory Behavior Tells Us About How Business Cycles Have Changed
Thomas A. Lubik
(Federal Reserve Bank of Richmond)
Pierre-Daniel Sarte
(Federal Reserve Bank of Richmond)
Felipe Schwartzman
(Federal Reserve Bank of Richmond)
[View Abstract]
[Download Preview] Beginning in the mid-1980s, the nature of U.S. business cycles changed in important ways, as made evident by distinctive shifts in the comovement and relative volatilities of key economic aggregates. These include labor productivity, hours, output, and inventories. Unlike the widely documented change in absolute volatility over that period, known as the Great Moderation, these shifts in comovement and relative volatilities persist into the Great Recession. To understand these changes, we exploit the fact that inventory data are informative about sources of business cycles. Specifically, they provide additional information relative to aggregate investment regarding firms' intertemporal decisions. In this paper, we show that the “investment wedge” estimated with inventories, unlike previous measures, correlates well with established independent measures of credit market frictions. Furthermore, contrary to previous findings, our generalized investment wedge informed by inventory behavior plays a key role in explaining the shifts in U.S. business cycles observed after the mid-1980s.
Just-In-Time Inventories, Business Cycles, and the Great Moderation
Ana Herrera
(University of Kentucky)
Yong-Gook Jung
(Wayne State University)
Robert Rosanna
(Wayne State University)
[View Abstract]
[Download Preview] Inventories have historically been assigned two roles in models of the business cycle. Early work on inventories concluded that inventories were a source of economic fluctuations that would not otherwise exist. A second view emerged subsequently which is that inventories are not a source of economic instability but merely are one of the propagation mechanisms for cyclical impulses. Most recently, a third possibility has arisen which is that inventories are a stabilizing force in aggregate economies, moderating business cycles that are caused elsewhere in the economy. We construct a dynamic stochastic general equilibrium (DSGE) model of an economy where firms produce finished goods for sale to households while holding inventories of finished goods and materials used in the production of finished goods. Our model of the stock-producing firm uses standard building blocks found in the inventory investment literature. Our analysis of the finished goods–producing firm reveals the possibility of oscillations in state variables (inventories of finished goods and materials) as long-run equilibrium is approached by the stockproducing firm. We parameterize the functional forms in our model and find parameter values that do indeed result in oscillations in output and other magnitudes in response to a shock to household preferences. Given these parameter values, we then show that, if inventories of materials are held by materials producers rather than finished goods producers, business cycles in response to a preference shock disappear (i.e., there are no longer any oscillations in finished goods and materials inventories), thereby providing a theoretical justification for the view in the literature that the adoption of just-in-time inventories may have moderated the response in economic activity to shocks.
Discussants:
Thomas A. Lubik
(Federal Reserve Bank of Richmond)
Scott Schuh
(Federal Reserve Bank of Boston)
Andrea Tambalotti
(Federal Reserve Bank of New York)
Eric Sims
(University of Notre Dame)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Vermont
International Society for New Institutional Economics
Institutions, Organization, and Entrepreneurship
(L2)
Presiding:
Francine Lafontaine
(University of Michigan)
The Power of the Street: Evidence from Egypt's Arab Spring
Daron Acemoglu
(Massachusetts Institute of Technology)
Tarek Hassan
(University of Chicago)
Ahmed Tahoun
(London Business School)
[View Abstract]
During Egypt’s Arab Spring, unprecedented popular mobilization and protests brought down
Hosni Mubarak’s government and ushered in an era of competition between three groups: elites
associated with Mubarak’s National Democratic Party (NDP), the military, and the Islamist
Muslim Brotherhood. Street protests continued to play an important role during this power
struggle. We show that these protests are associated with differential stock market returns for
firms connected to the three groups. Using daily variation in the number of protesters, we
document that more intense protests in Tahrir Square are associated with lower stock market
valuations for firms connected to the group currently in power relative to non-connected firms,
but have no impact on the relative valuations of firms connected to other powerful groups. We
further show that activity on social media may have played an important role in mobilizing
protesters, but had no direct effect on relative valuations. According to our preferred interpretation,
these events provide evidence that, under weak institutions, popular mobilization and
protests have a role in restricting the ability of connected firms to capture excess rents.
Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform
Thais Lærkholm Jensen
(University of Copenhagen)
Søren Leth-Petersen
(University of Copenhagen)
Ramana Nanda
(Harvard University)
[View Abstract]
[Download Preview] We study how a mortgage reform that exogenously increased access to credit had an impact on entrepreneurship, using individual-level micro data from Denmark. The reform allows us to disentangle the role of credit access from wealth effects that typically confound analyses of the collateral channel. We find that a $30,000 increase in credit availability led to a 12 basis point increase in entrepreneurship, equivalent to a 4% increase in the number of entrepreneurs. New entrants were more likely to start businesses in sectors where they had no prior experience, and were more likely to fail than those who did not benefit from the reform. Our results provide evidence that credit constraints do affect entrepreneurship, but that the overall magnitudes are small. Moreover, the marginal individuals selecting into entrepreneurship when constraints are relaxed may well be starting businesses that are of lower quality than the average existing businesses, leading to an increase in churning entry that does not translate into a sustained increase in the overall level of entrepreneurship.
Serial Entrepreneurship: Learning by Doing?
Francine Lafontaine
(University of Michigan)
Kathryn L. Shaw
(Stanford University)
[View Abstract]
Among typical entrepreneurs, is the serial entrepreneur more likely to succeed? If so, why? We answer these two questions using a comprehensive and unique data set on all establishments started at any time between 1990 and 2011 to sell taxable goods and services in the state of Texas. An entrepreneur is defined as the owner of a new business. A serial entrepreneur is one who opens repeat businesses. The success of the business is measured by the duration over which the business is in operation. The data show that serial entrepreneurship is relatively uncommon in retail trade. Of the almost 2.3 million retail businesses of small owners of new businesses in our data, only 25 percent are started by owners who have started at least one business before, and only 8 percent are started by an owner who is still operating at least one other business started earlier. However, once one becomes an entrepreneur for a second time, the probability of becoming one a third time, or fourth time, and so on, keeps rising. Moreover, we find that an owner's prior experience at starting a business increases the longevity of the next business opened, and that controlling for person fixed effects, prior experience still matters. Finally, experience at starting retail businesses in other sectors (e.g. a clothing store versus a repair shop) is beneficial as well, though not as much as same sector experience, and not in the restaurant sector. We conclude that prior experience imparts general skills that are useful in running the new business.
Enforcing Covenants Not to Compete: The Lifecycle Impact on New Firms
Natarajan Balasubramanian
(Syracuse University)
Mariko Sakakibara
(University of California-Los Angeles)
Evan Starr
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] We examine the impact of enforcing non-compete covenants (CNC) on the formation and performance of new firms using matched employer-employee data on 30 US states. To identify the impact of CNC, we exploit the inter-state variation in CNC enforcement along with the fact that courts do not enforce such covenants between law firms and departing lawyers in any state. Using a difference-in-difference-in-difference specification with law firms and firms that are not within-industry spinouts as the baseline, we find states with stricter CNC enforcement have fewer, but larger within-industry spinouts that are more likely to survive their nascent years, and conditional on survival, grow faster during those years. These results are consistent with CNC enforcement
having a selection effect on within-industry spinouts. Particularly, with stricter enforcement, only founders with higher-quality ideas and resources choose to overcome CNC-related barriers, which reduces entry rate but increases observed short-term performance of these spinouts.
Discussants:
Suresh Naidu
(Columbia University)
Renata Kosova
(Imperial College London)
Peter G. Klein
(University of Missouri)
Danielle Li
(Northwestern University)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Simmons
International Trade & Finance Association
Trade and Development
(F1, O1) (Panel Discussion)
Panel Moderator:
Max Kreinin
(Michigan State University)
Ronald Jones
(University of Rochester)
Michael Michaely
(Hebrew University of Jerusalem)
Don Clark
(University of Tennessee)
Sven Arndt
(Claremont McKenna College)
Max Kreinin
(Michigan State University)
Jan 04, 2015 2:30 pm, Westin Copley, Courier
Labor & Employment Relations Association
Financial Market Developments and Labor Relations
(J5)
Presiding:
Christian E. Weller
(University of Massachusetts-Boston)
Structural Change in Employment Relations, the Financialization of the Corporation, and the Erosion of Middle-Class Jobs
William Lazonick
(University of Massachusetts-Lowell)
[View Abstract]
Since the beginning of the 1980s, employment relations in U.S. industrial corporations have undergone three major structural changes which I summarize as rationalization, marketization, and globalization that have permanently eliminated middle-class jobs. From the early 1980s, rationalization, characterized by plant closings, eliminated the jobs of unionized blue-collar workers. From the early 1990s, marketization, characterized by the end of a career with one company as an employment norm, placed the job security of middle-aged and older white-collar workers in jeopardy. From the early 2000s, globalization, characterized by the movement of employment offshore, left all members of the U.S. labor force, even those with advanced educational credentials and substantial work experience, vulnerable to displacement. As these changes became embedded in the structure of U.S. employment, business corporations failed to invest in new, higher value-added job creation on a sufficient scale to provide a foundation for equitable and stable growth in the U.S. economy. On the contrary, with superior corporate performance defined as meeting Wall Street s expectations for quarterly earnings per share, companies turned to massive stock repurchases to manage their own corporations stock prices. Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back stock for the purpose of manipulating the company s stock price. This financialized mode of corporate resource allocation has been legitimized by the ideology, itself a product of the 1980s and 1990s, that a business corporation should be run to maximize shareholder value. Through their stock-based compensation, corporate executives who make these decisions are themselves prime beneficiaries of this focus on rising
Investors as Managers: Private Equity and Employment Relations
Eileen Appelbaum
(Center for Economic and Policy Research)
Rosemary Batt
(Cornell University)
[View Abstract]
[Download Preview] The law defines private equity firms as investors, yet they typically behave as managers of the companies they buy and employers of workers in those companies. This is particularly evident in the active role they play in negotiating collective bargaining agreements with unions in the portfolio companies they own. In this chapter, we examine the labor strategies of private equity firms across a wide swath of companies in different industries. We find that the attitudes and strategies of private equity firms are varied and complex not unlike those found among employers in publicly-traded companies. They range from union-friendly to hostile to agnostic. What ties private equity employers together is their determination to extract higher than average returns. For union workers, this often means giving up wages and benefits that they have fought hard to win and maintain. And private equity owners are often behind a portfolio company s decision to resort to bankruptcy courts to shift pension liabilities to the Pension Benefit Guarantee Corporation. Yet because private equity firms are defined as shareholders, they are not held accountable for their actions despite the fact that they are clearly the decision makers in many deals negotiated with unions. We explore the implications of this new form of enterprise control for research in labor and employment relations.
The Unintended Effects of 401(k)s on Employers and the Macroeconomy
Teresa Ghilarducci
(New School)
Joelle Saad-Lessler
(New School)
[View Abstract]
Employers used 401(k) plans to shift risk and lower pension costs. But, now that the workforce is aging existing 401(k) plans present serious concerns for employers. Many workers are not saving adequately for retirement and many employers can already anticipate that an older population will not be able to continue buying the products that companies are generating. Companies are consequently looking at slower future domestic growth. This trend is further exacerbated by pro-cyclical employment fluctuations that arise from pro-cyclical fluctuations in employees retirement accounts. Employees are often reluctant to leave employment during recessions because their account balances are low and conversely workers leave in expansions, when employers are often in need for skilled workers, because account balances are large. Employers often get saddled with higher labor-related costs than would be the case with an alternative retirement system.
A mandated, guaranteed retirement account, managed by a government agency, may be such an alternative retirement system. It could go a long way to help employers manage their pension costs and workforce challenges. Such a secure retirement savings vehicle with regular contributions from employers and employees also reduces the macroeconomic fluctuations in aggregate demand. A mandated secure pension also eliminates the pro-cyclical fluctuations in labor supply. Employers support for pension reform is fueling movement at the state level. California passed the Secure Choice Pension Plan primarily because employers were in favor of it and could overcome financial firms' opposition. This chapter will detail the data on employer concerns arising from individualized retirement savings such as 401(k) plans and show how a mandated, guaranteed retirement account could address these concerns.
Employee Stock Ownership and Profit Sharing in the New Era of Financialization and Inequality in the Distribution of Capital Income
Joseph Blasi
(Rutgers University)
Richard B. Freeman
(Harvard University)
Douglas L. Kruse
(Rutgers University)
n/a
Income Diversification as Self-Insurance: Laying out the Policy Challenges
Jeffrey Wenger
(University of Georgia)
Christian E. Weller
(University of Massachusetts-Boston)
[View Abstract]
[Download Preview] This chapter will demonstrate both the need for and the challenges of providing greater income security for workers through income diversification. Labor market risk has grown at a time of increased financial market pressures on firms. Household income diversification may be one way for households to regain some measure of economic security. Our analysis shows that households do diversify their incomes, that younger households often rely on government transfer incomes in addition to earnings, while older households rely on Social Security and capital income in addition to earnings. Policymakers interested in improving economic security and offering households more risk protections may want to consider improving public programs that can offer income diversification, while making savings incentives more efficient and facilitating the use of tax-advantaged savings for income diversification for all households facing economic uncertainty.
Jan 04, 2015 2:30 pm, Westin Copley, Great Republic
Labor & Employment Relations Association
The Walton and McKersie Behavioral Theory of Labor Negotiations at Fifty: Looking Back and Looking Ahead
(J5)
Presiding:
Joel Cutcher-Gershenfeld
(University of Illinois-Urbana-Champaign)
Industrial Relations Perspective
Thomas A. Kochan
(Massachusetts Institute of Technology)
[View Abstract]
Industrial Relations Perspective
Organizational Psychology Perspective
Max Bazerman
(Harvard Business School)
[View Abstract]
Organizational Psychology Perspective
Negotiation, Gender, and HRM Perspective
Hannah Bowles
(Harvard University)
[View Abstract]
Negotiation, Gender, and HRM Perspective
Dispute Resolution and Industrial Relations Perspective
David Lipsky
(Cornell University)
[View Abstract]
Dispute Resolution and Industrial Relations Perspective
Dispute Resolution, Economics, and Practitioner Perspective
Mary Rowe
(Massachusetts Institute of Technology)
[View Abstract]
Dispute Resolution, Economics, and Practitioner Perspective
Business and Negotiations Perspective
Jim Sebenius
(Harvard Business School)
[View Abstract]
Business and Negotiations Perspective
Discussants:
Robert B. McKersie
(Massachusetts Institute of Technology)
Richard Walton
(Harvard Business School)
Jan 04, 2015 2:30 pm, Sheraton Boston, Hampton Room
National Association of Economic Educators
New Initiatives in Teaching, Learning, and Assessment in Postsecondary Economics
(A2) (Panel Discussion)
Panel Moderator:
Sam Allgood
(University of Nebraska-Lincoln)
Amanda Bayer
(Swarthmore College)
Advanced Placement Exams in Economics
William Walstad
(University of Nebraska-Lincoln)
Test of Understanding in College Economics (TUCE)
Rae Jean Goodman
(United States Naval Academy)
OECD's Assessment of Higher Education Learning Outcomes (AHELO)
Josipa Roksa
(University of Virginia)
SSRC's Measuring College Learning (MCL) Project
Jan 04, 2015 2:30 pm, Boston Marriott Copley, New Hampshire
National Economic Association/American Society of Hispanic Economists
Structural Factors Affecting Socioeconomic Outcomes by Race, Ethnicity, and Birthplace
(J7)
Presiding:
Catalina Amuedo-Dorantes
(San Diego State University)
The Effect of Degree Attainment on Crime: Evidence from a Randomized Social Experiment
Vikesh Amin
(Central Michigan University)
Daniel J. Parisian
(State University of New York-Binghamton)
Carlos A. Flores
(California Polytechnic State University)
Alfonso Flores-Lagunes
(State University of New York-Binghamton)
[View Abstract]
[Download Preview] We examine the effect of educational attainment on criminal behavior using the random assignment into Job Corps (JC) - the country's largest education and vocational training program for disadvantaged youth - as a source of exogenous variability in educational attainment. We allow such random assignment to violate the exclusion restriction by employing nonparametric bounds. Our results indicate that the attainment of a degree is estimated to reduce arrest rates by at most 11.8 percentage points. We also finnd suggestive evidence that the effects may be larger for males relative to females, and larger for black males relative to white males. Remarkably, our 95 percent confidence intervals on the causal effect of education on crime are very similar to the corresponding confidence intervals on the same effect from studies exploiting changes in compulsory schooling laws as an instrumental variable in the estimation of the effect of education on arrest rates (e.g., Lochner and Moretti (2004) and Anderson (2014)).
The Impact of Unions on the Wage of Hispanic Workers in the United States
Carlos Vargas-Silva
(University of Oxford)
Cinzia Rienzo
(National Institute of Economic and Social Research)
[View Abstract]
[Download Preview] This paper explores the role of unionization on the wages of Hispanic workers in the US from 1994 to 2013. Preliminary evidence indicates a 25 to 29 percent positive wage gap between unionized Hispanic male workers and their non-unionized counterparts. Once we control for socio-demographic characteristics and account for non-random selection into union membership, there is still a positive effect of union membership on the wages of male Hispanic workers. Estimates suggest that had non-unionized Hispanic male workers be instead unionized, the average real hourly wage of male Hispanics would have between 6 and 13 percent higher each year during the 1994-2013 period.
Implementing the re-weighting approach along the wage distribution reveals that unions may act differently for different ethnic groups, while Hispanics relatively unskilled would benefit the most from unionization. Results suggest different “needs” of being unionized for workers of different skills and race.
The Impact of Temporary Protected Status on Labor Market Outcomes
Pia Orrenius
(Federal Reserve Bank of Dallas)
Madeline Zavodny
(Agnes Scott College)
[View Abstract]
[Download Preview] The United States currently provides Temporary Protected Status (TPS) to more than 300,000 immigrants from selected countries. TPS is typically granted if dangerous conditions prevail in the home country due to armed conflict or a natural disaster. Individuals with TPS cannot be deported and are allowed to stay and work in the United States temporarily. Despite the increased use of TPS in recent years, little is known about how TPS affects labor market outcomes for beneficiaries, most of whom are unauthorized prior to receiving TPS. This study examines how migrants from El Salvador who are likely to have received TPS fare in the labor market compared with other migrants. The results suggest that TPS eligibility leads to higher employment rates among women and higher earnings among men. The results have implications for recent programs that allow some unauthorized immigrants to receive temporary permission to remain and work in the United States.
Illegal Immigration, State Law and Deterrence
Sandra Orozco-Aleman
(Mississippi State University)
Mark Hoekstra
(Texas A&M University)
[View Abstract]
[Download Preview] A critical immigration policy question is whether state and federal policy can deter undocumented workers from entering the U.S. We examine whether Arizona SB 1070, arguably the most restrictive and controversial state immigration law ever passed, deterred entry into Arizona. We do so by exploiting a unique data set from a survey of undocumented workers passing through Mexican border towns on their way to the U.S. Results indicate the bill’s passage reduced the flow of undocumented immigrants into Arizona by 30 to 70 percent, suggesting that undocumented workers from Mexico are responsive to changes in state immigration policy. In contrast, we find no evidence that the law induced undocumented immigrants already in Arizona to return to Mexico.
Discussants:
Jose Fernandez
(University of Louisville)
Marie Mora
(University of Texas-Pan American)
Andres Vargas
(Purdue University)
Mehmet Yaya
(Eastern Michigan University)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Maine
National Tax Association
Health Policy and Social Insurance: Incentives and Outcomes
(I1, H5)
Presiding:
Alan J. Auerbach
(University of California-Berkeley)
The Spillover Effects of Managed Care
Katherine Baicker
(Harvard University)
Jacob Robbins
(Brown University)
[View Abstract]
The rapid growth of Medicare managed care over the past decade has the potential to increase the efficiency of health care delivery. Improvements in care management for some may improve efficiency system-wide, with implications for optimal payment policy in public insurance programs. These system-level effects may depend on local health care market structure and vary based on patient characteristics. We use exogenous variation in the Medicare payment schedule to isolate the effects of market-level managed care enrollment on the quantity and quality of care delivered. We find that in areas with greater enrollment of Medicare beneficiaries in managed care, the non-managed care beneficiaries have fewer days in the hospital but more outpatient visits, consistent with a substitution of less expensive outpatient care for more expensive inpatient care, particularly at high levels of managed care. We find some suggestive evidence that care is of the same or higher quality. Optimal payment policies for Medicare managed care enrollees that account for system-level spillovers may thus be higher than those that do not.
Hospitals as Insurers of Last Resort
Craig Garthwaite
(Northwestern University)
NA
Allocating Scarce Organs: How a Change in Supply Affects Transplant Waiting Lists
Stacy Dickert-Conlin
(Michigan State University)
Todd Elder
(Michigan State University)
Keith Teltser
(Michigan State University)
NA
The Relationship between Unemployment Insurance and Disability Insurance
Till von Wachter
(University of California-Los Angeles)
NA
Discussants:
Karen Smith Conway
(University of New Hampshire)
Joseph Doyle
(Massachusetts Institute of Technology)
Gopi Goda
(Stanford University)
Sara LaLumia
(Williams College)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Harvard
Peace Science Society International/American Economic Association
Empirical Analyses of the Impact of Conflict
(H5, F5)
Presiding:
Carlos Seiglie
(Rutgers University)
Expanding Governance as Development: Evidence on Child Nutrition in the Philippines
Eli Berman
(University of California-San Diego)
Mitch Downey
(University of California-San Diego)
Joseph Felter
(Stanford University)
[View Abstract]
Around the world, much of the most extreme poverty is clustered in violent, unstable, ungoverned spaces. Researchers and practitioners have struggled to effectively reach these areas with traditional development assistance. Expanding governance through military intervention may have both costs and benefits for local residents. We estimate whether a large counterinsurgency program operated by the Philippines' Army ("Peace and Development Teams") improves development outcomes, exploiting the program's staggered roll-out over nine years. We estimate that the program led to large reductions in child malnutrition. An average intervention, in which 13% of the population is "treated," is expected to reduce malnutrition rates by 7-9% (or 1.3 percentage points) over the subsequent 3-4 years. This magnitude is comparable to other interventions which would be difficult to implement in unstable parts of rural Philippines. We believe the findings have important implications for future development policy in ungoverned places.
Military Spending, Budget Deficits and Financial Crises
Raul Caruso
(Catholic University of the Sacred Heart)
Marco di Domizio
(University of Teramo)
[View Abstract]
[Download Preview] The aim of this paper is to study the relationship between military spending and sovereign debt in a panel of thirteen European countries. In particular, under the assumption of the interdependence of military spending between US and European countries, we analyse whether US military spending affected European sovereign debt in the period 1988-2013. The empirical estimation is based on different steps: (i) a unit root tests (ii) a set of panel cointegration tests; (iii) an Arellano-Bond panel estimation; (iv) a FMOLS estimation to highlight the long run relationship between debt and relevant variables; (v) a VAR analysis for each country. General results highlight a significant impact of US military spending on European sovereign debt.
Attitudes and Expectations in War Time: Evidence from Six Years of Surveys in Baghdad
Jacob N. Shapiro
(Princeton University)
none
Surviving the Genocide: Child Mortality and the Rwandan Genocide
Gianna C. Giannelli
(University of Florence, CHILD and IZA)
Federico Ciani
(University of Florence)
[View Abstract]
[Download Preview] We investigate the relationship between the 1994 Rwandan genocide and children’s mortality. We combine birth history data drawn from the 2000 Rwanda Demographic and Health Survey with prefecture-level information on the intensity of the conflict. Considering both in utero and postnatal war exposure, our estimates from discrete time proportional hazard models reveal large positive effects of exposure to the conflict on infant and child mortality. For infant mortality, these effects are associated to residence in districts with a high intensity of war and to bereavement in the family during the genocide. For children who survived, the main effect stems from having lived either in life or in utero during the conflict, with an increase in the hazard of mortality by around 10 percentage points per month of exposure. The same effect holds even if exposure was only in utero. This might represent a helpful indication to identify the group of more fragile children to target with policy actions aimed at improving child health after a war.
Education and Military Rivalry
Philippe Aghion
(Harvard University)
[Download Preview] none
Discussants:
Luis Locay
(University of Miami)
Solomon W. Polachek
(State University of New York-Binghamton)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Suffolk
Society for Computational Economics
Emergent Dynamics in Multi-Agent Models of Growth and Social Interactions
(C6)
Presiding:
Blake LeBaron
(Brandeis University)
Perpetual Learning and Stability in Macroeconomic Models
William Branch
(University of California-Irvine)
George Evans
(University of Oregon)
Bruce McGough
(Oregon State University)
[View Abstract]
An increasing number of studies employ adaptive learning in applied macroeconomic models. A limiting feature of so-called ``constant gain'' least-squares learning rules is that the learning dynamics are occasionally unstable even though in the small-gain limit there is asymptotic stability. To address this issue in practice, the literature typically imposes a projection facility that keeps the coefficients in the learning rule bounded within some appropriately defined set. In this paper, we propose a new learning rule, Yule-Walker Learning, a multivariate generalization of a learning rule employed by Hommes and Zhu (2013). The basic idea is to assume agents forecast via a VAR(1) forecasting equation. Rather than estimating the coefficients of the VAR with least-squares, the agents estimate the coefficients using the Yule-Walker estimator, i.e. a multivariate sample autocorrelation coefficient learning rule. The main theoretical result is a stability theorem: we demonstrate that the eigenvalues of the coefficient matrix in the VAR(1) learning rule have modulus less than one almost surely. The paper then presents examples in terms of a real-business cycle model, an asset-pricing model, and a New Keynesian monetary model that demonstrates the improved performance of the learning rule in practice.
Competitive Innovation and the Emergence of Technological Epochs
Robert Axtell
(George Mason University)
Randy Casstevens
(George Mason University)
Matthew Hendrey
(George Mason University)
William Kennedy
(George Mason University)
William Litsch
(George Mason University)
[View Abstract]
The evolution of economic goods is modeled as a stochastic process of recombination conducted by purposive agents in a large population. There is an initial ‘seed set’ of goods, each having an intrinsic economic fitness. Every agent adopts some subset of these based on its subjective evaluation. The innovation process involves individual agents inventing new goods by combining extant ones, with most new items having low economic fitness. The few inventions able to provide high welfare can be adopted. The adoption process involves each agent considering a new good, developing an idiosyncratic assessment of its value, and accepting it only if this value exceeds the least valuable item it holds. This simple model has several robust properties. First, the population of goods is transient, with all goods having finite lifetimes. Second, the total number of goods present in the economy is highly variable and fluctuates with heavy tails. Third, agent welfare increases over time. Fourth, periods of technological stasis, in which few inventions are successful, are punctuated by brief periods of abrupt technological progress leading to episodes of creative destruction. Fifth, new inventions that coexist at any instant often share many of the same ‘components’ but this is not true of inventions that are separated by long periods of time, leading naturally to the notion of technological epochs based on dominant designs. Finally, each realization of the model generates a graph of technological antecedents from which lineages can be determined. Overall, our simple model quantifies many of the qualitative ideas surrounding the evolution of technology
Choosing a Future Based on the Past: Institutions, Behavior, and Path Dependence
Jenna Bednar
(University of Michigan)
Andrea Jones-Rooy
(New York University-Shanghai)
Scott Page
(University of Michigan)
[View Abstract]
How does the order that laws and other institutions are introduced affect their
performance, and under what conditions will sequencing matter? To gain a foothold on
these questions, we construct a formal model of institutional sequencing that includes
cultural sway in the form of behavioral spillovers. We derive two broad categories of
results: First, we characterize the relationships between the extent of cultural sway,
payout structures, and path dependence. We find that path dependence increases and
then decreases in cultural sway and that optimal payout structures in novel games
require weak punishment regimes. Second, we characterize the optimal sequencing
of institutions. We show that optimal sequences satisfy a property we call multi-
incrementalism. Optimal sequences combine initial institutional diversity with gradual
movements to reduce inecient spillovers. Such sequences have the counterintuitive
property that they enable the possibility of path dependence so as to not realize it.
Emergent Coordination among Competitors
AJ Bostian
(University of Tampere)
David Goldbaum
(University of Technology-Sydney)
[View Abstract]
[Download Preview] Crawford and Haller (1990) describe a repeated two-player coordination game defined by the absence of a common language. Coordination is achieved only through path dependent play relying on time consistent labels. We consider a game played by a large population similarly looking to coordinate but without the consistency in labels over time and with asymmetric coordinated payoff so that players have differing preferences regarding which coordinated structure emerges. In experiments, we link subjects together in a social network with limited ability to observe others. The complexity of the game and multitude of states thwarts solving for optimal play and yet the population demonstrates success in employing path dependency and the consistency of the social relationships to learn to coordinate. To capture this evolution, we model decisions with an experience-weighted attractor having recency, reinforcement, and lock-on biases. We find considerable heterogeneity in biases across individuals. Drawing on the observed biases, we conduct simulations to identify the extent to which individuals and environment determine group dynamics.
Discussants:
Cars H. Hommes
(University of Amsterdam)
Peter Howitt
(Brown University)
David C. Colander
(Middlebury College)
Jasmina Arifovic
(Simon Fraser University)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Provincetown
Society for Economic Dynamics
Firm Heterogeneity in the Macroeconomy
(E3, O3)
Presiding:
Benjamin Moll
(Princeton University)
Creative Destruction and Growth in China and India
Daniel Garcia-Macia
(Stanford University)
Chang-Tai Hsieh
(University of Chicago)
Peter Klenow
(Stanford University)
[View Abstract]
China and India have grown rapidly in recent decades, and much
of this growth reflects rapid growth in productivity rather than inputs.
We examine the role of creative destruction -- entering and incumbent
firms displacing existing products and firms -- in China and India's
recent growth in manufacturing productivity. In China private
enterprises have entered and taken over from state-owned firms. In
India incumbents grow slowly. We use the U.S. as a point of comparison,
where growth appears to come largely from incumbents and just as much
from incumbents improving their own products as from creative destruction.
Did the Job Ladder Fail after the Great Recession?
Giuseppe Moscarini
(Yale University)
Fabien Postel-Vinay
(University College London)
[View Abstract]
[Download Preview] We study employment reallocation across heterogeneous
employers through the lens of a dynamic job-ladder model, where more
productive employers spend more hiring effort and are more likely to
succeed in hiring because they offer more. As a consequence, an
employer’s size is a relevant proxy for productivity. We exploit newly
available U.S. data from JOLTS on employment flows by size of the
establishment. Our parsimonious job ladder model fits the facts quite
well, and implies ‘true’ vacancy postings by size that are more in line
with gross flows and intuition than JOLTS’ actual measures of job
openings, previously criticized by other authors. Focusing on the U.S.
experience in and around the Great Recession, our main finding is that
the job ladder stopped working in the GR and has not yet fully resumed.
Cyclical Reallocation of Workers across Large and Small Employers
John Haltiwanger
(University of Maryland)
Henry Hyatt
(U.S. Census Bureau)
Erika McEntarfer
(U.S. Census Bureau)
[View Abstract]
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. Finally, however, we find strong evidence that
job-to-job flows generally move workers from low wage to high wage firms
and that the intensity of such flows is highly procyclical. We discuss
how to reconcile the strong findings on the role of wages in the absence
of much if any a role for firm size given that the theory implies that
the same patterns should hold for both.
Wealth Distribution and the Business Cycle: The Role of Private Firms
Yves Achdou
(University of Paris-Diderot)
Jean-Michel Lasry
(University of Paris-Dauphine)
Pierre-Louis Lions
(College de France)
Benjamin Moll
(Princeton University)
[View Abstract]
Recent recessions have been characterized by extraordinarily
slow recoveries, a fact that is hard to explain with standard business
cycle models. Most business cycle models assume that firm ownership is
irrelevant, either by postulating that there is a representative firm or
that ownership is perfectly diversified. But in contrast to this
assumption, the majority of economic activity in the United States is
accounted for by privately held firms, rather than publicly traded ones.
Motivated by this fact, we study an economy with heterogeneous privately
held firms, collateral constraints and indivisibilities in production,
calibrated to the United States. We find that the presence of private
firms affects how the economy responds to aggregate shocks in important
ways, and in particular that our model economy has the potential to
explain the observed slow recoveries. The slow dynamics of the wealth
distribution are key to this result. A methodological contribution of
our paper is to show how heterogeneous agent rational expectation models
with aggregate shocks can be approximated numerically even when
"approximate aggregation" fails due to important nonlinearities.
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Tufts
Society of Government Economists
Improving the Current Population Survey Annual Social and Economic Supplement: Income, Poverty, and Health Insurance
(J3, I3)
Presiding:
David Johnson
(U.S. Bureau of Economic Analysis)
The Effect of the Changes to the Current Population Survey Annual Social and Economic Supplement on Estimates of Income
Edward Welniak
(U.S. Census Bureau)
Jessica Semega
(U.S. Census Bureau)
[View Abstract]
This paper will evaluate the effect of changes to the Current Population Survey Annual Social and Economic Supplement (CPS) on income estimates. The Annual Social and Economic Supplement to the Current Population Survey (the CPS ASEC) is one of the most widely used socioeconomic surveys publishing national level estimates of median income. The CPS ASEC is the official source of the US national poverty statistics. The ASEC asks each person detailed questions categorizing income into over 50 sources. As one of the nation’s longest running surveys, it has been over 30 year since the last major questionnaire redesign. In an effort to take better advantage of an automated environment and to update questions on retirement income and health insurance, the Census Bureau conducted a limited telephone interview field test in March 2013 of a redesigned instrument using a retired ASEC sample of 23,000 households. Results of that test were encouraging indicating likely increases in income recipiency and amounts. In 2014, a second field test was conducted using a split panel and taking advantage of a full production environment. This paper will contrast and compare income estimates using the old and new questions from the split-panel test.
A Comparison of Official Poverty Estimates in the Redesigned Current Population Survey Annual Social and Economic Supplement
Joshua Mitchell
(U.S. Census Bureau)
Trudi Renwick
(U.S. Census Bureau)
[View Abstract]
The Current Population Survey Annual Social and Economic Supplement (CPS ASEC) serves as the official source of income, poverty, and inequality statistics for the United States. The CPS ASEC implemented redesigned earnings and income questions in the 2014 instrument. These new questions address income underreporting, item nonresponse, and errors stemming from respondent fatigue. Among the changes include (1) separation of “source” and “amount” questions; (2) tailored skip patterns based on family income; and (3) income range follow-ups to Don’t Know/Refused responses. These questions were implemented via a split-sample design where part of the sample (3/8) received the new questions while the remaining sample (5/8) received questions from prior years. This paper will compare official poverty estimates between the two samples. Previous research has only compared income estimates and respondent burden from a content test and not poverty estimates (Semega and Welniak 2014; Bee and Cantu 2014). This analysis will compare poverty estimates for the total population as well as poverty estimates by various demographic groups such as age, race, gender, family structure, and marital status. This analysis will also examine any reasons for differences in poverty estimates between the two samples.
Health Insurance in the CPS ASEC: Examining the 2014 “Break-in-Series”
Brett O’Hara
(U.S. Census Bureau)
Carla Medalia
(U.S. Census Bureau)
[View Abstract]
In 2014, the U.S. Census Bureau implemented changes to the CPS ASEC, including a complete redesign of the health insurance questions. The new instrument improves upon the existing questionnaire by addressing the ASEC’s well-documented overestimate of the uninsured population. Based on over a decade of research, including two national field tests, the redesigned instrument became the official questions in the CPS ASEC in 2014. The redesign constitutes a “break-in-series” to the historical health insurance estimates. Because the CPS ASEC measures health insurance coverage in the previous calendar year, this means that analysts will need to examine the time trend separately for the period 2012 and earlier, and 2013 and beyond.
This paper provides a bridge between the traditional and redesigned CPS ASEC health insurance questions. First, it briefly describes the flaws in the traditional instrument and the strategy undertaken to improve the health insurance estimates in the redesigned instrument. Second, it compares the questions used in each survey to produce estimates of the uninsured and by plan types. Third, it presents the results for data years 2012 and 2013 (survey years 2013 and 2014), the last year of the traditional questions and the first year of the redesigned questions. While estimates from both years are compared, the Census Bureau highly cautions against interpreting these results in the form of a time trend. Fifth, we provide a bridge for the historical trend in the CPS ASEC uninsured estimates by using data from another survey. Using the American Community Survey and a Difference-in-Difference approach, we predict the percentage-point difference of the 2013 and 2014 CPS ASEC, thus bridging the gap of the year-to-year change in the estimate.
The Effect of the Changes to the Current Population Survey Annual Social and Economic Supplement on Estimates of the Supplemental Poverty Measure
Kathleen Short
(U.S. Census Bureau)
[View Abstract]
This paper will evaluate the effect of changes to the Current Population Survey Annual Social and Economic Supplement (CPS) on estimates of the Supplemental Poverty Measure (SPM). Most important will be the effect of changes to retirement income and medical out-of-pocket expenses (MOOP). The percent of the population that was poor using the official measure for 2012 was 15.1 percent. The research SPM rate was 16.0 percent. For most groups, SPM rates are higher than official poverty rates. Lower poverty rates were found for children, individuals included in new SPM resource units, Blacks, those living outside metropolitan areas, those in the Midwest, those covered by only public health insurance, and individuals with a disability. A very important finding was that poverty rates for those 65 years of age and over were higher under the SPM, 9.4 percent using the official measure compared to 14.8 using the SPM. This partially reflects that the official thresholds are set lower for families with householders in this age group, while the SPM thresholds do not vary by age. It also reflects large medical out-of-pocket expenses (MOOP) reported by those over the age of 65, a necessary expense that is subtracted from income in the SPM calculation. The elderly also show a higher percent below half of the poverty line with the SPM. As shown in the report, MOOP has an important effect on the estimated poverty rates for this group. This paper will contrast and compare SPM estimates using the old questions in the CPS and the newer questions with SPM estimates using the SIPP.
Discussants:
Christopher Bollinger
(University of Kentucky)
Jessica Banthin
(Congressional Budget Office)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Grand Ballroom—Salon I
Union for Radical Political Economics/American Economic Association
Debating the Minimum Wage
(J3)
Presiding:
Fred Moseley
(Mount Holyoke College)
‘Fourth Generation’ Minimum Wage Research, Employment Effects, and Modeling the Low-Wage Labor Market
John Schmitt
(Center for Economic and Policy Research)
[View Abstract]
This paper reviews the most recent wave of research on the employment impacts of the minimum wage, with a focus on what Arindrajit Dube has called the "fourth generation" of research (conducted largely by Dube, Michael Reich, Michael Lester, and Sylvia Allegretto) and its critics (including David Neumark, William Wascher, Richard Burkhauser, Joseph Sabia, and, most recently, Jonathan Meer and Jeremy West). The first part of the paper examines the main methodological differences that lead the first group consistently to find little or no negative employment effects and the second group consistently to find statistically significant and economically important employment losses. The second part of the paper explores what this latest round of empirical research can tell us about theoretical disputes concerning the best way to model the low-wage labor market, with particular attention to the textbook competitive model, dynamic monopsony models, and institutional models.
The Effect of the Minimum Wage on Transfer Income
David Cooper
(Economic Policy Institute)
[View Abstract]
[Download Preview] Recent research has examined the effect of increases in the minimum wage on family incomes, with particular attention to whether such increases reduce the incidence of poverty. Less is known about the interplay between the minimum wage and public transfer programs to low-income families. To the extent that increases in the minimum wage lift the wage income of low-income families, they may simultaneously reduce benefit levels or eligibility for public transfer programs. Still, other families not previously qualifying for the maximum benefit under the Earned Income Tax Credit may see their transfer income rise. The net effect of these competing outcomes on overall transfer payments is ambiguous.
Living Wages and Fast-Food Prices: How Businesses Adjust to Minimum Wage Increases
Robert Pollin
(University of Massachusetts-Amherst)
Jeannette Wicks-Lim
(Political Economy Research Institute)
[View Abstract]
Our paper for this URPE/ASSA session will examine how much minimum wage increases cost businesses, such as fast food restaurants, that employ a high proportion of low-wage workers. Our estimate of these cost increases will then enable us to estimate a likely range for price increases that could result, as one means of businesses adjusting to the minimum wage rise. Whether business costs from a minimum wage hike are large or small is a critical issue. If these cost increases are large, employers may try to minimize the impact of the higher minimum wage on their wage bill by reducing their workforce, thereby generating employment losses. However, the cost and corresponding price increases are modest, the likelihood will be low that a minimum wage increase will lead to employment losses. Building from our substantial past research on this question (as summarized, among other places in our 2008 book A Measure of Fairness) this paper will present detailed, industry-specific, estimates of the impact of past and prospective minimum wage hikes on business costs. We then examine existing empirical evidence on the range of adjustments that businesses may turn to, including price increases, as a means of absorbing the cost increases we estimate.
Discussants:
William Wascher
(Federal Reserve Board)
David Macpherson
(Trinity University)
Daniel Aaronson
(Federal Reserve Bank of Chicago)
Jan 04, 2015 2:30 pm, Boston Marriott Copley, Hyannis
Union for Radical Political Economics
Heterodox Perspectives on the Welfare State
(H4)
Presiding:
Maria N. Ivanova
(University of London)
Proposing a European-Wide Unemployment Insurance Program
Leila Davis
(Middlebury College)
Charalampos Konstantinidis
(University of Massachusetts-Boston)
Yorghos Tripodis
(Boston University)
[View Abstract]
This paper explores the potential of a European-wide unemployment insurance program as a partial solution to the current Euro crisis, and as part of a more sustainable European architecture. To do so, this paper proposes a ‘federalized’ system of unemployment insurance for Europe; estimates the cost of the proposed system; and argues that the system has potential to alleviate the current crisis in the European periphery. Given significant intra-European trade and utilizing country-specific multipliers, crisis-alleviation in the periphery may, furthermore, generate positive demand effects back to the core.
Welfare Systems and Social Services during the Systemic Crisis of Cognitive Capitalism. Further Reflections
Stefano Lucarelli
(Università di Bergamo)
Carlo Vercellone
(Université Paris 1 Panthéon-Sorbonne)
Andrea Fumagalli
(Universita degli Studi di Pavia)
[View Abstract]
[Download Preview] The purpose of this article is to show that, contrary to neoliberal belief, social welfare services and spending should be recognised as the driving force behind a development dynamics based on knowledge-intensive production. In the first part, we shall briefly present the relationship between public debt and private debt. In the second part, we shall present a series of stylised facts which highlight the key role played by welfare state institutions in the genesis and development of a knowledge-based economy. In the third part, these general considerations will be corroborated through an international comparison between the Nordic welfare model and the Anglo-Saxon welfare model. This comparison reveals a strong positive correlation between the level of development of welfare state institutions and that of a knowledge-based economy.
Heterodox Economic Theories of the Postwar Capitalist State
Sudeep Regmi
(University of Missouri-Kansas City)
[View Abstract]
With globally integrated production and financial circuits, postwar capitalism differs from its previous phases in terms of a significantly modified institutional structure of capital accumulation. Meanwhile, there has been very slow progress in theorizing the evolving relationship between the territorially-based nation-state and the globalizing capital in this postwar period. Followed by a critical survey of the extant Marxian, Institutionalist, and Post-Keynesian economic theories of the capitalist state, this paper attempts to lay the foundations for a comprehensive understanding of the relationship between state and capital and the conditions of reproduction of this relationship in the postwar period.
Was It Really a Crisis of Democracy? Revisiting “The Crisis of Democracy” in Its Fortieth Anniversary
Ali Tarhan
(Political Economist)
[View Abstract]
This study analyzes the effects and repercussions of “The Crisis of Democracy” report appointed by The Trilateral Commission in 1975. This report came with the conclusion that the collaboration of economic growth and democracy was over since “[the b]roadened political participation ha[d] increased the demands on government.” On the other hand, despite the heavy burden of oil shocks and following economic slowdown in the mid-1970s, crises of capitalism or democracy did not have common denominators. Consequently, this report was in fact a pioneering desideratum in order to put an end to the historical roles of the middle classes.
Discussants:
Maria N. Ivanova
(Goldsmiths, University of London)
Charalampos Konstantinidis
(University of Massachusetts-Boston)
Jan 04, 2015 4:40 pm, Sheraton Boston, Grand Ballroom
American Economic Association
AEA Awards Ceremony and Presidential Address
Presiding:
Richard Thaler
(University of Chicago)
William Nordhaus
(Yale University)
Climate Clubs
Jan 04, 2015 4:45 pm, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
AFEE Presidential Address
Presiding:
Sherry Kasper
(Maryville College)
Janet Knoedler
(Bucknell College)
Going to College on My iPhone: A Veblenian Analysis of Higher Education in the 21st Century
Jan 04, 2015 5:00 pm, Sheraton Boston, Back Bay Ballroom A
Korea-America Economic Association
Annual Business Meeting and Maekyung Forum Address
Narayanan Kocherlakota
(Federal Reserve Bank of Minneapolis)
Jan 04, 2015 5:15 pm, Boston Marriott Copley, Grand Ballroom—Salon H
International Banking Economics & Finance Association
Annual Membership Meeting and Presidential Address
Jan 04, 2015 5:45 pm, Westin Copley, America South
American Finance Association
Business Meeting and Presidential Address
Jan 04, 2015 6:00 pm, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Membership Meeting and Presidential Address Followed by our Annual Wine and Cheese Reception
Dennis Tao Yang
(University of Virginia)
Jan 04, 2015 6:30 pm, Boston Marriott Copley, New Hampshire
National Economic Association
Presidential Address and Reception
Trevon D. Logan
(Ohio State University)
Jan 04, 2015 8:00 pm, Sheraton Boston, Republic Ballroom A & B
American Economic Association
7th Annual Economics Humor Session in Honor of Caroline Postelle Clotfelter
(Y9)
Presiding:
Jodi Beggs
(Northeastern University and Economists Do It With Models)
Rockonomix: Integrating Economics and Popular Music
Kim Holder
(University of West Georgia )
The Instrumental Variables
()
N/A
Was that Rational? The American Economic (Year in) Review
James E. Tierney
(Pennsylvania State University)
N/A
Dual Mandate
Merle Hazard
(merlehazard.com)
Homer-Economicus: The Simpsons and Economics
Joshua Hall
(West Virginia University )
and Friends
()
N/A
A Few Goodmen: Surname-Sharing Economist Coauthors
Allen C. Goodman
(Wayne State University)
Joshua Goodman
(Harvard University)
Lucas Goodman
(University of Maryland)
Sarena Goodman
(Federal Reserve Board)
[View Abstract]
[Download Preview] We explore the phenomenon of coauthorship by economists who share a surname. Prior research has included at most three economist coauthors who share a surname. Ours is the first paper to have four economist coauthors who share a surname, as well as the first where such coauthors are unrelated by marriage, blood or current campus.
We the Economy
Vulcan Productions and Cinelan Films
()
N/A
Economic-con 2015: A Theory of Maximizing Social Welfare via Top Decile Earners
Zach Weinersmith
(Saturday Morning Breakfast Cereal)
N/A
Economic Actors
Jodi Beggs
(Northeastern University and Economists Do It With Models )
The Geek Week Players
()
N/A
Jan 05, 2015 8:00 am, Sheraton Boston, Independence Ballroom East
American Economic Association
Autos and the Business Cycle
(E2)
Presiding:
Karen Pence
(Federal Reserve Board)
Auto Sales and Credit Supply
Kathleen W. Johnson
(Federal Reserve Board)
Karen Pence
(Federal Reserve Board)
Daniel Vine
(Federal Reserve Board)
[View Abstract]
[Download Preview] Consumer purchases of motor vehicles fell more than 20 percent during the 2007-09 recession, and auto loan originations fell by a third. We show that swings in auto sales and credit availability are significant features of most business cycles. Using a novel measure of household perceptions of vehicle financing conditions, we show with both time-series and household-level data that the effects of credit conditions on auto sales are as large as those from factors such as unemployment and income. The results contribute to the literature validating the usefulness of survey measures of household perceptions for forecasting macroeconomic activity.
What was Bad for GM was Bad for America: The Automobile Industry and the 1937-38 Recession
Joshua Hausman
(University of Michigan)
[View Abstract]
[Download Preview] The 1937-38 recession was one of the largest in U.S. history. Industrial production fell 32
percent and the nonfarm unemployment rate rose 6.6 percentage points. This paper shows
that there were timing, geographic, and sectoral anomalies in the recession, none of which are
easily explained by aggregate macro shocks. I argue that a supply shock in the auto industry
contributed both to the recession's anomalies and to its severity. Labor-strife-induced wage
increases and an increase in raw material costs led auto manufacturers to raise prices in the
fall of 1937. Equally important, higher costs combined with nominal rigidity to make the
price increase predictable. Expectations of price increases brought auto sales forward and
thus sustained sales during the summer and early fall of 1937, despite negative monetary
and fiscal factors. When auto prices did rise in October and November, auto sales and
production plummeted. A forecasting exercise suggests that this shock reduced 1938 auto
sales by 600,000 and 1938 GDP growth by roughly one percentage point.
Accelerator or Brake? Microeconomic Estimates of the 'Cash for Clunkers' and Aggregate Demand
Brian Melzer
(Northwestern University)
Jonathan A. Parker
(Massachusetts Institute of Technology and NBER)
Ryan Pfirrmann-Powell
(U.S. Bureau of Labor Statistics)
[View Abstract]
[Download Preview] This paper uses vehicle-level data and differences-in-differences methods to measure the impact of the Federal Government’s Car Allowance Rebate System (CARS) on partial-equilibrium aggregate demand for automobiles. We use confidential data at the BLS on the make, model and model year of cars owned by households in the Consumer Expenditure Survey. We identify the effect of CARS by comparing the transactions of households with automobiles that are eligible for CARS based on model year and miles-per-gallon, to the transactions of households with automobiles that are just ineligible for CARS based on these criteria. A partial-equilibrium calculation implies that this program raised aggregate purchases over a couple of months by 540,000 automobiles, generating roughly $12 billion in additional demand for $2.9 billion in Federal outlays and coinciding with the end of the Great Recession. However, consistent with theory and previous research, this large effect was due to short-term intertemporal substitution in response to the temporary price subsidy: point estimates suggest that cumulative, partial-equilibrium auto sales were unaffected by the program 7 months after its initiation.
Liquidity, Non-Bank Credit and the Financial Crisis: Evidence from Automobiles
Efraim Benmelech
(Northwestern University)
Ralf R. Meisenzahl
(Federal Reserve Board)
Rodney Ramcharan
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper shows that illiquidity in short term funding markets during the financial crisis may have curtailed sharply the supply of non-bank consumer credit. Using a new dataset linking every car sold in the US to the credit-supplier involved in the transaction, we show that after runs in the ABCP market decimated the financing capacity of many captive auto-financing institutions, car sales in counties traditionally dependent on this type of financing fell sharply. There is also evidence of substitution, as other lenders increased their supply of credit. However, the net aggregate effect of illiquidity on car sales is large and negative.
Discussants:
Daniel Sichel
(Wellesley College)
Robert Barsky
(Federal Reserve Bank of Chicago)
Meghan Busse
(Northwestern University)
Gabriel Chodorow-Reich
(Harvard University)
Jan 05, 2015 8:00 am, Sheraton Boston, Liberty A
American Economic Association
Banking and Financial Markets
(G2)
Presiding:
Judit Temesvary
(Hamilton College)
Testing for Experience Effects in Banking
Georgia Bush
(Rutgers University)
[View Abstract]
[Download Preview] This paper tests for empirical evidence of learning by doing in banking with the aim of identifying a micro-founded driver of financial sector development. Learning by doing entails cumulative experience reducing the amount of labor or other inputs required to produce the same amount of output. However identifying this experience effect poses challenges because firms may increase output as input prices decline, introducing the possibility of endogeneity bias in estimating the cost function. Applying a two-step correction procedure to my bank cost function, I correct for endogeneity as well as selection biases arising from sample dependence. The problem of these biases has not been addressed in empirical work on learning by doing, or the banking efficiency literature, nor have experience effects been focused on in the banking context. Using the corrected model, results suggest that experience is associated with reduced costs: the experience effect is decreasing and fades after around 10 years. For example, on average, a 10 percent increase in experience, for a bank of around 1 year of age is associated with a 10.9 percent decline in variable cost; for a 5 year old bank, that becomes a 2 percent decline in variable cost.
Information Acquisition vs. Liquidity in Financial Markets
Victoria Vanasco
(Stanford University)
[View Abstract]
[Download Preview] This paper presents a model of securitization that highlights the link between information acquisition at the loan screening stage and liquidity in markets where securities backed by loan cash flows are sold. While information is benecial ex-ante when used to screen loans, it becomes detrimental ex-post because it introduces a problem of adverse selection. The model matches key features of the securitization practice, such as the tranching of loan cash flows, and it predicts that when gains
from securitization are `sufficiently' large, loan screening is inefficiently low. There are two channels that drive this ineciency. First, when gains from trade are large, a loan issuer is tempted ex-post to sell a large portion of its cash flows, and lower retention reduces incentives to screen loans. Second, the presence of adverse selection in secondary markets creates informational rents for issuers holding low quality loans, reducing the value of loan screening. This suggests that incentives for loan screening not only depend on the portion of loans retained by issuers, but also on how the market prices different securities. Turning to financial regulation, I characterize the optimal mechanism and show that it can be implemented with a simple tax scheme. This paper, therefore, contributes to the recent debate on how to regulate securitization.
Bank Offshoring, Tax Evasion, and Performance: Evidence from Moscow Administrative Data.
Sergey V. Mityakov
(Clemson University)
Lucy Chernykh
(Clemson University)
[View Abstract]
[Download Preview] We utilize information about Russian bank volume of transactions and end-of-month balances in correspondent accounts in foreign countries banks’ to construct a novel measure of bank offshoring activity. This dataset is based on official banks’ reports to the Russian Central Bank. To measure tax evasion we use income-hiding indicator developed by Braguinsky and Mityakov (2013), which is based on the discrepancy between reported incomes and car values of banks’ employees. We document a positive relation between bank offshoring activities and tax evasion, especially when tax evasion is measured among bank top management. We then combine these measures with the information from bank balance sheets over the period 2000-2003 to analyze the impact of offshoring activity and tax evasion on various bank performance measures. We find that commercial banks, which conduct more offshoring or tax evasion activity, report lower accounting profit and are less actively involved in traditional financial intermediation, such and business lending and deposit-taking. We also find a robust link between bank closures, money laundering charges, criminal cases against top managers (measured during 2000-2013) and degree of offshoring activity. The later finding suggests a critical role of the regulatory discipline in limiting banks’ illegal activities.
United States Banks' Behavior since Lehman's Collapse, Bailout Uncertainty and the Timing of Exit Strategies
Alex Cukierman
(Tel Aviv University)
[View Abstract]
[Download Preview] The collapse of Lehman Brothers in September 2008 along with the decision not to bail it out is probably the most traumatic financial event of the twenty first century. In the aftermath of the financial panic that ensued the Federal Reserve injected huge quantities of liquidity into the US economy. As a matter of fact the cumulative rate of base money growth since that event is similar to the rate of base money expansion through a bit more than half of the 1922-1924 well known German hyperinflation. In Germany this resulted in a fifteen-fold increase in the price level. By contrast the cumulative rate of inflation since Lehman's collapse is a meager ten percent.
This dramatic difference in rates of inflation in the face of similar liquidity injections constitutes a challenge to the quantity theory of money and begs for an explanation. This paper argues that a substantial part of the explanation is due to the behavior of US banks that have decided to hold about two thirds of the Fed's liquidity injections in the form of reserves at the Fed rather than expanding credit. More fundamentally, the paper relates this behavior to a, post Lehman, increase in probabilistic awareness about the likelihood that the US government will not bailout the creditors of large financially delinquent financial institution in the future. However, when this trauma recedes banks are likely to utilize their huge excess reserves to renew credit expansion. At that point the risks of inflation will increase making it advisable to mop up some of the liquidity in synch with the increase in credit and the decrease in reserves. This implies that the evolution of banking credit and reserves can be used as indicators for the the timing and dosage of future exit strategies.
Bank Bias in Europe: Effects on Systemic Risk and Growth
Sam Langfield
(European Central Bank)
Marco Pagano
(University of Naples Federico II)
[View Abstract]
[Download Preview] Europe’s financial structure is extremely bank-based – far more so than in other advanced economies. We show that this “bank bias” is associated with greater systemic risk, in the sense of larger capital shortfalls in banks when asset prices fall sharply. Bank-biased countries also tend to experience lower economic growth rates, particularly during financial crises. This finding is robust to the endogeneity of financial structure, which we instrument with past reforms of financial regulation and characteristics of the structure of the real economy. We interpret these findings through the lens of the financial accelerator, which tends to be more violent in bank-biased countries. Banks misallocate funding in good times and ration it in bad times, leading to higher systemic risk and lower economic growth. The paper concludes by analysing public policies to reduce the bank bias in Europe’s financial structure.
Jan 05, 2015 8:00 am, Sheraton Boston, Independence Ballroom West
American Economic Association
Behavioral and Neuroeconomics
(D8, C9)
Presiding:
David Laibson
(Harvard University)
Deciding When to Quit: Reference-Dependence over Slot Machine Outcomes
Jaimie Lien
(Tsinghua University)
Jie Zheng
(Tsinghua University)
[View Abstract]
[Download Preview] We conduct tests for reference dependent loss aversion using slot machine gamblers' decisions on when to quit playing for a visit to a casino. Evidence for a lagged status-quo reference point is found in the aggregate, while endogenously determined reference points are found when conditioning on betting intensity choices. Significant deviations from the distributions implied by random quitting support the loss aversion and diminishing sensitivity hypotheses.
The Disposition Effect On Optimal Stopping Decisions: A Direct Test
Jacopo Magnani
(Xiamen University)
[View Abstract]
[Download Preview] This paper develops a laboratory test of a distinctive prediction of reference-dependent preferences, testable only in dynamic settings: decision makers suboptimally delay realizing disappointing outcomes (procrastination) but suboptimally rush to realize outcomes that are better-than-expected (rushing). In the experiment, subjects invest in a risky asset, whose price evolves in near-continuous time, and they are provided with the option to liquidate it at a fixed salvage value. Optimal behavior is characterized by an upper and a lower stopping thresholds in the asset price space, thus producing a clear rational benchmark and eliminating known confounds. Subjects indeed tend to delay liquidating losing assets beyond the optimal point and to sell winning assets before reaching the optimal stopping time. The median stopping points imply the probability of realizing a winner conditional on stopping is 60% larger than optimal. Such behavior is shown to be consistent with a model of a decision maker who evaluates payoffs relative to an expectation-based reference point, is risk-averse over gains and risk-seeking over losses.
Loss-Aversion in Consumer Reactions to Sales-Price Changes
Deb Ray
(California Institute of Technology)
Matthew Shum
(California Institute of Technology)
Colin Camerer
(California Institute of Technology)
[View Abstract]
Suppose consumers have preferences that depend on a reference price, and are disproportionately averse to loss. Then after a sale ends, consumers will be reluctant to buy a good at its (normal) post-sale price. However, the same pattern could be due to optimal timing of purchases into sale times. We develop a model in which reference-dependence predicts increased sales of substitutes for products that go off-sale. Estimation of a structural model, using hardware sales, indicates coefficients of loss-aversion of 2.01 for low-volume shoppers and 1.38 for high-volume shoppers.
Do NFL Players with Short-Lived Income Spikes Smooth Consumption?
Kyle Carlson
(California Institute of Technology)
Annamaria Lusardi
(George Washington University)
Colin Camerer
(California Institute of Technology)
[View Abstract]
Many NFL players appear to save poorly and face financial turmoil when they retire. Anecdotal evidence and one survey indicate high rates of financial distress, but, the data are not conclusive or thorough. We track two cohorts of players (so there is no survivorship bias) using a variety of available modern data.
Jan 05, 2015 8:00 am, Sheraton Boston, Gardner Room
American Economic Association
Causes of Health Differences
(I1)
Presiding:
Kathleen Carey
(Boston University)
The Heterogeneous Long-Run Health Consequences of Rural-Urban Migration
Janna E. Johnson
(University of Minnesota)
Evan J. Taylor
(University of Michigan)
[View Abstract]
Rural-urban migration is a key component of economic development, and is currently causing concern among policymakers and urban planners in rapidly developing countries such as China and India. While the economic consequences of such migration have been extensively studied, little is known about the health effects of moving to urban areas, especially over the long term. We estimate the causal effect of rural-urban migration in the United States, focusing on individuals born in the Dakotas and Montana over the period 1916-1927. As a consequence of the mechanization of agriculture, over half of this group migrated out of this area at young ages, almost all of them to urban areas. Using a unique source of data containing exact place of birth and death information, we show that despite the positive selection of migrants on characteristics like education, migrants experience decreased longevity in older age compared to non-migrants. Our results show a reduction in the ten-year survival rate between ages 65 and 75 of 11% for migrants relative to non-migrants. We control for selection using the amount of mail carried on railroads in 1924 as an instrument for migration. This instrument is strongly correlated with migration to urban areas, and we believe it to be unlikely correlated with older age mortality. We show that if it is correlated with longevity, the correlation is likely positive. In this case, our results underestimate the negative effect of migration on longevity, and the reduction in life expectancy for migrants relative to non-migrants is even larger than our IV estimates. We also estimate marginal treatment effects, which show that the negative effects of rural-urban migration on longevity are largest for lower ability migrants, and higher ability migrants may even gain life expectancy from moving to urban areas.
Why Are Smoking Ban Effect Estimates So Inconclusive? Evidence from Hospitalization Data and Birth Statistics
Nicolas R. Ziebarth
(Cornell University)
Tom Siedler
(University of Hamburg)
Michael Kvasnicka
(Otto von Guericke University Magdeburg)
[View Abstract]
This paper studies the impact of smoking bans on health. It exploits the staggering implementation of these laws over time and across states in Germany. Previous studies mostly focused on changes in smoking behavior; however, the findings from these studies are not always conclusive. We focus on short- and medium-term health effects of smoking bans to better understand the underlying mechanisms that may be triggered by such bans.
For our empirical analysis, we use (i) the universe of all 170m German hospitalizations from 2000-2010 and (ii) information from birth statistics. Hospitalizations capture severe health effects for children and adults. Birth statistics capture the effects on prenatal health which potentially affect newborns throughout their lives. The German institutional setting is particularly suited for this type of analysis: Germany has one of the highest densities of hospital beds worldwide, universal health care coverage, and almost no access barriers for inpatient care treatments.
Additional evidence from (a) a survey that we conducted among citizens of Berlin as well as (b) from merged daily county-level weather and pollution data provide additional insight.
Our results show that cardiovascular admissions decreased by about 1.5% percent as a result of the smoking bans. We find that this reduction is reinforced on hot and sunny days, but is less pronounced—and may even have a positive sign—on weekends and in counties with high unemployment rate. We provide several explanations for these findings. For example, the findings suggest that smoking bans are more effective under environmental conditions that adversely affect the human body, independent of tobacco smoke. The fact that compliance with smoking bans is imperfect and people engage in avoidance behavior helps explain why such bans are less effective on weekends and in regions with a higher share of less time constraint smokers.
Food Choices, Novelty Consumption and Health: Evidence from the East German Transition to Capitalism
Nicolas R. Ziebarth
(Cornell University)
Davide Dragone
(University of Bologna)
[View Abstract]
Economic development goes along with an increase in food products and choices which arguably increases individual welfare. Economic development also often goes along with increases in BMI and obesity. When consumers enjoy consuming new goods, changes in consumption may produce persistent weight and health consequences.
The first part of the paper develops a model of food choice that helps explain these phenomena. The model builds on the concept of a "novelty effect", which implies that the marginal utility of consumption is higher, the lower the past consumption of a good. This induces an initially high consumption that subsequently decreases over time as consumers get used to the good. When the availability of new food products increases, utility increases but the change in the optimal basket of demanded goods can produce relevant and persistent changes in weight and health. In particular, the larger consumption of previously unknown or unavailable products may increase BMI and lead to persistent obesity.
The second part of the paper exploits the natural experiment of the German reunification to empirically test the model predictions. It is a well-known fact that the unexpected fall of the Berlin Wall in 1989 increased food choices over night in East Germany. We make use of two representative cross-sectional datasets: (i) the German National Health Survey East-West 1991 and (ii) the German National Health Interview and Examination Survey 1998." The two surveys include a battery of current and retrospective information on nutrition, health, and body weight.
The empirical evidence shows that, shortly after the fall of communism, East Germans changed their eating habits, gained weight, became more obese and less healthy. The change in eating habits and weight is still detectable a decade after capitalism increased food choices and welfare.
Spring Forward and Fall Back in Health? The Effect of Daylight Saving Time on Acute Myocardial Infarction
Shinsuke Tanaka
(Tufts University)
Hideto Koizumi
(Innovations for Poverty Action)
[View Abstract]
Since its inception, the enduring and contentious debate over the practice of daylight saving time (DST) has centered on its potential effect on human health. However, surprisingly little reliable quantitative evidence is available to date. In this paper, we address this issue by examining a relationship between DST and acute myocardial infarction (AMI) in Indiana. We find that DST has a significant effect on AMI among working-age population. In particular, we find that DST led to sharp and lasting increases in admissions among inpatients. The estimated effects are larger in magnitude among males than females and after the spring transition relative to the autumn transition.
Can We Trust Online Physician Ratings? Evidence from Cardiac Surgeons in Florida
Susan F. Lu
(University of Rochester)
Huaxia Rui
(University of Rochester)
[View Abstract]
Despite heated debate about the pros and cons of online physician ratings, very little systematic work examines the correlation between physicians’ online ratings and their actual medical performance. Using patients’ ratings of physicians at RateMDs and the Florida Hospital Discharge data, we investigate whether online ratings reflect physicians’ medical skill by means of a two-stage model that takes into account patients’ ratings-based selection of cardiac surgeons. Estimation results suggest that five-star surgeons perform significantly better and are more likely to be selected by sicker patients than lower-rated surgeons. Our findings suggest that we can trust online physician reviews, at least of cardiac surgeons.
Jan 05, 2015 8:00 am, Hynes Convention Center, Room 201
American Economic Association
Compensation and Rents in the Finance Industry
(J3, G2)
Presiding:
Paul Oyer
(Stanford University)
Adverse Selection and Intermediation Chains
Vincent Glode
(University of Pennsylvania)
Christian C. Opp
(University of Pennsylvania)
[View Abstract]
[Download Preview] We propose a parsimonious model of over-the-counter trading with asymmetric information to rationalize the existence of intermediation chains that stand between buyers and sellers of assets. Trading an asset through several heterogeneously informed intermediaries can preserve the efficiency of trade by reallocating an information asymmetry over many sequential transactions. Such an intermediation chain ensures that the adverse selection problems counterparties face in each transaction are small enough to allow for socially efficient trading strategies by all parties involved. Our model makes novel predictions about network formation and rent extraction when adverse selection problems impede the efficiency of trade.
Wages and Human Capital in Finance: International Evidence 1970-2007
Hamid Boustanifar
(BI Norwegian Business School)
Everett Grant
(University of Virginia)
Thomas Philippon
(New York University)
Ariel Reshef
(University of Virginia)
[View Abstract]
[Download Preview] We study the allocation and compensation of human capital in the finance industry in a set of developed economies in 1970--2005. Finance relative skill intensity and skilled wages generally increase---but not in all countries, and to varying degrees. These changes explain 36% of the average increase in overall skill premium. Financial deregulation, financial globalization and bank concentration are the most important factors driving these patterns. Differential investment in information and communication technology does not have robust or causal explanatory power. We show that high finance wages attract skilled immigration to finance, raising concerns for "brain drain".
Government Distortions, Bankers' Pay and Excessive Risk
Misa Tanaka
(Bank of England)
John Thanassoulis
(University of Warwick)
[View Abstract]
[Download Preview] If debt markets can price the risk of projects accurately, then the
interests of shareholders and the regulator diverge. Shareholders see their
value maximised by an equity-rewarded executive. However we demonstrate that
such executives destroy welfare by selecting excessively risky projects due
to two types of government-induced distortions: the debt tax shield and the
implicit too-big-to-fail government guarantee. We analyse the compensation
regulations open to the regulator, and assess how a bank can game the
intervention. Rewarding in debt and deferred equity-based pay cannot serve
the regulator by reducing excessive risk taking. Mandatory clawbacks can
reduce excessive risk taking but are vulnerable to gaming via options and
deferred pay. Rebasing RoE metrics can also serve the regulator and are
robust to options and deferred pay based on EBIT, but not deferred equity.
Bonus caps only serve the regulator if executives wish to maximise social
welfare when indifferent.
Are Bankers Worth Their Pay? Evidence from a Talent Measure
Claire Celerier
(University of Zurich)
Boris Vallee
(Harvard Business School)
[View Abstract]
This paper investigates empirically the source of the wage premium in the finance industry. We exploit the ranking in a competitive examination to build a precise measure of talent. By using a comprehensive compensation survey among an educational elite, we show that wage returns to talent are relatively high in the finance industry. This higher sensitivity to talent explains both the finance wage premium and its evolution.
Discussants:
David Scharfstein
(Harvard Business School)
Camille Landais
(London School of Economics)
Alex Edmans
(London Business School)
Joshua Rauh
(Stanford University)
Jan 05, 2015 8:00 am, Sheraton Boston, Back Bay Ballroom B
American Economic Association
Consumer Choice and Welfare Through a Behavioral Lens: Empirical Evidence from Low-Income Populations
(D1, D8)
Presiding:
Ted O'Donoghue
(Cornell University)
Inter-Household Variation in Prices: Who Pays More, and Why?
Brian Dillon
(University of Washington)
Ted O'Donoghue
(Cornell University)
Joachim De Weerdt
(Economic Development Initiatives)
[View Abstract]
[Download Preview] To understand the wellbeing of households it is critical to properly measure the prices of the goods that they buy. This is especially true when rich and poor households might pay different prices because the latter face binding credit constraints that prevent them from taking advantage of bulk discounts. We use data from transaction diaries maintained by 1,499 households in Tanzania over a two week period, covering over 55,000 purchases, to decompose variation in consumer prices into the component due to bulk discounting and the component due to household-specific variation. We find that poor households do not generally pay higher prices than rich households, and that credit constraints are not likely to be the primary impediment to bulk purchasing. Across all items, the value of foregone consumption from not taking advantage of bulk discounts is 7.4% of expenditure. Wealthy households, urban households, and female-headed households are less likely than other households to take advantage of bulk discounts.
To Charge or Not to Charge: Evidence from a Health Produces Experiment in Uganda
Greg Fischer
(London School of Economics)
Dean Karlan
(Yale University and IPA)
Margaret McConnell
(Harvard University)
Pia Raffler
(Yale University)
[View Abstract]
For health products in developing countries, the question of whether to charge or not to charge is critical for accomplishing common policy objectives of wide, appropriate and sustainable distribution and usage. Competing philosophical arguments and limited empirical answers have led to constant debate. We conduct a randomized trial in Northern Uganda to test a theory focused on price expectations and learning across three health products specifically chosen for their likely differences in the scope for learning. In line with prior studies, when the product has potential for positive learning, we find that future demand is not altered by a free distribution. However, for products without scope for positive learning, future demand is lower after a free distribution than after a distribution at market prices.
Pay as You Go: The Effect of Prepaid Metering on Electricity Use in South Africa
B. Kelsey Jack
(Tufts University)
Grant Smith
(University of Cape Town)
[View Abstract]
Increasing block tariffs are used throughout the developed and developing world to price electricity. In South Africa, the tariff schedule has two intended purposes: to cross subsidize from high to low (poor) users and to reward energy conservation. These policy goals require that consumers respond to the marginal price. We use a ten year panel for the universe of residential electricity customers in Cape Town to examine electricity use patterns. Consistent with previous findings from the United States, usage patterns suggest that customers respond to average, not marginal, price. We take advantage of a quasi-random phase in of prepaid meters, which allow customers to purchase smaller increments of electricity more frequently, to study the effect of payment format on consumption patterns. Results are consistent with an increase in the salience of complex, non-linear prices when consumers purchase electricity upfront. Through adjustments in purchasing patterns, the cost per kilowatt hour paid by low consumers falls, as does average electricity consumption.
The Effect of SNAP Take-up on Shopping Behavior: Evidence from a Retailer Loyalty Panel
Justine Hastings
(Brown University)
Jesse M. Shapiro
(University of Chicago)
[View Abstract]
We study the shopping behavior of SNAP recipients using new data from a grocery retailer on a large panel of loyal customers. We find that following the start of SNAP benefits, households use significantly fewer coupons in their shopping. The effect is not driven by the composition or quantity of items purchased and is present only for SNAP-eligible items. We interpret the findings in terms of moral hazard and mental accounting in shopping effort.
Discussants:
Jonathan Robinson
(University of California-Santa Cruz)
Diane Schanzenbach
(Northwestern University)
Koichiro Ito
(Boston University)
Alex Rees-Jones
(University of Pennsylvania)
Jan 05, 2015 8:00 am, Hynes Convention Center, Room 207
American Economic Association
Credit and Balance Sheets During the Great Recession
(E2, D1)
Presiding:
Christopher Carroll
(Johns Hopkins University)
Debt and the Consumption Response to Household Income Shocks
Scott Ross Baker
(Northwestern University)
[View Abstract]
[Download Preview] This paper exploits a detailed new dataset with comprehensive panel financial information on millions of American households to investigate the interaction between household balance sheets, income, and consumption during the Great Recession. In particular, I test whether consumption among households with higher levels of debt is more sensitive to a given change in income. I match households to their employers and use shocks to these employers to derive persistent and unanticipated changes in household income. I find that highly-indebted households are more sensitive to these income fluctuations and that a one standard deviation increase in debt-to-asset ratios increases the elasticity of consumption by approximately 25%. I employ household savings and credit availability data to show that these results are driven largely by borrowing and liquidity constraints. These estimates suggest that the drop in consumption during the 2007-2009 recession was approximately 20% greater than what would have been seen with the household balance sheet positions in 1983.
Why Did So Many Subprime Borrowers Default During the Crisis: Loose Credit or Plummeting Prices?
Christopher Palmer
(University of California-Berkeley)
[View Abstract]
[Download Preview] The foreclosure rate of subprime mortgages increased markedly across 2003-2007 borrower cohorts—subprime mortgages originated in 2006-2007 were roughly three times more likely to default within three years of origination than mortgages originated in 2003-2004. Many have argued that this surge in subprime defaults represents a deterioration in subprime lending standards over time. I quantify the importance of an alternative hypothesis: later cohorts defaulted at higher rates in large part because house price declines left them more likely to have negative equity. Using loan-level data, I find that changing borrower and loan characteristics explain approximately 30% of the difference in cohort default rates, with almost of all of the remaining heterogeneity across cohorts attributable to the price cycle. To account for the endogeneity of prices, I employ a nonlinear instrumental-variables approach that instruments for house price changes with long-run regional variation in house-price cyclicality. Control function results confirm that the relationship between price declines and defaults is causal and explains the majority of the disparity in cohort performance. I conclude that if 2006 borrowers had faced the same prices the average 2003 borrower did, their annual default rate would have dropped from 12% to 5.6%.
The Wealthy Hand-to-Mouth
Greg Kaplan
(Princeton University)
Gianluca Violante
(New York University)
Justin Weidner
(Princeton University)
[View Abstract]
The foreclosure rate of subprime mortgages increased markedly across 2003-2007 borrower cohorts—subprime mortgages originated in 2006-2007 were roughly three times more likely to default within three years of origination than mortgages originated in 2003-2004. Many have argued that this surge in subprime defaults represents a deterioration in subprime lending standards over time. I quantify the importance of an alternative hypothesis: later cohorts defaulted at higher rates in large part because house price declines left them more likely to have negative equity. Using loan-level data, I find that changing borrower and loan characteristics explain approximately 30% of the difference in cohort default rates, with almost of all of the remaining heterogeneity across cohorts attributable to the price cycle. To account for the endogeneity of prices, I employ a nonlinear instrumental-variables approach that instruments for house price changes with long-run regional variation in house-price cyclicality. Control function results confirm that the relationship between price declines and defaults is causal and explains the majority of the disparity in cohort performance. I conclude that if 2006 borrowers had faced the same prices the average 2003 borrower did, their annual default rate would have dropped from 12% to 5.6%.
Do Credit Market Shocks Affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and 'Normal' Economic Times
Michael Greenstone
(University of Chicago)
Alexandre Mas
(Princeton University)
Hoai-Luu Nguyen
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We estimate the effect of the reduction in credit supply that followed the 2008 financial crisis on the real economy. We predict county lending shocks using variation in pre-crisis bank market shares and estimated bank supply-shifts. Counties with negative predicted shocks experienced declines in small business loan originations, indicating that it is costly for these businesses to find new lenders. Using confidential microdata from the Longitudinal Business Database, we find that the 2007-2009 lending shocks accounted for statistically significant, but economically small, declines in both small firm and overall employment. Predicted lending shocks affected lending but not employment from 1997-2007.
Discussants:
Adi Sunderam
(Harvard Business School)
Tomasz Piskorski
(Columbia University)
Theresa Kuchler
(New York University)
Brigitte C. Madrian
(Harvard University)
Jan 05, 2015 8:00 am, Sheraton Boston, Liberty B
American Economic Association
Economics of Education
(I2)
Presiding:
Celeste Carruthers
(University of Tennessee)
Education, Initial Labor Market Conditions and Lifetime Outcomes: Evidence from Europe
David Cutler
(Harvard University)
Wei Huang
(Harvard University)
Adriana Lleras-Muney
(University of California-Los Angeles)
[View Abstract]
We examine the impact of initial labor market conditions and education on lifetime health and economic outcomes in Europe. The data we employ is from various waves of the Eurobarometer. Our outcomes include income, life satisfaction, self-reported health, and risk factor prevalence. Our preliminary results confirm that a higher unemployment rate at graduation is associated with lower income, higher BMI, lower life satisfaction, and more smoking and drinking later in life. Further, education plays a protective role for these outcomes, especially when unemployment rates are high: the immediate and cumulative losses associated with poor labor market outcomes are substantially lower for more educated individuals. The results also suggest that initial labor market conditions help to explain large variation across European countries in education gradients in income and health.
Heterogeneity over the Life-Cycle: Re-Examining the Wage Returns to Education in Britain
Franz Buscha
(University of Westminster)
Matt Dickson
(University of Bath)
[View Abstract]
[Download Preview] This paper uses data from the UK Labour Force Surveys 1986-2011 and the New Earnings Survey Panel Dataset 1975-2011 to re-examine the wage returns to the 1972 Raising of the School Leaving Age (RoSLA). We show that there is substantial variation in the impact of RoSLA over the lifecycle, which is masked by standard regression discontinuity (RDD) estimates. Moreover, the discontinuity in labour market experience at the point of RoSLA has a significant negative effect on the earnings of compliers. Our results show that the lifetime effect of 1972 RoSLA was -2% with large negative returns in the early part of the lifecycle. Our findings are in stark contrast to previously estimated positive effects of additional schooling and our result has implications for the interpretation of the estimated causal effect of education on earnings in this case and in general when RDD designs exploit compulsory school leaving age reforms to derive causal estimates.
The Intended and Unintended Effects of Matching Grants on Education Expenditure: Evidence from Panel County Data in Rural China
Wei Ha
(Peking University)
Xiaoyu Chen
(Peking University)
Xiaohao Ding
(Peking University)
[View Abstract]
The Chinese Government introduced a massive financing programme in rural China, whereby central and provincial governments provided matching grants to county governments to boost their expenditure on compulsory education. This marked a historical watershed as compulsory education was for long regarded as the responsibility of the county governments. It was first implemented in poor western provinces in 2006 before rolling out to all provinces in China in 2007. Between 2006 and 2011, central and provincial governments mobilized 600 billion RMB, of which 55% came from central government coffer. Existing research shows that while the new mechanism reduces the rural-urban disparities slightly and increases on-budget per student spending on education moderately, it has not significantly narrowed the rural-urban gap and there is no discernable impact on the total per student expenditure. There could be two reasons behind this. First, the existing studies might not capture the true effects of the new mechanism due to their data and methodology limitations. Second, it may not be the data or methodology that confounds the results but the governments at various levels manipulated their spending patterns to crow out the effect of the matching grants. This paper uses a unique matched dataset on government finance and the education finance data of all counties in China and employs DID, PSM and Simulated Instrumental Variables techniques to empirically examine the impact of intergovernmental grants on education expenditure. This study intends to demystify the apparent lack of impact on education spending by focusing on the behavioral responses of various levels of governments and students alike. The findings will help us understand the fiscal behavior of Chinese government agents under the context of a national intergovernmental transfer scheme. It will not only inform its implementation but also shed lights on the design of other programmes in the future.
Adverse effects of increased education efficiency? The impact of shortening high school tenure on graduation age, grade repetitions and graduation rates
Mathias Huebener
(DIW Berlin)
Jan Marcus
(DIW Berlin)
[View Abstract]
[Download Preview] In designing education systems, policy-makers face a trade-off between the provision of higher levels of schooling and earlier labour market entries. A fundamental education reform in Germany tackles this trade-off by increasing education efficiency: The time in high school is reduced by one year while the total number of instruction hours is left unchanged. Employing administrative data on all pupils in Germany, we exploit both temporal and regional variation in the implementation of the reform and study the overall effectiveness of this reform. We find that the shortening of the high school track length by one year reduces the mean high school graduation age by 10 months. Grade repetition rates increase by more than 20 per cent, but the share of a cohort graduating from high school with university entrance qualifications is not affected. The results indicate the reform's success in reducing graduation age, though it stays behind its potential benefits for labour markets, pension schemes and fertility because of higher grade repetition rates.
Who Wears the Trousers in the Family? Intra-Household Resource Control, Subjective Expectations and Human Capital Investment
Alex Armand
(University of Navarra and Institute for Fiscal Studies)
[View Abstract]
[Download Preview] This paper studies how the interaction between intra-household allocation of resources and parental beliefs about the returns to education influences human capital investment among poor households. For this purpose, I study a conditional cash transfer program in the Republic of Macedonia, aiming at improving secondary school enrollment among children in poor households. For identification I exploit the random allocation of payments either to mothers or household heads, together with a unique information on parental subjective expectations of returns to schooling. I show that targeting mothers leads to an increase in secondary school enrollment only for children whose parental returns are sufficiently high at the beginning of the program. This effect is associated with an increase in individual expenditure shares on education for this group. I find no differential impact for other inputs, such as monitoring of school attendance and time use. Overall, I show that the effect of channeling resources to mothers is strictly related to heterogeneity in parental perceived returns to schooling.
Jan 05, 2015 8:00 am, Hynes Convention Center, Room 209
American Economic Association
Emerging Markets
(F3)
Presiding:
Niloufer Sohrabji
(Simmons College)
Optimal Design of a Financial and Trade Union
Vania Stavrakeva
(London Business School)
Timothy McQuade
(Stanford University)
[View Abstract]
In an environment with endogenously incomplete markets, we study the optimal design of the EU as both a trade and a financial union. We derive the optimal allocation conditional on the participation constraints of both the Core (Germany) and the Periphery (GIIPS) being satisfied in every period such that neither country would choose to leave the EU either through default or unilaterally manipulating its terms of trade. We show that this allocation can be decentralized using lump sum transfers, capital account controls and industry specific taxes/subsidies on physical capital.
In this environment, we study the optimal restructuring of the European union given the recent crisis in the Periphery. The policies required to incentivize the Periphery not to default are well understood in the literature and include transfers (debt forgiveness), potentially combined with limits on borrowing and on investment if there are concerns regarding future default (see Kehoe and Perri, 2004 for example).
The novel aspect of this paper is to consider how the current crisis affects the desire of the EU members, and more specifically the Core, to preserve the free trade union. One of the main features of the crisis in the Periphery is the lack of investment. From the trade literature we know that if a country becomes too large relative to its trade partners, the benefits of free trade diminish and the large country can even win the trade war. Therefore, as the Periphery shrinks its capital stock, the free trade union might become less beneficial to the Core and the participation constraint of the Core might bind in the future. In order to ensure that the Core does not leave the EU, the EU will have to allocate a larger share of the gains from cooperation to the Core and to decrease its ability to manipulate its terms of trade. The latter can be achieved by imposing conditionality on the Periphery in the form of capital subsidies for industries in which the Core has a comparative advantage.
Why Do Emerging Economies Borrow in Foreign Currency?
Charles Engel
(University of Wisconsin-Madison)
Jungjae Park
(National University of Singapore)
[View Abstract]
This paper seeks to explain why emerging economies borrow in foreign currency in international financial markets. We develop a DSGE model in which foreign lenders offer a sovereign government in a small open economy an optimal self-enforcing contract in which borrowing is denominated in domestic currency (the small open economy’s currency). The ability of the government to inflate away debt by debasing its currency, however, gives domestic currency debt a certain degree of state-contingency through changes in the real value of debt. The optimal lending contract allows the economy for a certain level of inflation in bad times but asks for deflation in good times to compensate the lenders for the loss incurred in bad times. However, due to the government’s incentive to walk away from the contract by inflating debt more than specified in the contract, the contract provides a limited degree of consumption insurance compared to a complete markets setting. To a small open economy with a high income variance, the contract provides a low degree of consumption insurance compared to a country with a low income variance, because the higher the income variance of a small open economy is, it becomes more difficult for the optimal contract to satisfy incentive compatible constraints at a good income shock time. For small open economies with an income variance above a certain level, the value of borrowing in foreign currency outweighs the value of following the domestic debt contract, so that the small open economy with a high income variance chooses to borrow in foreign currency. The numerical results of our model show that countries with a high income variance and a low income borrow in foreign currency, which is consistent with the fact that only emerging economies suffer from "original sin".
International Financial Spillovers to Emerging Market Economies: How Important Are Economic Fundamentals?
Shaghil Ahmed
(Federal Reserve Board)
Brahima Coulibaly
(Federal Reserve Board)
Andrei Zlate
(Federal Reserve Board)
[View Abstract]
[Download Preview] We assess the importance of economic fundamentals in the transmission of international shocks to financial markets in various emerging market economies (EMEs). Our analysis covers the so-called “taper-tantrum” episode of 2013 and six earlier episodes of severe EME-wide financial stress since about the mid-1990s. Cross-country regressions applied to a sample 20 EMEs lead us to the following results: (1) EMEs with relatively better economic fundamentals suffered less deterioration in financial markets during the 2013 taper-tantrum episode. (2) Differentiation among EMEs set in quite early and persisted throughout this episode. (3) Controlling for economic fundamentals, we also find that, during the taper tantrum, financial conditions deteriorated more in those EMEs that had earlier experienced larger private capital inflows and greater exchange rate appreciation. (4) For earlier episodes, we find little evidence of investor differentiation across EMEs being explained by differences in their relative vulnerabilities during EME crises of the 1990s and early 2000s. (5) That said, differentiation across EMEs based on fundamentals does not appear to be unique to the 2013 episode. Differences in economic fundamentals appeared to play a role in explaining the heterogeneous EME financial market responses during the global financial crisis of 2008, and the role of fundamentals appeared to progressively increase through the European crisis in 2011 and subsequently the 2013 taper tantrum.
Optimal Capital Controls and Real Exchange Rate Policies: A Pecuniary Externality Perspective
Benigno Ginaluca
(London School of Economics)
Christopher Otrok
(University of Missouri)
Alessandro Rebucci
(Johns Hopkins University)
Eric R. Young
(University of Virginia)
Huigang Chen
(MarketShare Partners)
[View Abstract]
In response to the global financial crisis a new policy paradigm emerged in which capital controls and other quantitative restrictions on credit flows have become part of the standard crisis prevention policy toolkit. A new strand of theoretical literature studies the use of capital controls in a context in which pecuniary externality justifies policy interventions. Within the same theoretical framework adopted in this literature, we show that the optimal design of crisis prevention (ex-ante) policies depends on the effectiveness of crisis management (ex-post) policies. This interaction between ex-ante and ex-post policies gives rise to a new rationale for the use of capital controls. Specifically, we show that when ex-post policies are effective in containing crises, there is no need to intervene ex-ante with capital controls. On the other hand, if crises management policies entail efficiency costs and hence lose effectiveness, then the optimal policy mix consists of both ex-ante and ex-post interventions so that crises prevention policies become desirable. In our model, the optimal policy mix combines capital controls in tranquil times with real exchange rate support to limit its depreciation during crises times and yields welfare gains of more than 1% in consumption equivalence terms.
Countering Sanctions: The Unequal Geographic Impact of Economic Sanctions in North Korea
Yong Suk Lee
(Stanford University)
[View Abstract]
Countries impose economic sanctions to punish and hopefully change the behavior of the sanctioned country. Recently, sanctions have not been effective in changing behavior. This paper examines how an autocratic regime domestically counters the impact of economic sanctions. Specifically, I examine how the relaxing and tightening of sanctions impact the urban areas relative the hinterlands in North Korea. A stylized model predicts that, as long as non-compliance is not too costly, the autocrat would redistribute resources to the more valuable area when sanctions increase. I use the satellite night lights data to create average luminosity for each one minute by one minute cell between 1992 and 2010. I construct a sanctions index that vary based on the international response to North Korea’s nuclear pursuit and examine how sanctions impact luminosity across different geographic units. I find that an additional sanction decreases luminosity by 0.45 percent or GDP by 0.09 percent in the hinterlands. However, sanctions increase luminosity in the cities by 0.29 percent or GDP by 0.06 percent. The luminosity increase is largest in the capital Pyongyang. There is no differential impact of sanctions on the military regions relative to the hinterlands. I further find that sanctions increase economic activity along the Chinese border but reduce economic activity in Kaesong, a special economic region bordering South Korea. Sanctions that fail to change the behavior of leaders may eventually increase regional inequality and impose a higher cost on the already marginalized hinterlands.
Jan 05, 2015 8:00 am, Hynes Convention Center, Room 206
American Economic Association
Field Experiments
(C9)
Presiding:
David Reiley
(Google, Inc.)
Do Taxes Crowd Out Intrinsic Motivation? Field-Experimental Evidence from Germany
Johannes Rincke
(University of Erlangen-Nuremberg)
Nadja Dwenger
(Max Planck Institute)
Pierre Boyer
(University of Mannheim)
[View Abstract]
[Download Preview] This paper studies how imposing norms on contribution behavior affects individuals' intrinsic motivation. We consider an urban area in Germany where the Catholic Church collects a local church levy as a charitable donation, despite the fact that the levy is legally a tax. In cooperation with the church, we design a natural randomized field experiment with letter treatments informing individuals that the church levy is in fact a tax. Guided by a simple theoretical model, we use baseline contribution behavior to measure individuals' intrinsic motivation and demonstrate that treatment effects differ strongly across motivational types. Among weakly intrinsically motivated individuals, communicating the existence of a legal norm results in a significant crowd-out of intrinsic motivation. In contrast, strongly intrinsically motivated individuals do not show any treatment response. We cross-validate our findings using alternative motivational measures derived from an extensive post-treatment survey.
Public Health Voucher, Psychological Value, and Persuasion: An Experimental Study
Yidian Liu
(Central University of Finance and Economics)
Peng Wang
(Central University of Finance and Economics)
Nan Guo
(Central University of Finance and Economics)
Yuxi Jia
(Central University of Finance and Economics)
Yakun Hu
(Central University of Finance and Economics)
[View Abstract]
[Download Preview] Inefficient public health intervention is a universal problem. Several provinces in China have pioneered a public health voucher system, issuing voucher to residents for them to claim free public health services with voucher. Although not its original intention, we deem the voucher system could increase the utilization of these services through a behavioral way. This paper experimentally tests whether introducing public health voucher could add the psychological value people attach to health service and thus persuade more of them to take the service. We find that voucher does induce more demand and raise the psychological value. The findings have significant policy implications on public health intervention and some other fields relating to persuasion as well.
Experiments:
(1) Field experiment: We give some people a voucher, and they can use the voucher to claim a public health packet in the next day. Another group of people also get this opportunity to claim a packet, but they have no voucher, and they should just come to get the packet free. We find that more people with a voucher come than those without a voucher.
(2) We tell people when they come to claim the packet that they have a chance to give up the packet and get some monetary compensation. BDM mechanism is used here. We find that people with a voucher demand more compensation than those without a voucher.
(3) Laboratory experiment: We follow Kahneman, Knetsch, and Thaler’s (1990) design to do an endowment effect experiment. We find that people’s willingness to pay and willingness to accept for the voucher (voucher offers people an opportunity to claim the packet) are both higher than for simply an opportunity (offering them an opportunity to claim the packet).
Results:
(1) Voucher could let more people to accept free services.
(2) Voucher could increase the psychological value people attach to services.
Beyond Enforcement - Experimental Evidence on Commitment Requests
Tobias Cagala
(University of Nuremberg and University of Munich)
Ulrich Glogowsky
(University of Nuremberg and University of Munich)
Johannes Rincke
(University of Nuremberg and CESifo)
[View Abstract]
In environments where enforcement through third-party information is unavailable, individuals are often required to commit to rules by signing `I hereby declare' statements. Combining evidence from a randomized field experiment and laboratory experiments, we study how such commitment requests affect compliance. Two main findings emerge. First, commitment requests significantly affect attitudes towards cheating: subjects are less likely to state that they find cheating acceptable, and they report higher psychic costs of cheating. Second, commitment has no effect on cheating behavior. Our findings question the use of commitment requests in economically important contexts like insurance and income reporting to tax authorities.
Introducing Mobile Money in Rural Mozambique: Evidence from a Field Experiment
Catia Batista
(Nova University of Lisbon)
Pedro C. Vicente
(Nova University of Lisbon)
[View Abstract]
The limitations of access to finance in Africa, together with the recent boom in cell phone usage in that continent, created high expectations regarding the introduction of mobile money in many African countries. The success story of M-PESA in Kenya raised the bar further. We designed and conducted a field experiment to assess the impact of randomized mobile money dissemination in rural Mozambique. For this purpose we benefit from the fact that mobile money was only recently launched in the country, allowing for the identification of a pure control group. This paper reports on the results of this ongoing project after dissemination efforts in rural locations and among urban migrants in the Maputo capital city. Dissemination in rural areas included the recruitment and training of mobile money agents in treatment locations, community meetings and theaters, as well as individual rural campaigning. Dissemination among urban migrants (the family members of households in the rural sample) was individually randomized to distinguish between trust, cost and informational treatments. Administrative and behavioral data both show clear adherence to the services in the rural treatment group. Consistently, financial literacy and trust outcomes are also positively affected by the treatment. We also present behavioral and administrative evidence that the willingness to remit was increased by the availability of mobile money. Finally, we observe a tendency for mobile money to substitute traditional alternatives for both savings and remittances. We expect to have additional results on outcomes of the randomized intervention in the next few months.
Jan 05, 2015 8:00 am, Sheraton Boston, The Fens
American Economic Association
Firms and Contracts
(D2)
Presiding:
Julie Mortimer
(Boston College)
Employment, Markets, Contracts, and the Scope of the Firm
Birger Wernerfelt
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We look at the economic functions of firms, markets, and contracts, and characterize the optimal scope of the firm. Governance structures appear as equilibria and are compared in terms of production costs—determined by a tradeoff between standardization and adaptation, and bargaining costs—sometimes incurred when new prices have to be agreed upon. Under natural conditions, employment, markets, or sequential contracting weakly dominate all other equilibria. As firms become larger, gains from standardizing come at the cost of increasingly poor adaptation, ultimately bounding their scope. The model rests on standard assumptions, is consistent with the managerial literature on the scope of the firm, and makes predictions based on factors that do not play a role in contemporary theories of the firm.
Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance
Carlo Altomonte
(Bocconi University)
Armando Rungi
(IMT Lucca)
[View Abstract]
[Download Preview] We explore the nature of Business Groups, that is network-like forms of hierarchical organization between legally autonomous
firms spanning both within and across national borders. Exploiting a unique dataset of 270,474 headquarters controlling more than 1,500,000 (domestic and foreign) affiliates in all countries worldwide, we
find that business groups account for a signi
cant part of value-added generation in both developed and developing countries, with a prevalence in the latter. In order to characterize their boundaries, we distinguish between an affiliate vs. a group-level index of vertical integration, as well as an entropy-like metric able to summarize the hierarchical complexity of a group and its trade-off between exploitation of knowledge as an input across the hierarchy and the associated communication costs. We relate these metrics to host country institutional characteristics, as well as to the performance of affiliates across business groups. Conditional on institutional quality, a negative correlation exists between vertical integration and hierarchical complexity in defi
ning the boundaries of business groups. We also
find a robust (albeit non-linear) positive relationship between a groups hierarchical complexity and productivity which dominates the already known correlation between vertical integration and productivity. Results are in line with the theoretical framework of knowledge-based hierarchies developed by the literature, in which intangible assets are a complementary input in the production processes.
Delegating relational contracts to corruptible intermediaries
Marta Troya Martinez
(New Economic School-Moscow)
Liam Wren-Lewis
(Paris School of Economics)
[View Abstract]
[Download Preview] This article explores the links between productive relational contracts and corruption. The model considers a context where responsibility for a relational contract is delegated to a supervisor who cares in part about the profit of the relationship, and in part about the kickbacks paid by the agent. The agent can both exert effort that increases production and make corrupt kickbacks to the supervisor; the incentives for both come through self-enforcing contracts. We show that delegation to such a supervisor may increase social welfare by easing the time-inconsistency problem of paying ex-post incentive payments, even though corruption occurs in equilibrium. We also establish the connection between the agent's compensation scheme, his effort and the associated kickbacks.
Testing for the Interaction of Formal and Informal Contracts
Giorgio Zanarone
(University College of Financial Studies)
Ricard Gil
(Johns Hopkins University)
[View Abstract]
[Download Preview] As documented by Macauley (1963) and others, informal contracts are pervasive in modern economies. Yet, systematic empirical evidence on their scope and role is still limited. In this paper, we provide a methodological framework to test for the presence and performance of informal contracts and their interaction with formal ones. First, we present a model that organizes the main testable predictions from economic theories of informal contracting. Next, we examine how, and to what extent, existing empirical works support the model’s predictions. Finally, we discuss strategies for testing theoretical predictions for which conclusive evidence is still missing, as well as unexplored research opportunities offered by available studies and data.
A Theory of Family Ownership
Jin Yu
(University of New South Wales)
Pavle Radicevic
(University of New South Wales)
[View Abstract]
[Download Preview] To explain the pervasive evidence on family ownership and the separation of family ownership and control, we develop a financial contracting model for family firms with risky borrowing. We model a family owner as a large shareholder with default aversion as she values control that is lost in default. For a given level of default aversion, a high (low) equity stake tilts the owner towards maximizing equity (debt). This gives rise to the optimal ownership that incentivizes the owner to maximize her total welfare. The result shows that the separation of ownership and control is not necessarily sub-optimal for levered family firms and is consistent with the empirical evidence on the non-linear relation between family ownership and firm performance (Anderson and Reeb (2003)). In addition, our model generates three novel empirical predictions on family ownership.
Jan 05, 2015 8:00 am, Sheraton Boston, Back Bay Ballroom C
American Economic Association
Housing, Unemployment and Monetary Policy
(E2, E3)
Presiding:
William Branch
(University of California-Irvine)
Housing Prices and Robustly Optimal Monetary Policy
Klaus Adam
(University of Mannheim)
Michael Woodford
(Columbia University)
[View Abstract]
We analytically characterize robustly optimal monetary policy for an
augmented New Keynesian model with a housing sector. In our setting,
the housing stock delivers a service flow entering households' utility,
houses are durable goods that depreciate over time, and new houses can be produced using a
concave production technology. We consider the robustness of policy to departures from model-consistent
expectations of modest size, including near-rational "bubbles" in housing prices.
Under rational expectations, optimal policy in our model
can be characterized by commitment to a "target criterion" that
refers only to the paths of inflation and of the output gap, just as
in New Keynesian models without a housing sector. If policy is to be
robust to potential departures from model-consistent expectations, instead, we show that the target
criterion must also depend on housing prices. In the empirically
realistic case of government subsidization of housing, the robustly
optimal target criterion requires the central bank to "lean
against" unexpected increases in housing prices, in the sense that
it should adopt a policy stance that is projected to undershoot its
normal targets for inflation and/or the output gap owing to the
increase in housing prices, and similarly aim to overshoot those
targets in the case of unexpected declines in housing prices.
On the Dynamics of Unemployment, Sectoral Reallocation, and Housing Prices under Financial Frictions
William Branch
(University of California-Irvine)
Nicolas Petrosky-Nadeau
(Carnegie Mellon University)
Guillaume Rocheteau
(University of California-Irvine)
[View Abstract]
[Download Preview] We develop a two-sector search-matching model of the labor market with
imperfect mobility of workers, augmented to incorporate a housing market and
a frictional goods market. Homeowners use home equity as collateral to
finance idiosyncratic consumption opportunities. A financial innovation that
raises the acceptability of homes as collateral raises house prices and
reduces unemployment. It also triggers a reallocation of workers, with the
direction of the change depending on firms' market power in the goods
market. A calibrated version of the model under adaptive learning can
account for house prices, sectoral labor flows, and unemployment rate
changes over 1996-2010.
Spatial search strategies of job seekers and the role of unemployment insurance
Elisa Guglielminetti
(Sciences Po and La Sapienza)
Rafael Lalive
(University of Lausanne)
Philippe Ruh
(University of Zurich)
Etienne Wasmer
(Sciences Po)
[View Abstract]
[Download Preview] Job search is an activity involving costs and returns. But, because individuals and jobs are scattered across space, it is also a spatially oriented activity. In particular, job acceptance depends on commute distance. Searching within a range of acceptable commute distances is costly: search costs combine effort and money, the latter part depending on the size of the prospection area. Under liquidity constraints of the job seekers, job search efficiency may be itself constrained. We first provide a simple theoretical setup to discuss those questions: job search is represented by draws in a bivariate distribution of wages and commute distances; individuals choose their range of search and the intensity of search within the range.
We then exploit an administrative social security dataset covering all newly unemployed workers in Austria. It contains information on the current residence, the previous workplace and the subsequent workplace for those re-hired. We observe fairly high dispersion in the change of commuting distance and wage and evidence of a reservation frontier. We also see that newly unemployed workers seem to initially target their job search from the same workplace as they used to be employed. As the unemployment spell gets longer, they tend to accept lower wages and progressively enlarge their radius of search, ending up with a job farther away from their previous workplace (but not necessarily farther away from their residence).
We finally extend the model to two types of unemployed workers and to partially directed job search to replicate these facts. We calibrate it and explore the effect of unemployment insurance on job search strategies.
Discussants:
John C. Williams
(Federal Reserve Bank of San Francisco)
Robert E. Hall
(Stanford University)
Jan Brueckner
(University of California-Irvine)
Jan 05, 2015 8:00 am, Sheraton Boston, Constitution Ballroom A
American Economic Association
How Did the Safety Net Perform During the Great Recession?
(H5)
Presiding:
David Card
(University of California-Berkeley)
Living Arrangements, Doubling Up, and the Great Recession: Was This Time Different?
Hilary Hoynes
(University of California-Berkeley)
Marianne Bitler
(University of California-Irvine)
[View Abstract]
[Download Preview] The Great Recession marks the worst downturn since those of the early 1980s. A large literature considers how the public safety net responded to this shock. We instead consider the responsiveness of one dimension of the private safety net. Families can react to negative shocks by moving in with relatives or downsizing. We use across-state over-time variation to estimate the effects of cycles on living arrangements, paying particular attention to young adults. We find living arrangements are cyclical, but effects are small. Surprisingly given the press attention, we find no evidence that things are different in the Great Recession.
The Effect of Extended Unemployment Insurance Benefits: Evidence from the 2012-2013 Phase-Out
Henry S. Farber
(Princeton University)
Jesse Rothstein
(University of California-Berkeley)
Robert Valletta
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] Unemployment Insurance benefit durations were expanded during the Great Recession, reaching 99 weeks in many states in 2010. Extended benefits were removed in 2012 and 2013. We estimate the effect of extended benefits on recipients' job-finding and labor force exit rates. As in earlier work, we find little or no effect on job-finding rates early in the downturn, but that extended UI reduced recipients' labor force exit rates. Effects are quite similar during the roll-back period. The removal of extended UI reduced the labor force participation rate by about 0.1 percentage point in early 2014, with no apparent effect on job-fnding.
Disability Insurance and the Great Recession
Nicole Maestas
(RAND Corporation)
Kathleen Mullen
(RAND Corporation)
Alexander Strand
(Social Security Administration)
TBD
Jan 05, 2015 8:00 am, Hynes Convention Center, Room 204
American Economic Association
Hygiene and Sanitation in Developing Countries
(I1, O1)
Presiding:
Paul Gertler
(University of California-Berkeley)
Learning, Hygiene, and Traditional Medicine
Daniel M. Bennett
(University of Chicago)
Syed Ali Asjad Naqvi
(Vienna University of Economics and Business)
Wolf-Peter Schmidt
(London School of Hygiene and Tropical Medicine)
[View Abstract]
Traditional medical beliefs exist throughout the world and may undermine public health by discouraging healthy behaviors such as hygiene. We experimentally evaluate a novel hygiene education program that makes hygiene messages more salient by using microscopes to demonstrate the existence of microbes. The microscope demonstration weakens adherence to traditional medicine and enhances the impact of hygiene education on learning, hygiene behavior, and some aspects of health. However, consistent with Bayesian learning, only non-believers in traditional medicine learn from the program, and only non-believers with high hygiene propensities change their behavior. These findings suggest that traditional medicine contributes to the burden of communicable disease and illustrates an important limitation of educational interventions.
How Does Health Promotion Work? Evidence From The Dirty Business of Eliminating Open Defecation
Paul Gertler
(University of California-Berkeley)
Manisha Shah
(University of California-Los Angeles)
[View Abstract]
[Download Preview] We investigate the mechanisms underlying health promotion campaigns designed to eliminate open defecation in at-scale randomized field experiments in four countries: India, Indonesia, Mali, and Tanzania. Health promotion works through a number of mechanisms, including: providing information on the return to the behavior, nudging better behavior that one already knows is in her self-interest, encouraging households to invest in health products that lower the marginal cost of good behavior, and subsidizing the purchase of health products. We find that health promotion generally worked through both convincing households to invest in in-home sanitation facilities and nudging increased use of those facilities. Hence, combining strong health promotional nudges to use health products with subsidies for the purchase of health products would likely be more effective than subsidies alone.
We also estimate the causal relationship between village open defecation rates and child height using experimentally induced variation in open defecation for identification. Surprisingly we find a fairly linear relationship that estimates that fully eliminating open defecation from a village where everyone defecates in the open would increase child height by 0.44 standard deviations. Hence modest to small reductions in open defecation are unlikely to have a significant effect on child height and explain why many health promotion interventions designed to reduce open defecation fail to improve child height. Our results suggest that stronger interventions that combine intensive health promotional nudges with subsidies for sanitation construction may be needed to reduce open defecation enough to generate meaningful improvements in child health.
No Shit: Demand Estimation with Strategic Complementarities -- The Case of Sanitation in Bangladesh
Ahmed Mushfiq Mobarak
(Yale University)
James Levinsohn
(Yale University)
Raymond Guiteras
(University of Maryland)
[View Abstract]
Poor sanitation is widely believed to contribute to serious health problems in the developing world. Despite the availability of relatively inexpensive hygienic latrines and intensive efforts to promote adoption, rates of open defecation and non-hygienic latrines remain high, especially in South Asia. The epidemiology of disease transmission provides one potential explanation: if neighbors practice poor sanitation, investing in a toilet in isolation may not generate any health gains. This strategic complementarity can lead to to multiple equilibria, with a community stuck at a low-adoption equilibrium due to coordination failure. To test this hypothesis, we conduct a large-scale randomized controlled trial in rural Bangladesh that introduced, in turn, joint information sessions, joint commitments, and subsidies to induce communities to invest in toilets. We randomly vary both individual inducements to invest in toilets and the proportion of the community that is subsidized. The multiple dimensions of randomization and the design of the intervention permit identification and estimation of a structural model of interdependent demand. We also collect rich social network data, which, combined with the randomization, allows us to estimate the direction and nature of network effects. We distinguish epidemiological spillovers from social learning by randomly varying the identity (social position) of the individuals receiving early subsidies. We find that individual households are more likely to invest in sanitation when a greater proportion of their neighbors receive subsidies. These spillovers are present regardless of the degree of social connectedness of the household that receives the early subsidy, which suggests that the disease transmission mechanism accounts for at least part of the spillover effect. Interdependent decisions appear to explain part of the puzzle of low adoption of welfare-improving products and behaviors in developing countries, which implies that community-level (rather than individual-level) interventions may be a useful marketing strategy.
Sanitation and Education
Anjali Adukia
(University of Chicago)
[View Abstract]
[Download Preview] Worldwide, one in five children does not complete upper-primary school. I examine whether educational attainment is stymied by inadequate school-sanitation infrastructure that threatens children's health and safety. Using an Indian national school-latrine-construction initiative and administrative school-level data, I estimate that latrine construction encourages educational attainment. Boys and younger girls respond substantially, whether latrines are unisex or sex-specific. For older girls, however, sex-specific latrines become crucial. Safety considerations appear central for pubescent-age girls, whereas health factors may influence boys and younger girls. Understanding motivations behind educational decision-making is a natural precondition for influencing behavior and children's educational and economic outcomes.
Discussants:
Daniel M. Bennett
(University of Chicago)
Ahmed Mushfiq Mobarak
(Yale University)
Raymond Guiteras
(University of Maryland)
Anjali Adukia
(University of Chicago)
Jan 05, 2015 8:00 am, Sheraton Boston, Public Garden
American Economic Association
Macro/International III
(E3, F1)
Presiding:
Linda Goldberg
(Federal Reserve Bank of New York)
Demand Shocks and Open Economy Puzzles
Yan Bai
(University of Rochester)
Jose-Victor Rios-Rull
(University of Minnesota)
[View Abstract]
We pose a shopping model structure on top of an otherwise standard two- country international real business cycle model. Shopping for goods takes effort, which prevents perfect matching between potential customers and producers. An increase in search effort implies increased measured productivity. Thus demand shocks act as productivity shocks. Larger demand in one country leads to an increase in its consumption for both home and foreign goods, and an appreciation of the real exchange rate. Demand shocks under our shopping model thus can solve for the puzzles of international risk sharing: the Backus-Smith puzzle and the international co-movement puzzle. It also endogenously generates procyclical TFP. A standard IRBC model either fails to account for the international risk sharing puzzles or generates no movement in TFP.
Retail Access, Travel Costs, and Food Purchases across the Socioeconomic Spectrum
Jessie Handbury
(University of Pennsylvania)
Ilya Rahkovsky
(U.S. Department of Agriculture)
Molly Schnell
(Princeton University)
[View Abstract]
The poor diets of many consumers are often attributed to limited access to healthful foods. In this paper, we use detailed data describing the healthfulness of household food purchases and the retail landscapes in which these consumers are making these decisions to document three novel facts about nutritional disparities and the role of access in explaining why some people in the United States eat more nutritious foods than others. We first confirm that households with lower income and education purchase less healthful foods. We then measure the spatial variation in the average nutritional quality of available food products across local markets, revealing that recommended foods are less likely to be available in low-income neighborhoods. Though significant, the spatial differences in access are small and explain only a fraction of the variation that we observe in the nutritional content of household purchases. Systematic socioeconomic disparities in household purchases persist after controlling for access: even in the same store, more educated households purchase more healthful foods. Our results indicate that policies aimed at improving access to recommended foods for underserved socioeconomic groups will leave most of the disparities in nutritional consumption intact.
Trade, Technology and Input Linkages: A Theory with Evidence from Colombia
Daniel Xu
(Duke University)
Marcela Eslava
(Universidad de Los Andes)
Ana Cecilia Fieler
(University of Pennsylvania)
[View Abstract]
[Download Preview] International trade is associated with technological advances empirically and theoretically. This
paper argues that previously proposed direct mechanisms linking trade to technology are signi-
cantly amplied through rms' linkages in the domestic input market. International trade shifts
production toward importers and exporters and induce these rms to upgrade their technology.
Under the assumption that the production of higher-technology goods use higher-technology inputs,
these shifts increase the demand and supply of higher-technology inputs. The relative cost
of producing higher-technology decreases and their relative sales increase, thereby increasing
the incentives of all rms to upgrade their technology. We formalize this amplication mechanism
with a model of of heterogeneous rms and endogenous technology choices. We estimate
the model using data on manufacturing plants in Colombia before the trade liberalization and
simulate a counterfactual liberalization. Like other unilateral trade liberalizations in developing
countries, the skill premium and skill intensity in manufacturing increased, and the size of rms
decreased in Colombia. The counterfactual is consistent with these ndings, and rms' linkages
in the domestic input market are key to explain a widespread increase in technology upgrading
and in the demand for skilled labor, despite a contraction in sales.
Global Banks' Dynamics and the International Transmission of Shocks
Jose L. Fillat
(Federal Reserve Bank of Boston)
Stefania Garetto
(Boston University)
Martin Goetz
(Goethe University Frankfurt)
[View Abstract]
[Download Preview] We explore the importance of the operation mode of global banks for the transmission of shocks across countries, focusing on its effect on lending. To frame our analysis, we present a simple model where banks choose endogenously whether and how to enter a foreign market. After a shock in their home country, branches of foreign banks are more likely to decrease their lending activities in the host country to provide liquidity to the parent via intra-firm transfers. On the other hand, subsidiaries of foreign banks are more resilient to shocks to the parent's country since they have to be capitalized independently.
In our empirical analysis, we consider the effect that the southern European sovereign debt crises caused in European banks with presence in the U.S. and compare the consequences of such shock in the lending behavior of their U.S. branches and subsidiaries. Our empirical analysis corroborates the testable implications of the model: we find that branches of European parents who were directly exposed to Greek sovereign debt decrease their assets in the U.S. by 81% while subsidiaries of exposed European parents increased their assets in the U.S. by about 25%. We also find that the probability that a subsidiary sends money to the parent increases by about 44% while the probability that a U.S. branch of an exposed parent sends money back to the European parent increases by more than twice that amount.
Our analysis reveals that, while branches of foreign institutions are important players in the U.S. credit markets, they represent a potential source of financial instability given their sensitivity to exogenous foreign shocks. As such, current reforms that advocate the creation of well capitalized intermediate holding companies should address some of the concerns caused by the institutional characteristics of foreign-owned branches.
Jan 05, 2015 8:00 am, Sheraton Boston, Constitution Ballroom B
American Economic Association
Patent Economics
(K2, O3)
Presiding:
Joshua Lerner
(Harvard University)
Standard-Essential Patents
Joshua Lerner
(Harvard University)
Jean Tirole
(Toulouse School of Economics)
[View Abstract]
[Download Preview] A major policy issue in standard setting is that patents that are ex-ante not that important may, by being included into a standard, become standard-essential patents (SEPs). In an attempt to curb the monopoly power that they create, most standard-setting organizations require the owners of patents covered by the standard to make a loose commitment to grant licenses on reasonable terms. Such commitments unsurprisingly are conducive to intense litigation activity. This paper builds a framework for the analysis of SEPs, identifies several types of inefficiencies attached to the lack of price commitment, shows how structured price commitments restore competition, and analyzes whether price commitments are likely to emerge in the marketplace.
Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials
Eric Budish
(University of Chicago)
Benjamin Roin
(Harvard University)
Heidi Williams
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper investigates whether private research investments are distorted away from long-term projects, by which we mean projects with long time lags between initial discovery (“invention”) and the availability of a commercially viable product (“commercialization”). We present a simple theoretical model to formalize two potential sources of this distortion: first, excess impatience of private firms relative to the social planner; and second, the fact that patents – as currently designed – provide little effective incentive to develop technologies with long commercialization lags. We then explore this distortion empirically in the context of cancer research, where clinical trials - and hence, commercialization lags – are shorter 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 which together are consistent with private research investments being distorted away from long-term projects. Back-of-the-envelope calculations suggest that the value of life-years at stake is large. We discuss three specific policy responses - surrogate (non-mortality) clinical trial endpoints, targeted R&D subsidies, and patent design - and provide empirical evidence that surrogate endpoints can be effective in practice.
Intellectual Property Rights and Access to Innovation: Evidence from TRIPS
Margaret Kyle
(Toulouse School of Economics)
Yi Qian
(Northwestern University)
[View Abstract]
[Download Preview] Intellectual property rights (IPRs) attempt to balance long-run incentives for innovation and short-run access to innovation. The market power granted by IPRs allows innovators to charge higher prices, potentially reducing access to patented products. However, the existence of IPRs may make a market more attractive for innovators, leading to country-specific investments in marketing and distribution. Such investments may result in quicker launch of new products, increased marketing of older products, and greater availability of treatments. We examine the consequences of stronger pharmaceutical patent protection on the speed of drug launch, price, and quantity in 59 countries from 2000-2011. The World Trade Organization required its member countries to implement a minimum level of patent protection within a specified time period as part of the TRIPS Agreement, and we use these deadlines as natural experiment for the strengthening of IPRs. Our results suggest that patents are generally associated with faster launch, higher prices, and higher sales, and that the importance of patents varies across country income groups.
Discussants:
Ufuk Akcigit
(University of Pennsylvania)
Petra Moser
(Stanford University)
Pierre Azoulay
(Massachusetts Institute of Technology)
Louis Kaplow
(Harvard University)
Jan 05, 2015 8:00 am, Sheraton Boston, Commonwealth
American Economic Association
Productivity Dispersion in Low Income Countries: Sector Studies
(O1, L1)
Presiding:
Rocco Macchiavello
(University of Warwick)
Productivity and Competition in India's Brick Industry
Daniel Keniston
(Yale University)
[View Abstract]
Low and variable firm productivity has long been seen as a central driver of low GDP. Yet there is little detailed understanding of why the competition and innovation that fuels productivity growth in the developed world seems weaker in LICs. I examine these dynamics in a specific industry particularly suited to the accurate measurement of productivity and market structure: ceramic bricks in India. Building upon the approach and methodology of Syverson (2004), I test whether productivity dispersion and mark-ups respond to the degree of competition, and investigate the factors causing this relationship to be especially weak. Preliminary evidence suggests that financial frictions create a high competition/low productivity equilibrium with few profitable opportunities for investment.
Organizational Barriers to Technology Adoption: Evidence from Soccer-Ball Producers in Pakistan
David Atkin
(Yale University)
Amit Khandelwal
(Columbia University)
Eric Verhoogen
(Columbia University)
Asam Chaudhry
(Lahore School of Economics)
Shamyla Chaudry
(Lahore School of Economics)
[View Abstract]
[Download Preview] This paper studies technology adoption in a cluster of soccer-ball producers in Sialkot, Pakistan.
Our research team invented a new cutting technology that reduces waste of the primary raw material.
We allocated the technology to a random subset of producers. Despite the arguably unambiguous net
benefits of the technology, after 15 months take-up remained puzzlingly low. We hypothesize that a
key reason for the lack of adoption is a misalignment of incentives within firms: the key employees
(cutters and printers) are typically paid piece rates, with no incentive to reduce waste, and the
new technology slows them down, at least initially. Fearing reductions in their effective wage,
employees resist adoption in various ways, including by misinforming owners about the value of the
technology. To investigate this hypothesis, we implemented a second experiment among the firms to
which we originally gave the technology: we offered one cutter and one printer per firm a lump-sum
payment, approximately equal to a monthly wage, to demonstrate competence in using the technology
in the presence of the owner. This incentive payment, small from the point of view of the firm, had
a significant positive effect on adoption. We interpret the results as supportive of the hypothesis
that misalignment of incentives within firms is an important barrier to
technology adoption in our setting.
Managerial Capital and Productivity Dispersion: Evidence from Garment Factories
Christopher Woodruff
(University of Warwick)
Rocco Macchiavello
(University of Warwick)
[View Abstract]
We collect extremely detailed daily, production line level data from a large sample of garment factories located in Bangladesh and other countries. We obtain precise and comparable estimates of physical labour efficiency across similar units producing different outputs using standard minute values (SMVs), the amount of time it is supposed to take to produce a given piece of garments. We document substantial persistent productivity differences (PPDs) across production lines within factories. Using originally collected survey data, we explore the factors that correlate with PPDs, including line supervisors characteristics, the quality of buyers for which the line produces, and measures of norms and common understanding on the line.
Competition and Relational Contracts: Evidence from Rwanda's Coffee Mills
Ameet Morjaria
(Harvard University)
Rocco Macchiavello
(University of Warwick)
[View Abstract]
Business transactions often occur in the absence of enforceable contracts. To sustain trade in such cases, parties rely on relational contracts (RC). Introducing competition might change exit options, thus undermining the ability to sustain RC. To examine the impact of competition in procurement of inputs, we exploit the prevalence of RC between processing mills and farmers in Rwanda’s coffee sector. We implement a census of all mills and farmers to capture the features of the RC binding them. We then develop a RC model to capture the incentive problems between mills and farmers. The model is used to predict how competition affects RC, the mill’s performance, and the farmer’s welfare. Since the location of mills is endogenous, an engineering model is estimated for the optimal placement of mills to instrument for competition in each locality. We find that competition between mills undermines RC by increasing the mill’s processing costs, lowering the mill’s capacity utilization and reducing the quality of coffee cherries received by the mill. Competition constraints the farmer’s credit and input choices and reduces farmer’s welfare. The findings highlight that in weak contracting settings, the value RC generates can be hampered by competition. The evidence provides a rationale for policies commonly observed historically across developing countries, such as zoning regulations and monopsony licensing, and emphasizes the importance of promoting contractual enforcement in agricultural value chains in order to reap the benefits of competition.
Discussants:
Nicholas Bloom
(Stanford University)
Chad Syverson
(University of Chicago)
Chang-Tai Hsieh
(University of Chicago)
Daniel Xu
(Duke University)
Jan 05, 2015 8:00 am, Sheraton Boston, Back Bay Ballroom D
American Economic Association
Technology Adoption
(O4)
Presiding:
Arthur Diamond
(University of Nebraska-Omaha)
Equilibrium Technology Diffusion, Trade, and Growth
Jesse Perla
(University of British Columbia)
Christopher Tonetti
(Stanford University)
Michael Waugh
(New York University)
[View Abstract]
[Download Preview] This paper develops a dynamic model of trade and growth that we use to study how openness affects economic growth. In our model, heterogeneous firms choose to either produce with their existing technology or search within the domestic economy to adopt a better technology. These choices determine the productivity distribution from which firms can acquire new technologies and, hence, the equilibrium rate of technological diffusion. Opening to trade changes the relative profitability between high and low productivity firms through expanded export opportunities and foreign competition. These reallocation effects change the timing of when firms adopt new technologies and, thus, the rate of technological diffusion. This results in growth effects from openness via within-firm productivity improvements.
The Spatial Diffusion of Technology
Diego Comin
(Harvard University)
Esteban Rossi-Hansberg
(Princeton University)
Mikhail Dmitriev
(Boston College)
[View Abstract]
We study technology diffusion across countries and over time empirically. Technology diffuses slower to locations that are farther away from adoption leaders. This effect is stronger across rich countries and along the south-north dimension. A simple theory of human interactions can account for these empirical findings and suggests that the effect of distance should vanish over time. A hypothesis that we confirm in the data, and that distinguishes technology from other flows like goods or investments. We structurally estimate the model and find that the frequency of interactions decays by 73% every 1000 Kms.
Market Structure, Factor Endowment and Technology Adoption
Yong Wang
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] A simple model is developed to explore how technology adoption depends on factor endowment when the new technology is more capital-intensive and privately accessible. The endogenous non-competitive market structure of the final good indirectly distorts factor prices in general equilibrium, which results in a non-monotonic impact of capital endowment on both the static allocation efficiency and the dynamic pattern of industrial upgrading. More specifically, the static equilibrium achieves social efficiency when capital endowment is sufficiently large or sufficiently small, irrespective of the resulting market structure. Inefficiency arises only when capital falls onto an intermediate range, in which case the private technology is under-utilized to depress the relative price of capital. Moreover, an increase in the initial capital endowment may delay rather than facilitate the adoption of the capital-intensive technology. Private accessibility to the new technology may also result in premature adoption, over-utilization and multiple equilibria. Welfare-enhancing policies are discussed.
The Political Economy of Technology Adoption: The Case of Saharan Salt Mining
Jenny Kuan
(Stanford University)
Seraphima Rombe-Shulman
(American University)
Ekundayo Shittu
(George Washington University)
[View Abstract]
[Download Preview] Innovation is an important source of economic growth and competitive advantage. Consequently, a diverse literature in economics and management addresses a variety of questions about how to manage technological change. This paper explores the "opposite" question: What explains the absence of change? We apply existing theories of non-adoption to our case study, salt mining in the Sahara desert, in order to generate new insights into barriers to technology adoption. We find that political organization establishes an environment for the formation of higher-order economic organizations, which in turn affect the direction and rate of technology adoption. Our setting seems exotic, but traditional methods of production persist in myriad impoverished settings including artisanal and small-scale mining (ASM) widespread throughout Africa. The study thus sheds light on the role of institutions in economic growth
Social Exchanges, Attitudes toward Uncertainty and Technology Adoption by Bangladeshi Farmers: Experimental Evidence
Ahsanuzzaman Ahsanuzzaman
(Virginia Tech)
George W. Norton
(Virginia Tech)
[View Abstract]
[Download Preview] The literature discusses risk aversion as one of the behavioral determinants of technology adoption. However, little attention has been paid to measuring ambiguity aversion of poor people in developing countries or in finding the role of ambiguity aversion in technology adoption. Risk experiments in the previous studies have been designed in such a way that individuals face the risky and/or ambiguous situations alone. Individuals in the real world, especially farmers in developing countries, are likely to get information from peers before making any decision regarding a new innovation that has an ambiguous nature. This paper addresses two broad issues. The first issue is to measure the risk and ambiguity preferences of Bangladeshi rural farmers. The paper investigates whether the attitudes toward uncertainty (risk and ambiguity) differ when farmers face the uncertainty alone versus when they are allowed to communicate with peer groups of 3 or 6. It also investigates whether farmers' demographic characteristics affect their attitudes toward uncertainty or not. A second issue is to find whether a farmer's ambiguity aversion is important in explaining technology adoption decisions. Combining measured behavioral variables from the experimental data with a household survey data, the study provides two conclusions. First, Bangladeshi farmers in the sample are mostly risk and ambiguity averse. Their risk and ambiguity aversion, moreover, differ when they face the uncertain prospects alone from when they can communicate with other peer farmers before making decisions. The study also finds that farmer's demographic characteristics affect both risk and ambiguity aversion. Second, and perhaps more importantly, findings from the study suggest that the roles of risk and ambiguity aversion on technology adoption depend on which measure of uncertainty behavior is incorporated in the adoption model. While risk aversion increases the likelihood of technology adoption when farmers face uncertainty alone, only ambiguity aversion matters and it reduces the likelihood of technology adoption when farmers face uncertainty in groups of three. Neither risk aversion nor ambiguity aversion matter when farmers face uncertainty in groups of six.
Jan 05, 2015 8:00 am, Westin Copley, Essex North
American Finance Association
Corporate Cash Holdings
(G3)
Presiding:
Michael Faulkender
(University of Maryland)
Can Changes in the Cost of Cash Resolve the Corporate Cash Puzzle?
Jose Azar
(Charles River Associates)
Jean-Francois Kagy
(Cornerstone Research)
Martin Schmalz
(University of Michigan)
[View Abstract]
[Download Preview] To answer this question, we first create a measure of the opportunity costs of holding liquid assets as the wedge between the cost of capital and the return of firms' cash portfolio. Exploiting both cross-sectional and time-series variation of opportunity costs 1980-2011, we estimate a negative effect of opportunity costs on the cash-to-assets ratio of U.S. nonfinancial Compustat firms. We then use the estimate to predict changes in aggregate cash holdings for 1945-2013 and find that they closely match actual changes in cash holdings over that period. Differences in opportunity costs also explain cross-country differences and within-country time variation of cash-to-assets ratios in the five largest European economies and Japan. Our results make evident that current U.S. corporate cash holdings are not abnormal, neither in a historical nor in an international comparison.
Cash Holdings, Competition, and Innovation
Evgeny Lyandres
(Boston University)
Berardino Palazzo
(Boston University)
[View Abstract]
[Download Preview] We examine theoretically and empirically the determinants of innovating firms' cash holdings. Our model highlights an important strategic role that cash plays in affecting the development and implementation of innovation in the presence of expected competition in post-innovation product markets. Firms' equilibrium cash holdings are shown to depend on the intensity of expected competition in output markets and on the degree of innovation efficiency in firms' industries. The signs and magnitudes of these relations depend crucially on the degree of financial constraints that a firm faces. Our empirical evidence on the determinants of cash holdings of innovating U.S. public companies, demonstrates that expected competition intensity and innovation efficiency are associated with firms' observed cash-to-assets ratios in ways consistent with the model's predictions. We conclude that strategic considerations play an important role in shaping cash holdings policies of innovating firms.
The Disclosure and Valuation of Foreign Cash Holdings
Shou Yang
(University of British Columbia)
[View Abstract]
[Download Preview] This paper studies the disclosure and valuation of foreign cash holdings using hand-collected data from 2010 to 2013. The SEC has been commenting on foreign cash in its review of 10-K filings since 2011. I find that the SEC tends to target big firms with limited growth and high permanently reinvested earnings. Conditional on the SEC’s comment, firms with Big 4 auditors are more likely to disclose foreign cash holdings, but firms with a CEO who is also the Chairman and more free cash flow are less likely to disclose. I find no evidence that the value of foreign cash is discounted relative to domestic cash on average, although the value of foreign cash decreases in foreign cash level. Furthermore, foreign cash is less valuable when firms only disclose limited foreign operations in Exhibit 21 relative to the overseas operations collected by the OSIRIS international database and when firms operate in more foreign countries, but more valuable when the U.S. parent controls the decision-rights of foreign subsidiaries and when foreign growth opportunities are higher. There is no evidence that proxies for the repatriation tax are negatively associated with the value of foreign cash. I also examine market reactions to the Treasury Department’s recent crackdown on tax inversions.
Financial Flexibility and Corporate Cash Policy
Tao Chen
(Nanyang Technological University)
Jarrad Harford
(University of Washington)
Chen Lin
(University of Hong Kong)
[View Abstract]
[Download Preview] Using variations in local real estate prices as exogenous shocks to corporate financing capacity, we investigate the causal effects of financial flexibility on cash policies of US firms. Building on this natural experiment, we find strong evidence that increases in financing capacity lead to smaller corporate cash reserves, declines in the marginal value of cash holdings, and lower cash flow sensitivities of cash. We further find that the decrease in cash holdings is more pronounced in firms with greater investment opportunities, financial constraints, better corporate governance, and lower local real estate price volatility.
Discussants:
Dalida Kadyrzhanova
(University of Maryland)
Neng Wang
(Columbia University)
David Denis
(University of Pittsburgh)
Sergey Chernenko
(Ohio State University)
Jan 05, 2015 8:00 am, Westin Copley, America South
American Finance Association
Corporate Finance and Market Feedback
(G3)
Presiding:
Itay Goldstein
(University of Pennsylvania)
Spreading the Fire: Investment and Product Market Effects of Corporate Bond Fire Sales
Hadiye Aslan
(Georgia State University)
Praveen Kumar
(University of Houston)
[View Abstract]
How deep and wide were the real effects of fire sales of financial assets by financial institutions during the 2007-09 financial crisis? We follow the capital investment and product market effects of fire sales of corporate bonds by creating a data set that links firms so exposed to their product market rivals and their upstream and downstream firms. Fire sales result in temporary price discounts for previously high performing bonds and, therefore, appear to affect most the type of firms that intensively use public debt issues for investment financing. Firms exposed to fire sales experience significant reductions in all major components of their capital investments, and in their market shares and price-marginal cost markups compared with their non-exposed rivals. The negative competitive effects of bond fire sales are amplified for exposed firms that are more financially constrained; face large and `deep pockets' rivals; and, are located in industries that are more competitive. Moreover, the major suppliers and customers of the exposed firms also exhibit significantly lower investment activity compared with matched firms that are not linked vertically to firms exposed to bond fire sales.
Financing Decisions of Private and Publicly Traded Firms: Evidence from a Quasi-Natural Experiment
Gordon Phillips
(University of Southern California)
Giorgo Sertsios
(Universidad de los Andes)
[View Abstract]
[Download Preview] We exploit Medicare national coverage reimbursement approvals of medical devices as a quasi-natural experiment to investigate how private and publicly traded firm financing decisions and product introductions respond to exogenous changes in investment opportunities. We find that publicly traded companies increase their external financing, and their subsequent product introductions, by more than private companies in response to national coverage approvals. The primary source of the increased financing is through private financing of public firms. The results show why public firms have lower cost financing than private firms even in the private market. Public firms can offer private securities with better exit liquidity and lower price risk than private firms.
The Effect of Stock Prices on Real Investment in the Vertical Supply Chain
Ryan Williams
(University of Arizona)
Steven Chong Xiao
(Georgia Institute of Technology)
[View Abstract]
We investigate whether suppliers utilize information in customers’ stock prices to guide their investment decisions. Using mutual fund flow-driven price pressure to identify exogenous negative shocks to stock prices, we find evidence that suppliers decrease subsequent relationship-specific investments (RSI) following declines in their key customers’ market values. Specifically, suppliers reduce R&D expenditures and produce fewer patents related to their customers’ technology. Suppliers appear concerned that decreases in their customers’ market values signal poor growth prospects for their customers, future decreases in their customers’ own investment levels, and a higher probability of their customers becoming takeover targets. Our findings suggest that information in stock prices affects investment decisions by other product market participants, implying that a better information environment in financial markets may help mitigate supply chain frictions.
Investment Waves under Cross Learning
Shiyang Huang
(London School of Economics)
Yao Zeng
(Harvard University)
[View Abstract]
[Download Preview] We investigate how firms’ cross learning amplifies industry-wide investment waves. Firms’ technologies are subject to idiosyncratic shocks and a common shock, and their asset prices aggregate speculators’ private information about the two types of shocks. In investing, each firm learns from other firms’ prices (in addition to its own) to make better inference about the common shock, leading to higher investment sensitivity to the common shock. To respond, speculators put a higher weight on the common shock in trading, making prices even more informative about the common shock. This spiral results in higher investment and price comovements in investment waves. Moreover, cross learning imposes a new pecuniary externality on other firms, because it makes their prices less informative about their idiosyncratic shocks thanks to speculators’ endogenous overweighting on the common shock. This externality increases in the number of firms, suggesting that more competitive industries may exhibit more inefficient investment waves.
Discussants:
Andrew Ellul
(Indiana University)
Erik Gilje
(University of Pennsylvania)
Laurent Fresard
(University of Maryland)
Thierry Foucault
(HEC Paris)
Jan 05, 2015 8:00 am, Westin Copley, Essex South
American Finance Association
Dumb and Dumber: The Trading Activity of Institutions vs. Retail Investors
(G2)
Presiding:
Christopher Malloy
(Harvard Business School)
Glued to the TV: The Trading Activity of Distracted Investors
Joel Peress
(INSEAD)
Daniel Schmidt
(HEC Paris)
[View Abstract]
[Download Preview] We investigate how distraction affects the trading behavior of retail investors, and ultimately market liquidity. Exploiting episodes of sensational news exogenous to the stock market, we first document that investors stop trading altogether when they are distracted. We report further that these effects are more pronounced for more overconfident–i.e., single-male and active–investors, who are typically viewed as noise traders. We then exploit these sensational news events to study how shocks to noise trading affect the stock market at large and in particular its liquidity. Our results are most consistent with an adverse selection model of price impact, and are weakly supportive of inventory risk models.
The Power of Primacy: Alphabetic Bias, Investor Recognition, and Market Outcomes
Heiko Jacobs
(University of Mannheim)
Alexander Hillert
(University of Mannheim)
[View Abstract]
[Download Preview] Extensive research has revealed that the convention of alphabetical name ordering tends to provide an advantage to those positioned in the beginning of the alphabet. This paper is the first to explore implications of this alphabetic bias in the natural setting of financial markets. Most notably, we find that stocks with names early in alphabet have about 5% to 15% higher trading activity and liquidity. These findings are related to firm visibility as well as investor sophistication. International evidence, mutual fund flows and other settings further support the idea that ordering effects are strong enough to affect economic aggregates.
Who Are the Sentiment Traders? Evidence from the Cross-Section of Stock Returns and Demand
Luke DeVault
(University of Arizona)
Richard Sias
(University of Arizona)
Laura Starks
(University of Texas-Austin)
[View Abstract]
[Download Preview] Recent work suggests that sentiment traders shift from safer to more speculative stocks when sentiment increases. Given that the market clearing condition requires a buyer for every seller, we exploit these cross-sectional patterns and changes in share ownership to test whether investor sentiment metrics capture institutional or individual investors’ demand shocks. In contrast to theoretical assumptions and common perceptions, we find no evidence that individual investors’ trading is responsible for sentiment-induced demand shocks and mispricing. If the commonly used sentiment metrics truly capture investor sentiment, then institutional investors are the sentiment traders whose demand shocks drive prices from value.
Institutional Investors and Stock Return Anomalies
Roger Edelen
(University of California-Davis)
Ozgur Ince
(Virginia Tech)
Greg Kadlec
(Virginia Tech)
[View Abstract]
We examine institutional investor demand for stocks that are categorized as mispriced according to twelve well-known pricing anomalies. We find that institutional demand during the year leading up to anomaly portfolio formation is typically on the wrong side of the anomalies' implied mispricing. That is, we find increases in institutional ownership for overvalued stocks and decreases in institutional ownership for undervalued stocks. Moreover, abnormal returns for all twelve anomalies are concentrated almost entirely in stocks with institutional demand on the wrong side. Thus, trading against institutions significantly improves expected returns from anomaly strategies. We consider several competing explanations for these puzzling results.
Discussants:
Joshua Pollet
(University of Illinois)
James Choi
(Yale University)
Yu Yuan
(University of Pennsylvania)
Lu Zheng
(University of California-Irvine)
Jan 05, 2015 8:00 am, Westin Copley, America North
American Finance Association
Financial Distress and Corporate Bankruptcy
(G3)
Presiding:
Kenneth Ayotte
(Northwestern University)
Distressed Acquisitions
Jean-Marie Meier
(London Business School)
Henri Servaes
(London Business School)
[View Abstract]
[Download Preview] Firms that buy distressed and bankrupt companies or some of these companies’ assets earn excess returns that are at least 1.6 percentage points higher than when they make regular acquisitions. These returns come at the expense of the target firm’s shareholders, while overall wealth gains are not affected. Returns to acquirers of distressed assets are higher when fewer large firms operate in the target firm’s industry, and when firms in the target’s industry have lower liquidity, and are financially constrained, thus limiting the number of potential buyers. They are lower when the M&A market in the target firm’s industry is more vibrant, when the target’s assets have more alternative uses, and when the economy is doing well. This evidence is consistent with the view that some firms can take advantage of fire sales by distressed and bankrupt companies needing to sell assets while restructuring.
Bank Skin in the Game and Loan Contract Design: Evidence from Covenant-Lite Loans
Matthew Billett
(Indiana University)
Redouanne Elkamhi
(University of Toronto)
Latchezar Popov
(University of Virginia)
Raunaq Pungaliya
(Sungkyungkwan University)
[View Abstract]
[Download Preview] In a model of dual agency problems where borrower-lender and bank-nonbank incentives may conflict, we predict a hockey stick relation between bank skin in the game and covenant tightness. As bank participation declines covenant tightness increases until reaching a low threshold, at which point the relation sharply reverses and covenant protection is removed with a commensurate increase in spread. We find support for the hockey stick relation with bank’s stake in covenant-lite loans averaging 8% (0% median). We also find that covenant-lite loans are more likely when borrower moral hazard is less severe and when bank relationship rents are high.
Corporate Pensions and Financial Distress
Tyong Duan
(University of Alberta)
Edie Hotchkiss
(Boston College)
Yawen Jiao
(University of California-Riverside)
[View Abstract]
[Download Preview] We examine the role of corporate pension plans in determining how firms restructure in financial distress. Both defined benefit (DB) and defined contribution (DC) plans can have significant exposures to the company’s own stock, imposing significant losses on employees if the firm defaults and/or files for bankruptcy. We find that firms with DB plans typically have little exposure to the stock prior to default; the degree of underfunding increases significantly as firms near default, but is not related to restructuring types (bankruptcies versus out of court restructurings). In contrast, large exposures to company stock in DC plans often are not reduced prior to default. High levels of own-company stock ownership are positively related to default and bankruptcy probabilities. Our evidence suggests a link between employee-ownership related managerial entrenchment and default risk.
Predation and Rivalry: Evidence from Retail Industry
Bomi Lee
(University of Texas-Austin)
[View Abstract]
This paper studies how market structure can impact a firm's risk of facing predation by rivals and hence its financial policy decisions. I demonstrate using a simple model that a firm faces a greater predation threat when it meets the same competitor in many markets, as this competitor is able to internalize more of the benefit of degrading the firm's ability to compete in the future through aggressive actions today. I then test the predictions of the model using store-level location data across five retail industries in the U.S. I find that firms tend to expand more aggressively in markets shared with a competitor experiencing a substantial increase in leverage or decline in credit rating when they face that competitor in more markets. I find directionally similar but weaker results for advertising aggressiveness. The expansion relation is stronger during the recent financial crisis, a period when difficulty in rolling over or obtaining new debt made it especially difficult for weak firms to absorb losses. I also show that firms facing the same competitors in many markets choose lower levels of leverage, and that they decrease leverage when a merger in their industry increases the amount of competitive overlap they have with other firms. These final results suggest that firms are aware of predation risk due to
competitive overlap and select financial policies to minimize this risk.
Discussants:
Karin Thorburn
(Norwegian School of Economics)
Martin Oehmke
(Columbia University)
Paolo Volpin
(City University London)
Francisco Perez-Gonzalez
(Stanford University and Instituto Tecnologico Autonomo de Mexico)
Jan 05, 2015 8:00 am, Westin Copley, America Center
American Finance Association
Governance, Compensation and Bank Risk-Taking
(G2)
Presiding:
Steven Ongena
(Tilburg University and University of Zurich)
Risky Lending: Does Bank Corporate Governance Matter?
Olubunmi Faleye
(Northeastern University)
Karthik Krishnan
(Northeastern University)
[View Abstract]
[Download Preview] We study the effect of bank governance on risk-taking in commercial lending. We find that banks with more effective boards are less likely to lend to risky borrowers. However, the reduction in risk-taking is restricted to periods of distress in the banking industry and the relation is stronger at banks with board-level credit committees. Our findings are consistent with value-maximizing bank boards rationing credit to riskier borrowers precisely during times when such firms might be credit constrained. They suggest the potential for unintended adverse effects of bank governance regulations on the availability of credit to corporations.
Financial Incentives and Loan Officer Behavior
Patrick Behr
(Getulio Vargas Foundation)
Alejandro Drexler
(Federal Reserve Bank of Chicago)
Reint Gropp
(Goethe University Frankfurt)
Andre Guettler
(Ulm University)
[View Abstract]
[Download Preview] We investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance versus a fixed wage unrelated to performance. We study transaction information for more than 45,000 loans issued by 240 loan officers of a large commercial bank in Europe. We examine the three main activities that loan officers perform: monitoring, originating, and screening. We find that when the performance of their portfolio deteriorates, loan officers increase their effort to monitor existing borrowers, reduce loan origination, and approve a higher fraction of loan applications. These loans, however, are of above-average quality. We also show that loan officers neglect activities that are not directly rewarded under the contract, but are in the interest of the bank. In addition, while the response by loan officers constitutes a rational response to a time allocation problem, their reaction to incentives appears myopic in other dimensions.
Seeking Alpha, Taking Risk: Evidence from Non-Executive Pay in United States Bank Holding Companies
Viral Acharya
(New York University)
Lubomir Litov
(University of Arizona)
Simone Sepe
(Toulouse School of Economics)
[View Abstract]
[Download Preview] We investigate whether incentives provided to non-executives in U.S. bank holding companies (BHCs) in 2003-2006 are related to BHC risk and BHC value during the crisis of 2007-2009. To this end, we introduce measures of non-executive incentives based on the elasticity of BHC compensation, net of executive pay, to BHC performance. We find that higher non-executive compensation elasticity is associated with higher subsequent BHC risk and lower subsequent BHC value. These effects are robust to controlling for executive incentives. We also document that the association between non-executive incentives and BHC risk is mainly driven by incentives specific to peer group performance. Overall these findings support the hypothesis that bank competition for non-executives was largely responsible for the distortions in bank compensation and the accumulation of long-term risks that emerged during the crisis.
Do Loan Officers' Incentives Lead to Lax Lending Standards?
Sumit Agarwal
(National University of Singapore)
Itzhak Ben-David
(Ohio State University)
[View Abstract]
[Download Preview] We study a controlled corporate experiment in which loan officers' compensation structure was altered from fixed salary to volume-based pay. The incentives increased aggressiveness of origination: higher origination rates (+31%), larger loan sizes (+15%), and higher default rates (+28%). Under the incentive system, loan officers have greater influence on loan approval decisions; however, their recommendations do not convey more information. Poor loan performance is caused by lax approval and aggressive loan terms, and is more likely to occur among end-of-month originations, male loan officers, and tenured loan officers. About 10% of the loans under the incentive system are likely to have negative net present value.
Discussants:
Renee Adams
(University of New South Wales and ECGI)
Fabio Braggion
(Tilburg University)
Rüdiger Fahlenbrach
(Ecole Polytechnique Federale de Lausanne and Swiss Finance Institute)
Jose Maria Liberti
(Northwestern University and Tilburg University)
Jan 05, 2015 8:00 am, Westin Copley, Essex Center
American Finance Association
Topics in Asset Pricing
(G1)
Presiding:
Robert Hodrick
(Columbia University)
Quality Minus Junk
Cliff Asness
(AQR Capital)
Andrea Frazzini
(AQR Capital)
Lasse Pedersen
(Copenhagen Business School)
[View Abstract]
[Download Preview] We define a quality security as one that has characteristics that, all-else-equal, an investor should be willing to pay a higher price for: stocks that are safe, profitable, growing, and well managed. High-quality stocks do have higher prices on average, but not by a very large margin. Perhaps because of this puzzlingly modest impact of quality on price, high-quality stocks have high risk-adjusted returns. Indeed, a quality-minus-junk (QMJ) factor that goes long high-quality stocks and shorts low-quality stocks earns significant risk-adjusted returns in the U.S. and globally across 24 countries. The price of quality &ndash i.e., how much investors pay extra for higher quality stocks – varies over time, reaching a low during the internet bubble. Further, a low price of quality predicts a high future return of QMJ. Finally, controlling for quality resurrects the otherwise moribund size effect.
Stock Market Valuations Across U.S. States
Geert Bekaert
(Columbia University)
Campbell R. Harvey
(Duke University)
Christian Lundblad
(University of North Carolina)
Stephan Siegel
(University of Washington)
[View Abstract]
While most consider the United States the world's flagship capital market in terms of integration and efficiency, we show this is not necessarily the case. Using industry-specific measures of state segmentation, we reveal significant valuation differences across states. Our analysis attempts to explain these differences using state-specific regulatory data such as banking regulations, minimum wage levels, taxation, and labor laws, as well as non-regulatory factors, such locational behavioral biases, the health of the economy within each state and a number of firm-specific characteristics. Our results show that variation in the regulatory environment is by far the most important force associated with state segmentation. Our paper provides a simple framework for measuring the marginal impact of regulatory actions. As such, this measurement, as well as the implied ordering of importance of individual policies, would seem to be useful for certain states desiring to create investment-friendly environments for their residents.
Horizon Effects in Average Returns: The Role of Slow Information Diffusion
Oliver Boguth
(Arizona State University)
Murray Carlson
(University of British Columbia)
Adlai Fisher
(University of British Columbia)
Mikhail Simutin
(University of Toronto)
[View Abstract]
[Download Preview] We show that when stocks incorporate information slowly, observed short-horizon portfolio returns are downward-biased. Buy-and-hold strategies amplify the effect when a systematic shock diffuses at heterogeneous speeds across different assets. In contrast, existing theories analyze price noises that are independent of fundamentals, and buy-and-hold portfolio returns are unaffected. Confirming the new predictions, downward bias in average returns reaches 10% annualized in daily and monthly style portfolios and international indices. Slow reaction to market information, identified by gradually declining lagged betas, is an important cause. These findings have natural consequences for performance evaluation.
Option-Based Estimation of Co-Skewness and Co-Kurtosis Risk Premia
Kris Jacobs
(University of Houston)
Peter Christoffersen
(University of Toronto)
Mehdi Karoui
(OMERS)
Mathieu Fournier
(HEC Montreal)
[View Abstract]
[Download Preview] We show that the price of risk for equity factors that are nonlinear in the market return are readily obtained using index option prices. We apply this insight to the price of co-skewness and co-kurtosis risk. The price of co-skewness risk corresponds to the spread between the physical and the risk-neutral second moments, and the price of co-kurtosis risk corresponds to the spread between the physical and the risk-neutral third moments. Our option-based estimates of the prices of risk lead to reasonable values of the associated risk premia. An out-of-sample analysis of factor models with co-skewness and co-kurtosis risk indicates that the new estimates of the price of risk improve the models' performance. The models using higher-order market moments also robustly outperform standard competitors such as the CAPM and the Fama-French model.
Discussants:
Jules van Binsbergen
(Stanford University)
Ralph Koijen
(London Business School)
Zhonjin Lu
(University of Georgia)
Xiaoyan Zhang
(Purdue University)
Jan 05, 2015 8:00 am, Westin Copley, Staffordshire
American Real Estate & Urban Economic Association
Real Estate and Urban Economics: The Last 50 Years and the Next
(R1) (Panel Discussion)
Panel Moderator:
Edward Coulson
(University of Nevada-Las Vegas)
Edward Glaeser
(Harvard University)
James Poterba
(Massachusetts Institute of Technology)
Robert Shiller
(Yale University)
Susan Wachter
(University of Pennsylvania)
Jan 05, 2015 8:00 am, Westin Copley, Great Republic
American Real Estate & Urban Economic Association
REITs
(G1, G3)
Presiding:
Walter Boudry
(Cornell University)
The Profitability Premium in Real Estate Investment Trusts
Ran Lu-Andrews
(University of Connecticut)
John Glascock
(University of Connecticut)
[View Abstract]
In this study, we examine, within the confines of valuation theory, the cross-sectional return predictability for one specific industry: real estate investment trusts (REITs). Inspired by Novy-Marx (2013), we propose gross profit, as measured by total revenue net of total expenses scaled by total assets, to be a predictive factor for REIT cross-sectional returns. We find that REIT firms with high profitability have higher returns than those with low profitability. We also find that gross profit remains significant even after we control for size, book-to-market and momentum.
J-REIT Market Quality: Impact of High Frequency Trading and the Financial Crisis
Pawan Jain
(Central Michigan University)
Mark Sunderman
(University of Memphis)
[View Abstract]
[Download Preview] Using the introduction of Arrowhead low latency trading platform by Tokyo Stock Exchange as a natural experiment, I analyze the impact of high frequency trading on market quality of J-REITs, in terms of liquidity, volatility, and systemic risks. I also analyze the impact of the 2008 financial crisis. The results document that while the crisis has significantly deteriorated the market quality, the J-REIT markets were resilient. Further, the introduction of Arrowhead improved the J-REIT market quality but has also increased the probability of flash crashes. Intraday patterns documented can be useful for appropriately timing trades to improve the execution quality. Finally, using difference-in-differences regression model, I show that since REITs have a higher transparency and better price discovery, they were much less affected by the financial crisis and Arrowhead as compared to non-REIT common stocks.
The Risk Effects of Shifting Tax Regimes: An International Examination of the REIT Effect
Dirk Brounen
(Tilburg University)
Ronald Mahieu
(Tilburg University)
[View Abstract]
This paper contributes to the stream of literature, which assesses the stock performance effects of financial regulations by analyzing how the introduction of REIT regimes influences the return dynamics of listed real estate investment firms internationally. Introducing a tax transparent REIT regime offers real estate investment firms a new trade-off between tax advantages and reduced corporate flexibility with respect to dividend payout policy, capital structure and the span of their activities. In this paper, we document that firms, which transit to a REIT regime experience a decrease in leverage, a mild jump in stock turnover levels, and an increase in dividend payouts. The mandatory payout of earnings as dividends appears to be changing the financial DNA of the firms in our sample. Announcements of dividends become less informative, and the strong reliance on dividends alter the systematic risk of REITs. In order to better grasp the effects on systematic risk, we also decompose the beta into a cash-flow beta and a discount beta. It turns out that the dividend payout criterion of REITs effectively increases the cash flow beta of a firm, while the discount rate beta weakens. These results indicate that financial regulations, like a REIT regime, change the composition of firm risk, more so than the total level of risk itself.
Whose Money is Left on the Table? Evidence from REIT IPOs
Woei-Chyuan Wong
(University Utara Malaysia)
Joseph Ooi
(National University of Singapore)
[View Abstract]
The popular explanation for IPO underpricing is that money is left on the table by the issuers who price their newly listed shares at a discount. We revisit this topic by focusing on the IPOs of a special entity, namely real estate investment trust (REIT), which is easier to value. Consistent with the IPO literature, we observe that REIT IPOs registered positive first day returns, averaging 3.3%. The issue price of the new shares is however 4.3% higher than their intrinsic value. The evidence suggests that, despite money being left on the table, the issuers still profited from the IPO process. Our investigation shows that the money on the table is left by overly optimistic investors who are willing to pay excessive price for the new stocks in the IPO aftermarket. In sum, sentiment has a significant impact on IPO pricing and the issuers’ wealth.
Discussants:
S. McKay Price
(Lehigh University)
Robert Connolly
(University of North Carolina)
Tobias Muhlhofer
(University of Texas-Austin)
Jarl Kallberg
(Washington State University)
Jan 05, 2015 8:00 am, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Human Capital in Four Countries in Asia and Eurasia
(J3, P5)
Presiding:
Kathryn Anderson
(Vanderbilt University)
How Does the Expansion of Higher Education Change the Returns to College Quality? Insights from 60 Years of Russian History
Klara Sabirianova Peter
(University of North Carolina)
Olga Belskaya
(University of North Carolina)
[View Abstract]
In the ten years between 1997 and 2008 the number of college students in Russia surged from 3 to 7.5 million, the number of universities has more than doubled, and the college enrollment rate increased by almost 40 percentage points. We study the effect of this remarkable expansion of higher education on changes in college quality and labor market returns to college quality. We use a unique linked dataset that combines four different sources: a 17-year nationally representative panel of individuals; the university database; official regional and national statistics from 1950 to 2011; and the archives of Soviet and Russian laws. The majority of previous studies on college quality rely on time-constant quality measures for a given cohort of students in a cohort-based panel such as NLSY. Our study makes a step forward compared to the existing literature by constructing a number of time-varying proxies for college quality over a 60-year period and identifying the cross-cohort shifts in returns to college quality. After controlling for flexible age-time effects and constant individual heterogeneity (that captures family background, genetic abilities, constant preferences, psychological traits, among other factors), we find evidence of declining college quality and increasing returns to college quality for the cohorts that obtained education during the period of expansion. We also model the selection into college using the exogenous changes in the rules of military conscription of students after WWII, changes in compulsory schooling laws, and unexpected shifts in the wage gap between manual and non-manual workers. The paper shows an increase in the heterogeneity of the returns to college quality in a model with inseparable individual heterogeneity.
Bride Kidnapping in the Kyrgyz Republic: Models and Estimates of Causes and Consequences
Charles Becker
(Duke University)
Bakh Mirkasimov
(Humboldt University)
Susan Steiner
(Leibnitz Universitat Hannover)
[View Abstract]
[Download Preview] This paper estimates the causes and long-run consequences of bride “kidnapping” or marriage by “capture” in the Kyrgyz Republic. A simple model of mate selection is provided. Empirical analysis is based on a rich data set called “Life in Kyrgyzstan” (LiK) that was collected over three years, 2010-2012. We focus on marriages that took place since 1989. We find that bride kidnapping is on the decline nationally (which contradicts anthropological studies on this subject). We find the smaller the community and the higher the altitude, the higher the number of kidnapped women. Kyrgyz women are among the most “modern” women in the region, which makes the re-appearance and prevalence of bride kidnapping especially puzzling. Non-consensual kidnap marriages are a source of grave concern because of the potential negative consequences for women’s mental, physical and emotional well-being.
The Institutional Causes of Famine in China, 1959-61
Nancy Qian
(Yale University)
Xin Meng
(Australian National University)
Pierre Yared
(Columbia University)
[View Abstract]
[Download Preview] This paper investigates the institutional causes of China’s Great Famine. It presents two empirical findings: 1) in 1959, when the famine began, food production was almost three times more than population subsistence needs; and 2) regions with higher per capita food production that year suffered higher famine mortality rates, a surprising reversal of a typically negative correlation. A simple model based on historical institutional details shows that these patterns are consistent with the policy outcomes in a centrally planned economy in which the government is unable to easily collect and respond to new information in the presence of an aggregate shock to production.
Gender-Differential Effects of Conflict on Education: The Case of the 1981-1993 Punjab Insurgency
Olga Shemyakina
(Georgia Institute of Technology)
Prakarsh Singh
(Amherst College)
[View Abstract]
This study explores the long-run effect of the 1981-1993 Punjab Insurgency on the educational attainment of adults who were between ages 6-16 years at the time of the insurgency, using the 2005 India Human Development Survey. We find a substantial and statistically significant negative effect of insurgent attacks on educational attainment. To explore the channels through which the conflict affected education, we use a unique historical dataset on the annual expenditure decisions by farmers from Punjab during 1978-1989. We find that a significant reduction in expenditure on education by households with a high ratio of girls to boys and those residing in violence affected districts. Our results suggest that this reduction was one of the demand-side channels through which conflict affected education.
Discussants:
Melanie Khamis
(Wesleyan University)
Mieke Meurs
(American University)
Steven Nafziger
(Williams College)
Sarah Pearlman
(Vassar College)
Jan 05, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
Examining Social Provisioning through Global Value Chains
(O1)
Presiding:
Steven Sawyer
(Fashion Institute of Technology)
The Implications of Global Value Chains for Development: Unequal Exchange, Middle-Income Traps and Gendered Labor Market Outcomes
Mary Borrowman
(New School)
[View Abstract]
The rapid increase in the integration of international production over the last few decades has been accompanied by a rapidly increasing discourse attempting to explain the implications. The global value chain (GVC) framework emerged from a developmentalist tradition that emphasized inequalities in power and resources that were likely to be perpetuated by exchange, thus necessitating a role for an active interventionist state. The framework has since been adopted by those coming from a liberal perspective who emphasize the increasing efficiency and universal gains from trade that result from GVCs and thus promote global trade liberalization and deregulation. This paper traces through the theoretical arguments on both sides of the liberal/developmental divide and the policy implications that result. It is the insights into power and asymmetric market structure coming out of the developmental GVC perspective that are most relevant to modern global political economy, as they help us understand inequities in distribution on a macro and micro scale. This is particularly true for the expanding inequalities within countries, the low-level equilibrium traps and middle-income traps experienced by developing countries, and understanding the erosion of bargaining power of workers and the gender dynamics of labor markets. The paper concludes with an analysis of the winners and losers in the pursuit of policies on both sides of the liberal/developmental divide and the power dynamics facing developing countries in GVCs and international institutions.
Does the Global Value Chain Literature Improve Traditional Development Economics or Are There Ideas to Be Borrowed?
P. Sai-wing Ho
(University of Denver)
[View Abstract]
The global value chain (GVC) literature emerged as a ‘new’ contribution to development studies at a time when neoliberalism (regarding trade and investment policies) had largely displaced the more traditional development economics. This paper contends that some of the key contributors to that literature have exhibited a lack of a critical understanding that neoliberalism gained the upper hand by trivializing and distorting certain key ideas in traditional development economics. Thus, neoliberal trade policies are based upon the age-old principle of comparative advantage that has a Smith–Ricardo–Mill lineage in that it is rooted in one type of division of labor, namely that there are benefits when two parties specialize and trade in different final products. Traditional development economics expressed strong reservations toward that principle and the GVC literature likewise exhibits ambivalence toward it. But what the proponents of the GVC literature did not realize is that there is a second type of division of labor (concerning production operations) in classical economics, famously represented by Smith’s pin-making observation but also by his description of woolen-coat production, which actually anticipates the GVC concept. It is this second kind of division of labor to which some traditional development economists (e.g., Prebisch, Singer, Hirschman) sought to assign a more central role as they conceptualized development processes (e.g., linkage dynamics) and formulated policy recommendations (e.g., regarding technology acquisitions). Their frameworks have the potential of yielding a more holistic analysis than that offered by the GVC literature, and thereby suggest limitations of the latter.
Skill Embodied and 'Value-Added Erosion' in Global Value Chains: An Empirical Approach
Xiao Jiang
(Denison University)
Jose Caraballo
(University of Puerto Rico)
[View Abstract]
[Download Preview] Many countries in 1995-2008 have experienced what we call the “value-added erosion”, which describes the phenomenon of the decline in the sectoral shares of domestic value-added in a country’s exports as the country becomes more integrated into the Global Value Chains (GVCs). We argue that the decline of domestic value added share in a country’s exports is likely to be caused by the expansion of high value-adding activities performed by foreign lead firms in the upper stream of the GVCs. The variables of interest namely, domestic value-added share in exports, and foreign high skilled labor embodied in a country’s exports (a proxy for foreign lead’s firm’s high value-adding activities) were estimated using a multi-regional global input-output model. Using these results as well as other control variables we applied a panel cointegration model to explain and assess the likelihood of value-added erosion and its possible determinants.
The China Factor in Vietnam's Value Chain Development: Rent Seeking, Technology Transfer and Social Provisioning
Christine Ngoc Ngo
(University of Denver)
[View Abstract]
This paper critically assesses the mainstream’s approach to the value chain development using experiences of the textile-garment industry in Vietnam. It points out, on the one hand, that attracting foreign investment, as a means to participate in the global value chain is insufficient to boost local firms’ capability to move up the value chain. On the other hand, the local economy faces tremendous constraints and distortion from external forces such as the pressure arising from Vietnam’s heavy reliance on inputs imported from China in its textile industry. Consequently, the China factor undermines Vietnamese firms’ ability to achieve vertical linkages and capability to move up to the next level of the value chain. The paper argues that mere participation in the global value chain does not offer developing countries automatic and costless inclusive growth as asserted by the mainstream literature. It is insufficient for poor countries to focus solely on low value added production where major technology, value added and profits remain within foreign firms. In the context of specialized global production, it is essential that the national strategy emphasizes local firms’ acquisition of new technical and organizational capability in order to be part of the most profitable segment of the value chain.
Financialization and the Value Chains of United States Corporations
Sergio Canavati
(University of Missouri-Kansas City)
[View Abstract]
During the last three decades corporations have massively expanded their market value and revenues, while shrinking their employment and capital investment. The large, vertically-integrated diversified conglomerates of managerial capitalism (1930-1980) have been replaced by enterprises that employ fewer employees, are less diversified, and less vertically integrated. In an effort to downsize and decrease costs, corporations focus on the value-chain activities that generate the highest markup on costs, which are R&D and marketing. This represents a shift from manufacturing towards services, particularly financial services. Corporations have adopted outsourcing to deny any responsibility over employee benefits, retirement, and working conditions. The reliance on international value-chains as a strategy to increase the percentage of revenues that can be distributed to shareholders has gained increased interest. Grounded on the financialization literature, we conduct an industry-specific study of the impact of financialization on the structure and governance of production value-chains in order to examine the validity of the theoretical arguments advanced by the growing financialization literature.
Discussants:
Payam Sharifi
(University of Missouri-Kansas City)
Tuna Baskoy
(Ryerson University)
Jan 05, 2015 8:00 am, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Social Economics
Policy Options in an Age of Uncertainty
(H1, B5)
Presiding:
Rajani Kanth
(Harvard University)
A New Theory of Unemployment
Ravi Batra
(Southern Methodist University)
[View Abstract]
[Download Preview] A new theory of unemployment.A deep recession started in 2007 in the United States and quickly spread abroad. Keynesian policies were followed, sharply raising money supply and budget deficits all over the world. But even five years later, the globe suffered from high unemployment. This paper offers a new theory, and argues that joblessness occurs when a wage gap develops in that labor productivity rises faster than the real wage. This occurred in the 1920s that were followed by a depression, and also happened for several decades after 1980, only to be followed by a severe recession. Free trade may be partly responsible for a rise in this wage gap. Keynesian and classical theories are inadequate for many reasons. Keynesian remedies no longer work because of already excessive debt. And the classical prescription of a falling real wage, as demonstrated in the paper, is actually counterproductive.
Policy Implications of Complexity: Toward a Systemic, Process-Based Frame-Setting, Long-Run, and Interactive Policy for a Complex Economy
Wolfram Elsner
(University of Bremen)
[View Abstract]
[Download Preview] Policy Implications of Complexity: Toward a Systemic, Process-Based Frame-Setting, Long-Run, and Interactive Policy for a Complex Economy
Rethinking Fundamentals: A Summing Up
Rajani Kanth
(Harvard University)
[View Abstract]
We live in critical times where anomalies abound. At times, Facts appear to be 'correct', but belie Theory at times, it is vice versa. This Session, that brings together distinguished Economic Analysts from India, the UK, Germany, and the US, seeks to identify New Ideas to help decode the Present: and offer hope for a less turbulent Future.
Electoral Regimes and Socio-Economic Inequality: Factors Exacerbating the Crisis
Roslyn Fuller
(Waterford Institute)
[View Abstract]
[Download Preview] Electoral democracy is, by its nature, harshly competitive. Following any election, the winner acquires all political power, including the ability to control the national economy, or in some cases, even the global economy. That these ‘winners’ should choose to recreate the economy they govern in the image of the overly competitive, highly commoditized, neoliberal political system they master is hardly surprising. Therefore, in order to change the way our economies are governed – necessary, if we are to ever overcome the global recession ongoing since 2008 – we need to change the underlying political system. In particular, we need to replace our competitive political system with decision-making processes that are not formally competitive, that have, in short, no long-term ‘winners’ or ‘losers’. This can only be achieved by replacing electoral democracy with direct, mass participation, and by paying citizens to participate in political decision-making.
From Free to Civilized Markets: First Steps Towards Eutopia
Jakob Kapeller
(Johannes Kepler University-Linz)
Bernhard Schutz
(Johannes Kepler University-Linz)
Dennis Tamesberger
(Austrian Chamber of Labor)
[View Abstract]
[Download Preview] Unfettered market forces tend to violate basic universal concepts like justice, dignity or fairness as has been recently emphasized under the label of "marginal ethics", i.e. the tendency of unregulated competition to erode moral and social standards. This specific aspect in the relationship between market competition and its social foundations is especially pronounced in the context of international trade, where great differences with respect to established working conditions and product standards exist. In order to avoid the successive erosion of moral standards associated with "marginal ethics" in the context of international trade, we suggest moving to a new concept of markets, which we label “civilized markets.” A civilized market tries to ensure that free entrepreneurship and open markets are eventually compatible to these basic and universal values that also serve as moral cornerstones of the European project . We propose to establish a new European institution that should set and enforce minimum standards for goods sold on the European market in order to accomplish this aim. Thereby, the Japanese Top-Runner Program - which aims to guide the innovative capabilities of markets in order improve specific product dimensions - serves as an institutional archetype for such a project.
Jan 05, 2015 8:00 am, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Regulation and Governance
(Q5, H2)
Presiding:
Erin Mansur
(Dartmouth College)
Strategic Interactions in the Regulatory Environment and Output Market: Implications for General Deterrence
Mary Evans
(Claremont McKenna College)
Scott M. Gilpatric
(University of Tennessee)
Jay Shimshack
(Tulane University)
[View Abstract]
General deterrence describes the spillover effects of enforcement actions directed at one facility on the environmental performance of other facilities. The mechanism hypothesized to explain empirical results consistent with spillover effects of general deterrence is that of a “regulator reputation effect.” This paper proposes an alternative explanation for commonly observed general deterrence in environmental settings: strategic market interactions. To test the mechanisms driving general deterrence, we explore monthly panel data on over 300 major facilities regulated under the Clean Water Act from the pulp and paper, petroleum refining, chemicals, and iron and steel industries. Results suggest that permitted discharges decrease with the number of fines assessed on (i) other facilities in the same state and industry in the past 2 years, and (ii) other facilities in the same state but different industries in the past 2 years. Result (i) is consistent with the previous literature and (ii) provides evidence of a true regulator reputation effect. We also find that (iii) permitted discharges increase with the number of fines assessed on other facilities in the same industry but different states in the past 2 years. Result (iii) is most consistent with strategic responses on the part of firms that interact in the output market and largely inconsistent with pure regulator reputation effects. This latter result suggests a potential unintended consequence of increased regulatory pressure on a firm; the firm’s competitors may take advantage by becoming more aggressive, and pollution discharges by competing firms may increase.
Overlapping Environmental and Financial Regulations: The Role of Corporate Governance
Ben Gilbert
(University of Wyoming)
Sridhar Gogineni
(University of Wyoming)
Klaas Van 'T Veld
(University of Wyoming)
Chenyang Xu
(University of Wyoming)
[View Abstract]
[Download Preview] We study the question of whether good corporate governance improves environmental performance. The relationship between governance and environmental performance may depend on the interaction between financial and environmental regulations. To measure these relationships, we develop a unique new panel dataset that matches individual U.S. coal-fired power plant characteristics and emissions rates to the financial information on their corporate parents. We exploit predetermined variation in corporate governance quality prior to the passage of the Sarbanes-Oxley Act--a major federal financial regulation that increased transparency between shareholders and managers--to study the effect of governance improvements on subsequent emissions rates of Nitrogen Oxides (NOx). We find that the effect of corporate governance on emissions rates differs across environmental regulatory regimes; improvements in corporate governance reduce emissions rates in areas where NOx emissions are managed by cap-and-trade, but do not affect emissions rates under emissions rate standards. We also find that effects on emissions rates are heterogeneous across different dimensions of governance; increasing CEO accountability causes emissions rates to increase, while increasing shareholder rights has the opposite effect.
Re-Evaluate the Effectiveness of Voluntary Programs Considering the Information Diffusion Impact
Rong Zhou
(University of Connecticut)
Kathleen Segerson
(University of Connecticut)
[View Abstract]
[Download Preview] Lyon and Maxwell (2007) argue that the traditional program evaluation method is not appropriate for evaluating voluntary programs with strong treatment spillovers. However, to date there exists little empirical evidence supporting their argument. This paper studies the role of information diffusion in the Combined Heat and Power Partnership (CHPP) program, a voluntary program to promote adoption of the CHP technology. Based on the traditional method used in the VA literature, the result indicates that the program has had little impact. After incorporating national information diffusion, the new results show that, although the program has had little effect on increasing participants’ adoption rate, it increases adoption by non-participants, providing empirical support for the Lyon and Maxwell’s (2007) argument. In addition, information diffusion impacts provide one explanation for the low participation rate by electric utilities in this program.
A Model of the Model: Unpacking CGE Results on Leakage from Climate Policy
Don Fullerton
(University of Illinois-Urbana‑Champaign)
Kathy Baylis
(University of Illinois)
Daniel H. Karney
(University of Illinois)
[View Abstract]
Analytical general equilibrium models can be used to decompose the overall effect on some outcome of interest into component parts. A computable general equilibrium (CGE) model can have much more detail but generally provides only a single numerical outcome. This paper provides a way to unpack a single numerical result using analytical models. First, we extend a simple analytical general equilibrium model of a small unilateral increase in carbon tax to find closed-form expressions for the effect on leakage – the increase in emissions elsewhere. Second, we extend the analytical model to identify a total of six leakage terms – two positive and four negative. Third, we take parameters from an existing CGE model and insert them into our analytical solutions. We find that the fuel price effect is generally the largest positive effect in computable general equilibrium models, but the terms of trade effect is also important. The input output effect is usually the largest negative effect on leakage, but the abatement resource effect can be substantial, depending on parameters. Other effects are usually smaller, but can become sizable depending on the simulation under consideration. The paper then discusses implications for modelling, and for policy.
Discussants:
Erin Mansur
(Dartmouth College)
Karen Fisher-Vanden
(Pennsylvania State University)
Anna Alberini
(University of Maryland)
Roberton Williams
(University of Maryland)
Jan 05, 2015 8:00 am, Sheraton Boston, Beacon D
Econometric Society
Analyzing Market Interactions with Microdata
(J2, J3)
Presiding:
Judith Chevalier
(Yale University)
Speculative Fever: Microevidence for Contagion in the Housing Bubble
Patrick John Bayer
(Duke University)
Kyle Mangum
(Georgia State University)
James W. Roberts
(Duke University)
[View Abstract]
This paper examines the spread of speculative investing, or ``contagion,'' by homeowners in the recent housing bubble. Using detailed housing transaction records, we estimate the impact of speculative activity by one's neighbors and in one's neighborhood on subsequent real estate investment behavior and performance. Our research design, which isolates the impact of immediate neighbors relative to those on nearby blocks, controls for a host of potential issues that might create spurious correlation in neighbors' investment activities. We find evidence of strong spillovers within neighborhoods: homeowners were much more likely to engage in speculative activity both after a neighbor had successfully flipped a home and when a home had been successfully flipped in their neighborhood. Social contagion brought amateur real estate investors into the market at an increasing rate during the boom, with their share reaching a record high just as the market reached its peak, bringing substantial equity losses, defaults and foreclosures in the subsequent crash.
Wage Discrimination when Identity is Subjective: Evidence from Changes in Employer-Reported Race
Christopher Cornwell
(University of Georgia)
Ian Schmutte
(University of Georgia)
[View Abstract]
[Download Preview] In Brazil, different employers often report different racial classifications for the same worker. We use this variation in employer-reported race to identify wage discrimination. Workers whose reported race changes from non-white to white receive a wage increase; those who change from white to non-white realize a symmetric wage decrease. As much as 40 percent of the raw racial wage gap is explained by the employer's report of race, after controlling for all individual characteristics that do not change across jobs. The results are consistent with workers manipulating perceived race in an environment where racial classification is subjective, but discrimination persists.
Intra-Plant Wage Responsiveness: Evidence from Brazil
Peter Brummund
(University of Alabama)
[View Abstract]
[Download Preview] A basic assumption in labor economics is that changes in wages paid to new workers are distributed to existing workers. However, there is little evidence to support this assumption. This paper uses Brazilian matched employer-employee longitudinal data to identify new jobs, and then
measures the responsiveness of wages paid to existing workers to the wages paid to new workers. This measure of responsiveness is an indicator of the frictions existing workers are facing in the labor market. The study finds that workers are facing significant frictions, and then goes on to measure the wage responsiveness for different groups of workers, by sex, occupation, and location. The findings of this analysis has implications for labor market efficiency and labor's share of income.
Subprime Lending and Foreclosure
Fernando V. Ferreira
(University of Pennsylvania)
Stephen L. Ross
(University of Connecticut)
Yuan Wang
(University of Connecticut)
[View Abstract]
Several papers have suggested a link between the neighborhoods that were most hard hit during the foreclosure crisis and the extent of subprime mortgage lending that occurred in the period leading up to the crisis. At the same time, the purpose of subprime lending is to provide credit to borrowers who faced significant credit constraints in the primary mortgage market, and such borrowers would be expected to face a higher price of credit and have worse credit market outcomes. We analyze mortgage delinquency and foreclosure using detailed samples of home purchase originations across seven major metropolitan sites in order to test whether locations that have higher rates of subprime lending also have higher foreclosure rates after controlling for standard mortgage risk factors. Consistent with the existing literature, we document the strong positive cross-sectional correlation between subprime, low income, and minority lending that has been found by many other studies. However, these positive effects on foreclosure attenuate significantly with the inclusion of additional observable mortgage risk factors, and the inclusion of a variety of neighborhood related fixed effects eliminates any correlation between neighborhood lending patterns and foreclosure rates.
Discussants:
Kristopher Gerardi
(Federal Reserve Bank of Atlanta)
Christopher Cunningham
(Federal Reserve Bank of Atlanta)
Christopher Cornwell
(University of Georgia)
Josh Kinsler
(University of Rochester)
Jan 05, 2015 8:00 am, Sheraton Boston, Beacon F
Econometric Society
Are All Financial Shocks Alike? The Effects of Credit, Housing and Uncertainty Shocks
(E3, E5)
Presiding:
Francesco Furlanetto
(Norges Bank)
Credit Supply and the Housing Boom
Alejandro Justiniano
(Federal Reserve Bank of Chicago)
Giorgio Primiceri
(Northwestern University)
Andrea Tambalotti
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust.
Housing Demand during the Boom: The Role of Expectations and Credit Constraints
Tim Landvoigt
(University of Texas-Austin)
[View Abstract]
[Download Preview] Optimism about future house price appreciation and loose credit constraints are commonly considered drivers of the recent housing boom. This paper infers both mean and variance of short-run expectations of future house price growth and minimum down payment requirements from observed household choices. The expectations and credit constraints are implied by a life-cycle portfolio choice model that encompasses home ownership, housing demand, and financing choices. I estimate the parameters of this model using data from the Survey of Consumer Finances from 1995 to 2010. The main result is that both expectations of future mean price growth and minimum down payment requirements were close to their long-run averages during the boom. Subjective uncertainty about the house price growth rate, however, was increasing. Expectations and credit constraints are separately identified due to their differential effects on the intensive and extensive margins of housing demand. The increase in uncertainty about future prices helps to explain the rise in household debt. Given the option to default, greater expected volatility leads to higher optimal leverage.
Identification of Financial Factors in Economic Fluctuations
Francesco Furlanetto
(Norges Bank)
Francesco Ravazzolo
(Norges Bank)
Samad Sarferaz
(ETH Zurich)
[View Abstract]
[Download Preview] We estimate demand, supply, monetary, investment and financial shocks in a VAR identified with a minimum set of sign restrictions on US data. We find that financial shocks are major drivers of fluctuations in output, stock prices and investment but they have a limited effect on inflation. In a second step we disentangle shocks originating in the housing sector, shocks originating in credit markets and uncertainty shocks. Housing shocks are the most important financial shock with large and persistent effects on output.
The Macroeconomic Impact of Financial and Uncertainty Shocks
Dario Caldara
(Federal Reserve Board)
Cristina Fuentes-Albero
(Federal Reserve Board)
Simon Gilchrist
(Boston University)
Egon Zakrajsek
(Federal Reserve Board)
[View Abstract]
There is a consensus about the increasing exposure to disruptions in the financial system and economic uncertainty over the years. Despite their different implications for policy, discriminating empirically between these two sources of economic fluctuations is not an easy task because their available empirical proxies are strongly correlated. We aim at making progress in this respect by using a penalty function approach to identification. Our criterion function is such that the structural shock maximizes the response of a target variable over a given horizon. We conclude that while the uncertainty channel plays a negligible role in the transmission of financial shocks; the financial channel is key in the transmission of uncertainty shocks. Financial shocks generate slowly-building and economically significant recessions followed by slow recoveries. Uncertainty shocks generate similar adverse effects if transmitted through the financial channel; otherwi se, their economic impact is significantly attenuated so that their relative role in driving business cycle fluctuations is not significantly different from zero.
Discussants:
Vincenzo Quadrini
(University of Southern California)
Andreas Fuster
(Federal Reserve Bank of New York)
Zheng Liu
(Federal Reserve Bank of San Francisco)
Jonathan Wright
(Johns Hopkins University)
Jan 05, 2015 8:00 am, Sheraton Boston, Beacon H
Econometric Society
Asset Pricing under Heterogeneous Beliefs
(G1)
Presiding:
Suleyman Basak
(London Business School)
Value or Growth? Pricing of Idiosyncratic Cash Flow Risk with Heterogeneous Beliefs
Hogyu Jhang
(Texas A&M University)
Hwagyun Kim
(Texas A&M University)
Michael Gallmeyer
(University of Virginia)
[View Abstract]
[Download Preview] We study an equilibrium continuous-time exchange economy where idiosyncratic cash flow risks are priced via investors' heterogeneous beliefs. Investors perceive idiosyncratic cash flow risks differently through heterogeneous subjective mean growth rates on a firm's cash flows. This impacts equilibrium quantities. Our model shows that idiosyncratic cash flow shocks priced through belief differences can explain cross-sectional variation in stock returns and cash flows. Quantitative results show that a value premium arises, as value stocks have higher idiosyncratic cash-flow volatilities, lower average cash flows, and higher belief differences, which is empirically supported. A growth premium prevails without belief differences.
Asset Prices and Portfolio Choice with Learning from Experience
Paul Ehling
(BI Norwegian Business School)
Alessandro Graniero
(London Business School)
Christian Heyerdahl-Larsen
(London Business School)
[View Abstract]
[Download Preview] We study asset prices and portfolio choice in a transparent overlapping generations economy in which the young disregard history to learn from own experience. Disregarding history implies less precise estimates of consumption growth which, in equilibrium, leads the young to increase their investment in risky assets after positive returns or act as trend chasers and to lose wealth and consumption shares to the old. Consistent with findings from survey data, the average belief about expected returns in the economy is negatively related to future realized returns.
Dynamic Equilibrium with Rare Events and Heterogeneous Epstein-Zin Investors
Georgy Chabakauri
(London School of Economics)
[View Abstract]
We consider a general equilibrium Lucas (1978) economy with one consumption good and two heterogeneous Epstein-Zin investors. The output is subject to rare disasters or, more generally, can have non-lognormal distribution with higher cumulants. We demonstrate that the heterogeneity in preferences generates excess stock return volatilities, procyclical price-dividend ratios and interest rates, and countercyclical market prices of risk when the elasticity of intertemporal substitution (EIS) is greater than one. We show that the latter results cannot be jointly replicated in a model where investors have EIS<1. Our model produces endogenous time-variation in equilibrium processes without assuming time-varying probabilities of disasters, as in the recent literature with homogeneous investors. We propose new approach for finding general equilibrium, and characterize optimal portfolios and consumptions in terms of tractable backward equations. Finally, we extend the analysis to the case of heterogeneous beliefs about disaster probabilities.
Dynamic Noisy Rational Expectations Equilibria with Anticipative Information
Jerome Detemple
(Boston University)
Marcel Rindisbacher
(Boston University)
Thu Truong
(Boston University)
[View Abstract]
[Download Preview] This paper studies a dynamic continuous time economy with discrete dividend payment dates and anticipative private information about future dividends. The economy is populated by informed and uninformed investors as well as mimicking noise traders. Both competitive and strategic informed behaviors are examined. The existence of a competitive and a strategic noisy rational expectations equilibrium is demonstrated. Both equilibria are derived in closed form and their properties analyzed. Weak-form efficiency is shown to fail. Informed trading is found to reduce price volatility, hence to stabilize the market. Conditions for Pareto efficiency of equilibria with private information are derived. Dynamic patterns are identified and equilibria compared. An extension of the model to multiple dividend cycles is carried out.
Discussants:
Hongjun Yan
(Yale University)
Nicolae Garleanu
(University of California-Berkeley)
Ilaria Piatti
(University of Oxford)
Brett Green
(University of California-Berkeley)
Jan 05, 2015 8:00 am, Sheraton Boston, Beacon G
Econometric Society
Theory of Matching Markets
(C1)
Presiding:
Ramesh Johari
(Stanford University)
Stable Matching in Large Economies
Yeon-Koo Che
(Columbia University)
Jinwoo Kim
(Seoul National University)
Fuhito Kojima
(Stanford University)
[View Abstract]
[Download Preview] Complementarities of preferences have been known to jeopardize the stability of two-sided matching markets, yet they are a pervasive feature in many matching markets. We revisit the stability issue with such preferences in a large market. Workers have preferences over firms while firms have preferences over distributions of workers and may exhibit complementarity. We demonstrate that if each firm's choice changes continuously as the set of available workers changes, then there exists a stable matching even with complementarity. Building on this result, we show that there exists an approximately stable matching in any large finite economy. We apply our analysis to show the existence of stable matchings in probabilistic and time-share matching models with a finite number of firms and workers.
Efficiency and Stability in Large Matching Markets
Yeon-Koo Che
(Columbia University)
Olivier Tercieux
(Paris School of Economics)
[View Abstract]
We study efficient and stable mechanisms in many-to-one matching markets when the number of agents is large and 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 large, 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 the renaming of agents." If objects' priorities are also randomly drawn but agents' common values for objects are heterogenous, 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.
Managing Congestion in Dynamic Matching Markets
Nick Arnosti
(Stanford University)
Ramesh Johari
(Stanford University)
Yash Kanoria
(Columbia University)
[View Abstract]
[Download Preview] We construct a model of a decentralized two-sided matching market in which agents arrive and depart asynchronously. In our model, it is possible that an agent on one side of the market (an "employer") identifies an agent on the other side of the market (an "applicant") who is a suitable partner, only to find that the applicant is already matched. We find that equilibrium is generically inefficient for both employers and applicants. Most notably, for a wide range of parameter values, equilibrium employer welfare is driven to zero due to uncertainty about the availability of applicants.
We consider a simple intervention available to the platform: limiting the visibility of applicants. We find that this intervention can significantly improve the welfare of agents on both sides of the market; applicants pay lower application costs, while employers are less likely to find that the applicants they screen have already matched. Somewhat counterintuitively, the benefits of showing fewer applicants to each employer are greatest in markets in which there is a shortage of applicants.
Matching with Peers in School Choice
Atila Abdulkadiroglu
(Duke University)
[View Abstract]
We study matching of students to schools taking into account student preferences for peers. The theory is tested with simulations on field data from a major school district in the US.
Discussants:
Parag A. Pathak
(Massachusetts Institute of Technology)
Itai Ashlagi
(Massachusetts Institute of Technology)
John Joseph Horton
(New York University)
Jacob Leshno
(Columbia University)
Jan 05, 2015 8:00 am, Sheraton Boston, Beacon E
Econometric Society
Topics in IO theory
(C7)
Presiding:
Leeat Yariv
(California Institute of Technology)
Competitive Screening Under Heterogenous Information
Daniel Garrett
(Toulouse School of Economics)
Renato Gomes
(Toulouse School of Economics)
Lucas Maestri
(Toulouse School of Economics)
[View Abstract]
[Download Preview] We study competition in price-quality menus when consumers privately know their valuation for quality (type), and are heterogeneously informed about the offers available in the market. While firms are ex-ante identical, the menus offered in equilibrium are ordered so that more generous menus leave more surplus uniformly over types. More generous menus provide quality more efficiently and generate a greater fraction of profits from sales of low-quality goods. By varying the level of informational frictions, we span the entire spectrum of competitive intensity, from perfect competition to monopoly. More competition may raise prices for low-quality goods; yet, consumers are better off, as their qualities also increase.
A Multi-Unit Dominant Strategy Double Auction
Simon Loertscher
(University of Melbourne)
Claudio Mezzetti
(University of Melbourne)
[View Abstract]
This paper introduces a double auction in which buyers and sellers demanding and supplying multiple units of a homogeneous good have a dominant strategy to bid according to their true demands and supplies. Our double auction never runs a deficit and traders never regret participating; that is, ex-post individual rationality is satisfied. While one side of the market trades at a single price, the other side trades at VCG prices (with a reserve price). Using variants of the Ausubel auction, the dominant strategy outcome of our double auction can be implemented in dominant strategies in an open format. Our double auction converges to the efficient outcome at a rate 1/N as the number N of traders on the short side of the market goes to infinity.
Dynamic bidding
David McAdams
(Duke University)
[View Abstract]
[Download Preview] Consider a second-price auction with costly bidding in which bidders with i.i.d. private values have multiple opportunities to bid. If bids are publicly observable, the resulting dynamic-bidding game generates greater expected total welfare than when bids are sealed or, if the seller commits to an optimal reserve, greater expected revenue. If the seller cannot commit to a bid-revelation policy, however, equilibrium outcomes are the same as if bids cannot be revealed.
Robust Mechanism Design and Social Preferences
Felix Bierbrauer
(University of Cologne)
Axel Ockenfels
(University of Cologne)
Andreas Pollak
(University of Cologne)
Desiree Rückert
(University of Cologne)
[View Abstract]
We study a classic mechanism design problem: How to organize trade between two privately informed parties. We characterize an optimal mechanism under selsh preferences and present experimental evidence that, under such a mechanism, a non-negligible fraction of individuals deviates from the intended behavior. We show that this can be explained by models of social preferences and introduce the notion of a social-preference-robust mecha- nism. We characterize an optimal mechanism in this class and present experimental evidence that it successfully controls behavior. We nally show that this mechanism is more protable only if deviations from selsh behavior are suciently frequent.
Jan 05, 2015 8:00 am, Westin Copley, Helicon
Labor & Employment Relations Association
LERA Papers IV: Stakeholder and Shareholder Voice: Outcomes for Competitiveness, Development, and Social Responsibility
(J4)
Presiding:
Betty Barrett
(Massachusetts Institute of Technology)
The Influence of Employee Unions on Corporate Social Performance
Muhammad Umar Boodoo
(University of Toronto)
[View Abstract]
The Influence of Employee Unions on Corporate Social Performance
Work Organization and Problem Solving in Stakeholder and Shareholder Environments
Heike Nolte
(University of Applied Sciences Emden)
Peter Dorman
(Evergreen State College)
[View Abstract]
Work Organization and Problem Solving in Stakeholder and Shareholder Environments
Discussants:
Betty Barrett
(Massachusetts Institute of Technology)
Alan Benson
(University of Minnesota)
Jessica Nembhard
(City University of New York)
Jan 05, 2015 8:00 am, Westin Copley, North Star
Labor & Employment Relations Association
LERA Papers V: Industry and Occupation Studies of Employment Relations
(J1)
Presiding:
David Lewin
(University of California-Los Angeles)
The Impacts of Unionization and Occupational Regulation Coverage on Employee Compensation in Canada
Tingting Zhang
(University of Toronto)
Xiaoyu Huang
(University of Toronto)
[View Abstract]
Using data from the Canadian Survey of Labour and Income Dynamics (SLID) from 1993 to 2010, I examined changes in workers’ compensation packages (both wage and fringe benefits) that occurred after changes in individual labour market status, such as unionization and occupational regulation (i.e., licensing). Notably, occupations regulated by provincial governments generate significant positive wage premiums that are similar to those of trade union membership. For fringe benefits, such as medical care and pension, unionization has stronger positive impacts on the likelihood of receiving employment-based benefits. The hypothesis challenged in this paper was that there exists an additional premium for occupations that were unionized but are now regulated. The empirical results did not fully support this hypothesis. The difference in impacts between trade unions and occupational regulation are discussed further, and potential explanations to differences in trends between Canada and the United States are also addressed.
How to Screen Miners' Skills: Recruiting in the Coal Mining in Early Twentieth Century Japan
Mayo Sakai
(University of Tokyo)
[View Abstract]
[Download Preview] In the early 20th century, coal mining firms took an intermediary organization of labor called “the dormitory system.” High manual skills were dominant and firms did not enter the inside of their coal mines. Under these conditions, firms did not have any choice but to leave to dormitory heads almost everything about managing miners. In this study, we observe the experience of Aso Fujidana Second Coal Mine in the 1900s. This coal mine used the mining method which required traditional manual skills and coal mining machines were not introduced. The miners were managed by dormitory heads but the firm began the transition to adopting the direct employment system. We study historical documents, “The job applications of miners” for the coal mine. This is the very first empirical research with first hand documents of employment contract. When entering the firm, the applicants had to be referred by someone who was reliable as a referral agent. We found that new entrants tended to be directly employed by the firm and dormitory heads tended to refer them. Workers who had new skills for operating conveyance elevators which was newly introduced in the 1890s tended to be directly employed. Coal miners ,they accumulated traditional manual skills, were likely to refer by skilled miner referral agents. We infer that coal miners got their jobs across their job information networks by being referral agents each other.
Unionism and Productivity in West Virginia Coal Mining: A Longer View
William Boal
(Drake University)
[View Abstract]
[Download Preview] measure the effect of the United Mine Workers of America on productivity in West Virginia coal mining in the early twentieth century. I begin by replicating Boal’s (1990) estimates, which used a small panel of coal mines from the early 1920s. Using physical measures of inputs and outputs, that study found some evidence of a negative effect of unionism on productivity at small mines, but the statistical significance was less than overwhelming. Then I take a longer view, using a much larger panel beginning in 1897. The earlier finding of a negative effect at small mines is not sustained. However, I find clear evidence of a negative effect of unionism toward the end of the sample, worsening over time. I explore possible explanations, including deteriorating labor relations and a “holdup” effect on unmeasured investment.
Occupational and Industrial Mobility among U.S. Truck Drivers: Are Truckers Different from other Blue Collar Workers?
Stephen Burks
(University of Minnesota-Morris)
Kristen Monaco
(U.S. Bureau of Labor Statistics)
[View Abstract]
[Download Preview] We examine the occupational mobility of truck drivers over the period from 2000 to 2013, using “short panels” constructed from the Current Population Survey to examine individuals who enter truck driving and incumbents who leave it over one-year time horizons. We find that the occupational mobility of truckers is typical for a blue collar occupation. We also find that the usual suspects, wages and hours, are key predictors of the propensity to switch. This initially appears to counter claims by trucking industry analysts and major trucking industry firms is that the market for drivers of heavy and tractor-trailer trucks is quite distinctive, exhibiting a “shortage” that is evidenced in relatively high firm-level turnover and unfilled truck seats. We identify reasons that managers in particular parts of the trucking industry might perceive their labor market in this way, and why these underlying factors would not show up at the level of an occupational mobility analysis using CPS data, so our evidence does not directly contradict industry perceptions. However, we conclude by observing that the CPS suggests that truckers as a whole are not distinctive; the labor market works about as well to allocate trucking labor in response to changes in wages and hours as it does for other large blue-collar occupations.
Discussants:
Howard Wial
(Brookings Institution)
Peter Orazem
(Iowa State University)
Jan 05, 2015 8:00 am, Westin Copley, Defender
Labor & Employment Relations Association
LERA Papers VII: Employment Relations and Organizational Performance
(J5)
Presiding:
Phanindra V. Wunnava
(Middlebury College)
Empirical Evidence on Diversity and Performance in Teams: The Roles of Task Focus, Status and Tenure
Avner Ben-Ner
(University of Minnesota)
John-Gabriel Licht
(University of Minnesota)
Jin Park
(University of Minnesota)
[View Abstract]
Empirical Evidence on Diversity and Performance in Teams: The Roles of Task Focus, Status and Tenure
Positive Labor Relations as a Key Component of Seaport Competitiveness
Jordan Cowman
(University of Texas-Dallas)
Jerald Zellhoefer
(AFL-CIO)
[View Abstract]
[Download Preview] Positive Labor Relations as a Key Component of Seaport Competitiveness
The competitive environment surrounding ports is changing dramatically. The expansion of the Panama Canal, port dredging projects around the world and a multitude of other investments and external factors suggest that port competition will increase exponentially in coming years. More than ever customers will judge a port by its reliability. Meanwhile, as seaports seek to meet 21st Century challenges their workplaces for the most part remain hobbled by 20th Century labor relations. When a port’s reliability is undermined by labor disputation, its competitive position is jeopardized. Typically, labor-management port relations have yielded an unreliable system and recurring commercial interruption. This paper briefly examines recent and anticipated changes in the port industry and explains the importance of a different approach to port labor relations if massive investments in improving port infrastructure are to yield their intended return. Social dialogue and a more inclusive, productive relationship between employers and workers are essential for ports to remain competitive in the new age of global competition.
Keywords: Port Labor, Port Competition, Inter-port Competition, Intra-port Competition, Labor-Management Relations, Social Dialogue, Panama Canal Expansion, Container Terminal Labor, ILO, International Labor Organization, OECD, Organization for Economic Cooperation and Development
Assessing Union Activities and Its Influence on Performance of Unionized Firms in Ghana
Gabriel Dwomoh
(Kumasi Polytechnic)
Kofi Kwarteng
(Takoradi Polytechnic)
[View Abstract]
[Download Preview] Assessing Union activities and Its influence on Performance of Unionized Firms in Ghana
Relational Coordination: Reviewing the Theory and Evidence
Jody Hoffer Gittell
(Brandeis University)
Caroline Logan
(Brandeis University)
[View Abstract]
Relational Coordination: Reviewing the Theory and Evidence
Discussants:
Phanindra V. Wunnava
(Middlebury College)
Christine Bishop
(Brandeis University)
Jan 05, 2015 8:00 am, Boston Marriott Copley, New Hampshire
National Economic Association
Diversity and the Professions
(J4)
Presiding:
Laura N. Beny
(University of Michigan)
Diversity and the Innovation Economy
Lisa D. Cook
(Michigan State University)
[View Abstract]
Innovation, the commercialization of invention, is both desirable and necessary for growth and higher living standards in modern economies. Innovation’s contribution to the economy is being measured increasingly more precisely, and its contribution has been assessed as economically important and growing. Yet, participation in the innovation economy is not evenly distributed. Women and African Americans participate at each stage of the innovation process – from education to patent activity to startups – at lower rates than their counterparts. These distributional issues provide further evidence of the wide income and wealth gaps in the United States and of their potential for widening.
Diversity and Performance of Elite United States Law Firms
Laura N. Beny
(University of Michigan)
[View Abstract]
The paper investigates the relationship between diversity and performance among elite American law firms. Using data assembled by the Law Firms Working group, the article formulates and tests several hypotheses about the determinants of and consequences of diversity among law associates and partners.
Diversity and Talent at the Top: Lessons from the Boardroom
Kimberly Krawiec
(Duke University)
[View Abstract]
[Download Preview] This Article describes the results from fifty-seven interviews with corporate directors and a limited number of other persons of interest (including institutional investors, executive search professionals, and proxy advisors) regarding their views on corporate board diversity. Diversity challenges and successes in the boardroom make a useful jumping off point for the study of diversity in other professional fields, including law firms, for a number of reasons. First, corporate boardrooms remain remarkably non-diverse, representing a highly visible “old (and, we might add, white) boys’ club.” Second, this club has come under tremendous pressure in recent years, with criticisms ranging from simple business imperatives to social fairness—a debate that is strikingly similar to diversity debates in very dissimilar settings, such as higher education. And finally, the variety of responses around the world to this increased public pressure for boardroom diversity—from legally-mandated quotas in much of Europe to a reliance on market forces in the United States—allows a comparison of many possible approaches to diversity challenges.
Our interviews highlight numerous tensions in corporate directors’ views on board diversity. Though nearly all of our respondents proclaim that diverse boards are good, few can articulate their reasons for this belief. Some respondents suggest that diverse boards work better than non-diverse boards, but give relatively few concrete examples of specific instances where a female or minority board member made a special contribution related to that director’s race or gender. Many respondents noted the importance of collegiality and getting along in the boardroom, while simultaneously extolling the advantages of difference (including race and gender difference) in avoiding groupthink. And although all acknowledged the importance of fitting in with other board members and the prevailing corporate culture generally, few considered whether this impeded the role of “outsiders” providing a diverse perspective.
Leadership and the Single Woman Penalty: A Role Expectations Account of Early Career Barriers to Promotion for Female MBAs
Jennifer Merluzzi
(Tulane University)
Damon Phillips
(Columbia University)
[View Abstract]
[Download Preview] We advance scholarship on workplace gender inequality by drawing attention to professional single women. We contend that single non-mother status is inconsistent with the role expectations of both the leadership typically associated with men (agentic) and also women (communal) - resulting in a promotion penalty toward single women being considered for leadership positions. We test our thesis on the early careers of business professionals using a two-study, multi-method approach. Study 1, an experiment using business students, reveals a negative promotion bias against candidates who are single women without children, via an assessment as inferior leaders compared to single men, and men or women with families. Study 2 uses rich data on two cohorts of MBA graduates to test the external validity of the single woman penalty. Again, we find single women the most disadvantaged group, particularly those with exceptional quantitative and analytical abilities. The studies support a discrimination-based penalty where the status and role of professional single womanhood conflicts with that of leadership. Our findings enrich the understanding of workplace gender inequality across disciplines by advancing a better understanding of single women as an understudied group.
Discussants:
Terry-Ann Craigie
(Connecticut College)
Robynn Cox
(Spelman College)
Jan 05, 2015 8:00 am, Boston Marriott Copley, Orleans
Union for Radical Political Economics
Marxist Perspectives on the Causes of the Crisis of 2008
(P1)
Presiding:
Fred Moseley
(Mount Holyoke College)
The Global Financial Crisis of 2008: How Fundamental and How Systemic?
John Weeks
(SOAS)
[View Abstract]
[Download Preview] The global economic crisis of 2008 was the necessary outcome of a thirty year trend in financial deregulation in the United States, the United Kingdom and, to a lesser extent, some countries of continental Europe. This policy shift was not the result of underlying contradictions in the accumulation process. Rather, it represented a conscious choice by the capitalist classes in each country, just as the previous period of regulation had been a policy choice. However, the deregulation or liberation of finance capital from regulation set off fundamental and systemic changes in the accumulation process.
The Incubator of the Great Meltdown of 2008: the Structure and Practices of U.S. Neoliberalism as Attacks on Labor
Al Campbell
(University of Utah)
[View Abstract]
A continually growing number of books have described very well the surface process of the unfolding of the current world crisis that started in the U.S.: the collapse of the housing bubble caused a credit crunch which in turn triggered the economic crisis. This paper discusses the prequel issue: why did U.S. capitalism have the particular neoliberal structure it had in 2007 that constituted the conditions for the meltdown and subsequent anemic recovery? Consideration of the question of why capital chose to abandon the 1950s/1960s structure that served it so well after WWII gives the frame for the answer: the essence of U.S. neoliberalism is it is an intensified attack on the working class in comparison to the capitalism that existed before it. Various key aspects of its particular structure in 2007 are then examined in that frame: the direct (point of production) attack on wage gains and labor costs, the effects of the changed (immediate) objective of corporate governance, the indirect (and essential) attack on labor by making government, the broader state and even popular culture (still) more friendly to capital, and various aspects of financialization. While rejecting the common liberal-progressive treatment of financialization as it occurred as the essence of neoliberalism and its problems, this paper pays particular attention to considering the contributions of various aspects of financialization to neoliberalism’s overall attack on labor. Finally, the discussion is carried out as much as possible through consideration of issues which are central in the existing popular discussion of the crisis, issues that are central to today’s unprecedented level of deep discontent by the large majority of people in the U.S. with the performance of its economic system.
Accumulation and the Current Economic Crisis in the United States
Erdogan Bakir
(Bucknell University)
[View Abstract]
This paper addresses the issue of ‘over-accumulation’ as an explanation of the current economic crisis in the U.S. It pays particular attention to the arguments for over-accumulation as a cause of recent business cycle recession(s) and as a characteristic of the structural tendencies of the neoliberal economic model. It then argues that there has not been strong evidence of over-investment in the U.S. during the neoliberal period. The paper finally discusses the long-term changes in the class relationships and financial relations as forces that led to the current structural economic crisis in the U.S.
Roots of the Current Economic Crisis
David Kotz
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] This paper argues to explain the roots of the post-2008 economic crisis it is not sufficient to take account of the contradictions of accumulation of capitalism in general, even if combined with particular policies and/or accidental developments in this period. Contemporary capitalism is interpreted as a neoliberal form of capitalism, where neoliberalism refers not just to ideas or policies but a set of institutions, relations, and dominant ideas. Then by examining the contradictions of accumulation in the particular contemporary form of capitalism, neoliberal capitalism, as well as in capitalism in general, one can find the roots of the current crisis.
Is There a Marxist Interpretation of the Current Crisis?
Gerard Dumenil
(University of Paris-10)
[View Abstract]
The paper reviews Marxist interpretations of the current crisis (underconsumption, overaccumulation, declining profit rate…), and contends that a framework must be built in line with Marx’s and Engels’ analysis of capitalist classes as “apprentice sorcerers” in the Manifesto.
Discussants:
Fred Moseley
(Mount Holyoke College)
Amitava Dutt
(University of Notre Dame)
Jan 05, 2015 8:00 am, Boston Marriott Copley, Hyannis
Union for Radical Political Economics
The Role of Class in Historical Analysis
(N3)
Presiding:
Ann Davis
(Marist College)
Emergence of the Bourgeoisie in Late Nineteenth Century New York
Sven Beckert
(Harvard University)
[View Abstract]
How did class consciousness emerge in the bourgeoisie of New York City in the late nineteenth century? How did this growing self-awareness affect political strategies, which then reinforced this awareness by cohesive organization? This class position and awareness are the subject of work by Sven Beckert, in the context of an ongoing analysis of the long term history of capitalism.
Home Ownership as Welfare Policy
Herman Schwartz
(University of Virginia)
[View Abstract]
[Download Preview] The role of consumption in the realization of value and surplus value has been understood as contributing to economic stability and growth, but under-analyzed in terms of class consciousness. The role of home ownership as a conscious economic policy has been studied comparatively by Herman S. Schwartz, who compares the home as equity with the pension guarantee in an innovative analysis of the “Varieties of Capitalism.”
On the Peculiarity of Class Reproduction in the Society of Exchange and the Popular Subject of Rising Inequality in the United States
Maria N. Ivanova
(Goldsmiths, University of London)
[View Abstract]
[Download Preview] Capitalism as a mode of production and a form of social organization differs from all hitherto existing society in that it does not rely on the preservation of traditional hierarchies or on direct coercion to secure its reproduction. Capitalist society coheres on the basis of exchange which establishes a network of interdependent relations between individuals. Drawing on the seminal work of Alfred Sohn-Rethel on the intellectual and manual labor, this paper engages with the apparent paradox of how the reproduction of class society takes the form of spontaneous exchange transactions between autonomous individuals. Further, the paper revisits Sohn-Rethel’s argument that the conceptual basis of cognition is historically and socially conditioned; that is, in societies where social synthesis comes into effect through commodity exchange, the conceptual mode of thinking reflects the formal structure of exchange. Finally, the paper demonstrates how the hidden character of social domination and ‘the secret identity’ of commodity form and thought form serve to systematically obscure the true origins and nature of fundamental social problems. The case in point is the popular topic of rising inequality in the United States – a direct outcome of the reproduction of class relations whose underlying cause – the deepening division of intellectual and manual labor – is either conveniently ignored or, worse still, glorified.
Opening the Lens to Alternative Forms of Class Consciousness
James Livingston
(Rutgers University)
[View Abstract]
[Download Preview] Historical analysis is a key tool for understanding class, often manifested in poorly understood forms. The question of consumerism, as well as class and gender identification, has been analyzed by James Livingston, in addition to work place consciousness typically assumed by the left. The formation of the business class in the establishment of a central bank was also an important source of class identity and political solidarity in the late nineteenth century US.
Discussants:
Joseph J. Persky
(University of Illinois-Chicago)
John F. Henry
(University of Missouri-Kansas City)
Jan 05, 2015 10:15 am, Sheraton Boston, Independence Ballroom West
American Economic Association
Advances in Empirical Climate Economics
(Q5, O4)
Presiding:
Solomon Hsiang
(University of California-Berkeley)
Adapting to Climate Change: The Remarkable Decline in the United States Temperature-Mortality Relationship over the 20th Century
Alan Barreca
(Tulane University)
Karen Clay
(Carnegie Mellon University)
Olivier Deschenes
(University of California-Santa Barbara)
Michael Greenstone
(University of Chicago)
Joseph S. Shapiro
(Yale University)
[View Abstract]
Adaptation is the only strategy that is guaranteed to be part of the world's climate strategy. Using the most comprehensive set of data files ever compiled on mortality and its determinants over the course of the 20th century, this paper makes two primary discoveries. First, we find that the mortality effect of an extremely hot day declined by about 80% between 1900-1959 and 1960-2004. As a consequence, days with temperatures exceeding 90°F were responsible for about 600 premature fatalities annually in the 1960-2004 period, compared to the approximately 3,600 premature fatalities that would have occurred if the temperature-mortality relationship from before 1960 still prevailed. Second, the adoption of residential air conditioning (AC) explains essentially the entire decline in the temperature-mortality relationship. In contrast, increased access to electricity and health care seem not to affect mortality on extremely hot days. Residential AC appears to be both the most promising technology to help poor countries mitigate the temperature related mortality impacts of climate change and, because fossil
fuels are the least expensive source of energy, a technology whose proliferation will speed up the rate of climate change.
The Causal Effects of Environmental Catastrophe on Economic Growth
Solomon Hsiang
(University of California-Berkeley)
Amir Jina
(Columbia University)
[View Abstract]
Do natural disasters have a causal effect on economic development? Reconstructing every country's physical exposure to the universe of tropical cyclones during 1950-2008, we exploit year-to-year variation in cyclone strikes to identify the effect of disasters on long-run growth. The data reject long-standing hypotheses that disasters stimulate growth via “creative destruction" or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. This result is globally valid, holding for countries of all types, and is supported by non-income variables as well as global patterns of climate-based adaptation. National income loss arises from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster. Finally, linking these results to projections of future cyclone activity, we use these results to estimate the present discounted cost of “business as usual'' climate change.
Economic Impacts under Spatially Correlated Climate Shocks
Solomon Hsiang
(University of California-Berkeley)
Kyle Meng
(University of California-Santa Barbara)
[View Abstract]
Concerns over impacts of future anthropogenic climate change have motivated a growing empirical literature. Examining a range of outcomes, studies typically apply an estimated dose-response function from local weather shocks onto projected climate change scenarios. This paper argues and provides evidence for why idiosyncratic local weather shocks might serve as poor proxies for spatially correlated future climate shocks. Depending on the spatial scale of a climatic event, local impacts might be enhanced by direct peer effects or pecuniary effects mediated through open markets. To the extent that existing markets might be limited in insuring against large-scale spatial shocks, estimates using idiosyncratic weather shocks might understate the actual costs of future climate change. We examine this distinction using annual variation from the El Nino Southern Oscillation (ENSO), the dominant driver of the inter-annual modern climate. We first identify the part of the world with local temperatures and precipitation that are “teleconnected” to ENSO, which, for geophysical reasons, is restricted primarily to tropical and subtropical countries. Using a panel fixed-effects estimator, we find that both local weather and ENSO have adverse effects on country-level cereal production of similar magnitudes. However, ENSO-driven revenue losses are 40% larger than revenue loss due to local weather shocks. Turning to more direct evidence, we collect producer and retail cereal prices from the FAO and examine the differential effects of weather and ENSO shocks. We find cereal prices rise in response to ENSO shocks across three separate cereal price dataset while there is no response to local weather shocks. Taken together, this evidence suggests that existing food markets in the teleconnected region are able to insure against the adverse effects of idiosyncratic weather shocks but are unable to smooth over aggregate ENSO shocks.
Federal Crop Insurance and the Disincentives to Adapt to Extreme Heat
Francis Annan
(Columbia University)
Wolfram Schlenker
(Columbia University)
[View Abstract]
[Download Preview] The United States produces 40% of the world’s corn and soybeans. Given its dominant market share, any effect on US production has global repercussions. Annual fluctuations in yields crucially depend on the occurrence of extreme heat as measured by temperatures that exceed 29C and 30C, respectively. We examine whether the highly subsidized US crop insurance gives farmers a disincentive to use all possible adaptation strategies against extreme heat as losses are insured. We estimate a panel regression of county-level yields in 1989-2013 that interacts our exogenous weather measures with the fraction of the planted area in a county that is covered by crop insurance. Insurance coverage increased greatly over our sample period. Insured corn and soybean areas have sensitivities that are, respectively, 67% and 43% larger than uninsured areas.
Discussants:
Joshua Graff Zivin
(University of California-San Diego)
Melissa Dell
(Harvard University)
Benjamin A. Olken
(Massachusetts Institute of Technology)
Marshall Burke
(University of California-Berkeley)
Jan 05, 2015 10:15 am, Sheraton Boston, Constitution Ballroom A
American Economic Association
Adverse Selection and Risk Adjustment
(I1, D8)
Presiding:
Mark Duggan
(Stanford University and NBER)
How Risky is Risk Adjustment? A Method for Estimating the Welfare Losses from Imperfect Risk Adjustment
Amitabh Chandra
(Harvard University and NBER)
Benjamin Handel
(University of California-Berkeley and NBER)
Jonathan Kolstad
(University of Pennsylvania and NBER)
[View Abstract]
Many markets are characterized by private information that can result in both adverse selection and moral hazard. To overcome these problems policy makers, firms and many others often rely on some form of “risk adjustment” in which payments are contingent upon observable attributes. In health care, where adverse selection is a potential threat to market function, risk adjustment is a central component of major policies (e.g. Health Insurance Exchanges in the ACA and payments in the Medicare Advantage program). In this paper we develop a simple model of firms’ private information that allows them to profit under different risk adjustment schemes. We characterize private information in the context of model fit parameters. We show that, using the approaches developed by Altonji, et al. (2004) as means to estimate bounds on parameters, it is possible to estimate the potential welfare loss under a variety of counterfactual risk adjustment policies using commonly available data. Specifically, the degree to which a risk adjustment parameter changes when we include additional covariates, scaled by the additional explanatory power (r-squared) and the proportionality between observable and unobservable covariates gives an estimate for the incremental profit available due to private information. Furthermore, using time-series variation we are able to characterize the maximum profit available due to imperfect risk adjustment. These methods are straightforward to implement. They can be used to assess a variety of situations in which statistical models are used to score risk or other attributes in an effort to overcome information asymmetries (e.g. pay-for-performance, teacher ratings, quality reporting for doctors). We implement our methods using medical claims data from a large private firm.
Beyond Statistics: The Economic Content of Risk Scores
Liran Einav
(Stanford University and NBER)
Amy Finkelstein
(Massachusetts Institute of Technology and NBER)
Raymond Kluender
(Massachusetts Institute of Technology)
Paul Schrimpf
(University of British Columbia)
[View Abstract]
[Download Preview] In recent years, the increased use of “big data” and statistical techniques to “score” potential transactions has transformed the operation of insurance and credit markets. In this paper we observe that these widely-used scores are statistical objects that constitute a one-dimensional summary of a potentially much richer heterogeneity, some of which may be endogenous to the application. We demonstrate this point empirically using rich data from the Medicare Part D prescription drug insurance program. We show that the “risk scores,” which are designed to predict an individual’s medical spending and are used by Medicare to customize reimbursement rates to private insurers, do not distinguish between two different sources of spending: underlying health, and health care utilization response to the insurance contract. Naturally, however, these two determinants of spending have very different implications when trying to “score” counterfactual spending under alternative contracts. We offer a simple, illustrative example of why and how this distinction can matter.
Upcoding or Selection? Evidence from Medicare on Squishy Risk Adjustment
Michael Geruso
(University of Texas-Austin)
Timothy Layton
(Boston University)
[View Abstract]
[Download Preview] Risk adjustment is commonly used in health insurance markets to deal with problems of adverse selection and cream skimming by compensating health plans for insuring consumers whose diagnoses imply high expected costs. However, in all real world risk adjustment systems, insurers themselves report the diagnoses that determine enrollee risk scores and ultimately insurer payments. If risk scores are manipulable, insurers that "upcode" enrollees will extract higher payments. We model upcoding in the presence of adverse selection and develop a novel strategy for separately identifying upcoding from selection in data. We apply this strategy to analyze diagnosis coding by Medicare Advantage insurers. We find that enrollees in Medicare Advantage plans generate 7% higher risk scores than what the same enrollees would generate under Traditional Medicare, where coding incentives are weaker. Absent a coding inflation correction, this implies excess payments to Medicare Advantage of around $11 billion annually and a distortion in seniors’ choice between Medicare Advantage and Traditional Medicare. This choice distortion worsens with increasing insurer competition. We also find evidence that coding intensity is higher in plans with higher levels of insurer-provider integration, further distorting seniors' choices to more integrated plans.
Risk Adjustment of Health Plan Payments to Correct Inefficient Plan Choice from Adverse Selection
Jacob Glazer
(University of Warwick and Tel Aviv University)
Thomas McGuire
(Harvard University)
Julie Shi
(Harvard University)
[View Abstract]
[Download Preview] This paper develops and implements a statistical methodology to account for the equilibrium effects (aka adverse selection) in design of risk adjustment formula in health insurance markets. Our setting is modeled on the situation in Medicare and the new state Exchanges where individuals sort themselves between a discrete set of plan types (here, two). Our “Silver” and “Gold” plans have fixed characteristics, as in the well-known research on selection and efficiency by Einav and Finkelstein (EF). We build on the EF model in several respects, including by showing that risk adjustment can be used to achieve the premiums that will lead to efficient sorting. The target risk adjustment weights can be found by use of constrained regressions, where the constraints in the estimation are conditions on premiums that should be satisfied in equilibrium. We illustrate implementation of the method with data from seven years of the Medical Expenditure Panel Survey.
Discussants:
Randall Ellis
(Boston University)
Amanda Kowalski
(Yale University)
Keith Marzilli Ericson
(Boston University)
Jan 05, 2015 10:15 am, Sheraton Boston, Back Bay Ballroom C
American Economic Association
Aggregate Demand Externalities
(E6, E2)
Presiding:
Olivier Blanchard
(International Monetary Fund)
Pseudo-wealth Fluctuations and Aggregate Demand Effects
Martin Guzman
(Columbia University)
Joseph E. Stiglitz
(Columbia University)
[View Abstract]
This paper presents a theory of pseudo-wealth in a model that displays aggregate demand externalities. With heterogeneous beliefs and a market for exploiting those differences in beliefs, there will be creation of pseudo-wealth --i.e. the sum of expected wealth of all the individuals will be larger than what it is feasible for the society. Those perceptions will lead to larger levels of consumption of (tradable and non-tradable) goods, leisure, and borrowing than in a world with common beliefs. If those differences in beliefs disappear, pseudo-wealth will disappear, leading to adjustments in behavior that amplify the initial decrease in expected wealth. Consumption of (tradable and non-tradable) goods will fall, lowering the labor demand provided the tradable sector cannot absorb the whole labor force, reducing wages and employment, and hence increasing the value of real debts, triggering further reductions in consumption, initiating a new round of similar adjustments that will continue until a new equilibrium is reached. That is, the destruction of pseudo-wealth leads to a Fisher effect that amplifies the effects of the initial disturbance.
The paper also elaborates on the idea that macroeconomic adjustments may be destabilizing. There are conditions under which it is plausible that the equilibrium with flexible wages is associated with lower production, employment, and aggregate labor income than the equilibrium with (somewhat) rigid wages.
Liquidity Trap and Excessive Leverage
Anton Korinek
(Johns Hopkins University)
Alp Simsek
(Massachusetts Institute of Technology)
[View Abstract]
We investigate the role of macroprudential policies in mitigating liquidity traps driven by deleveraging, using a simple Keynesian model. When constrained agents engage in deleveraging, the interest rate needs to fall to induce unconstrained agents 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 insufficient 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 ex-ante macroprudential policies such as debt limits and mandatory insurance requirements. The size of the required intervention depends on the differences in marginal propensity to consume between borrowers and lenders during the deleveraging episode. In our model, contractionary monetary policy is inferior to macroprudential policy in addressing excessive leverage, and it can even have the unintended consequence of increasing leverage.
A Theory of Macroprudential Policies in the Presence of Nominal Rigidities
Emmanuel Farhi
(Harvard University)
Ivan Werning
(Massachusetts Institute of Technology)
[View Abstract]
We provide a unifying foundation for macroprudential policies in financial markets for economies with nominal rigidities in goods and labor markets. Interventions are beneficial because of an aggregate demand externality. Ex post, the distribution of wealth across agents affects aggregate demand and the efficiency of equilibrium through Keynesian channels. However, ex ante, these effects are are not privately internalized in the financial decisions agents make. We obtain a formula that characterizes the size and direction 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 fiscal 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.
Discussants:
John Geanakoplos
(Yale University)
Gauti Eggertsson
(Brown University)
Guido Lorenzoni
(Northwestern University)
Jan 05, 2015 10:15 am, Sheraton Boston, Independence Ballroom East
American Economic Association
Cross-Border Banking and Capital Flows
(F3)
Presiding:
Daniel Riera-Crichton
(Bates College)
Banking across Borders with Heterogeneous Banks
Friederike Niepmann
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Individual banks differ substantially in their foreign operations. This paper in-
troduces heterogeneous banks into a general equilibrium framework of banking across
borders to explain the documented variation. While the model matches existing micro
and macro evidence, novel and unexplored predictions of the theory are also strongly
supported by the data: The efficiency of the least efficient bank active in a host country
increases the greater the impediments to banking across borders and the efficiency of
the banking sector in the host country. There is also evidence of a tradeoff between
proximity and fixed costs in banking. Banks hold more assets and liabilities in foreign
affiliates relative to cross-border positions if the target country is further away and the
cost of foreign direct investment is low. These results suggest that fixed costs play a
crucial role in the foreign activities of banks.
International Trade, Risk and the Role of Banks
Friederike Niepmann
(Federal Reserve Bank of New York)
Tim Schmidt-Eisenlohr
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] Banks play a critical role in international trade by providing trade finance products that reduce the risk of exporting. This paper employs two new data sets to shed light on the magnitude and structure of this business, which, as we show, is highly concentrated in a few large banks. The two principal trade finance instruments, letters of credit and documentary collections, covered about 10 percent of U.S. exports in 2012. They are preferred for larger transactions, which indicates the existence of substantial fixed costs in the provision and use of these instruments. Letters of credit are employed the most for exports to countries with intermediate degrees of contract enforcement. Compared to documentary collections, they are used for riskier destinations. We provide a model of payment contract choice that rationalizes these empirical findings and discuss implications for the ongoing provision of trade finance.
Currency Union with and without Banking Union
Vincent Bignon
(Bank of France)
Regis Breton
(Bank of France)
Mariana Rojas-Breu
(University of Paris-Dauphine)
[View Abstract]
[Download Preview] We develop a symmetric two-country model of fiat money and banks to study how limited cross-border integration of credit markets impacts on the welfare of the local population under two monetary arrangements: currency union and separate currency. This paper points to the complementarities between the common currency -high powered money- and the degree of integration across local bank-intermediated credit markets. With the current Eurozone context in mind, we focus on imperfect cross-border credit market integration and show that low-level of credit market integration may wipe out the welfare gains of a common currency. When credit conditions are unified –a situation of banking union– a unique currency is always optimal.
The logic of this result runs as follows. Banks adjust the credit constraint to mitigate the borrowers’ default incentives. Imperfect credit integration translates into higher costs for loans granted for cross-border vs. domestic consumption. In this environment, a common currency may amplify default incentives. This effect is driven by the distortions in consumption pattern triggered by limited credit market integration.
The higher interest rate charged for cross border purchases creates a wedge between the cost of foreign versus domestic consumption, inducing a home-bias in consumption of agents with no default record. Instead, an agent that would default -something that does not arise on the equilibrium path- loses access to credit and enjoys a consumption more aligned with his preferences. Separate currencies can make default less attractive because positive conversion costs between currencies affect more severely defaulters than non-defaulters, which relax the borrowing constraints. By contrast, in a perfectly unified credit market, consumption is unbiased by credit, and conversion costs cannot mitigate default incentives: welfare is higher in a regime of currency union. This provides a normative argument showing that credit integration is required to reap the benefit of a currency union.
Why Does Capital Flow from Poor to Rich Countries?
Michael Joffe
(Imperial College London)
[View Abstract]
[Download Preview] Lucas’ classic paper (1990) highlighted the paucity of capital flows from rich to poor countries, in contrast with predictions of standard theory. He suggested four explanations – but they cannot explain the copious capital flows from certain emerging relatively low-income countries, notably China, to the USA. Empirical studies confirm Lucas’ observation. Additionally, Prasad et al (2007) showed that developing countries with less reliance on foreign capital grow faster. Gourinchas & Jeanne (2009) added a second puzzle, the “allocation puzzle”: flows are not only too low, they are directed toward countries with lower productivity growth and lower investment, i.e. the “wrong” ones; they attribute this to a distortion in savings, e.g. financial repression.
This paper traces the causal processes in post-reform China. Starting around 1978, reforms allowed rural households to keep their own surpluses, facilitated “township-village enterprises”, established enterprise areas open to FDI (e.g. Shenzhen), and began making state-owned enterprises (SOEs) more efficient. High productivity at comparatively very low cost was gradually achieved, and openness to trade allowed Chinese goods to conquer the world.
Statistical analysis shows that the generated profits led to high levels of capital accumulation, both corporate and public sector. Together with high household savings, channelled by state banks into (primarily) SOEs, this provided ample capital for reinvestment, as well as a large surplus. No capital inflows were required, except for FDI which had a vital technology-importation role. In particular, the massive export success generated hard currency, allowing large-scale purchase of overseas assets, e.g. US Treasury Bonds.
China is not unique: previous East Asian economies had parallel experiences on a smaller scale (cf. also Buera & Shin (2011)).
Thus, a relatively simple explanation of both puzzles is possible. More sophisticated interpretations, e.g. Kalemli-Ozcan et al (2008), Sandri (2010), Reinhardt et al (2013), are discussed from a methodological viewpoint.
Feeling the Blues. Moral Hazard and Debt Dilution in Eurobonds before 1914
Rui Pedro Esteves
(University of Oxford)
Ali Coskun Tuncer
(University College London)
[View Abstract]
[Download Preview] Debt mutualisation through Eurobonds has been proposed as a solution to the Euro crisis. Although this proposal found some support, it also attracted strong criticisms as it risks raising the spreads for strong countries, diluting legacy debt and promoting moral hazard by weak countries. Because Eurobonds are a new addition to the policy toolkit, there are many untested hypotheses in the literature about the counterfactual behaviour of markets and sovereigns. This paper offers some tests of the issues by drawing from the closest historical parallel–five guaranteed bonds issued in Europe between 1833 and 1913. The empirical evidence suggests that contemporary concerns about fiscal transfers and debt dilution may be overblown, whilst creditors’ moral hazard may be as much of a problem as debtors’.
Jan 05, 2015 10:15 am, Sheraton Boston, Constitution Ballroom B
American Economic Association
Economic Growth, Technological Change and Income Inequality
(O3)
Presiding:
Philippe Aghion
(Harvard University)
How the Machines Replace Labor?
Daron Acemoglu
(Massachusetts Institute of Technology)
[View Abstract]
This paper develops a simple framework for studying the process of machines replacing labor. It highlights three sets of factors influencing this decision: the technological difficulty of automating tasks (i.e., comparative advantages of machine and man), the equilibrium wage of labor in tasks being replaced, and the equilibrium wage of skilled labor necessary to design, maintain and operate the new technology. The framework illustrates how a wave of new labor-replacing new technologies can increase the capital share in national income, and shows why, in the presence of natural labor market imperfections, the trajectory of equilibrium technologies involves too much labor replacement from the viewpoint of social welfare maximization and how this creates technological (structural) unemployment.
The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality
David Hemous
(INSEAD)
Morten Olsen
(IESE Business Schoo)
[View Abstract]
[Download Preview] We construct an endogenous growth model with automation (the introduction of machines which replace low-skill labor) and horizontal innovation. The economy follows three phases. First, low-skill wages are low, which induces little automation, and income inequality and labor's share of GDP are constant. Second, as low-skill wages increase, automation increases which reduces the labor share, increases the skill premium and may decrease future low-skill wages. Finally, the economy moves toward a steady state, where low-skill wages grow but at a lower rate than high-skill wages. The model is quantitatively consistent with the US labor market experience since the 1960s.
Labor Shares and Inequality
Jonathan Adams
(University of Chicago)
Loukas Karabarbounis
(University of Chicago)
Brent Neiman
(University of Chicago)
[View Abstract]
The share of aggregate income paid as compensation to labor is frequently used as a proxy for income inequality. If capital holdings are very concentrated among high income individuals, increasing their share of GDP, all else equal, widens the gap with poorer workers. Indeed, two striking features over the last three decades of many advanced and developing economies are the declining labor shares in income and the rise in income inequality. The relationship between factor shares and inequality, however, is not so simple in a richer world with realistic features such as endogenous portfolio decisions and capital-skill complementarity. In such a world, total inequality will change with (i) the labor share, (ii) the amount of within-labor and within-capital income inequality, and (iii) the degree to which the highest wage earners are also those earning the highest capital incomes. Macroeconomic trends and shocks that impact any one of these three moments are likely to impact simultaneously all of them. We develop a framework where all these terms are jointly determined and estimate the model to clarify the roles of changing technology, policies, and factor proportions on labor shares and total income inequality around the globe.
Skill-Biased Structural Change and the Skill-Premium
Francisco J. Buera
(University of California-Los Angeles)
Joseph P. Kaboski
(University of Notre Dame)
Richard Rogerson
(Princeton University)
[View Abstract]
[Download Preview] We document for a broad panel of advanced economies that increases in GDP
per capita are associated with a shift in the composition of value added to
sectors that are intensive in high-skill labor. It follows that further
development in these economies leads to an increase in the relative demand
for skilled labor. We develop a two-sector model of this process and use it
to assess the contribution of this process of skill-biased structural change
to the rise of the skill premium in the US over the period 1977 to 2005. We
find that these compositional demands account for roughly 30\% of the
overall increase of the skill premium due to technical change.
Discussants:
Charles I. Jones
(Stanford University)
Ufuk Akcigit
(University of Pennsylvania)
Eduardo Morales
(Princeton University)
David Dorn
(CEMFI)
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 202
American Economic Association
Empirical Studies of Bargaining with Incomplete Information
(C5, C7)
Presiding:
Bradley Larsen
(Stanford University )
Bargaining with Asymmetric Information: An Empirical Study of Plea Negotiations
Bernardo Silveira
(Washington University-St. Louis)
[View Abstract]
[Download Preview] This paper empirically investigates how sentences to be assigned at trial impact plea bargaining. The analysis is based on a variation of a bargaining model with asymmetric information due to Bebchuk (1984). I provide conditions for the non-parametric identification of the model, propose a consistent non-parametric estimator, and implement it using data on criminal cases from North Carolina. Employing the estimated model, I evaluate how different sentencing reforms affect the outcome of criminal cases. My results indicate that lower mandatory minimum sentences could greatly reduce the total amount of incarceration time assigned by the courts, but may increase conviction rates. In contrast, the broader use of non-incarceration sentences for less serious crimes reduces the number of incarceration convictions, but has a negligible effect over the total assigned incarceration time. I also consider the effects of a ban on plea bargains. Depending on the case characteristics, over 20 percent of the defendants who currently receive incarceration sentences would be acquitted if plea bargains were forbidden. Nevertheless, the option of settling their cases makes defendants ex-ante substantially better off.
The Efficiency of Real-World Bargaining: Evidence from Wholesale Used-Auto Auctions
Bradley Larsen
(Stanford University )
[View Abstract]
[Download Preview] This study quantifies the efficiency of a real-world bargaining game with two-sided incomplete information. Myerson and Satterthwaite (1983) and Williams (1987) derived the theoretical efficient frontier for bilateral trade under two-sided uncertainty, but little is known about how well real-world bargaining performs relative to the frontier. The setting is wholesale used-auto auctions, an $80 billion industry where buyers and sellers participate in alternating-offer bargaining when the auction price fails to reach a secret reserve price. Using 270,000 auction/bargaining sequences, this study nonparametrically estimates bounds on the distributions of buyer and seller valuations and then estimates where bargaining outcomes lie relative to the efficient frontier. Findings indicate that the dynamic mechanism attains 80-91% of the surplus which can be achieved on the efficient frontier.
Conspicuous Precision as Signaling in an Online Bargaining Market
Matt Backus
(Cornell University and eBay Research Labs)
Thomas Blake
(eBay Research Labs)
Steven Tadelis
(University of California-Berkeley and eBay Research Labs)
[View Abstract]
This paper documents and explains a precision effect in bargaining, i.e. that precise (round) opening offers lead to higher (lower) transaction prices. We use a novel data set of millions of alternating, sequential-offer bargaining sessions between buyers and sellers on eBay's Best Offer platform, which accounts for billions of dollars in transactions annually. Our results show that transactions prices are six percent lower when the initial asking price ends in "00." To rule out selection on unobserved listing characteristics we use a special set of internationally visible listings from eBay’s UK site and compare the treatment effect of roundness on offers from UK buyers and US buyers, where for the latter currency exchange rates obfuscate roundness. We offer a directed search model of a bargaining market to rationalize the signaling equilibrium. In our model low-cost sellers signal their bargaining weakness by posting a round asking price and in exchange they are rewarded by a higher arrival rate of buyers. We then show that the data is consistent with predictions from the model: arrival rates are markedly higher for round- number listing; round number sellers are relatively more likely to accept an equivalent offer, and round-number sellers make lower counter-offers than their precise peers.
Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Transaction Costs
Attila Ambrus
(Duke University)
Eric Chaney
(Harvard University)
Igor Salitskiy
(Stanford University)
[View Abstract]
[Download Preview] This paper uses ransom prices and time to ransom for over 10,000 captives rescued from two Barbary strongholds to investigate the empirical relevance of dynamic bargaining models with one-sided asymmetric information in ransoming settings. We observe both multiple negotiations that were ex ante similar from the uninformed party’s (seller’s) point of view, and information that only the buyer knew. Through reduced form analysis, we test some common qualitative predictions of dynamic bargaining models. We also structurally estimate the model in Cramton (1991), to compare negotiations in different Barbary strongholds. Our estimates suggest that the historical bargaining institutions were remarkably efficient, despite the presence of substantial asymmetric information.
Discussants:
Yasutora Watanabe
(Northwestern University)
Matthew Gentry
(London School of Economics)
Daniel Keniston
(Yale University)
Robin S. Lee
(Harvard University)
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 204
American Economic Association
Environmental Economics
(Q1)
Presiding:
Katharine Sims
(Amherst College)
Futures Market’s Role within Incentive Based Environmental Policy to Mitigate Permit Price Uncertainty
Daniel Arthur Lewis
(Arizona State University)
V. Kerry Smith
(Arizona State University)
[View Abstract]
Economic analyses of marketable permits for pollution emissions, as incentive based policy instruments, have largely ignored the role of futures markets. This paper demonstrates that prices for futures contracts provide a direct measure of marginal abatement costs for the pollution emissions associated with the permit system. With optimal hedging, price uncertainty and risk aversion do not influence a firm’s response to emissions policy. Thus, the price for a future’s contract is the best estimate of the incremental pollution control costs. This finding has direct implications for the design of permit markets to address climate policy, including the role for offsets thru the Clean Development Mechanism and emission credits thru Joint Implementation rules.
The SO2 permit market from 2006 to 2010 and the EU CO2 trading systems provide empirical context for our analysis. At their peak, in 2009, SO2 futures contracts dominated private spot market trades 23 to 1, with 295 thousand permits traded thru BGC Environmental Brokerage Service (previously Cantor) and nearly 7million Sulfur Financial Instrument contracts thru the Chicago Climate Exchange. By comparison, in 2007, during Phase I of the EU CO2 system, futures contracts have been less than half the number of permits issued.
We use empirical insights from both futures markets, together with extensions to papers by Feder et. al. [1980] and Anderson and Danthine [1981], to develop our generalized theory for the design of market based environmental policy instruments. To our knowledge, none of the discussions of marketable permits have considered how the trading rules, structure of spot and forward markets, and other details of permit market design influences the ability of futures markets to manage risk and reveal incremental pollution control costs.
Can Banking CO2 Allowances Ensure Inter-Temporal Efficiency?
Anne Schopp
(DIW Berlin)
Karsten Neuhoff
(DIW Berlin)
[View Abstract]
[Download Preview] The banking of CO2 allowances in cap-and-trade schemes allows surplus allowances to be transferred to future years. Inter-temporal efficiency is ensured, providing market participants bank the allowances in the expectation of modest price increases. However, as the surplus of allowances in the European Union Emission Trading Scheme has accumulated, market participants are reporting that they only hold surplus CO2 allowances at modest discount rates to the extent that they need these allowances in order to hedge future CO2 exposure. Once their hedging demand is exhausted, the remaining surplus needs to be banked as speculative investment. (New) market participants may speculate if high discount rates compensate them for the risk of uncertain carbon price developments. However, highly discounted carbon price expectations can delay low carbon investment and thus jeopardize inter-temporal efficiency. This raises the question as to what volume of surplus allowances can be hedged in order to ensure inter-temporal efficiency. In an attempt to answer this question we model hedging demand in the power sector as a function of the carbon price structure and risk management strategies reported by power firms in interviews. This partial equilibrium analysis is then integrated into a two period CO2 supply and demand model with emitting firms, hedging by power firms and banking of allowances by speculative investors.
Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach using the Shale Revolution
Joseph Cullen
(Washington University-St. Louis)
Erin Mansur
(Dartmouth College)
[View Abstract]
[Download Preview] This paper examines how much carbon emissions from the electricity industry would decrease in response to a carbon price. We show how both carbon prices and cheap natural gas reduce, in a nearly identical manner, the historic cost advantage of coal- fired power plants. The shale revolution has resulted in unprecedented variation in natural gas prices that we use to estimate the short-run price elasticity of abatement. Our estimates imply that a price of $10 ($60) per ton of carbon dioxide would reduce emissions by 4% (10%). Furthermore, carbon prices are much more effective at reducing emissions when natural gas prices are low. In contrast, modest carbon prices have negligible effects when gas prices are at levels seen prior to the shale revolution.
Dash for Gas: The Sequel
Christopher Knittel
(Massachusetts Institute of Technology)
Konstantinos Metaxoglou
(Carleton University)
Andre Trindade
(Getulio Vargas Foundation (FGV/EPGE))
[View Abstract]
[Download Preview] We examine the environmental impact of the post-2005 natural gas glut in the United
States due to the rapid development of technology related to hydraulic fracturing for
extracting shale gas. We focus on fuel switching decisions by electric power plants,
from coal to natural gas, due to rapidly falling natural-gas prices and steady and
slightly-increasing coal prices. We categorize firms into four groups: utilities that
operate in wholesale electricity markets; utilities that operate in traditional vertically-
integrated regions; independent power producers; and, industrial and commercial firms
that generate electricity for their own use. We investigate whether firms differ in their
response to changes in natural gas and coal prices. We find that utilities that do not
operate in wholesale markets are more sensitive to changes in input prices than utilities
that operate in wholesale markets. One potential explanation for these differences is
that savings in fuel costs by utilities that operate within wholesale power markets are
more quickly absorbed into retail prices. We find that the comparisons of both types
of utilities and Independent Power Producers are more mixed. These differences have
large consequences on how environmental pollution responds to changes in fossil-fuel
prices.
Environmental Regulation and Industrial Performance: Evidence from China
Shinsuke Tanaka
(Tufts University)
Gary Jefferson
(Brandeis University)
Wesley Yin
(University of California-Los Angeles)
[View Abstract]
[Download Preview] There is considerable evidence in developed countries that environmental regulations impose substantial costs, thereby impede industrial performance. However, compliance to regulations is likely to provide positive forces leading to improved productivity in developing countries, be-cause a) induced innovation and/or the adoption of cleaner technologies among polluting firms enhance firms’ productivity, and b) regulations stimulate selection dynamics through the entry of more efficient firms and the exit of less efficient ones, leading to aggregate industry growth. In this paper, we examine the extent to which a stricter environmental protection regime in China affected industrial performance by exploiting plausibly exogenous variation in regulatory stringency generated by the Two Control Zone policy in China across cities and across industries. Our findings highlight productivity growth in pollution-intensive industries with evidence in support of both selection mechanisms and induced technology at work. The finding is robust to the inclusions of city-specific trends, industry-specific trends, and key ex ante determinants of firm growth. The fact that changes in productive efficiency were slow and occur over several years is supportive to our argument, especially in comparison with spuriously confounding preexisting trends.
Jan 05, 2015 10:15 am, Sheraton Boston, Back Bay Ballroom B
American Economic Association
History and the City
(R1)
Presiding:
Dora Costa
(University of California-Los Angeles)
History and the sizes of cities
Jeffrey Lin
(Federal Reserve Bank of Philadelphia)
Hoyt Bleakley
(University of Chicago and NBER)
[View Abstract]
[Download Preview] We discuss the tension between some of the recent evidence of path
dependence in urban location with recent efforts to analyze calibrated
models of city sizes. One strand of recent work, including some of our
own, finds evidence of persistent city sizes following the obsolescence
of historical advantages. This literature argues that such persistence
cannot be understood as the medium-run effect of legacy capital, but
rather as the long-run effect of equilibrium selection. In contrast, a
different recent literature uses stylized models that feature a single
long-run equilibrium at each site/city. We show this disjunction in
a standard model and then propose several modifications that might
allow for multiplicity and thereby historical path dependence. We use
mixed-integer-programming solvers to construct bounds on the degree
of multiplicity of steady states across US Counties. We find, absent
strong parametric restrictions, very wide bounds on the scope for multiple
long-run equilibria. We then discuss a way forward for tightening
these bounds using the obsolete endowments as restrictions on the
model.
Death and the Media: Asymmetries in Typhoid Reporting During the Health Transition
Dora Costa
(University of California-Los Angeles)
Matthew Kahn
(University of California-Los Angeles)
[View Abstract]
[Download Preview] How did the media react to the rapid decline in typhoid death rates during
the health transition in the United States? We find that news reports between
1890 and 1938 are more responsive to changes in mortality and case rates, in
either direction, after compared to before the clean water interventions that
reduced mortality and lowered its variance. Our results are consistent with a
classical signal extraction problem in which a higher mean and variance make it harder to
interpret the signal. Consistent with prospect theory
and psychological theories of reference points, we also find that the
increase in news reports with an unexpected increase in death or case rates
is greater than the decrease resulting from an unexpected decline in death or
case rates. Asymmetries in news coverage have implications for the economic
incidence of public health improvement.
Killer Cities: Past and Present
Walker Hanlon
(University of California-Los Angeles)
[View Abstract]
[Download Preview] Industrial pollution was endemic to the industrial cities of the 19th century and remains a feature of some modern cities, particularly industrial cities in emerging economies. This study compares the relationship between pollution and mortality in both the historical and modern context, focusing on English cities in the mid-19th century and Chinese cities in 2000. For both contexts, we construct proxies for district pollution levels based on their industrial composition and information on the pollution level of industries, as well as a similar set of control variables. Our results reveal a positive relationship between industrial pollution and mortality in both contexts, but the relationship was roughly five times stronger in historical England than in modern China. This suggests that, while substantial progress has been made, industrial pollution remains an important health risk in modern cities.
Discussants:
Rebecca Diamond
(Stanford University)
Richard Hornbeck
(Harvard University)
Edward Glaeser
(Harvard University)
Jan 05, 2015 10:15 am, Sheraton Boston, Liberty B
American Economic Association
Housing
(R3)
Presiding:
Jeffrey E. Zabel
(Tufts University)
Distant Event, Local Effects? Fukushima and the German Housing Market
Michael Kvasnicka
(Otto von Guericke University Magdeburg)
Thomas K. Bauer
(Rheinisch-Westfalisches Institute)
Sebastian Braun
(Kiel Institute for the World Economy)
[View Abstract]
[Download Preview] The Fukushima Daiichi accident in Japan in March 2011 caused a fundamental change in Germanys energy policy which led to the immediate shut down of nearly half of its nuclear power plants. Using data from Germany's largest internet platform for real estate and employing a difference-in-differences approach, we find that Fukushima reduced house prices near nuclear power plants that were in operation before Fukushima by almost 5%. House prices near sites that were shut down right after the accident even fell by 9.7%. Our results suggest that economic reasons are of prime importance for this observed fall in house prices.
The Effect of Underwater Mortgages on Unemployment
Katie Schultz
(College of William and Mary)
Kevin J. Mumford
(Purdue University)
[View Abstract]
It has been frequently claimed that the high unemployment rates during the 2007-2009 U.S. recession and the slow decline in unemployment rates during the subsequent economic recovery are partially due to an increase in structural unemployment driven by reduced mobility caused by house lock. The claim is that underwater homeowners—those that owe more on their mortgages than their homes are worth—are more likely to choose to stay in their home rather than move to cities where they would have been more likely to find employment. Using restricted-access data from the Panel Study of Income Dynamics, we compare the mobility and employment of homeowners with mortgages that go underwater to similar homeowners that do not find themselves underwater during the housing bust. We find that underwater homeowners are twice as likely to move and are no more likely to experience a period of unemployment. We find no evidence to support the claim that the house lock from underwater mortgages caused an increase in structural unemployment.
Housing Price Shocks, Leverage, and Mobility
Manish Gupta
(University of Zurich)
[View Abstract]
[Download Preview] This paper assesses the impact of housing leverage on the mobility of homeowners. For identification, I exploit a policy innovation in the form of Tax Reform Act, 1986 (TRA) to address an increase in housing leverage. The TRA eliminated the tax deductibility on all personal loans except for interest payments on mortgage debt. This tax-shield encouraged homeowners to increase housing leverage by switching from unsecured to secured loans (mortgage debt). Higher housing leverage brought about by the TRA implies that a given change in housing prices has a bigger impact on homeowners' net worth. In particular, in falling markets, fewer funds are available (after sale of the existing house) for downpayment to buy a comparable new house. Using the PSID data for the period, 1983-1997, I find that the higher housing leverage due to the TRA constrains the mobility of homeowners. However, the TRA has no impact on the mobility of renters.
Do Land Use Regulations Stifle Residential Development? Evidence from California Cities
Kristoffer Jackson
(University of California-Irvine)
[View Abstract]
[Download Preview] This paper estimates the extent to which the supply of new housing is restricted by land use regulations using a panel of California cities from 1970-1995. While land use regulation is found to significantly reduce residential development, controlling for unobserved heterogeneity using city and year (two-way) fixed effects notably reduces the magnitude of the estimates. This result suggests that studies based on cross-sectional policy variation, which predominate this literature, may overestimate the effects of land use regulation. Using the two-way fixed effects model, the implementation of an additional land use regulation is found to reduce residential permits by an average of 4%, which comes through effects on both multi-family and single family units. Of the regulations measured, those categorized as zoning and general controls have the strongest effects. The partial effects of individual regulations show that while some significantly reduce development, others actually have a large positive impact.
Reverse Mortgages: What Homeowners (Don't) Know and How it Matters
Thomas Davidoff
(University of British Columbia)
Patrick Gerhard
(Maastricht University)
Thomas Post
(Maastricht University)
[View Abstract]
[Download Preview] Reverse mortgages help elderly homeowners to unlock and consume home equity while continuing residing in their homes. Demand for reverse mortgage is far behind predictions. Based on a representative survey of U.S. homeowners aged 58+ we assess the role of product knowledge (literacy) for reverse mortgage demand. We find that awareness of the product is very high while knowledge is fairly low. Lack of product knowledge relates to low demand. Respondents that would benefit most from reverse mortgages (lower income, insufficient savings) are more likely to accept a reverse mortgage. But, those respondents do not have good knowledge about the product. They may not make an informed decision and fail to evaluate alternative retirement planning options. We find no effect of knowledge transfer on reverse mortgage demand. This result suggests that a way to increase reverse mortgage demand might be the reduction of the product’s inherent complexity.
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 209
American Economic Association
Incentives to Work
(J3)
Presiding:
Isaac Swensen
(Montana State University)
Providing Efficient Incentives to Work: Retirement Ages and the Pension System
Maxim Troshkin
(Cornell University)
[View Abstract]
This paper provides a theoretical and quantitative analysis of the efficient pension system as an integral part of the overall income tax code. We study lifecycle environments with active intensive and extensive labor margins. First, we analytically characterize Pareto efficient policies when the main tension is between redistribution and provision of incentives: while it may be more efficient to have highly productive individuals work more and retire older, earlier retirement may be needed to give them incentives to fully realize their productivity when they work. We show that, under plausible conditions, efficient retirement ages must increase in productivity. We also show that this pattern is implemented by pension benefits that not only depend on the age of retirement, but are designed to be actuarially unfair. Second, in a version of environment calibrated to U.S. individual lifecycle earnings, retirement ages, and intensive and extensive labor elasticities, we find that it is efficient for individuals with higher lifetime earning to retire (i) older than they do in the data (at 69.5 vs. at 62.8 in the data, for the most productive workers) and (ii) older than their less productive peers (at 69.5 for the most productive workers vs. at 62.2 for the least productive ones), in contrast to the pattern observed in the data. Finally, we compute welfare gains of between 1 and 5 percent and total output gains of up to 1 percent from implementing efficient work and retirement age patterns. We conclude that distorting the retirement age decision offers a powerful policy instrument, capable of overcompensating output losses from standard distortionary redistributive policies.
The Performance Pay Premium: How Big Is It and Does It Affect Wage Dispersion?
Alex Bryson
(National Institute of Economic and Social Research)
John Forth
(National Institute of Economic and Social Research)
Lucy Stokes
(National Institute of Economic and Social Research)
[View Abstract]
[Download Preview] Using nationally representative linked employer-employee data we find one-quarter of employees in Britain are paid for performance. The log hourly wage gap between performance pay and fixed pay employees is .36 points. This falls to .15 log points after controlling for observable demographic, job and workplace characteristics. It falls still further to .10 log points when comparing "like" employees in the same workplace, indicating that performance pay contracts are used in higher paying workplaces. The premium rises markedly as one moves up the wage distribution: it is seven times higher at the 90th percentile than it is at the 10th percentile in the wage distribution (.42 log points compared to .06 log points).
Reinvestigating How Welfare Reform Influences Labour Supply. A Multiple Testing Approach
Steven F. Lehrer
(Queen's University)
Vincent Pohl
(Queen's University)
Kyungchul Song
(University of British Columbia)
[View Abstract]
[Download Preview] Recent reforms to social assistance and welfare programs aim to increase the labor supply of low-income populations through various incentives. Economic theory suggests, however, that individual responses depend on pre-treatment labor supply, and resulting changes in earnings may be positive or negative. A large literature has investigated this question, and recent papers have adopted new econometric methods to provide important insights into how to reliably capture heterogeneity in response to welfare. These methods often focus on whether there are heterogeneous treatment effects either between subgroups or across quantiles of the (un)conditional outcome distribution. For example, does the effect of a specific program vary according to observed characteristics, such as gender or race? In this paper, we extend this literature using a nonparametic approach involving bootstrap testing of functional inequalities. The econometric theory literature has established its benefits over existing approaches when estimating treatment effect heterogeneity. Further, we treat treatment effect heterogeneity as a multiple testing problem and make corrections for the family-wise error rate. To facilitate comparisons to the existing literature we reexamine the extent of heterogeneity in labor supply responses to the Jobs First welfare experiment across both quantiles of outcome distribution for the full sample as well as individual subgroups. Our results shed new light on who truly benefits from welfare reform and demonstrate the importance of making corrections for multiple testing.
Performance Standards and Employee Effort: Evidence from Teacher Absences
Seth Gershenson
(American University)
[View Abstract]
[Download Preview] The Adequate Yearly Progress (AYP) provision of the 2001 No Child Left Behind Act (NCLB) increased accountability pressure in K-12 teaching environments by threatening to impose sanctions on Title-1 schools that failed to make AYP in consecutive years. The direction of the effect of these performance standards on teacher effort is theoretically ambiguous and is thus an empirical question. Difference-in-difference estimates of the effect of failing AYP on teacher effort in North Carolina’s Title-1 primary schools suggest that on average, teacher absences fell by about 10 to 15% and the probability of a teacher being absent 15 or more times in a given school year fell by about 30% in schools subject to increased accountability pressure in the second year of NCLB. The reductions in teacher absences in treated schools were primarily driven by within-teacher increases in effort and were particularly large among more effective teachers.
Automatic Enrollment, Escalation, and Retirement Savings
Kenton Hoyem
(Financial Engines, Inc.)
Wei-Yin Hu
(Financial Engines, Inc.)
Enrichetta Ravina
(Columbia University)
Geert Bekaert
(Columbia University)
[View Abstract]
We study 81 401(k) plans of which 37 introduced automatic enrollment over the last 15 years. Automatic enrollment increased participation rates by 4.17% on average, but reduced contribution rates (conditional on participation) by between 1.5 and 2%. The adverse effects of automatic enrollment programs are persistent and only partially mitigated by escalation clauses. The main problem with the majority of automatic enrollment programs is that their initial contribution rate (often 3%) is below the contribution rate that maximizes matching contributions by the company (which is typically 6%). The distribution of contribution rates outside automatic enrollment programs spikes at such rates and at other focal points like 5, 10 or 15%, all of which are higher than the initial automatic enrollment rate. Finally, we study the automatic enrollment selection decision at the firm level.
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 201
American Economic Association
Index Insurance in Developing Economies
(O1, O3)
Presiding:
Friederike Lenel
(DIW Berlin)
Index Insurance Payouts and Disaster Recovery: Evidence from Mongolia
Veronika K. Bertram-Huemmer
(DIW Berlin)
Kati Kraehnert
(DIW Berlin)
[View Abstract]
Limited access to credit and insurance markets is a major constraint for households in low-income economies to manage risks. Index insurance has been recently introduced to enable smallholder farmers and herders to better cope with losses caused by weather disasters. This paper analyzes the effects of index insurance payouts after a major weather disaster occurred in Mongolia in 2010. We exploit household panel data and compare post-disaster livestock recovery of insured herding households with that of households that had not yet the possibility to insure. To control for self-selection into insurance uptake, we exploit the phasing-in of the index insurance and use various quasi-experimental methods. We find that insurance payouts had a significantly positive effect on herders’ livestock recovery, both in the short term and medium term. Our study is among the first to provide evidence on the beneficial effects of index insurance payouts after a weather shock in a developing country.
A Heterogenous Agent Model of Credit-Linked Index Insurance and Farm Technology Adoption
Mario J. Miranda
(Ohio State University)
Katie Farrin
(Ohio State University)
[View Abstract]
[Download Preview] Protection from downside risk is a determinant of technology uptake among subsistence agricultural households. Access to credit and insurance is thought to stimulate technology adoption where new methods are riskier but higher yielding or require sunk costs. In this paper, we employ a dynamic, stochastic, heterogeneous agent model where farm households have access to contingent credit and make technology and loan repayment choices. Our approach is novel as insurance is modeled as a meso-level product, where the bank is indemnified before any payouts are distributed to borrowers; thus, it accounts for both supply- and demand-side concerns, showing a flow of effects when index insurance contracts are sold not to individuals, but to risk aggregators for whom basis risk is lower. Results show letting the lender lay first claim on indemnities lowers default rates, which can decrease interest rates and expand access to loans. Insurance may also spur technology uptake.
Social Networks, Financial Literacy and Index-Insurance
Muthoni Ngatia
(Tufts University)
Xavier Gine
(World Bank)
Dean Karlan
(Yale University)
[View Abstract]
We present a randomized field experiment measuring the direct impact and social network spillovers of providing financial literacy and discount vouchers on farmers’ decision to purchase index-based drought insurance. To examine this, we form clusters by grouping together geographically proximate households. Clusters were then randomly assigned to receive either a high or low intensity of each of the following treatments: financial literacy materials and discount vouchers off the price of insurance. We find social network spillovers to the provision of financial literacy materials but no spillovers to the provision of discount vouchers on farmers’ decision to purchase insurance. Specifically, receiving financial literacy materials when 60% or more of their neighbours also receive financial literacy materials, increases the likelihood that a farmer will purchase insurance by 4.3% (s.e. 2.5%) while receiving a financial literacy materials when 40% or fewer of their neighbours also receive financial literacy materials, decreases the likelihood that a farmer will purchase insurance by 2.6% (s.e. 2.5%). Looking at the discount vouchers, we find significant own effects of receiving discounts off the price of insurance on farmers’ take-up decision but negligible social network effects. Our results provide suggestive evidence that financial literacy materials are efficacious in encouraging take-up when farmers’ social contacts are similarly receive access to financial literacy materials.
The Effect of Index and Indemnity Insurance on Sharing Behavior in Informal Risk-Sharing Groups
Karlijn Morsink
(University of Oxford)
[View Abstract]
Imperfect informal risk-sharing in developing countries has led to research investigating crowding-out or crowding-in of informal risk-sharing under formal insurance provision (Arnott and Stiglitz, 1991; Mobarak and Rosenzweig, 2012; Dercon et al., 2013). In these studies decision-makers are assumed to have purely self-regarding preferences and risk-sharing is assumed to be motivated by anticipation of reciprocity in case of future risk. However, recent literature has investigated sharing motives in developing countries and finds that transfers in sharing arrangements may not only serve the purpose of monetary risk transfer but may also be used as a mechanism to punish or reward the other person’s behavior (Ligon and Schechter, 2012; Mueller, 2012). In this study I therefore investigate if, in a context of (pre-existing) informal risk-sharing, decisions to take up formal insurance are punished or rewarded, through changes in the level of transfers. This is important to understand because small changes in transfers, deviating from sharing norms can significantly change willingness to share future risk (Hill et al., 2012).
This is investigated through lab-in-the-field experiments in the form of one-shot, two-person, informal risk-sharing games where subjects receive either index or indemnity insurance offers. The games were played with 1344 Ethiopian farmers from 14 different pre-existing informal risk-sharing groups called iddir. Based on this unique data my preliminary results show that, in comparison to a benchmark treatment without formal insurance, sharing is significantly lower under indemnity insurance and higher under index insurance. Farmers, through sharing decisions, punish other farmers for not taking up formal insurance while take up is rewarded. Higher sharing under index insurance can be partly explained both by higher rewards in comparison to indemnity insurance and partly by fairness motivations to compensate other farmers for negative basis risk.
Discussants:
Ahmed Mushfiq Mobarak
(Yale University)
Karlijn Morsink
(University of Oxford)
Muthoni Ngatia
(Tufts University)
Mario J. Miranda
(Ohio State University)
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 203
American Economic Association
Industrial Organization of Health Care
(L1, I1)
Presiding:
Martin Gaynor
(Federal Trade Commission)
How Physician Acquisitions by Hospital Systems Affect Health Outcomes and Total Costs for Medicare Recipients
Thomas G. Koch
(Federal Trade Commission)
Brett Wendling
(Federal Trade Commission)
Nathan Wilson
(Federal Trade Commission)
[View Abstract]
Survey evidence from the American Medical Association indicates that between 2007-2008 and 2012-2013, the proportion of physicians employed by hospitals grew from 16 percent to 29 percent (Kane and Emmons, 2013). Economic theory does not consistently predict the implications of such increased vertical integration. Some models predict that it could lead to better service, higher efficiency, and lower prices (Cooper et al., 2005; Bresnahan and Levin, 2012). Others suggest that it could lead to over production (Wolinsky, 1993) or market foreclosure (Whinston, 2006).
In this paper, we seek to fill the gap in knowledge by considering the consequences of a series of mergers between hospital systems and physician groups. To do this, we exploit claims-level data from the Centers for Medicare and Medicaid Services (CMS). These data offer us several key advantages. First, their richness permits us to examine whether vertical mergers consistently lead to more efficient care provision, better health outcomes, and/or higher costs. Second, the fact that Medicare prices are administratively determined based on the whole country reduces endogeneity concerns. Finally, the data enable us to examine whether vertical mergers increase costs by enabling providers to exploit a kink in reimbursement CMS’ rules that provides higher payment for services done in hospitals than equivalent ones performed in doctors' offices. This discontinuity could distort hospitals’ acquisition incentives, and has been suggested to ultimately result in higher Medicare reimbursement costs without offsetting health benefits (MedPAC, 2012).
To identify the effects of the mergers, we employ a differences-in-differences strategy using a variety of different control groups. Our preliminary results suggest that different hospital systems’ experiences are highly heterogeneous. While it is difficult to extrapolate widely, we believe that the evidence suggests a tendency for these transactions to increase spending.
Price Effects of Hospital Mergers When the Hospitals are in Different Markets
Leemore Dafny
(Northwestern University)
Katherine E. Ho
(Columbia University)
Robin S. Lee
(Harvard University)
[View Abstract]
The previous literature analyzing the consequences of hospital mergers has focused on those that increase concentration within a specific geographic market (Capps et al 2003; Town and Vistnes 2001). These studies construct a measure of hospital market power called “Willingness-to-Pay” (WTP), which is based on the increment in expected utility for an insurer’s enrollees associated with adding the hospital in question to the insurer’s hospital network. Mergers between substitute hospitals in a market can increase prices by increasing the WTP of the combined entity. The evidence suggests that these price effects can be substantial.
The models used in the previous literature predict price effects of mergers only when the merging hospitals are substitutes. However, there is both anecdotal and systematic empirical evidence of price effects from mergers of non-substitute hospitals (Lewis and Pflum 2013), and this effect is difficult to explain using existing models.
Our paper addresses this gap by specifying a more complete bargaining model with an explicit mechanism through which price effects of non-substitutable hospital mergers can occur. We add insurer competition to the bargaining framework of the previous literature, allow enrollees to switch insurers in response to a network change, and specify an insurer’s objective function to be its realized profit (as a function of the utility it provides to consumers). Competition between insurers for enrollees and employers in our model generates a concavity of the insurer’s objective function with respect to WTP. Thus, even though a merger between non-substitutable hospitals may create a new WTP for the merged entity equal to the sum of the WTP of each individual hospital, the concavity in an insurer’s objective allows the combined entity to extract higher prices. We use data on hospital prices and affiliations to test whether this model captures actual bargaining outcomes.
Hospital Systems and Bargaining Power: Evidence from Out-of-Market Acquisitions
Matthew Lewis
(Clemson University)
Kevin Pflum
(University of Alabama)
[View Abstract]
[Download Preview] Competition analyses frequently focus on how mergers alter local market concentration. As multi-market hospital systems often play a role in their members’ negotiations with insurers, however, this could overlook an important cross-market interdependence in the bargaining outcome. We use out-of-market hospital mergers to investigate the cross-market effects of system membership on member hospital prices. Based on acquisitions occurring across the U.S. from 2000-2010, we find that the negotiated prices of hospitals acquired by out-of-market systems increase by 14 to 18% compared to independent hospitals. While there is some evidence that the costs of providing care decrease following acquisition, this decline is accompanied by an even larger increase in profit margins. By examining the behavior of hospital prices prior to acquisition and the effects of acquisition on the prices of nearby rivals we rule out several sources bias that could come from the endogenous selection of hospitals chosen for acquisition. We also find no evidence that changes in patient case-mix or hospital quality are driving the identified price effects. The findings reveal that systems can have a significant impact on the market power of hospitals in ways that have not been studied or taken into consideration in recent antitrust analysis.
Industrial Reorganization: Learning about Substitution Patterns from Natural Experiments
Devesh Raval
(Federal Trade Commission)
Ted Rosenbaum
(Federal Trade Commission)
Nathan Wilson
(Federal Trade Commission)
[View Abstract]
Since the seminal work of McFadden (1981), discrete choice demand models have become one of the main tools used by economists, quantitative marketers, and policy-oriented statisticians to model consumer preferences. Underpinning the choice models’ popularity and prominence is the comparative ease with which they permit counterfactual analysis of behavior in response to changes in the market. For example, antitrust researchers and regulators use the substitution patterns implied by these models to determine hospitals’ bargaining power with insurers and the price effects of mergers (Capps et al 2003). However, the quality of the models’ identifying variation has been increasingly questioned (Angrist & Pischke 2010), since quasi-experimental changes in choice sets are rarely observed.
In this paper, we address these concerns by exploiting “natural experiments” that exogenously change the choice sets of hospital patients. These “experiments” are natural disasters of different types that cause one or more hospitals to suspend operations. By comparing patients’ choices after these “treatment” episodes to those predicted by models estimated using pre-treatment data, we assess these models’ ability to predict consumers’ substitution patterns after a change in the market. Since these disasters occurred in dissimilar areas ranging from small rural towns to the largest cities in the United States, our results should be generalizable to other markets as well.
Our preliminary results to date (from Americus, GA) suggest that discrete choice specifications similar to those used in merger investigations do a good job of capturing consumer preferences. We find that in predicting aggregate market shares it is, on average, off by less than two percentage points for each remaining hospital after the natural disaster has occurred. Moreover, examining the model’s performance at a more micro level, we do not observe that its performance in more distant or more populous areas is economically or statistically different.
Discussants:
Tim Bresnahan
(Stanford University)
Gautam Gowrisankaran
(University of Arizona)
Aviv Nevo
(U.S. Department of Justice)
Nathan Miller
(Georgetown University)
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 206
American Economic Association
Information Frictions in International Trade
(F1, E1)
Presiding:
Laura Veldkamp
(New York University)
Information Frictions and the Law of One Price: When the States and the Kingdom Became United
Claudia Steinwender
(London School of Economics)
[View Abstract]
[Download Preview] How do information frictions distort international trade? This paper exploits a unique historical experiment to estimate the magnitude of these distortions: the establishment of the transatlantic telegraph connection in 1866. I use a newly collected data set based on historical newspaper records that provides daily data on information flows across the Atlantic together with detailed, daily information on prices and trade flows of cotton. Information frictions result in large and volatile deviations from the Law of One Price. What is more, the elimination of information frictions has real effects: Exports respond to information about foreign demand shocks. Average trade flows increase after the telegraph and become more volatile, providing a more efficient response to demand shocks. I build a model of international trade that can explain the empirical evidence. In the model, exporters use the latest news about a foreign market to forecast expected selling prices when their exports arrive at the destination. Their forecast error is smaller and less volatile the more recent the available information. I estimate the welfare gains from information transmission through the telegraph to be roughly equivalent to those from abolishing a 6% ad valorem tariff.
Information Globalization, Risk Sharing, and International Trade
Isaac Baley
(New York University)
Laura Veldkamp
(New York University)
Michael Waugh
(New York University)
[View Abstract]
[Download Preview] Information frictions are often invoked to explain low levels of international trade beyond those that measured trade frictions (tariffs, transportation costs, etc.) can explain. But to explain why international trade is lower then domestic trade, home firms have to know something that foreigners do not. Without information asymmetry, domestic trade and foreign trade would be inhibited equally. This paper incorporates a simple information asymmetry in a standard, two-country Armington trade model and studies its effect on international risk sharing and trade flows. We find that ameliorating information asymmetry -- information globalization -- reduces trade and international risk sharing. In other words, asymmetric information frictions behave in the opposite manner as a standard trade cost.
Inattentive Importers
Kunal Dasgupta
(University of Toronto)
Jordi Mondria
(University of Toronto)
[View Abstract]
Importers rarely observe the price of every good in every market because of information frictions. In this paper, we seek to explain how the presence of such frictions shape the flow of goods between countries. To this end, we introduce rationally inattentive importers in a multi-country Ricardian trade model. For a particular distribution of productivity, we derive a gravity equation linking bilateral trade flows with the cost of processing information faced by importers. In a more general setting, we show how small reductions in observable trade costs might have large effects on trade flows as importers endogenously process different amounts of information across countries. We also contribute to the rational inattention literature by providing a closed-form solution to a discrete choice problem with asymmetric priors.
Discussants:
Treb Allen
(Northwestern University)
Jaromir Nosal
(Columbia University)
Thomas Chaney
(Toulouse School of Economics)
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 208
American Economic Association
Insurance and Behavioral Economics: Policy Implications
(D1, G2)
Presiding:
Howard Kunreuther
(University of Pennsylvania)
Procrastination, Present-Biased Preferences, and Financial Behaviors
Jeffrey R. Brown
(University of Illinois-Urbana-Champaign and NBER)
Alessandro Previtero
(University of Western Ontario)
[View Abstract]
[Download Preview] We provide new and robust empirical evidence that procrastinators behave differently than non-procrastinators in several retirement-related financial behaviors. We define a procrastinator as an individual who waits until the last day of their health care open enrolment period to make their plan election. We show that procrastinators are: (i) less likely to participate in a supplemental savings plan, (ii) take longer to sign up for 401(k) plans, (iii) contribute less, (iv) are more likely to stick with default portfolio allocations, and (v) are more likely to choose a lump sum (over an annuity) as payout option from their DB plan, especially when the lump sum is more salient. Further evidence shows that these findings are best explained by procrastination being the outcome of present-biased preferences, consistent with the leading economic models of procrastination.
Experiments on the Role of Emotions in Insurance Decision Making: Implications for Behavioral Welfare Economics
Howard Kunreuther
(University of Pennsylvania)
Mark Pauly
(University of Pennsylvania)
[View Abstract]
[Download Preview] We focus on how individuals make property and health insurance choices via a web-based experiment and examine the implications for a theory of behavioral welfare economics
We examine the emotional reactions of individuals with different levels of insurance coverage who do or do not experience a loss and the impact that these feelings have on future insurance purchase decisions as a function of the premium charged. Contrasting actual behavior and feelings of well-being with predictions from expected utility theory provide new insights into a theory of behavioral welfare economics. While most of the experiment deals with voluntary insurance purchase, we also query participants about their perceived wellbeing as a function of their loss experience when they are required to purchase coverage.
Deterrents to Insurance Purchases: Distrust and Zero Aversion
Richard J. Zeckhauser
(Harvard University)
Alexandra de Filippo
(Harvard University)
Jiyoung Han
(Harvard University)
Claudia Newman-Martin
(Harvard University)
Timothy Cheston
(Harvard University)
[View Abstract]
[Download Preview] Low-income individuals in developing nations face grave risks from a wide spectrum of sources, from unsteady employment and crop failure to a high burden of disease. Although these risks are much greater for the poor relative to their incomes, uptake of formal insurance is rare in the developing world (3-6% in Kenya). Indeed, formal insurance avoidance persists even where informal risk-pooling systems at the community or household level fall far short.
The authors have conducted preliminary lab-based experiments and surveys through the Busara Center for Behavioral Economics in Nairobi, Kenya, examining risk-preferences among residents of the largest urban slum in Africa. Results suggest two potential behavioral explanations for why individuals may view purchasing insurance as undesirable: (1) “zero aversion”; and (2) general distrust that institutions will pay what is owed. “Zero aversion” finds that zero is special; people are extremely averse to investing resources if there is a chance of coming away empty-handed. This aversion would deter insurance take-up, since one pays a premium and usually gets nothing in return. Mistrust in institutions would lead people to reject insurance because they were not confident they would be compensated should an insured event occur. Further experiments examining these behaviors, and their relation to insurance, will be conducted in the summer of 2014. The findings will yield valuable insights on how insurance services might be provided to low-income households in developing nations.
Discussants:
David Laibson
(Harvard University)
Robert Shiller
(Yale University)
Maureen Cropper
(University of Maryland)
Jan 05, 2015 10:15 am, Sheraton Boston, Liberty A
American Economic Association
Loss and Debt Aversion
(G1)
Presiding:
Homa Zarghamee
(Barnard College)
Expectations-Based Reference-Dependent Life-Cycle Consumption
Michaela Pagel
(Columbia University)
[View Abstract]
[Download Preview] This paper incorporates a recent preference specification of expectations-based loss aversion, which has been broadly applied in microeconomics, into a classic macro model to offer a unified explanation for three empirical observations about life-cycle consumption. First, loss aversion rationalizes excess smoothness and sensitivity, the empirical observation that consumption responds to income shocks with a lag. Intuitively, such lagged responses allow the agent to delay painful losses in consumption until his expectations have adjusted. Second, the preferences generate a hump-shaped consumption profile. Early in life, consumption is low due to a first-order precautionary-savings motive. But, as uncertainty resolves over time, this motive becomes dominated by time-inconsistent overconsumption that eventually leads to declining consumption toward the end of life. Third, consumption drops at retirement. Prior to retirement, the agent wants to overconsume his uncertain income before his expectations catch up. Post retirement, however, income is no longer uncertain, so that overconsumption is associated with a certain loss in future consumption. As an empirical contribution, I structurally estimate the preference parameters using life-cycle consumption data. My estimates match those obtained in experiments and other micro studies and generate the degree of excess smoothness observed in macro consumption data.
Long-Run Risk is the Worst-Case Scenario
Rhys Bidder
(Federal Reserve Bank of San Francisco)
Ian Dew-Becker
(Northwestern University)
[View Abstract]
[Download Preview] We study an investor who is unsure of the dynamics of the economy. Not only are parameters unknown, but the investor does not even know what order model to estimate. She estimates her consumption process non-parametrically and prices assets using a pessimistic model that minimizes lifetime utility subject to a constraint on statistical plausibility. The equilibrium is exactly solvable and we show that the pricing model always includes long-run risks. With a single free parameter determining risk preferences, the model generates high and volatile risk premia, excess volatility in stock returns, return predictability, interest rates that are uncorrelated with expected consumption growth, and investor expectations that are consistent with survey evidence. Risk aversion is equal to 4.8, there is no stochastic volatility or disasters, and the pricing model is statistically nearly indistinguishable from the true data-generating process. The analysis yields a general characterization of behavior under a very broad form of model uncertainty.
Financial Loss Aversion Illusion
Christoph Merkle
(University of Mannheim)
[View Abstract]
[Download Preview] We test the proposition that investors' ability to cope with financial losses is much better than they expect. In a panel survey with real investors from a large UK bank, we ask for subjective ratings of anticipated returns and experienced returns. The time period covered by the panel (2008-2010), with frequent losses and gains in the portfolios of investors, provides the required background to analyze the involved hedonic experiences. We examine how the subjective ratings behave relative to expected portfolio returns and experienced portfolio returns. Loss aversion is strong for anticipated outcomes with investors reacting over twice as sensitive to negative expected returns as to positive expected returns. However, when evaluating experienced returns, the effect diminishes by more than half and is well below commonly found loss aversion coefficients. It seems that a large part of investors' financial loss aversion results from a projection bias.
Loss Averse Preferences, Performance, and Career Success of Institutional Investors
Andriy Bodnaruk
(Notre Dame University)
Andrei Simonov
(Michigan State University)
[View Abstract]
[Download Preview] Using survey-based measures of loss aversion of mutual fund managers, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. Funds managed by managers with higher aversion to losses take on less downside risk and have lower risk-adjusted returns. More loss averse managers are more likely to have their contracts terminated. Our results indicate that fund management companies may improve quality of hiring decisions by screening prospective managers on the degree of their loss aversion to ensure better match between managerial characteristics and fund’s objectives.
Intertemporal Consumption and Debt Aversion: An Experimental Study
Thomas Meissner
(Technische Universität Berlin)
[View Abstract]
[Download Preview] This paper tests how subjects behave in an intertemporal consumption/saving experiment when borrowing is allowed and whether subjects treat debt differently than savings. Two treatments create environments where either saving or borrowing is required for optimal consumption. Since both treatments share the same optimal consumption levels, observed consumption choices can be directly compared across treatments. The experimental findings imply that deviations from optimal behavior are higher when subjects have to borrow than when they have to save in order to consume optimally, suggesting debt-aversion. Signifiant underconsumption is observed when subjects have to borrow in order to reach optimal consumption. In line with previous experiments, weak evidence is found suggesting that subjects over-consume when saving is necessary for optimal consumption.
Jan 05, 2015 10:15 am, Hynes Convention Center, Room 207
American Economic Association
Macroeconomics with Rich Microdata: Implications for Policy
(E2, O1)
Presiding:
John Haltiwanger
(University of Maryland)
How Destructive is Innovation
Daniel Garcia-Macia
(Stanford University)
Chang-Tai Hsieh
(University of Chicago)
Peter Klenow
(Stanford University)
[View Abstract]
[Download Preview] Entering and incumbent firms can create new products and displace other firms’ products. Incumbents can also improve their existing products. How much of aggregate growth occurs through each of these channels? The answer matters for optimal innovation policy because knowledge spillovers and business stealing differ depending on the source of growth. Using U.S. Census data on manufacturing firms from 1972 through 2002, we arrive at two main conclusions: First, most growth comes from incumbent innovation rather than innovation by entrants. This follows from the small market share of entering firms. Second, most growth comes from incumbents improving their own products. We infer this because firm exit rates fall only gradually as firms expand, suggesting they are not accumulating a diverse set of products.
High Growth Young Firms and United States Job and Productivity Growth
John Haltiwanger
(University of Maryland)
Ron Jarmin
(U.S. Census Bureau)
Robert Kulick
(University of Maryland)
Javier Miranda
(U.S. Census Bureau)
[View Abstract]
Recent research shows that the job creating prowess of small firms in the U.S. is better attributed to young firms. However, evidence also shows that most young firms either fail or don’t grow. The sustained contribution to economic growth from each cohort of young firms comes from a relatively small fraction of very high growth young firms. High growth firms that are disproportionately young are not well understood in terms of either theory or evidence. In this paper, we explore the role of high growth young firms in the U.S. economy using rich longitudinal data tracking the universe of entering cohorts of new private sector firms over the last thirty years. Our analysis investigates the role of high growth young firms for U.S. job and productivity growth. In this analysis, we explore secular and cyclical fluctuations in U.S. job and productivity growth and the role that high growth young firms play in accounting for these fluctuations.
Management as a Technology
Nicholas Bloom
(Stanford University)
Raffaella Sadun
(Harvard Business School)
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 do they simply reflect alternative styles? We collect cross sectional and panel data on core management practices in over 10,000 firms in 30 countries. We find the US has the highest size-weighted average management score and about a fifth of the cross-country “management gap” is due to stronger reallocation effects which rewards better managed firms with greater market share. We present a formal model of management and use SMM to structurally estimate it on our panel data in order to recover key parameters such as the adjustment costs of managerial capital (which are twice those of tangible capital). Our model predicts (i) a positive effect of management on firm performance; (ii) a positive effect of product market competition (and lower distortions) on average management quality and its covariance with firm size; and (iii) a rise (fall) in the level (dispersion) of management with firm age. These are not moments we use in the structural estimation and we find empirical support for all of these predictions in our new data. Building on our model we find that the US lead in management explains about a quarter of its productivity advantage over other nations.
Manufacturing Decline, Housing Booms, and Non-Employment
Kerwin Charles
(University of Chicago)
Erik Hurst
(University of Chicago)
Matthew Notowidigdo
(University of Chicago)
[View Abstract]
We assess the extent to which manufacturing decline and housing booms contributed to changes in U.S. non-employment during the 2000s. Using a local labor market design, we estimate that manufacturing decline significantly increased non-employment during 2000-2007, while local housing booms decreased non-employment by roughly the same magnitude. The effects of manufacturing decline persist through 2011, but we find no persistent non-employment effects of local housing booms, most plausibly because housing booms were associated with subsequent busts of similar magnitude. We also find that housing booms significantly reduce the likelihood that displaced manufacturing workers remain non-employed, suggesting that housing booms .mask non-employment growth that would have otherwise occurred earlier in the absence of the booms. Applying our estimates to the national labor market, we find that hosing booms reduced non-employment growth by roughly 30 percent during 2000-2007 and that roughly 40 percent of the aggregate increase in non-employment during 2000-2011 can be attributed to manufacturing decline. Collectively, our
results suggest that much of the non-employment growth during the 2000s can be attributed to manufacturing decline and these effects would have appeared in aggregate statistics earlier had it not been for the large, temporary increases in housing demand.
Jan 05, 2015 10:15 am, Sheraton Boston, The Fens
American Economic Association
Non-Financial, Extrinsic Motivation and Employee Job Performance
(D2, J2)
Presiding:
Susanne Neckermann
(Erasmus University Rotterdam)
Inducing Norms in Laboratory Allocation Choices
Gary Charness
(University of California-Santa Barbara)
Arthur Schram
(University of Amsterdam)
[View Abstract]
[Download Preview] Social norms involve observation by others and external sanctions for violations, while moral norms involve introspection and internal sanctions. To study such norms and their effects, we design a laboratory experiment. We examine dictator choices, where we create a shared understanding by providing advice from peers with no financial payoff at stake. We vary whether advice is given, as well as whether choices are made public. This design allows us to explicitly separate the effects of moral and social norms. We find that choices are in fact affected by a combination of observability and the shared understanding.
The Motivational Benefits of 'Gameable' Incentive Systems: Evidence from a Field Experiment
Ian Larkin
(University of California-Los Angeles)
[View Abstract]
The “gaming” of incentive systems by employees, defined as deliberately manipulating effort and outcomes to increase one’s pay to the detriment of the employer, carries considerable costs to companies. However, “gameable” incentive systems are still commonly used, leading many prominent scholars to suggest these systems must “carry benefits economists do not yet understand” (Lazear and Oyer, 2012). In a field experiment with software coders, we manipulate whether employees are paid a linear, non-gameable piece rate or a non-linear piece rate which is subject to gaming. Employees in the “gameable” condition are 16% more productive, despite being paid nearly 5% less on average, suggesting some employees work harder when they are able to game the incentive system, even if the gaming does not increase pay. Treatment effects are strongest for more experienced and higher skilled employees. In a second experiment, we replicate the experiment’s results with “boring” and “fun” tasks, but find no significant difference in the impact of gameable incentive systems on performance across the tasks. This suggests that the motivational benefits from incentive system gaming do not stem simply from increasing the enjoyment an employee feels on the job.
Knowing that You Matter, Matters! The Interplay of Meaning, Monetary Incentives, and Worker Recognition
Susanne Neckermann
(Erasmus University Rotterdam)
Michael Kosfeld
(Goethe University Frankfurt)
[View Abstract]
[Download Preview] We manipulate workers' perceived meaning of a job in a field experiment. Half of the workers are informed that their job is important, the other half are told that their job is of no relevance. Results show that workers exert more effort when meaning is high, corroborating previous findings on the relationship between meaning and work effort. We then compare the effect of meaning to the effect of monetary incentives and of worker recognition via symbolic awards. We also look at interaction effects. While meaning outperforms monetary incentives, the latter have a robust positive effect on performance that is independent of meaning. In contrast, meaning and recognition have largely similar effects but interact negatively. Our results are in line with image-reward theory (Benabou and Tirole 2006) and suggest that meaning and worker recognition operate via the same channel, namely image seeking.
Reference-Dependent Preferences: Evidence from Marathon Runners
Devin Pope
(University of Chicago)
Patricia Dechow
(University of California-Berkeley)
Eric Allen
(University of Southern California)
George Wu
(University of Chicago)
[View Abstract]
Models of reference-dependent preferences propose that individuals evaluate outcomes as gains or losses relative to a neutral reference point. We test for reference dependence in marathon finishing times (n = 9,378,546). Models of reference-dependent preferences such as prospect theory predict bunching of finishing times at reference points. We provide visual and statistical evidence that round numbers (e.g., a four-hour marathon) serve as reference points in this environment and produce significant bunching of performance at these round numbers. Bunching is driven by planning and adjustments in effort provision near the finish line and cannot be explained by explicit rewards (e.g., qualifying for the Boston Marathon), peer effects, or institutional features (e.g., pace setters). We calibrate a simple model of prospect theory and show that the basic qualitative shape of the empirical distribution of finishing times is consistent with parameters that have previously been estimated in the laboratory.
Discussants:
Iwan Barankay
(University of Pennsylvania)
Robert Gibbons
(Massachusetts Institute of Technology)
Nicola Lacetera
(University of Toronto)
Roberto Weber
(University of Zurich)
Jan 05, 2015 10:15 am, Sheraton Boston, Public Garden
American Economic Association
Perspectives on Inequality and Mobility of Income and Wealth
(D3, H2)
Presiding:
David Johnson
(U.S. Bureau of Economic Analysis)
Measuring Income Mobility of Children and Their Parents over 25 Years
Gerald Auten
(U.S. Treasury Department)
Geoffrey Gee
(U.S. Treasury Department)
Nicholas Turner
(U.S. Treasury Department)
[View Abstract]
This paper extends previous research on income mobility by examining longer term income mobility of children of different income groups and also the income mobility of their parents over 25 years. The income position of children is measured by the income of the parents in 1987, and then by their own income after 10, 20 and 25 years. The income position of their parents is also followed over these periods. Individual parents and children are tracked separately, even if they change households or marry a different person. Income is adjusted for family size so that relative economic welfare is comparable as family status changes over time. The analysis examines how the intra-generational rank-rank relationship corresponds to the inter-generational rank-rank relationship. It will examine intergenerational elasticity of income and rank-rank comparisons that measure average mobility. It will also examine the dispersion of mobility using transition matrices and graphical approaches which provide richer insights into the variability of outcomes. In addition, the analysis considers how mobility is affected by family status, age, occupation and other factors that may have implications for public policy. The analysis uses data from individual income tax returns, supplemented by data from the IRS Computer Data Warehouse and information returns (such as W-2’s, 1099’s, K-1’s and other similar information returns) to measure the income of non-filers. The use of information returns allows us to address attrition problems associated with non-filers.
The Association between Children's Earnings and Fathers' Lifetime Earnings: Estimates Using Administrative Data
Thomas DeLeire
(Georgetown University)
Molly Dahl
(Congressional Budget Office)
[View Abstract]
Knowledge of the degree of intergenerational mobility in an economy is essential for assessing the fairness of the earnings distribution. In this paper, we provide estimates of the degree of intergenerational mobility in the United States using administrative earnings data from the Social Security Administration records. These data contain nearly career-long earnings histories for a large sample of U.S. fathers and their children's earnings around an age that is likely to be a good proxy for lifetime earnings. We examine two different measures of mobility: (i) the association between fathers' and children's log earnings (the intergenerational elasticity or IGE) and (ii) the association between fathers' and children's relative positions in their earnings distributions (or the intergenerational rank association or IRA). We show that estimates of the IGE are quite sensitive to choice of specification and sample and range from 0.26 to 0.63 for sons and from 0 to 0.27 for daughters. That is, a 10 percent increase in fathers' earnings is associated with a 3 to 6% increase in sons' earnings and a 0 to 3% increase in daughters' earnings. By contrast, our estimates of the IRA are robust to both specification and sample choices and show that a 10 percentile increase in a father's relative position is associated with roughly a 3 percentile increase in his son's and roughly a 1 percentile increase in his daughter's relative earnings positions. Non-parametric estimates of the IRA show relatively more immobility among the children of men below the 10th percentile and above the 80th percentile of lifetime earnings.
The Sensitivity of Top Income Levels and Trends in Tax Return Data to Alternative Measures of Income
Philip Armour
(Cornell University)
Richard V. Burkhauser
(Cornell University and University of Melbourne)
Jeff Larrimore
(Federal Reserve Board)
[View Abstract]
Internal Revenue Service (IRS) administrative tax records provide far superior information on the taxable market income of the top part of the distribution of income tax units than do traditional survey-based data. But this measure of income, created primarily to operationally allow the IRS to objectively identify and collect revenues, is not the best measure of the actual flow of resources economists would use to measure income and income inequality each year.
Armour, Burkhauser, and Larrimore (2013, forthcoming) use Current Population Survey (CPS) data to show that levels and trends in median income and quintile income are highly sensitive to the choice of income definition, especially the inclusion and measure of capital gains. But no previous research has analyzed the effect of income definitional choices on top income shares directly using IRS tax record data.
Using IRS tax return data since 1989, statistically matched to Survey of Consumer Finances and the March CPS data for those sources of income not included in tax data, we first replicate the pre-tax, pre-transfer market income levels and trends produced in most tax-return-based top income research and then test their robustness to alternate income definitions used in the inequality literature. We do so by comparing them to results using broader income measures that include public transfers, tax liabilities and tax credits, and major sources of in-kind income. Finally, in the spirit of the Haig-Simon income definition, we examine the extent to which capturing taxable capital gains at realization rather than capturing all capital gains in both taxable and tax-deferred assets at accrual influences observed trends in top income shares.
Exploring Racial Wealth Gaps Using the Survey of Consumer Finances
Jeffrey Thompson
(Federal Reserve Board)
Gustavo Suarez
(Federal Reserve Board)
[View Abstract]
Differences in net worth between racial and ethnic groups are large and have changed relatively little in recent decades. This paper explores the factors contributing to racial wealth gaps, including the role of housing wealth and the geographic distributions of different racial groups, the importance of inheritances, long-term work histories, human capital, and workplace pension type.
Discussants:
Thomas Hungerford
(Economic Policy Institute)
Michael Strain
(American Enterprise Institute)
Jan 05, 2015 10:15 am, Sheraton Boston, Commonwealth
American Economic Association
Promoting New Norms for Transparency and Integrity in Economic Research
(C9, B4)
Presiding:
Edward Miguel
(University of California-Berkeley)
Scientific Utopia: Improving Openness and Reproducibility in Scientific Research
Brian Nosek
(University of Virginia)
[View Abstract]
An academic scientist’s professional success depends on publishing. Publishing norms emphasize novel, positive results. As such, disciplinary incentives encourage design, analysis, and reporting decisions that elicit positive results and ignore negative results. These incentives inflate the rate of false effects in published science. When incentives favor novelty over replication, false results persist in the literature unchallenged, reducing efficiency in knowledge accumulation. I will briefly review the evidence and
challenges for reproducibility and then discuss some of the initiatives that aim to nudge incentives and create infrastructure that can improve reproducibility and accelerate scientific progress.
Replicability of Empirical Research: Classroom Instruction and Professional Practice
Richard Ball
(Haverford College)
Norm Medeiros
(Haverford College)
[View Abstract]
This paper presents a protocol for documenting empirical research we have developed for use by undergraduate and graduate students in the social sciences. The protocol specifies a set of electronic files that includes all the data, metadata and code an independent researcher would need to replicate, easily and exactly, all the steps of data management and analysis undertaken in the course of a research project, from initially importing data from their original sources to generating the results presented in the paper. For a number of years, economics students at Haverford College have been following the protocol to document the empirical work they do both for research papers in introductory statistics classes and for their senior theses. Instructors in other fields of social science and at several other institutions have also begun introducing the protocol to their students, and we are engaged in a variety of efforts to support further diffusion of this practice.
Our paper begins with a description of the main features of the protocol. We then discuss the pedagogical benefits of teaching students to document their statistical work carefully, both with respect to the immediate educational value they derive from doing their own empirical research projects, and with respect to their broader intellectual development. Finally, we consider some implications of our experience teaching responsible research practices to our students for the standards of replicability and transparency observed by professional researchers, particularly as manifested in the policies of academic journals regarding the availability of data and code.
Bias and Research Method: Evidence from 600 Studies
Eva Vivalt
(New York University)
[View Abstract]
This paper draws upon two large sets of studies reaching back into the '80s and '90s and considers whether there was more or less specification searching among them than among modern studies. I also examine whether randomized controlled trials (RCTs) engage in less specification searching and whether other aspects of research design predict it.
Discussants:
Aprajit Mahajan
(University of California-Los Angeles)
Justin Wolfers
(University of Michigan)
Katherine Casey
(Stanford University)
Jan 05, 2015 10:15 am, Sheraton Boston, Back Bay Ballroom D
American Economic Association
Recent Advances in Welfare Economics
(H3)
Presiding:
Nathaniel Hendren
(Harvard University)
Revealed Redistributive Preferences of Dutch Political Parties
Floris Zoutman
(Norwegian School of Economics)
Bas Jacobs
(Erasmus University Rotterdam)
Egbert L.W. Jongen
(CPB Netherlands Bureau for Economic Policy Analysis)
[View Abstract]
[Download Preview] In a process unique in the world, all major Dutch political parties provide CPB Netherlands Bureau for Economic Policy Analysis with detailed proposals for reforming the tax-benefit system in every national election. This information allows us to uncover the social preferences for income redistribution of each political party by using the inverse optimal-tax method to calculate social welfare weights for each income level. We contribute and amend existing literature by deriving the social welfare weights in the optimal-tax model of Jacquet et al. (2013), which incorporates both an intensive and extensive labor-supply margin. Part of our findings confirm expectations. First, all parties roughly give a higher social weight to the poor than to the rich. Second, left-wing parties give a higher social weight to the poor and a lower social weight to the rich than right-wing parties do. We demonstrate that cross-party differences in social welfare weights are very small and extremely close to the social welfare weights in the existing tax-benefit system. We also uncover two important anomalies for all parties under consideration. First, social welfare weights increase from the working poor to modal income, suggesting that (reverse) redistribution from the poor to middle-income groups raises social welfare. Second, the social welfare weight given to the rich is negative for all political parties, implying that the Dutch government more than `soaks the rich'. We argue that the high social welfare weights for the middle-income groups can be explained best by political-economy considerations.
A Theory of Income Taxation under Multidimensional Skill Heterogeneity
Florian Scheuer
(Stanford University)
Casey Rothschild
(Wellesley College)
[View Abstract]
[Download Preview] We develop a unifying framework for optimal income taxation in multi-activity economies with general production technologies. Agents are characterized by an N-dimensional skill vector that captures intrinsic abilities in N activities. The private return to each activity depends on individual skill and an aggregate activity-specific return, which is a general function of the economy-wide distribution of efforts across activities. The optimal tax schedule features a multiplicative income-specific correction to an otherwise standard tax formula. Because taxes affect the relative returns to different activities, this correction diverges, in general, from the weighted average of the Pigouvian taxes that would align private and social returns in each activity. We characterize this divergence as a function of relative return elasticities, and its implications for the shape of the income tax both generally and in a number of applications, including externality-free economies with general equilibrium effects, economies with increasing or decreasing returns to scale, zero-sum activities such as bargaining or rent extraction, and positive or negative spillovers.
The Evolution of Revealed Social Preferences in the United States and the Costs of Unequal Growth and Recessions
Matthew Weinzierl
(Harvard University and NBER)
Benjamin B. Lockwood
(Harvard University)
[View Abstract]
[Download Preview] Calculating the welfare implications of changes to economic policy or shocks to the economy requires
economists to decide on a normative criterion. One way to make that decision is to elicit the relevant moral criteria from real-world policy choices, converting a normative decision into a positive inference exercise as in, for example, the recent surge of so-called "inverse-optimum" research. We find that capitalizing on the potential of this approach is not as straightforward as we might hope. We perform the inverse-optimum inference on U.S. tax policy from 1979 through 2010 and identify two broad explanations for its evolution. These explanations, however, either undermine the reliability of the inference exercise's conclusions or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations. We emphasize the need for better evidence on society's positive and normative judgments in order to resolve the questions these findings raise
The Inequality Deflator: Interpersonal Comparisons without a Social Welfare Function
Nathaniel Hendren
(Harvard University)
[View Abstract]
[Download Preview] This paper develops a tractable method for resolving the equity-efficiency tradeoff that modifies the Kaldor-Hicks compensation principle to account for the distortionary cost of redistribution. The inequality deflator weights surplus by the marginal cost of providing transfers to a point of the income distribution using modifications to the income tax schedule. Empirical evidence consistently suggests redistribution from rich to poor is more costly than redistribution from poor to rich. As a result, the inequality deflator weights surplus accruing to the poor more so than to the rich. This is not because of a subjective preference for the poor per se, but rather because their surplus can hypothetically be turned into more surplus to everyone through reductions in distortionary taxation. I estimate the deflator using existing estimates of the response to taxation, combined with a new estimation of the joint distribution of taxable income and marginal tax rates. I then study several applications. First, I show the inequality deflator weights producer surplus at 77% relative to consumer surplus. Second, I show the social cost of rising inequality since 1970 is roughly $5,250 per household. Third, I provide a new ordering of country incomes per capita. For example, inequality deflated income in the U.S. is lower relative to Austria and the Netherlands, despite having higher national income per capita. I conclude by providing a modified Samuelson condition that characterizes the existence of potential Pareto improvements from local government policy changes.
Discussants:
E. Glen Weyl
(Microsoft Research New England)
Louis Kaplow
(Harvard University)
Stefanie Stantcheva
(Massachusetts Institute of Technology)
Casey Rothschild
(Wellesley College)
Jan 05, 2015 10:15 am, Westin Copley, Essex North
American Finance Association
Asset Allocation Strategies
(G1)
Presiding:
Luis Viceira
(Harvard Business School)
License to Spend: Consumption-Income Sensitivity and Portfolio Choice
Jawad Addoum
(University of Miami)
Stefanos Delikouras
(University of Miami)
George Korniotis
(University of Miami)
[View Abstract]
[Download Preview] Contrary to the predictions of traditional life-cycle models, households do not engage in perfect consumption smoothing. Instead, consumption tracks current income. Similarly, weak evidence of income hedging runs against standard portfolio theory. We link these two puzzles by proposing a model in which current income is an entitlement to consume, or a license to spend. License-to-spend investors feel more entitled to consume as income rises and do not perfectly smooth consumption. Therefore, they are also less interested in the income hedging potential of financial assets. We test the license-to-spend model using data from the Panel Study of Income Dynamics and find that households whose consumption tracks current income also exhibit a weakened income hedging motive in their portfolio decisions. Overall, we show that the absence of income hedging is the portfolio choice analogue of imperfect consumption smoothing.
Strategic Asset Allocation with Predictable Returns and Transaction Costs
Pierre Collin-Dufresne
(Ecole Polytechnique Federale de Lausanne)
Kent Daniel
(Columbia University)
Ciamac Maoallemi
(Columbia University)
Mehmet Saglam
(University of Cincinnati)
[View Abstract]
[Download Preview] We propose a simple approach to dynamic multiperiod portfolio choice with quadratic transaction costs that is tractable in settings with a large number of securities, realistic return dynamics with multiple risk factors, many predictor variables, and stochastic volatility. We obtain a closed-form solution for a trading rule that is optimal if the problem is restricted to a broad class of strategies we define as `linearity generating strategies.' When restricted to this parametric class the highly non-linear dynamic optimization problem reduces to a deterministic linear-quadratic optimization problem in the parameters of the trading strategies. We investigate realistic examples that show that the approach dominates several alternatives, especially in settings where the covariance matrix of returns is stochastic (e.g., when there is a factor structure in returns or when returns have GARCH dynamics) or when transaction costs vary with the level of volatility.
Portfolio Choice with Capital Gain Taxation and the Limited Use of Losses
Paul Ehling
(BI Norwegian Business School)
Michael Gallmeyer
(University of Virginia)
Sanjay Srivastava
(OS Financial Trading Systems)
Stathis Tompaidis
(University of Texas-Austin)
Chunyu Yang
(BI Norwegian Business School)
[View Abstract]
[Download Preview] We study portfolio choice with multiple stocks and capital gain taxation assuming that capital losses can only be used to offset current or future realized capital gains. We show through backtesting, using the time series and empirical distribution of the S&P 500 Index, that on average optimal equity holdings are over an extended period of time significantly lower compared to the case typically studied in the literature where the use of capital losses is unrestricted. Using Value and Growth and Small and Large portfolios, the backtests show that allocations with multiple stocks remain persistently under-diversified.
Tax Efficient Asset Management: Evidence from Equity Mutual Funds
Clemens Sialm
(University of Texas-Austin)
Hanjiang Zhang
(Nanyang Technological University)
[View Abstract]
[Download Preview] Investment taxes have a substantial impact on the performance of taxable mutual
fund investors. Mutual funds can reduce the tax burdens of their shareholders by avoiding
securities that are heavily taxed and by avoiding realizing capital gains that trigger
higher tax burdens to the fund’s investors. Such tax avoidance strategies constrain the
investment opportunities of the mutual funds and might reduce the before-tax performance
of the funds. Our paper empirically investigates the costs and benefits of tax
efficient asset management based on U.S. equity mutual funds from 1990-2012. We find
that mutual funds that follow tax-efficient asset management strategies generate superior
after-tax returns. Surprisingly, mutual funds that generate lower taxable distributions
do not underperform other funds before taxes, indicating that the constraints imposed
by tax efficient asset management do in practice not have significant performance consequences
Discussants:
Francisco J. Gomes
(London Business School)
Michael W. Brandt
(Duke University)
Harold Zhang
(University of Texas-Dallas)
Daniel Bergstresser
(Brandeis University)
Jan 05, 2015 10:15 am, Westin Copley, America North
American Finance Association
CEOs
(G3)
Presiding:
Michael Weisbach
(Ohio State University)
Learning through a Smokescreen: Earnings Management and CEO Compensation over Tenure
Andrew Ellul
(Indiana University)
[View Abstract]
[Download Preview] Career concerns may lead CEOs to distort reported performance (Fudenberg and Tirole (1995)), particularly in the early years of tenure when there is greater uncertainty about the CEO’s ability. We investigate whether the presence of reporting distortions affects CEOs’ compensation over their tenure. Consistent with the view that career concerns are likely to be stronger in the early years of tenure, we find that earnings management is highest in the early years and decreases monotonically over the CEO’s tenure. The results show that compensation is positively associated with earnings management in the early years of a CEO’s tenure, but this relationship becomes negative over tenure, indicating that during the period of greatest uncertainty about a CEO’s ability, distorting earnings may pay off for some CEOs. Importantly, boards learn about CEOs’ ability over time, and do not reward those who continue to distort reported performance. These results are robust to treating tenure and earnings management as endogenous. We also show that the relationship between reporting distortions and compensation varies based on CEO characteristics that capture uncertainty about ability and career concerns: earnings management is more strongly correlated with the compensation of younger CEOs, and those without a fixed term employment contract who may be at higher risk of being fired. These results indicate that boards adjust compensation in response to potential earnings distortions in the early years of a CEO’s tenure.
A Structural Estimation of the Cost of Suboptimal Matching in the CEO Labor Market
Jordan Nickerson
(Boston College)
[View Abstract]
[Download Preview] Using a structural model, I examine the distortionary effects of frictions in the CEO labor market. Firms experience productivity shocks over time and either outgrow or underutilize their incumbent CEO's talent, but keep their manager to avoid a switching cost. The decision to replace a manager depends on the magnitude of the cost and dispersion of CEO talent. I find CEO talent to be quite heterogeneous. Additionally, I estimate the switching cost to be 20% of the median firm's annual earnings. While reduced-form estimates of the switching cost serve as a lower bound on the reduction in firm value, they underestimate the overall effect which also includes the resulting inefficient firm-CEO matches. Using counterfactual analysis, the switching cost is estimated to decrease the median firm's value by 4.8%, four times larger than the reduced-form estimate. While firms experience an observable decrease in earnings when finally replacing CEOs, I find evidence of a considerable unobservable cost associated with the inability of firms and managers to be optimally matched in the cross-section.
Are They Different? CEOs Made in CEO Factories
Ye Cai
(Santa Clara University)
Merig Sevilir
(Indiana University)
Jun Yang
(Indiana University)
[View Abstract]
We examine the employment histories of CEOs at large US companies and find that a disproportionately large number of CEOs are originated from a small number of high-profile firms that are praised for their superior abilities in training and developing corporate leaders, referred to as CEO factories. Specifically, 20.5% of all CEOs appointed at the S&P 1500 firms from 1992 to 2010 came from 36 CEO factories. CEOs originated from those CEO factories are referred to as factory CEOs. Appointments of factory CEOs are associated with significantly larger announcement returns than the appointments of CEOs without work experiences at a factory firm. The abnormal announcement returns are larger for CEOs who had a longer tenure at a CEO factory and for CEOs who joined the new firm shortly after their departure from a CEO factory, suggesting that CEOs accumulated valuable human capital while working at the CEO factory. We further show that factory CEOs tend to adopt investment and financing policies similar to those they had implemented or witnessed at the CEO factory. The choice of a factory CEO appears to be a decision made by the board of directors, taking into account the portfolio of the CEO's managerial skills and the imprints of the CEO factory. In the long run, firms hiring factory CEOs exhibit better operating performance and award those CEOs with greater compensation.
CEO Compensation and Real Estate Prices: Are CEOs Paid for Luck?
Benjamin Bennett
(Arizona State University)
Claudia Custodio
(Arizona State University)
Dragana Cvijanovic
(University of North Carolina)
[View Abstract]
We study the sensitivity of CEO compensation to luck using real estate prices to differentiate changes in compensation due to pure luck from changes in compensation due to reactions to lucky events. We find that that pay for luck is explained mostly by reactions to lucky events rather than pure luck. Our identification relies on the fact that changes in real estate prices affect market performance irrespective of managerial actions, while accounting performance is only affected if the manager reacts to the shock. In addition, our findings suggest that firms anticipate pay for luck associated with real estate holdings and offer less equity-based compensation, and compensation more sensitive to accounting performance to CEOs that are more exposed to the real estate market. Interestingly, our results are not explained by corporate governance. Our results are consistent with the contracting view that CEOs are not rewarded
for pure luck.
Discussants:
Yihui Pan
(University of Utah)
Luke Taylor
(University of Pennsylvania)
Itzhak Ben-David
(Ohio State University)
Miriam Schwartz-Ziv
(Michigan State University)
Jan 05, 2015 10:15 am, Westin Copley, America South
American Finance Association
Financial Crises and Banking Regulation
(G2)
Presiding:
Chester Spatt
(Carnegie Mellon University)
A Mechanism for LIBOR
Brian Coulter
(University of Oxford)
Joel Shapiro
(University of Oxford)
[View Abstract]
[Download Preview] The investigations into LIBOR have highlighted that it is subject to manipulation. We propose a mechanism that gets banks to reveal their borrowing costs truthfully at no cost to the administrator. The mechanism works even when borrowing does not occur. First, banks report the rates at which they can borrow. Second, a whistleblower bank may contest another bank's report by revealing a transaction or stating a different rate at which the reporting bank could borrow. Third, the whistleblower's claim and the initial reported rate are confirmed or denied by the willingness of other banks to lend at these rates.
The Shadow Cost of Bank Capital Requirements
Roni Kisin
(Washington University-St. Louis)
Asaf Manela
(Washington University-St. Louis)
[View Abstract]
[Download Preview] How much would an increase in regulatory capital requirements cost banks? We estimate the shadow cost of capital requirements for banks using data on their participation in a costly regulatory loophole. We show theoretically that the extent to which banks bypassed capital requirements, by providing liquidity guarantees to asset-backed commercial paper conduits, reveals their private compliance costs. We estimate that a one percentage point increase in capital requirements would cost $220 million a year for all banks that exploited the loophole combined, and no more than $370 million for all US banks. The average cost per bank is $14.3 million, or 0.4 percent of annual profits.
Banks as Patient Fixed Income Investors
Samuel Hanson
(Harvard Business School)
Andrei Shleifer
(Harvard University)
Jeremy Stein
(Harvard University)
Robert W. Vishny
(University of Chicago)
[View Abstract]
[Download Preview] We examine the business model of traditional commercial banks in the context of their co-existence with shadow banks. While both types of intermediaries create safe “money-like” claims, they go about this in different ways. Traditional banks create safe claims by relying on deposit insurance, supported by costly equity capital. This structure allows bank depositors to remain “sleepy”: they do not have to pay attention to transient fluctuations in the mark-to-market value of bank assets. In contrast, shadow banks create safe claims by giving their investors an early exit option that allows them to seize collateral and liquidate it at the first sign of trouble. Thus traditional banks have a stable source of funding, while shadow banks are subject to runs and fire-sale losses. These different funding models in turn influence the kinds of assets that traditional banks and shadow banks hold in equilibrium: traditional banks have a comparative advantage at holding fixed-income assets that have only modest fundamental risk, but are relatively illiquid and have substantial transitory price volatility.
Discussants:
Francesco Sangiorgi
(Stockholm School of Economics)
Christa Bouwman
(Texas A & M University)
Albert S. Kyle
(University of Maryland)
Jan 05, 2015 10:15 am, Westin Copley, America Center
American Finance Association
Horizontal and Diversifying Mergers and Acquisitions
(G3)
Presiding:
Gordon Phillips
(University of Southern California)
The Role of Divestures in Horizontal Mergers: Evidence from Product and Stock Markets
Amrita Nain
(University of Iowa)
Yiming Qian
(University of Iowa)
[View Abstract]
Horizontal mergers are often accompanied by asset divestitures, either voluntary or else mandated by antitrust authorities. This paper presents the first large-sample evidence that divestures accompanying horizontal mergers curb the market-power impact of the mergers. We find that the post-merger change in output prices is smaller for mergers that are accompanied by divestitures, particularly when the divested assets are sold to firms outside the industry. In line with the change in output prices, stock price reactions of customer firms are more positive when merging firms sell assets to firms outside the industry. Our findings also indicate that horizontal mergers and the accompanying divestitures alter the relative competitive efficiencies of the acquirer and its rivals. Stock price reactions of the acquirer and rivals suggest that firms in the merging industry are more concerned about maintaining a competitive edge relative to each other than about gaining market power vis-à-vis customers
Buyer Power in Conglomerate Acquisitions
Daniel Greene
(Clemson University)
Omesh Kini
(Georgia State University)
Jaideep Shenoy
(Tulane University)
[View Abstract]
[Download Preview] We examine buyer power as a source of value creation in conglomerate acquisitions. We find that an increase in buyer power is positively related to the combined wealth effect of merging firms and negatively related to both the wealth effect of supplier firms and acquirer rival firms. We document post-acquisition decreases in both output prices for supplier industries and cogs-to-sales for merging firms. Our results cannot be explained by asset complementarities between merging firms, pre-acquisition declining trends in output prices in supplier industries, or negative demand shocks in acquiring firm industries. Overall, our evidence supports buyer power in conglomerate acquisitions.
Fire Sale Acquisitions and Intra-Industry Contagion
Seungjoon Oh
(Peking University)
[View Abstract]
[Download Preview] This paper presents empirical evidence on the combined effects of target firm distress and industry-level illiquidity on acquisition outcomes and industry-specific contagion. When the target industry is in distress, I find that the fire-sale effects cause distressed targets to be sold to industry outsiders at discounts and acquirers to gain higher return by exploiting targets weakened bargaining power. These findings are stronger for targets with high industry asset-specificity in capital, labor and technology. I also find that target rivals earn negative abnormal stock return due to negative information from fire-sale acquisitions.
Do Diversified or Focused Firms Make Better Acquirers?
Mehmet Cihan
(Tulane University)
Sheri Tice
(Tulane University)
[View Abstract]
[Download Preview] This paper examines the stock market's reaction to merger and acquisition announcements to see if the market perceives that diversified or focused firms create more value when acquiring other firms. We also examine whether differences in merger announcements between diversified and focused firms explain differences in real firm performance following the merger. Diversified firms may create more value through acquisitions than focused firms if they have more experience creating operating synergy, more institutional learning from doing past acquisitions, or they attract higher quality CEOs because they are larger and more complex firms who offer higher compensation. Diversified firms may create less value through acquisitions than focused firms if diversified firms have more agency problems due to their complex organizational form or they have weaker corporate governance. We find that the mean (median) market-adjusted announcement returns of diversified acquirers is 1.5% (0.70%) higher than that of single segment acquirers. The mean (median) net gain for mergers done by diversified acquirers is $56 billion (15 billion) higher than that of single segment acquirers. We find evidence that the larger merger gains for diversified acquirers are primarily due to performance improvements coming from larger cost reductions following the acquisition.
Discussants:
Jayant Kale
(Georgia State University)
Giorgo Sertsios
(Universidad de los Andes)
Daniel Carvalho
(University of Southern California)
Vojislav Maksimovic
(University of Maryland)
Jan 05, 2015 10:15 am, Westin Copley, Essex South
American Finance Association
International Finance
(G1)
Presiding:
Anna Pavlova
(London Business School)
International Liquidity and Exchange Rate Dynamics
Xavier Gabaix
(New York University)
Matteo Maggiori
(Harvard 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.
BKK the EZ Way. International Long-Run Growth News and Capital Flows.
Riccardo Colacito
(University of North Carolina)
Mariano Massimiliano Croce
(University of North Carolina)
Steven Ho
(University of North Carolina)
Philip Howard
(University of North Carolina)
[View Abstract]
[Download Preview] We study the response of international investment flows to short- and long-run growth news. Among developed G7 countries, positive long-run news for domestic productivity induces a net outflow of investments, in contrast to the effects of short-run growth shocks. We document that a standard Backus, Kehoe, and Kydland (1994) (BKK) model fails to reproduce this novel empirical evidence. We augment this model with Epstein and Zin (1989) preferences (EZ-BKK) and characterize the resulting recursive risk-sharing scheme. The response of international capital flows in the EZ-BKK model is consistent with the data.
How Important are Foreign Ownership Linkages for International Stock Returns?
Sohnke Bartram
(University of Warwick)
John Griffin
(University of Texas)
Tae-Hoon Lim
(Korea Institute of International Economic Policy)
David Ng
(Cornell University)
[View Abstract]
[Download Preview] We derive a foreign ownership return as the weighted average return of foreign stocks that are connected to a stock through common ownership. The foreign ownership return is of similar economic significance as traditional country and industry factors in explaining international stock returns. It is not related to omitted fundamentals or wealth effects, but shifts substantially around ADR and index listings when the investor habitat changes. A decomposition shows that the foreign ownership return is driven by active reallocations of global institutions as opposed to fund flows from end investors. Our finding has important implications for international portfolio diversification.
Discussants:
Stavros Panageas
(University of Chicago)
Christian Heyerdahl-Larsen
(London Business School)
Robin Greenwood
(Harvard Business School)
Jan 05, 2015 10:15 am, Westin Copley, Essex Center
American Finance Association
Trading Activity
(G1)
Presiding:
Christine Parlour
(University of California-Berkeley)
Disclosure, Learning and Coordination
Henry Cao
(Cheung Kong Graduate School of Business)
Yuan Ma
()
Dongyan Ye
(Cheung Kong Graduate School of Business)
[View Abstract]
[Download Preview] We analyze how informed investors can learn from each other through disclosed trades. We show that disclosure always increases market efficiency but its effect on informed investors' profits is ambiguous. When informed investors have highly complementary signals, disclosure makes them coordinate their trades, so their expected profits are higher. Moreover, an informed investor with very imprecise information would prefer competition in the presence of disclosure as he learns more from the other informed investor than the market maker and makes more profits than he would obtain if he is the only informed investor in the market. As a result, when information acquisition is costly and endogenous, there could exist herding in information acquisition.
Information Processing and Non-Bayesian Learning in Financial Markets
Stefanie Schraeder
(Universite de Lausanne and Swiss Finance Institute)
[View Abstract]
Ample empirical and experimental evidence documents that individuals place greater weight on information gained through personal experience - a phenomenon that Tversky and Kahneman (1974) call availability bias. I embed this bias in an overlapping generations equilibrium model in which the period that investors first enter the market establishes the starting point of their experience history. The difference in the individuals' experience leads to heterogeneity among agents and perceived noise trading. The model captures several empirical findings. It explains why returns on high-volume trading days tend to revert. Furthermore, it provides explanations for a high trading volume, a connection between trading volume and volatility, excess volatility, and overreaction and reversal patterns. Consistent with empirical evidence, young investors buy high and sell low, trade frequently, and obtain lower returns. For intraday trading, it predicts a high trading volume around the opening hours, especially for cross-listed stocks.
The Beauty Contest and Short-Term Trading
Giovanni Cespa
(Cass Business School)
Xavier Vives
(IESE Business School)
[View Abstract]
[Download Preview] Short-termism need not breed informational price inefficiency even when generating Beauty Contests. We demonstrate this claim in a two-period market with persistent liquidity trading and risk-averse, privately informed, short-term investors and find that prices reflect average expectations about fundamentals and liquidity trading. Informed investors engage in "retrospective" learning to reassess inferences (about fundamentals) made during the trading game's early stages. This behavior introduces strategic complementarities in the use of information and can yield two stable equilibria that can be ranked in terms of liquidity, volatility, and informational efficiency. We derive implications that explain market anomalies as well as empirical regularities.
Prices and Volatilities in the Corporate Bond Market
Jack Bao
(Federal Reserve Board)
Jia Chen
(Peking University)
Kewei Hou
(Ohio State University)
Lei Lu
(Peking University)
[View Abstract]
[Download Preview] We document a strong positive cross-sectional relation between corporate bond yield spreads and bond return volatilities. As corporate bond prices are generally attributable to both credit risk and illiquidity as discussed in Huang and Huang (2012), we apply a decomposition methodology to quantify the relative contributions of credit and illiquidity. Overall, our credit and illiquidity proxies can explain almost three quarters of the yield spread-bond volatility relation with credit and illiquidity contributing in a 70:30 ratio. Furthermore, we find that the credit portion of the yield spread-bond volatility relation is important even after controlling for equity volatility. The relation between yield spreads and volatilities is robust to different sample periods, including the financial crisis. We also find the ratio to be smaller for the investment-grade subsample, consistent with credit risk being relatively more important for understanding the yield spread-volatility relation in speculative-grade bonds.
Discussants:
Ioanid Rosu
(HEC Paris)
Victoria Vanasco
(Stanford University)
Snehal Banerjee
(Northwestern University)
Jan 05, 2015 10:15 am, Westin Copley, Defender
American Real Estate & Urban Economic Association
Density
(R1, R4)
Presiding:
Gerald Carlino
(Federal Reserve Bank of Philadelphia)
Monocentric City Redux
Jordan Rappaport
(Federal Reserve Bank of Kansas City)
[View Abstract]
[Download Preview] This paper argues that centralized employment remains an empirically relevant stylization of midsize U.S. metros. It extends the monocentric model to explicitly include leisure as a source of utility but constrains workers to supply fixed labor hours. Doing so sharpens the marginal disutility from longer commutes. The numerical implementation calibrates traffic congestion to tightly match observed commute times in Portland, Oregon. The implied geographic distribution of CBD workers' residences tightly matches that of Portland. The implied population density, land price, and house price gradients approximately match empirical estimates. Variations to the baseline calibration build intuition on underlying mechanics.
Measuring Agglomeration: Which Estimator Should We Use?
Erik Johnson
(Quinnipiac University)
Stephen Billings
(University of North Carolina-Charlotte)
[View Abstract]
There has been tremendous growth in the development of statistical methods to quantify the spatial concentration of industrial activity. With these methodological advancements has come increased complexity in the construction of a ’better’ measure of agglomeration. The research presented here tests the power and size properties of commonly used agglomeration indices through a series of simulations. Results provide evidence that a simple Gini coefficient has greater power in detecting statistically significant agglomeration for an industry and that the commonly used Ellison and Glaeser (1997) and Duranton and Overman (2005) indices may have incorrect size properties when industries concentrate in rural areas or when a study area is polycentric. Results highlight that continuous measures of agglomeration have greater statistical power and are not subject to bias from data aggregation. Conclusions suggest that applied researchers have limited gains and may even be worse off when incorporating complex agglomeration indices beyond a simple Gini coefficient.
Reconsidering the Impact of Access to Transit on Local Land Markets
Christian Redfearn
(University of Southern California)
[View Abstract]
We exploit the polycentric nature of the Los Angeles Metropolitan area to learn about the impact of new passenger rail stations on land use in the surrounding areas. By using the many centers in the Los Angeles MSA, we are better able to control for variation in trend growth in population and employment density. The parallel trend assumption required of differences in-differences approach appears to fail under commonly-used controls. Making use of the centers as units of analysis reveals significant growth in both employment and population density around new stations. These results are useful for policy makers interested in assessing the indirect benefits of investment in new stations. The results are also informative for those using the DiD approach in urban settings. While the effects of new stations are significant and positive, there is marked heterogeneity across stations – suggesting that more research is needed to understand the link between new stations and changes in subsequent land use.
Valuing the Consumption Benefits of Urban Density
Victor Couture
(University of California-Berkeley)
[View Abstract]
Despite growing interest in urban consumption amenities, little is known about their origin and importance. This paper estimates the consumption value of urban density by combining travel microdata with Google’s local business data. I show that in high density areas, consumers not only save time through shorter trips, but also end up visiting places that they prefer. To measure the value of access to a preferred destination, I exploit an individual’s willingness to incur travel costs to reach it. This methodology offers the first estimates of the gains from variety in the service sector, and demonstrates the importance of non-tradable consumption in explaining the value of modern cities. The estimates come from an analysis of the restaurant industry. I find a high willingness to pay for restaurant density. Individuals benefit from higher density mostly by visiting places that they prefer, rather than by reducing the length of their trips. This implies that current urban policies encouraging higher density living mostly result in higher gains from variety, instead of lower travel times.
Discussants:
Alex Anas
(State University of New York-Buffalo State)
Olivier Parent
(University of Cincinnati)
Nathaniel Baum-Snow
(Brown University)
Sanghoon Lee
(University of British Columbia)
Jan 05, 2015 10:15 am, Westin Copley, Empire
American Real Estate & Urban Economic Association
Housing and Macroeconomic Shocks
(E5, R3)
Presiding:
Andrew Haughwout
(Federal Reserve Bank of New York)
Ratchet Price Mechanism under Currency Changeover: A Natural Housing Market Experiment
Danny Ben-Shahar
(Tel Aviv University )
Roni Golan
(Technion-Israel Institute of Technology)
[View Abstract]
[Download Preview] This paper examines the effect of a currency changeover on prices. A parsimonious model shows that, during a period of currency changeover, sellers and buyers conversely opt for the currency dominating the negotiation based on exchange rate fluctuations between the preceding and the new currency—potentially affecting the closing price. The currency changeover experienced by the Israeli real estate market in the past decade serves as a unique natural experiment for testing our behavioral model. Results of micro- and macro-level estimation indicate that exchange rate fluctuations associate with an upward ratchet price effect during a currency changeover period. Further, the ratchet price mechanism disappears once the currency changeover phase is completed. Our findings underline the importance of policy measures that are designed to accelerate and truncate the currency transition period.
House Prices and Economic Conditions: Location, Location, Location
Shane Sherlund
(Federal Reserve Board)
Moshe Buchinsky
(University of California-Los Angeles)
Xue (Jennifer) Hu
(University of California-Los Angeles)
[View Abstract]
[Download Preview] This paper shows that local economic conditions are correlated with deviations between house prices and rents in a price-rent model framework, suggesting that the demand for credit and housing is greater when a variety of local economic conditions are more supportive. We consider several different measures of local economic conditions: local unemployment rates, local unemployment rates relative to the natural rate of unemployment, local inflation rates, and measures of local perceptions of the cost of credit. We view this explanation not as how or why house prices increased, but rather, given the myriad of national factors making home purchase easier and cheaper, where house prices increased. In our minds, this approach resolves a bit of a puzzle as to why the housing bubble was so pronounced in some areas (such as cities in the sand states) and not others (such as cities in the rust belt).
Collateral Damage: How Mortgage Loans Decrease U.S. Savings
Abdullah Yavas
(University of Wisconsin)
Cengiz Tunc
(Central Bank of the Republic of Turkey)
[View Abstract]
[Download Preview] We investigate the determinants of the saving rate in the US, with a special focus on the role of mortgage debt. We believe that mortgage debt is an important determinant of saving rate. On the one hand, mortgage payments can serve as a disciplining device for borrowers to save for monthly mortgage payments and accumulate home equity. On the other hand, households could potentially decrease their savings in other forms as they save for their mortgage payments. The results show that mortgage payments have a substantial negative impact on both personal and private saving rates in the US. Furthermore, the recent financial crisis has magnified the negative impact of mortgage debt on the two saving rates. In addition, including mortgage debt as an explanatory variable leads to significant changes in the impact of other variables, further reinforcing our claim that mortgage debt is important for the analysis of saving rate. Comparing mortgage payments with non-mortgage payments, we find that mortgage payments have a larger impact on private saving rate while non-mortgage payments have a larger impact on personal saving rate. We also find partial but robust crowding out effect of public saving rate on the two saving rates. Our results have implications for monetary policy and government policies that encourage mortgage borrowing.
Discussants:
Andrea Tambalotti
(Federal Reserve Bank of New York)
Andreas Fuster
(Federal Reserve Bank of New York)
Jessie Handbury
(University of Pennsylvania)
Jan 05, 2015 10:15 am, Westin Copley, Great Republic
American Real Estate & Urban Economic Association
The Consequences of the GSEs
(G2, G1)
Presiding:
Richard Buttimer
(University of North Carolina-Charlotte)
The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities
Manuel Adelino
(Duke University)
Kristopher Gerardi
(Federal Reserve Bank of Atlanta)
Scott Frame
(Federal Reserve Bank of Atlanta)
[View Abstract]
This paper examines how Fannie Mae and Freddie Mac (the GSEs), the largest investors in subprime private-label mortgage-backed securities (PLS), influenced the risk characteristics and prices of the deals in which they participated. To identify the causal effect of the GSEs, we use the fact that PLS deals in which Fannie Mae and Freddie Mac purchased securities included separate mortgage pools: one specifically created for the GSEs and one or more others directed at other triple-A investors. Using within-deal variation, we find that the pools bought by Fannie Mae and Freddie Mac had similar ex-ante risk characteristics, but performed much better ex-post relative to other mortgage pools in the same deals. These effects were concentrated in low documentation loans, and for issuers that were highly dependent on Fannie Mae and Freddie Mac that also offer higher yielding securities to the GSEs. Our results extend the importance of disciplining effects of large claimholders beyond information-sensitive securities, such as equities and bank debt, to information-insensitive arm's-length debt.
Macroprudential Mortgage Securitization: Can it Work?
S. Wayne Passmore
(Federal Reserve Board)
Diana Hancock
(Federal Reserve Board)
[View Abstract]
[Download Preview] We consider the feasibility of structuring hybrid mortgage securitizations−where private capital would typically bear mortgage default losses and the government would only provide catastrophic reinsurance−with macro-prudential features that would vary over the real estate cycle. Such securitization schemes have recently been the focus of U.S. housing finance reform efforts. Using data collected over the recent U.S. residential real estate boom and bust, we show that hybrid securitizations with actuarially-priced government-backed catastrophic insurance and first-loss capital requirements born by the private-sector would likely not have mitigated the effects of losses on mortgage loans during the recent financial crisis. If policymakers want to both retain the ubiquity of the 30-year fixed-rate mortgage in the U.S. and build a sufficiently large private-sector insurance fund to ensure that the government is only “on the hook” for mortgage losses when there is a catastrophic outcome, then the government may need to require that all mortgages, whether securitized privately or through a government-backed program, to be insured against catastrophic risk.
Mortgage Underwriting Standards in the Wake of Quantitative Easing
Barney Hartman-Glaser
(University of California-Los Angeles)
Richard Stanton
(University of California-Berkeley)
Nancy Wallace
(University of California-Berkeley)
[View Abstract]
[Download Preview] While the large-scale asset purchases (LSAPs) have funneled vast amounts of capital into the secondary market for mortgages, the direct effect of these programs on the primary mortgage market is not yet clear. We present evidence that while the LSAPs may have improved conditions for the least risky borrowers, they have not improved conditions for all borrowers. For example, the average FICO score of agency securitized mortgages increased from below 720 (low risk) in 2008 to above 760 (extremely low risk) in 2012. What explains this dramatic shift in the average quality of agency securitized mortgages, and why did it persist even with the flood of capital into the secondary mortgage market from the LSAPs? We argue that the change in the probability of buy back requests on Fannie and Freddie mortgage backed securities can explain the tightening of mortgage credit standards.
The Effect of Credit Availability on House Prices: Evidence from the Economic Stimulus Act of 2008
Edward Kung
(University of California-Los Angeles)
[View Abstract]
[Download Preview] The Economic Stimulus Act of 2008 increased conforming loan limits
(CLLs) for certain high priced areas starting in 2008. Using a matched
dataset on housing transactions and listings from four major U.S. cities,
I estimate the effect of the new CLLs on house prices using a differencein-
differences approach. The original asking price of a home is used to
non-parametrically construct the likelihood that a house will be purchased
by a loan in the affected range. That likelihood is then used as
the treatment variable in a difference-in-differences style regression. I
find that increased CLLs in San Francisco and Los Angeles had a positive
effect on the prices of homes most likely to be bought by affected
loans. By contrast, no effect is detected in Seattle and Chicago, which
received only small (or none) conforming loan limit increases.
Discussants:
Vincent W. Yao
(Fannie Mae)
Philip Seagraves
(University of Wisconsin-Whitewater)
Carlos Slawson
(Louisiana State University)
Craig Depken
(University of North Carolina-Charlotte)
Jan 05, 2015 10:15 am, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Financial and Economic Stability in the European Union
(G2, F3)
Presiding:
Lucjan T. Orlowski
(Sacred Heart University)
The Eurozone Crisis and European Financial Markets
Walter Matthias Kirsten
(City University London)
Ali M. Kutan
(Southern Illinois University-Edwardsville)
Yaz Gulnur Muradoglu
(Queen Mary University of London)
[View Abstract]
We conduct an empirical analysis of the impact of the Eurozone crisis on financial markets in Europe. We investigate reactions in stock markets, bond markets, financial sector and foreign exchange market to the crisis related actions of parties involved in the crisis. Our study extends the previous literature that focuses on the impact of IMF-related events and central bank policies on financial markets during financial crises. Our analysis focuses on the current eurozone crisis and covers many major players, including not only the IMF but also the European Commission, and the European Central Bank, as well as the governments in Europe, Rating Agencies and the public reaction to the crisis in European countries. We find evidence for a split of the Eurozone in debtors and creditors which are hegemonically led by Germany as reflected in bond market reactions. Reactions in financial sector returns indicate creditor nations, especially Germany have an incentive to bailout debtor nations such as Greece, Ireland, Italy, Portugal and Spain, in order to rescue their domestic financial systems. Both stock markets and bond markets prioritise the actions of debtor countries’ governments over the so called Troika, (European Commission, ECB, IMF) when it comes to re-establishing confidence in capital markets.
The Financial Crisis and Bank Convergence: Evidence from the European Union and Eurozone
Roman Matousek
(University of Kent)
Hidemichi Fujii
(Nagasaki University)
Shunsuke Managi
(Tohoku University)
Aarti Rughoo
(University of Hertfordshire)
[View Abstract]
[Download Preview] This paper investigates the process of banking integration in the EU27 countries and the Eurozone by testing for convergence in bank efficiency among commercial banks. We use a two-step approach: First we estimate efficiency by applying an innovative methodological approach that treats banks’ non-performing loans as an undesirable output. Second, we apply the Phillips and Sul (2007) panel convergence methodology to assess the convergence process in European banking. Our results indicate an overall decline in efficiency and no evidence of group convergence following the financial crisis. However, we find the presence of club formation with typically weak convergence. The heterogeneity displayed by the transition parameters for the individual countries and the notable decrease in competition levels post 2008 highlight the impact of the financial crisis on the integration process.
Banking and Sovereign Risk in New EU Economies
Evzen Kočenda
(Charles University)
Lucjan T. Orlowski
(Sacred Heart University)
[View Abstract]
Under severe economic circumstances governments may be unable or unwilling to repay their debts thus become subject to sovereign risk. Recently the sovereign risk became an important issue with the outburst of the financial and economic crises in 2007-2008. Banking sectors in number of European countries have become exposed to sovereign risk as many European governments heavily supported their banks. Government rescue funds raise government’s indebtedness further and consequently sovereign risk increases. So far a limited research has appeared on links between banking and sovereign risk. In particular, links between systematic and sector-specific features of banking and sovereign risk in new EU countries has not been sufficiently explored. We study the relationship between banking-related factors and sovereign default risk in new EU economies, specifically Poland, Czech Republic, Hungary, Slovenia, Slovakia, Bulgaria and Romania. These links are particularly pronounced during the recent financial crisis. For empirical examination, we use a panel of sovereign risk data and a range of bank indicators for each country. Our tests show that the link between banking-specific and sovereign default risk is strong in new EU members that have adopted the euro (Slovenia and Slovakia), moderate in the newest EU members (Bulgaria and Romania) and weaker in the countries pursuing independent monetary policies (Poland, Czech Republic and Hungary). We identify a range of macroprudential and regulatory policies aimed at improving bank performance and, ultimately, at mitigating sovereign default risk.
De-Fragmenting Euro Area Financial Markets: Monetary Policy versus New Political Economy?
Alain Durré
(European Central Bank and Lille Catholic University)
Angela Maddaloni
(European Central Bank)
Francesco Paolo Mongelli
(European Central Bank)
[View Abstract]
This article examines the various stages of the sovereign debt crisis of the euro area, the resulting re-segmentation of parts of euro area financial markets, and the main disruptions in the transmission of monetary policy impulses. Additionally, it reviews the difficulties in the implementation of the single monetary policy under a situation of partial financial (re)fragmentation that required adopting a series of non-standard monetary measures. The work argues that the actions of the ECB during the crisis have as a by-product gone beyond the traditional role of central banks and provided some respite by addressing some flaws in EMU’s design.
Discussants:
David M. Kemme
(University of Memphis)
Krzysztof Jajuga
(Wroclaw University of Economics)
Gian Cesare Romagnoli
(University of Rome III)
Jan 05, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics
Income Inequality and Social Provisioning
(D6)
Presiding:
Bruce E. Kaufman
(Georgia State University)
Inequality as Instituted Process: The Case of Natural Resource Wealth
Christopher Brown
(Arkansas State University)
[View Abstract]
The distribution of economic and political power in any society manifests the cumulative effects of inherited institutions that regulate the control and use of land, knowledge, and tools. Fossil fuels and minerals became both extractable and valuable as a consequence of technological and industrial development. The institutions that assign ownership of subsurface natural resources have had a profound and enduring impact on the character of economic and political life in the United States. Many great fortunes have been amassed by securing ownership rights to subsurface water, fossil fuels and minerals. U.S. property law is unique in that ownership of land automatically confers title to subsurface resource deposits. The allocation of ownership rights to resources located beneath federal lands, according to the “first possession” principle, is another distinctive feature of U.S. natural resource law. These aspects of U.S. law established a de facto lottery in subsurface fossil fuels and minerals, and virtually guaranteed the emergence of a dominant and cohesive power cohort based on natural resource wealth. This paper seeks to shed light on the long-term effects of two key aspects on U.S. property law: (1) the doctrine of first possession; and (2) the doctrine of ad coelom—meaning, the landowners rights extend vertically both upward and downward. The argument is made that these institutions are strongly implicated in the path-dependent trajectory of economic and political life in the U.S.
The Provisioning of Inequality
William Redmond
(Indiana State University)
[View Abstract]
[Download Preview] Just as incomes and wealth are unequally distributed in society, the provisioning to the different groups is also unequal. In the processes known as segmentation and differentiation, marketers design different offerings which they hope will be appealing to certain customer groups. The paper argues that marketing and distribution practices not only reflect income differences but, in fact, contribute to the widening inequality. Such marketing targeted to lower income groups reduces their wealth and welfare relative to upper and upper-middle groups. Lower income groups make much heavier use of costly financial services such as payday loans, check cashing services, auto title loans, and many more. These services are promoted to and distributed through outlets in lower income neighborhoods. Provisioning systems in other areas contribute directly or indirectly to inequality. In the health area, lower income groups are often provided with lower quality care, and are much more exposed to health drawbacks such as food deserts. In education, lower income groups more frequently attend questionable for-profit universities, often leaving with no degree and substantial debt. Governments also contribute: state-sponsored lotteries are differentially used by lower income groups, while Federal income tax deductions are largely inaccessible to them.
Social Provisioning and Social Unbalances on Capitalist Development
Carlos Aguiar de Medeiros
(Federal University of Rio de Janeiro)
[View Abstract]
[Download Preview] Social provisioning brings political decisions to the core of the economic system. J. K. Galbraith showed in his analysis of the ‘affluent society’ published in 1958, that there was a tendency in US capitalism for a ‘social unbalance’ separating the American area of private wealth from the area of poverty formed by the provision of public services. Social unbalance resulted from the US political process and conceptions of how society should work and who should pay for public services. Different from economic process where an unbalance process may create an inducement for its correction through market or Government policies social unbalance necessarily requires nonmarket policies and does not generate any automatic or political compensating process. We argue in this paper that since the 1980s this tendency became even more accurate in rich or middle income societies. In the US political and ideological changes enlarged income inequalities and the privileges of the upper middle class legitimizing its demand for selective and privatized services; in much poorer societies as China and Mexico a similar process occurred in the 1990s; in Brazil although better income distribution achieved through income transference in 2000s created million of new consumers, the unbalance between private goods and public services has grown as well. This overall increase in social unbalance, we argue, is an essential feature of the present ‘ill fare’ tendencies of modern capitalism, it resulted from political decisions grounded on individualistic values and strong private accumulation strategies.
Towards a More Equitable Social Provisioning Process in South Africa
Geoff Schneider
(Bucknell University)
Berhanu Nega
(Bucknell University)
[View Abstract]
Like most of the continent, South Africa has experienced substantial economic growth since 2000, appearing to have reversed the problems of the 1980s and 1990s. However, also like the rest of the continent, recent economic growth masks deep structural problems in the economy. Historically, the most important long term determinant of economic performance and social provisioning in Africa has been the nature of the distribution of power, which shapes key institutions and the distribution of economic resources. Unfortunately, in South Africa the distribution of power and the institutions that ensure this distribution were established under apartheid, and many of them remain largely in place today. Thus, the institutional structure is preventing the establishment of a more broad-based distribution of power and a more equitable provisioning process. This paper documents the extent to which the maintenance of key apartheid-era institutions is undermining the prospects for long-term economic and human development in South Africa. Breaking the cycle of uneven development in South Africa will require fundamental changes in institutions, including changes in democracy, ownership structures and the very nature of the economic system. Like the rest of the continent, South Africa is in desperate need of innovative theorizing about the social provisioning process under contemporary capitalism, and how that provisioning process needs to evolve. This paper makes a first attempt at reconceptualizing the social provisioning process in the South African context.
Discussants:
Robert H. Scott III
(Monmouth University)
Anna Zachorowska-Mazurkiewicz
(Jagiellonian University)
Jan 05, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Social Economics
Ethics, Global Finance and the Great Recession
(E3, I3)
Presiding:
Steven Pressman
(Monmouth University)
Social Stratification in the United States: Causes and Consequences of the Global Crisis
Philip Arestis
(University of Cambridge)
Aurelie Charles
(University of Bath)
Giuseppe Fontana
(University of Leeds)
[View Abstract]
Drawing on early sociological analyses of stratification, this paper investigates the nature, potential causes and consequences of the global crisis in the US society. The recent experience of the US society reflects the exacerbation of class, race and gender stratification since the 1980s. In effect, the consumerist society has reinforced the historical stratification of social identities with white men in high-paid, high-social status managerial and financial occupations at the top, and black women in low-paid, low-status service occupations at the bottom. This paper calls for a deconstruction of the neo-liberal individual into a unique combination of identities in a stratified capitalist society in order to reveal social stratification as a cause and consequence of the crisis. The paper finally concludes on the importance of heterogeneous identities in reflecting the diversity of societal and economic interests, and thus addressing the issue of financial stability and sustainability.
Distributional Costs of the Housing-Price Bust
Cynthia Bansak
(St. Lawrence University)
Martha Starr
(American University)
[View Abstract]
[Download Preview] In considering whether asset-price bubbles should be offset through policy, an important issue is who pays the price when the bubble bursts. A bust expected to reduce the wealth of well-off households only may not be a concern for policy, but bubbles that affect the incomes and wealth of broad swaths of households may inflict significant hardship when they burst. This paper uses data on millions of households from the Census Bureau’s American Community Survey to examine how the recent housing bust affected households’ employment, homeownership, home values, and housing costs. To separate dynamics of the housing bust from those of the aggregate downturn, we differentiate among metropolitan areas according to the magnitude of the housing-price swing they experienced. We find that, for most measures, deteriorations in well-being were more severe in metros with relatively large housing-price swings, and for several measures, differential effects on less-educated hou seholds were also more severe. The fact that housing busts amplify effects of downturn on less-advantaged groups underscores the importance of keeping housing markets from overheating, as burdens of adjustment fall differentially on people not well prepared to bear them.
Harming Irreparably: Economists, Trade Liberalization, and the Matter of “Econogenic Harm”
George DeMartino
(University of Denver)
[View Abstract]
[Download Preview] Trade economists advocate free trade on the grounds that it meets the conditions set forth in the Kaldor-Hicks compensation test. This has been particlularly true since the 1990s when trade liberalization has been pursued aggressively on many fronts, from bilateral and regional agreements such as the North American Free Trade Agreement to the multilateral GATT negotiations that yielded the World Trade Organization. Kaldor-Hicks commends an economic policy innovation provided the winners can fully compensate the losers while retaining net benefit. Kaldor-Hicks does not actually require that compensation be paid; it is therefore often referred to as the KH potential compensation test. This implies that when economists advocate KH consistent policy without requiring compensation they are contributing to foreseeable and avoidable harm. The paper adopts the term econogenic harm to refer to economist-induced harm, and the paper argues that the widespread use of the KH co mpensation test by economists leads to widespread econogenic harm. Is that harm ethically defensible? The most sophisticated defense of KH is contractarian: it presumes consensus among Rawlsian rational deliberators about its use to adjudicate policy questions since in the long run all members of society benefit from its use as a policy assessment decision rule. But in the contractarian scheme Kaldor-Hicks is a legitimate decision rule only when: 1) all harms caused by policy shifts are reparable and (potentially) compensable; 2) the benefits and harms suffered by policy change are randomly distributed across the population; and 3) each harm is small in comparison with the flow of benefits that KH efficient policy adjustments provide. Only under these conditions can one presume that Rawlsian deliberators would give consent to live in a society where KH is the predominant policy decision rule. Large-scale trade liberalization projects fail to exhibit these properties: 1) Not all harms from trade liberalization are reparable; hence they are not even potentially compensable; 2) the benefits and harms associated with the liberalization projects of the 1990s and since were not randomly distributed (instead, being a winner/loser under one policy innovation was correlated with being a winner/loser under the next policy innovation; hence the widening gap in income distribution in the US and beyond); and 3) the harms imposed by these schemes were very large, such that other KH efficient policy shifts were unlikely to offset them. Hence, trade economists failed their ethical duties to those they purport to serve by causing avoidable harm and by defending these harms by reference to KH.
Post-Crisis Experiments in Development Finance Architecture: A Hirschmanian Perspective
Ilene Grabel
(University of Denver)
[View Abstract]
The paper that I propose is not on ethics in the traditional sense. It would deal with voice, responsiveness and innovation in financial governance in the developing world, something that has been stimulated by the global crisis. The crisis has heightened tensions around and brought to the fore the inadequacy of the Bretton Woods institutions—not least, their authoritarian governance structures and practices, and the degree to which they have come over time to facilitate the centralization of economic policy formation safely out of the hands of developing country experts and policymakers. In the wake of the Asian crisis and more intensely since the crisis of 2008, developing country policymakers have begun to experiment with new institutional structures and arrangements (such as the proposed BRICS Development Bank, the BRICS Currency Reserve Pooling Arrangement, and the expanded scope of the Chiang Mai Initiative among the ASEAN+3 countries). While it is premature to conclude that these new institutions will survive, they can be seen as an attempt to transform the traditional institutions of financial governance in ways that are consistent with Albert Hirschman’s embrace of the right of developing nations to engage in policy and institutional experimentation.
Contemporary Capitalism as a New Monetary Economy of Production: The Logic of Conventions, M&A, and LBOs
Stefano Lucarelli
(Università di Bergamo)
Andrea Fumagalli
(University of Pavia)
Alessandro Caiani
(Universitá Politecnica delle Marche)
[View Abstract]
[Download Preview] The main changes of new capitalism concern mainly two spheres: the new technological paradigm and valorization process and the importance of finance. The main feature of the prevailing finance-led growth regime during the first decade of new millennium is then presented. In this perspective, particular attention is given to the analysis of the evolution and the logic characterizing mergers and acquisitions and leverage buyouts. After describing the main features of the contemporary accumulation paradigm, we therefore proceed to the reformulation of the schemes of monetary circuit by taking into account the structural changes induced by contemporary capitalism.
Jan 05, 2015 10:15 am, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Behavioral Economics and Energy
(Q4, D1)
Presiding:
Catherine Wolfram
(University of California-Berkeley)
Default Bias, Follow‐On Behavior and Welfare in Residential Electricity Pricing Programs
Meredith Fowlie
(University of California-Berkeley)
Peter Cappers
(Lawrence Berkeley National Laboratory)
Anna Spurlock
(Lawrence Berkeley National Laboratory)
Annika Todd
(Lawrence Berkeley National Laboratory)
Catherine Wolfram
(University of California-Berkeley)
[View Abstract]
Economists and psychologists have long recognized default bias: when confronted by a choice with a default option, people are predisposed to accept the default. We study the default bias in a large randomized control trial, in which one treatment group was allowed to opt‐in to time‐based pricing while another was allowed to opt‐out. We provides dramatic evidence of default bias – a significantly higher fraction of households enrolled in the time‐based pricing plan in the opt‐out enrollment group compared with the opt‐in group, even though deviating from the default only involved making a phone call or clicking through to a website. Second, unlike most cases in which default bias has been documented, we observe follow‐on behavior of consumers subsequent to the default manipulation. This, in conjunction with randomization of the default enrollment mechanism, allows us to estimate the subsequent response of “complacent” households (i.e., those who only enroll in time‐based pricing if assigned to the opt‐out treatment) to the pricing incentives. We find that “complacent” households do reduce energy use during higher priced peak periods, though less on average compared to customers who actively opted in. However, because of the significantly larger enrollment in the group defaulted onto the time‐based rate relative to the opt‐in group, the pricing incentives produced much greater aggregate demand reduction during peak periods in the opt‐out group. Finally, we explore the possible welfare implications of default bias by considering heterogeneity in demand responses and financial outcomes across consumers. Because welfare implications hinge on the nature of the default bias, we explore ancillary evidence (e.g., subsequent attrition rates and engagement in past programs) in support of competing hypotheses regarding the reason for the default bias (e.g., transaction costs, implicit endorsement, present‐biased preferences, loss aversion).
Validating causal inference using high-frequency data: An energy experiment
Katrina Jessoe
(University of California-Davis)
[View Abstract]
High-frequency data offers new opportunities to retrieve causal treatment effect estimates in non-experimental settings. We use a randomized field experiment to validate the performance of non-experimental estimates that exploit the high-frequency nature of the data and intervention. We find that the non-experimental estimates are remarkably close to the experimental results in level, and superior in precision. This finding suggests that ``large T'' data may provide opportunities to use observations within a cross-sectional unit as a counterfactual, and that this counterfactual may, in some cases, be superior to the experimental control group. It also allows for heterogeneous treatment effects to be estimated at the individual level. We discuss the dangers inherent in overgeneralizing this result, and describe a test that will help empiricists identify circumstances under which this approach will be poorly suited.
Evaluating Behaviorally-Motivated Policy: Experimental Evidence from the Lightbulb Market
Hunt Allcott
(New York University)
Dmitry Taubinsky
(Harvard University)
[View Abstract]
[Download Preview] Imperfect information and inattention to energy costs are important potential motivations for energy efficiency standards and subsidies. We evaluate these motivations in the lightbulb market using a theoretical model and two randomized experiments. We derive welfare effects as functions of reduced-form sufficient statistics capturing economic and psychological parameters, which we estimate using a novel within-subject information disclosure experiment. The main results suggest that moderate subsidies for energy efficient lightbulbs may increase welfare, but informational and attentional biases alone do not justify a ban on incandescent lightbulbs.
The Impact of Social Information and Advertising on Technology Adoption
Robert Metcalfe
(University of Chicago)
Alec Brandon
(University of Chicago)
John List
(University of Chicago)
Michael Price
(Georgia State University)
[View Abstract]
We couple a theoretical model with a series of natural field experiments to deepen our understanding of how to use non‐pecuniary tools to encourage people to adopt energy saving technologies. Using data gathered from nearly three million unique households across several billing months, we find that both social comparisons and information greatly matter. The effect is even larger when social comparisons are paired with an advertisement highlighting available efficiency programs. We also observe interesting heterogeneities. First, more intense energy users are most affected by social comparisons. Second, the scale of individual efficiency programs interact importantly with social comparisons: social comparisons have their greatest impact when coupled with large‐scale programs. Beyond testing theory and informing policymakers, the results shed insights on what channels influence the energy‐efficiency gap.
Discussants:
Brigitte C. Madrian
(Harvard University)
Paul Ferraro
(Georgia State University)
Joshua Schwartzstein
(Dartmouth College)
Stefano DellaVigna
(University of California-Berkeley)
Jan 05, 2015 10:15 am, Boston Marriott Copley, Grand Ballroom—Salon C
Association of Financial Economists
Optimal Bank Capital
(G2, G3)
Presiding:
Lemma W. Senbet
(AERC and University of Maryland)
Deposits and Bank Capital Structure
Franklin Allen
(University of Pennsylvania)
Elena Carletti
(Bocconi University)
Robert Marquez
(University of California-Davis)
[View Abstract]
[Download Preview] In a model with bankruptcy costs and segmented deposit and equity markets, we
endogenize the cost of equity and deposit finance for banks. Despite risk neutrality,
equity capital earns a higher expected return than direct investment in risky assets.
Banks hold positive capital to reduce bankruptcy costs, but there is a role for capital
regulation when deposits are insured. Banks may no longer use capital when they
lend to firms rather than invest directly in risky assets. This depends on whether the
firms are public and compete with banks for equity capital, or private with exogenous
amounts of capital.
Why Do Banks Practice Regulatory Arbitrage? Evidence from Usage of Trust Preferred Securities
Nicole M. Boyson
(Northeastern University)
Rüdiger Fahlenbrach
(Ecole Polytechnique Fédérale de Lausanne)
René M. Stulz
(Ohio State University)
[View Abstract]
We propose a theory of regulatory arbitrage by banks and test it using trust preferred securities (TPS) issuance. From 1996 to 2007, U.S. banks in the aggregate increased their regulatory capital through issuance of TPS while their net issuance of common stock was negative due to repurchases. We assume that, in the absence of capital requirements, a bank has an optimal capital structure that depends on its business model. Capital requirements can impose constraints on bank decisions. If a bank’s optimal capital structure also meets regulatory capital requirements with a sufficient buffer, the bank is unconstrained by these requirements. We expect that unconstrained banks will not issue TPS, that constrained banks will issue TPS and engage in other forms of regulatory arbitrage, and that banks with TPS will be riskier than other banks with the same amount of regulatory capital, and therefore, more adversely affected by the credit crisis. Our empirical evidence supports these predictions.
Macroprudential Bank Capital Regulation in a Competitive Financial System
Milton Harris
(University of Chicago)
Christian C. Opp
(University of Pennsylvania)
Marcus M. Opp
(University of California-Berkeley)
[View Abstract]
[Download Preview] We propose a tractable general equilibrium framework to analyze the effectiveness of bank capital regulations when banks face competition from public markets. Our analysis shows that increased competition can not only render previously optimal bank capital regulations ineffective but also imply that, over some ranges, increases in capital requirements cause more banks to engage in value-destroying risk-shifting. To avoid this perverse
outcome, the regulator has to set capital requirements high enough, so that risk-shifting activities become less profitable from a banker's private perspective than socially valuable banking activities. Our model generates a set of novel implications that highlight the dependencies between optimal bank capital regulation and the comparative advantages of various players in the financial system.
How Do Financial Institutions React To a Tax Increase?
Alexander Schandlbauer
(University of Southern Denmark)
[View Abstract]
[Download Preview] This paper highlights the role and significance of taxes for the capital structure decisions of banks. Using a difference-in-differences methodology, I show that an increase in the local U.S. state corporate tax rate affects both the banks' financing as well as their operating choices. Differentiating between better- and worse-capitalized banks, it is primarily better-capitalized banks which have the financial flexibility to increase their non-depository debt and thus to benefit from an enlarged tax shield. Worse-capitalized banks instead constrain the expansion of customer loans, consistent with the notion that a tax increase induces a reduction of their available after-tax cash flow.
Discussants:
Gary Gorton
(Yale University)
Florian Heider
(European Central Bank)
George Pennacchi
(University of Illinois)
Lubomir Litov
(University of Arizona)
Jan 05, 2015 10:15 am, Sheraton Boston, Berkeley Room
Econometric Society
Estimating Sampling Variances and Robust Inference
(C1)
Presiding:
Whitney Newey
(Massachusetts Institute of Technology)
Finite Population Causal Standard Errors
Alberto Abadie
(Harvard University)
Susan Athey
(Stanford University)
Guido W. Imbens
(Stanford University)
Jeffrey Wooldridge
(Michigan State University)
[View Abstract]
[Download Preview] When a researcher estimates the parameters of a regression function with state level data, using information on all 50 states in the United States, what is the interpretation of the standard errors? Researchers typically report standard errors that are designed to capture sampling variation, based on viewing the data as a random sample drawn from a large population of interest, even in applications where it is difficult to articulate what that population of interest is and how it differs from the sample. In this paper we explore alternative interpretations for the uncertainty associated with regression estimates. As a leading example we focus on the case where some parameters of the regression function are intended to capture causal effects. We derive standard errors for causal effects using a generalization of randomization inference. Intuitively, these standard errors capture the fact that even if we observe outcomes for all units in the population of interest, there are for each unit missing outcomes for the treatment levels the unit was not exposed to. We show that our randomization-based standard errors in general are smaller than the conventional robust standard errors, and provide conditions under which they agree with them. More generally, correct statistical inference requires precise characterizations of the population of interest, the parameters that we aim to estimate within such population, and the sampling process. Estimation of causal parameters is one example where appropriate inferential methods may differ from conventional practice, but there are others.
Randomization Tests under an Approximate Symmetry Assumption
Ivan Alexis Canay
(Northwestern University)
Joseph P. Romano
(Stanford University)
Azeem M. Shaikh
(University of Chicago)
[View Abstract]
[Download Preview] This paper develops a theory of randomization tests under an approximate symmetry as- sumption. Randomization tests provide a general means of constructing tests that control size in finite samples whenever the distribution of the observed data exhibits symmetry under the null hypothesis. Here, by exhibits symmetry we mean that the distribution remains invariant under a group of transformations. In this paper, we provide conditions under which the same construction can be used to construct tests that asymptotically control the probability of a false rejection whenever the distribution of the observed data exhibits approximate symmetry in the sense that the limiting distribution of a function of the data exhibits symmetry under the null hypothesis. An important application of this idea is in settings where the data may be grouped into a fixed number of “clusters” with a large number of observations within each cluster. In such settings, we show that the distribution of the observed data satisfies our ap- proximate symmetry requirement under weak assumptions. In particular, our results allow for the clusters to be heterogeneous and also have dependence not only within each cluster, but also across clusters. This approach enjoys several advantages over other approaches in these settings. Among other things, it leads to a test that is asymptotically similar, which, as shown in a simulation study, translates into improved power at many alternatives. Finally, we use our results to revisit the analysis of Angrist and Lavy (2009), who examine the impact of a cash award on exam performance for low-achievement students in Israel.
Robust Standard Errors in Small Samples: Some Practical Advice
Guido W. Imbens
(Stanford University)
Michal Kolesar
(Princeton University)
[View Abstract]
[Download Preview] In this paper we discuss the properties of confidence intervals for regression parameters based on robust standard errors. We discuss the motivation for a modification suggested by Bell and McCaffrey (2002) to improve the finite sample properties of the confidence intervals based on the conventional robust standard errors. We show that the Bell-McCaffrey modification is the natural extension of a principled approach to the Behrens-Fisher problem, and suggest a further improvement for the case with clustering. We show that these standard errors can lead to substantial improvements in coverage rates even for sample sizes of fifty and more. We recommend researchers calculate the Bell-McCaffrey degrees-of-freedom adjustment to assess potential problems with conventional robust standard errors and use the modification as a matter of routine.
Robust Inference with Dyadic Data
Colin Cameron
(University of California)
Douglas L. Miller
(University of California-Davis)
[View Abstract]
[Download Preview] In this paper we consider inference with paired or dyadic data, such as cross-section and panel data on trade between two countries. Regression models with such data have a complicated pattern of error correlation. For example, errors for US-UK trade may be correlated with those for any other country pair that includes either the US or UK. We consider models with regressors treated as predetermined and stationary, and initially consider models without fixed effects. The standard cluster-robust variance estimator or sandwich estimator for one-way clustering is inadequate. The two-way cluster robust estimator is a substantial improvement, but still understates standard errors. Some studies in social network data analysis have addressed this issue. The network in international trade studies is much denser than in typical network studies, so it can be especially important to control for such clustering. In applications with the gravity model of trade we find that even after inclusion of country fixed effects, standard errors that properly control for dyadic error correlation can be several times those being reported using current methods.
Jan 05, 2015 10:15 am, Sheraton Boston, Gardner Room
Econometric Society
Government Debt and Budget Deficits
(H6) (Panel Discussion)
Panel Moderator:
Nicola Persico
(Northwestern University)
John Taylor
(Stanford University)
Government Debt and Budget Deficits
Alberto Alesina
(Harvard University)
Government Debt and Budget Deficits
Lawrence H. Summers
(Harvard University)
Government Debt and Budget Deficits Discussion
Jan 05, 2015 10:15 am, Sheraton Boston, Beacon D
Econometric Society
Political Uncertainty and Risk Premia
(G1)
Presiding:
Tano Santos
(Columbia University)
Measuring Economic Policy Uncertainty
Scott Ross Baker
(Stanford University)
Nicholas Bloom
(Stanford University)
Steven J. Davis
(University of Chicago)
[View Abstract]
Many commentators argue that uncertainty about fiscal, monetary and regulatory policy slowed recovery from the 2007-2009 recession. To assess this view, we develop a new index of economic policy uncertainty (EPU) that draws on the frequency of newspaper references to policy uncertainty and other indicators. Our index spikes near tight presidential elections, after the Gulf wars, 9/11 attack and Lehman Bros. bankruptcy, and during the 2011 debt ceiling debate. Several pieces of evidence and analysis – including a human audit of 4,300 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.
The Asset Pricing Implications of Government Economic Policy Uncertainty
Jonathan Brogaard
(University of Washington)
Andrew Detzel
(University of Washington)
[View Abstract]
[Download Preview] Using the Baker, Bloom, and Davis (2013) news-based measure to capture economic policy uncertainty (EPU) in the United States, we find that EPU positively forecasts log excess market returns. A one-standard deviation increase in EPU is associated with a 1.5% increase in forecasted 3-month abnormal returns (6.1% annualized). Furthermore, innovations in EPU earn a significant negative risk premium in the Fama French 25 size-momentum portfolios. Among the Fama French 25 portfolios formed on size and momentum returns, the portfolio with the greatest EPU beta underperforms the portfolio with the lowest EPU beta by 5.53% per annum, controlling for exposure to the Carhart four factors as well as implied and realized volatility. These findings suggest that EPU is an economically important risk factor for equities.
Political Uncertainty and Public Financing Costs: Evidence from United States Gubernatorial Elections and Municipal Bond Markets
Pengjie Gao
(University of Notre Dame)
[View Abstract]
This research investigates how political uncertainty around U.S. gubernatorial elections influences the borrowing costs of public debt, measured by yields of municipal bonds. We find that yields of municipal bonds increase sharply by 6 to 8 basis points before elections and then reverse afterward. Elections have more pronounced impact during economic downturns, when outcomes are less predictable, and when states have more outstanding debt. Several state institutions, such as GAAP-budgeting, spending limits and tax-increase limits, help to mitigate the adverse impact of political uncertainty. Evidence from detailed municipal bonds transactions suggests that declining demand due to investor aversion to political uncertainty is the driving force behind the increases in yields prior to elections. The findings suggest that investors are averse to political uncertainty and demand compensation for bearing this risk.
Discussants:
Thomas Philippon
(New York University)
Lauren Cohen
(Harvard Business School)
Pietro Veronesi
(University of Chicago)
Jan 05, 2015 10:15 am, Sheraton Boston, Beacon F
Econometric Society
Program Evaluation
(C1)
Presiding:
Petra Todd
(University of Pennsylvania)
Treatment Effects with Censoring and Endogeneity
Brigham Frandsen
(Brigham Young University)
[View Abstract]
[Download Preview] This paper develops a nonparametric approach to identification and estimation of treatment effects in a setting where observed outcomes are censored and treatment status may be endogenous and have arbitrarily heterogeneous effects. Identification is based on an instrumental variable that satisfies the exclusion and monotonicity conditions standard in the local average treatment effects framework. The paper also proposes a censored quantile treatment effects estimator, derives its asymptotic distribution, and illustrates its performance using Monte Carlo simulations. An empirical application to a subsidized job training program finds that participation significantly and dramatically reduced the duration of jobless spells, especially at the right tail of the distribution.
Identifying the Average Treatment Effect in a Two Threshold Model
Arthur Lewbel
(Boston College)
Thomas Tao Yang
(Boston College)
[View Abstract]
Assume individuals are treated if a latent variable, containing a continuous instrument, lies between two thresholds. We place no functional form restrictions on the latent errors. Here unconfoundedness does not hold and identification at infinity is not possible. Yet we still show nonparametric point identification of the average treatment effect. We provide an associated root-n consistent estimator. We apply our model to reinvestigate the inverted-U relationship between competition and innovation, estimating the impact of moderate competitiveness on innovation without the distributional assumptions required by previous analyses. We find no evidence of an inverted-U in US data.
Nonparametric Tests for Conditional Treatment Effects in Duration Outcomes
Pedro Sant'Anna
(Universidad Carlos III Madrid)
[View Abstract]
[Download Preview] This paper proposes different tests for treatment effects when the outcome of interest, typically a duration, is subjected to right censoring. Our tests are based on Kaplan-Meier integrals of different treatment effect measures, and do not rely on parametric assumptions nor shape restrictions. The proposed tests are consistent against any fixed alternatives and are able to detect a broad class of alternatives converging to the null at the parametric n^1/2 –rate, n being the sample size. Finite sample properties of the proposed tests are examined by means of a Monte Carlo study. We illustrate the use of the proposed policy evaluation tools by studying the effect of labor market programs on unemployment duration based on experimental and observational datasets. Our applications show that adopting ad-hoc parametric models or ignoring the potential heterogeneity in the treatment effects might lead to spurious conclusions about the effect of different policies.
Diagnostic Tests for the Selection on Observables Assumption: The Case of Women Infants and Children Program
Umair Khalil
(University of Rochester)
Nese Yildiz
(University of Rochester)
[View Abstract]
[Download Preview] Women, Infants, and Children (WIC) is a federally funded program that ``provides nutritious foods, nutrition education (including breastfeeding promotion and support), and referrals to health and other social services to participants at no charge. WIC serves low-income pregnant, postpartum and breastfeeding women, and
infants and children up to age 5 who are at nutrition risk... Congress appropriated $6.522$ billion for WIC in FY 2013.'' (Source: http://www.fns.usda.gov/sites/default/files/WIC-Fact-Sheet.pdf, date: 4/24/14, 11:06am.) While the goals of WIC are clear, there does not seem to be a consensus about the effects of WIC. The main source of disagreement is the possibility that the participation into the program may not be random, and whether the controls in a given study do a good job eliminating the effects of this possible non-random selection and, hence, estimate the true effect of WIC participation. In this paper we present diagnostic tests for selection on observables assumption. Our diagnostic tests are based on the presence of a variable $X$ among our controls that has an atom at a known point (we normalize this point to be 0; in our example, $X$ will denote number of cigarettes smoked during pregnancy, which is constrained to be non-negative), but is otherwise continuously distributed. This set up was first exploited by \cite{carol} to test exogeneity of smoking during pregnancy (same $X$ variable we are considering) in considering the effect of smoking during pregnancy on baby's birthweight. She found that smoking during pregnancy is indeed endogenous, even in a model that includes a rich set of other controls. Caetano's test, however, cannot be applied to test exogeneity of a discrete covariate, which is the focus of this paper.
Jan 05, 2015 10:15 am, Sheraton Boston, Beacon G
Econometric Society
Topics in Monetary Policy
(E5)
Presiding:
Leonardo Melosi
(Federal Reserve Bank of Chicago)
Monetary Policy with Ambiguity-Averse Agents
Riccardo Maria Masolo
(Bank of England)
[View Abstract]
We study a prototypical new-Keynesian model in which agents are averse to ambiguity, and where the ambiguity regards the monetary policy rule. We show that ambiguity has important effects even in steady state, as uncertainty about the policymaker's response function affects the rest of the model via the consumption-saving decision. A reduction in ambiguity - e.g. due to credible monetary policy actions and communications - results in a fall in inflation and the policy rate, and an increase in welfare. Moreover, while, absent ambiguity, a monetary policy rule that respects the Taylor principle will attain the first-best allocation in our baseline model regardless of the policymaker's responsiveness to inflation, in the presence of ambiguity the inflation response coefficient regains relevance. A high degree of responsiveness to inflation mitigates the welfare costs of ambiguity; similarly, in a world with low ambiguity about monetary policy the costs associated with a lower responsiveness to inflation are smaller than in a world with high ambiguity. We also present results regarding the optimal choice of an inflation target, which highlight how credibility affects the welfare consequences of an inflation target.
Robust Monetary Policy under Model Uncertainty and Learning in a Phillips Curve Framework
Francesca Rondina
(University of Ottawa)
[View Abstract]
This paper studies robust policymaking in an environment in which the monetary authority wants to adopt a Phillips curve framework for policy decisions, but is uncertain about several features of the true model of the economy. More specifically, I assume that policymakers believe that the true data generating process can be approximated by two alternative specifications of the Phillips curve, one characterized by a short-run tradeoff between inflation and unemployment and one incorporating the natural rate hypothesis. In addition, they want to account for the uncertainty over the direction of fit of the empirical framework to be estimated, which has been shown to be an important issue in models of the Phillips curve (King and Watson, 1994). Finally, they have imperfect knowledge of the process for the natural rate of unemployment, and they estimate its pattern jointly with the parameters of each model specification considered for policy decisions. The monetary authority sets the inflation rate by solving a linear quadratic dynamic optimization problem in which each model is weighted using a Bayesian model averaging approach, as in Cogley and Sargent (2005). The analysis focuses on the impact of different forms of model uncertainty on policymakers' beliefs, learning, and robust policy recommendations. I find that even when beliefs over the natural rate Phillips prevail, the recommended robust inflation rate might still be high if alternative model specifications imply large costs of disinflation in terms of unemployment. I discuss the circumstances in which this situation might arise as a result of the estimated pattern of the natural rate of unemployment and/or the uncertainty about the direction of fit of the Phillips curve.
Signaling Effects of Monetary Policy
Leonardo Melosi
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] We develop a DSGE model in which the policy rate signals to price setters the central bank's view about macroeconomic developments. The model is estimated with likelihood methods on a U.S. data set that includes the Survey of Professional Forecasters as a measure of price setters' inflation expectations. The estimated model with signaling effects delivers large and persistent real effects of monetary disturbances, even though the average duration of price contracts is fairly short. While the signaling effects do not substantially alter the transmission of technology shocks, they bring about deflationary pressures in the aftermath of positive demand shocks. In the 1970s, the Federal Reserve's disinflation policy, which was characterized by gradual increases in the policy rate, was counterproductive because it ended up signaling inflationary shocks.
Limited Asset Market Participation and State-Dependent Effects of Fiscal and Monetary Policy Shocks
Hikaru Saijo
(University of California-Santa Cruz)
[View Abstract]
Using household-level data on consumption, hours worked, and asset holding status, I provide novel evidence on the transmission of fiscal and monetary policy shocks. First, asset holders' growth rates of consumption and hours are more volatile than those of the non-asset holders. Second, I show that the asset holders' response of consumption and hours to policy shocks are considerably different from the response of non-asset holders. In particular, non-asset holders respond stronger to fiscal stimulus than the asset holders while the asset holders respond stronger to monetary stimulus than the non-asset holders. Motivated by these micro-level facts, I construct a New Keynesian business cycle model with limited asset market participation and heterogeneous preferences. The key implication of my model is that aggregate effects of fiscal and monetary policy shocks are state-dependent: The output effect of a shock to government spending is stronger in recessions than in booms while the effect of a monetary policy shock is stronger in booms.
Jan 05, 2015 10:15 am, Sheraton Boston, Beacon E
Econometric Society
Topics in Political Economy
(C1, F5)
Presiding:
Leeat Yariv
(California Institute of Technology)
Networks of Military Alliances, Wars, and International Trade
Matthew Jackson
(Stanford University)
Stephen Michael Nei
(Stanford University)
[View Abstract]
[Download Preview] We investigate the role of networks of alliances in preventing (multilateral) interstate wars. We first show that, in the absence of international trade, no network of alliances is peaceful and stable. We then show that international trade induces peaceful and stable networks: trade increases the density of alliances so that countries are less vulnerable to attack and also reduces countries' incentives to attack an ally. We present historical data on wars and trade, noting that the dramatic drop in interstate wars since 1950, and accompanying densification and stabilization of alliances, are consistent with the model but not other prominent theories.
Recognition for Sale
S. Nageeb Ali
(University of California-San Diego)
[View Abstract]
[Download Preview] I examine the consequences of letting players compete for bargaining power in a multilateral bargaining game. In each period, the right to propose an offer is sold to the highest bidder, and all players pay their bids. If players vote according to any rule in which no player has veto power, then the first proposer captures the entire surplus. If a full consensus is needed for an offer to be accepted, then the first proposer shares the surplus with at most one other player, and as the period length between offers vanishes, one player may capture virtually the entire surplus. In settings with a stochastic or an endogenous surplus, players are unwilling to efficiently delay agreement or invest in the surplus.
Agendas with Priority
Sean Horan
(Université de Montréal)
[View Abstract]
[Download Preview] While a wide variety of agendas are used in legislative voting, the literature focuses almost exclusively on Euro-Latin and Anglo-American agendas. These two agendas share three features common to many agendas used in practice: they are non-repetitive in that every vote eliminates some alternatives from consideration; continuous in that alternatives continue to be contested until they are either eliminated or selected; and, prioritarian in that the structure of the agenda discourages the choice of certain alternatives.
In this paper, I characterize the much broader class of social choice rules implemented by sophisticated voting on agendas with these features. Not only does the result provide key insights into the kinds of strategic voting outcomes that can arise in the context of legislative voting, it has implications for issues ranging from implementation to tournament solutions and agenda manipulation.
Capital Cities, Conflict, and Misgovernance: Theory and Evidence
Filipe Campante
(Harvard University)
Quoc-Anh Do
(Sciences Po)
Bernando Guimaraes
(Getulio Vargas Foundation)
[View Abstract]
[Download Preview] We investigate the links between capital cities, conflict, and the quality of governance, starting from the assumption that incumbent elites are constrained by the threat of insurrection, and that this threat is rendered less effective by distance from the seat of political power. We develop a model that delivers two key predictions: (i) conflict is more likely to emerge (and to dislodge incumbents) closer to the capital, and (ii) isolated capital cities are associated with misgovernance. We show evidence that both patterns hold true robustly in the data, as do other ancillary predictions from the model.
Jan 05, 2015 10:15 am, Westin Copley, North Star
Labor & Employment Relations Association
Equity, Access, and Outcomes: New Strategies for Employee/Employer Relations
(J5)
Presiding:
Janet Boguslaw
(Brandeis University)
Beyond Wages: Structuring Inclusion in Wealth Building Employment Opportunities
Janet Boguslaw
(Brandeis University)
Hannah Thomas
(Brandeis University)
Sara Chaganti
(Brandeis University)
[View Abstract]
Low-wage work is not the only barrier to economic security and prosperity for many. Work without employment capital blunts opportunity and limits prosperity for individuals and the communities where they live. Interviewing young families in the late 1990s, when the economy was growing and prosperous, and again in 2010 during a stagnant economy amid dramatic wealth loss, we were surprised to find that more than two-thirds had seen their wealth increase. The data indicate that many factors were at play. One important observation was that for many of the families that built wealth, the characteristics of their employment- what we call employment capital (benefits, flexibility, and consistent work) facilitated a pathway to accumulating wealth that income alone could not provide. The interview data suggest the link between employment and building wealth and prosperity goes far beyond the paycheck. A puzzle remained, however. African-American families in our interview sample saw their incomes and educations rise in relation to those of white families and yet their wealth increased at a significantly lower rate. Sorting through the interview data and aligning it with national data as a comparison, it is clear that wealth-building job opportunities are distributed unequally among racial, class, and occupational divides. This paper examines the features and locations of jobs that help families build wealth. It explores what happens when workers do not have jobs with characteristics that build and preserve wealth. It answers the question of why inequities exist in access to those job characteristics and proposes policy solutions to improve work-based pathways to wealth building and economic security. Much has been written about the connection between good jobs, career mobility, and economic security. The lived experiences of families allow us to add a critical new understanding of
Elements of a Culturally Effective Health Care Organization
Laurie Nsiah Jefferson
(Brandeis University)
Melanie Doupe Gaiser
(Brandeis University)
[View Abstract]
Cultural and linguistic competence is a set of congruent behaviors, attitudes, and policies that come together in a system, agency, or among professionals that enables effective work in cross-cultural situations. Cultural competence is widely accepted as a key component of successful health care delivery, to respond to current and projected demographic changes in the U.S., and to reduce longstanding disparities in the health status and health care for people of diverse racial, ethnic, and cultural backgrounds. It is also a response to regulatory and legal mandates by government and accreditation bodies, and a practice to improve patient safety. The provision of culturally competent care facilitates increased access to care, patient satisfaction, utilization and adherence to care regimens. This paper focuses on the organizational components of cultural competency and provides a theoretical framework for a culturally effective health care organization, which enables, cultivates, reinforces, and supports the delivery of culturally effective and quality health care, through, a shared vision and set of values, as well as through the implementation of deliberate structures, policies, programs, and community interactions. The framework will include: 1) the core elements of a culturally effective health care organization as indicated by leading accreditation bodies, professional organizations, government agencies and think tanks; 2) the definition of each element; and 3) the processes, strategies, and challenges involved in ensuring that these elements become an integral part of organizational policy or practice. The measurements used to assess and evaluate the cultural effectiveness of an organization as well as their impacts on employee productivity, satisfaction, and organizational efficiency and effectiveness will be highlighted based on the literature, including case studies.
Employment Networks and Access to Good Jobs: Employment Policy for Social Relations
Jessica Santos
(Brandeis University)
[View Abstract]
In Southern New Hampshire's health care workforce, racial and ethnic minorities are overrepresented in employment settings with lower paying jobs, less stability, and fewer opportunities for advancement. Conversely, they are less likely to work in health care settings which pay well, and offer pathways to prosperity. Traditional approaches to workforce development policy favor a market approach in which employment opportunities depend on a matching process between the supply of workers and the demand for jobs in any given sector. But the local labor market and employment dynamics in New Hampshire's two largest and most diverse cities suggest that social relations also play a key role. This paper presents initial findings from a mixed-method case study of health care workers' career pathways and employment networks. It examines the role that individual and institutional networks play over the course of a worker's career life and whether and how networks influence who has access to good jobs. The paper applies Charles Tilly's concept of "durable inequalities" to networks and employment stratification in Southern New Hampshire's health care workforce. Findings are relevant to other sectors and geographic locations by demonstrating how workforce development and employment policy can move beyond a "supply and demand" framework and respond to the fact that each individual's career pathway is embedded in and influenced by larger social relations. This study informs policy recommendations for employers, workforce development programs, training institutions, and job seekers.
Discussants:
Trinidad Tellez
(New Hampshire Office of Minority Health and Refugee Affairs)
Kris McCracken
(Manchester Community Health Center)
Jan 05, 2015 10:15 am, Westin Copley, Courier
Labor & Employment Relations Association
LERA Papers VIII: Micro and Macro Effects of Employer-Provided Job Benefits
(J3)
Presiding:
James Bang
(St. Ambrose University)
Rethinking Employment Relations: The Social Bargain, Pensions, and Price Stability
Aaron Pacitti
(Siena College)
[View Abstract]
[Download Preview] Elevated unemployment rates since 2008 have given firms a bargaining power advantage over their employees, allowing employers to reduce wage and compensation growth, including the scope and amount of pension contributions. This paper argues that a more equitable approach to employment relations can promote distributively just labor market outcomes and improve macroeconomic performance. A strong social bargain—the employment partnership between firms and their workers—is capable of reducing inflation rates at full employment by making workers less willing to demand wage increases in exchange for pensions. As such, the burden in achieving low inflation is equitably distributed between capital and labor. Using annual data for the 1960-2012 sample, a novel empirical proxy for the social bargain is developed and included in Phillips curve models that use four measures of the cost of job loss as alternate measures of bargaining power. Policy implications, such as alternative forms of pension provision that offer increased retirement income security and distributive justice, are discussed in terms of their effect on macroeconomic performance. Counterfactual analysis further suggests that increased pension provision can significantly reduce inflation rates, even at full employment, and create more equitable employment relations.
Is There a Link between Employer-Provided Health Insurance and Job-Mobility? Evidence from Recent Micro Data
Benjamin Chute
(Middlebury College)
Phanindra V. Wunnava
(Middlebury College)
[View Abstract]
Is There a Link Between Employer-Provided Health Insurance and Job-Mobility? Evidence from Recent Micro Data
Exploring the Relationship of Employment Benefits to the Financial Burden and Health Outcomes of Certain Blood Cancer Patients
Gregory A. Abel
(Dana-Farber Cancer Institute and Harvard University)
Randy Albelda
(University of Massachusetts-Boston)
Diana Salas Coronado
(University of Massachusetts-Boston)
[View Abstract]
Exploring the Relationship of Employment Benefits to the Financial Burden and Health Outcomes of Certain Blood Cancer Patients
Discussants:
James Bang
(St. Ambrose University)
Françoise Carré
(University of Massachusetts-Boston)
Cruz Bueno
(Siena College)
Jan 05, 2015 10:15 am, Westin Copley, Helicon
Labor & Employment Relations Association
LERA/IAFFE Papers II: The Work-Family Interface
(J1)
Presiding:
Marlene Kim
(University of Massachusetts-Boston)
Availability of Family-Friendly Work Practices and Implicit Wage Costs: New Evidence from Canada
Ali Fakih
(Lebanese American University)
[View Abstract]
[Download Preview] Using Canadian linked employer-employee data covering the period 1999-2005, I examine the determinants of the availability of family-friendly work practices and the impact of such practices on wages. The results show that the provision of family-friendly practices is not mainly derived from socio-demographic characteristics of workers but rather from job- and firm-related factors. The findings also reveal that there is a trade-off between the provision of family-friendly practices and earnings indicating the existence of an implicit market in which workers face reductions in their wages. This result supports the hypothesis that family-friendly benefits are to some extent conceived as a gift or a signal that employers care about employees’ family responsibilities and, in return, employees are willing to “buy” these practices and thus accept a wage offset.
The Effect of Paid Family Leave on Employment and Earnings Volatility: Evidence from California
Michael Carr
(University of Massachusetts-Boston)
Emily Wiemers
(University of Massachusetts-Boston)
[View Abstract]
The Effect of Paid Family Leave on Employment and Earnings Volatility: Evidence from California
Bringing Home the Bacon: Unpacking the Relationship between Breadwinner Status and Salary
Colleen Manchester
(University of Minnesota)
Lisa Leslie
(New York University)
Patricia Caulfield Dahm
(University of Minnesota)
[View Abstract]
Bringing Home the Bacon: Unpacking the Relationship between Breadwinner Status and Salary
Discussants:
Alan Benson
(University of Minnesota)
Tony Fang
(Monash University)
Jessica Milli
(Institute for Women's Policy Research)
Jan 05, 2015 10:15 am, Boston Marriott Copley, New Hampshire
National Economic Association
The Lasting Implications of Jim Crow
(I3)
Presiding:
Robynn Cox
(Spelman College)
Desegregation and Downward Intergenerational Mobility: A Public-Value Approach to Analyzing the Effects of Social Constructions in the Segregated American South
Sherman A. Cooper
(Georgia State University)
[View Abstract]
[Download Preview] This article offers a public-value justification for the use of the social construction framework in the study of race-based intergenerational income disparities. A longitudinal empirical application is presented in the behavioral analysis of Southern and formerly Border states post-Brown vs. Board of Education. Focusing on pervasive persistence of school segregation in the region, I argue that this behavior is evidence of the continued perpetuation of deviant social constructions of African Americans at the state level despite the Brown ruling. Using data from the U.S. Panel Study on Income Dynamics, the Southern Educational Reporting Service, and the U.S. Department of Education, I apply probit analysis to assess the longitudinal effect of these persisting social constructions on the likelihood of downward absolute intergenerational income mobility for White and African-American males. I find that historical resistance to school desegregation in one’s childhood state of residence increases the likelihood of earning less than his father in low-spending states, but not in high-spending states. An additional finding suggests that government spending decreases the likelihood of earning less than one’s father in high-spending states but not in low-spending states.
Intergenerational Mobility in the United States South: A New View from Linked Census Data
Marianne H. Wanamaker
(University of Tennessee)
William Collins
(Vanderbilt University)
[View Abstract]
We examine intergenerational mobility for southern-born black and white males with new data linking individuals across census years in the late 19th and early 20th century. In the absence of income data in these years, we use occupation and other observable information to assign a relative income rank to individuals. We then use standard mobility measures to quantify differences in intergenerational mobility by race and over time. As our data cover the first decades of the Great Migration, we also examine the role of long-distance migration in promoting intergenerational mobility.
Jim Crow Revisited: White Supremacy, Federal Tax Policy, and Household Wealth
Robert Williams
(Guilford College)
[View Abstract]
Our history is littered with government policies and shifting institutional arrangements
that promoted Whites at the expense of persons of color. The transition from the
plantation slave system to the sharecropping, debt peonage, and contract labor systems
offers but one notable example. This paper argues that a comparable transition is
occurring currently. Although legal (and normative) restrictions discourage
discrimination and segregation by racialized group, no such strictures apply to class or
wealth distinctions. Yet, the growing disparities in household wealth mirror our racial
fault lines.
Using detailed evidence from the Survey of Consumer Finances, this paper examines the
impact of twelve federal tax expenditures on the distribution of household wealth over
the past generation. These tax expenditures include such notables as the health insurance
and mortgage interest deductions as well as the exclusions on capital gains, home sales,
tax-exempt bonds, and charitable contributions. As each is designed to skew their
benefits toward the affluent, these policies have promoted White householder wealth over
Black and Latino wealth. Virtually all of the policy changes over the past 20 years have
functioned to further tilt these benefits to the wealthy. At the same time, our estate and
gift taxes have largely been eliminated. The paper demonstrates how these tax policies
have promoted White householder wealth over Black and Latino wealth as well as how
the rising wealth disparities are creating a new Jim Crow system of White advantage.
Segregation and Lynching
Trevon D. Logan
(Ohio State University)
John Parman
(College of William and Mary)
n/a
Discussants:
Robynn Cox
(Spelman College)
Trevon D. Logan
(Ohio State University)
Terry-Ann Craigie
(Connecticut College)
Jeff Biddle
(Michigan State University)
Jan 05, 2015 10:15 am, Boston Marriott Copley, Tufts
Society of Government Economists
Economic Benefits of Protecting Water Quality in the Chesapeake Bay
(Q5)
Presiding:
Chris Moore
(U.S. Environmental Protection Agency)
A Stated Preference Study of the Chesapeake Bay and Watershed Lakes
Chris Dockins
(U.S. Environmental Protection Agency)
Dennis Guignet
(U.S. Environmental Protection Agency)
Kelly Maguire
(U.S. Environmental Protection Agency)
Chris Moore
(U.S. Environmental Protection Agency)
Nathalie Simon
(U.S. Environmental Protection Agency)
[View Abstract]
The Chesapeake Bay is the largest estuary in the United States and the third largest in the world. The surrounding watershed encompasses 64,000 square miles in parts of six states and the District of Columbia and is home to about 18 million people. There have been numerous studies measuring the value of different components of the Chesapeake Bay but no study or set of studies provides a comprehensive estimate of the values associated with the improvements likely to result from the recently implemented Total Maximum Daily Load (TMDL). To fill this gap we developed a stated preference (SP) survey that uses a choice experiment format to examine households’ willingness to pay (WTP) for improvements in the Chesapeake Bay. During extensive focus group testing care was taken to identify the environmental attributes that are most important to both users and non-users, to quantitatively describe these attributes using understandable and tangible metrics, and to our ability to link these attributes to projections from existing ecological and hydrological models.
The survey was mailed to a stratified random sample of households across 17 states in the eastern U.S. and the District of Columbia. This paper reports the initial results of the empirical analysis, including marginal WTP estimates for each environmental attribute. As a preliminary illustration of the magnitude of the results, household WTP is estimated for a hypothetical 10% improvement in Bay and lake water quality, and a 5% improvement in fish/shellfish populations. WTP of users versus non-users is compared, along with a comparison of benefits due to improvements to the Bay itself versus improvements to lakes in the Watershed, which turn out to be an important ancillary benefit likely to result from the TMDL.
The Value of Water Quality to Fishermen in the Chesapeake Bay
Matt Massey
(U.S. Environmental Protection Agency)
Steve Newbold
(U.S. Environmental Protection Agency)
[View Abstract]
This analysis estimates the value of water quality changes (measured by nitrogen, phosphorus, and sediment) to recreational anglers in the Chesapeake Bay. Water quality changes resulting from reductions in pollutant loads are assumed to affect fishermen in two ways. First, water quality indirectly affects fishermen by influencing the abundance of fish and therefore fishermen’s expected catch rates. Second, water quality may directly affect fishermen by influencing the tangible aesthetic qualities of the fishing sites, such as water clarity. These water quality driven changes in species abundance and site characteristics may cause changes in fishermen’s per trip utility, the numbers of trips taken, or both.
Using historical data from NOAA’s National Marine Fisheries Service’s Marine Recreational Fisheries Statistic Survey (MRFSS) on recreational fishing trips to and catch rates at sites located on the Chesapeake Bay, we first estimate a random utility maximization (RUM) site choice travel cost model. Following Murdock (2006), we estimate a complete set of alternative specific constants (ASC’s) and then in a second stage regress site characteristics such as catch rate and site water quality on the estimated ASC’s.
Results indicate that water quality has a significant impact on anglers’ utility per trip and on the number of trips they take per season. Results also suggest that most fishermen care about the total numbers of fish caught although some fishermen care strongly about what types of fish they are catching.
Hedonic Property Prices and Meta-Analysis in the Chesapeake Bay: Exploring the Value of Water Clarity
Patrick J. Walsh
(U.S. Environmental Protection Agency)
Charles Griffiths
(U.S. Environmental Protection Agency)
Dennis Guignet
(U.S. Environmental Protection Agency)
Heather Klemick
(U.S. Environmental Protection Agency)
[View Abstract]
Living in close proximity to the Chesapeake Bay provides access to a range of recreational and other amenities, which should be capitalized into local housing markets. Since water quality can affect these amenities, as well as provide visual amenities and other services, it should also be capitalized into home prices. This paper investigates these impacts through a hedonic analysis of water quality in the Chesapeake Bay and its tidal tributaries. This is the largest hedonic analysis of water quality ever done, with over 150,000 property sales across 14 Maryland counties. Due to its breadth and scope, as well as the range of government regulations that affect water quality, this analysis should be useful for a variety of future regulatory analyses.
The project uses a spatially explicit water clarity dataset from EPA’s Chesapeake Bay Program Office, along with a wealth of landscape, economic, geographic, and demographic variables. Since it is unlikely that the full 14 county sample is one housing market, we run a separate hedonic model for each county. Spatial econometric techniques are used to control for spatial dependence. The data span 13 years of sales, from 1996 to 2008. Given recent concern with swings in the housing market, we are careful to investigate the impact of the housing market boom and bust on implicit prices. Our preliminary results indicate that water quality has a positive impact on property prices in a majority of the counties examined. We also find that in some counties, the impact of water quality extends well beyond waterfront homes.
Welfare Analysis in a Two-Stage Inverse Demand Model: Benefits of Water Quality Improvements to Regional Fisheries
Chris Moore
(U.S. Environmental Protection Agency)
Charles Griffiths
(U.S. Environmental Protection Agency)
[View Abstract]
Commercial fishing harvests are affected by a wide range of events and economists have examined the resulting welfare impacts of many of them. Like many agricultural commodities, fish are highly perishable and producers cannot easily adjust supply in the short run to respond to changes in demand (Barten and Bettendorf 1989). In these cases it is more appropriate to conduct welfare analysis using inverse demand models that take quantities as given and allow prices to adjust to clear the market.
We derive a two-stage inverse demand model by assuming an implicitly separable distance function. The distance function is the dual to the standard cost function whereby normalized prices are a function of utility and exogenous quantities. We then demonstrate how the inverse demand coefficients of a multi-stage model can be used to find the compensating and equivalent variation from a change in the supply vector.
We apply this new approach to find the consumer welfare impacts of an increase in finfish and shellfish harvest from the Chesapeake Bay. A range of conservation efforts in the region including new land management practices to improve water quality, habitat restoration, and a movement toward ecosystem based fisheries management is likely to result in larger harvests. We estimate separate two-stage inverse demand models for large finfish, shellfish, and meal fish and estimate the welfare impacts of an increase in the Chesapeake Bay harvest while holding harvests from other regions constant.
Comparing the two-stage results with single-stage analysis of the same data shows that ignoring consumers’ ability to reallocate expenditures among commodity groups or the differentiation of harvests from different regions will bias welfare estimates.
Discussants:
Rob Johnston
(Clark University)
John Whitehead
(Appalachian State University)
Corey Lang
(University of Rhode Island)
James Seale
(University of Florida)
Jan 05, 2015 10:15 am, Boston Marriott Copley, Hyannis
Union for Radical Political Economics/International Association for Feminist Economics
Gender Inequality and Economic Growth
(E1)
Presiding:
Ebru Kongar
(Dickinson College)
Economic Growth, Social Reproduction and Gender Inequality
Elissa Braunstein
(Colorado State University)
[View Abstract]
Based on prior theoretical modeling work, I develop a conceptual macromodel that gives a set of stylized regimes linking structures of economic growth with social reproduction, and analyze how the distribution of production and reproduction among women, men, the state and capital determine investment and growth. I then link these regimes to groups of countries organized by economic structure and level of development, evaluating how gender inequality in the distribution of the time and financial costs of social reproduction determine possible growth trajectories in particular country cases.
The Crisis in the Eurozone from a Gender Perspective
Esther Jeffers
(Université Paris 8)
[View Abstract]
ECB policies during the eurozone crisis, along with recommendations by the IMF and decisions by the European Commission, have led to unprecedented austerity measures. These measures have been accompanied by labor market reforms, changes in wage and collective bargaining policy, pension system cutbacks, privatizations, and a deterioration of public services. These developments have particularly affected women. The objective of this paper is to view the crisis from a heterodox as well a gender perspective. It also aims to point to alternative ways out of the crisis that defend gender equality, resulting in a virtuous circle that benefits society as a whole.
Examining Gaps in Justice and Well Being for Fair Trade Women across Industries
Tamara Stenn
(School for International Training)
[View Abstract]
Fair Trade brings economic justice to disadvantaged producers by incorporating higher wages, environmental protection and education into the cost of production. The Fair Trade industry is valued at $6.8 billion with 10% annual growth (WFTO, 2012). It impacts millions of people, 30% of whom are women (WFTO, 2013). Fair Trade guidelines are applied to all production with the expectation that capabilities and opportunities are equally enhanced. Yet they are not. This paper examines through comparative study how undifferentiated Fair Trade standards and gender-based limitations on engagement negatively impact how justice is realized by producers.
Trade Liberalization, Social Policy Development and Chinese Women’s Paid Work: Trends in Labor Market Outcomes in the Decade after China’s Accession to the WTO?
Xiao-Yuan Dong
(University of Winnipeg)
Shi Li
(Beijing Normal University)
Sui Yang
(Beijing Normal University)
[View Abstract]
This paper analyzes the trends in labor market outcomes of men and women in China in the decade after China’s accession to the WTO. We first provide with an overview of the changes associated with China’s economic reforms and openings since the process started in the late 1970s. Using data from the 2002 China Household Income Project (CHIP) and the 2008 and 2010 Rural-Urban Migration in China (RUMiC). Using this data we find that over the last decade women’s labor force participation has increased and the rising of women’s labor force participation has been associated with a dramatic shift in labor allocation from agricultural labor to wage employment in industry and services. Incidence of vulnerable employment and informality has declined for both women and men and women’s share in wage employment in non-agricultural sectors has increased. We also find that men and women at all quintile levels have experienced rapid wage growth and the real wages of workers at the lower quintiles have grown faster relative to those at the higher quintiles. However, the benefits of economic success have not been evenly distributed between men and women. Women’s LFPRs and employment rates are lower than men’s and their unemployment rates are higher. Women still account for a larger share of the low-pay and less-secure employment. The gender earnings gap has increased during the period investigation. The results of this paper suggest that development strategies that are oriented to create productive employment, with special attention to workers from low-income groups, are imperative to expanding economic opportunities and improving labor market outcomes for men and women. However, economic growth, even it is pro-poor and employment oriented, alone is insufficient for achieving greater gender equality in the labor market.
Discussants:
Carole Biewener
(Simmons College)
Siobhan Austen
(Curtin University)
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 207
American Economic Association
Banks in International Trade
(F3, F1)
Presiding:
Tim Schmidt-Eisenlohr
(University of Illinois-Urbana-Champaign)
Bank Linkages and International Trade
Galina Hale
(Federal Reserve Bank of San Francisco)
Christopher Candelaria
(Center for European Policy Analysis and Stanford University)
Julian Caballero
(Inter-American Development Bank)
Sergey Borisov
(YP Holdings, LLC)
[View Abstract]
[Download Preview] This paper shows that bank linkages have a positive effect on international trade. A global banking network (GBN) is constructed at the bank level, using individual syndicated loan data from Loan Analytics for 1990-2007. Network distance between bank pairs is computed and aggregated to country pairs as a measure of bank linkages between countries. Data on bilateral trade from IMF DOTS are used as the subject of the analysis and data on bilateral bank lending from BIS locational data are used to control for financial integration and financial flows. Using a gravity approach to modeling trade with country-pair and year fixed effects, the paper finds that new connections between banks in a given country-pair lead to an increase in trade flow in the following year, even after controlling for the stock and flow of bank lending between the two countries. It is conjectured that the mechanism for this effect is that bank linkages reduce export risk, and four sets of results that support this conjecture are presented.
No Guarantees, No Trade: How Banks Affect Export Patterns
Friederike Niepmann
(Federal Reserve Bank of New York)
Tim Schmidt-Eisenlohr
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] How relevant are financial instruments to manage risk in international trade for exporting? Employing a unique dataset of U.S. banks' trade finance claims by country, this paper estimates the effect of shocks to the supply of letters of credit on U.S. exports. Our identification strategy relies on two observations. First, banks vary in their importance as providers of letters of credit across countries. Second, a reduction in the supply of letters of credit by a bank should have a larger effect on exports to those destinations where the bank takes a larger share of the trade finance market. We show that a one-standard deviation negative shock to a country's supply of letters of credit reduces U.S. exports by 1.5 percentage points. This effect is stronger for smaller and poorer destinations. It more than doubles during crisis times, suggesting a non-negligible role for finance in explaining the Great Trade Collapse.
Risk-Based Capital Requirements for Banks and International Trade
Banu Demir
(Bilkent University)
Tomasz Kamil Michalski
(HEC Paris)
Evren Ors
(HEC Paris)
[View Abstract]
[Download Preview] We provide the first evidence that changes in risk-based capital requirements for banks affect the real economy through international trade. Using a natural experiment– mandatory Basel II adoption in its Standardized Approach by all banks in Turkey on July 1, 2012– we investigate the impact of new risk-weights applied to commercial letters of credit (CLC) on that country’s exports to 174 countries. We estimate the resulting payment-term-cost elasticity of CLC-financed trade to be between -0.5 and -1 while the overall trade elasticity to be between -0.032 and -0.179. Calculations suggest that both CLC-related bank pricing and rationing channels are involved.
Estimating the Direct Impact of Bank Liquidity Shocks on the Real Economy: Evidence from Letter-of-Credit Import Transactions in Colombia
JaeBin Ahn
(International Monetary Fund)
[View Abstract]
[Download Preview] This study identifies and provides a precise estimate of the direct impact of bank liquidity shocks on real economic activity by exploring letter-of-credit import transactions in Colombia during the 2008-09 global financial crisis. The detailed dataset on letter-of-credit transactions allows for exploiting within-importer-exporter variations across issuing banks. The study finds substantial effects of bank liquidity shocks on letter-of-credit import transactions: a 1 percentage point decline in bank deposit growth led to a 4.2 percentage point decline in imports in intensive margins, and to a 8.4 percent increase in the exit probability in extensive margins. Further, the estimate suggests that adverse bank liquidity shocks can explain at least 27 to 35 percent of the collapse in import transactions via letters of credit in Colombia. The results are robust to an alternative measure of bank liquidity shocks based on ex ante exposure to borrowings from foreign banks.
Discussants:
Kalina Manova
(Stanford University)
Pol Antras
(Harvard University)
Luc Laeven
(International Monetary Fund)
Tim Schmidt-Eisenlohr
(University of Illinois-Urbana-Champaign)
Jan 05, 2015 1:00 pm, Sheraton Boston, Independence Ballroom West
American Economic Association
Behavioral Interventions and Energy
(Q4, C9)
Presiding:
James Sallee
(University of Chicago)
The Persistence of Moral Suasion and Economic Incentives: Field Experimental Evidence from Energy Demand
Koichiro Ito
(Boston University)
Takanori Ida
(Kyoto University)
Makoto Tanaka
(GRIPS)
[View Abstract]
[Download Preview] Firms and governments often use moral suasion and economic incentives to influence intrinsic and extrinsic motivations for various economic activities. To investigate the persistence of such interventions, we randomly assigned households to moral suasion and dynamic pricing for energy conservation in peak demand hours. Using household-level consumption data for 30-minute intervals, we find significant short-run effects of moral suasion, but the effects diminished quickly over repeated interventions. Economic incentives produced larger and persistent effects, which induced habit formation after the final interventions. While welfare gains are substantial for each policy, economic incentives produce particularly large gains when we consider persistence.
Price vs. Non-Price Policy Instruments to Encourage Energy Conservation: Evidence from a Randomized Controlled Trial in Ecuador
Jose Pellerano
(Universidad Iberoamericana and SIUBEN)
Michael Price
(Georgia State University)
Steven Puller
(Texas A&M University)
Gonzalo Sanchez
(Texas A&M University)
[View Abstract]
Using prices as policy instruments have traditionally been prescribed as first-best policies to address market failures in energy markets and to induce conservation. However, recent research has demonstrated the role that social comparisons can serve as non-price behavioral interventions that cause consumers to reduce energy consumption. We use a unique setting in Quito, Ecuador to estimate the relative magnitudes of price and non-price policy instruments. Typically it is very difficult to find utilities that have large changes in tariffs for small changes in consumption, and this is likely driven by the fact that political constraints make such tariffs unpopular. However, the utility in Quito has a tariff with a very sizeable change in the total bill for a small change in consumption (i.e. a notch rather than a kink); specifically, a one kwh increase in consumption increases the total electric bill by over 75%. This notch currently does not appear to induce a consumption reduction because we find no evidence of bunching below the notch in historical consumption data. We exploit this unique tariff to estimate the role of price and non-price policy instruments to induce consumption. In our RCT, we treat a large sample of households with one of three different information interventions using inserts into monthly electric bills. The three treatments are using the bill inserts to either: (1) make the price notch salient, (2) make a social comparison, or (3) do both. By using household-level consumption data after the information intervention, we estimate the relative size of conservation for a large price increase and a social comparison.
Information Disclosure through Agents: Evidence from a Field Experiment
Hunt Allcott
(New York University)
Richard Sweeney
(Harvard University)
[View Abstract]
[Download Preview] With a large nationwide retailer, we carry out a randomized natural field experiment to measure the effects of energy use information disclosure, rebates, and sales agent incentives on demand for energy efficient durable goods. Sales incentives and large rebates appear to be strongly complementary, but information and sales incentives alone do not affect demand. Sales agents comply with the experiment only partially, targeting information and rebate offers at the most interested consumers but not discussing energy efficiency with the majority of consumers that are uninterested. Follow-up surveys show that most consumers are aware of the energy efficient model and may even overestimate its benefits, suggesting that imperfect information is not a major barrier to adoption.
Social Learning and Solar Photovoltaic Adoption: Evidence from a Field Experiment
Kenneth Gillingham
(Yale University)
Bryan Bollinger
(New York University)
Hilary Staver
(Yale University)
[View Abstract]
An extensive literature points to the importance of social interactions in influencing economic outcomes. We examine a set of natural field experiments on a rapidly expanding behavioral intervention designed to actively leverage social learning and peer interactions to promote solar photovoltaic technology in Connecticut and Massachusetts. The ``Solarize'' program involves a municipality-chosen solar installation firm, group pricing, and an informational campaign driven by volunteer ambassadors. We show that the program is remarkably effective: solar installations increase by 42 per municipality on average in Connecticut, an increase of over 300 percent. Some of this effect persists, perhaps by fostering social interactions. We show that the program also lowers installation prices, an effect that spills over to adjacent block groups. Comparing different institutional structures indicates that the design of the program can significantly influence firm pricing. Our calculations suggest that these behavioral interventions may be quite cost-effective and perhaps even welfare-improving.
Discussants:
Steven Puller
(Texas A&M University)
Matthew Kahn
(University of California-Los Angeles)
Ginger Zhe Jin
(University of Maryland)
Joshua Graff Zivin
(University of California-San Diego)
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 201
American Economic Association
Communication, Guilt and Deception
(D8, C9)
Presiding:
Gary Charness
(University of California-San Diego)
Collusion through Communication in Auctions
Marina Agranov
(California Institute of Technology)
Leeat Yariv
(California Institute of Technology)
[View Abstract]
We study the effects of communication on auction outcomes. The focus is on one-shot first and second-price sealed bid auctions. First, we show, theoretically, that without restricting communication protocols, the set of equilibrium outcomes corresponding to the second-price auction strictly contains the set of equilibrium outcomes corresponding to first-price auction. Second, we conduct controlled laboratory experiments in which we vary the amount of interactions (communication and/or transfers) available to the bidders before auction. We find that revenues of the auctioneer decrease when bidders can communicate even more so when transfers are available (over 70% result in the minimum price). In addition, the effects of communication and transfers are similar across auction formats. Finally, communication allows bidders to correlate their bids.
Matching and Chatting: An Experimental Study of the Impact of Network Communication on School-Matching Mechanisms
Andrew Schotter
(New York University)
Tingting Ding
(New York University)
[View Abstract]
While, in theory, the school matching problem is a static non-cooperative one-shot game, in reality the ``matching game" is played by parents who choose their strategies after consulting or chatting with other parents in their social networks. In this paper we compare the performance of the Boston and the Gale-Shapley mechanisms in the presence of chatting through social networks. Our results indicate that allowing subjects to chat has an important impact on the strategies they choose and is welfare increasing. In addition, chatting appears to enhance the rationality of subjects and the stability of the matching outcomes.
Promises and Expectations
Florian Ederer
(Yale University)
Alexander Stremitzer
(University of California-Los Angeles)
[View Abstract]
[Download Preview] We investigate why people keep their promises in the absence of external enforcement mechanisms and reputational effects. In a controlled laboratory experiment we show that exogenous variation of second-order expectations (promisors' expectations about promisees' expectations that the promise will be kept) leads to a significant change in promisor behavior. We provide clean evidence that a promisor's aversion to disappoint a promisee's expectation leads her to keep her promise. We propose a simple theory of lexicographic promise keeping that is supported by our results and nests the findings of previous contributions as special cases.
Let's Both Talk: Communication and Relational Contracting
Marta Serra-Garcia
(University of California-San Diego)
[View Abstract]
This paper examines how the nature and performance of relational contracts changes when implicit contracts are made explicit through communication. We study the effect of three communication structures: one-way communication by the principal or the agent, and two-way communication, in a repeated investment game. Theoretically, both one-way communication and two-way communication can increase investment and repayment. Our results reveal that one-way communication by the principal or agent does not significantly change relational contracts. In contrast, two-way communication yields significant increases in both investment levels and repayment. However, even in long-term relationships, a drop in investment and repayment is observed towards the end. Interestingly, this effect is stronger with lender communication, while it is weakly reduced by borrower communication.
Discussants:
Sotirios Georganas
(City University London)
Clayton Featherstone
(University of Pennsylvania)
Andreas Blume
(University of Arizona)
John Duffy
(University of California-Irvine)
Jan 05, 2015 1:00 pm, Sheraton Boston, Liberty B
American Economic Association
Competition
(D4)
Presiding:
Dan Richards
(Tufts University)
Cognitive Reflection and (the Limits of) Strategic Thinking in a Market Choice Game
Erik Duhaime
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Previous experimental studies have documented quick convergence to equilibrium in N-player market entry games, a result that has been replicated under a wide variety of experimental conditions and that looked "like magic" to Kahneman. However, relatively few studies have examined the individual characteristics or strategies that lead to success in early rounds of a market entry game, before equilibrium is approached and the potential for excess returns vanishes.
Here I introduce a “market choice” game, which can be thought of as a one-shot, forced choice, multiple-market version of a market entry game with known market capacities. This game reflects the fact that in the real world one is often faced with the decision, not of whether to enter a particular market (or whether to travel to a particular bar, as in the El Farol bar problem), but rather, of which market (or bar) to enter. Furthermore, because the game is one-shot and has multiple markets, strategic level-k thinking is relatively more important in determining players’ payouts, which are more variable than in typical market entry games.
I analyze the behavior of 285 participants in a series of market choice games and find that those who score higher on the Cognitive Reflection Task (CRT) exhibit higher level-k thinking, earning them higher profits. However, this group of high-CRT individuals still would have been outperformed by a pure Nash strategy. Furthermore, a strategy of choosing markets completely randomly with no consideration for market size would have outperformed both average participants and those scoring high on the CRT.
Anticipated Entry and Entry Deterrence: Evidence from the American Casino Industry
J. Anthony Cookson
(University of Colorado-Boulder)
[View Abstract]
[Download Preview] Using new data on entry plans into the American casino industry, I find that incumbent firms invest in physical capacity when threatened with a nearby entry plan, and these strategic investments deter eventual entry. Consistent with an entry deterrence motive, incumbents respond to the threat of entry during planning when entry is uncertain, but do not invest in physical capacity when entry is assured. Further, a standard deviation increase in incumbent strategic investment is associated with a 0.147 greater probability of failure of the entry plan. Strategic capacity investments are particularly effective in deterring relatively inexperienced entrants. These findings show that investments in deterrence are viable, especially when new entrants face significant other barriers to entry.
If Many Seek, Ye Shall Find: Search Externalities and New Goods
Maciej H. Kotowski
(Harvard University)
Richard J. Zeckhauser
(Harvard University)
[View Abstract]
We study the productive role of consumer search in an economy with multiple goods. Said activity can help create a market for new goods. In equilibrium, search promotes the sorting of consumers among producers, potentially increasing welfare and profits compared to the benchmark case. That benchmark is an economy without search where only a single good trades. When direct competitors are few, a firm may benefit if their numbers increase, as more sellers may encourage consumers to search. Consumer search makes it worthwhile for producers of new goods to enter the market. Neither of these externalities, nor the coordination problems faced by consumers and producers, is appropriately recognized in the literature.
Know Thyself, Know Thy Rival - High Performers Combine Cognitive Skills with Strategic IQ
Sheen S. Levine
(Columbia University)
Mark Bernard
(Goethe University Frankfurt)
Rosemarie Nagel
(ICREA, Universitat Pompeu Fabra, and BGSE)
[View Abstract]
Why do some players outdo others? We aim to contribute to the micro-foundations of behavioral game theory by explaining individual performance in a strategic environment. To explain performance differences, we examine two constructs rooted in experimental economics, psychology, and cognitive science: Cognitive skill and strategic IQ (Meghana Bhatt and Colin F. Camerer, 2005). Cognitive skill refers to a person’s ability to reason through abstract problems. In contrast, strategic IQ is the ability to ascertain others’ state of mind, use it to anticipate their behavior, and outsmart them. We used several instruments to assess cognitive skills (Shane Frederick, 2005; Steven D. Levitt, John A. List and E. Sally, 2011) and strategic IQ (Rosemarie Nagel, 1995) separately in a group of participants. Then, we invited the participants to trade for cash in an experimental asset market, which involves uncertainty and designed for high competitiveness (Vernon L. Smith, 1962). Even in such a challenging environment, we find that some individuals perform substantially better than others, accumulating supernormal profits. We trace the performance differences to ex-ante differences in cognitive skill and strategic IQ. We find they are uncorrelated — each boosts performance independently, but the combination of the two provides additional advantage, through an interaction effect. The highest performers are not those who can merely solve problems well, but those who can also predict how others will solve the same problems.
Dynamic Competition with Network Externalities: Why History Matters
Hanna Halaburda
(Bank of Canada)
Bruno Jullien
(Toulouse School of Economics)
Yaron Yehezkel
(Tel Aviv University)
[View Abstract]
This paper considers dynamic platform competition in a market
with network externalities. A platform that dominated the market in the previous period becomes ``focal" in the current period, in that agents play the equilibrium in which they join the focal platform whenever such equilibrium exists. We ask whether a low-quality but focal platform can maintain its focal position along time, when it faces competition by a non-focal but higher quality platform. We find that when the qualities of the two platforms are constant along time, the low-quality platform can maintain its focal position infinitely if the firms are impatient. When firms are patient, there are multiple equilibria in which either the low-quality platform maintains its focal position indefinitely, or the high-quality platform gains the focal position from the low-quality one and then maintains it indefinitely. If qualities are stochastic, each platform wins in each period with some probability. In this case, an increase in the discount factor can make it easier for a low-quality platform to win. As a result, with stochastic qualities social welfare can decrease the more platforms care about future profits.
Jan 05, 2015 1:00 pm, Sheraton Boston, The Fens
American Economic Association
Economic Globalization
(F1)
Presiding:
Richard Pomfret
(University of Adelaide)
International Competitiveness: Demand for Value Added and Value-Added Exchange Rates
Robert C. Johnson
(Dartmouth College)
Rudolfs Bems
(International Monetary Fund and Bank of Latvia)
[View Abstract]
We provide a framework for evaluating competitiveness with trade in both final goods and intermediate inputs. We describe how demand for real value added from each country depends on the price of its value added relative to competitors, and define a novel value-added real effective exchange rate (REER) index to measure the price competitiveness of domestic value added on world markets. Using global input-output data to parameterize the framework, we then quantify how input linkages alter competitiveness assessment. We demonstrate that trade linkages interact with relative elasticities of substitution in production versus consumption to shape changes in competitiveness. When production elasticities are low, we find that supply chain partners are insulated from foreign devaluations. Using time series data on GDP deflators and cross-border input-output linkages, we compute value-added REER indexes for forty-two countries from 1970-2009, and find substantial differences between value-added and conventional REERs.
Optimal Monetary and Fiscal Policy at the Zero Lower Bound in a Small Open Economy
Saroj Bhattarai
(University of Texas-Austin)
Konstantin Egorov
(Pennsylvania State University)
[View Abstract]
[Download Preview] We study optimal monetary and fiscal policy at the zero lower bound in a small open economy model with sticky prices and a flexible exchange rate. In such a liquidity trap situation, the economy suffers from a negative output gap, producer price deflation, and an appreciated real exchange rate (compared to its efficient level). The extent of these adverse effects and the duration of the liquidity trap is higher, lower is the elasticity of substitution between domestic and foreign goods. Under discretion, compared to commitment, in addition to the usual "deflation bias" present in a closed economy, the equilibrium in a small open economy also features an "overvaluation bias": the real exchange rate is excessively appreciated compared to its efficient level. Countercyclical fiscal policy, that is, increasing government spending above the efficient level during the liquidity trap, constitutes optimal policy and helps decrease the extent of negative output gap and deflation, especially under discretion, but the extent of the increase in government spending is lower when the elasticity of substitution of between domestic and foreign goods is higher.
A Theory of Trade in a Global Production Network
Maarten Bosker
(Erasmus University Rotterdam)
Bastian Westbrock
(Utrecht University)
[View Abstract]
This paper develops a novel theory of trade in a global supply chain. We expand
on a monopolistic competition trade model. Countries produce both intermediate
and final goods that are sold domestically or, incurring country-pair specific trade
costs, internationally. This links countries in a multi-stage production network. In
the unique general equilibrium of the model, goods prices and wages in each country
depend on the entire structure of trade connections. Drawing on methods from the
social network literature, we then determine each country's importance in the global
production network and analyse the welfare consequences of a further integration of
the network. Our findings highlight the role of a few key countries that bring other
nations closer together by intermediating their value added. Proximity to these key
countries is crucial for other nations' income growth. An accompanying empirical
analysis shows strong support in favor of the predicted network effects.
Going Global: Markups and Product Quality in the Chinese Art Market
Jennie Bai
(Georgetown University)
Benjamin Mandel
(Citi Group Research)
Jia Guo
(Columbia University)
[View Abstract]
We analyze two reasons for export prices to be different across markets --- namely, quality differentiation and variable markups --- and attempt to parse their relative importance and underlying drivers. To overcome identification issue, we consider a particular industry: Chinese fine art, given its simplicity of the supply-side. Through this lens, we trace the internationalization process of Chinese art since the year 2000. We find strong support for quality sorting into international, as well as substantial markup differences across destinations. Using a structural model of endogenous quality choice, we argue that much of the international quality premium is driven by distribution costs rather than destination preferences for quality.
Global Currency Misalignments, Crash Sensitivity, and Moment Risk Premia
Huichou Huang
(University of Glasgow)
Ronald MacDonald
(University of Glasgow)
Yang Zhao
(University of Glasgow)
[View Abstract]
[Download Preview] We show the profitability of currency carry trades can be understood from the perspective of real exchange rate misalignments. Both currency carry and misalignment portfolios trade on the position-likelihood indicator that explores the probability of the Uncovered Interest Rate Parity (UIP) to hold in the option pricing model. To examine the crash story of currency risk premia, we employ copula method to measure tail sensitivity and compute moment risk premia by model-free approach using volatility risk premia as the proxy for downside insurance costs. We find notable regime-dependent behavior of currencies with respect to these two dimensions, and the pay-off components of a strategy trading on skew risk premia mimic the behavior of carry trades. We further purpose a novel strategy that makes a trade-off in the time-variation of risk premia and is thereby almost immunized from risk reversals. It generates sizeable returns that cannot be explained by canonical risk factors, including hedge fund and betting-against-beta risk factors, and government policy uncertainty meausres. Unlike other currency trading strategies, its cumulative wealth is driven by both exchange rate and yield components. We also investigate the behavior of currency momentum that is shown subject to credit risk, similarly to its stock market version: Winner currencies performance well when sovereign default probability is low and loser currencies provide the hedge against this type of risk when sovereign default probability hikes up. The innovations in global sovereign CDS spreads contribute 60% of the variation to the factor that captures the common dynamics of the currency trading strategies. From the asset allocation perspective, a crash-averse investor is better off by allocating about 40% of the wealth to misalignment portfolio and about 35% to crash-sensitive portfolio in tranquil period while reallocating about 85% of the portfolio holdings to downside-insurance-cost strategy during the financial turmoil.
Jan 05, 2015 1:00 pm, Sheraton Boston, Liberty A
American Economic Association
Economic History
(N1)
Presiding:
Jessica Hennessey
(Furman University)
WWII, fear of the draft, and women's marriage in colonial Korea
Sun Go
(Chung-Ang University)
[View Abstract]
[Download Preview] During World War II, many women in Japanese colonies, mostly young and unmarried, were reportedly abducted, drafted, lured, recruited for sexual slavery, and forced into prostitution corps. The Japanese military sexual slavery not only devastated enslaved women’s life but also significantly changed general women’s behaviors in the colonies. A widespread fear of being drafted for sexual slavery stimulated early marriage, which they believed would reduce the risk of being drafted for sexual slavery considerably. An analysis of the 1975 Korea Census data reveals that the threat of sexual slavery reduced Korean women’s average age at first marriage by about 1.11 years in the late colonial period. Using the colonial threat as an instrument for age at first marriage, a causal effect of the age at first marriage on women’s childbirth and schooling can be estimated. Indeed, the resurgence of early marriage raised a woman’s average lifetime childbirths by 0.31 and reduced her average years of schooling by 0.29.
Generation War: The Long-Term Effects of World War II on Physical and Mental Health
Sebastian Otten
(Ruhr University Bochum)
Julia Bredtmann
(Ruhr University Bochum)
Magdalena A. Stroka
(RWI Essen)
[View Abstract]
In this paper we use World War II (WWII) as a natural experiment to examine long-run effects of malnutrition and mental stress on physical and mental health of older individuals in Germany. Recent studies have found a negative effect of prenatal and early life shocks on health outcomes in later life. According to the fetal origins hypothesis, conditions of adult health can be traced to in utero malnutrition. Furthermore, psychic trauma experienced during early childhood influences mental health decades later. The traumatization by WWII and the exposure to the German famine of 1945-1948 present exceptional opportunities to evaluate the consequences of mental stress and prenatal malnutrition. For our analysis we combine data on regional destruction in Germany caused by the Allied Air Forces bombing with administrative data from the biggest German sickness fund covering 2 million individuals born between 1920 and 1955. The data provides information on medical diagnoses of both mental (e.g., depression) and physical diseases (e.g., cardiovascular diseases, diabetes) as well as on the prescription of several types of drugs. To identify the causal effect of mental stress and prenatal malnutrition during early life on health at older ages, we use (i) geographic variation in the intensity of WWII destruction as an exogenous measure of traumatization and (ii) variation in birth cohorts to capture the effect of malnutrition during the famine. Our results provide evidence that early life circumstances significantly predict physical and mental health at older ages. We find that those who experienced a higher intensity of WWII destruction during childhood are more likely to suffer from a depression. Furthermore, the cohorts born during the famine have a significantly higher probability of suffering from cardiovascular diseases and diabetes than cohorts born shortly before or after.
The Importance of Early Life War Experience for Health and Wealth Outcomes in China
Jian Li
(Goethe University Frankfurt)
[View Abstract]
In this paper, I investigate the long term effects of the 2nd Sino-Japan war (WWII)
and the later civil war (1937 - 1950) on health and wealth outcomes of 45+ elder individuals
in China. I combine a unique armed conflicts data set collected from historical
documents with individual survey data from the China Health and Retirement
Longitudinal Study (2011 National Survey). I find that exposure to the battle shock
significantly reduces later adult health outcome such as lung function. Moreover, the
later wealth accumulation is also affected negatively. According to my conservative
estimates, exposure to battle shock would reduce the lung capability by around 5%
compared with the population mean and the wealth level by around 21% compared
with non-shocked groups.
Seven Centuries of Economic Growth and Decline
Roger Fouquet
(London School of Economics)
[View Abstract]
[Download Preview] This paper investigates very long run pre-industrial economic development. New annual GDP per capita data for six European countries over the last seven hundred years paints a clearer picture of the history of European economic development. First, it confirms that sustained growth has been a recent phenomenon, but rejects the argument that there was no permanent growth in living standards before the Industrial Revolution. Instead, the evidence demonstrates the existence of numerous periods of economic growth before the nineteenth century - unsustained, but raising GDP per capita. Second, the data also shows that most economies experienced phases of economic decline. Third, from the nineteenth century, these economies started to reduce the risks of experiencing economic declines and to increase the chances of generating economic growth. Finally, analysis indicates positive relationships between levels of economic development, institutions and human capital formation, as well as population changes, and supports the expectation that civil wars harm economic growth.
Collusion in the Copper Commodity Market: A Long-Run Perspective
Gordon Rausser
(University of California-Berkeley)
Martin Stuermer
(Federal Reserve Bank of Dallas)
[View Abstract]
[Download Preview] Over the course of the last century and a half there have been many attempts to cartelize world commodity markets, sometimes orchestrated by national governments and other times by the dominant firms in the industry. Utilizing a newly constructed data set for the copper commodity market, over a long history, 1840 to 2012, we decompose the alleged time series into periods of attempted collusion, followed by an unwinding period. We investigate the dynamic properties of collusion or cartel behavior, emphasizing the dynamic structure across the complete sample record. For each of the identified collusive periods, we determine the cartel price distortion, comparing actual prices to computed but-for prices. From the computed but-for prices we estimate market wide damages. Each of the alleged collusive periods are found to differ in accordance with the mechanisms controlling supply either through output restrictions, stock accumulations, or both.
Jan 05, 2015 1:00 pm, Sheraton Boston, Public Garden
American Economic Association
Economics of Immigration
(J6)
Presiding:
Marianne H. Wanamaker
(University of Tennessee)
Migrant Remittances and Information Flows: Evidence from a Field Experiment
Catia Batista
(Nova University of Lisbon)
Gaia Narciso
(Trinity College Dublin)
[View Abstract]
Do information flows matter for remittance behavior? We design and implement a randomized control trial to quantitatively assess the role of communication between migrants and their contacts abroad on the
extent and value of remittance flows. In the experiment, a random sample of 1,500 migrants residing in Ireland was offered the possibility of contacting their networks outside the host country for free over a
varying number of months. We find a sizable, positive impact of our intervention on the value of migrant remittances sent. Our results exclude that the remittance effect we identify is a simple substitution
effect. Instead, our analysis points to this effect being a likely result of improved information via factors such as better migrant control over remittance use, enhanced trust in remittance channels due to
experience sharing, or increased remittance recipients’ social pressure on migrants.
Labour Market Integration of Immigrants - Evidence for German Guest Workers
Alexander Rieber
(Ulm University)
Werner Smolny
(Ulm University)
[View Abstract]
During the 1960s and 1970s a large number of immigrants came to Germany as temporary labour migrants. Many of them remained, captured their family and their children entered the labour market since the eighties.
Our paper analyses their labour market experience in terms of employment, unemployment and earnings. Through the recruitment stop induced by the first oil crisis in 1973 we are the first to distinguish hired labour migrants, family members and the second generation in a natural experiment setting.
The results reveal enormous differences between the groups. Guest workers that came until 1973 differ markedly from those that came later especially in terms of unemployment.
These differences are more pronounced for women than men. Additionally their second generation is very well integrated into the German labour market.
Taking One for the Team: Shocks at Destination and Household's Supply of Migrants
Emilio Gutierrez
(CIE-ITAM)
Horacio A. Larreguy
(Harvard University)
Gustavo Fajardo
(CEMFI)
[View Abstract]
[Download Preview] We study the relationship between labor market shocks at destination and migration. In particular, we stress the role played by households as the decision-making units at origin, and the importance of their past migration decisions at shaping current ones. Using a unique dataset that allows us to construct an origin-destination matrix from Mexican municipalities to the main destination cities within the United States and household-level data from the Mexican 2010 Census, we show that Mexican families with members working abroad (exposed families) respond to negative economic shocks in the US in a heterogeneous fashion. Exposed low-income/education families respond to negative shocks at destination by increasing their migration rates, while higher-income/education families respond by having their migrant members return. We argue that the heterogeneity of the response is driven by the relative magnitudes of income and substitution effects suffered by exposed households after a negative foreign shock. Our results are informative to the literature on selection patterns in international migration, suggesting a new channel through which economic conditions at destination shape the composition of migratory waves.
Return Migration: New Source of Self-Employment in Mexico
Heriberto Gonzalez Lozano
(University of Pittsburgh)
Sandra Orozco-Aleman
(Mississippi State University)
[View Abstract]
We assess the impact of return migration on the probability of sel-employment in Mexico. Migration may enhance the asset positions and productivity levels of households via remittances, savings, and human capital accumulation, and thus, enable individuals to set up their own business upon return overcoming liquidity constraints, low initial endowments or imperfect credit markets.
We exploit the variation on return migration rates to different states in Mexico over time and use instrumental variables to avoid endogeneity. The results show that return migration exerted a positive impact on the probability of self-employment in Mexico between 1999 and 2010. An increase of one standard deviation in the return migration rate will increase the self-employment by 2.75 percentage points.
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 204
American Economic Association
Education Policies in African Countries
(O1)
Presiding:
Leonard Wantchekon
(Princeton University)
Can School Choice Increase Educational Mobility? Evidence from Ghana
Kehinde Ajayi
(Boston University)
[View Abstract]
Several countries in Africa and across the world use centralized merit-based systems to determine admission to public schools. However, there is growing evidence that these merit-based systems may disadvantage students from less privileged backgrounds. This paper analyzes the impact of school choice policies on educational mobility. Focusing on the case of secondary school applications in Ghana, I estimate the effects of a series of reforms in the application process that expanded the number of choices students could list and encouraged students to select a diversified portfolio of schools. Using administrative data on the universe of secondary school applicants and a difference-in-differences approach, I analyze the effect of each reform on the choices and admission outcomes of students from different educational backgrounds. I find that both reforms decreased the difference in selectivity of schools chosen by students from high-performing and low-performing elementary schools, which suggests that school choice policies play a significant role in determining application behavior and admission outcomes. I conclude by discussing implications for future policy reforms.
The Long-Run Effects of "Girl-Friendly" Schools: Evidence from the BRIGHT School Construction Program in Burkina Faso
Harounan Kazianga
(Oklahoma State University)
[View Abstract]
We evaluate the long term effect of a “girl-friendly” primary school program in Burkina Faso, using a regression discontinuity design. The intervention consisted in upgrading existing three-classroom schools to six-classroom schools in order to accommodate more grades. After 6 years, the program increased enrollment by 15.3 percentage points and increased test scores by 0.28 standard deviations. Students in treatment schools progress farther through the grades, compared to students in non-selected schools. These upgraded schools are effective at getting children into school, at getting children start school on time and at keeping children in school longer. Overall, we find that the schools are able to sustain large impacts observed about 3 years earlier, with enrollment declining slightly from 18.5 to 14.9 for the cohorts of children who were exposed to both the first and second phases of the intervention.
Historical Missionary Activity, Schooling, and the Reversal of Fortunes: Evidence from Nigeria
Dozie Okoye
(Dalhousie University)
Roland Pongou
(University of Ottawa)
[View Abstract]
[Download Preview] This paper shows that historical missionary activity has had a persistent effect on schooling outcomes, and contributed to a reversal of fortunes wherein historically richer ethnic groups are poorer today. Combining contemporary individual-level data with a newly constructed dataset on mission stations in Nigeria, we find that individuals whose ancestors were exposed to greater missionary activity have higher levels of schooling. This effect is robust to omitted heterogeneity, ethnicity fixed effects, and reverse causation. We find inter-generational factors and the persistence of early advantages in educational infrastructure to be key channels through which the effect has persisted. Consistent with theory, the effect of missions on current schooling is larger for population subgroups that have historically suffered disadvantages in access to education.
School-Based Management, Local Capacity, and Educational Outcomes: Lessons from a Randomized Field Experiment
Moussa Blimpo
(University of Oklahoma)
David Evans
(World Bank)
Nathalie Lahire
(World Bank)
[View Abstract]
[Download Preview] Education systems in developing countries are often centrally managed in a top-down structure. In environments where schools have different needs and where localized information plays an important role, empowerment of the local community may be attractive; however, gains from local information may be offset by low level of administrative capacity. This research evaluates the effectiveness of a comprehensive school-based management and capacity building program called Whole School Development (WSD). The WSD program provided a grant and a comprehensive school management-training program to principals, teachers, and representatives of the community. In order to parse out the effect of the grant, a second intervention consisted of the grant only with no training (Grant-only). A third group, which also serves as control group, received neither. We randomly assigned 273 Gambian primary schools to each of the three groups. Three to four years into the program, we find that the WSD intervention led to a 21% reduction in student absenteeism and a 23% reduction in teacher absenteeism, with no impact on learning outcomes measured by a comprehensive test. We found that, the effect of the WSD program on learning outcomes is strongly mediated by the baseline local capacity measured by adult literacy. This result suggests that, in villages with high literacy, the WSD program may yield gains on students' learning outcomes. However, in villages where literacy is low, it could potentially have a negative effect. We present additional results to explore other determinants of the success of this type of interventions in low-income countries. We found no effect of the Grant-only intervention relative to the control on test score or on participation.
Discussants:
Harounan Kazianga
(Oklahoma State University)
Roland Pongou
(University of Ottawa)
Kehinde Ajayi
(Boston University)
Richard Akresh
(University of Illinois)
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 208
American Economic Association
Entrepreneurship and Creativity
(O3, J2)
Presiding:
Petra Moser
(Stanford University)
Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France
Johan Hombert
(HEC Paris)
Antoinette Schoar
(Massachusetts Institute of Technology)
David Sraer
(Princeton University)
David Thesmar
(HEC Paris)
[View Abstract]
[Download Preview] We investigate how a large-scale French reform to reduce the risk from small business creation for unemployed workers, affects the composition of people who are drawn into entrepreneurship. New firms started in response to the reform are, on average, smaller, but have similar growth expectations and education levels compared to start-ups before the reform. They are also as likely to survive or to hire. However, there are large crowd-out effects: Employment in incumbent firms decreases by a similar magnitude as the number of new jobs created in start-ups. These results point to the importance of Schumpeterian dynamics when facilitating entry.
Smart and Illicit: Who Becomes an Entrepreneur and Does It Pay?
Ross Levine
(University of California-Berkeley)
Yona Rubinstein
(London School of Economics)
[View Abstract]
[Download Preview] We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides tending to be white, male, and come from higher-income families with better-educated mothers, the incorporated –as teenagers –typically scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smart” and “illicit” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts.
Young, Restless and Creative: Openness to Disruption and Creative Innovations
Daron Acemoglu
(Massachusetts Institute of Technology)
Ufuk Akcigit
(University of Pennsylvania)
Murat Alp Celik
(University of Pennsylvania)
[View Abstract]
This paper argues that openness to new, unconventional, and disruptive ideas has a first-order impact on creative innovations that break new ground in terms of knowledge creation. After presenting a motivating model focusing on the choice between incremental and radical innovation, and on how managers of different ages and human capital are sorted across different types of firms, we provide cross-country, firm-level, and patent-level evidence consistent with this patter. Our measures of creative innovations proxy for innovation quality (average number of citations per patent) and creativity (fraction of superstar innovators, the likelihood of a very high number of citations, and generality of patents). Our main proxy for openness to disruption is manager age. This variable is based on the idea that only companies or societies open to such disruption will allow the young to rise up within the hierarchy. Using this proxy at the country, firm or patent level, we present robust evidence that openness to disruption is associated with more creative innovations.
Mental Health and Entrepreneurship
Michael Dahl
(Aalborg University-Denmark)
Petra Moser
(Stanford University)
[View Abstract]
Case studies of successful entrepreneurs who are bipolar suggest a positive link between bipolar disorder and entrepreneurship. To investigate this link, we examine detailed individual-level registry data for Denmark, including information on medical prescriptions, for more than 4 million individuals. These data indicate that individuals who are at risk of bipolar disorder are significantly less likely to be self-employed. They also earn 25 percent less on average compared with their siblings, and are significantly less likely to enter the top percentiles of the wage distribution. Clinical studies suggest that lithium is an effective treatment to reduce suicide risks in bipolar patients. We investigate the effects of the introduction of lithium in Denmark in 1976 to compare changes in labor market outcomes for bipolar individuals who had access to lithium treatment when they turned 20 with bipolar individuals who did not have access to the drug. We find that access to lithium treatment was associated with a significant reduction in the wage penalty for individuals who are at risk of bipolar disorder, and significantly increased their likelihood to enter the top percentile of the wage distribution. (http://ssrn.com/abstract=2544251)
Discussants:
Pian Shu
(Harvard Business School)
Benjamin Pugsley
(Federal Reserve Bank of New York)
Benjamin Jones
(Northwestern University)
Jonathan Feinstein
(Yale University)
Jan 05, 2015 1:00 pm, Sheraton Boston, Constitution Ballroom A
American Economic Association
Financial Constraints and Macroeconomic Risk
(E3, F3)
Presiding:
Jean Tirole
(Toulouse School of Economics)
Managing Credit Bubbles
Alberto Martin
(CREI, Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
Jaume Ventura
(CREI, Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
[View Abstract]
We study a dynamic economy where credit is limited by insufficient collateral and, as a result,
investment and output are too low. In this environment, changes in investor sentiment or market
expectations can give rise to credit bubbles, that is, expansions in credit that are backed not
by expectations of future profits (i.e. fundamental collateral), but instead by expectations of
future credit (i.e. bubbly collateral). During a credit bubble, there is more credit available for
entrepreneurs: this is the crowding-in effect. But entrepreneurs must also use some of this credit
to cancel past credit: this is the crowding-out effect. There is an optimal bubble size that trades
o¤ these two effects and maximizes long-run output and consumption.
The equilibrium bubble size depends on investor sentiment, however, and it typically does not
coincide with the optimal bubble size. This provides a new rationale for macroprudential policy.
A lender of last resort can replicate the optimal bubble by taxing credit when the equilibrium
bubble is too high and subsidizing credit when the equilibrium bubble is too low. This leaning-
against-the-wind policy maximizes output and consumption. Moreover, the same conditions that
make this policy desirable guarantee that a lender of last resort has the resources to implement it.
Good Booms, Bad Booms
Guillermo Ordonez
(University of Pennsylvania and NBER)
Gary Gorton
(Yale University and NBER)
[View Abstract]
[Download Preview] Credit booms usually precede financial crises. However, some credit booms end in a crisis (bad booms) and others do not (good booms). We document that, while all booms start with an increase in the growth of Total Factor Productivity (TFP) and Labor Productivity (LP), such growth falls much faster subsequently for bad booms. We then develop a simple framework to explain this. Firms finance investment opportunities with short-term collateralized debt. If agents do not produce information about the collateral quality, a credit boom develops, accommodating firms with lower quality projects and increasing the incentives of lenders to acquire information about the collateral, eventually triggering a crisis. When the average quality of investment opportunities also grow, the credit boom may not end in a crisis because the gradual adoption of low quality projects is not strong enough to induce information about collateral.
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.
Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops
Jean Tirole
(Toulouse School of Economics)
Emmanuel Farhi
(Harvard University)
[View Abstract]
[Download Preview] The recent unravelling of the Eurozone's financial integration raised concerns about feedback loops between sovereign and banking insolvency, and provided an impetus for the European banking union. This paper provides a "double-decker bailout" theory of the feedback loop that allows for both domestic bailouts of the banking system by the domestic government and sovereign debt forgiveness by international creditors. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions. Keywords: feedback loop, sovereign and corporate spreads, bailouts, sovereign default, strategic complementarities, debt maturity.
Discussants:
Ricardo Caballero
(Massachusetts Institute of Technology)
Zhiguo He
(University of Chicago)
Thomas Philippon
(New York University)
Pierre-Olivier Gourinchas
(University of California-Berkeley)
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 203
American Economic Association
Monetary and Macroprudential Policy Mix in a World with Financial Frictions
(E5, G2)
Presiding:
Markus K. Brunnermeier
(Princeton University)
Moral Hazard Misconceptions: The Case of The Greenspan Put
Guido Lorenzoni
(Northwestern University)
[View Abstract]
Policy discussions on financial market regulation tend to assume that whenever a corrective policy can be put in place ex post to ameliorate the effects of a financial crisis, a side effect must be some form of moral hazard ex ante. This paper shows that this is not a general theoretical prediction, first presenting a simple general framework and then focusing on the case of monetary policy. In particular, I show that if the central bank does not intervene by monetary easing following a crisis, this opens the door to a form of aggregate demand externality that makes borrowing ex ante inefficient. If instead the central bank follows an optimal discretionary monetary policy and intervenes, the aggregate demand externality disappears reducing the need for ex ante intervention.
Optimal Monetary and Regulatory Policy in Models with Financial Frictions
Markus K. Brunnermeier
(Princeton University)
Yuliy Sannikov
(Princeton University)
[View Abstract]
This paper studies optimal monetary and regulatory policy in various economies with financial frictions. Policies may set the interest rate and use macro-prudential tools like bounds on leverage and restrictions on asset holdings. Policy transmission works by controlling the trade-off between growth and risk-taking, as well as by affecting the profit margins of constrained agents. We allow for policies that are history dependent. Under full commitment, optimal policies can be found using optimal stochastic control involving variables that respect prior commitments. We identify interesting cases in which the relevant state space is one-dimensional and hence optimal policies are very tractable.
How Does Macroprudential Regulation Change Bank Credit Supply?
Anil Kashyap
(University of Chicago)
Dimitrios P. Tsomocos
(University of Oxford)
Alexandros P. Vardoulakis
(Federal Reserve Board)
[View Abstract]
[Download Preview] We analyze a variant of the Diamond-Dybvig (1983) model of banking in which savers can
use a bank to invest in a risky project operated by an entrepreneur. The savers can buy equity
in the bank and save via deposits. The bank chooses to invest in a safe asset or to fund the
entrepreneur. The bank and the entrepreneur face limited liability and there is a probability
of a run which is governed by the bank’s leverage and its mix of safe and risky assets. The
possibility of the run reduces the incentive to lend and take risk, while limited liability pushes
for excessive lending and risk-taking. We explore how capital regulation, liquidity regulation,
deposit insurance, loan to value limits, and dividend taxes interact to offset these frictions.
We compare agents welfare in the decentralized equilibrium absent regulation with welfare in
equilibria that prevail with various regulations that are optimally chosen. In general, regulation
can lead to Pareto improvements but fully correcting both distortions requires more than one
regulation.
Risk-Taking Channel of Monetary Policy: A Global Game Approach
Stephen Morris
(Princeton University)
Hyun Song Shin
(Bank of International Settlements)
[View Abstract]
[Download Preview] We explore a global game model of the impact of monetary policy shocks. Risk-neutral
asset managers interact with risk-averse households in a market with a risky bond and a
floating rate money market fund. Asset managers are averse to coming last in the ranking
of short-term performance. This friction injects a coordination element in asset managers’
portfolio choice that leads to large jumps in risk premiums to small future anticipated
changes in central bank policy rates. The size of the asset management sector is the key
parameter determining the extent of market disruption to monetary policy shocks.
Discussants:
Valentin Haddad
(Princeton University)
Itamar Drechsler
(New York University)
Saki Bigio
(Columbia University)
Cecilia Parlatore Siritto
(New York University)
Jan 05, 2015 1:00 pm, Sheraton Boston, Independence Ballroom East
American Economic Association
New Data Sources from the Internet in Microeconomic Research
(D8)
Presiding:
Edward Kung
(University of California-Los Angeles)
What's Behind the Food Truck Phenomenon? Information Frictions and Taste-for-Variety
Elliot Anenberg
(Federal Reserve Board)
Edward Kung
(University of California-Los Angeles)
[View Abstract]
[Download Preview] We study the economic causes and consequences of the recent explosion in gourmet food trucks. We argue that 1) new mobile communication technology enabled food truck growth by relaxing an information friction complicating their business model and 2) that an important advantage of food trucks over brick-and-mortar restaurants is that trucks can use mobility to capitalize on consumers' taste-for-variety. We use novel data from the internet, including food trucks' real-time Twitter feeds, to support our theory. We also provide evidence suggesting that the growth in food trucks has increased social surplus for urban consumers by increasing access to food variety.
How Many American Men Are Gay?
Seth Stephens-Davidowitz
(Google, Inc.)
[View Abstract]
I use multiple datasets to understand contemporary gay life, including Facebook profiles, pornographic searches, and dating websites. I show that there are far more openly gay men in more tolerant areas. Less than half of this difference can be explained by mobility. The rest can be explained by the closet. Overall, I estimate that about 5 percent of American men are gay, but more than half are, to some degree, in the closet.
The Impact of Unconventional Monetary Policy on Real Estate Markets
Stuart Gabriel
(University of California-Los Angeles)
Chandler Lutz
(Copenhagen Business School)
[View Abstract]
[Download Preview] We use a structural factor-augmented vector autoregression (FAVAR)model and a large dataset of daily time series to study the impact of unconventional monetary policy on residential and non-residential real estate and related markets. Our findings indicate that an expansionary unconventional monetary policy shock lowers key housing market interest rates; raises equity market returns for homebuilders and real estate investment trusts (REITs); reduces the cost to insure subprime mortgage-backed and commercial real estate debt; and increases housing sentiment. Research findings also suggest that the estimated effects are generally large in magnitude and similar in size to those found for equity markets. Further, the impact of unconventional monetary policy shocks on housing markets differs in magnitude across risk-levels and US geographies. Finally, results indicate that successive rounds of monetary easing may be necessary during an extended period of economic weakness, in that the impact of an unconventional monetary shock attenuates rather quickly with an estimated half-life that is generally less than three months.
Financial Conflicts of Interest in Medicine
Joey Engelberg
(University of California-San Diego)
Christopher Parsons
(University of California-San Diego)
Nathan Tefft
(Bates College)
[View Abstract]
[Download Preview] We use the geographic distance between a doctor’s office and drug company headquarters to instrument for the likelihood of pecuniary transfers, such as meals or speaking fees. Doctors tilt prescriptions in favor of the paying firm’s drugs, shifting away from both branded and generic substitutes. Larger transfers cause larger shifts in prescriptions. We explore two potential explanations: 1) persuasion and/or information flow, and 2) rent seeking. Payments increase prescriptions of branded drugs over generic equivalents, situations where information cannot play a large role. However, doctors residing in states known to be corrupt in other ways (e.g., electoral fraud) are much more sensitive to payments from the drug industry.
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 202
American Economic Association
Observational and Quasi-Experimental Methods for Estimating School and Teacher Quality
(I2)
Presiding:
Douglas Staiger
(Dartmouth College)
Leveraging Lotteries for School Value-Added: Bias Reduction vs. Efficiency
Joshua Angrist
(Massachusetts Institute of Technology)
Peter Hull
(Massachusetts Institute of Technology)
Parag A. Pathak
(Massachusetts Institute of Technology)
Christopher Walters
(University of California-Berkeley)
[View Abstract]
An increasing number of US public school districts use centralized assignment mechanisms to allocate students to schools. These mechanisms typically involve partial lottery-based random assignment, which generates instrumental variables (IV) that can be used to estimate the causal effects of schools. This paper uses mechanism-based instruments to validate and improve upon observational value-added (VA) estimates of school quality. We develop a unified empirical Bayes framework that combines IV and observational VA estimates to assess the degree of bias in observational VA, and to produce estimates of school quality with lower mean squared error. We apply our method to data from the Boston Public Schools (BPS) assignment mechanism. Preliminary results suggest non-negligible bias in observational VA estimates for many schools. Our method generates estimates of school quality with lower mean squared error than either observational VA or IV alone.
Measures of School Effectiveness and the Education Production Function
David Deming
(Harvard University)
[View Abstract]
Value-added models (VAMs) are increasingly used to measure school and teacher effectiveness. 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 public school choice lotteries across multiple years, combined with data on teacher assignments, to test the predictive power of VAMs and to separately identify the contributions of individual teachers from the overall school “effect”. Many commonly used VAMs are accurate predictors of student achievement gains.
The Labor Market Returns to Colleges and Majors: Evidence from Chile
Justine Hastings
(Brown University)
[View Abstract]
We use a new panel data set of high school records, entrance exam scores, college matriculation, and graduation linked to labor market earnings from tax records for 14 cohorts of Chileans. We estimate value-added models of college and major for higher education institutions. We show that most of the gains from higher education accrue to students attending highly selective institutions. The average gain from attending low-selectivity degrees, including private universities and technical and professional degrees are on average near zero, with many low selectivity degrees offering poor investment returns relative to no college. We exploit regression discontinuities in admissions to a core set of institutions to examine whether value-added models of education returns yield similar results. Overall we find that value-added estimates are consistent with the RD estimates in predicting income based on admission to a particular institution and major.
Using Randomized Experiments to Validate Value-Added Estimates of Teacher Performance
Steven Glazerman
(Mathematica Policy Research)
Ali Protik
(Mathematica Policy Research)
[View Abstract]
[Download Preview] Policymakers debate the importance, validity, and reliability of test-score-based measures of teacher performance. A handful of studies have attempted to validate value-added measures empirically: Kane et al. (2013) randomly assigned students within schools to determine whether performance differences identified through value added between pairs of teachers could be replicated using random assignment of students to those same teachers in the following year. Chetty et al. (2013) showed that introducing a high value-added teacher to a school increased performance after the teacher moved in. Our paper provides an overview of this research and presents new analysis from a recent social policy experiment to address this question. The policy experiment, known as the Talent Transfer Initiative (TTI), used value-added measures to identify high-performing teachers and offered them $20,000 if they transfer to and stay in their district’s lowest-achieving schools. We exploit the fact that lowest-achieving schools in our sample were randomly assigned to the opportunity to fill their vacancy from the pool of high value-added teachers. Thus, students in the treatment group were randomly exposed to a high-value-added teacher compared to students in the control group. We examine whether high-value-added teachers are truly high-performing by estimating the impact of a one unit change in estimated teacher value added on student test scores in a low-achieving school using the random assignment status as an instrumental variable for teacher value added.
Discussants:
Will Dobbie
(Princeton University)
Christopher Neilson
(Yale University)
Jan 05, 2015 1:00 pm, Sheraton Boston, Constitution Ballroom B
American Economic Association
Organization, Management and Economic Growth
(J1, L1)
Presiding:
Rebecca Henderson
(Harvard Business School)
Never Waste a Good Crisis? Growth and Decentralization in the Great Recession
John Van Reenen
(London School of Economics)
Nicholas Bloom
(Stanford University)
Philippe Aghion
(Harvard University)
Raffaella Sadun
(Harvard Business School)
[View Abstract]
[Download Preview] We argue that decentralization is particularly beneficial to firm performance in bad times. We present a model where bad times increase the importance of rapid action, and improve the alignment of incentives of managers within firms. We test this idea exploiting the 2008-2009 Great Recession using firm-level cross country panel data combined with our survey data on firm organization. We find that: (i) decentralization is positively correlated with sales growth and with TFP growth, particularly in times of crisis; (ii) the correlation between decentralization and performance in crisis times is stronger when the congruence between principals and agents is weaker, e.g. (a) in firms where the CEO is offsite; (b) where the plant manager has shorter tenure; and (c) where the level of generalized trust in the region is lower; (iii) the positive effects of decentralization in times of crisis is significantly larger in firms with leverage above the median.
Formal Measures in Informal Management: Can a Balanced Scorecard Change a Culture?
Robert Gibbons
(Massachusetts Institute of Technology)
Robert Kaplan
(Harvard Business School)
n/a
The Real Effects of Relational Contracts
Rebecca Henderson
(Harvard Business School)
Claudine Gartenberg
(New York University)
Steve Blader
(New York University)
Andrea Prat
(Columbia University)
[View Abstract]
[Download Preview] Many managers assert that “firm culture” is strongly correlated with productivity, but there are few robust tests of this assertion. In a set of field experiments, we study driver productivity within a large US logistics company that is arguably transitioning from one relational contract to another, while leaving formal practices unchanged. Sites under the new contract are associated with 1-8% improved productivity. Relative to untouched sites, these sites also respond in the opposite direction to the introduction of a management practice in which driver performance is posted publicly. Together, the findings suggest that relational contracts have a first-order effect on productivity and that they can be altered over time.
Managing Ethnically Diverse Bureaucrats: Evidence from the Nigerian Civil Service
Daniel Rogger
(World Bank)
Imran Rasul
(University College London)
[View Abstract]
[Download Preview] We document the correlations between public service delivery, management practices, and the ethnic diversity of bureaucrats. We do so in the context of Nigeria, where ethnicity is a salient form of identity. We thus expand the empirical management literature highlighting beneficial effects of workplace diversity, that has focused on private sector firms operating in high income settings. Our analysis combines three data sources: (i) independent engineering assessments of completion rates for 4700 public sector projects; (ii) a survey eliciting management practices in the 63 civil service organizations responsible for these projects, following the approach of Bloom and Van Reenen [2007]; (iii) a survey to bureaucrats eliciting their ethnic identities. Management practices and ethnic diversity in organizations significantly impact public service delivery: a one standard deviation increase in good management for bureaucrats corresponds to 21% higher completion rates; a one standard deviation increase in the ethnic diversity of bureaucrats corresponds to 14% higher completion rates. The two organizational characteristics are found to be substitutes for one another. In line with the management literature, this evidence highlights a potentially positive side of ethnic diversity in public sector organizations, in the context of Sub Saharan Africa.
Jan 05, 2015 1:00 pm, Sheraton Boston, Back Bay Ballroom C
American Economic Association
Retirement Savings and Household Decisions
(E2, G1)
Presiding:
Olivia Mitchell
(University of Pennsylvania)
Liquidity in Retirement Savings Systems: An International Comparison
John Beshears
(Harvard Business School)
James Choi
(Yale University)
Christopher Harris
(University of Cambridge)
David Laibson
(Harvard University)
Brigitte C. Madrian
(Harvard University)
[View Abstract]
[Download Preview] This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC systems overwhelmingly illiquid before age 55. This cross-country heterogeneity begs the question of why the U.S. has chosen a different path from its peers.
The Composition Effect of Consumption Around Retirement: Evidence from Singapore
Sumit Agarwal
(National University of Singapore)
Jessica Pan
(National University of Singapore)
Wenlan Qian
(National University of Singapore)
[View Abstract]
It is well established that consumption is “hump” shaped over an individual’s lifecycle, peaking in middle age and then declining in the years that follow. Prior research has documented that consumption declines at retirement which is inconsistent with the standard lifecycle model with consumption smoothing. Using a unique dataset with detailed administrative records of credit and debit card transactions from Singapore, we show the hump shaped lifecycle consumption pattern as documented in the literature. Additionally, we show compositional changes in consumption expenditures across and within individuals in the years surrounding retirement confirming the results of Aguiar and Hurst (2005, 2013).
Defined Contribution Pension Plans: Mutual Fund Asset Allocation Changes
Clemens Sialm
(University of Texas-Austin)
Laura Starks
(University of Texas-Austin)
Hanjiang Zhang
(Nanyang Technological University)
[View Abstract]
[Download Preview] In this paper we compare changes in asset allocations between mutual funds held in defined contribution pension plans and funds held by other investors. We investigate how flows into equity and fixed income mutual funds depend on macroeconomic conditions. We find that defined contribution plans react more sensitively to these conditions suggesting effects on mutual fund managers and other investors
The Retirement Consumption Puzzle in China
Hongbin Li
(Tsinghua University)
Xinzheng Shi
(Tsinghua University)
Binzhen Wu
(Tsinghua University)
[View Abstract]
[Download Preview] Using data from China's Urban Household Survey and exploiting China's mandatory retirement policy, we use the regression discontinuity approach to estimate the impact of retirement on household expenditures. Retirement reduces total non-durable expenditures by 21 percent. Among the categories of non-durable expenditures, retirement reduces work-related expenditures and expenditures on food consumed at home but has an insignificant effect on expenditures on entertainment. After excluding these three components,retirement does not have an effect on the remaining non-durable expenditures. It suggests that the retirement consumption puzzle might not be a puzzle if an extended life-cycle model with home production is considered.
Discussants:
Christopher Carroll
(Johns Hopkins University)
Jeffrey R. Brown
(University of Illinois-Urbana-Champaign and NBER)
Jeremy Tobacman
(University of Pennsylvania)
Eugene Amromin
(Federal Reserve Bank of Chicago)
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 209
American Economic Association
Tax Compliance
(H2)
Presiding:
James Alm
(Tulane University)
Local Public Goods and Property Tax Compliance: Evidence from Residential Street Pavement
Marco Gonzalez Navarro
(University of Toronto)
Climent Quintana-Domeque
(University of Oxford)
[View Abstract]
[Download Preview] This paper uses administrative property tax records and information on the rollout
of first-time asphalting of streets in inhabited residential neighborhoods in Mexico to
show that the provision of local public goods can improve property tax compliance
rates. We put forward a simple explanation to link local public goods and property
tax compliance: When citizens observe public goods being delivered, they update their
beliefs about the government's quality in public good provision and become more likely
to comply.
Tax Me If You Can! Optimal Nonlinear Income Tax between Competing Governments
Etienne Lehmann
(Paris II)
Laurent Simula
(Uppsala University)
Alain Trannoy
(Aix-Marseille University)
[View Abstract]
[Download Preview] We investigate how potential tax-driven migrations modify the Mirrlees income tax
schedule when two countries play Nash. The social objective is the maximin and prefer-
ences are quasilinear in consumption. Individuals differ both in skills and migration costs,
which are continuously distributed. We derive the optimal marginal income tax rates at the
equilibrium, extending the Diamond-Saez formula. We show that the level and the slope of
the semi-elasticity of migration (on which we lack empirical evidence) are crucial to derive
the shape of optimal marginal income tax.
Taxes, Informality and Income Shifting: Evidence from a Recent Pakistani Tax Reform
Mazhar Waseem
(London School of Economics)
[View Abstract]
This paper analyzes the effects of personal income taxation on earnings, formality and business
organization choices of agents. I use a tax reform introduced in Pakistan in 2009, which
increased taxation of partnership firms substantially relative to other unincorporated firms, as
a natural policy experiment to identify behavioral responses to taxation that include movement
into informality, under-reporting taxable earnings, and income shifting to tax-favored business
forms. Relying on administrative tax records that comprise the universe of income tax returns
filed in 2006–11, I find that the tax rate rise caused the exit of a large number of treated firms:
the number of such firms reporting positive taxable earnings declined by 41% in 2009, by another
27% in 2010, and by an additional 15% in 2011. By tracking personal income tax returns of
owners of the exited firms, I find that around 45% of the owners moved into informality, the rest
switched their business organization. For the treated firms that did not exit, I document almost
50% reduction in reported earnings compared to untreated firms. Combining these estimates of
behavioral responses with a simple conceptual framework, I compute that 133% of the projected
increase in tax revenue was lost through the behavioral responses, implying that the new tax
rate on partnership earnings was on the wrong side of the Laffer curve and would not have been
optimal under any social preferences. The excess burden created by the reform increases by
nearly 17% if negative spillovers on VAT base are also taken into account.
Improving Tax Collection by Public Shaming. Evidence from Administrative Tax Data
Nadja Dwenger
(Max Planck Institute)
[View Abstract]
Do the public spotlight and social-image concerns provide an effective measure for facilitating tax compliance and tax collection? This question is at the heart of an ongoing debate in the tax compliance literature asking whether tax compliance decisions are co-determined by social incentives (Slemrod 2007, Dwenger, Kleven, Rasul, Rincke 2014). If social incentives such as social-image concerns are at play in taxpayers’ tax compliance decisions it might be attractive for tax authorities to revert to an instrument which has been widely used in our societies in other contexts: public shaming.
Notwithstanding the potential importance of social-image concerns suggested by theory (e.g., Bénabou/Tirole 2011, Andreoni/Bernheim 2009, Glazer/Konrad 1996, Bernheim 1994), our knowledge about whether social-image concerns affect behavior outside the laboratory is still very limited.
This paper aims at making progress on that question by studying the behavioral consequences of an official naming-and-shaming list on delinquent taxpayers, which has been published monthly by an Eastern European tax administration on their webpage since April 2013.
We have access to administrative tax records of all individuals and firms prior to and after the introduction of the naming-and-shaming list. This panel data at the micro level allows us to study bunching behavior under treatment and in the absence of treatment. In addition, we exploit differences in the intensity of treatment which arise from the fact that the published list of defaulters is arranged into classes depending on the time the tax debt was unpaid and the amount of unpaid tax liabilities. We anticipate that the loss in social-image is more important the more an individual is found to violate the social norm of paying taxes on time. As a second type of outcome variable we consider audit results and taxes assessed, which allow us to study the cross-effects of public shaming on tax compliance.
Jan 05, 2015 1:00 pm, Hynes Convention Center, Room 206
American Economic Association
Trading and Financial Instruments
(G1)
Presiding:
Rodolfo Prieto
(Boston University)
Workup
Darrell Duffie
(Stanford University)
Haoxiang Zhu
(Massachusetts Institute of Technology)
[View Abstract]
A workup is a trading mechanism by which buyers and sellers successively exchange large quantities of an asset at a fixed price. A main benefit of a workup procedure, relative to price-discovery mechanisms such as double auctions, is that workups involve no price impact. Although workups are unable to fully match supply and demand at the given price, we show that augmenting a sequential double-auction market with workup can quickly improve allocational efficiency. In equilibrium, only relatively large investors, such as broker-dealers, choose to participate in workups. Once given the chance to participate as the sole active player on one side of the market, a dealer "works up" the quantity exchanged with a succession of dealers on the other side of the market until the dealer's remaining position reaches an endogenous cutoff that depends on the conditional expected total supply imbalance and on price elasticity in subsequent flexible-price markets. Freezing the workup execution price allows a quick reduction in position imbalances, relative to the more gradual re-allocation allowed by flexible-price markets (e.g. double auctions) in which bidders internalize the costs of price impacts and therefore reduce their expressions of demand and supply at each trading opportunity. Adding a workup mechanism to a series of double auctions improves allocational efficiency and welfare.
Speculative Equilibrium with Differences in Higher-Order Beliefs
Jungsuk Han
(Stockholm School of Economics)
Albert S. Kyle
(University of Maryland)
[View Abstract]
[Download Preview] Modest differences in higher-order beliefs can have large price effects. To illustrate this, we generalize a single-period model of competitive trading with different information, like Hellwig [1980] with two types of symmetrically informed traders. We allow traders to have possibly different dogmatic beliefs about the mean, different dogmatic beliefs about other traders’ beliefs, and so on for higher and higher orders of beliefs. Even when every trader’s first-order expectations are unbiased, overvaluation results when traders have inconsistent higher-order beliefs that their own expectations are more optimistic than average. Lack of common knowledge
destabilizes prices more as market liquidity disappears.
The Future of Inflation Futures
Michael Ashton
(Enduring Investments LLC)
[View Abstract]
[Download Preview] Various futures exchanges have considered launching two new futures contracts related to inflation: a Consumer Price Index (CPI) futures contract and a deliverable TIPS futures contract. These contracts would be new in an obvious sense, but inflation‐related futures are not a new idea. Since at least the 1970s, economists have anticipated that these instruments would one day be available. Several previous attempts, dating back to as early as the mid‐1980s, have failed for various reasons – too early, too different, bad structure.
So why are futures exchanged considering new versions of these contracts, when prior experience has been consistently negative? Are these contracts important, in some larger sense? What can we expect from a successful futures market? How will these contracts be valued, how will they trade, and how can they be used? This paper will examine each of these questions, and address a couple of persistent critiques that have been made about these instruments.
At root, inflation futures are important for the health of the liquidity ecosystem in inflation markets and in rates markets themselves. Adding these products will likely increase the volumes and the liquidity of all inflation products, as well as giving policymakers a better window into inflation expectations.
Abusing ETFs
Benjamin Loos
(Goethe University Frankfurt)
Utpal Bhattacharya
(Indiana University)
Steffen Meyer
(Goethe University Frankfurt)
Andreas Hackethal
(Goethe University Frankfurt)
[View Abstract]
[Download Preview] Do ETFs, one of the most popular investment products in recent times, benefit individual investors? Using data from one of the largest brokerages in Germany, we find that individual investors do not improve their portfolio performance, even before transactions costs, by using these passive products. Using counterfactual analysis, we show that this occurs mostly from buying ETFs at “wrong” points in time rather than choosing “wrong” ETFs. Therefore, adopting a buy-and-hold strategy is more important than selecting better ETFs for individual investors.
Learning in Online Trade
Maggie Chen
(George Washington University)
Min Wu
(George Washington University)
[View Abstract]
The recent rise of online trade intermediary is reforming the ways exporters and importers search, learn and trade. In this paper, we examine how learning enabled by online intermediary affects information frictions and trade. We first document a number of new stylized facts of online trade using detailed cross-border transaction data from Alibaba, the world's leading online trade platform. We then present a simple dynamic model that incorporates information frictions and buyer learning to examine their implications for the behavior of exporters and importers and the patterns of trade. The model yields predictions that explain the observed stylized facts and shows that exporters use dynamic pricing strategies to influence the speed of importer learning and information diffusion. Structural estimation of the model finds that learning is quantitatively important in online trade.
Jan 05, 2015 1:00 pm, Sheraton Boston, Back Bay Ballroom D
American Economic Association
What We Can Learn About Gender Differences from International Data and Immigrant Groups
(J1, J2)
Presiding:
Kevin Lang
(Boston University)
Trust, Reciprocity and Trustworthiness between Spouses: Evidence from a Field Experiment in India
Carolina Castilla
(Colgate University)
[View Abstract]
[Download Preview] I present results from the first trust game conducted among married couples. The experiment consisted of a trust game where spouses were taken into separate rooms, not allowed to communicate, and given a significant endowment. Spouses played a one-shot trust game where they were randomly assigned to the role of sender or receiver. The first notable result is that only 3% of spouses in the sender role transfer the entire amount, which is costly as the transferred amount is tripled. Women send significantly less money than their male counterparts, 54% versus 60% of the total endowment respectively. Men return significantly more money than women, 58% versus 48% respectively. In these households, women are less trusting and less trustworthy than men because they receive more money and send less in return. I use self-reported indicators of bargaining power, control over money, and altruism to examine the mechanisms motivating differences in sending behavior across genders. The results suggest that lack of control over money and prior non-cooperative behavior between spouses in their daily lives contribute to explain the motives for inefficient allocations in the household.
Alcohol Consumption and Violence against Women
Dara Lee Luca
(University of Missouri and Harvard University)
Emily Owens
(University of Pennsylvania and Cornell University)
Gunjan Sharma
(World Bank)
[View Abstract]
In this paper, we combine a newly collected set of alcohol regulations across states in India, with detailed survey microdata and state-panel crime data, to investigate whether alcohol consumption is causally linked to increased violence against women. India provides a unique setting to study this question. Due to institutional and cultural reasons, women in India effectively do not drink. In other words, alcohol regulation affects only the perpetrator’s likelihood of alcohol consumption, so that it removes the confounding effect of possible increased risk of a woman becoming a victim due to intoxication. Further, India is one of the few countries in the world where alcohol control laws are made and implemented at the state level. A number of states prohibit alcohol consumption altogether, and the minimum legal drinking age (MLDA), where it exists, varies from 18 to 25.
Using rich micro-level data, we first show that men who are legally allowed to drink are significantly more likely to consume alcohol. We then provide reduced form evidence that men who are legally allowed to drink are much more likely to beat their wives than those who are not legally eligible to purchase alcohol. When we instrument alcohol consumption by using whether the individual is legally allowed to drink, we find that drinking substantially increases the likelihood of domestic violence. The results are robust to controlling for a rich set of individual-level characteristics, state and year fixed effects, as well as state-by-year fixed effects. Finally, we supplement our analysis by examining the effect of alcohol regulation on state-year panel data on crimes against women. We find consistent evidence that higher MLDA laws are associated with lower incidences of violent crime, particularly violent crimes that are directed at women and children such as sexual molestation and harassment.
N/A
Does Mother Tongue Make for Women's Work? Linguistics, Household Labor, and Gender Identity
Daniel L. Hicks
(University of Oklahoma)
Estefania Santacreu-Vasut
(ESSEC Business School and THEMA)
Amir Shoham
(Temple University and COMAS)
[View Abstract]
[Download Preview] This paper studies the formation and persistence of gender identity in a sample of U.S. immigrants. We show that gender roles are acquired early in life, and once established, persist regardless of how long an individual has lived in the U.S. We use a novel approach relying on linguistic variation and document that households with individuals whose native language emphasizes gender in its grammatical structure are significantly more likely to allocate household tasks on the basis of sex and to do so more intensively. We present evidence of two mechanisms for our observed associations – that languages serve as cultural markers for origin country norms or that features of language directly influence cognition and behavior. Our findings do not appear to be driven by plausible alternatives such as selection in migration and marriage markets, as gender norms of behavior are evident even in the behavior of single person households.
Child Gender and Parental Inputs: No More Son Preference in Korea?
Eleanor Jawon Choi
(Hanyang University)
Jisoo Hwang
(Hankuk University of Foreign Studies)
[View Abstract]
[Download Preview] Sex ratio at birth remains highly skewed in many Asian countries due to son preference. In South Korea, however, the ratio declined from 116.5 boys per 100 girls in 1990 to the natural ratio of 107 since 2007 (105.3 in 2013). In this paper, we investigate whether son preference has disappeared in Korea by investigating parent’s time and monetary inputs by the sex of their child.
Korea is a particularly interesting case to study because Korea is the only Asian country escaping the imbalanced sex ratio at birth but still lagging behind other developed countries in female labor market outcomes. Evidence from a transitional case like Korea would help bridge the gap between the existing research on son preference in developing and developed countries.
To study parental time and monetary inputs on various dimensions, we use data from several sources, including Korean Population Census, Korean Labor and Income Panel Survey, Korean Time Use Survey, Korean Education Longitudinal Study, and Private Education Survey. Our empirical strategy exploits randomness of the first child's sex to overcome potential bias from endogenous fertility decisions. The data presents no statistically significant differences in various observable characteristics between parents whose first child is male and female.
Our findings show that in a transitional phase, boy-girl differences still appear after birth in forms of parents’ time and monetary inputs: 1) Mothers of girls are more likely to be working and to be full-time working compared to mothers of boys. 2) Girls spend twice as much time as boys in housework activities. 3) Parents spend more on private education and expect slightly higher education level for boys than for girls. The paper would also have important implications for other Asian countries where son preference remains strong till this day.
Discussants:
Robert Pollak
(Washington University-St. Louis)
Angela Dills
(Providence College)
Aimee Chin
(University of Houston)
Kevin Lang
(Boston University)
Jan 05, 2015 1:00 pm, Sheraton Boston, Back Bay Ballroom B
American Economic Association
Women's Health Economics
(I1)
Presiding:
Lisa Schulkind
(University of North Carolina-Charlotte)
Think Pink? The Effects and Efficiency of Breast Cancer Awareness Campaigns
Thomas G. Koch
(Federal Trade Commission)
Chris Adams
(Federal Trade Commission)
[View Abstract]
[Download Preview] October is National Breast Cancer Awareness Month. Using a 5% sample of Medicare claims data we find that October (and November) are associated with a 2% increase in the utilization of mammograms relative to the "average" month. We find that the ``October'' cohort is less likely to be diagnosed with breast cancer, somewhat more likely to be diagnosed with Stage 0 breast cancer conditional upon diagnosis, but have similar 1, 2 and 3 year mortality and similar late stage diagnosis, both conditional upon diagnosis. A model of a policy intervention to increase mammography rates suggests that among women with breast cancer who do not receive regular mammograms there is a one percentage point increase in 5-year survival. The proposed policy intervention is associated with an increase of $8,000 in expected total medical expenditure per breast cancer patient over 5 years.
Does Access to Contraception Affect Timing of Abortions?
Inna Cintina
(University of Hawaii-Manoa)
[View Abstract]
Everything else constant, having access to reproductive health care services (including abortion services) and to contraception (including emergency contraception (EC)) may reduce the incidence of unwanted pregnancy. After more than a decade of controversy, the Food and Drug Administration (FDA) gradually made EC available over-the-counter for women of all ages. Specifically, in 2006, the FDA lifted the EC prescription requirement for women 18 years of age or older, and in 2009 the age requirement was lowered to 17 years. These policy changes could be treated as natural experiments: women who are able to obtain the drug without a prescription face lower overall EC cost relative to women who still need a prescription to gain access to the drug. I use the variation in the EC availability across time and age groups to identify whether, after controlling for other relevant factors, the composition of abortions among women who have access to EC without a prescription differs from that of women who were required to have a doctor’s prescription for EC. The potential effect of EC on the timing of abortion is ambiguous, as changes in the cost of EC can affect several stages of the fertility decision process, including changes in the sexual behavior. Therefore, the identification of the effect (if any) is an empirical issue. I evaluate the effect of EC on the timing of abortion by using individual level abortion data for a sample of West Coast states between 2004 and 2010. Preliminary results indicate no change in the probability of the late-term abortions, which represent about 10% of all abortions, in the years after the FDA policy change. Yet, over the same time frame, the average length of gestation at termination has increased, implying a relative decrease in the number of abortions early in the pregnancy.
The Effects of Motherhood
Marte Stroem
(Institute for Social Research)
Simen Markussen
(University of Oslo)
[View Abstract]
[Download Preview] We use miscarriage as a biological shock to fertility in order to estimate the causal impact of motherhood on labor market outcomes. The number of instruments is increased by exploiting the response-heterogeneity to miscarriage along three dimensions: time, age, and birth order. This allows us to separately identify the effect of the first, second and third child as well as the effects of pregnancy and caretaking for small children. We find each child reduces female earnings by around 18%, only part of it due to reduced work hours. We find no evidence of an adverse health effect of having children.
Mitigating the Effects of Low Birth Weight: Evidence from Quasi-Randomly Assigned Adoptees
Martin Saavedra
(Oberlin College)
Brian Beach
(University of Pittsburgh)
[View Abstract]
[Download Preview] Infants who are underweight at birth earn less, score lower on tests, and become less educated as adults. This paper uses a unique dataset in which adoptees were quasi-randomly assigned to families to ask whether socioeconomic status mitigates these effects. Consistent with previous findings, we find that low birth weight adoptees earn less and attain less education than normal birth weight adoptees. We find no evidence, however, that birth weight affects BMI. Previous studies have found mixed evidence that socioeconomic status mitigates the effects of low birth weight. We reconcile these findings by noting that socioeconomic status is multidimensional. Whereas other studies use one measure of socioeconomic status, we use five: mother’s education, father’s education, family income, neighborhood income, and family size. We find that the average income within a zip code mitigates the effects of low birth weight, whereas other family characteristics do not. These results cannot be explained by differences in genetics, prenatal healthcare or neonatal healthcare.
Religion and Health in Early Childhood: Evidence from the Indian Subcontinent
Nidhiya Menon
(Brandeis University)
Elizabeth Brainerd
(Brandeis University)
[View Abstract]
[Download Preview] Children in the Indian subcontinent are among the most undernourished in the world. In India, the share of children who are stunted or of low weight-for-age exceed the proportion of children with these markers of undernourishment in many countries of sub-Saharan Africa with lower levels of per capita income and higher rates of infant and child mortality (Deaton and Dreze 2009). This paper investigates the puzzle of child undernourishment in India, Bangladesh and Nepal by comparing differences in child health outcomes by religious affiliation. The religious affiliation of a child's family provides information on the likely dietary restrictions encountered by a child in the early growing years, on the child's exposure to fasting in utero during Ramadan, and on possible differences in women's autonomy arising from differences in son preference.
This paper uses two datasets to assess inequalities. We begin by using the two most recent rounds of the Demographic and Health Surveys (DHS) for India, Bangladesh and Nepal to examine differences in child anthropometrics by religion and gender within each country, and how these differences have evolved over time. Our results indicate that in India and Bangladesh, Muslim infants (age less than 12 months) have a significant advantage in height-for-age and weight-for-age z scores over Hindu infants. Beyond 12 months of age, however, the advantage is reversed, and Hindu children are significantly taller and heavier than Muslim children up to age four. Next we use the Young Lives (YL) data from Andhra Pradesh, India to corroborate these results. The YL data are a longitudinal data set that tracks anthropometric measures for two thousand children beginning from age 6-18 months in 2002. The YL data allow tests to rule out mortality selection and confirm the patterns in the DHS.
Jan 05, 2015 1:00 pm, Westin Copley, Essex North
American Finance Association
Asset Management and Market Efficiency
(G1)
Presiding:
Jonathan Berk
(Stanford University)
Cautious Risk-Takers: Investor Preferences and Demand for Active Management
Valery Polkovnichenko
(University of Texas-Dallas)
Kelsey Wei
(University of Texas-Dallas)
Feng Zhao
(University of Texas-Dallas)
[View Abstract]
[Download Preview] Despite their mediocre mean performance, actively managed mutual funds have
distinct return distributions from their passive benchmarks in that their
performance serves to reduce the downside risk and capture the upside
potential. Based upon the idea that such return distributions may be
attractive to investors who overweight tail events, we show that
preferences for upside potential and downside protection estimated from the
empirical pricing kernel have significant explanatory power for active fund
flows. Moreover, the sensitivity of fund flows to investor risk preferences
varies significantly across funds with different levels of active
management, different return skewness or different hedging
properties, and across retirement and retail funds.
A Solution to the Palm–3Com Spin-Off Puzzles
Martin Cherkes
(Columbia University)
Charles M. Jones
(Columbia University)
Chester Spatt
(Carnegie Mellon University)
[View Abstract]
[Download Preview] This paper revisits the relative pricing of Palm and 3Com shares in 2000. We offer a simple rational explanation of the Palm/3Com price relationship before Palm's spinoff is completed. Lending fees and spinoff uncertainty are crucially important to understanding the relative levels and co-movement of Palm and 3Com share prices. We use Palm's post-spinoff forward prices (calculated from the market prices of calls and puts) and model the spinoff uncertainty in valuing 3Com. Considering forward pricing and spinoff uncertainty resolves many of the observed pricing puzzles, including the sharp change in relative price behavior once the spinoff uncertainty is resolved on May 8, 2000.
Liquidity Clienteles, Correlated Demand and Excess Comovement of Exchange-Traded Fund Returns
Markus Broman
(York University)
[View Abstract]
[Download Preview] This study shows that return differences between Exchange-Traded Funds and their underlying portfolio Net Asset Values – which contain no fundamental risk – comove excessively across ETFs. Excess comovements are strong across ETFs in matching investment styles, but insignificant across opposite styles. The degree of return comovements is positively related to proxies for correlated demand shocks, flows to institutional ETF owners in matching styles, ETF liquidity and measures of aggregate market uncertainty. These results agree with a clientele based explanation, whereby investors with high liquidity needs and correlated demand self-select into ETFs due to their high perceived liquidity.
Do Mutual Funds Have Decreasing Returns to Scale: Evidence from Fund Mergers
Ping McLemore
(University of Arizona)
[View Abstract]
[Download Preview] This paper investigates whether mutual funds have decreasing returns to scale. The results show that acquiring funds experience performance deterioration after abnormal size increases due to mergers. The declining performance, however, is a temporary phenomenon. Fund size decreases in the post-merger period resulting from the combination of poor performance and abnormal outflows. As the abnormal size of acquiring funds decreases, fund performance tends to recover. These findings provide evidence that is consistent with mutual funds having decreasing returns to scale.
Discussants:
Jules van Binsbergen
(Stanford University)
Erik Stafford
(Harvard Business School)
Larry Harris
(University of Southern California)
Lubos Pastor
(University of Chicago)
Jan 05, 2015 1:00 pm, Westin Copley, Essex Center
American Finance Association
Banking, Regulation, and the Real Economy
(G2)
Presiding:
Tomasz Piskorski
(Columbia University)
Shadow Insurance
Ralph Koijen
(London Business School)
Motohiro Yogo
(Federal Reserve Bank of Minneapolis)
[View Abstract]
Liabilities ceded by life insurers to shadow reinsurers (i.e., affiliated and less regulated off-balance-sheet entities) grew from \$11 billion in 2002 to \$364 billion in 2012. Companies using shadow insurance, which capture half of the market share, ceded 25 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. Our adjustment for shadow insurance reduces risk-based capital by 53 percentage points (or 3 rating notches) and raises impairment probabilities by a factor of four. We develop a structural model of the life insurance industry to estimate the impact of current policy proposals to curtail shadow insurance. Without shadow insurance, marginal cost would rise by 18 percent, and annual life insurance underwritten would fall by 23 percent.
Does Financial Structure Shape Industry Structure? Evidence from Timing of Bank Liberalization
Markus Behn
(University of Bonn)
Rainer Haselmann
(University of Bonn)
Amit Seru
(University of Chicago)
Vikrant Vig
(London Business School)
[View Abstract]
[Download Preview] In this paper we posit and empirically demonstrate that the structure of a country's financial system impacts its industry structure through its influence on the allocation of credit to firms within and across industries. We exploit variation in domestic banks' ability to compete with foreign entrants at the time of liberalization across 26 emerging economies to generate significant changes to the structure of financial system - market share of foreign banks - in an economy. We then use within-country, cross-sectional variation at the bank level, at the industry level, and at the firm level to test our hypothesis. Following liberalization, arm's length foreign capital crowds out domestic lending in countries with weak domestic banking sector. In contrast, there is an increase in the aggregate supply of credit in countries with more competitive domestic banks. We show that these differential changes in financial structure significantly affect the allocation of credit. There is a higher growth rate and lower growth volatility for industry sectors in economies with more competitive domestic banks. These results are driven by more credit flowing to industries that are reliant on external financing and to smaller firms. In contrast, industry growth is lower and growth volatility is higher in countries with uncompetitive domestic banks. These results are driven by credit flow to small firms. Thus, the timing of liberalization of credit markets interacts with the development of the incumbent domestic banking sector, and the change in financial structure it induces has implications on the allocation of credit and economic growth.
Large Banks and the Transmission of Financial Shocks
Vitaly Bord
(Harvard University)
Victoria Ivashina
(Harvard Business School)
Ryan Taliaferro
(None)
[View Abstract]
[Download Preview] An increasing amount of credit in the U.S. is provided by large geographically dispersed banks. We explore the role of large banks in propagating economic shocks across the U.S. economy. We show that in 2007 and 2008, large banks that were operating in U.S. counties most affected by the drop in real estate prices, contracted their credit to small businesses in counties that were not affected by falling real estate prices, relative to healthy banks. These exposed banks were also more likely to completely cease operations in these unaffected counties. On the other hand, healthy banks were more likely to expand operations and even enter new banking markets. This offsetting effect was stronger for counties with bigger spillover effects and resulted in changes in market share composition that had lasting effect. The results are robust across a range of filters, including exclusion of the ten largest U.S. banks from the sample.
Uncovering Collateral Constraints
Jose Maria Liberti
(Northwestern University)
Jason Sturgess
(DePaul University)
[View Abstract]
[Download Preview] Collateral plays two roles. It may be used as an ex-ante commitment against agency risk or for hedging expected default risk. Using cross-country loan level data, we find that the commitment motive explains collateralization. We also uncover a collateral "pecking order" driven solely by commitment concerns. While the bank accepts firm-specific assets susceptible to agency risk for low risk firms, it prefers non-specific assets for firms prone to agency risk. We find that information environments with institutions such as credit registries and objective rating criteria increase rating precision, and show that our results are not a consequence of rating imprecision.
Discussants:
Tobias Adrian
(Federal Reserve Bank of New York)
Heitor Almeida
(University of Illinois-Urbana-Champaign)
Philipp Schnabl
(New York University)
Jan 05, 2015 1:00 pm, Westin Copley, America North
American Finance Association
Economics of Commodity and Currency Markets
(G1)
Presiding:
Pierre Collin-Dufresne
(Ecole Polytechnique Federale de Lausanne)
The Mystery of Currency Betas
Steven Riddiough
(University of Warwick)
[View Abstract]
[Download Preview] Currencies are heterogeneously exposed to global risk. But the reason why remains a mystery. A theoretical explanation should identify the source of asymmetry between countries and hence, explain why beta -- the loading on global risk -- varies across currencies. In this paper, I test leading theoretical explanations for the root of the asymmetry and find only the time-varying 'surplus-consumption' prediction of Verdelhan (2010) to be supported. When I go on to consider alternative, 'characteristic' factors, I find a country's current account and 'investment profile' provide incremental information on the variation in currency betas. The results shed light on the macroeconomic drivers of conditional and unconditional carry returns, while highlighting the importance of focusing on risk exposure in theoretical models of currency premia and on imposing statistical restrictions in empirical tests of currency factors.
Understanding FX Liquidity
Nina Karnaukh
(University of St. Gallen)
Angelo Ranaldo
(University of St. Gallen)
Paul Soderlind
(University of St. Gallen)
[View Abstract]
[Download Preview] We provide a comprehensive study of liquidity of spot foreign exchange (FX) rates over more than two decades and a large cross-section of currencies. First, we show that FX liquidity can be accurately measured with daily data that are readily available. Second, we demonstrate that FX liquidity declines with funding constraints and volatility supporting the theoretical models relating funding and market liquidity. FX liquidity also deteriorates with volatility and illiquidity of stock and bond markets suggesting cross-market contagion effects. Finally, we show stronger comovements of FX liquidities in distressed markets and for wealthier countries with high-quality institutions.
Variance Risk Premia in Commodity Markets
Marcel Prokopczuk
(Leibniz University Hannover)
Chardin Wese Simen
(University of Liverpool)
[View Abstract]
We use a large panel of commodity option prices to study the market price of variance risk. We construct synthetic variance swaps and find significantly negative variance risk premia in nearly all commodity markets. An equally-weighted portfolio of short commodity variance swaps earns an annualized Sharpe Ratio of around 40%. We document increasing comovements across bonds, commodities and equity variance swap returns, suggesting that the variance swap markets are increasingly integrated. Finally, we show that commodity variance risk premia are distinct from price risk premia, indicating that variance risk is unspanned by commodity futures.
Understanding the Sources of Risk Underlying the Cross-Section of Commodity Returns
Gurdip Bakshi
(University of Maryland)
Xiaohui Gao
(University of Maryland)
Alberto Rossi
(University of Maryland)
[View Abstract]
[Download Preview] We show that a model featuring an average commodity factor, a carry factor, and a momentum factor is capable of describing the cross-sectional variation of commodity returns. More parsimonious one- and two-factor models that feature only the average and/or carry factors are rejected. To provide an economic interpretation, we show that innovations in equity volatility can price portfolios formed on carry with a negative risk premium, while innovations in our measure of speculative activity can price portfolios formed on momentum with a positive risk premium. Furthermore, we characterize the relation of the factors with the investment opportunity set.
Discussants:
Kent Daniel
(Columbia University)
Adrien Verdelhan
(Massachusetts Institute of Technology)
Lars Lochstoer
(Columbia University)
Anders Trolle
(Ecole Polytechnique Federale de Lausanne)
Jan 05, 2015 1:00 pm, Westin Copley, America Center
American Finance Association
Incentives for Risk Taking and Risk Management
(G3)
Presiding:
Adriano Rampini
(Duke University)
Banker Compensation and Bank Risk Taking: The Organizational Economics View
Arantxa Jarque
(Federal Reserve Bank of Richmond)
Edward Prescott
(Federal Reserve Bank of Richmond)
[View Abstract]
[Download Preview] A multi-agent, moral-hazard model is used to analyze the connection between
compensation of bank employees below a CEO and bank risk. Unlike in the single-agent model, pay for performance does not necessarily create risk. If employee returns are uncorrelated, pay is irrelevant for risk. If returns are correlated, a low wage indicates risk. If correlation is endogenous, relative-performance contracts that encourage correlation of returns can create risk. A sufficient condition for compensation to induce bank risk is provided. A loan review function is added; evaluating bank controls is identifed as an alternative means for limiting risk.
Project Selection and Risk Taking under Credit Constraints
Felipe Iachan
(Getulio Vargas Foundation)
[View Abstract]
[Download Preview] Credit constraints generate a hedging motive that extends beyond financial decisions, also distorting the selection and operation of real investments. I study these distortions in the context of a dynamic model in which collateral constraints emerge endogenously. I break down the hedging motive into three components: future expected productivity, leverage capacity, and current net worth. Exposure to shocks is determined endogenously through project selection. While constrained firms behave as if averse to transitory fluctuations in net worth, additional exposure to persistent productivity shocks or credit capacity fluctuations increases their value. Limited collateral leads the most constrained firms to abstain from financial hedging while still manifesting hedging-induced distortions in their real decisions.
Cash Holdings and Risky Access to Future Credit
Qi Sun
(Shanghai University of Finance and Economics)
[View Abstract]
[Download Preview] I quantify a new motive of holding cash through the channel of financing risk. I show that if the access to future credit is risky, firms may issue long-term debt now and save funds in cash to secure the current credit capacity for the future. I structurally estimate the model and find that this motive explains about 30% of cash holdings in the data. Counterfactual experiments indicate that the value of holding cash is around 8% of shareholder value.
Discussants:
Bengt Holmstrom
(Massachusetts Institute of Technology)
S. "Vish" Viswanathan
(Duke University)
Joao Gomes
(University of Pennsylvania)
Jan 05, 2015 1:00 pm, Westin Copley, Essex South
American Finance Association
Market-Based Corporate Governance
(G3)
Presiding:
Wei Jiang
(Columbia University)
Do Takeover Laws Matter? Evidence from Five Decades of Hostile Takeovers
Matthew Cain
(U.S. Securities and Exchange Commission)
Steven Davidoff
(Ohio State University)
Stephen McKeon
(University of Oregon)
[View Abstract]
[Download Preview] This study evaluates the relation between 16 U.S. takeover laws and hostile takeover activity from 1965 to 2013. Using a hand-collected dataset of largely exogenous legal changes covering 198,845 firm years, we find that certain takeover laws, such as poison pill laws, have had an effect on takeover activity running counter to their original intent, in some instances actually correlating with increased hostile activity. We also provide evidence that our Takeover Index, constructed from the full array of takeover laws, provides a better measure of firms’ governance environment than prior studies that have focused almost exclusively on business combination statutes. We conclude by examining the relation between the Takeover Index, firm value, and takeover premiums, and find a non-linear effect across time vintages.
Does Mandatory Shareholder Voting Prevent Bad Acquisitions?
Marco Becht
(Universite Libre de Bruxelles)
Andrea Polo
(Universitat Pompeu Fabra and Barcelona GSE)
Stefano Rossi
(Purdue University)
[View Abstract]
[Download Preview] Can shareholder voting prevent managers from destroying value in corporate acquisitions? Previous studies based on U.S. data are inconclusive because shareholder approval is discretionary. We study the U.K. where approval is mandatory for deals exceeding a multivariate relative-size threshold. We find that in the U.K. shareholders gain 8 cents per dollar at announcement with mandatory voting, or $13.6 billion over 1992-2010 in aggregate; without voting, U.K. shareholders lost $3 billion. U.S. shareholders lost $214 billion in matched deals. Differences-in-differences and multidimensional regression discontinuity analyses support a causal interpretation. Our evidence suggests that mandatory voting imposes a binding constraint on acquirer CEOs.
Why Do Shareholder Votes Matter?
Laurent Bach
(Stockholm School of Economics)
Daniel Metzger
(Stockholm School of Economics)
[View Abstract]
[Download Preview] We show that majority-supported shareholder proposals create value not necessarily because their content has intrinsic value, but because they increase pressure on the board of directors. We document that shareholder organizations (CII), proxy advisory firms (ISS), and management often disagree about voting results because they apply different majority requirements in 60% of the cases. This allows us to identify each of those key players’ reactions to what they consider an approved proposal. As soon as CII considers a proposal has passed, there is higher pressure on non-complying boards, as votes against directors and inefficient CEO turnovers increase very sharply. This is overall well-perceived by investors as stock prices also go up. Sanctions taken by ISS remain mild against otherwise well-perceived directors and do not cause inefficient CEO turnovers, but they do not improve firm value either. Interestingly, those effects of passage according to CII and ISS arise only when a proposal is not eventually implemented.
Governance under the Gun: Spillover Effects of Hedge Fund Activism
Nickolay Gantchev
(University of North Carolina)
Oleg Gredil
(University of North Carolina)
Chotibhak Jotikasthira
(University of North Carolina)
[View Abstract]
[Download Preview] Hedge fund activism is a potent governance device associated with substantial improvements in the performance and governance of targets. In this paper, we investigate whether the managers of peer firms view activism activity in their industry as a threat that motivates them to undertake real policy changes to fend off activists. We find that peers with fundamentals similar to those of previous targets reduce agency costs and improve operating performance along the same dimensions as actual targets in the same industry. These effects are distinct from those of product market competition or time-varying industry conditions. We show that the peers’ positive policy responses are anticipated by the market and reflected in valuations. Finally, we demonstrate that these policy and valuation improvements lower the peers’ ex-post probability of being targeted, suggesting that this “do-it-yourself” activism is indeed effective. Taken together, our results imply that shareholder activism, as a monitoring mechanism, reaches beyond the target firms.
Discussants:
Jonathan Karpoff
(University of Washington)
Gregor Matvos
(University of Chicago)
Vincente Cunat
(London School of Economics)
Vyacheslav Fos
(University of Illinois-Urbana-Champaign)
Jan 05, 2015 1:00 pm, Westin Copley, America South
American Finance Association
Production, Financial Capital, and Labor
(G1)
Presiding:
Andrea Eisfeldt
(University of California-Los Angeles)
The Elephant in the Room: The Impact of Labor Obligations on Credit Risk
Jack Favilukis
(University of British Columbia)
Xiaoji Lin
(Ohio State University)
[View Abstract]
[Download Preview] We study the impact of labor market frictions on credit risk. Our central finding is that labor market variables are the first-order effect in driving the credit spread fluctuations. Recent studies have highlighted a link between credit risk and macroeconomic variables such as investment growth, financial leverage, volatility, etc. We show that labor market variables (wage growth or labor share) can forecast credit spread as well as or better than alternative predictors. A model with wage rigidity can explain this link as well as produce large credit spreads despite realistically low default probabilities (credit spread puzzle). This is because pre- committed payments to labor make other committed payments (such as debt) more risky; for this reason variables related to pre-committed labor payments forecast credit risk.
Macroeconomic Risks and Asset Pricing: Evidence from a Dynamic Stochastic General Equilibrium Model
Erica Li
(Cheung Kong Graduate School of Business)
Haitao Li
(Cheung Kong Graduate School of Business)
Cindy Yu
(Iowa State University)
[View Abstract]
[Download Preview] The relation between macroeconomic fundamentals and the cross section of asset returns is studied through the lens of dynamic stochastic general equilibrium (DSGE) models. We provide a full-information Bayesian estimation of the model using seven macroeconomic variables and extract the time series of three fundamental shocks to the economy for the period of 1966Q1-2010Q3: neutral technology (NT) shock, investment-specific technological (IST) shock, and monetary policy (MP) shock. Tests based on the General Method of Moments (GMM) show that the factor model with estimated latent shocks as risk factors performs better than and the model-implied pricing kernel performs as well as the Fama-French three-factor models at the 5% significance level in explaining the cross-sectional returns of a large set of assets including the 25 size/BM, 48 industry, and 8 bond portfolios. Our results show that DSGE models, which have been successful in matching macroeconomic dynamics, have great potential in capturing asset price dynamics as well.
Production-Based Term Structure of Equity Returns
Hengjie Ai
(University of Minnesota)
Mariano Massimiliano Croce
(University of North Carolina)
Anthony Diercks
(University of North Carolina)
Kai Li
(Hong Kong University of Science and Technology)
[View Abstract]
We study the link between timing of cash flows and expected returns in general equilibrium
production economies. Standard neoclassical RBC models produce an upward-sloping term structure of equity returns. Our economy incorporates heterogeneous exposure to aggregate productivity shocks across capital vintages, yielding a downward-sloping term structure over a ten-year horizon, consistent with the empirical findings of Binsbergen et al. (2012a, b). This result is preserved after the introduction of an endogenous stock of growth options that enables us to reproduce the empirical negative relationship between cash-flow duration and expected returns in the cross section of book-to-market sorted stocks.
Is the IT Revolution over? An Asset Pricing View
Colin Ward
(University of Pennsylvania)
[View Abstract]
I develop a new method that puts structure on financial market data to forecast economic outcomes. I apply it to study the IT sector's transition to its long-run share in the US economy, along with its implications for future growth. Future average annual productivity growth is predicted to fall to 52bps from the 87bps recorded over 1974–2012, due to intensifying IT sector competition and decreasing returns to employing IT. My median estimate indicates the transition ends in 2033. I estimate these numbers by building an asset pricing model that endogenously links economy-wide growth to IT sector innovation governed by the sector's market valuation, and by calibrating it to match historical data on factor shares, price-dividend ratios, growth rates, and discount rates. Consistent with this link, I show empirically that the IT sector's price-dividend ratio univariately explains nearly half of the variation in future productivity growth.
Discussants:
Andres Donangelo
(University of Texas-Austin)
Dimitris Papanikolaou
(Northwestern University)
Adlai Fisher
(University of British Columbia)
Nicolae Garleanu
(University of California-Berkeley)
Jan 05, 2015 1:00 pm, Westin Copley, Empire
American Real Estate & Urban Economic Association
Green and Not-So-Green Real Estate
(M1, D9)
Presiding:
Anthony Yezer
(George Washington University)
Environmental Performance and the Cost of Capital: Evidence from REIT Bonds and Commercial Mortgages
Erkan Yonder
(Ozyegin University)
Piet Eichholtz
(Maastricht University)
Nils Kok
(Maastricht University)
[View Abstract]
[Download Preview] The real estate sector is responsible for a significant greenhouse gas externality, which has prompted interest from policy makers, as well as the emergence of voluntary disclosure standards. As opposed to general concerns about the potentially negative impact of “sustainability” programs and initiatives on corporate financial performance, energy efficiency measures may lead to significant returns in the real estate sector. This paper investigates the relation between real estate sustainability and the cost of the debt. Using a sample of REITs, we investigate both corporate-level debt, as well as commercial mortgages to finance individual buildings. The results show that the degree to which REITs invest in efficient buildings is positively related to the quality of their credit ratings, and it is also associated with a significantly lower spread. The relation persists at the level of individual buildings and their mortgages: environmentally-certified buildings are financed at significantly lower spread, varying between 30 and 60 basis points, depending on the specification.
Certification Matters: Is Green Talk Cheap Talk?
Avis Devine
(University of Guelph)
Shaun Bond
(University of Cincinnati)
[View Abstract]
[Download Preview] There is an active and growing literature examining the rental rate, sales price, and occupancy premiums associated with sustainable or energy efficient certified real estate. To date, the focus has rested largely on office properties and for sale single family residential properties. We examine the rental rates achieved by green multifamily properties, providing the first look at the population of LEED market-rate apartments in the United States. We find an approximate 8.9 percent rental rate premium associated with LEED apartments. Moreover, this research provides the first indication that LEED certification garners an additional premium over non-certified space that identifies as green, indicating the strength of the certification signal and contributing to the longstanding discussion on the merits of certification.
The Sprawling Benefits of Housing Tax Policy
Andrew Hanson
(Marquette University)
Zackary Hawley
(Texas Christian University)
[View Abstract]
We show that the distribution of benefits accruing from federal housing tax policy are concentrated geographically within metropolitan areas. We document that the benefits are concentrated in the suburbs of metropolitan areas and that they are unevenly distributed to higher income households within metropolitan areas. Our work relies on Internal Revenue Service data on housing tax benefits at the ZIP code level, merged with ArcGIS software to map these benefits in space. We use local polynomial smoothing techniques to examine the spatial distribution of these benefits relative to the city center, and Gini coefficients to examine the distribution across local area incomes.
The Global Effects of Housing Policy
Kyle Mangum
(Georgia State University)
[View Abstract]
[Download Preview] This paper studies the links between housing policies and aggregate energy use in the U.S. I connect two strands of literature on cities--that cities vary in their per capita energy use and in terms of housing supply elasticity--to measure the effects of location choice and housing consumption on aggregate energy use. Interestingly, many elastically supplied cities are high energy-use locations as well, and there is a relationship between housing consumption and energy usage. I build a dynamic spatial equilibrium model of U.S. metropolitan areas, accounting for local heterogeneity in housing demand and supply. Importantly, I decompose the supply restrictions into those naturally-occurring and those policy-induced. After matching the model to data on housing prices, construction activity, and building density, I conduct policy simulations to quantify the effect of various land use restrictions on energy use. Results suggests that increasing land use regulations in high energy use locations would result in a lower aggregate energy use, as would removing the federal tax subsidy for housing. The primary channel is reducing the amount of housing consumed per person, and the secondary channel is in reallocating population from inefficient to more efficient locations.
Discussants:
Min Hwang
(George Washington University)
PingKang Yu
(Renmin University and Huatai Securities)
William Larson
(U.S. Bureau of Economic Analysis)
Stephen Malpezzi
(University of Wisconsin-Madison)
Jan 05, 2015 1:00 pm, Westin Copley, Defender
American Real Estate & Urban Economic Association
Leveraged Investment
(G1, G3)
Presiding:
Andrea Heuson
(University of Miami)
The Role of Debt Covenants in the Investment Grade Bond Market – The REIT Experiment
Yongheng Deng
(National University of Singapore)
Drik Devos
(University of Texas-El Paso)
Shofiqur Rahman
(University of Texas-El Paso)
Desmond Tsang
(McGill University)
[View Abstract]
[Download Preview] In general, investment grade bonds do not offer covenant protection. However, in the case of Real Estate Investment Trusts (REITs), investment grade REITs tend to include a covenant package that outlines limits on leverage and requires maintaining certain fixed charges and interest coverage ratios. This unique debt financing structure of REITs offers a natural environment to examine the importance and the need of debt covenants in an investment grade bond market. Our research aims to answer the following questions: 1. How common are debt covenants in the investment grade REIT bond market? 2. Are debt covenants binding in this market? 3. Do debt covenants affect the cost of debt if these covenants are not binding? Our findings indicate that, in the REIT market, debt covenants are indeed common practice among investment grade REITs, and we find surprisingly higher use of covenants by investment grade REITs compared to non-investment grade
REITs. We show that debt covenants are seldom binding in this market, as investment grade REITs choose covenant provisions for which they seem to have enough slack. Finally, the cost of debt is lower when these investment grade REIT bonds are issued with covenants.
Leverage and Returns: A Cross-Country Analysis of Public Real Estate Markets
David Ling
(University of Florida)
Emanuela Giacomini
(University of Florida)
Andy Naranjo
(University of Florida)
[View Abstract]
[Download Preview] The theoretical literature suggests a positive relation between financial leverage and asset returns, but the empirical evidence on this effect is mixed. We examine leverage effects in public real estate markets across eight countries with active public real estate markets. Cross-country public real estate markets provide an interesting testing ground given the significant use of leverage in real estate markets, the cross-section of REIT capital structures within and across countries, and the cross-country differences in liquidity, ownership, economic, institutional, and capital market structures. After carefully isolating leverage effects in firm-level returns, we find that leverage has a significant effect on returns both unconditionally and conditionally using standard asset pricing models. In addition, greater use of leverage during the 2007-2008 REIT crisis period is associated with larger share price declines.
Real Estate Investment and Leverage: In Good Times and in Bad
Eva Steiner
(University of Cambridge)
Andrey Pavlov
(Simon Fraser University)
Susan Wachter
(University of Pennsylvania)
[View Abstract]
[Download Preview] Sun, Titman, and Twite (2014) find that risky capital structure characteristics, such as high leverage, high share of debt due in the near future and high share of variable-rate debt, significantly reduce the cumulative total returns of US REITs over the 2007-2009 financial crisis. In this paper we show that preparing ahead of the crisis significantly influenced the cumulative return over the crisis period even when controlling for the levels at the start of the crisis. Specifically, we document that REITs which reduced leverage and increased maturity prior to the crisis fared better during the crisis. We further find that US REITs with the highest capital structure risk (high leverage and short maturities) were more likely to take precau- tions by reducing leverage and extending maturity. This effect is especially large for REITs with strong governance. We also document that none of our findings hold for European REITs. This suggests that since European firms did not experience or observe the levels of market excess that occurred in the US before the crisis, whether they took precautions or not had no impact on their returns during the crisis.
Identifying REITs Asset-pricing Bubbles: A Modified CCAPM Approach
Konstantin Magin
(University of California-Berkeley)
Robert Edelstein
(University of California-Berkeley)
[View Abstract]
[Download Preview] This paper develops a model for the pricing of US Equity Real Estate Investment Trusts (REIT's), based upon economic fundamentals. The analysis compares the theoretical price generated by our model with actual prices in order to examine the existence of REIT's pricing bubbles. Our price modeling employs a novel approach by applying a special case of the CCAPM, inclusive of stochastic taxation, to derive the price dividend ratio as a function of the parameters of the log normal distribution of the rate of growth of after-tax dividends, stochastic dividend taxation, and the coefficient of relative risk aversion. We find that Equity REITs, during our sample period, 1972-2013, were overvalued for a substantial portion of the time period. During this forty-two year span, Equity REITs were underpriced according to our model for only nine years. More surprisingly, contrary to a popular belief, during and after the so-called, "Great Recession," 2008-2013, equity REITs were underpriced for only one year (i.e., 2008).
Discussants:
Xudong An
(San Diego State University)
Dirk Brounen
(Tilburg University)
Matthew Billett
(Indiana University)
Yildiray Yildirim
(Syracuse University)
Jan 05, 2015 1:00 pm, Boston Marriott Copley, St. Botolph
Association for Comparative Economic Studies
Government Policy and Firm Behavior
(P5, D2)
Presiding:
John Bonin
(Wesleyan University)
Measuring the Causal Effect of Privatization on Firm Performance
Jan Hagemejer
(National Bank of Poland and University of Warsaw)
Jan Svejnar
(Columbia University)
Joanna Tyrowicz
(University of Warsaw and National Bank of Poland)
[View Abstract]
Despite an apparent consensus in the literature that privatization leads to increased productivity and profitability of firms, the problem of endogeneity bias is profound and has been emphasized in a number of meta-analyses. We propose a new method to address the endogeneity bias, based on the quantity of firms privatized in a given year. We and apply it to a universe of Polish medium and large firms over 1995-2009. Unlike most previous studies we find that improvement in firm performance is a rare phenomenon, which suggests that the endogeneity bias could have been indeed large.
Team Performance with Simple, Complex and Creative Tasks: The Role of Social Preferences in Conjunction with Individual Versus Group Incentives
Avner Ben-Ner
(University of Minnesota)
Roland Cheo
(Shandong University)
[View Abstract]
Consider a nominal group of four workers, each charged with the execution of the same cognitive task. The members of the group are allowed to consult with each other on how to carry out their common task. Will they perform better if their compensation is based on their individual performance, or if they receive compensation on the basis of the average group performance?
Assume that the individuals are identical in terms of the skills that matter to the individual execution of the task. Assume further that consultation with others can contribute good ideas for better execution. Rational selfish workers would consult with each other under both incentive schemes under certain cost and benefit of consultation conditions. Would this change if individuals display social preferences, such as altruism, trustworthiness and trusting? Following Ben-Ner (2013) we hypothesize that compared to groups consisting of selfish individuals, groups consisting of individuals with more intense social preferences will take greater advantage of consultation, particularly under group incentives, and will perform better, particularly in the case of complex and creative tasks. We carry out experiments with 40 groups consisting of four individuals each and find broad support for these hypotheses.
Employment Adjustment and Lending Cyclicality in European Banks: The Effect of Ownership
Derek Jones
(Hamilton College)
Panu Kalmi
(University of Vaasa)
Mikko Mäkinen
(Aalto University)
[View Abstract]
Previous literature on lending cyclicality in European banks has found important differences across ownership structures. The lending cyclicality of cooperative and savings banks tends to be much more muted than that of profit-maximizing shareholder banks. Given the high market shares of cooperative and savings banks in most European countries, this has important implications for financial stability. However, the sources of the differences in lending cyclicality are still poorly understood. In this paper, we draw from the literature on cooperatives to explain this puzzle. One of the key predictions in that literature is that in cooperatives wages react more and employment reacts less to external shocks than in comparable profit-maximizing organizations. We use bank-level data from 19 European countries for the period 1999-2013 to analyze these hypotheses. We find support for the hypotheses that wages and employment in cooperative banks react as predicted and this may be a source for their lower lending volatility.
Do Governmental Subsidies Act as Soft Budget Constrants? Evidence from a Panel of Slovene Firms
Polona Domadenik
(University of Ljubljana)
Matjaž Koman
(University of Ljubljana)
Janez Prašnikar
(University of Ljubljana)
[View Abstract]
Paper provides an in-depth analysis of the effect of state subsidies on firm level performance. One could argue that state aid is only one of many instruments governments have at their disposal to address redistributional issues. However it has to be recognized these redistributional effects have strong side-effects on efficiency and vice-versa. These side-effects may result in a trade-off between equity and efficiency objectives. An important role of economic analysis is to identify any such trade-off.
First evidence in this paper suggest that these subsidies works as soft budget constraints prolonging the mis-management in firms with financial troubles. Moreover we suspect that inefficient corporate governance is more likely to be supported by governmental subsidies in firms with significant share of state ownership where politicians are very likely to act as supervisory board members. Combining datasets on supervisory board members since 2000 with accounting data and detailed data on subsidies allocation since 1998 we are able to identify the mechanism behind allocation of subsidies at the firm level and identify the subsequent effects on survival and productivity of firms. Slovenia represents an ideal case for the survey as currently spends more than 2 percent of GDP on state subsidies that amounts to one of the highest level in EU.
Discussants:
John Bonin
(Wesleyan University)
Klara Sabirianova Peter
(University of North Carolina)
Gary Jefferson
(Brandeis University)
Paul Wachtel
(New York University)
Jan 05, 2015 1:00 pm, Boston Marriott Copley, Grand Ballroom—Salon A
Association for Evolutionary Economics
The Business Enterprise, Market Governance, and the Social Provisioning Process
(L2)
Presiding:
Tae-Hee Jo
(State University of New York-Buffalo State)
Just Another Form of Market Governance? A Grounded Theory of Cartels
Christian Spanberger
(University of Missouri-Kansas City)
[View Abstract]
Market governance – the control of markets through various formal and informal institutions – is a necessary strategy for business enterprises in order to exist through time under conditions of radical uncertainty. Specifically, market governance institutions are designed to limit competitive behavior among companies operating in the same market to avoid destructive competition and ensure companies sufficient revenues and hence profits to remain going concerns.
This paper is a contribution to an empirically grounded heterodox theorization of one such institution, namely cartels. Starting out from a definition of cartels and a description of the various structural forms a cartel can take and which mechanisms can be identified that deal with challenges cartels have to face, the following questions are being answered: (1) why do cartels exist; (2) what makes them successful, what makes them fail; and finally (3) how are cartels to be evaluated. The final question will lead to an important conundrum: while cartels are ‘just another form of market governance’ and they or other forms are necessary within a capitalist system of social provisioning in order to achieve some degree of stability, at the same time they concentrate economic and political power among the few. From this perspective, criticizing market governance institutions without calling the whole system of provisioning in question is short-sighted.
Social Provisioning Process, Market Instability, and Managed Competition
Tuna Baskoy
(Ryerson University)
[View Abstract]
Frederic S. Lee is one of the few Post Keynesian economists who take business competition seriously. It is argued in this chapter that Lee’s main contribution comes from the fact that he dismisses the macro-micro economics duality and analyzes competition within the context of social provisioning process. First section summarizes Post Keynesian view of business competition, while second section elaborates on the method of grounded theory approach and the social provisioning process, which is followed by a detailed analysis of what Lee calls ‘managed competition’ and its reverberations for market governance. Fourth and last section summarizes the main findings as a way of conclusion.
Social Provisioning of Goods and Services: A Dynamic Approach to the Alignment of Transactions with Governance Structures
Antoon Spithoven
(Utrecht University)
[View Abstract]
[Download Preview] Original institutional economists and the transaction cost economist Oliver Williamson have inquired into social provisioning of goods and services. Original institutional economists may build upon the achievements of Williamson’s static approach. This might be done by incorporating the struggle for power into his analysis of governance structures. The struggle for power, which might be socially motivated, materializes itself in the form of a change in: mark-up, the institutional environment of governance structures, the instruments of governance structures, or the dimensions of transactions. A series of behaviors might be enforced that endorse these changes. Simultaneously rules might become circumvented by bounded socialized actors who oppose them. In turn, this fosters further amendments, as is shown by referring to Obamacare.
Social Provisioning and Sustainability: Revisiting Female Entrepreneurship
Tonia Warnecke
(Rollins College)
[View Abstract]
The social provisioning process—the reproduction of human material life—has often been discussed by institutionalist and feminist scholars. Because of the tenuous link between female paid labor and empowerment, the structure of employment programs for women—and their interrelationship with broader social policies and the distribution of unpaid labor—is of particular interest. At a time when female entrepreneurship programs are heralded as a potential solution to lagging economic growth in many countries, institutionalist and feminist thought can provide useful insight regarding the categorization of such programs, their likely impact on participating women, and the ways programs can be structured to support lives that are meaningful and can attain well-being. Still, one crucial element of social provisioning has often been neglected—environmental sustainability. This paper discusses the multifaceted relationship between entrepreneurship programs and sustainability, considering ways that institutionalist and feminist thought on sustainability can help us reimagine female entrepreneurship programs (particularly those targeting informal workers).
The Role of Networks for Helping Firms and Countries to Adapt Their Competitive Strategies in World Knowledge Economy
Camille Baulant
(University of Angers)
[View Abstract]
For the last 20 years, the world economy has changed very quickly. Every good, service, capital asset, information or knowledge is mobile and creates more competition. Innovate in commodities is now a complex process which requires more cooperation, For innovating in the knowledge economy, it is important to create win-win situations between firms by creating networks. These networks belong to a meso-level which authorizes the interaction between agents, the environment and institutions. The interdependences of agents and institutions are not new for the evolutionary theories of Veblen and Commons. But nowadays, the institutions must be more flexible to help agents to adapt themselves to the knowledge economy. We first show how the world’s mutations determine more competition and also more opportunities. To innovate in a knowledge economy, the networks are useful to firms for creating new innovative strategies. Then we apply this analysis to the case of the firms exporting goods in the international markets. We will propose to firms and countries new long run specialization and new short run competitiveness based on networks which will promote a greater efficiency and equity around the world. Lastly, we go on to show how innovative networks must take into account two different actors, namely the ‘economic leaders’ who have a long run analysis and the ‘economic go-betweener’ who know how to diffuse useful information to actors when they are looking to innovate in new products and new processes.
Discussants:
Christoph Freydorf
(University of Erfurt)
Christine Ngoc Ngo
(University of Denver)
Jan 05, 2015 1:00 pm, Boston Marriott Copley, Grand Ballroom—Salon B
Association for Evolutionary Economics/Association for Social Economics
The Impact of Commodification on the Social Provisioning Process
(B5)
Presiding:
Wolfram Elsner
(University of Bremen)
Strengthening Karl Polanyi’s Concepts of Reciprocity, Double Movement, and Freedom with the Assistance of Abductive Logic
F. Gregory Hayden
(University of Nebraska-Lincoln)
[View Abstract]
The purpose is to strengthen Karl Polanyi’s work through critique and extension to abductive processes. Polanyi presents history woven into a new paradigm for analysis of socioeconomic systems, demonstrates discovery similar to abductive processes, and extends abduction into a holistic context. One of Polanyi’s most important contributions to socioeconomic analysis is the explanation of three integrated network models of socioeconomic reciprocity. They are coadjuvancy, redistribution, and market exchange. Polanyi extended abductive reasoning in two ways. First, he extended it beyond the cognitive logic of a person to inferences and societal belief changes of institutions. Second, he showed that in the real world, beliefs were not only fixed like an abductive process, they were fixed in law. Throughout Polanyi’s historical presentation, market beliefs are being revised; thus, serving as a demonstration of the abductive process. Positive and negative critique is made of a number of Polanyi’s concepts, with special attention given to reciprocity, the double movement, and freedom. This critique and abduction extension strengthens Polanyi’s paradigm for future socioeconomic analysis with his integrative network models.
Developing a Veblenian Theory of Care for the 21st Century
Andrew Cumbers
(University of Glasgow)
Robert McMaster
(University of Glasgow)
[View Abstract]
In his exploration of the nature of human behaviour Veblen highlighted a number of human instincts – one of which was the “parental bent”. In contrast to the other “positive” instincts associated with knowledge, idle curiosity and workmanship, the parental bent is specifically other-regarding in that Veblen describes it in terms of utilising knowledge for the betterment of society, suggesting an, "approval of economy and efficiency for the common good". Veblen’s “parental bent” stresses the social embeddedness of humanity and therefore our instinct to care. Veblen’s analysis describes how institutions can encourage – through the cumulative effect of habit – the dominance of particular instincts over others. The promotion of the “negative” predatory instinct by finance capitalism seems prescient. Modern conceptions of care recognise its instinctive and socially constructed properties. Our ability to care is partially predicated on our social roles and the vales embedded within those roles. Critically this is influenced by the configuration of institutions within a society. Tronto has recently alluded to a caring deficit – where the needs of care are greater than our abilities to provide care. This partly reflects the increasing re-confinement of care to the private domain, primarily of the household, as well as its feminisation under an increasingly monetised set of social relations driving the public sphere. Accordingly, care is under-valued. By drawing upon recent contributions to care, this paper seeks to develop upon Veblen’s insight, and to argue that the most significant deficit confronting capitalist society is not of the fiscal variety, but in care.
Exploring an Ecologically Regionalist Social Provisioning Process
Richard Wagner
(Rockhurst University)
[View Abstract]
[Download Preview] This paper explores the notion and theory of an ecologically regionalist social provisioning process. The notion of regionalism has had many definitions and uses in the last century, ranging from a progressive arts and culture movement to a method of economic development which promotes cooperation between municipalities and businesses in a specified geographic area. The regionalism to be discussed in this paper is one which is first based in the ecological conditions of the landscape, yet as well, economic, social, and political realities. With such delineation this, ecological regionalism, is also a progressive theory of social provisioning, one characterized by cooperative business enterprise, ecological sustainability, and participatory democracy. This notion of regionalism is one which was first defined and promoted in the early 20th century by Lewis Mumford, although given Mumford’s rich career, has links to thinkers such as Thorstein Veblen, John Dewey, Patrick Geddes, and Peter Kropotkin. At the same time, this theory can be shown to be directly related to the contemporary discipline of ecological economics, as it is a vision of a sustainable society, both ecologically and economically. To make aware the potential of ecological regionalism as a progressive theory of social provisioning and as well the connection to ecological economics, this paper defines and summarizes main points of ecological regionalism as presented by Mumford and the latter mentioned thinkers, while also briefly exploring a possible synthesis of thought with the discipline of ecological economics.
The Culture of Complementarity
Frederic B. Jennings, Jr.
(Center for Ecological Economics and Ethical Education)
[View Abstract]
[Download Preview] Human relations involve a balance of substitution and complementarity. In economics, substitution is stressed and complementarity ignored. An economics of substitution – of independence, scarcity and short-term material growth – will lead to alienation and disengagement. An economics of complementarity – of planning horizons, increasing returns and networks – supports a case for organizational health and social provisioning through a community process. The institutionalist principle of circular cumulative causation (CCC) implies complementary linkages. Complementarity calls for collaboration to realize mutual gains subverted by competition. If complementarity dominates substitution in human relations – namely, if economics is about concerts and not conflicts of interest – then what are its social, institutional and cultural implications? A culture of complementarity feels unnatural to an economist. A shift to common needs entails a large analytical leap into new realms of analysis, understanding and social design. If all well-being is social, if your benefits are aligned with mine, a lack of conflict creates community. In this setting, competitive values do not quell but cause strife and harm to health and well-being! The relations implied by complementarity favor community effort as a means to social provisioning. This paper limns the culture of complementarity in economics. A key to achieving community (in both theory and practice) is here, replacing substitution with complementarity in our basic assumptions. To move beyond the myopic culture resulting from competition, one needs to examine a culture of complementarity as a critical step beyond disengagement toward a community-oriented process of social provisioning.
Is Economic Justice Compatible with Dynamic Capitalist Economies? Yes It Is: A Dynamic Multiple Equilibrium Modeling of Economic Justice Effects
Morris Altman
(University of Wellington)
[View Abstract]
Economic justice, broadly defined, is considered to be obtainable only at a significant opportunity cost in the traditional economic analytical framework. It is treated as a tax on society, which benefits a few, at the cost of either reducing the economic pie or characteristics of economic justice are regarded as contributing to relatively inflexible labor markets, further contributing to generating negative economic and social effects, of particular importance to an increasingly global and competitive market. I show that in a dynamic modeling framework, incorporating insights from behavioral and institutional economics, social justice can either be neutral to economic growth or have positive effects. This stands the ‘extreme’ Chicago-style paradigm on its head, wherein what the latter maintains contributes to less growth and higher long run persistent rates of unemployment, can actually have the opposite effect, contributing to higher levels of economic efficiency and labor market flexibility. Well-designed policies and programs that make for a fairer society can lift productivity, growth, employment, and wellbeing to higher levels. One can predict that societies characterized by such policies and programs should perform better than those societies not so characterized. Some data are examined related to the argument presented.
Jan 05, 2015 1:00 pm, Sheraton Boston, Hampton Room
Association of Environmental & Resource Economists
Environment and Health
(Q5, R4)
Presiding:
Antonio Bento
(Cornell University)
Urban Air and Health Effects from Sao Paulo's Beltway
Alberto Salvo
(National University of Singapore)
Jiaxiu He
(Northwestern University)
Franz Geiger
(Northwestern University)
Nelson Gouveia
(University of São Paulo)
[View Abstract]
We examine the inauguration of the greater Sao Paulo beltway and argue that investment in certain types of transport infrastructure, though unlikely to relieve congestion, may alter the composition of road users and thus of local pollutant emissions, with differential damage to public health. The beltway diverted diesel-burning heavy-duty vehicles away from roads inside the city, making room for gasoline-ethanol light vehicles that soon filled available road spaces, consistent with the "fundamental law of road congestion." Alongside a transient decline in road congestion, we find evidence of a persistent decline in ambient NOx levels, a marker for diesel exhaust, particularly in the high-density areas in close proximity to the original truck routes. We then investigate patient-level hospital admissions and show that the policy-driven shift in ambient air pollution resulted in lower incidence of respiratory and cardiovascular disease, particularly among the young and the elderly. We use a difference-in-difference design to quantify the beltway's effect on local air, followed by instrumental variables regression to quantify the effect of the policy-driven change in pollution on health outcomes.
Air Pollution, Power Grid, and Infant Health: Evidence from the Shutdown of Nuclear Power Plants in the Tennessee Valley Authority in the 1980s
Edson Severnini
(Carnegie Mellon University)
[View Abstract]
When environmental regulations focus on a subset of power plants, the ultimate goal of human health protection may not be reached. Because power plants are interconnected through the electrical grid, excessive scrutiny of a group of facilities may generate more pollution out of another group, with potential deleterious effects to public health. This paper examines the impact of the shutdown of nuclear power plants in the Tennessee Valley Authority (TVA), in the 1980s, on infant health outcomes. I first show that, in response to the shutdown, electricity generation shifted mostly to coal-‐fired power plants within TVA, increasing pollution in counties where they were located. Second, I find that babies born after the shutdown had lower birth weight in those counties with coal-‐fired power plants. Third, I provide suggestive evidence of heterogeneity in those effects depending on how much more electricity those coal-‐fired facilities were generating in response to the shutdown. These findings may shed light on some potential consequences of the retirement of the San Onofre Nuclear Plant in California, and the ongoing nuclear power phase out in Germany, greatly intensified after the Japanese Fukushima disaster.
Spring Forward at Your Own Risk: Daylight Saving Time and Fatal Vehicle Crashes
Austin C. Smith
(University of Colorado-Boulder)
[View Abstract]
[Download Preview] Daylight Saving Time (DST) in the US was originally implemented as a wartime measure to save energy and was extended as part of the Energy Policy Act of 2005. However, recent research demonstrates that DST does not save energy and could possibly increase energy use. Despite mounting evidence that it fails in its primary goal, some form of DST is still practiced by over 1.5 billion people globally. This paper demonstrates that DST imposes high social costs on Americans, specifically, an increase in fatal automobile crashes. Employing three tests to differentiate between an ambient light or sleep mechanism, I show that this result is most likely due to sleep deprivation caused by the spring transition and the result implies additional costs of DST in terms of lost productivity nationwide.
Hurricanes and Avoidance Behavior: Evidence from Bottled Water Sales
Jay Shimshack
(Tulane University)
Timothy Beatty
(University of Minnesota)
Richard Volpe
(USDA Economic Research Service)
[View Abstract]
Authorities spend billions of dollars annually on storm forecasting, preparedness education campaigns, and risk communication in order to spur mitigation behavior by individual households. Given these large public expenditures on preparedness activities, and the significant damages at stake, it is important to understand how and how well households practice storm‐related avoidance behavior. In this paper, we explore citizen avoidance behavior by investigating how ‐ and how much ‐ bottled water sales change before, during, and after hurricanes and tropical storms. We focus on bottled water because all major disaster preparedness campaigns advise households to purchase water as storms approach. Emergency management guidelines instruct households to have one gallon of water per person per day on hand. Safe drinking water is imperative, as public water sources are regularly unsafe during and after storms and associated flood events. Bottled water sales also serve as proxies for hazard responses more broadly, thereby indicating how risk communication was received, understood, and trusted.
Discussants:
Antonio Bento
(Cornell University)
Reed Walker
(University of California-Berkeley)
Matthew Kotchen
(Yale University)
Matthew Neidell
(Columbia University)
Jan 05, 2015 1:00 pm, Sheraton Boston, Beacon F
Econometric Society
Capital Flows and Business Cycles
(E3)
Presiding:
Ivan Jaccard
(European Central Bank)
How do Business Cycles Become Global? Common Shocks or Spillovers
Thomas Helbling
(International Monetary Fund)
Raju Huidrom
(University of Virginia)
Ayhan M. Kose
(International Monetary Fund)
Christopher Otrok
(University of Missouri)
[View Abstract]
We study the importance of common shocks and cross-border spillovers in explaining international business cycles. We develop a new econometric model that allows us to extract the global cycle from national business cycles and to isolate the impact of national cycles of specific countries on those of other countries and the global cycle. Our model thus allows for two different channels of spillovers: a direct channel where shocks from certain countries transmit directly to others by affecting their national cycles and an indirect channel where those shocks that affect the global cycle also influence other countries’ national cycles through their exposure to the global cycle. We estimate the model using output, consumption, and investment series of G-7 countries during 1970:1–2012:4. Our results indicate that international business cycles have largely been driven by common shocks. However, spillovers from the United States have increased in recent years implying that cross-border spillovers have played a relatively more important role during the last global recession and ensuing recovery.
International Capital Flows and the Boom-Bust Cycle in Spain
Jan in't Veld
(European Commission)
Robert Kollmann
(Université Libre de Bruxelles and CEPR)
Beatrice Pataracchia
(European Commission)
Marco Ratto
(European Commission)
Werner Roeger
(European Commission)
[View Abstract]
[Download Preview] We study the joint dynamics of foreign capital flows and real activity during the recent boom-bust cycle of the Spanish economy, using a three-country New Keynesian model with credit-constrained households and firms, a construction sector and a government. We estimate the model using 1995Q1-2013Q2 data for Spain, the rest of the Euro Area (REA) and the rest of the world. We show that falling risk premia on Spanish housing and non-residential capital, a loosening of collateral constraints for Spanish households and firms, as well as the fall in the interest rate spread between Spain and the REA fuelled the Spanish output boom and the persistent rise in foreign capital flows to Spain, before the global financial crisis. During and after the global financial crisis, falling house prices, and a tightening of collateral constraints for Spanish borrowers contributed to a sharp reduction in capital inflows, and to the persistent slump in Spanish real activity. The credit crunch was especially pronounced for Spanish households.
Capital Flows, Intermediation Frictions and the Adjustment to Common Shocks
Ivan Jaccard
(European Central Bank)
Frank Smets
(European Central Bank)
[View Abstract]
[Download Preview] In the euro area, aggregate consumption is more volatile in countries where the procyclicality of net capital inflows is stronger. Moreover, real short-term interest rates are on average lower and bank lending rates higher in countries where aggregate consumption is more volatile. We ask whether a two-country business cycle model in which common shocks are the main source of business cycle fluctuations can reproduce the main features of the cross-country heterogeneity observed in the data. We find that the welfare cost of business cycle fluctuations is substantially higher in the region that experiences procyclical net capital inflows and our results suggest that the direction of capital flows depends on the relative efficiency of financial intermediation.
International Effects of the Quantitative Easing on Emerging Economies
Saroj Bhattarai
(University of Texas-Austin)
Arpita Chatterjee
(University of South Wales)
Woong Yong Park
(University of illinois-Urbana-Champaign)
[View Abstract]
This paper investigates the international effects of quantitative easing (QE) by the Federal Reserve Board on emerging economies. Unlike previous studies that focus on the announcement effects of QE, we estimate the effects of QE by identifying unexpected and non-systematic fluctuations in the size of QE, measured by securities held outright. For this purpose, we postulate an equation that describes the QE policy of the Federal Reserve Board when the zero lower bound on nominal interest rates binds and include it in a large system of equations for the US economy and several emerging market economies. We further assume that our model follows a Markov regime switching between normal times when the zero lower bound does not bind and financial crises when the zero lower bound binds. In normal times, the Federal Reserve follows a Taylor-type interest rate feedback rule while in financial crises, the Federal Reserve adjusts the size of its assets in response to the status of the US economy. We identify monetary policy shocks separately in the two time periods. Finally, we do a counterfactual experiment to predict the effects of the withdrawal of QE.
Jan 05, 2015 1:00 pm, Sheraton Boston, Beacon D
Econometric Society
Discrete Choice
(C1)
Presiding:
Jack Porter
(University of Wisconsin)
Estimation of Games with Ordered Actions: An Application to Chain-Store Entry
Andres Aradillas-Lopez
(Pennsylvania State University)
Amit Gandhi
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] We study the estimation of static games where players are allowed to have ordered actions, such as the number of stores to enter into a market. Assuming that payoff functions satisfy general shape restrictions, we show that equilibrium of the game implies a covariance restriction between each player’s action and a component of the player’s payoff function that we call the “strategic index”. The strategic index captures the direction of strategic interaction (i.e, patterns of substitutability/complementarity) as well as the relative effects of opponents’ decisions on players’ payoffs. The covariance restriction we derive is robust to the presence of multiple equilibria, and provides a basis for identification and estimation of the strategic index. We introduce an econometric method for inference in our model that exploits the information in moment inequalities in a computationally simple way. We apply our approach to study entry behavior by chain stores where there is both an intensive margin of entry (how many stores to open in a market) as well as the usual extensive margin of entry (whether to enter a market or not). Using data from retail pharmacies we find evidence of asymmetries in strategic effects among firms in the industry, which has implications for merger policy. We also find that business stealing effects are less pronounced in larger markets, which helps explain the large positive correlation in entry behavior observed in the data.
A Discrete Choice Model for Horizontally and Vertically Differentiated Alternatives
Eleni Aristodemou
(University College London)
Adam M. Rosen
(University College London)
[View Abstract]
In this paper we develop a novel discrete choice demand model for horizontally and vertically differentiated products, with consumer preferences for products modelled over both an unordered, horizontal brand dimension, and an ordered, vertical quality dimension. This allows the model to capture important features of consumer substitution patterns when both kinds of differentiation are present. The unordered- ordered discrete nature of the two dimensions of the individual decision problem typically results in set identi
fication of model parameters. We use the structure of the choice problem to characterize the identi
fied set. Our characterizations can potentially be used to lead to a signi
cant dimension-reduction in searching over the parameter space in constructing set estimates or confi
dence sets, and are compatible with recently developed techniques for inference via maximum likelihood when set identifi
cation fails such as those of Liu and Shao (2003) and Chen, Tamer, and Torgovitsky (2012).
Identifying Structural Models of Committee Decisions with Heterogeneous Tastes and Ideological Bias
Yonghong An
(University of Connecticut)
Xun Tang
(University of Pennsylvania)
[View Abstract]
We study the nonparametric identification and estimation of a structural model for committee decisions. Members of a committee share a common information set, but differ in ideological bias while processing multiple information sources and in individual tastes while weighing multiple objectives. We consider two cases of the model where committee members have or don't have strategic incentives for making recommendations that conform with the committee decision. For both cases, pure-strategy Bayesian Nash equilibria exist, and we show how to use variations in the common information set to recover the distribution of members' private types from individual recommendation patterns. Building on the identification result, we estimate a structural model of interest rate decisions by the Monetary Policy Committee (MPC) at the Bank of England. We find some evidence that recommendations from external committee members are less distorted by strategic incentives than internal members. There is also evidence that MPC members differ more in their tastes for multiple objectives than in ideological bias.
CCP and the Estimation of Nonseparable Dynamic Models
Dennis Kristensen
(University College London)
Lars Nesheim
(University College London)
Aureo de Paula
(University College London)
[View Abstract]
[Download Preview] In this paper we establish invertibility results between conditional choice probabilities (CCPs) and value functions in dynamic discrete choice models to period payoff functions that are non-separable in observable and unobservable (to the econometrician) variables. Such non-separabilities are common in applied microeconomic environments and extend previous results in Hotz and Miller (1993) that are widely used in empirical models of individual and strategic decision-making. To make the inversion operational, we use Mathematical Programming with Equilibrium Constraints (MPEC), following Judd and Su (2012) and demonstrate its applicability in a series of Monte Carlo experiments that replicate the model used in Keane and Wolpin (1997).
Jan 05, 2015 1:00 pm, Sheraton Boston, Beacon G
Econometric Society
Empirical Asset Pricing: Long Run Risk and Funding Risk
(G1)
Presiding:
Pietro Veronesi
(University of Chicago)
Business-Cycle Consumption Risk and Asset Prices
Federico Bandi
(Johns Hopkins University)
Andrea Tamoni
(London School of Economics)
[View Abstract]
[Download Preview] We disaggregate consumption growth into components with different levels of persistence and show that a single business-cycle consumption factor can explain satisfactorily the differences in risk premia across book-to-market and size-sorted portfolios. We argue that accounting for persistence heterogeneity in consumption is important for interpreting cross-sectional risk compensations in financial markets but also for capturing the joint time-series dynamics of consumption and returns across horizons (for instance, the hump-shaped pricing ability of the covariance between ``ultimate consumption'' and returns, the hump-shaped structure of long-run risk premia as well as the decaying pattern in consumption growth predictability). Using a novel time/frequency-based data generating process for consumption growth and asset returns, we discuss implications for the asset pricing literature relying on aggregation.
Short-Run and Long-Run Consumption Risks, Dividend Processes and Asset Returns
Jun Li
(University of Texas-Dallas)
Harold Zhang
(University of Texas-Dallas)
[View Abstract]
[Download Preview] We examine the implications of short- and long-run consumption growth fluctuations on asset return behaviors such as the momentum and contrarian profits and the value premium in a unified economic framework. By accommodating the empirical finding that firms differ in their cash flow exposures to the short-run and long-run shocks in consumption growth, we find that the otherwise standard intertemporal asset pricing model goes a long way in generating the momentum and contrarian profits and the value premium. The model can also reproduce the size effect, the pairwise correlations between the profitabilities of these investment strategies, and the performance of the standard CAPM and the consumption-based CAPM in explaining these well-documented return behaviors.
Monetary Policy Risks in the Bond Markets and Macroeconomy
Ivan Shaliastovich
(University of Pennsylvania)
Ram Yamarthy
(University of Pennsylvania)
[View Abstract]
We investigate the effects of monetary policy fluctuations on uncertainty related to macroeconomic growth and inflation. To do so we utilize a structurally motivated, nonlinear term structure model, arising from a time-varying Taylor rule and an Epstein-Zin based investor. In particular, the Taylor rule's coefficients, which load on economic growth and inflation, factor into the volatilities of fundamental expectations. As a result, we are able to disentangle volatility movements that are due to the risks of monetary policy as well as other non-policy related movements. Through a Bayesian estimation procedure that extracts latent states and parameters, we find that ``aggressive" monetary policy regimes (in particular, those with strong inflation targeting) lead to high volatility periods in fundamentals and financial markets. These regimes are associated with higher yield levels, increased volatilities, and more variation in risk premia. Hence, the existence of an aggressive regime leads to a further rejection of the Expectations Hypothesis. Finally our framework also allows us to examine the differential impact of policy-related fundamental volatility on asset prices. We find that the existence of policy-related volatility dramatically decreases bond risk premia through the real uncertainty channel while increasing risk premia through inflation uncertainty.
International Funding Liquidity
Aytek Malkhozov
(McGill University)
Philippe Mueller
(London School of Economics)
Andrea Vedolin
(London School of Economics)
Gyuri Venter
(Copenhagen Business School)
[View Abstract]
[Download Preview] We construct daily funding illiquidity proxies for six different countries and decompose them into one global and six country-specific indices that exhibit significant independent variation. Using a stylized international asset pricing model in which investors face margin constraints, we derive predictions regarding the effect of funding constraints on the cross-section of international stock returns that are strongly supported by the data: (i) Higher global illiquidity implies a lower slope and higher intercept of the security market line. (ii) Stocks with higher local illiquidity and lower beta earn higher alphas and Sharpe ratios. (iii) Betting-against-beta (BAB) strategies in high illiquidity countries outperform those in low illiquidity countries. Finally, (iv) a beta-adjusted-international-illiquidity (BAIL) strategy that is long high illiquidity-to-beta stocks and short low illiquidity-to-beta stocks earns significant positive risk-adjusted returns and outperforms a simple betting-against-beta strategy.
Discussants:
Stefano Giglio
(University of Chicago)
Amir Yaron
(University of Pennsylvania)
Pierluigi Balduzzi
(Boston College)
Jean-Sebastien Fontaine
(Bank of Canada)
Jan 05, 2015 1:00 pm, Sheraton Boston, Beacon H
Econometric Society
Household Risk, Credit, and Insurance
(E2)
Presiding:
Felicia Ionescu
(Federal Reserve Board)
Risky, Lumpy Human Capital in Household Portfolios
Kartik B. Athreya
(Federal Reserve Bank of Richmond)
Felicia Ionescu
(Federal Reserve Board)
Urvi Neelakantan
(Federal Reserve Bank of Richmond)
[View Abstract]
[Download Preview] Illiquid human capital is typically the largest asset in a household's portfolio, for the bulk of working life. Financial assets, which are relatively more liquid, are accumulated throughout life as well, in preparation for both rainy days and predictable life-cycle-related declines in earning ability. Optimal investment in these categories of wealth are necessarily made jointly, however. In this paper we aim to understand the evolution of household wealth and its portfolio composition over the life-cycle, when both human and financial wealth are choices.
We study two environments that differ in their treatment of human capital investment. The first uses the classic Ben-Porath (1967) model. We show that this model is able to capture household financial wealth fairly well over the life-cycle without appeal to transactions costs or other frictions. However, this model cannot be mapped to data that documents systematic differences income, wealth, and portfolio choice among households with differing levels of formal education. We therefore study a second environment that treats investment in higher education in a rich manner. In particular, we allow this investment to reflect three observed features: college is lumpy, risky, and irreversible. We find in this case that while averages can be accounted for, variation across educational groups cannot. Our results thus suggest the strong presence of frictions that drive a wedge between model and data, even when a more abstract model initially suggests success.
No One Saw This Coming: Inferring Income and Wealth Risks from Consumption Choices during the Great Recession
Marnix Amand
(Universite de Lausanne)
[View Abstract]
This paper studies the distributional facts of the drop in aggregate private consumption observed in The Netherlands during the last recession (2008-2011) and uses this data to infer the subjective probability distribution of idiosyncratic shocks that households use when making their consumption-saving decisions. The paper uses Dutch administrative tax data on both income and wealth, including housing and annuitized pension wealth, to back out consumption choices from the budget constraint. This greatly improves upon existing consumption datasets that rely on survey data and/or imputation methods, both in terms of quality, quantity (ca. 50,000 households) and structure (panel data with no attrition but for death and emigration).
The following stylized facts emerge from this dataset. The aggregate drop in private consumption in The Netherlands during the great recession is driven by two factors: (1) a large per-household drop in consumption by relatively few households (those hit by a large negative shock) and (2) a small per-household drop in consumption by a large group: the elderly. (3) There is no noticeable drop in consumption by non-elderly households not hit by a large idiosyncratic shock (i.e., more than 50% of the dataset). (4) Hard-hit households are of two kinds: those hit by a negative income shock (mostly unemployment) and those hit by a negative wealth shock (mostly housing equity). (5) The per-household drop in consumption of freshly unemployed households is not larger in the recession than before (2006-2007), these are mainly hand-to-mouth consumers. The aggregate effect is driven by the larger number of unemployed households during the recession. (6) The per-household drop in consumption by households with negative housing equity is very large. (7) The drop in consumption due to an increase in precautionary saving by the elderly is not driven by an equivalent drop in pension wealth, or any other observable shock.
Modeling the Revolving Revolution: The Role of IT Reconsidered
Lukasz Drozd
(University of Pennsylvania)
Ricardo Serrano-Padial
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] Credit card default losses increased dramatically in the 80s and 90s, from 3% to over 5% of outstanding debt. We explore whether technological progress in debt collection is behind this change by developing a new theory featuring costly state verification with signals. We motivate our approach by the predominance of informal bankruptcy in the credit card market, which necessitates the costly involvement of the lending industry to enforce repayment. We show that the presence of enforcement costs, when combined with the rate of technological progress suggested by the available evidence, rationalizes the observed shift in the risk composition of debt.
Evaluating Long-Term-Care Policy Options, Taking the Family Seriously
Daniel Barczyk
(McGill University)
Matthias Kredler
(Universidad Carlos III Madrid)
[View Abstract]
[Download Preview] We propose a dynamic non-cooperative model for long-term-care decisions of families.
We first document the importance of informal caregiving and the economic circumstances
of informal-care givers and recipients in the United States. We then build a
heterogeneous-agents model with imperfectly-altruistic households to account for the
patterns we find. There are two key innovations. First, both young and old households
can save but lack the ability to commit to future transfers. Unlike models of commitment,
the timing of inter-generational transfers and the dynamics of the intra-family
wealth distribution are determinate. Second, in addition to purely-altruistic transfers we
allow for financial transfers that flow in exchange for informal care. This gives rise to
realistic predictions on a host of care arrangements and their financing. We calibrate the
model, identifying the preference for different care arrangements by their prevalence in
the data. We find that families’ care decisions react strongly to economic incentives.
Even relatively small subsidies to private payers of nursing homes and informal caregivers
substantially reduce the use of Medicaid and are welfare-improving.
Jan 05, 2015 1:00 pm, Sheraton Boston, Beacon E
Econometric Society
Natural Resource Use: Benefits, Costs and Policy Response
(Q3)
Presiding:
Judith Chevalier
(Yale University)
The Short-Term Population Health Effects of Weather and Pollution: Implications of Climate Change
Nicolas R. Ziebarth
(Cornell University)
[View Abstract]
This study comprehensively assesses the immediate effects of extreme weather conditions and high concentrations of ambient air pollution on population health. For Germany and the years 1999 to 2008, we link the universe of all 170 million hospital admissions, along with all 8 million deaths, with weather and pollution data reported at the day-county level. Extreme heat significantly increases hospitalizations and deaths. Extreme cold has a negligible effect on population health. High ambient PM10, O3 and NO2 concentrations are associated with increased hospitalizations and deaths, particularly when ignoring simultaneous weather and pollution conditions. We find strong evidence for "harvesting", and that the instantaneous heat-health relationship is only present in the short-term. We calculate that one "Hot Day" with a temperature higher than 30°C (86°F) triggers adverse health effects valued between $0.10 and $0.68 per resident.
Winning the Oil Lottery: The Impact of Natural Resource Extraction on Growth
Tiago V. Cavalcanti
(University of Cambridge)
Daniel Da Mata
(University of Cambridge)
Frederik Giancarlo Toscani
(University of Cambridge)
[View Abstract]
[Download Preview] This paper provides evidence on the causal impact of oil discoveries on local development. Novel data on the drilling of 20,000 oil wells in Brazil allows us to exploit a quasi-experiment: municipalities where oil was discovered constitute the treatment group while municipalities with drilling but no discovery are the control group. The results show that oil discoveries significantly increase per capita GDP and urbanization. We find positive spillovers to non-oil sectors, specifically an increase in services GDP which stems from higher output per worker. The results are consistent with greater local demand for non-tradable services driven by highly paid oil workers.
Diesel Cars and Environmental Policy
Anders Munk-Nielsen
(University of Copenhagen)
[View Abstract]
[Download Preview] In this paper, I assess the costs of environmental taxation of car ownership and usage in Denmark. Using high quality Danish register data covering 1997-2006, I estimate a discrete-continuous model of car choice and usage allowing for endogenous selection of cars based on expected usage. I validate the model out of sample using a major Danish reform in 2007 which prompted a substantial shift in the characteristics of purchased cars - in particular the diesel market share - unique to the Danish setting compared to the rest of Europe. Through counterfactual simulations, I find that both Danish reforms in 1997 and 2007 were cost-ineffective at reducing CO2 emissions. Moreover, the diesel market share is highly affected by taxation but environmental goals can be reached both with and without a large diesel share in the fleet.
Dynamic Natural Monopoly Regulation: Time Inconsistency, Asymmetric Information, and Political Environments
Claire Lim
(Cornell University)
Ali Yurukoglu
(Stanford University)
[View Abstract]
[Download Preview] This paper studies time inconsistency, asymmetric information, and political ideology in natural monopoly regulation of electricity distribution companies. Empirically, more conservative political environments have higher regulated rates of return and worse operational efficiency as measured by electricity lost in distribution. On average, more capital investment would improve reliability in a cost effective manner. We estimate a dynamic game theoretic model of utility regulation featuring investment and asymmetric information. Under-investment due to time inconsistency is severe. Conservative regulators improve welfare losses due to time inconsistency, but worsen losses due to asymmetric information.
Jan 05, 2015 1:00 pm, Westin Copley, North Star
Labor & Employment Relations Association
LERA Papers I: Discrimination and Segregation: Measurement, Detection, and Litigation
(J8)
Presiding:
Barbara Lee
(Rutgers University)
The Disability Employment Puzzle: A Field Experiment on Employer Hiring Behavior
Mason Ameri
(Rutgers University)
Lisa Schur
(Rutgers University)
Meera Adya
(Syracuse University)
Scott Bentley
(Rutgers University)
Douglas L. Kruse
(Rutgers University)
[View Abstract]
[Download Preview] The Disability Employment Puzzle: A Field Experiment on Employer Hiring Behavior
People with disabilities have low employment and wage levels, and some studies suggest employer discrimination as a possible factor. Following the method of Bertrand and Mullainathan (2003), new evidence is presented from a field experiment that sent applications for 6,016 advertised accounting positions from well-qualified fictional applicants, with one-third of cover letters indicating the applicant had a spinal cord injury, one-third indicating the presence of Asperger’s Syndrome, and one-third indicating no disability. These disabilities were chosen because they do not limit productivity in accounting, helping to rule out productivity-based explanations for any differences in employer responses. The fictional applicants with disabilities received 26% fewer callbacks than those not indicating a disability. The gap was concentrated among applicants with more experience, and among private companies with fewer than 15 employees. While private companies with fewer than 15 employees are not covered by the ADA, comparable state statutes cover about half of them, and the disability gap in employer interest remained large among the small employers covered by state statutes. These findings support the idea that disability discrimination continues to present barriers to the employment prospects of people with disabilities.
Occupational Gender Representation in Canada
Sami Bibi
(Independent Labor Researcher)
[View Abstract]
This study looks at the changes in women’s representation in paid employment that have occurred over the last 20 years in Canada, from 1991 to 2011. Census data are used. Along with an overall increase in women’s representation in paid employment from 46.9 to 49.5 percent, the study shows how women representation has substantially increased among many occupations that have historically been substantially masculinized. Changes in representation are examined for occupations grouped by degree of feminization/masculinization, by major occupational group, and by skill category. The final part of the study examines the change in occupational representation through the lens of various indices of segregation or representation. Some new indices are formulated, including ones to address an important drawback of the so-called IP-index of Karmel and MacLachlan (1988). All indices show movement towards greater equality of occupational representation, of which there are two components: the overall gender representation in paid employment and, given that overall level of representation, the evenness of the distribution of each gender across occupations. Improvement in the second component dominates improvements in the first.
How Viable is Resolving Hispanic Employment Discrimination through Litigation?
Helen LaVan
(DePaul University)
[View Abstract]
[Download Preview] How Viable is Resolving Hispanic Employment Discrimination Through Litigation? State of Research on Employment Discrimination in General In the past few years, researchers have more intensively examined the current state of research on employment discrimination in general. Ruggs and his colleagues made a persuasive call for such research on marginalized employees. King et al., (2011), whose work predates Ruggs, utilized empirical legal scholarship in the analysis of employment discrimination litigated cases. This limitation was noted by other researchers (Diaz & Bergman, 2013; Joseph & Rousis, 2013; Thompson, Bergman, Culbertson, & Huffman, 2013). Ruggs et al. and Thompson et al. note that there is another problem in that the incidents of employment discrimination may not be discernible if research is conducted in one organizational setting. Furthermore, they note a preference for field research, of which empirical legal scholarship (using a litigated cases the unit of analysis is one method), can be categorized as field setting research. King et al.(2013) and Joseph and Rousis (2013) note that management researchers should be casting a wider net and look at journals such as communication and social psychology. Although there are multiple bases for discrimination possessed by many marginalized employees, the call for intersectionality in this research seems to be explicitly absent in the management literature (Best, Edelman, Krieger, & Eliason, 2011; Roth, 2010; Sawyer, Salter, & Thoroughgood, 2013) although Riggs et al. (2010) does implicitly call for this. Complexity in Hispanic Origin as a Protected Class Hispanic employment discrimination can be based on accent (Hosoda & Stone-Romero, 2010). That language and accent is such an integral part of employment discrimination experienced is well-established (Barker et al., 2001; Bergman, Watrous-Rodriguez, & Chalkley, 2008; Dailey, Giles, & Jansma, 2005; Gluszek & Dovidio, 2010; Hosoda & Stone-Romero, 2010; Lass, Atkins, & Squires, 2002) ADDRESSING THESE CHALLENGES IN THE CURRENT STUDY This research discerns how individuals of Hispanic origin fare in litigation of employment discrimination disputes. In addition, a model is developed to predict case outcomes in future litigation by individual of Hispanic origin against their employers. A 10 percent random sample of all litigated cases in 2011 and 2012 was drawn (fastcase.com). There were 941 cases in the population, of which 10% were included. A logit model to predict when an individual plaintiff will prevail contains the following independent variables: national origin, discipline, multiple plaintiffs, and harassment. Recent cases were purposely sampled, to enable a conclusion of what the current situation is. . From the perspective of individuals being discriminated against, other mechanisms for resolutions should be sought, since most of the cases did not survive summary judgment – i.e. the employer prevailed. While not significantly related to case outcome, hostile environment and retaliation were prevalent in many cases. Among the findings is that the employer wins 49% of national origin cases, 71% of discipline cases, 45% of multiple plaintiffs cases and 69% of harassment cases. The overall win rate for the plaintiff is 44.2%. This does not seem like an effective resolution mechanism for Hispanic plaintiffs.
Discussants:
Barbara Lee
(Rutgers University)
Valerie Wilson
(Economic Policy Institute)
William Rodgers III
(Rutgers University)
Jan 05, 2015 1:00 pm, Westin Copley, Courier
Labor & Employment Relations Association
LERA Papers III: Labor and the Macro and Regional Economies
(J1)
Presiding:
Mark Price
(Keystone Research Center)
Economic Development in the Massachusetts Life Sciences Cluster: Shared Prosperity or a Big Tradeoff?
Brandyn Holgate
(University of Massachusetts-Boston)
[View Abstract]
Economic Development in the Massachusetts Life Sciences Cluster: Shared Prosperity or a Big Tradeoff?
CEO Compensation and Mortgage Origination in the Banking Industry
Yuanyuan Sun
(University of Illinois-Urbana-Champaign)
[View Abstract]
CEO Compensation and Mortgage Origination in the Banking Industry
Labor Relations in a Financialized Economy: Investigating the Effects of Corporate and Household Finance
Bert Azizoglu
(New School)
[View Abstract]
Labor Relations in a Financialized Economy: Investigating the Effects of Corporate and Household Finance
Apprenticeship to Entrepreneurship: A Role for Business Schools
Cihan Bilginsoy
(University of Utah)
Zhao Jin
(University of Utah)
[View Abstract]
Apprenticeship to Entrepreneurship: A Role for Business Schools
Discussants:
Mark Price
(Keystone Research Center)
Jan 05, 2015 1:00 pm, Westin Copley, Great Republic
Labor & Employment Relations Association
LERA Papers VI: Job Quality and Job Satisfaction
(J4)
Presiding:
Françoise Carré
(University of Massachusetts-Boston)
Union Membership and Job Satisfaction: First Evidence from French Linked Employer-Employee Data
Patrice Laroche
(Europe Business School-Paris)
[View Abstract]
[Download Preview] A number of contradictory theoretical hypotheses have been advanced regarding the relationship between unionization and job satisfaction. The effect of unionization on job satisfaction is thus an empirical issue. In this article, the existing empirical literature is reviewed through a meta-analysis. In addition, new evidence of the effects of unionization on overall job satisfaction is presented using French linked employer-employee data from the 2011 REPONSE Survey. The results indicate that union members are less satisfied with their jobs and more likely to complain than non-members. However, after controlling for endogeneity of union membership, I find this difference in job satisfaction between unionized and non-unionized employees disappears
Within and between Firm Trends in Job Polarization: Role of Globalization and Technology
Sari Pekkala Kerr
(Wellesley College)
Terhi Maczulskij
(University of Jyvaskyla)
Mika Maliranta
(ETLA)
[View Abstract]
Within and Between Firm Trends in Job Polarization: Role of Globalization and Technology
The Union Wage Premium in Canada's Private Sector from 1997 to 2012
Eyob Fissuh
(Human Resources and Skills Development Canada)
Craig Eschuk
(Employment and Social Development Canada)
[View Abstract]
The Union Wage Premium in Canada from 1997 to 2013: Is there Variation across the Wage Distribution?
The Effect of Market-Based Policy Change on Job Quality: Direct Care Work in a Context of Managed Care
Elizabeth Nisbet
(Rutgers University)
[View Abstract]
The Effect of Market-Based Policy Change on Job Quality: Direct Care Work in a Context of Managed Care
Discussants:
Peter Dorman
(Evergreen State College)
Eileen Appelbaum
(Center for Economic and Policy Research)
Jan 05, 2015 1:00 pm, Boston Marriott Copley, Tufts
Society of Government Economists
Returns to Child and Education Interventions
(I2, D1)
Presiding:
Quentin Wodon
(World Bank)
Returns to Schooling around the World
Harry Anthony Patrinos
(World Bank)
Claudio E. Montenegro
(University of Chile)
[View Abstract]
[Download Preview] Rates of return to investments in schooling have been estimated since the late 1950s. In the 60-plus year history of such estimates there have been several attempts to synthesize the empirical results in order to ascertain patterns. This paper presents comparable estimates using the same specification, estimation procedure, and similar data from 138 economies and 686 harmonized household surveys. This effort to compile comparable estimates holds constant the definition of the dependent variable, the set of control variables, the sample definition, and the estimation method for all the surveys in the sample. The results shows that the returns to schooling and potential experience are (i) more concentrated around their respective means than previously thought; (ii) the basic Mincerian model used is more stable that one may have expected; (iii) the returns to schooling are higher for women than for men (the opposite is true for the returns to potential experience); (iv) returns to schooling and experience are strongly and positively associated; (v) there is a decreasing pattern over time; and (iv) the returns to tertiary education are highest.
Measuring the Economic Cost of Child Marriage
Quentin Wodon
(World Bank)
[View Abstract]
An estimated 12 million girls under the age of 18 are married each year, equivalent to 33,000 every day. This often represents a violation of the child’s rights and a leading driver of poor reproductive health – 90% of births to adolescent girls are within marriage. A growing body of research documents the damaging consequences of child marriage. Compared with their peers who marry later, child brides have a greater likelihood of dropping out of school, experience lower labor force participation and earnings, have children earlier and higher lifetime fertility, have less healthy and less educated children, and take less control over productive household assets. The consequences of these outcomes are felt most keenly at the individual level but, given the critical roles that women play in their households and communities, child marriage is likely to have far-reaching effects in terms of the potential to promote economic growth and reduce the intergenerational transmission of poverty. Building on estimates of the impact of child marriage on education attainment as well as estimates of the returns to schooling, this paper provides an assessment of the potential cost of child marriage in terms of forgone earnings due to the negative impact of child marriage on education attainment and labor force participation.
Demystifying the East Asian Education Tigers
Elizabeth King
(World Bank)
Halsey Rogers
(World Bank)
[View Abstract]
A handful of East Asian countries and regions--Chinese Taipei, Hong Kong SAR, Japan, Singapore, South Korea, and more recently Shanghai, China--have consistently topped the rankings on international assessments of student learning. What are these school systems doing that makes them so successful? This paper explores data from PISA, new PIAAC and STEP surveys of adult skills, and measures of household financial and time investments in education to make two claims. First, the new data show that despite the entrance exam-driven nature of these systems, knowledge acquisition by high school students is not an ephemeral phenomenon driven by "teaching to the test." Second, despite this evidence, the East Asian tiger school systems may not be as successful as they first appear, at least from an economic perspective. Much of their production of learning takes place on the extensive margin through private tutoring and allocation of household time to allocation, rather than on the intensive margin of greater efficiency in imparting learning during the school day. In a sense, this analysis of the education sector echoes the explanations of East Asian overall economic growth provided by Kim and Lau (1994) and Young (1994), who argued that the East Asian miracle was primarily driven not by exceptionalgrowth in TFP but by high levels of factor accumulation. This explanation shifts the focus from what school systems are doing to impart learning in the classroom to how the school systems, labor markets, and culture support these high levels of investment. We provide some suggestive answers and conclude by asking whether the East Asian education tigers are now shifting to systems characterized by less input-driven systems that make more efficient use of inputs.
The Impact of Early Childhood Shocks on the Evolution of Cognitive and Non-cognitive Skills
Jessica Leight
(Williams College)
Paul Glewwe
(University of Minnesota)
Albert Park
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] The impact of early childhood health shocks on long-term outcomes has long been a major focus in the economics literature. This paper employs a detailed panel dataset in a poor, rural province in China to analyze the impact of early childhood shocks, proxied by rainfall in the county and year of birth, on the evolution of cognitive and non-cognitive skills over time. The results suggest that there is a significant impact of early shocks on cognitive skills that declines over time. However, there is no evidence of a significant impact of early shocks on non-cognitive skills at any age.
Discussants:
Elizabeth King
(World Bank)
Quentin Wodon
(World Bank)
Paul Glewwe
(University of Minnesota)
Harry Anthony Patrinos
(World Bank)